1 00:00:00,120 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:36,960 Speaker 2: Terminal and the Bloomberg Business app. Rri's with us for 10 00:00:36,960 --> 00:00:38,720 Speaker 2: the aut She joins us around the table. Lorrie, good 11 00:00:38,720 --> 00:00:40,880 Speaker 2: morning to you, Thanks for having fantastic to see you. 12 00:00:40,920 --> 00:00:42,680 Speaker 2: I want to start with this. This came from Peachier 13 00:00:42,760 --> 00:00:44,880 Speaker 2: Academy and he went through some of the big names 14 00:00:44,920 --> 00:00:47,080 Speaker 2: in big tag over the last week. And he started 15 00:00:47,120 --> 00:00:50,000 Speaker 2: with Nvidia two Fridays ago. So two Fridays ago, we 16 00:00:50,040 --> 00:00:52,440 Speaker 2: had a ten percent move on absolutely nothing, a two 17 00:00:52,440 --> 00:00:55,640 Speaker 2: trillion dollar company. Ten percent move just like that Tesla 18 00:00:56,000 --> 00:00:58,160 Speaker 2: last Wednesday, and move a ten percent on a five 19 00:00:58,240 --> 00:01:01,520 Speaker 2: hundred billion dollar market cap Meta. Another move a ten percent, 20 00:01:01,720 --> 00:01:03,960 Speaker 2: this time to the downside on a one trillion dollar 21 00:01:04,000 --> 00:01:05,880 Speaker 2: market cap, and then we had Alphabet with a move 22 00:01:05,920 --> 00:01:07,800 Speaker 2: of ten percent on Friday on a two point one 23 00:01:07,840 --> 00:01:10,720 Speaker 2: trillion dollar market cap. Painter Cheer asking the asking, the 24 00:01:10,840 --> 00:01:13,560 Speaker 2: big question is ten percent the new one percent for 25 00:01:13,680 --> 00:01:15,959 Speaker 2: megacap tech? And what's the message you take away from that? 26 00:01:16,440 --> 00:01:18,400 Speaker 3: So I'll go back to my small cap days if 27 00:01:18,400 --> 00:01:19,319 Speaker 3: I can, and I know these. 28 00:01:19,160 --> 00:01:21,200 Speaker 1: Are the far stace. It feels like, yeah, this is. 29 00:01:21,120 --> 00:01:24,000 Speaker 3: How small caps have always traded. You know, I think 30 00:01:24,000 --> 00:01:26,000 Speaker 3: some of the price reactions in small cap to prints 31 00:01:26,000 --> 00:01:27,959 Speaker 3: have gotten a bit worse than that, But you know, 32 00:01:27,959 --> 00:01:30,040 Speaker 3: I think in small cap this is just something that 33 00:01:30,080 --> 00:01:32,120 Speaker 3: was a normal, you know, sort of reaction to earnings 34 00:01:32,120 --> 00:01:34,280 Speaker 3: for a long time. So it doesn't maybe throw me 35 00:01:34,400 --> 00:01:36,200 Speaker 3: quite as much as it might some other folks. 36 00:01:36,360 --> 00:01:38,759 Speaker 2: What should we take away from the fact that uber 37 00:01:38,840 --> 00:01:41,080 Speaker 2: cap stocks are behaving like small caps though? 38 00:01:41,440 --> 00:01:43,280 Speaker 3: Well, I think what we're seeing if we look at 39 00:01:43,319 --> 00:01:46,160 Speaker 3: the earnings data and Bloomberg does some great work just 40 00:01:46,240 --> 00:01:48,640 Speaker 3: forecasting where the earnings are expected to go based on 41 00:01:48,680 --> 00:01:51,760 Speaker 3: bottom of consensus forecast. We've been talking about this since January, 42 00:01:51,840 --> 00:01:54,560 Speaker 3: and you see a deccelerating growth rate. So coming off 43 00:01:54,600 --> 00:01:57,000 Speaker 3: around I think thirty five percent twenty twenty three. If 44 00:01:57,000 --> 00:01:58,440 Speaker 3: you look at the basket as a whole for the 45 00:01:58,480 --> 00:02:01,560 Speaker 3: mag seven, that's four caps to drop to about fifteen 46 00:02:01,600 --> 00:02:04,640 Speaker 3: percent or so in twenty twenty five and really basically 47 00:02:04,680 --> 00:02:06,240 Speaker 3: come in line with the rest of the market. And 48 00:02:06,240 --> 00:02:07,760 Speaker 