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Speaker 2: Tod is FED Wednesday a FED Wednesday, August nineteenth, twenty
Speaker 2: twenty six. Let's head to the Federal Reserve and those
Speaker 2: latest minutes and Michael McKee, Mike.
Speaker 3: Well, Kevin Warsh was right. The minutes do suggest there
Speaker 3: was a bit of an old fashioned family fight at
Speaker 3: the July meeting as participants argued over the outlook for
Speaker 3: inflation and monetary policy. Two lines of general agreements stand out.
Speaker 3: Many participants sussess that policy tightening would likely be necessary
Speaker 3: if inflation did not decline. Now, remember this meeting took
Speaker 3: place after the June CPI report that showed inflation had
Speaker 3: declined more than anticipated, and participants judged that their inflation
Speaker 3: outlooks were highly uncertain and that inflation risks were skewed
Speaker 3: to the upside. Many participants noted that the recent re
Speaker 3: escalation of the conflict in the Middle East significantly clouded
Speaker 3: the inflation outlook. Inflation was first and foremost in the debate,
Speaker 3: and the committee's counting words show a lot of division.
Speaker 3: Several participants noted that price increases over the past year
Speaker 3: were broad based, and some said underlying inflation appeared to
Speaker 3: be elevated. AI spending had also been subject to price pressures,
Speaker 3: but inflation expectations remained contained, and most participants anticipated inflation
Speaker 3: would step down over the rest of the year as
Speaker 3: the effects of tariffs and earlier energy price increases wane.
Speaker 3: But again, what many participants noted the possibility that inflation
Speaker 3: might be more persistently elevated. Several noted companies had accommodated
Speaker 3: price increases by compressing margins, but they suggested if the
Speaker 3: Middle East a conflict went on, they might have to
Speaker 3: raise prices, while a couple noted that business contacts judged
Speaker 3: consumers would resist those price increases. They also disagreed on
Speaker 3: the impact of AI at the moment, with some noting
Speaker 3: its inflation risks in the short run, while some also
Speaker 3: said AI productivity increases would cancel that out. In the end,
Speaker 3: most members agreed to hold rates at that meeting under
Speaker 3: the assumption that additional data before September would offer more clarity.
Speaker 3: And speaking of additional meetings, Chairman Wars suggested six scheduled
Speaker 3: meetings per year to the committee, held roughly every two months,
Speaker 3: saying that would allow more information to accumulate between meetings
Speaker 3: and provide policy makers and staff with more time to
Speaker 3: consider what he called strategic policy issues. Walsh asked for
Speaker 3: input from the committee, and no decision was reached at
Speaker 3: the meeting, other than there would be no changes made
Speaker 3: this year.
Speaker 2: All right, Michael McKee there at the Federal Reserve. Mike,
Speaker 2: you're going to stay with us. I'm just looking quickly
Speaker 2: here in terms of market reaction, a little bit of
Speaker 2: a lift to the equity trade. I did see the
Speaker 2: S and P up about twenty two points ahead of
Speaker 2: these FED minutes. They're are now up about thirty two.
Speaker 2: The Nasdaq one hundred was just down a fraction of
Speaker 2: a point, now it's up about two and a half points.
Speaker 2: And let's go on over to what we are seeing
Speaker 2: in terms of US Treasury yields, and we have seen
Speaker 2: a little bit of a dip lower. So where's that
Speaker 2: two year note right now? For eighteen five year note
Speaker 2: with yield of four to thirty five, and you've got
Speaker 2: that ten year note with the yield of four to
Speaker 2: sixty five. Mike, interesting, first of all, six minute six
Speaker 2: meetings by the FMC would be two less than what's
Speaker 2: on the calendar currently. What's sticking out here for you?
Speaker 2: Following the latest FED meeting? You were there in the
Speaker 2: room put a question to Kevin Worsh FED share that
Speaker 2: many thought was really smart in terms of like what
Speaker 2: are you watching to figure out kind of where we
Speaker 2: go next? But tell us, based off of these minutes,
Speaker 2: if you got any more clarity about what the FMC
Speaker 2: is thinking.
Speaker 3: I think with a minute show is that the committee
Speaker 3: was much more divided than people had anticipated. The counting
Speaker 3: words that they use, the adjectives for how many people
Speaker 3: were on one side or another are much more in
Speaker 3: evidence in this set of minutes than I think I've
Speaker 3: ever seen, and especially the words some and several look
Speaker 3: sounds like basically there were people who had opinions on
Speaker 3: a whole range of things that were expressed, which Worsh
Speaker 3: said he wants to see. But it didn't suggest at
Speaker 3: this point that they have any kind of unified view
Speaker 3: about what's going to happen in the future with inflation.
Speaker 3: They did say it's very uncertain at this time. My
Speaker 3: thought was that three weeks ago, when this meeting took place,
Speaker 3: they might have still been leaning towards the idea of
Speaker 3: a September ratecot. Now we've seen some changes to that
Speaker 3: view since then in the markets, But this was somewhat
Speaker 3: hawkish group of people who were concerned about inflation and
Speaker 3: the fact that they didn't know what was going to happen.
Speaker 4: So, Mike, we're likely to hear from the Fed again
Speaker 4: in just a week from now at Jackson Hole. Now
Speaker 4: that we've looked through the minutes and we have maybe
Speaker 4: a little bit more of an understanding of how they're
Speaker 4: thinking about inflationary pressures and the health of the economy,
Speaker 4: does it inform us at all about what we're going
Speaker 4: to hear next week.
Speaker 5: I don't really think so.
Speaker 3: Because of the stance that Kevin Warrish has taken about
Speaker 3: not giving any kind of forward guidance, I suspect that
Speaker 3: he might offer a little bit more in terms of
Speaker 3: what their framework for monetary policy is what's their reaction function,
Speaker 3: and he may outline more about what he's trying to
Speaker 3: do with his task forces and reforms at the FED,
Speaker 3: and then finally maybe some more comment on how many
Speaker 3: meetings they might have. But I don't think the markets
Speaker 3: are going to have a takeaway that the FED is
Speaker 3: going to do this or that in the way that
Speaker 3: they have after some chairman's addresses there.
Speaker 2: What's not answered for you, Mike in these minutes, Like
Speaker 2: we always get more detail right of what was going
Speaker 2: on at the meeting, but what is really missing here
Speaker 2: for you still.
