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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify, or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business app. We begin this hour

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Speaker 2: with stocksliding after their worst quarter in nearly three years. EDGYR,

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Speaker 2: Danny if Youandenny Research cind Of gives us sm P

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Speaker 2: five hundred price target to six k from sixty four hundred,

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Speaker 2: writing the expected fallout from trump two point zero s

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Speaker 2: ign of tariffs undercuts our former bullishness and dims the

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Speaker 2: prospects of our base case roaring twenty twenties scenario. Ed

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Speaker 2: joined us now for more.

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Speaker 3: Edward Morning in the Morning.

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Speaker 2: Second change for you in a number of weeks.

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Speaker 4: I hope you're not looking for clarity for me, because

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Speaker 4: I'm struggling with all the confusing information coming out of Washington.

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Speaker 4: As you said, you're getting different messages from different people

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Speaker 4: in the administration, and at the end of the day,

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Speaker 4: it'll all depend on what the President concludes he wants

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Speaker 4: to do that day, and he can change his mind.

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Speaker 1: Again.

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Speaker 2: How much damage do you think the accumulating uncertainty is

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Speaker 2: doing already to the underlying economy.

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Speaker 4: Well, if you look at all the soft data, which

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Speaker 4: is very much forward looking, it's not looking good. The

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Speaker 4: current data, the present data looks pretty good. The labor

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Speaker 4: market is doing fine. I think we had some really

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Speaker 4: cold weather in January and February that depressed consumer spending.

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Speaker 4: So I think we're going to have this really bizarre

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Speaker 4: scenario where the first quarter is we got real GDP

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Speaker 4: up one percent. I know others have it even lower

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Speaker 4: than that. Then it could be something like three percent

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Speaker 4: in the second quarter, because you could really have a

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Speaker 4: nice rebound in consumer spending and consumers could be running

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Speaker 4: to buy cars before the prices go up, which will

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Speaker 4: be kind of another possibility. And then in the second

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Speaker 4: half of the year we could have stagflation with the

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Speaker 4: economy in a growth recession, maybe very little growth, if any,

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Speaker 4: maybe even a shallow recession. And so that's the way

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Speaker 4: I've kind of seen this thing playing out in terms

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Speaker 4: of its impact on the economy.

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Speaker 5: And right now you and the market are focusing on

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Speaker 5: the reign of tariffs. What happens when we're focusing every

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Speaker 5: day on this potential extension of TCGA and other tax

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Speaker 5: cuts that we may get, and they're focused on having

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Speaker 5: this done before September.

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Speaker 4: Yeah, well it's going to be you know, if you

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Speaker 4: think it's messy now, it's going to get even messier

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Speaker 4: if you on top of the whole tariff issue, which

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Speaker 4: isn't going to go away just because they announced what

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Speaker 4: they mean by reciprocal tariffs. I mean, the twenty percent

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Speaker 4: number that's out there basically suggests that now the President

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Speaker 4: is looking to raise revenues and Navirus saying six trillion

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Speaker 4: dollars is what he claims that this could could raise.

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Speaker 4: And now off on top of that, we start to

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Speaker 4: try to extend the tax cuts, and an extension of

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Speaker 4: tax cuts, it's not stimulative, it'll be very negative if

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Speaker 4: they don't get the tax cuts extended.

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Speaker 5: Well, try sactory last night's talking about that they want

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Speaker 5: to get done. No tax on tips, no tax on

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Speaker 5: Social Security, no tax on overtime, and also purchasing an

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Speaker 5: American car making that tax deductible. Again, if you have

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Speaker 5: even one of those sweeteners, would that be bullish for

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Speaker 5: the market.

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Speaker 4: Well, I don't know that that'll make it that much

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Speaker 4: easier to get it through Congress. I mean that it

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Speaker 4: is a vowful situation in Congress. The margin that the

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Speaker 4: Republicans have is very narrow, and the Republicans always don't

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Speaker 4: always stay united. So no, I don't know that those

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Speaker 4: particular issues are going to be market moving at all.

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Speaker 3: At a certain point. If people are talking about the

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Speaker 3: likelihood of recession, what gives you the idea that this

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Speaker 3: is going to be more stagflationary than just traditionally recessionary.