3: there's one thing I've learned over the course of my 49 00:02:07,840 --> 00:02:10,720 Speaker 3: career is that when you have these, you know, powerful 50 00:02:10,760 --> 00:02:13,440 Speaker 3: momentum stocks and growth rates to celerate, it doesn't matter 51 00:02:13,520 --> 00:02:16,760 Speaker 3: how good the growth is. Growth investors get angsty. And 52 00:02:16,760 --> 00:02:18,240 Speaker 3: that's what I feel like you're seeing in the stock 53 00:02:18,240 --> 00:02:19,320 Speaker 3: price reaction race is. 54 00:02:19,320 --> 00:02:21,560 Speaker 2: Big questions right now about what's being rewarded and what's 55 00:02:21,560 --> 00:02:23,680 Speaker 2: being punished going and get too numbers from Apple and Amazon. 56 00:02:23,680 --> 00:02:25,880 Speaker 2: We talked about the days for those two names. Amazon 57 00:02:25,840 --> 00:02:28,600 Speaker 2: adets coming tomorrow, Apple coming on Thursday. Can we focus 58 00:02:28,600 --> 00:02:30,160 Speaker 2: on that a little bit more? What you sense has 59 00:02:30,200 --> 00:02:33,360 Speaker 2: been rewarded really well discerning season, what's getting punished. 60 00:02:33,400 --> 00:02:35,320 Speaker 3: So if you look at the Russell one thousand, and 61 00:02:35,360 --> 00:02:37,240 Speaker 3: we have to look that big at this early in 62 00:02:37,280 --> 00:02:40,280 Speaker 3: reporting season, the beats aren't getting rewarded. I mean they're underperforming. 63 00:02:40,320 --> 00:02:42,400 Speaker 3: They're not performing as well as they typically do in 64 00:02:42,480 --> 00:02:45,520 Speaker 3: kind of the one to two day post prints. So 65 00:02:45,680 --> 00:02:48,119 Speaker 3: I think what I've noticed as we're going through commentary, 66 00:02:48,160 --> 00:02:50,200 Speaker 3: and again it's still very early. We're reading as much 67 00:02:50,240 --> 00:02:52,280 Speaker 3: as we can. We don't get through everything, you know, 68 00:02:52,320 --> 00:02:55,280 Speaker 3: they're fast reads. But what I feel like I'm seeing 69 00:02:55,360 --> 00:02:57,840 Speaker 3: is just kind of an intolerance for the we need 70 00:02:57,880 --> 00:03:01,360 Speaker 3: to be patient conversation. We sensed a lot of that 71 00:03:01,440 --> 00:03:03,080 Speaker 3: early on. I sort of felt like there was a 72 00:03:03,120 --> 00:03:06,320 Speaker 3: shift last week kind of midweek where companies who were saying, Okay, 73 00:03:06,320 --> 00:03:08,000 Speaker 3: we're getting the benefit of these things now, and I'm 74 00:03:08,000 --> 00:03:10,760 Speaker 3: thinking about specifically on the AI discussion. You know, we're 75 00:03:10,800 --> 00:03:13,440 Speaker 3: benefiting from the ramp that's going to continue in coming years. 76 00:03:13,639 --> 00:03:15,720 Speaker 3: Investors were okay with that, but the sort of wait 77 00:03:15,760 --> 00:03:18,359 Speaker 3: and see this is going to take time again. We've 78 00:03:18,360 --> 00:03:20,280 Speaker 3: got to celerating earnings growth that you know, kind of 79 00:03:20,320 --> 00:03:22,560 Speaker 3: twenty seven times multiples on a Media and PE and 80 00:03:22,600 --> 00:03:25,760 Speaker 3: those biggest tech stocks. Investors just don't have a lot 81 00:03:25,760 --> 00:03:26,760 Speaker 3: of patience for that right now. 82 00:03:26,800 --> 00:03:28,440 Speaker 4: So is there time for a pullback now? 83 00:03:29,080 --> 00:03:31,120 Speaker 3: So we've been getting a little bit of a pullback, 84 00:03:31,160 --> 00:03:32,919 Speaker 3: and a lot of that has happened as we've had 85 00:03:32,919 --> 00:03:35,960 Speaker 3: some volatility in these bigger names. You know, look I'm 86 00:03:35,960 --> 00:03:38,600 Speaker 3: not looking for any kind of massive pullback in those 87 00:03:38,680 --> 00:03:40,720 Speaker 3: names or massive pullback in the markets. We've said we 88 00:03:40,720 --> 00:03:43,080 Speaker 3: thought the pullback would be worth about five to ten percent. 