Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg
Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern
Speaker 1: on Apple CarPlay or Android Auto with the Bloomberg Business App.
Speaker 1: Listen on demand wherever you get your podcasts, or watch
Speaker 1: us live on YouTube.
Speaker 2: Where we go with some of these trade policy issues,
Speaker 2: and it's certainly been an issue for investors. Financial markets
Speaker 2: broadly defined, including fixing on markets.
Speaker 3: Let's talk about that now.
Speaker 2: Karen Manna, investment director, fixed income, Federated Hermes.
Speaker 3: It's Burg, Pennsylvania, the Pride. She's a graduate Penn State.
Speaker 4: It's the university.
Speaker 3: I'm a monster fan of Penn State. My son graduated
Speaker 3: from there at great school. Karen, thanks so much for
Speaker 3: joining us here.
Speaker 2: What do you tell your clients these days when they
Speaker 2: seem you are getting whip saled every day by news
Speaker 2: events as opposed to maybe some fundamentals of the bonds.
Speaker 3: They do own.
Speaker 5: Good morning, and thank you for having me. It's a
Speaker 5: real pleasure to be here in studio with you. So
Speaker 5: uncertainty is deeply uncomfortable, and treasury markets have been misbehaving,
Speaker 5: perhaps swinging in a volatile way, which is not what's
Speaker 5: desired by fixed income investors at all. So we say,
Speaker 5: realize that the uncertainty will be resolved when those in
Speaker 5: the administration resolve it. But position in a way that
Speaker 5: highlights a couple of things. First and foremost liquid instruments.
Speaker 5: Be cognizant of your liquidity so that you can be
Speaker 5: nimble and position yourself appropriately when we're not doing scenario analysis,
Speaker 5: but we have actual facts to deal with. Stay up
Speaker 5: in quality, and for newer money, we like the idea
Speaker 5: of shorter duration one to three years. Pick your flavor there.
Speaker 5: Multisector gives the portfolio manager a little more opportunity to
Speaker 5: to add value to your portfolio. But so basically, stay short,
Speaker 5: stay high quality, stand liquid instruments.
Speaker 4: Well, Karen, I mean you're the investment director of Fixing.
Speaker 4: Come confederator Hermes, and I have to ask you this,
Speaker 4: how much time are you spending looking at the foreign
Speaker 4: exchange markets? The broad dollar index is down three percent
Speaker 4: year to date. I mean, forget about it. I mean
Speaker 4: it's non dollar denominated debt, like my emerging market local
Speaker 4: currency debt, which is leading the way up five percent
Speaker 4: year today. Talk to us about the role emerging markets
Speaker 4: or for that matter, non dollar denominated develop market that
Speaker 4: plays in a broad fixing come portfolio.
Speaker 5: It most definitely has a role in a role now
Speaker 5: that is worth consideration. EM markets have withstood the tests
Speaker 5: of inflation and all the shifts over the past couple
Speaker 5: of years, and we saw dramatic tightening and spreads last
Speaker 5: year that we were able to take advantage of, and
Speaker 5: then we and our portfolios move back to a more
Speaker 5: neutral stance. But within EM what you've highlighted is that
Speaker 5: you have different ways to invest in the markets. The
Speaker 5: current and see the sovereign debt, the local currency, corporate debt,
Speaker 5: and that gives the portfolio manager some latitude. So it's
Speaker 5: an area that we like. But you also highlight the
Speaker 5: shift to international and what does that mean for US
Speaker 5: dollar domestic based fixed income. That's a different landscape, playing field,
Speaker 5: whatever you want to call it, than we've had for
Speaker 5: a very long time.
Speaker 2: I'm looking at the IG function on the Bloomberg terminal,
Speaker 2: the Bloomberg Index browser. The best performance in fixed income
Speaker 2: in the US has been US mortgage backed securities.
Speaker 3: Talk to us about that market.
Speaker 5: How you guys view that we are overweight to mortgage
Speaker 5: backed securities. We see that as a strong positive, and
Speaker 5: we've been there for a very long while. You have
Speaker 5: a situation with mortgage backed securities where you had two
Speaker 5: of the largest buyer step back, creating a technical opportunity,
Speaker 5: and that was the FED as they've paired back their
Speaker 5: balance sheet, and then the US banks. So mortgage backed
Speaker 5: security is the second largest market in fixed income behind
Speaker 5: US treasuries, buying opportunity for US and one that we
Speaker 5: think will persist for a while longer.
Speaker 4: And Karen, does that extend I mean residential mbs. We're
Speaker 4: talking not CMBs. But let's talk about abs. Let's talk
Speaker 4: about some of these other more complicated securitized asset classes.
Speaker 4: A lot of them are short duration. I mean, what
Speaker 4: are your thoughts there? I mean, where do you think
Speaker 4: we should position along the curve? And does that kind
Speaker 4: of filter through into your you know, your willingness to
Speaker 4: want to invest in, say, asset backs versus mortgages.