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Speaker 4: Well, the thing that we all have to worry about,

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Speaker 4: of course is the consumer and the consumer confidence numbers

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Speaker 4: have all been depressed. The animal spirits that we all

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Speaker 4: were kind of counting on to keep the stock market

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Speaker 4: going and consumers going is kind of fizzled away here,

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Speaker 4: And a lot of it has to do, obviously, with

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Speaker 4: the kind of disappointment consumers were expecting that the administration

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Speaker 4: would focus on somehow lowering prices and instead now we

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Speaker 4: may we will have higher auto prices if we're going

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Speaker 4: to have a twenty percent permanent tariff on autos, and

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Speaker 4: of course if we have a twenty percent tariff across

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Speaker 4: the board, prices are going to go up. So that's disconcerting.

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Speaker 3: I guess that the reason why I ask this is

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Speaker 3: because Daniel dots point a one time price adjustment. But

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Speaker 3: if you have less demand, you'd imagine that would be

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Speaker 3: a one time price adjustment, and then you won't be

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Speaker 3: able to have the ability to really raise that, especially

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Speaker 3: at a time where potentially the labor market could come

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Speaker 3: under some stress. So what is giving people the sense

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Speaker 3: that this time is different, that there could be a

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Speaker 3: prolonged inflationary type of bent that raises questions about US treasuries.

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Speaker 3: It raises questions about what the FAT can do.

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Speaker 4: Sure, I mean, it's not likely to be a one

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Speaker 4: month event where you know, you raise the tariff and

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Speaker 4: the CPI goes up to one level and it's a

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Speaker 4: bad month for the CPI and then it comes back down.

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Speaker 4: As a matter of fact, we raised our inflation outlook

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Speaker 4: for the rest of the year from two to three

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Speaker 4: percent to three to four percent. I think it's going

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Speaker 4: to show up that quickly, and I think it's not

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Speaker 4: going to be that transitory. It's not going to be

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Speaker 4: one or two months. It's going to last for several months.

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Speaker 4: And again, this is an ongoing, dynamic process. We don't

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Speaker 4: know whether more tariffs will be added or reduced. It's

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Speaker 4: just kind of confusing. But I think companies have already

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Speaker 4: anticipated that their costs are going to go up. Certainly,

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Speaker 4: if you're in manufacturing, your costs are going to go

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Speaker 4: up from all the parts. And as a result of that,

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Speaker 4: we're seeing price kind of forward indicators of inflation showing

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Speaker 4: that there's a problem, and so the regional business surveys,

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Speaker 4: for example, also showing that prices paid are going up.

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Speaker 2: Thanks the question ed, why do you think stocks are

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Speaker 2: going higher by year, Rent.

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Speaker 4: Well, I'm kind of counting on the market to look

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Speaker 4: forward as it typically does, and I'm kind of hoping

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Speaker 4: that all these issues get somewhat resolved by the end

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Speaker 4: of the year, and I think the market starts to

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Speaker 4: look ahead into twenty twenty six. I haven't given up

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Speaker 4: on'm i roaring twenty twenty scenario, sticking with it. I'm

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Speaker 4: sticking with it. I think it's got temporarily waylaid, all

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Speaker 4: this tariff issues and all these policy balls that are

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Speaker 4: up in the air. But I think the you know,

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Speaker 4: I guess my underlying thesis is, look how well the

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Speaker 4: economy has done in the past despite Washington and so

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Speaker 4: I'm hoping that will work again.

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Speaker 2: We've continued to underestimate the performance of this economy over

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Speaker 2: the last several years. That's certainly been a feature, which is.

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Speaker 3: The reason why a lot of people are saying that

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Speaker 3: actually you could see gains and you could actually see

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Speaker 3: ongoing inflation, because if you are underestimating the power of

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Speaker 3: the consumer, they will be able to absorb some of

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Speaker 3: this and they will keep spending. And companies know this.

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Speaker 3: You know that they don't have a sense of that

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Speaker 3: price target as much as pre pandemic.

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Speaker 2: The could is right now on ES ANDP negative by

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Speaker 2: four tenths of one percent, just a little bit softer.

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Speaker 2: Ed of theardenty research in our nation's capital just moments ago.

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Speaker 2: If you aren't just joining us and welcome to the program.

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Speaker 2: The Washington Post reporting the White House aides have drafted

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Speaker 2: a proposal to impose tariffs of around twenty percent on

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Speaker 2: at least most imports into the United States. It's according

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Speaker 2: to three people familiar with the matter. There's an additional

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Speaker 2: dimension to this story on the tag site that I

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Speaker 2: think is worth highlighting that a president's team is exploring

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Speaker 2: using true millions of dollars in new import revenue for

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Speaker 2: a tax dividend LISA or refund.