89 00:03:43,160 --> 00:03:45,600 Speaker 3: We've had more than five. I don't think we're quite 90 00:03:45,680 --> 00:03:48,480 Speaker 3: done yet. If you look at CFTC data on positioning 91 00:03:48,480 --> 00:03:51,160 Speaker 3: in either Nasdaq one hundred futures, SMP futures, or the 92 00:03:51,200 --> 00:03:54,400 Speaker 3: broader market, you know, we haven't even begun the correction. 93 00:03:54,520 --> 00:03:56,800 Speaker 3: If you look at AAII, we've done some damage, but 94 00:03:56,840 --> 00:03:58,480 Speaker 3: we've still got, you know, probably at least a couple 95 00:03:58,560 --> 00:03:59,840 Speaker 3: more weeks of damage to do there. 96 00:04:00,080 --> 00:04:01,800 Speaker 4: So if you look at the Peter tiernoon, he talks 97 00:04:01,840 --> 00:04:04,640 Speaker 4: about how all these big companies are treating like little companies. 98 00:04:04,720 --> 00:04:07,160 Speaker 4: Who's going to be leading If there's not a pullback 99 00:04:07,240 --> 00:04:08,680 Speaker 4: right now, how do you see this rotation? 100 00:04:09,040 --> 00:04:11,000 Speaker 3: So, you know, I think the financials have come through 101 00:04:11,000 --> 00:04:14,200 Speaker 3: this reporting season so far reasonably well. I personally on 102 00:04:14,240 --> 00:04:17,120 Speaker 3: my team read a lot of industrials and materials. I'm 103 00:04:17,120 --> 00:04:19,599 Speaker 3: not really seeing any big kind of demand problems, you know, 104 00:04:19,640 --> 00:04:21,320 Speaker 3: I'm seeing companies that are talking a lot of being 105 00:04:21,320 --> 00:04:24,359 Speaker 3: able to manage through headwinds. I think it's not so 106 00:04:24,480 --> 00:04:27,360 Speaker 3: much a particular sector. I think it's looking for industries, 107 00:04:27,440 --> 00:04:30,479 Speaker 3: for companies within the value cyclical cohort of the market, 108 00:04:30,480 --> 00:04:33,080 Speaker 3: so that could be energy and materials industrials. I think 109 00:04:33,120 --> 00:04:34,240 Speaker 3: certain small caps as well. 110 00:04:34,320 --> 00:04:36,799 Speaker 2: I want to talk about another big ubercamp company, Apple 111 00:04:36,839 --> 00:04:39,400 Speaker 2: on Thursday. This from Bernsteain this morning, the latest note 112 00:04:39,440 --> 00:04:42,080 Speaker 2: dropping from them by the fear of growding the stock 113 00:04:42,160 --> 00:04:45,839 Speaker 2: to outperform. Apple is de rated significantly amid a weak 114 00:04:45,880 --> 00:04:49,400 Speaker 2: iPhone fifteen cycle and fears that Apple's China business is 115 00:04:49,440 --> 00:04:51,839 Speaker 2: structurally impaired. They're taking the other side of some of 116 00:04:51,839 --> 00:04:54,320 Speaker 2: this lorry. I want to ask you specifically about Apple, 117 00:04:54,400 --> 00:04:56,800 Speaker 2: but maybe some of the forces associated with that name 118 00:04:56,839 --> 00:05:00,960 Speaker 2: at the moment. The difficulty navigating international waters, particular China. 119 00:05:01,200 --> 00:05:02,840 Speaker 2: The strength of the US dollar a factor I think 120 00:05:02,880 --> 00:05:04,920 Speaker 2: as well. I was reading through your note overnight. How 121 00:05:04,960 --> 00:05:06,960 Speaker 2: many times have those two things come up on earning 122 00:05:07,000 --> 00:05:07,839 Speaker 2: scolles so fast? 123 00:05:07,880 --> 00:05:10,120 Speaker 3: So the FX headwinds are coming up. I'm noticing it 124 00:05:10,160 --> 00:05:12,320 Speaker 3: more with the tech companies, to be honest, than others. 