Speaker 5: In our shorter duration strategies and approaches, we are using
Speaker 5: asset backed securities to a great extent. Our asset back
Speaker 5: team that is also in charge of those short duration
Speaker 5: portfolios has an affinity for those types of instruments and
Speaker 5: sees value at the short end. As you point out,
Speaker 5: they are short duration, not long term maturity. They offer
Speaker 5: more value than similarly rated corporate bonds. So an attractive
Speaker 5: space for the markets, but one that has simply grown
Speaker 5: right when we came from the depths of the financial
Speaker 5: crisis and then to their most recent conference in Las Vegas.
Speaker 5: Huge interest in that segment of the market because of
Speaker 5: the yield that can be created.
Speaker 4: Yeah, it's not just student loans, credit card receivables, and
Speaker 4: I want a loane floor plans anymore, I guess right.
Speaker 4: And that's in that spectrum. What other sort of non
Speaker 4: traditional asset classes, subsectors of that abs world are you
Speaker 4: investing in.
Speaker 5: We tend to stick to the more defensive elements, what
Speaker 5: you might call the plane vanilla areas of that market,
Speaker 5: the more receivables, but we're watching with interest what goes
Speaker 5: on with that market. We have other areas within alternatives
Speaker 5: that are short duration and floating that we employ in
Speaker 5: our portfolios, and that's namely trade finance.
Speaker 2: So we like municipal bonds on the show, actually it's
Speaker 2: municipal bond Friday. We have sponsors segment later this morning.
Speaker 2: I'm just about me the municipal segment.
Speaker 5: Well, municipals are always near and dear to my heart.
Speaker 5: It's where I started in the industry as an analyst
Speaker 5: public power and electric utilities from my bread and butter
Speaker 5: for many, many years. But muni's offer nice stability for portfolios.
Speaker 5: The credit quality is very, very solid. We've seen a
Speaker 5: walk back and spreads a little bit this year, some
Speaker 5: dislocation in the market because we've seen a tremendous amount
Speaker 5: of supply.
Speaker 3: Year to date.
Speaker 5: MUNI supply through early March is up twenty four percent,
Speaker 5: So you're seeing issuers trying to position get out in
Speaker 5: front of a couple of things, right, move early rather
Speaker 5: than later. But the credit quality is there, and I
Speaker 5: think right now investors are seeking that income protection because
Speaker 5: it's fairly simple. You're getting more income in your portfolio
Speaker 5: and you want to protect it to the greatest extent possible.
Speaker 4: Well, Paul, you know, Karen makes a great point. A
Speaker 4: lot of that MUNI supply here to date has been
Speaker 4: universities in colleges. So the tax change with the law,
Speaker 4: you know, legal changes that are happening Columbia with the
Speaker 4: new with the Trump administration, is driving a lot of
Speaker 4: these universities to tap the municipal bond market here, and
Speaker 4: you know my question and we should be asking Rima Sarafi,
Speaker 4: this is the bevice share of TAXI KPMG in a minute,
Speaker 4: is how much of that? I mean, you know, is
Speaker 4: really do you want to own in your portfolio? I mean,
Speaker 4: you know, we mentioned abs, we talk about student loans,
Speaker 4: we can talk about all of that. I mean, just
Speaker 4: how much exposure do we want to have to that
Speaker 4: element to that end of the market here, Karen.
Speaker 5: Well, specifically muni's tax exempt investing for universities. That's an
Speaker 5: area where you could see some credit issues, even setting
Speaker 5: aside tax policy. We all know that there's fewer people
Speaker 5: going to university simply because of age wave and challenges
Speaker 5: and cost. So we have a number of universities that likely,
Speaker 5: even if you look through the sector to just the
Speaker 5: underlying financial statements, wouldn't pass credit muster because of how
Speaker 5: they're positioned. So that's an area where we do have
Speaker 5: less exposure or would be underweight in our munior tax
Speaker 5: exempt portfolios.
Speaker 2: Karen, thank you so much for joining us. Really appreciate
Speaker 2: you coming in Thanking on a Friday. Get a double
Speaker 2: gold stret Friday.
Speaker 3: I'm looking around here.
Speaker 2: I mean Karen Manna, Investment Director, Fixed in Come Federator Hermes.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple Corplay and Android
Speaker 1: Auto with the Bloomberg Business App. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station.
Speaker 1: Just say Alexa Play Bloomberg eleven thirty.
Speaker 2: Let's talk taxes because I don't know what's happening when
Speaker 2: tax has come out of this administration, and I think
Speaker 2: a lot of investors are also a little bit uncertain
Speaker 2: about the tax situation and the strategies of this administration.
Speaker 2: I think the expectations were for a positive scenario, but
Speaker 2: we're just not sure.
Speaker 3: Rama Sarafi. She gets paid to think about this stuff.