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Speaker 3: So this would be the sweetener on the flip side

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Speaker 3: of some of these tariffs. That would be, as some

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Speaker 3: people are saying, the worst case scenario in terms of

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Speaker 3: the most maximalist in terms of terriffs. A big question

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Speaker 3: here of the timeline of how hard it would be

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Speaker 3: to get those through. And I will just say bonds

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Speaker 3: are still rallying on the margin, but not nearly as

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Speaker 3: much as you'd expect if you think about some of

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Speaker 3: the projections from Mark Zandy from Parthenon talking about the

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Speaker 3: likelihood of recession and unemployment rising to as much as

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Speaker 3: seven percent by twenty twenty seven.

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Speaker 2: Tobermarcus of Wolf Research joins us now to extend the conversation.

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Speaker 2: Topin good morning, and welcome to the program. How about

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Speaker 2: that twenty percent on all imports, Now, this can change,

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Speaker 2: As we always say on this program, I said just

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Speaker 2: moments ago. Situations very very fluid. But how does that

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Speaker 2: snack out relative to what you're expecting for tomorrow?

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Speaker 1: Well, happy Liberation Day, Eve to use Well, Jonathan, Look,

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Speaker 1: that's certainly at the high end of the range that

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Speaker 1: we've been contemplating, even when you throw in gross value

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Speaker 1: add a tax into the calculations of these numbers, which

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Speaker 1: are the real big thing that drives them higher twenty

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Speaker 1: percent as an average rate or rate that applies to

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Speaker 1: many or most of the countries that are being here,

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Speaker 1: that's definitely at the high end of the range that

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Speaker 1: we've been contemplating. I think, even relative to a consensus

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Speaker 1: among investors that's moved towards everyone expecting higher numbers tomorrow

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Speaker 1: over the course of the past week or two, that

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Speaker 1: would definitely be a surprise to the high end.

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Speaker 5: Right now, the Washington Post is saying, this is just

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Speaker 5: one proposal on the table, Tobin, Do you get a

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Speaker 5: sense that the White House has actually made up their

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Speaker 5: mind yet?

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Speaker 1: By all accounts they have not. It sure seems like

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Speaker 1: deliberations are ongoing. As recently as this weekend, it seemed

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Speaker 1: like there were multiple reports that the idea of a

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Speaker 1: flat across the board universal tariff in that twenty percent

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Speaker 1: range had resurfaced. I do think they're going to end

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Speaker 1: up with more individualized country by country numbers in this

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Speaker 1: reciprocal framework. But exactly where those numbers come down does

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Speaker 1: still seem to be up in the air.

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Speaker 5: Is twenty percent here to stay if they go with

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Speaker 5: that proposal, or is this the opening of a negotiation?

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Speaker 1: So at some level, I do think that this is

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Speaker 1: the opening of a negotiation. Certainly there will be negotiations.

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Speaker 1: I fully expect that there will be talks with many

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Speaker 1: our biggest trading partners, and I think there's probably room

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Speaker 1: for the numbers to come down somewhat. But I think

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Speaker 1: I am more concerned than a lot of the cell

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Speaker 1: side about the durability of these tariffs. And I think

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Speaker 1: it's really notable. In the past week, you had both

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Speaker 1: Trump and Peter Navarro talk about six hundred billion dollars

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Speaker 1: a year in tariff revenue, not you know, a week

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Speaker 1: before that, you had a lot nick talking about one

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Speaker 1: trillion dollars target for a revenue from tariff's as well

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Speaker 1: as things like the new Trump Gold card. Those are

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Speaker 1: numbers that you can only achieve if you actually keep

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Speaker 1: these tariffs in place, not briefly threaten them and then

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Speaker 1: quickly negotiate them away. And I do think there's an

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Speaker 1: aspiration to fundamentally redirect the global trade system. So you know,

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Speaker 1: I think a lot of this is going to be

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Speaker 1: here to say, you know, from a negotiation perspective. Also,

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Speaker 1: it's notable if that's are the thing driving this value

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Speaker 1: add attackses, countries are not going to be able to

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Speaker 1: negotiate those away. So this talk about if they drop

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Speaker 1: their tariff barriers, will drop hours doesn't really work that way.