125 00:05:12,320 --> 00:05:13,680 Speaker 3: When we'll see, you know, we've got a lot of 126 00:05:13,680 --> 00:05:15,440 Speaker 3: stuff in the other parts of the market to hear from, 127 00:05:15,480 --> 00:05:17,200 Speaker 3: but so far it seems mostly to be a tech 128 00:05:17,240 --> 00:05:20,960 Speaker 3: company phenomenon, I will say on the Geographic commentary, and 129 00:05:21,000 --> 00:05:23,360 Speaker 3: it's maybe a little hard to say because we've had 130 00:05:23,360 --> 00:05:25,360 Speaker 3: a lot of financials so far, but at least in 131 00:05:25,440 --> 00:05:28,279 Speaker 3: what I read last week the Geographic commentary, so Europe 132 00:05:28,400 --> 00:05:31,600 Speaker 3: China kind of trends versus the US, things seem a 133 00:05:31,640 --> 00:05:34,080 Speaker 3: lot more balanced, Whereas if you look last year, it 134 00:05:34,120 --> 00:05:37,400 Speaker 3: was all China's not coming through as well as we anticipated. 135 00:05:37,400 --> 00:05:39,800 Speaker 3: There's a lot of uncertainty. Things haven't bottomed yet, and 136 00:05:39,800 --> 00:05:41,279 Speaker 3: I wouldn't say I'm seeing a lot of you know, 137 00:05:41,360 --> 00:05:43,680 Speaker 3: jumping up and down and celebrating on China, but it 138 00:05:43,760 --> 00:05:44,800 Speaker 3: just seems more balanced. 139 00:05:44,880 --> 00:05:46,720 Speaker 2: What do you think the difficulty has been in China 140 00:05:46,800 --> 00:05:50,160 Speaker 2: for tech firms specifically? What is unique about China to them? 141 00:05:50,720 --> 00:05:52,440 Speaker 3: You know, I'm not sure I know the great answer 142 00:05:52,480 --> 00:05:54,160 Speaker 3: to that question, to be honest. I know it's been 143 00:05:54,200 --> 00:05:56,760 Speaker 3: a growth part of the business for many of these companies, 144 00:05:56,800 --> 00:05:59,240 Speaker 3: and when you're encountering, you know, sort of difficulty in 145 00:05:59,279 --> 00:06:02,200 Speaker 3: the post pandemic world. You know, there was so much 146 00:06:02,240 --> 00:06:04,479 Speaker 3: excitement a year ago that we were sort of finally 147 00:06:04,520 --> 00:06:07,760 Speaker 3: getting that recovery and that normalization, and that normalization I 148 00:06:07,800 --> 00:06:10,159 Speaker 3: think just hasn't been as clean as a lot of 149 00:06:10,160 --> 00:06:12,040 Speaker 3: companies would have anticipated. I think there's just not a 150 00:06:12,080 --> 00:06:14,680 Speaker 3: lot of visibility necessarily on when that was going to 151 00:06:14,720 --> 00:06:15,240 Speaker 3: turn around. 152 00:06:15,279 --> 00:06:17,200 Speaker 4: When you read through these earnings reports, I think back 153 00:06:17,240 --> 00:06:19,559 Speaker 4: to what Muhammed and Larian recently told us about how 154 00:06:20,120 --> 00:06:22,840 Speaker 4: a lot of people missed what CEOs are saying, and 155 00:06:22,880 --> 00:06:26,279 Speaker 4: they bought into this transitory inflation, but CEOs were saying, actually, 156 00:06:26,279 --> 00:06:28,840 Speaker 4: we still feel inflation coming down the pipeline. What do 157 00:06:29,000 --> 00:06:31,480 Speaker 4: you gather from reading all these reports about where inflation 158 00:06:31,600 --> 00:06:32,760 Speaker 4: is right now for these corporates? 159 00:06:32,760 --> 00:06:35,120 Speaker 3: So, you know, it's funny. Back in the last reporting season, 160 00:06:35,160 --> 00:06:37,680 Speaker 3: so kind of calendar one Q for the four Q numbers, 161 00:06:38,360 --> 00:06:40,840 Speaker 3: companies were raising the red flag right like, they were 162 00:06:40,880 --> 00:06:44,880 Speaker 3: really complaining about costs, margin pressures. I'm not sensing quite 163 00:06:44,880 --> 00:06:47,400 Speaker 3: as much of that now. It doesn't sound good. It sounds, 164 00:06:47,440 --> 00:06:49,679 Speaker 3: you know, some companies are complaining a lot about inflation. 