Speaker 2: She's the vice chair head of Tax at KPMG Raimber.
Speaker 2: What are you telling your clients about how the tax
Speaker 2: structure in the United States is likely to evolve over
Speaker 2: the next one two, three years.
Speaker 6: Well, thanks for having me today. It's a pleasure. So
Speaker 6: it's a really busy and exciting time to be in
Speaker 6: tax and KPMG is looking at what we call the
Speaker 6: tax policy trifecta. Right now, there are three things happening
Speaker 6: at once. One is the twenty twenty five to cliff,
Speaker 6: which is set to expire at the end of this year.
Speaker 6: The second is Goal will reform, and the third is
Speaker 6: any other regulations that are changing on the horizon, including
Speaker 6: the impact of President Trump's tariffs. So our clients are
Speaker 6: looking at the confluence of all three of those things,
Speaker 6: which are huge disruptors to their business, so.
Speaker 4: Tough to us. I mean, what are you hearing from
Speaker 4: your clients here, Rima, I mean, what is like the
Speaker 4: number one issue? Is it the tariffs? Is it potential
Speaker 4: tax changes from the Trump administration? What do you getting
Speaker 4: queried on most We're.
Speaker 6: Getting queried on all of the above, and that's what
Speaker 6: that's what's super interesting and exciting right now because they're
Speaker 6: all happening at once. So because it's multi dimensional, we
Speaker 6: need to model. Our clients need to model scenarios for
Speaker 6: both the short, medium, and long term. And that's what
Speaker 6: our platform, Digital Gateway has. It has the ability to
Speaker 6: take data and put it in one location and be
Speaker 6: able to model those scenarios at one time and be
Speaker 6: able to pivot based on as you know, the daily
Speaker 6: changes that are happening in the market and with regulatory change.
Speaker 6: So our clients are basically talking to us about all
Speaker 6: of those things, depending on their facts and circumstances.
Speaker 2: So how do you think this tax cut discussion, this
Speaker 2: negotiation in Congress will go.
Speaker 3: It's my understanding that it's they can't.
Speaker 2: Do anything until they pass a budget here, So I'm
Speaker 2: not sure how this is going to play out.
Speaker 3: What do you advise in your clients?
Speaker 6: You're absolutely right, No one's sure how this is going
Speaker 6: to play out. Right, The hardest part of passing this
Speaker 6: bill still lies ahead. We need both chambers of Congress
Speaker 6: to agree on the provisions of the bill, and that's
Speaker 6: the hardest part. So lies ahead, we don't know, and
Speaker 6: that creates even more uncertainty. And one of the things
Speaker 6: we're advising our clients, among many things, is to not
Speaker 6: wait and see. Our clients really need to get after
Speaker 6: this now and be able to model out the scenarios
Speaker 6: because once legislation starts to become clearer, things are going
Speaker 6: to move really fast and companies are going to need
Speaker 6: to be able to react to a bill. So while
Speaker 6: it's not going to be it's not certain when it
Speaker 6: will happen. It probably will, it's just the hardest part
Speaker 6: lies ahead.
Speaker 4: Rama, all my wealthy friends up in New Canaan and Greenwich,
Speaker 4: Connecticut are worried. They're HEDGEPHND managers, they're private equity managers,
Speaker 4: They're worried about the carried interest here. I mean, talk
Speaker 4: to us a little bit about your thoughts there. What
Speaker 4: are you advising clients on that end?
Speaker 6: Yeah, So again, there's so many dimensions to this that
Speaker 6: have yet to be seen. And like I said, the
Speaker 6: big picture here is that companies need to and individuals
Speaker 6: really need to look at the impact of all the
Speaker 6: dimensions of the changes, and really time will tell what
Speaker 6: all the various specific questions are that individuals and companies
Speaker 6: have related to any impending bills.
Speaker 3: RIMA outside of the US.
Speaker 2: What are kind of the key issues that you guys
Speaker 2: are facing here for your global clients.
Speaker 6: So our global clients are facing into that second prong
Speaker 6: of the tax policy trifecta that I talked about global reform,
Speaker 6: which the impact of Pillar two among other things. So, BEPS,
Speaker 6: I'm sure you've heard about it, and so what are
Speaker 6: the impacts outside the US even though the Trump administration
Speaker 6: has indicated that it's not going to be amenable to
Speaker 6: bep's Pillar two. Companies that operate outside the US still
Speaker 6: need to comply with Pillar two regulations that are in
Speaker 6: place in the countries in which they operate. So we're
Speaker 6: advising our clients on their global footprint and looking at
Speaker 6: what tax planning or what operational changes they need to
Speaker 6: make in light of that uncertainty as well.
Speaker 4: RIMA, I know KPMG is the first of the Big
Speaker 4: Four to be licensed to practice law here in the US.
Speaker 4: What's the motivation before behind that?