Speaker 3: Well, I don't think we get a real clear view
Speaker 3: of what's going to happen ahead. There was general agreement
Speaker 3: that if inflation doesn't come down, they might have to
Speaker 3: raise rates, but there was also general agreement that the
Speaker 3: inflation picture was extremely cloudy. They said in the minutes
Speaker 3: that they were hoping the fact that they would have
Speaker 3: two CPI reports, two PPI reports, two PSEE reports before
Speaker 3: the next meeting would give them more clarity. And I
Speaker 3: think that's still where we are today.
Speaker 4: And Mike, just a reaction today, pivoting away from the
Speaker 4: FOMC minutes, but on this news of the Treasury and
Speaker 4: debt buybacks.
Speaker 2: It's all kind of related, but I'm just curious, Mike.
Speaker 2: You know, the Treasury does this, but the size and
Speaker 2: the timing of it is super interesting.
Speaker 3: Yeah, the size is very small compared to the size
Speaker 3: of the overall treasury market, and it isn't going to
Speaker 3: have much of an impact in and of itself. It's
Speaker 3: more of a signal from the Treasury that they don't
Speaker 3: like the direction interest rates have been going in and
Speaker 3: they might try to convince markets not to push up
Speaker 3: rates so aggressively. Whether that works or not, we'll have
Speaker 3: to see a lot of shortcovering today, according to the
Speaker 3: bond strategists I've talked to. But what we're seeing is
Speaker 3: the Treasury using one of its tools, and that is
Speaker 3: a maturity curve to try to control what might happen.
Speaker 3: Buying more at the short end and buying back fewer
Speaker 3: at the long end gives some more Buying back more
Speaker 3: at the long end gives more money into the system
Speaker 3: so that people can buy more bonds. But the maturity
Speaker 3: shift does put some risk into what they're doing. What's
Speaker 3: interesting is also Scott Bessett was very critical of Janet
Speaker 3: Yellen for doing the same thing when she was Treasury Secretary,
Speaker 3: and now he finds himself doing it. And I guess
Speaker 3: the kind of the bottom line here for the FED
Speaker 3: is that if you want to bring down lower rates,
Speaker 3: one good way to do that would be to raise
Speaker 3: short rates, because then that gives the markets more credibility
Speaker 3: for the FED on inflation, and that could bring down
Speaker 3: the long end.
Speaker 2: So do as I do, not as I say. Is
Speaker 2: that what that is? I don't know, not sure.
Speaker 3: Well you can imagine Kevin worsh going to the White
Speaker 3: House and saying, look, I raised rates, but mortgage rates
Speaker 3: are coming down because the ten years lower. So I
Speaker 3: gave you what you wanted in a different way.
Speaker 2: Yeah, let's be happy about this. Hey, Mike mckaith, thank
Speaker 2: you so much. All over this, obviously, the Fed minutes
Speaker 2: and then headed off to Jackson holsud Mike, thank you
Speaker 2: so much. Michael McKee, he's Bloomberg TV and Radio International
Speaker 2: Economics and Policy correspondent. He's there at the Federal Reserve
Speaker 2: in DC.
Speaker 6: Stay with us. More from Bloomberg Business Week Daily coming
Speaker 6: up after this.
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Speaker 2: I got to say, we want to stay on this
Speaker 2: and we're going to even dig deeper into the entire macro.
Speaker 2: We're going to do that with Jim Karen. He's CIO
Speaker 2: at Morgan Stanley Investment Management. But we want to know
Speaker 2: more right now, Mike setting us up so well, Joining
Speaker 2: us once again is Karen Vera Perry. She's head of
Speaker 2: US I shares fixed income strategy over Blackrock. Joining us
Speaker 2: from San Francisco, massive firm. You know it so well.
Speaker 2: They've got fifteen point three trillion in sits under management.
Speaker 2: That says at this end of the second quarter, world's
Speaker 2: largest asset manager. Hey, good to have you here with us.
Speaker 2: Excuse me, the FOMC minutes anything of a note for you.
Speaker 7: I think it was really interesting that the whole market
Speaker 7: is looking at the minutes today and they're trying to decide.
Speaker 7: We had three dissenters last meeting. Was how what was
Speaker 7: the discussion actually, like, what is the federally thinking? So
Speaker 7: for me, when I looked at at the summary real quick,
Speaker 7: I was just thinking we're probably they're probably leader leaning
Speaker 7: closer to actually hiking rates, and there was a lot
Speaker 7: of uncertainty to note in the minutes, and so I
Speaker 7: think that really opens up the path of rates in
Speaker 7: different directions. And I think that's why we're seeing so
Speaker 7: much scrutiny of every little little piece of language is
Speaker 7: we're just seeing how the Fed's going to react to
Speaker 7: the cycle.
Speaker 4: And Karen, what do you make of the treasury moves today?
Speaker 4: Because it's interesting, you know, the minutes suggesting maybe more
Speaker 4: hawkish Fed than we had previously thought, but the two
Speaker 4: year yield actually moved down a little bit, and then
Speaker 4: of course the long end moving down quite a bit today,
Speaker 4: but still elevated levels. What's really driving the yield curve
Speaker 4: right now?
Speaker 7: I think you're put in the two year is quite
Speaker 7: interesting because I saw the FED fund's futures and they
Speaker 7: didn't really move much after the minutes. I know, we've
Speaker 7: only had a few minutes to digest, but that too
Speaker 7: year point is really driven on where we think the
Speaker 7: Fed's going to go.
Speaker 5: So if you.
Speaker 7: Know, we're on hold for a little while, we could
Speaker 7: see some more steadiness there, but then if it backs
Speaker 7: off a little bit we could see it go down,
Speaker 7: and then I think the actions today with the Treasury
Speaker 7: buyback program are really a signal to the market that
Speaker 7: we're trying to put a lid on long term interest rates.
Speaker 7: And then we saw the twenty year Treasury auction came
Speaker 7: out earlier today, sixteen billion dollars printed, and I think
Speaker 7: that that we saw some strong metrics there on that
Speaker 7: twenty year auction, keeping it around five point two on
Speaker 7: the coupon. So I think that was their signal to
Speaker 7: the market saying that we're not going to just let
Speaker 7: this run. We're going to put a cap on rates,
Speaker 7: and we're going to do that with our buyback perpose.
Speaker 2: Well, have they talked to the higher scalers you keep issuing,
Speaker 2: you know and tapping the credit markets. We had a
Speaker 2: great story on Monday, Karen. They just got into this
Speaker 2: whole idea of the constant issuance from all of these
Speaker 2: big tech firms tapping the debt markets and how that
Speaker 2: might be crowding out potentially, you know, some of the
Speaker 2: Treasury trade. What is your position on that.