165 00:06:49,800 --> 00:06:53,400 Speaker 3: Some people are talking about moderating disinflation, deflation. It's a 166 00:06:53,400 --> 00:06:55,640 Speaker 3: little more mixed, but again it is still very early. 167 00:06:55,880 --> 00:06:57,640 Speaker 2: Laurie, this was great. It's going to be fantastic to 168 00:06:57,680 --> 00:06:59,840 Speaker 2: run through some of the top stories ten minute comes 169 00:07:00,360 --> 00:07:02,960 Speaker 2: with Lori Cavasenior of RBC. Not a single mention of 170 00:07:03,000 --> 00:07:05,479 Speaker 2: the federal reserve gone into that decision on Wednesday, which 171 00:07:05,480 --> 00:07:07,320 Speaker 2: I guess is a good thing because we've actually been 172 00:07:07,360 --> 00:07:10,120 Speaker 2: talking about nothing but the federal Reserve over the last 173 00:07:10,160 --> 00:07:22,640 Speaker 2: month or so. As they made event in foreign exchange, 174 00:07:22,680 --> 00:07:24,800 Speaker 2: the end bouncing off its weekest eleven and thirty four 175 00:07:24,880 --> 00:07:28,320 Speaker 2: years dolly yen falling to one sixty before running back 176 00:07:28,360 --> 00:07:31,000 Speaker 2: on thin trading due to a local public holiday. Japan's 177 00:07:31,000 --> 00:07:34,120 Speaker 2: top currency officials saying no comment for now when asked 178 00:07:34,160 --> 00:07:37,160 Speaker 2: by reporters if the government intervened, Mart McCormack, a TEDI 179 00:07:37,200 --> 00:07:40,720 Speaker 2: Securities joins us right now to comment officially on the situation. 180 00:07:40,840 --> 00:07:42,800 Speaker 2: Mart McCormick, what happened overnight? 181 00:07:44,360 --> 00:07:45,880 Speaker 1: Yeah, I think it's pretty clear if you think of 182 00:07:45,880 --> 00:07:46,400 Speaker 1: the sequence. 183 00:07:46,480 --> 00:07:49,800 Speaker 5: We had some hot inflation data come through last couple 184 00:07:49,840 --> 00:07:51,920 Speaker 5: of weeks in the US. Then we basically had BOJ 185 00:07:52,120 --> 00:07:54,960 Speaker 5: that was standing pat basically said we're pretty much not 186 00:07:55,080 --> 00:07:57,600 Speaker 5: changing our stands. We're not doing anything. I think one 187 00:07:57,600 --> 00:07:59,040 Speaker 5: of the things is the BOG is very good at 188 00:07:59,080 --> 00:08:00,960 Speaker 5: telling us what they did his But I don't think 189 00:08:01,000 --> 00:08:03,000 Speaker 5: you should look at the BOJ for four guidance on 190 00:08:03,000 --> 00:08:06,000 Speaker 5: what they'll do in the future. So dollar yen moved 191 00:08:06,160 --> 00:08:09,240 Speaker 5: rapidly higher after those events. And essentially what you have 192 00:08:09,480 --> 00:08:12,120 Speaker 5: is the BOJ and the Ministry of Finance seem to 193 00:08:12,160 --> 00:08:14,440 Speaker 5: not have the same opinion about where they again should be. 194 00:08:14,840 --> 00:08:17,280 Speaker 5: And it looks as if overnight that Japanese officials had 195 00:08:17,320 --> 00:08:20,320 Speaker 5: intervened in the FX market to try to strengthen the 196 00:08:20,440 --> 00:08:20,920 Speaker 5: end mark. 197 00:08:21,000 --> 00:08:22,960 Speaker 2: Let's get into that distinction. It's important. So we've heard 198 00:08:22,960 --> 00:08:25,000 Speaker 2: complaints from the Ministry of Finance, We've heard next to 199 00:08:25,040 --> 00:08:27,560 Speaker 2: nothing from the Bank of Japan. We have to deal 200 00:08:27,600 --> 00:08:29,720 Speaker 2: with the big question, is it a problem or not? 201 00:08:30,080 --> 00:08:31,520 Speaker 2: Do you think it is a problem. 202 00:08:32,360 --> 00:08:33,319 Speaker 1: Well, I think part of it is. 203 00:08:33,360 --> 00:08:36,400 Speaker 5: The problem is is it speculative and does it have 204 00:08:36,679 --> 00:08:38,720 Speaker 5: kind of somewhat of a negative impact. 