Speaker 6: Yeah, So KPMG is really proud to be the first
Speaker 6: of the Big four KPMG Law US to provide what
Speaker 6: is really an increasing need in the legal market space today,
Speaker 6: which is providing process driven, technology enabled services for our clients.
Speaker 6: And that is a real growing need. The volume of transactions,
Speaker 6: the volume of contracts that need to be managed, the
Speaker 6: ability to put that on one technology platform, which I
Speaker 6: talked about our Digital Gateway platform is really important in
Speaker 6: the marketplace and being validated by our clients. So that's
Speaker 6: what we are going to do, and we're already getting
Speaker 6: tremendous receptivity in the market in that for that need.
Speaker 3: Riema, thank you so much for joining us.
Speaker 2: Rima Sarafi, Vice Chair for the tax practice at KPMG.
Speaker 2: KPMG Big Four. I remember when they're a Big eight,
Speaker 2: Oh my god. Yeah, and then the Big six and
Speaker 2: now we're down to the Big four.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten a m Eastern Listen
Speaker 1: on Applecarplay and Android Auto with the Bloomberg Business app,
Speaker 1: or watch US live on YouTube.
Speaker 2: Let's talk about the you know, global supply chains in
Speaker 2: a world of rising tariffs. What does it mean for
Speaker 2: trade here in this part of the world and around
Speaker 2: the world. Alyssa Rusnov joints is. She's the CEO of
Speaker 2: l Tex. She joints us here in our Bloomberg Interactive
Speaker 2: Broker Studio, which gets her double stars because it's our
Speaker 2: Friday being in our studio.
Speaker 3: We Liza, thank you so much for joining us.
Speaker 2: What are you telling your clients about tariffs and what
Speaker 2: the ultimate impact will be on trade between the US, Canada,
Speaker 2: US and Mexico, the North American in general? What are
Speaker 2: you telling your clients these days?
Speaker 7: Yeah, so pleasure to be here. There is a lot
Speaker 7: of volatility obviously in the markets. But I'm finance and trade,
Speaker 7: so there's a lot of crosswater trade that I've seen
Speaker 7: on my side, whether it's Mexico, Canada, or other parts
Speaker 7: of the world. And obviously there is a lot of
Speaker 7: uncertainty happening and a lot of suppliers, small suppliers in
Speaker 7: Mexico and Canada, bigger corporations and specific sectors that are
Speaker 7: really impacted by it. So I financed a lot of
Speaker 7: industry related to cars, car parts, energy, commodities like coffee,
Speaker 7: which I'm a big com consumer off obviously being in
Speaker 7: New York from New Yorker, So there's certain a lot
Speaker 7: of volatility in that sense. Meaning if you look in
Speaker 7: for example, at the car parts or just car export
Speaker 7: slashing port trade, that's a crazy amount of operational volume
Speaker 7: because it's not just you know, a car is being
Speaker 7: let's say manufactured and Mexico just goes into the US
Speaker 7: and you can just put a tariff on it. The
Speaker 7: reality is the car parts go back and forth maybe three,
Speaker 7: four or five six times. That's absolutely right. Uh, there's
Speaker 7: a lot of operational logistics there because apparently shipping is
Speaker 7: actually quite cheaper than manufacturing in certain in certain regions.
Speaker 7: So reciprocal tariffs do not necessarily make sense even from
Speaker 7: an operational standpoint. It's just really really hard to do.
Speaker 7: And unfortunately trade is not necessarily digitized, so operationally you
Speaker 7: have to have tremendous amount of staff on the US
Speaker 7: border or Mexican border, Canadian border to really be able
Speaker 7: to do all that. And then if you will look
Speaker 7: into the car sector, if for example, we will impose
Speaker 7: fifteen to twenty percent tariff on Canada in Mexico, our
Speaker 7: car price will probably go up by you know, four
Speaker 7: to eight k, right, So that's that's a lot that
Speaker 7: goes on the US consumer obviously, So and that impacts
Speaker 7: a lot of other jobs, not just the consumer. That
Speaker 7: obviously is an inflationary matrix, but it also affects a
Speaker 7: lot of jobs because we have, you know, a few
Speaker 7: large sports in the world, whether it's New York, New Jersey, California, Pennsilana,
Speaker 7: et cetera.
Speaker 4: Alyssa I love and Paul I love trade finance as
Speaker 4: a strategy. It's been around for so long. It's been
Speaker 4: a cash cow, I mean from my historically speaking, And
Speaker 4: please listen, you know, correct me if I'm wrong, high
Speaker 4: single digit, low double digit, you know, very smooth, you know,
Speaker 4: returns over time. Can we as an investor still expect
Speaker 4: those same type of returns? I mean, I love asset
Speaker 4: classes that are complex and structured where you can engineer performance.
Speaker 4: Is that still the case in trade finance?
Speaker 7: That's absolutely right, Not just you, but my investors like
Speaker 7: that a lot. So I've been financing for over a
Speaker 7: decade now. It's very true. It's a very liquid market.