Speaker 7: We've just seen a lot of to your point, crowding
Speaker 7: out where there's a lot of people looking for yield,
Speaker 7: looking to turn out some duration. They could do it
Speaker 7: with some of these hyperscaler long duration corporate bonds as
Speaker 7: opposed to going with treasuries. We've actually seen this quarter
Speaker 7: six billion dollars coming into TLT that's our twenty plus
Speaker 7: treasure ETF. So when we've seen levels hit over five
Speaker 7: percent of the long bonds, we do see some people
Speaker 7: coming in and buying them via the ETFs. We've seen
Speaker 7: a couple of their trades in our strips ETF GOVZ
Speaker 7: and even one of our twenty fifty six I bonds.
Speaker 2: Some pretty big.
Speaker 7: Trades coming in when it hits at levels. And then
Speaker 7: more broadly with adding duration of port folios, we think
Speaker 7: long term unis is another interesting way to do it,
Speaker 7: and that's really performed well this year with long munis
Speaker 7: up four percent year to date, where we've seen you
Speaker 7: long treasures are down three percent year to date on
Speaker 7: a total return. So there's some I think there's some
Speaker 7: ways to add duration and portfolios very thoughtfully in this
Speaker 7: market as we're seeing yields come back.
Speaker 2: Up, go back to flows. Because I always love, we
Speaker 2: always love talking with you about this, you said, I mean,
Speaker 2: you guys have had a pretty active month right so
Speaker 2: far in August in terms of money going into in
Speaker 2: particular longer term bond funds.
Speaker 7: Yeah, usually it's pretty sleepy in August sometimes with people
Speaker 7: on vacation, but I think this month when people are
Speaker 7: paying attention and whenever we see yields tick up, flows
Speaker 7: coming in. As I mentioned to TLT, overall government bond
Speaker 7: ETFs have seen almost ninety billion dollars year to date,
Speaker 7: so I think a lot of people are using eatfs
Speaker 7: to tap this part of the treasury market. Other interesting
Speaker 7: things that people are doing across the curve. We're just
Speaker 7: seeing a lot of interested inflation linked bonds. That's been
Speaker 7: a big topic this month. You can get real yields
Speaker 7: of three percent plus some inflation protection. So we've had
Speaker 7: probably an uptick in inquiries about tips this month because
Speaker 7: of that.
Speaker 4: So you mentioned, you know, the five percent level. Do
Speaker 4: you think that that level holds, that there is a moment,
Speaker 4: you know, where treasuries do become attractive and buyers step
Speaker 4: in because a lot of people this morning we're talking
Speaker 4: about bond vigilantes, you know, in the push and pull.
Speaker 5: There with the government.
Speaker 4: But do you think that there is you know, demand
Speaker 4: here for yields at this.
Speaker 7: Level, I think so, I think a lot of liability
Speaker 7: driven accounts this helps them ammunize some of their liabilities.
Speaker 7: I think there's a group of people who do who
Speaker 7: do think rates are going to come back down or
Speaker 7: tick back down. But I think we're in an environment
Speaker 7: where there's a lot of uncertainty with inflation, and that's
Speaker 7: going to call for at least the term premium being
Speaker 7: positive around these levels for a little while.
Speaker 2: So, huh, what's the risk here? I just feel like, Karen,
Speaker 2: there's just still a fair amount of uncertainty, And I
Speaker 2: just feel like in terms of indications of what the
Speaker 2: Fed does, you know, whether it hikes rates, cuts rates.
Speaker 2: You know, now we're having part of the narrative an
Speaker 2: expectation that maybe it's later next year that we're going
Speaker 2: to see rates cut. But there's still so much that
Speaker 2: comes out of the White House in terms of tariffs,
Speaker 2: more tariffs, less terrorifts, backing off, going forward, a war
Speaker 2: that sends energy prices higher. Help me understand what matters
Speaker 2: you think most to what we see in terms of yield,
Speaker 2: whether it you know, and and I'm curious what the
Speaker 2: tops are that you're watching for something like the ten
Speaker 2: year Yeah, I think.
Speaker 7: I think for a lot of people don't get deterred
Speaker 7: by a lot of the geopolitical headlines and even specialized
Speaker 7: events like today with the buyback program announcement. I think
Speaker 7: right now in this market, yield is your best friend
Speaker 7: that buys you as price volatility and rates and treasuries
Speaker 7: look add incomes your portfolio. So we're helping people look,
Speaker 7: you know, beyond government bonds and a corporates even going global,
Speaker 7: and if you can add five to six percent income
Speaker 7: to portfolios, you can buffer some of these treasury movements
Speaker 7: that are happening, or you can just not play this game.
Speaker 7: We're seeing a lot of interest in intermediate bonds, people
Speaker 7: sticking to under ten years. We actually launched a one
Speaker 7: to ten year treasury ETF earlier this year, the tickers
Speaker 7: gov M, SO GOVM, and we're seeing people just cutting
Speaker 7: out the long end of their portfolios. I don't want
Speaker 7: all the volatility. I can still get ninety percent of
Speaker 7: the yield pick up by going to more intermediate bonds.
Speaker 7: And so that's really what we would coach people on.
Speaker 7: Think about the long term strategy. There's going to be
Speaker 7: some volatility and fixed income, but add some yield that's
Speaker 7: going to buffer out some of these price movements we're seeing.
Speaker 4: Hey, what about in credit because a lot of these
Speaker 4: hyperscalers are issuing super long dated debt. We're talking fifty even,
Speaker 4: I've seen one hundred year debt. Is that attractive to
Speaker 4: clients right now?
Speaker 7: I think they're There's definitely some clients who are willing
Speaker 7: to buy for out that far because they do want
Speaker 7: to lock in yields for a certain amount of time,
Speaker 7: and plus some of them want access to the names,
Speaker 7: like they feel very comfortable with the with the underlying
Speaker 7: issuers in the market. But we would just say stay
Speaker 7: divers fied, you know, don't pull your eggs in one basket.
Speaker 7: And we have seen credit spreads historically are still at
Speaker 7: very tight levels on IG credit. So we're seeing people
Speaker 7: move away from IG credit just some securitized sectors to
Speaker 7: add income. And so that's that's been a trend that
Speaker 7: we're seeing, is people aren't just going to credit, they're
Speaker 7: looking for maybe other sources of income outside.
Speaker 2: All right, just thirty seconds. So you know we've all
Speaker 2: been coming in on Monday and concerned about the move
Speaker 2: up that we've seen in global bond yields and there's
Speaker 2: concerns whether it's the war, higher oil prices, governments spending
Speaker 2: more than they're bringing in. You're not concerned about that
Speaker 2: that that overall pushes rates higher, and in particular in
Speaker 2: the US. And again just got about twenty five seconds here.