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Speaker 1: If tariffs themselves are not the things driving these ostensibly

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Speaker 1: reciprocal rates.

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Speaker 3: Toobin, how long would it take to pass some of

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Speaker 3: these other sweetener proposals that could potentially offset the growth

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Speaker 3: hit from these tariffs to the United States. I'm talking

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Speaker 3: about certain tax rebates.

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Speaker 2: Or tax cuts.

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Speaker 1: I think the tax bill is probably going to be

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Speaker 1: enacted in a July type of timeframe. Certainly they are

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Speaker 1: trying to get it done before the debt sealing X

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Speaker 1: stage because of the plan in Congress at the moment

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Speaker 1: is to include a dead sealing increase in reconciliation to

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Speaker 1: have that be the vehicle. So that would mean they

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Speaker 1: need to get it done before, probably roughly mid August,

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Speaker 1: so that late summer timeline is what we've been circling.

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Speaker 1: Sometime in Q three. It will be certainly better news

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Speaker 1: for markets than the tariffs have been. But I think

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Speaker 1: from a scale perspective, what's currently on the table does

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Speaker 1: not look like it comes close to fully offsetting the

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Speaker 1: hit from the tariffs. Like there are good things in there,

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Speaker 1: both individually and in terms of corporate tax cuts on

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Speaker 1: things like bonus appreciation, but it really is at a

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Speaker 1: significantly smaller scale.

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Speaker 2: I type an appreciate good time, I'm reaction to the

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Speaker 2: break in news and a happy Liberation Day gave to

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Speaker 2: you as well. Set type of Marcus the before free set.

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Speaker 2: Let's turn back to commodities. Gold continuing its record breaking rally.

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Speaker 2: Bank for America suggesting the precious metal could reach thirty

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Speaker 2: five hundred, driven by central bank buying and haven demand

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Speaker 2: a bit rising geopolitical and macro uncertainties. Francisco Blanche and

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Speaker 2: Bank for America joint just now for more, Francisco, Welcome

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Speaker 2: to the show. A nineteen percent move in the first quarter,

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Speaker 2: the biggest quarterly game going back to nineteen eighty six. Francisco.

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Speaker 2: Let's talk about the drivers of the first three months

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Speaker 2: of this year before we get into the next nine

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Speaker 2: months of twenty twenty five. What got us to this place.

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Speaker 6: Thank you for having me again, John. So, look, I

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Speaker 6: think gold this has been really drifted up by essentially

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Speaker 6: we started with center back buying in the the last

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Speaker 6: three years, but I think investors have started to accumulate

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Speaker 6: it as well. Saving what's really change this has been

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Speaker 6: more investor buying, whether it's through ETFs other instruments, but

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Speaker 6: also we are seeing asset managers and insurers starting to

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Speaker 6: pile in. So so that's that's been the change. Remember,

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Speaker 6: we've seen a weekending US war. We've also seen following

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Speaker 6: interest rates at least on on ten year yields in

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Speaker 6: the US, and that's kind of led to incremental demand

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Speaker 6: for gold. Plus, of course there's an issue of tips

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Speaker 6: and the potential implications that may have in the economy.

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Speaker 6: So I thing all of that has come together. But

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Speaker 6: gold's not alone. I mean, we've seen a big rally

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Speaker 6: across the commodity complex. We've seen also coffee moving up,

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Speaker 6: We've seen you know it's in silver. Actually, commodities are

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Speaker 6: up almost nine percent in the first quarter, John, I

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Speaker 6: mean it, it's been a really strong run, maybe a

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Speaker 6: little bit of unexpected run, and and and the sector

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Speaker 6: has helped pace bonds and equities across the board.

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Speaker 3: Francisco, Before we dive into just generally the commodity rally,

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Speaker 3: how distinct is gold given its hedge factor as well

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Speaker 3: as increasing concerns as we were speakingly towards cervellus earlier

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Speaker 3: by diversifying away from the US dollar.