Speaker 7: There's a lot of volume, there's a lot of various
Speaker 7: types of supply chains and gaps where financing is needed,
Speaker 7: whether it's on the supplier side or on the customer side,
Speaker 7: which is called recivle financing of factoring. So there are
Speaker 7: different structures you can create to actually finance a trade.
Speaker 7: And there's a lot of crossboader trading obviously, because you know,
Speaker 7: we we still live in the globalized economy, globalized world,
Speaker 7: so everything that we're seeing in front of us right
Speaker 7: now probably is coming from other countries in certain supply
Speaker 7: chain factors of it, but in terms of volume of it.
Speaker 7: If the tariffs do occur, and you know, they are imposed,
Speaker 7: so I would expect the volume to go down, and
Speaker 7: we've had it last year, right, Sometimes we just have
Speaker 7: to go back in history and we can look at
Speaker 7: a smooth Holly Act or law in nineteen thirty and
Speaker 7: the global trade back then went down by you know,
Speaker 7: sixty plus percent, right, So it impacts you know, the
Speaker 7: US economy, it impacts the global economy. And I guess
Speaker 7: investors are very still interested in the in the trade finance.
Speaker 7: But we're just going to turn about the.
Speaker 3: Volume of it. And just thirty seconds left, April second,
Speaker 3: is at a big date for you.
Speaker 7: Yes, I'm having a lot of coffee that's kind of
Speaker 7: from brazila Columbia.
Speaker 4: Okay, I mean.
Speaker 2: Right, and so so the tariffs. Alissa Rusinov, thank you
Speaker 2: so much for joining us. Alyssa is the CEO of
Speaker 2: l Tech, talking about trade finance in a world where
Speaker 2: trade is you know, coming under some pressure with all
Speaker 2: the new potential policies coming out of this White House.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple Corplay and Android
Speaker 1: Auto with the Bloomberg Business app. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station.
Speaker 1: Just say Alexa play Bloomberg eleven thirty.
Speaker 2: Lots of new slow coming out of Washington, DC. Let's
Speaker 2: get right to it. Jennifer Lawless, politics professor at the
Speaker 2: University of Virginia, who I will note are not in
Speaker 2: the men's tournament. It's just brutal. Jennifer, Thanks so much
Speaker 2: for joining us here. There's lots of ways to go here.
Speaker 2: Let's just talk with a topic. We're just asking Margaret
Speaker 2: Brendan and the CBS about reports that Elon Musk is
Speaker 2: getting briefed about China at the Pentagon today. What do
Speaker 2: you make of this story? What are the risks, what
Speaker 2: are the opportunities, what do you make of it?
Speaker 8: Well, good morning. The entire thing is quite stunning.
Speaker 9: It's unheard of for somebody who's not part of the
Speaker 9: administration or not a member of Congress to receive this
Speaker 9: kind of briefing, despite the fact that he has received
Speaker 9: several types of clearance.
Speaker 8: The speed with which this briefing is.
Speaker 9: Taking place, given that this information was only recently shared
Speaker 9: with other members of the administration, is also somewhat stunning,
Speaker 9: and it just demonstrates the access and proximity that Elon
Speaker 9: Musk has to Donald Trump, and the fact that he
Speaker 9: has a finger in everything, not only domestic policy and
Speaker 9: the economy and DOGE, but also in national security concerns.
Speaker 2: All Right, we have to note, certainly that President Trump
Speaker 2: has denied these reports. So we'll see how this news
Speaker 2: story plays out throughout the day. Another big thing coming
Speaker 2: out of the Washington DC is an executive order to
Speaker 2: end the Department of Education. I wasn't sure that was
Speaker 2: a thing, but apparently it is. How is this going
Speaker 2: to play out?
Speaker 9: Well, the executive order begins dismantling the Department of Education.
Speaker 9: You actually need an Act of Congress to get rid
Speaker 9: of an agency, but there are already members of the
Speaker 9: House and the Senate who have.
Speaker 8: Introduced legislation to do just that. So what Donald.
Speaker 9: Trump did with the executive order was make it clear
Speaker 9: that he was serious about dismantling the department, and he
Speaker 9: signaled to members of Congress that they should move forward.
Speaker 8: And they are.
Speaker 9: And this too is quite stunning for a variety of reasons.
Speaker 9: We knew that he planned to move student loans outside
Speaker 9: of the Department of Education, but the department does far
Speaker 9: more than administer student loans. When we think about education
Speaker 9: funding standards and testing, school lunches and those kinds of programs,
Speaker 9: access for students who have learning disabilities, all of that
Speaker 9: is now extensibly going to get returned to the States.
Speaker 9: And that means why variation across the board, no real
Speaker 9: federal standards, and the extent to which you receive a
Speaker 9: decent public school education is now going to be contingent
Speaker 9: more than ever on where you happen to live.