Speaker 7: Yeah, I think where it's it's definitely something we're watching.
Speaker 7: We don't want to be overexposed to any single risk factor,
Speaker 7: and so I think that there's definitely an argument for
Speaker 7: staying really short and if that's what you want to do.
Speaker 7: We've definitely seen a lot of money coming into ultra
Speaker 7: short exposures like our escov etf just hit one hundred billion,
Speaker 7: as people are just hiding in cash and avoiding all
Speaker 7: all the ball to lie.
Speaker 2: Perfect guests to have on what we call a FED
Speaker 2: day FOD minutes day. Karen, thanks so much. Be well,
Speaker 2: be WEIW Karen Barrett Perry. She's head of USI Shares
Speaker 2: Fixed Income strategy over at black Rock, joining us from
Speaker 2: San Francisco.
Speaker 6: Stay with us more from Bloomberg Business Week Daily coming
Speaker 6: up after this.
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Speaker 2: Let's get to it. Jim Karen perfect voice. We like
Speaker 2: to touch in with him every quarter. With everything that's
Speaker 2: coming at us, we're a little bit We look at
Speaker 2: what's happened, but we also look ahead in a big way. Jim,
Speaker 2: of course as chief investment Officer of Forlio Solutions at
Speaker 2: Morgan Stanley Investment Management, joining us. Thank you, thank you.
Speaker 5: It's been June. Thank you for having me on your show.
Speaker 2: Been a little crazy of a day. So you were
Speaker 2: going to save us. We kicked off with the news
Speaker 2: this morning coming out of the Treasury. Significant in your review.
Speaker 5: Yeah, look, it's significant.
Speaker 8: But the first thing we have to do is take
Speaker 8: a step back and breathe a little bit and really
Speaker 8: put this into context. Okay, So the Treasury has a
Speaker 8: long tradition of managing the refancy risk and the rollover
Speaker 8: risk of government bonds, right, that's their job. They do
Speaker 8: that by managing the average duration of the overall debt.
Speaker 8: That debt has ranged between call it five and six
Speaker 8: years plus or minus maybe a month or so. We
Speaker 8: measure this in terms of months, so I'm been talking
Speaker 8: in terms of months, not years here. So right now today,
Speaker 8: the current level duration level, the average maturity, let's call that,
Speaker 8: the duration is seventy one months. The high in that
Speaker 8: was about seventy five months back in twenty twenty three.
Speaker 8: The twenty year average of the duration of treasury debt
Speaker 8: is sixty five months.
Speaker 2: This is high.
Speaker 8: So today we are at a high level of duration
Speaker 8: of treasury debt in markets. Does it make sense to
Speaker 8: bring it down to say, maybe the average over time? Sure,
Speaker 8: this is just this is just debt management one oh one, Right,
Speaker 8: So this isn't something that I would say is extraordinary.
Speaker 8: We are still in that five to six year duration
Speaker 8: range of treasury debt. We're at the high end of
Speaker 8: that right now, five years and eleven months. Right, Maybe
Speaker 8: we bring it down to five years and eight months
Speaker 8: or five years and nine months or something like that.
Speaker 8: I don't know if they have a target in mind,
Speaker 8: but that I don't see this as overly historically significant.
Speaker 4: It's interesting because just as you're talking, we got a
Speaker 4: headline out of the Bloomberg terminal, which is I mean
Speaker 4: very relevant. US total public debt outstanding exceeds a record
Speaker 4: forty trillion. I mean, this is like it's something that
Speaker 4: I feel like traders kind of forget about, and the
Speaker 4: debt pile in the US, it kind of lingers in
Speaker 4: the background, but it's come front and center this week
Speaker 4: and kind of this whole summer as these yields have
Speaker 4: been really moving up.
Speaker 8: Yeah, so let's put that into context on a global
Speaker 8: scale as well, right, because you're right, You're absolutely right.
Speaker 8: Yields are moving higher. I think that's the trend. So
Speaker 8: if I look at let's just look at the thirty
Speaker 8: year long pond, because that's what everybody's talking about today.
Speaker 8: If I think about thirty year Japan, all right, thirty
Speaker 8: year JGB yields, those have risen sixty two basis points
Speaker 8: year to day. If I think about Germany, German Bund
Speaker 8: yields have risen about forty five basis points year to date.
Speaker 8: Treasury thirty year bonds have risen forty basis points year
Speaker 8: to date, so very much in line with Germany, less
Speaker 8: than Japan. The significance here is that we are at
Speaker 8: a secular shift in the interest rate cycle, where we
Speaker 8: had gone down in rates for forty years from nineteen
Speaker 8: eighty one to twenty twenty one. We started to move
Speaker 8: higher in yields right from twenty twenty two onwards. And
Speaker 8: now what the world is lost is the is the
Speaker 8: bond yield anchor, which is Japan. Japanese yields were typically
Speaker 8: very low and very stable for a very long time.
Speaker 8: Now those yields are moving up. Thirty year JGB yields
Speaker 8: are about four point one percent. That's higher than thirty
Speaker 8: year German yields. Right, you know, when you know you
Speaker 8: have to kind of go back in time for this,
Speaker 8: So the market is losing some of its anchor towards
Speaker 8: lower yields. So the question now for treasuries, not just
Speaker 8: the US Treasury, but treasuries and you know treasury departments
Speaker 8: the equivalents thereof in the UK, in Germany, in Japan
Speaker 8: and everywhere else, is to try their best to try
Speaker 8: to manage that that movement higher and yields so that
Speaker 8: it's not overly destructive.
Speaker 5: So this is just the start. You're going to see
Speaker 5: more of this.
Speaker 2: What about one of the things that really we came
Speaker 2: back over the weekend on Monday and just the impact
Speaker 2: of the AI spend and build, and your hyperscalers, your
Speaker 2: big tech companies, you know, continuing to and they're still
Speaker 2: going in terms of tapping the debt markets and how
Speaker 2: that's crowding out treasuries, I think I can't remember who
Speaker 2: we spoke to. You said, we're not necessarily seeing a
Speaker 2: lot of selling, certainly here in the US by institutional investors,
Speaker 2: but they're not buying.
Speaker 8: Yeah, Carol, that's a fantastic question, and I'm glad you
Speaker 8: brought that up and you mentioned the magic word, which
Speaker 8: is crowding out, Right, we have to think about that concept.