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Speaker 6: Well, so I think there is an element here of verification,

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Speaker 6: no doubt. I mean, central banks are now holding out

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Speaker 6: ten percent of their reserve assets in gold, and that

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Speaker 6: number is likely to continue to increase at an annual

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Speaker 6: pace of one to two percent, probably as far as

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Speaker 6: I can see. Remember, one of the things that the

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Speaker 6: Trump administration is trying to do is to rebalance the

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Speaker 6: US twin deficits, and that rebalancing of the twin deficits

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Speaker 6: by definition implies that there is a lower desire bio

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Speaker 6: Trump administration to continue to supply this reserve asset that

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Speaker 6: the world has been caring for for a long time,

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Speaker 6: which is which is US streacheries. Right, So if you

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Speaker 6: reduce the deficit, if you're redeal the budget defici If

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Speaker 6: you reduce the current count deficit and the trade deficits,

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Speaker 6: by definition, there's going to be less treasure is available

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Speaker 6: for central banks around to hold. And then there is

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Speaker 6: the whole sanctions and tirets over that here that's also

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Speaker 6: driving the demand for gold.

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Speaker 3: So I guess my question for you is, have we

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Speaker 3: seen the book of it? Why isn't your target higher?

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Speaker 3: You see thirty five hundred as a recent target. We

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Speaker 3: were just talking to Eddie ar Denny who left the

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Speaker 3: office saying four thousand by the end of this year

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Speaker 3: and five thousand by the end of this year, and

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Speaker 3: it seems like people can't get enough.

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Speaker 6: Well, I mean there's a little bit of that right now.

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Speaker 6: But also remember gold is a pretty good, pretty large

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Speaker 6: market already, right It's over ten trillion dollars and in value,

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Speaker 6: so of course you can you can put any number there,

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Speaker 6: because there is no there's no such things as intrinsic

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Speaker 6: value in something like gold. I mean, there is, of

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Speaker 6: course a cost of production, but as we know, mining

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Speaker 6: increases the stoke gold by all one and a half

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Speaker 6: percent a year. But the real story here is how

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Speaker 6: much investment can you drive in of course gold could

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Speaker 6: spike a or higher, but you would need to see

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Speaker 6: a much worse economic outcome than what the market is

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Speaker 6: currently pricing in our view, right, So it's going to

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Speaker 6: be a steady grind higher as opposed to a big

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Speaker 6: jump unless something grammatic happens.

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Speaker 5: There's a lot of research that all this has to

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Speaker 5: do a lot with the uncertainty about the trade and

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Speaker 5: the terrors with the announcement we're going to get tomorrow.

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Speaker 5: But how much is it just driven by the fact

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Speaker 5: that it is uncertain and most people are projecting the

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Speaker 5: next year to just remain uncertain. So the safest thing

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Speaker 5: is to just go into gold.

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Speaker 6: Well again, just mentioned that earlier. It's a combination of

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Speaker 6: factors when you look at a goal. Historically it used

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Speaker 6: to be race, it used to be effects, but now

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Speaker 6: we have this uncertainty, which is of course triggering the purchases.

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Speaker 6: But again, the uncertainty is really impacting all investors across

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Speaker 6: the spectrum. As I said, we are seeing retail investors,

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Speaker 6: we are seeing asset managers and insurers, pensions. We're seeing

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Speaker 6: also center bank so and and again is it the

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Speaker 6: safest bed here? I don't know, right, But are we

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Speaker 6: going to continue to see interest across the board most likely, yes,

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Speaker 6: Now order the downside risks, well, downside risks is that

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Speaker 6: the Trump administration is successful at rebalancing it's it's accounts

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Speaker 6: and we end up having a very strong US economy

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Speaker 6: with relatively limited deficits, and therefore the US becomes a

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Speaker 6: very attractive place to investiga in. Right. I mean a

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Speaker 6: big part of the rotation to gold is also related

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Speaker 6: to the drop in inequity markets, to drop in the

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Speaker 6: MAC seven. Right, So let's say that we started to

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Speaker 6: see against strong growth and strong rebalancing in the US

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Speaker 6: as a result of all these policies, maybe gold isn't

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Speaker 6: ass attractive anymore in that in that context, right, So,

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Speaker 6: so I think we also have to consider the downside risks,

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Speaker 6: not just the upside risks. Is never going to be

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Speaker 6: a straight line for any.

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Speaker 2: Accident, Francisco, I just want to finish on the availability

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Speaker 2: of gold and maybe lean on your conversations with clients

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Speaker 2: so you can avoid offer in your opinion unless you've

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Speaker 2: got one bio made share it. Do you think that

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Speaker 2: losing confidence about that gold availability in places like the

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Speaker 2: Bank of England is that behind some of the speculative

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Speaker 2: drive we saw into gold over the past few months, I.