Speaker 4: And we see a lot of universities here in the
Speaker 4: US turning to the public markets to raise money. As
Speaker 4: I guess, you know, a war test and you know
Speaker 4: against all this, you know, talk to us a little
Speaker 4: bit more. I mean, what is the economic impact of
Speaker 4: all this nonsense with the Department of Education.
Speaker 8: It's pretty substantial.
Speaker 9: I mean, partially it will have to do with public
Speaker 9: schools K through twelve, which is what I was just
Speaker 9: talking about. But universities and colleges across the country are
Speaker 9: also playing a major role. If their funding is linked
Speaker 9: to this administration or what Donald Trump's priorities and preferences are,
Speaker 9: They're in a very precarious position. We've seen, for example,
Speaker 9: the more than four hundred million dollars cut to Columbia University.
Speaker 8: A couple of days.
Speaker 9: Ago, pen received notification that it was going to be
Speaker 9: losing one hundred and seventy five million because of its
Speaker 9: transgender athlete policy. So universities and colleges across the nation
Speaker 9: now have an incentive to do two things. First, raise
Speaker 9: alternative sources of funds that they can continue to exist
Speaker 9: if they're targeted, but also, to the extent possible, comply
Speaker 9: with what Donald Trump is asking for because they were
Speaker 9: lies so heavily on federal funds.
Speaker 4: We know that student loans were postponed under the Biden
Speaker 4: administration during the period of COVID. Talk to us about
Speaker 4: that front. Do we expect, you know, students or former
Speaker 4: students to begin paying back their loans anytime soon and
Speaker 4: is there any news on that.
Speaker 9: The tricky part about that is that the administration has
Speaker 9: said that they obviously want people to pay them back immediately,
Speaker 9: that they don't support the delays that the Biden administration implemented.
Speaker 8: The problem, though, is that.
Speaker 9: They've gutted the people who are the ones monitoring this
Speaker 9: and the people who can actually share with students the
Speaker 9: amount that they owe and how they should go about
Speaker 9: paying this back, and so they seem to be at
Speaker 9: cross purposes with themselves. We'll see what happens, but the
Speaker 9: latest reports that I've seen suggests that neither the Department
Speaker 9: of the Treasury nor Commerce want to absorb responsibility for
Speaker 9: student loans.
Speaker 2: Jennifer, I love to talk to you about the politics
Speaker 2: of the Democratic Party here. You think about the White House,
Speaker 2: you think about both Houses of Congress. Republicans obviously won
Speaker 2: all three, but by very very narrow margins. Yet the
Speaker 2: Democratic Party has been essentially invisible over the since President
Speaker 2: Trump was inaugurated.
Speaker 3: He takes all the air out of the room.
Speaker 2: Are you surprised that Democrats haven't stood up to this
Speaker 2: president more forcefully?
Speaker 3: I am.
Speaker 9: I would say that Democratic attorneys general across the country
Speaker 9: have been doing an insanely high level amount of work
Speaker 9: to push back through the courts. So I think that
Speaker 9: the Democratic attorneys general across the country have really risen
Speaker 9: to the occasion. When it comes to elected members in Washington,
Speaker 9: it's somewhat puzzling, And we saw last week, based on
Speaker 9: what Chuck Schumer did, that the party is not entirely
Speaker 9: on the same page either. I think some Democrats thought
Speaker 9: that the wind would eventually come out of the Trump sales,
Speaker 9: and they assumed that it would be sooner rather than later,
Speaker 9: so they just kind of wanted to sit around and
Speaker 9: wait for that to happen.
Speaker 8: It hasn't happened.
Speaker 9: Others think that they should just compromise because Trump is
Speaker 9: going to get what he wants anyway, and so maybe
Speaker 9: the Democrats can extract something. And still others think that
Speaker 9: because there's unified control in Washington, the Democrats have a
Speaker 9: responsibility to put up a unified front and try to
Speaker 9: block everything and then blame Republicans for any unpopular outcome.
Speaker 9: And unfortunately for the Democratic Party, they're not all on
Speaker 9: the same page and they're all just kind of flailing.
Speaker 3: All right. Very good, Jennifer Lawlis, thank you so much.
Speaker 3: We appreciate that.
Speaker 2: Jennifer lawis Politics professor at the University of Virginia, Lovely
Speaker 2: Charlottesville of Virginia.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto
Speaker 1: with the Bloomberg Business app. You can also watch us
Speaker 1: live every weekday on YouTube and always on the Bloomberg Terminal.
Speaker 3: Kathy Hepworth.
Speaker 2: She is a portfolio manager for PGM Fixed Income, not
Speaker 2: just pGEM Fixed Income, but the head of the pgm's
Speaker 2: Fixed Income's Merging Markets Debt team. I just don't know
Speaker 2: how this happened, Kathy. Thank you so much for joining
Speaker 2: us here in our studio. Really appreciate it. Emerging markets,
Speaker 2: with gew political tensions, with global tariff issues. How is
Speaker 2: your market kind of performing these days?