Speaker 8: So what we know about the hyperscalers right now is
Speaker 8: that they are tapping the debt markets in massive size. Right,
Speaker 8: They are issuing a lot of debt. So it's some
Speaker 8: where if you just look over the last twelve months,
Speaker 8: they have doubled their run rate. Right, there's protections that
Speaker 8: the debt is going to be like one point seven
Speaker 8: trillion overall in the next twelve part. I mean, this
Speaker 8: is like, these are insane amounts of debt being race.
Speaker 8: Does that put pressure on long term bond yields moving higher?
Speaker 8: You bet you it does. And that's what's going on.
Speaker 8: So if you're the Treasury, right, And this is the
Speaker 8: way the Treasury thinks about this. It's a zero sum game.
Speaker 8: If the Treasury, if the duration of Treasury bonds are longer,
Speaker 8: they're going to compete for capital raises with the private sector,
Speaker 8: with the more productive private sector, which is AI capax
Speaker 8: and data centers and all that other stuff. So that
Speaker 8: crowding out effect is what exactly what you brought up,
Speaker 8: which is exactly what the Treasury, and I think the government,
Speaker 8: you know, the you know, the Trump administration is trying
Speaker 8: to figure out and say, look, the government, which tends
Speaker 8: to issue a lot of debt, is less productive than
Speaker 8: the private sector. So why should we compete with the
Speaker 8: you know, AI hyperscale a raise. Why don't we pull
Speaker 8: back a little bit. Let these companies go out there
Speaker 8: and issue debt and raise the GDP and employ people
Speaker 8: and do all kinds of things on the private sector side,
Speaker 8: so more of a supply side push. Then have the
Speaker 8: government do this right and compete for those you know,
Speaker 8: compete for those long term bondials. So I think this
Speaker 8: is a really important nuanced point that I haven't really
Speaker 8: heard spoken about enough in terms of how this is
Speaker 8: a positive I think for the.
Speaker 2: Markets, AH a positive for the markets. I find that
Speaker 2: really fascinating. And even as we continue to see issue
Speaker 2: and so we've got thirty seconds, we're going to come back.
Speaker 2: That doesn't worry you that it gets too crowded, well,
Speaker 2: certainly for treasuries.
Speaker 8: The thing, you know, it doesn't worry me in terms
Speaker 8: of the debt markets. What you know, what worries me
Speaker 8: is if there's a sharp slowdown and all that debt
Speaker 8: you know, becomes you know, somewhat burdens and going forward.
Speaker 8: But we're not there yet.
Speaker 2: We're not there yet. Who we're talking about AI? And
Speaker 2: it does seem like everyone we talk with our man
Speaker 2: deep seeing of Bloomberg Intelligence and the investments, looking at
Speaker 2: the balance sheets, looking at the fundamentals, The spend is
Speaker 2: still there, the backlog is still there. Jim, how do
Speaker 2: you guys, what do you think is the smart conversation
Speaker 2: to have around AI right now?
Speaker 8: So the way that we parse this out is we
Speaker 8: try to find areas in the markets where technology, technological innovation,
Speaker 8: potentially use of AI is actually unlocking a lot of
Speaker 8: free cash flow and a lot of operating leverage. And
Speaker 8: that's what we screen for and we end up creating
Speaker 8: baskets of equities to to to.
Speaker 5: Express these views.
Speaker 8: So look, today you went through a run rate of
Speaker 8: some healthcare sector related you know, companies that are doing
Speaker 8: super well, right, So it's no surprise that in the
Speaker 8: earnings reports for many of these companies, you know, this
Speaker 8: past quarter, that they're using a lot of AI to
Speaker 8: unlock a lot of operating leverage in their companies. So
Speaker 8: we think that there's so much of that, whether it's
Speaker 8: from the small caps and the mid cap sectors, where
Speaker 8: these many of these segments of the markets can get
Speaker 8: a significant advantage just from adding higher levels of productivity
Speaker 8: very cheaply, just by using AI. So you know, if
Speaker 8: it's a demand question, because demand right now is outstripping
Speaker 8: supply and that's what keeps the positive momentum going. I
Speaker 8: don't see this demand falling away anytime soon.
Speaker 2: We talked about it, don't fight the trade, don't fight it, Okay.
Speaker 4: No, I mean that's kind of what I wanted to ask,
Speaker 4: because I feel like all earning season, the big question
Speaker 4: was like when are we going to see the revenue,
Speaker 4: Like there's just been so much spending. I mean, I'm
Speaker 4: really focused on credit, but even on the equity side,
Speaker 4: like are you where are we in that cycle? Are
Speaker 4: you demanding as an investor? Shall we see that that problem?
Speaker 8: So right, we are at the infancy right, So if
Speaker 8: we record this conversation, come back and look at it
Speaker 8: a year from now, two years from now, three years ago,
Speaker 8: three years from now, we'll be going like, oh my gosh,
Speaker 8: what did we miss?
Speaker 7: Right?
Speaker 8: So, right now, I think there's what we call a
Speaker 8: productivity gap. So if you ask individual people working at
Speaker 8: a company, do you use AI?
Speaker 5: Absolutely?
Speaker 8: Are you more productive? Yes, I'm twenty five percent more productive,
Speaker 8: just put a number on it, the CEO says, But
Speaker 8: I'm not twenty five percent more profitable. So how do
Speaker 8: we convert this new technology and by new I mean
Speaker 8: like this year, like several months ago, into higher margins?
Speaker 8: And companies corporations are figuring this out, but they have
Speaker 8: a lot of legacy systems, right, So you just can't
Speaker 8: like unplug one thing and plug something else in and
Speaker 8: expect it to work. But I can tell you that
Speaker 8: every day, every week, every month, we're incorporating more and
Speaker 8: more of this technology and it is becoming a large
Speaker 8: source of you know, of higher productivity for us so
Speaker 8: you know, where does it end, how far does it go?
Speaker 8: When do we start to see the you know, return
Speaker 8: on investment. You know, it's going to be lumpy, and
Speaker 8: I think some of the bigger spenders that are out
Speaker 8: there that are really investing, their whole goal is just
Speaker 8: fear of missing out. They don't want to miss the wave.
Speaker 8: But the beneficiaries of that is the broader economy. So
Speaker 8: what you're seeing is broadening in markets that's taking place,
Speaker 8: which I think is super healthy.
Speaker 1: You know.
Speaker 2: One of the things on this, you know, and I
Speaker 2: was thinking about Alphabet did an issuance the Australian it's
Speaker 2: first Australian bond offering and the result in the company's
Speaker 2: highest ever yield on a note. I think they paid
Speaker 2: just under seven percent. It just continues, but we had
Speaker 2: a great story on the Bloomberg Buyers Sebastian Boyd. He
Speaker 2: said the rising cost of capital to fund the AI
Speaker 2: race is making US equity valuations increasingly untenable. The biggest risk, though,
Speaker 2: isn't higher borrowing costs. The industry is relatively low debt
Speaker 2: means companies are more vulnerable to equity funding costs that
Speaker 2: are set to rise along with financing needs. How's that
Speaker 2: factor in?