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Speaker 6: Don't think there's as much like a confidence in terms

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Speaker 6: of what the stocks of gold being there. I think

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Speaker 6: it's been more about the movement of gold to Europe

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Speaker 6: into the US ahead of potential tires. Remember, there's a

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Speaker 6: lot of instruments in the US that are issued. There

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Speaker 6: are instruments that may have a gold physical backing. And

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Speaker 6: if you've promised investors on any kind of note with

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Speaker 6: a structure note or an ETF or some kind of fund,

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Speaker 6: that that goal is going to be physically available for

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Speaker 6: the investor to take to take hold in the US,

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Speaker 6: you're probably shipping gold out right just in case that

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Speaker 6: those times go up and suddenly you face a big

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Speaker 6: dislocation between the promote in the US and the product

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Speaker 6: the world. And some extent we've seen that in other

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Speaker 6: commora instruments like copper and a bit less so in

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Speaker 6: the energy space is a little more fungible. But investors

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Speaker 6: are rushing to bring stuff into the US ahead of

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Speaker 6: this so called liberation day tomorrow in the rose gardens.

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Speaker 6: So what is the impact of those times is going

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Speaker 6: to be Well, again, you'd rather have your product in

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Speaker 6: the US of a ahead of that potential price change,

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Speaker 6: because unlike currencies and legal instruments, komoris are going to

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Speaker 6: suffer the tires directly, right, So it's a direct play

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Speaker 6: on the tires, and you'd rather be in than out

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Speaker 6: when those tireff walls go up.

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Speaker 2: Another record hunt of the pounds away Francisco Prety second

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Speaker 2: time breaking down Cade Francisco plunge to Bank America.

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Speaker 4: Around.

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Speaker 2: We begin this now with stock study has traded away

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Speaker 2: President Trump for reciprocal tariffs. Emily Rowland of John Hancock writing,

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Speaker 2: there is still a broad based global economic cycle that

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Speaker 2: will drive earnings and valuations on stocks. Overall. This cycle

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Speaker 2: maybe borrow time. As recent economic does start to show cracks,

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Speaker 2: we would consider further pruning risk and portfolios. Emily. John,

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Speaker 2: just now for more, Emily, welcome to the program. We've

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Speaker 2: seen some major moves in this stock market through the

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Speaker 2: first quarter. Do you see some big opportunities opening up now? Yeah, John, So.

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Speaker 7: We are actually going to be moving to neutral on

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Speaker 7: US large cap equities and actually allocating those assets to credit.

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Speaker 7: And really it's not necessarily about the policy uncertainty. It's

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Speaker 7: really just about the starting point. US stops have handily

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Speaker 7: outperformed credit really since the stimulus boom in response to COVID,

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Speaker 7: and we've seen a couple of exceptional years where earnings

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Speaker 7: have been phenomenal. We've seen massive moldable expansion, back to

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Speaker 7: back twenty five plus percent returns for the S and

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Speaker 7: P five hundred. So we're looking to where we can

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Speaker 7: prove a little bit of risk off the top there,

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Speaker 7: and global equities are really what's benefiting from this rotation.

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Speaker 7: It is amazing to see what the leadership has been.

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Speaker 7: It's German industrial companies, it's European banks, it's Chinese technology companies.

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Speaker 7: That's a really odd mix in our mind, especially as

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Speaker 7: we think about the potential for tariffs to create this

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Speaker 7: negative growth environment. We would actually be looking to look

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Speaker 7: at income as a more important component of a portfolio

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Speaker 7: than capital appreciation. So actually looking again to go a

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Speaker 7: neutral on credit and neutral on US large caps.

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Speaker 2: You mentioned the performance we've seen abroad, the performance we've

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Speaker 2: seen in places like Europe and we ne do you

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Speaker 2: think some pain might be install for some of those

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Speaker 2: European lungs going into tomorrow's announcement.

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Speaker 7: I think they could be challenged just because of the

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Speaker 7: velocity of the move that we've seen there. Again, if

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Speaker 7: you guys remember that Sesame Street Show where it was

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Speaker 7: like one of these things is not like the other.