Speaker 10: Well, the interesting thing is, so far this year from
Speaker 10: a total return perspective, when we look at credit, we
Speaker 10: look at FX, and we look at local rates, it
Speaker 10: has very positive total return numbers and outperforming other investment
Speaker 10: grade and even US high yield market segments. And there
Speaker 10: are reasons for that. Some of that is the attractiveness
Speaker 10: of the carry in what's deemed to be a still
Speaker 10: okay world, big question mark there though.
Speaker 4: Yeah, no, I mean, Kathy's not doing our acid class justice.
Speaker 4: I just have to say it is the best performing
Speaker 4: acid class here today and that there's a good reason
Speaker 4: for that. The reason in my mind is the FX, right,
Speaker 4: I mean, this is an FX story. This is the
Speaker 4: Euro versus the dollar and spillover effects not just into
Speaker 4: the broader EM but more specifically the Eastern European segment
Speaker 4: of the market. Talked to us a little bit about Poland, Hungry,
Speaker 4: check the CE four Romania. I mean, our investors really
Speaker 4: finally in fixed income putting their money to work there locally, Well,
Speaker 4: a couple.
Speaker 10: Of things there. There have been decent portfolio flows and
Speaker 10: FDI flows into some of those countries, Hungary in particular,
Speaker 10: even Romania. But I think what we saw out of
Speaker 10: the EU over the past couple of weeks really is
Speaker 10: a c change, and I think that that can help
Speaker 10: anchor some of those countries in the region. Of course,
Speaker 10: you know, in the context of a trade war, some
Speaker 10: of those economies are quite open economies and they are vulnerable.
Speaker 10: So you have to balance those different risks as trade offs,
Speaker 10: if you will, as to how those countries might be
Speaker 10: impacted by a trade war versus are they going to
Speaker 10: get flows otherwise?
Speaker 4: Right, Well, I mean the periphery there. I mean, the
Speaker 4: EU represents paul seventy five percent of all exports out
Speaker 4: of Czech Hungary, pol And. That that's so sort of
Speaker 4: Eastern European periphery. So you know, you can see how
Speaker 4: it's kind of tracking there. But you know, the one
Speaker 4: market which really caught my eye this week. It's the
Speaker 4: only country in the planet that's actually hiking rates in
Speaker 4: the face of what we're seeing here, and that's Brazil.
Speaker 4: They just hike rates by another one hundred basis. I mean,
Speaker 4: we'res the policy rate fourteen and a quartercaty. I mean,
Speaker 4: talk to about Latin America about carrying in some of
Speaker 4: these sort of high yielding emerging markets.
Speaker 10: And that's exactly what's driving those those high returns, is
Speaker 10: it's carry So Brazil is doing the right thing right
Speaker 10: in the face of uncertainty and credibility as it pertains
Speaker 10: to fiscal policy. Actually even more so than inflation in Brazil,
Speaker 10: they're hiking rates, you know, to to try to anchor
Speaker 10: expectations there, and that's why it's so attractive, I think,
Speaker 10: to be investing in the currency some of the local
Speaker 10: bonds as well. When you think about the vulnerability of
Speaker 10: Brazil to a global trade wark, it's really low when
Speaker 10: you compare it to say a Mexico, right which clearly
Speaker 10: has much more direct trade links with the US. I'm
Speaker 10: not saying, you know, it's going to all end badly
Speaker 10: for Mexico, because I think Mexico has some leverage for
Speaker 10: Brazil is somewhat differentiated in that regard, so I think
Speaker 10: those investors in the currency are also looking at from
Speaker 10: that perspective as well, from the fundamental perspective.
Speaker 4: O Kathy, I know you've been busy this week focused
Speaker 4: on Turkey. Probably talk to us a little bit about
Speaker 4: what's going on on the ground in Turkey.
Speaker 10: It's all about confidence and credibility and the market getting
Speaker 10: ahead of the fact that, oh my god, are we
Speaker 10: going to get back to that period before the recent
Speaker 10: change in policy where maybe you're going to see dollarization
Speaker 10: again in the local Turkish economy. And that's what all
Speaker 10: those levered investors that I think it's probably close to
Speaker 10: twenty billion that we've seen outflow from the currency markets
Speaker 10: in the local bond market so far this week. We
Speaker 10: won't know the numbers until next week. It's is that
Speaker 10: going to put pressure on the locals who perhaps are
Speaker 10: going to be less comfortable owning the Turkish lire.
Speaker 3: I think the fact that the.
Speaker 10: Turkish Central Bank, you know, hiked the overnight rate this
Speaker 10: week was a very good thing, a good measure.