Speaker 8: It's debt capital markets, right, you know, you know, so
Speaker 8: this is the issue. Is your equity cost of capital
Speaker 8: more expensive than your debt cost of capital? If it is,
Speaker 8: then you issue bonds. Right, So you're if many of
Speaker 8: these companies have strong balance sheets and they can issue
Speaker 8: a lot more without risking a credit downgrade. You know,
Speaker 8: like this is your space, right, you know, this is
Speaker 8: what we look at, you know, with these strong balances,
Speaker 8: which means that their debt cost of capital raise is
Speaker 8: a lot more cost effective for them. So guess what,
Speaker 8: that's exactly what they're doing. This is what you're supposed
Speaker 8: to be doing. At some point it balances out. We're
Speaker 8: just again, like you know, we just started this, right,
Speaker 8: is this debt surge has just started in the last
Speaker 8: you know, several months, and I don't think we're at
Speaker 8: the tipping point.
Speaker 5: These balance sheets are big and there's lots of cash
Speaker 5: on them.
Speaker 4: But you know, people talk about exposure limits, particularly when
Speaker 4: it's not just Alphabet coming and issuing you know, corporate bonds.
Speaker 4: It's like them doing that and then Alphabet also maybe
Speaker 4: backstopping some other private credit deal with AI. There's a
Speaker 4: lot of exposure in a portfolio to a single name,
Speaker 4: when do you hit those limits? I mean, is that
Speaker 4: something that does exist at Morgan Stanley where eventually you
Speaker 4: do have to say, hey, we already enough, right, you
Speaker 4: know this much exposure to this company, they want to
Speaker 4: issue more, we can't participate exactly.
Speaker 8: So how you count the debt really matters, right, And
Speaker 8: you're I think Emily, you know, you bring up a
Speaker 8: really good point in terms of there's a lot of
Speaker 8: other debt outside of just the traditional public markets. Is
Speaker 8: private market debt. There's a lot of things that are
Speaker 8: out there that are you know, weighing on this. And look,
Speaker 8: you know, this is what we do as investment managers.
Speaker 8: We look at this and we try to understand is
Speaker 8: the you know, is the level of debt relative to
Speaker 8: the return?
Speaker 5: Is the risk? Right? Do we want?
Speaker 8: Am I getting paid enough to take this risk? So
Speaker 8: you know, it's a market like anything else, But you know,
Speaker 8: what's the point, like, what's the level that's that's really
Speaker 8: hard to say. I'd say that the biggest risk for
Speaker 8: any in any cycle. It's not just particular, it's not
Speaker 8: specific to this particular thing with AI and hyperscalers or
Speaker 8: anything is a sudden sharp stop in economic activity. That's
Speaker 8: usually what brings these things down. It could be an
Speaker 8: oil event, it could be a geopolitical event.
Speaker 5: It could be you.
Speaker 2: Know, but we've had that oil event.
Speaker 8: Yeah event, we've had those, you know, but but you know,
Speaker 8: it could be it could be a currency.
Speaker 5: You know, who knows what it is.
Speaker 8: I mean, is there's always something lurking that's out there
Speaker 8: that can create this you know that you know, that
Speaker 8: can create this sudden stop and can make people revalue
Speaker 8: these you know, this debt.
Speaker 2: One of the things that always seems to come up,
Speaker 2: and we've had this with various CEOs and folks who
Speaker 2: talk with the c suite pretty regularly, is that you know,
Speaker 2: they need certainty from the White House and the continued involvement.
Speaker 2: Even today, the President of course meeting with folks in
Speaker 2: the crypto industry, but he said next week we're going
Speaker 2: to meet with the AI people. The AI industries top
Speaker 2: people will attend the meeting. We want to regulate, but
Speaker 2: we want to have regulation where they can continue to lead.
Speaker 2: It's early, we'll see what happens, but we've seen a
Speaker 2: global push back when it comes to social media and
Speaker 2: the platforms. We've seen it in France, we've seen it
Speaker 2: in Europe. We've got Meta on trial. We'll see how
Speaker 2: this one plays out. And people think that there's going
Speaker 2: to be more to come, and even the possibility that
Speaker 2: these types of companies, the way they do business is
Speaker 2: what's being now is at risk.
Speaker 8: Yeah, So let's combine the last question with this right here,
Speaker 8: because this is critically important. So let's think about data centers,
Speaker 8: let's think about energy, Let's think about all of these
Speaker 8: various things, all of the policy factors. And we know
Speaker 8: that there's some pushback against data centers and everything else.
Speaker 8: If we just think mathematically through a textbook and say linearly, Okay, look,
Speaker 8: this is a really good technology. We should use it,
Speaker 8: we should invest in it, and it's great, the real
Speaker 8: world answer is like, but my utility costs are going higher,
Speaker 8: Voters are getting mad, politicians are reacting to that. They're responding.
Speaker 8: So when we start to think about the valuation of debt,
Speaker 8: whether it's in the private markets or it's in the
Speaker 8: public markets, we always have to put in a factor
Speaker 8: for what's the political risk. What if somebody else gets elected,
Speaker 8: or what if there's a new policy change, how do
Speaker 8: we factor that in? And it's almost impossible to do
Speaker 8: that because you can't anticipate policy changes very easily.
Speaker 5: But you could.
Speaker 8: You could put something in and say, well, how much
Speaker 8: of a cushion do I have if that were to happen.
Speaker 8: Let me look at the longer term contracts. How do
Speaker 8: these cash you know, how do the cash flows get
Speaker 8: you know, negotiated over time? If it's utilities, it could
Speaker 8: be utility raises, you know, is that schedule over a
Speaker 8: period of time and in those of those are things
Speaker 8: that we have to incorporate. So to the extent that
Speaker 8: there's you know, volatility around policy on this, I think
Speaker 8: that's going to stay with us, but we we have
Speaker 8: to build it into the price, and it just means
Speaker 8: that it's a higher risk premium for us to factor in.
Speaker 8: There's no really really other way to answer that because
Speaker 8: there's no specific numbers around it, right, but we have
Speaker 8: to build that in.
Speaker 2: You have to say this could happen, the space could
Speaker 2: be changing.
Speaker 4: Aside from policy pushback, what are the other kind of
Speaker 4: key risks with just the AI trade?