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Speaker 7: That's what we keep thinking about as it relates to

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Speaker 7: the cross asset performance profile in the wake of this

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Speaker 7: policy uncertainty. US small cap sucks. Theoretically should be benefiting

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Speaker 7: from the potential for these America first policies. We should

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Speaker 7: see the US dollar strengthening. Theoretically, that's not happening. Instead,

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Speaker 7: we're seeing this massive sentiment driven rotation into these cyclical

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Speaker 7: areas of the globe. Typically, cyclical assets should do best

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Speaker 7: coming out of a global economic downturn, and we're actually

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Speaker 7: seeing them out performing in a late cycle environment. So

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Speaker 7: I think that sentiment could shift rapidly here. We have

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Speaker 7: to remember that this is a global economy. If US

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Speaker 7: exceptionalism is at risk, if US equity exceptionalism is at risk,

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Speaker 7: broad equity exceptionalism here is likely at risk as well,

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Speaker 7: which is another reason we think that income is going

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00:22:57,600 --> 00:23:00,959
Speaker 7: to be a more important return driver than capital appreciation.

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Speaker 3: Emily, that is the line that I want to pick

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00:23:02,800 --> 00:23:06,720
Speaker 3: up on. If US accepts equities have lost their exceptional exceptionalism.

440
00:23:06,760 --> 00:23:10,480
Speaker 3: The rest of the world's equities have also lost their exceptionalism,

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00:23:10,480 --> 00:23:12,960
Speaker 3: which is the reason why you see a good place

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00:23:12,960 --> 00:23:16,359
Speaker 3: for income producing assets. I wonder do you see bonds

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00:23:16,359 --> 00:23:20,439
Speaker 3: as actually outperforming equities this year amid this focus on

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00:23:20,560 --> 00:23:24,520
Speaker 3: income and not necessarily equity premium.

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00:23:25,400 --> 00:23:28,080
Speaker 7: Yeah, we do, actually, Lisa, And some of the reasons

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00:23:28,080 --> 00:23:31,040
Speaker 7: that we've made this decision is kind of just thinking

447
00:23:31,119 --> 00:23:35,320
Speaker 7: about that potential you mentioned before. US high yield bonds

448
00:23:35,320 --> 00:23:38,360
Speaker 7: are yielding almost eight percent. Yes, there may be some

449
00:23:38,400 --> 00:23:40,840
Speaker 7: spread widening, so we've come off the lows of about

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00:23:40,840 --> 00:23:44,040
Speaker 7: two hundred and fifty basis points over treasuries to a

451
00:23:44,080 --> 00:23:46,400
Speaker 7: little bit over three hundred. Now, maybe you could see

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00:23:46,440 --> 00:23:48,880
Speaker 7: a bit more spread widening here, but now the income

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00:23:48,960 --> 00:23:53,000
Speaker 7: is enough in our view to overcome that. You look

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00:23:53,040 --> 00:23:55,679
Speaker 7: at standard deviation over the last ten years for the

455
00:23:55,760 --> 00:23:58,840
Speaker 7: S and P five hundred, about eighteen, we're looking at

456
00:23:58,880 --> 00:24:03,399
Speaker 7: about five percent standard deviation on high yield bonds, and

457
00:24:03,400 --> 00:24:06,400
Speaker 7: then finally looking back over the last decade, the maximum

458
00:24:06,480 --> 00:24:09,080
Speaker 7: draw down that we've seen and stopped through about thirty

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00:24:09,080 --> 00:24:12,720
Speaker 7: three percent, and it's twenty one percent in high yield,

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00:24:12,760 --> 00:24:15,600
Speaker 7: so it's not that we love credit. Within the context

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00:24:15,600 --> 00:24:18,639
Speaker 7: of fixed income, we actually still have an overweight to

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00:24:18,720 --> 00:24:23,160
Speaker 7: higher quality bonds over credit. But within the entire portfolio,

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00:24:23,680 --> 00:24:27,000
Speaker 7: we think being able to maximize or to minimize draw down,

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00:24:27,040 --> 00:24:29,520
Speaker 7: to be able to lower standard deviation, and to be

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00:24:29,520 --> 00:24:31,960
Speaker 7: able to get nearly an eight percent income on high

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00:24:32,040 --> 00:24:34,560
Speaker 7: yield is a decision that makes a lot of sense.

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00:24:34,600 --> 00:24:34,919
Speaker 6: Emily.