Speaker 2: Kathy Hepworth Portfolio Mager PGM Fixed Income. Kathy, you mentioned
Speaker 2: Mexico that it's you don't think it's terribly for the
Speaker 2: met Well, I could see a scenario where it could
Speaker 2: end terribly for them.
Speaker 3: How do you guys think about Mexico.
Speaker 10: Mexico has leveraged in that the economy between Mexico and
Speaker 10: the US is so integrated, right particularly in the auto
Speaker 10: sector and some of the electronic sectors, that it's really
Speaker 10: not in the US's best interest to impose maximum teriffs
Speaker 10: on Mexico. So I think in that regard, Mexico has
Speaker 10: leverage because it's kind of a negative impact on the
Speaker 10: US economy, and I don't think that that's what the
Speaker 10: US policymakers actually want to happen, and there are there
Speaker 10: is credibility with their institutions. The Central Bank there, we
Speaker 10: think is going to continue to cut rates and that
Speaker 10: will help put a floor on growth. But of course,
Speaker 10: in a really worst case scenario, USMCA is sort of disregarded,
Speaker 10: then of course Mexico can enter recession.
Speaker 4: Kathy, all eyes are always on the US, even in
Speaker 4: emerging markets. And you know, I just want to ask
Speaker 4: you, you know, when you're you know, in the war room
Speaker 4: with Greg Peters and Tom Pricelli and the US guys
Speaker 4: over at PGIUM, what are they thinking right now? I mean,
Speaker 4: I think the market, oh, as US front ends are
Speaker 4: pricing in two and a half cuts through your end,
Speaker 4: you know, I think it's backloaded. But still, I mean
Speaker 4: that's it's quite a lot compared to where we just were.
Speaker 4: I'm wondering where do you think rates go from here?
Speaker 10: Yeah, so caution, caution, caution, right, and tail risks have
Speaker 10: definitely gotten fatter. So and we do think the risk
Speaker 10: of recession has risen. It's not a base case. It
Speaker 10: makes perfect sense to have two or three cuts priced in.
Speaker 10: Is that a FED put? It's not clear to me
Speaker 10: that's a FED put. I still think you need to
Speaker 10: be cautious in the overall amount of risk that you're taking.
Speaker 10: But as an active manager, you know clearly that presents
Speaker 10: opportunities under and overweights, and EM is the great asset
Speaker 10: class to do that right, because there are countries who
Speaker 10: are less vulnerable than other countries, and the countries who
Speaker 10: would be hurt less than those most vulnerable.
Speaker 4: Kathy, I can't let you leave with that asking me
Speaker 4: about China. I mean, look at the MSCI. I know
Speaker 4: you're not in it. We're not equity people here. I
Speaker 4: know that, Kathy, you out to remind me, but you know,
Speaker 4: I mean the MSCAI China is up like thirty percent.
Speaker 4: I think Bob is up something like seventy percent. Is
Speaker 4: that just you know, is that just a trade or
Speaker 4: is there any longevity to that? Is there anything structural
Speaker 4: fundamental that an investor can get behind there?
Speaker 10: I do think there's something fundamental happening in China, and
Speaker 10: I think that we heard it a few weeks ago,
Speaker 10: and I think they are now ready to focus on
Speaker 10: the consumer, to deal properly with the problems in the
Speaker 10: property sector, and they very well behaved. I think visa
Speaker 10: the the Trump administration so far, and there's more yet
Speaker 10: to come. Right, we haven't seen the full extent of
Speaker 10: what's going to happen with China, but I think that
Speaker 10: China is much better prepared this time than they weren't
Speaker 10: Trump one point.
Speaker 4: Now, last question for me. There are only a very small,
Speaker 4: small handful of currencies that are actually down relative to
Speaker 4: the dollar this year. India and Indonesia are two of them.
Speaker 4: The rupee and the rupee. Talk to us a little
Speaker 4: bit about Southeast Asia. I mean, how should investors approach
Speaker 4: that region.
Speaker 10: Yeah, so clearly from a currency perspective, I think they're
Speaker 10: a little bit less attractive. From a local rape perspective,
Speaker 10: it's more attractive because of deflation. I do think they're
Speaker 10: going to be cutting rates. Indonesia is a bit of
Speaker 10: a change right because the mark is concerned about the
Speaker 10: Minister of Finance potentially leaving and the new president having
Speaker 10: some policy changes. I think in India was in part
Speaker 10: because what happened in the fourth quarter, and they used
Speaker 10: reserve too, So I'm much more constructive on India than
Speaker 10: I am on Indonesia.
Speaker 3: That was a masterclass folks in emerging markets.
Speaker 2: Damien Sasa or Kathy Hepworth, Portfolio Manager, PGIM Fixed Income.
Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
Speaker 1: and anywhere else you get your podcasts. Listen live each
Speaker 1: weekday seven to ten am Eastern on Bloomberg dot Com,
Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business App.
Speaker 1: You can also watch us live every weekday on YouTube
Speaker 1: and always on the Bloomberg terminal