Speaker 2: Is it that there's.
Speaker 4: Too many names and like or is it like this,
Speaker 4: the technology might not prove to be as reliable as
Speaker 4: we expect.
Speaker 2: Right now, I have to say, the enthusiasm and the
Speaker 2: coziness and we talk about the circular finance like it
Speaker 2: just makes me a little nervous.
Speaker 8: Right, yeah, I mean, so, I'd say the concentration risk
Speaker 8: is something that we hear quite a bit.
Speaker 3: Right.
Speaker 8: There's a lot of money funneling into a very very
Speaker 8: narrow sector and that usually doesn't end well, right historically.
Speaker 8: But you know, part of this too is that there
Speaker 8: are going to be winners and losers in this, Right,
Speaker 8: So there are companies that are making a massive spend
Speaker 8: and they might not get the return on investment, the
Speaker 8: ROI that they were hoping to get. Now, the question
Speaker 8: is is this a small company that's very narrowly focused
Speaker 8: and if they lose this, they lose everything, or is
Speaker 8: this like a very large, you know, multi franchise company
Speaker 8: that says, well, if I lose that, I can write
Speaker 8: that off. It's not gonna be great, it's not gonna
Speaker 8: be a great year for my stocks, but I can
Speaker 8: recover from it.
Speaker 7: Right.
Speaker 5: So there's a lot of it.
Speaker 8: So the so the answer to a lot of it
Speaker 8: is how these companies are diversifying their risk. But you know,
Speaker 8: as time goes on, what history would suggest is that
Speaker 8: people get more and more and more concentrated and then
Speaker 8: there's a sudden break, there's a sudden stop and something changes,
Speaker 8: and yeah, there's going to be fallout from this, There's
Speaker 8: no question. Right Timing that is going to be really hard.
Speaker 8: Is that ten percent from now? Is that twenty percent
Speaker 8: from now? Is that tomorrow? You know, we don't know
Speaker 8: what that is. So you know, as investors, we just
Speaker 8: have to make sure that we understand the risk and
Speaker 8: that we're being compensated for the risk as best we can.
Speaker 8: And that's where the investment selection, you know, the quantitative analysis,
Speaker 8: the pop the optimization of portfolios, a correlation risk, all
Speaker 8: these things matter quite a bit in terms of how
Speaker 8: you construct your portfolio.
Speaker 2: Yeah, and time will tell. I mean, I think, you know,
Speaker 2: it's hard not to feel sometimes it's a little bit
Speaker 2: of a foamo feel, right of just chasing this. As
Speaker 2: the build continues, I do feel like earnings are getting
Speaker 2: a little bit more discerning when it comes to that.
Speaker 2: And you know, certainly when we have some really big
Speaker 2: name IPOs, whether it's anthropic or open AI. We are
Speaker 2: increasingly getting a window into their financials, so we're not
Speaker 2: going to let you go yet. And I want to
Speaker 2: kind of look forward. We still have a few months
Speaker 2: left in the year. I feel like there's going to,
Speaker 2: you know, potentially be a lot coming at us, whether
Speaker 2: it's politics, whether it's more out of the White House,
Speaker 2: others earning cycles, and I am really curious about kind
Speaker 2: of what the Fed's going to do. So we're going
Speaker 2: to continue. Jim Karen's going to stay with us, Chief
Speaker 2: investment Officer Portfolio Solutions at Morgan Stanley Investment Management.
Speaker 6: Stay with us. More from Bloomberg Business Week Danley coming
Speaker 6: up after this.
Speaker 1: You're listening to the Bloomberg Business Week Daily Podcast. Catch
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Speaker 2: I want to get back to Jim Carren, chief investment
Speaker 2: Officer of Portfolio Solutions at Morgan Stanley Investment Management. We
Speaker 2: were just saying that we like when we can just
Speaker 2: kind of slow down and talk about some bigger stories. Jim,
Speaker 2: I am curious, like what you find interesting in this
Speaker 2: market cycle. Like I'll take a look at the most
Speaker 2: red stories in the Bloomberg right now, and you have
Speaker 2: SpaceX and tempting to acquire an AI coding startup, and
Speaker 2: there's a story about that. There's the best in story
Speaker 2: about the dead buybacks fed minutes Maderna. You have stuff
Speaker 2: about what's going on in the Middle East. I do
Speaker 2: wonder when you look at this, there's a lot that
Speaker 2: we always say is coming out everybody. What do you
Speaker 2: find interesting? Though? Right now?
Speaker 8: The most interesting thing going on right now is a
Speaker 8: change in the interest rate cycle. So we are leaving
Speaker 8: a regime where we've gone down steadily in rates. You know,
Speaker 8: I highlight the period nineteen eighty one to twenty twenty
Speaker 8: one to now. It's pretty much ingrained that we're probably
Speaker 8: not going to resume that what that catalyzes is higher
Speaker 8: nominal growth. We are in a higher nominal GDP world, right,
Speaker 8: So nominal GDP is real GDP plus inflation, right, And
Speaker 8: where we were for many many years where someone we
Speaker 8: had about one point eight percent growth and about one
Speaker 8: point eight percent inflation. We can never get above two.
Speaker 8: So nominal GDP was like three and a half to
Speaker 8: four percent. Nominal GDP right now as of second quarter
Speaker 8: is six and a half percent. Right, that's a whopping number.
Speaker 5: YEA.
Speaker 8: What that does when you have higher nominal growth, you
Speaker 8: it's good for cash flows, it's good for earnings, and
Speaker 8: it's good for earnings growth rates. Right, So what are
Speaker 8: we seeing this year? We're seeing an earnings boom that's
Speaker 8: taking place. It's not an accident. You have a higher
Speaker 8: nominal GDP, that's what you're going to get. So what
Speaker 8: we're what we're effectively doing now is when we think
Speaker 8: about balancing a portfolio, is we're thinking about what role
Speaker 8: how do I manage my fixed income risk relative to
Speaker 8: my equity risk. Equities in a higher nominal growth world,
Speaker 8: that's a tailwind, and a higher nominal growth world for
Speaker 8: bonds it's a headwind, right, because inflation and interest rates
Speaker 8: will up in that environment. So if we think about
Speaker 8: the level of yields today in tenure treasuries, it's about
Speaker 8: four point sixty four percent right now as we speak. Typically, historically,
Speaker 8: nominal GDP is the speed limit for ten year yields,
Speaker 8: meaning that ten year yields and nominal GDP historically tend
Speaker 8: to sit right on top of each other. Now, I'm
Speaker 8: not suggesting that ten your treasure yields are going to
Speaker 8: six and a half percent. What I am suggesting is
Speaker 8: that a four point six four point seven percent tenure
Speaker 8: yield is not is not something that's going to contract
Speaker 8: the economy. Ten year yields can gradually move higher as
Speaker 8: long as it's slow and as long as it's managed,
Speaker 8: they can move higher without hurting the markets. The number
Speaker 8: one question we get is at what level in the
Speaker 8: ten year yield it does it derail everything? You can't
Speaker 8: answer that question. You have to know where nominal growth is.