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00:24:34,920 --> 00:24:37,840
Speaker 3: When we started though, or John talked about how sentiments

469
00:24:37,840 --> 00:24:40,320
Speaker 3: never been lower, at least not in the recent past,

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00:24:40,560 --> 00:24:43,479
Speaker 3: even though we haven't seen an even bigger bear market

471
00:24:43,520 --> 00:24:46,440
Speaker 3: and broader stocks. And then I started to list off

472
00:24:46,480 --> 00:24:49,520
Speaker 3: this recession called this recession call this person has gotten

473
00:24:49,560 --> 00:24:51,560
Speaker 3: graded five times, And I was thinking to myself, I

474
00:24:51,560 --> 00:24:54,000
Speaker 3: sound really bearish, and I sound as though we're heading

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00:24:54,040 --> 00:24:57,040
Speaker 3: into armageddon. And is that a contrarian indicator? You know,

476
00:24:57,080 --> 00:24:59,880
Speaker 3: the idea that we have discussed all of these worse

477
00:25:00,080 --> 00:25:02,680
Speaker 3: case scenarios at a time where the consumer's talent seat

478
00:25:02,720 --> 00:25:05,680
Speaker 3: is still pretty good. You do have companies that are

479
00:25:05,760 --> 00:25:09,800
Speaker 3: still performing, Okay, Is there a sense that maybe we've

480
00:25:09,840 --> 00:25:13,720
Speaker 3: gone too far and equities can reverberate back, especially lead

481
00:25:14,040 --> 00:25:14,760
Speaker 3: by big tech.

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00:25:15,840 --> 00:25:17,680
Speaker 7: There is I mean, at the end of the day,

483
00:25:17,840 --> 00:25:20,920
Speaker 7: it's not that bad as it relates to the hard data.

484
00:25:21,000 --> 00:25:24,520
Speaker 7: We watch things like initial claims really closely on Thursday mornings.

485
00:25:24,760 --> 00:25:27,119
Speaker 7: We've been in the low two hundred thousands. There are

486
00:25:27,160 --> 00:25:30,640
Speaker 7: some cracks forming there, Continuing claims are elevated. We've seen

487
00:25:30,720 --> 00:25:34,240
Speaker 7: job opening slowing. We'll get another read on that this week.

488
00:25:34,320 --> 00:25:36,959
Speaker 7: But the hard data are holding in really well, especially

489
00:25:37,000 --> 00:25:39,600
Speaker 7: as it relates to the labor market. The challenge is

490
00:25:39,640 --> 00:25:44,919
Speaker 7: the soft data is horrible. Consumer expectations hitting a twelve

491
00:25:44,920 --> 00:25:48,640
Speaker 7: month low, University of Michigan Sentiment Index declining. You all

492
00:25:48,920 --> 00:25:51,520
Speaker 7: have talked a lot about that on the show. We've

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00:25:51,560 --> 00:25:53,679
Speaker 7: got to be mindful of that. First of all, those

494
00:25:53,960 --> 00:25:57,560
Speaker 7: that soft data just soared after the election. We saw

495
00:25:57,680 --> 00:26:02,560
Speaker 7: just massive optimism, things like home sentiment and HB Again,

496
00:26:02,680 --> 00:26:06,159
Speaker 7: some of the sentiment surveys around expectations soaring, especially on

497
00:26:06,200 --> 00:26:09,119
Speaker 7: the Republican side. So we've seen a little bit of

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00:26:09,160 --> 00:26:10,879
Speaker 7: a give back there. And then we also have to

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00:26:10,920 --> 00:26:14,399
Speaker 7: remember that businesses and consumers sometimes say one thing and

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00:26:14,440 --> 00:26:17,880
Speaker 7: do another. I think durable goods coming in solid last

501
00:26:17,920 --> 00:26:20,359
Speaker 7: week was another example of that. So we've got to

502
00:26:20,400 --> 00:26:23,080
Speaker 7: be mindful. I'm not saying completely ignore the soft data.

503
00:26:23,400 --> 00:26:25,680
Speaker 7: But we're watching the hard data for signs that a

504
00:26:25,800 --> 00:26:29,280
Speaker 7: contraction is happening or something more nefarious is going on,

505
00:26:29,359 --> 00:26:30,480
Speaker 7: and we're just not seeing it.

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Speaker 2: Emily appreciate the update. As always, it's good to see you,

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Speaker 2: Emily Rowland of John Hancock. This is the Bloomberg Sevenans podcast,

508
00:26:37,600 --> 00:26:41,160
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509
00:26:41,440 --> 00:26:43,919
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