Speaker 8: In a six and a half percent nominal world, it's
Speaker 8: a higher number. In a four percent nominal world, it's
Speaker 8: a lower number.
Speaker 2: So then the question is, though, what is out there
Speaker 2: to derail growth? Yeah, and I think that's what we
Speaker 2: have to ask. And I think this is some of
Speaker 2: what we're trying to figure out. I understand aim making
Speaker 2: us more productive, but if it puts people out of work, like,
Speaker 2: what what's the economic impact of that? So what do
Speaker 2: you see as the risks to growth that are out there?
Speaker 8: So you know, whenever we get to these points where
Speaker 8: there becomes a lot of overinvestment in certain areas, and
Speaker 8: if there's a lot of hiring in certain segments of
Speaker 8: the markets, that could cause the unemployment rate to spike
Speaker 8: quite a bit.
Speaker 5: Yeah, that you know, that.
Speaker 8: To me is something because consumption is seventy percent of GDP.
Speaker 8: If you lose the consumer, if you lose consumption, So
Speaker 8: you know, could that happen, if there's an inflation shock,
Speaker 8: if there's an energy shock. You know, people save their
Speaker 8: money instead of spending their money. Those things are more
Speaker 8: much more geopolitical at this point. From an economic fundamental standpoint,
Speaker 8: there's not much out there. You know, it's it's not
Speaker 8: very high risk at this point, Like you know, what's
Speaker 8: the recession call right now? It's a very very low probability.
Speaker 8: But you know, could something be triggered with say higher
Speaker 8: energy prices. Do you have political tensions? Could that change things? Absolutely,
Speaker 8: that could change things. I mean Russia, Ukraine, you know,
Speaker 8: all of these various all of these various components to me,
Speaker 8: inflation and potentially the FED having to hike interest rates
Speaker 8: in order to combat that that you know, by design
Speaker 8: is supposed to slow the cycle down. Right, So those
Speaker 8: things are what I worry about. But these are very
Speaker 8: big macro macro events.
Speaker 4: But you know, sentiment is down, and I think we
Speaker 4: do kind of think a lot about like Wall Street
Speaker 4: here at Bloomberg because this is you know, we're talking
Speaker 4: about Wall Street here, but you do look at social
Speaker 4: media and people are complaining about higher inflation since COVID
Speaker 4: that now their grocery bill is higher.
Speaker 2: Pre shaped economists none, it is feeling great.
Speaker 4: Down Like, how does Wall Street kind of square that in?
Speaker 5: Yeah, square that with Main Street?
Speaker 7: Right.
Speaker 8: So I use a hamburger analogy, right, So pre COVID,
Speaker 8: I could go to a diner and I can get
Speaker 8: a great hamburger for fourteen bucks. Now it's twenty bucks, right,
Speaker 8: So how do I make that hamburger that's you know,
Speaker 8: that twenty dollars hamburger fourteen dollars again, right, you're not
Speaker 8: going to it's not going to happen. The way that
Speaker 8: you solve that is by making that twenty dollars hamburger
Speaker 8: more affordable for everybody. And that means that you have
Speaker 8: to have higher wages, higher jobs, better jobs. So you know,
Speaker 8: President Trump was speaking today about manufacturing, the reindustrialization cycle
Speaker 8: in the US. These manufacturing jobs are really strong so
Speaker 8: when you talk about Wall Street versus Main Street, the
Speaker 8: strongest part of the jobs market is the trades market
Speaker 8: is skilled tradesmen, right, you know that are coming through electricians, plumbers,
Speaker 8: pipe fitters, you know, all of these areas. When if
Speaker 8: there's a data center that's being built in some rural
Speaker 8: area in the US or something like that, you get
Speaker 8: a lot of jobs. And if you get manufacturing jobs,
Speaker 8: the ratio of manufacturing jobs is six to one in
Speaker 8: terms of services jobs, meaning that for every one manufacturing
Speaker 8: job you create, you get six service sector jobs that
Speaker 8: come to support that. So that broadening, whether it's coming
Speaker 8: from the one big beautiful bill or the deregulation or
Speaker 8: the CAPEX spend. We're just getting started in this whole thing.
Speaker 8: So we're going to make that twenty dollars Hamburger more
Speaker 8: affordable and that should change sentiment, but it takes time.
Speaker 2: As long as those jobs stick around. Yeah, right, you
Speaker 2: can build a data center, then you move on or
Speaker 2: if you don't need right, like, those workers have to
Speaker 2: have a place to go. We were talking about summer vacations.
Speaker 2: When you came in, you're getting ready, just got about
Speaker 2: a minute left. Is there a book you take with
Speaker 2: you is the research or do you just say I'm done.
Speaker 8: You know, I'm not taking a book with me for
Speaker 8: this trip. I think what I what I tend to
Speaker 8: do is I tend to tend I tend to read
Speaker 8: a lot of financial news. I tend to read a
Speaker 8: lot of research that I can just get caught up on,
Speaker 8: you know, most of its economic theory, just because I
Speaker 8: think that we are in a very big changing point
Speaker 8: right now, and I think that relying too much on
Speaker 8: historical data today is this is going to be a mistake,
Speaker 8: and we have to think about a higher nominal growth
Speaker 8: world and more of a supply side dominated world as
Speaker 8: opposed to demand side dominated.
Speaker 2: We need to do more of that with you. Maybe
Speaker 2: bring Mike McKee on too, because I think that would
Speaker 2: be a great, fun, fun discussion.
Speaker 4: I'm just picturing like apparel sprits with a side of
Speaker 4: our star I keep money term premium.
Speaker 2: Yes exactly. We do do wine segments sometimes on Friday.
Speaker 2: Maybe we can couple them together. I've said it before,
Speaker 2: but I merely mean it. You're jem, thank you for
Speaker 2: giving us all this time. We love having this opportunity
Speaker 2: to do this. Jim Caron is Chief Investment Officer Portfolio
Speaker 2: Solutions at Morgan Stanley Investment Management.
Speaker 1: This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify,
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Speaker 4: Mm hmm