205 00:08:38,720 --> 00:08:40,200 Speaker 1: I think part of it with that fax is there's 206 00:08:40,200 --> 00:08:41,360 Speaker 1: always winners and losers. 207 00:08:41,920 --> 00:08:43,920 Speaker 5: So you know, if you think about it from one perspective, 208 00:08:43,960 --> 00:08:47,640 Speaker 5: the BOJ they're helping tourism, they're helping profit margins, sourcings 209 00:08:47,679 --> 00:08:51,599 Speaker 5: are good. You can see the exporters are accumulating larger surpluses. 210 00:08:51,880 --> 00:08:53,600 Speaker 5: But again, at the same time, if you look at 211 00:08:53,640 --> 00:08:56,480 Speaker 5: the correlation to the you know, whether or not the 212 00:08:57,360 --> 00:09:00,400 Speaker 5: politics and the politicians are actually doing their job properly. 213 00:09:00,679 --> 00:09:01,960 Speaker 5: I think what we can see is there's a very 214 00:09:02,000 --> 00:09:04,960 Speaker 5: strong correlation with the disapproval rating and the diet versus 215 00:09:05,000 --> 00:09:06,040 Speaker 5: the movement in dollar yen. 216 00:09:06,280 --> 00:09:08,560 Speaker 1: So this is a big pain point for consumers. 217 00:09:08,760 --> 00:09:11,400 Speaker 5: Also, if you look at oil based in yen prices, 218 00:09:11,400 --> 00:09:13,480 Speaker 5: we're back to where we were in two thousand and seven, 219 00:09:13,480 --> 00:09:16,160 Speaker 5: two thousand and eight, So there is a massive consumer 220 00:09:16,240 --> 00:09:18,679 Speaker 5: shock here that's going on from the weakness in the end. 221 00:09:18,880 --> 00:09:21,360 Speaker 5: So I think the Ministry of Finance is more focused 222 00:09:21,400 --> 00:09:23,559 Speaker 5: on the broad based movement and whether or not it's 223 00:09:23,640 --> 00:09:26,400 Speaker 5: kind of dislodged it tell from fundamentals, and the boj 224 00:09:26,600 --> 00:09:28,440 Speaker 5: is essentially just kind of sticking to their party a 225 00:09:28,480 --> 00:09:31,840 Speaker 5: line that this is not something that they want to control. 226 00:09:31,920 --> 00:09:33,520 Speaker 1: They basically control interest. 227 00:09:33,320 --> 00:09:35,960 Speaker 5: Rates and monetary policy, and the FX is basically a 228 00:09:36,040 --> 00:09:37,600 Speaker 5: function for the Ministry of Finance. 229 00:09:37,800 --> 00:09:40,880 Speaker 2: This currency's been bullied all month, Missila describing it as 230 00:09:40,920 --> 00:09:44,000 Speaker 2: a dog chasing an airborne frisbee, which made me laugh 231 00:09:44,040 --> 00:09:46,199 Speaker 2: at least this morning. Mark. Looking at the direction to 232 00:09:46,280 --> 00:09:48,520 Speaker 2: travel over the last month or so, I want to 233 00:09:48,559 --> 00:09:51,400 Speaker 2: know whether you believe we've actually put a sustainable ceiling 234 00:09:51,520 --> 00:09:54,160 Speaker 2: now in this currency pair on Dolly yen. And I 235 00:09:54,160 --> 00:09:56,360 Speaker 2: want your opinion on this from Kit Chooks of Silkgen, 236 00:09:56,400 --> 00:09:58,920 Speaker 2: who said, basically, what we need to achieve that is 237 00:09:58,960 --> 00:10:01,720 Speaker 2: more aggressive policy action from both the Ministry of Finance 238 00:10:02,040 --> 00:10:04,600 Speaker 2: and from the BOJ. Then the BOJ would need to 239 00:10:04,640 --> 00:10:08,839 Speaker 2: signal a willingness to normalize policy even further, which so far, Mark, 240 00:10:08,880 --> 00:10:10,880 Speaker 2: as you know, they've been reluctant to do so. So 241 00:10:11,040 --> 00:10:14,480 Speaker 2: do you think we've established a pretty durable, solid, resilient 242 00:10:14,600 --> 00:10:16,680 Speaker 2: ceiling on dollien around one sixty? 243 00:10:18,120 --> 00:10:20,560 Speaker 5: I think we have in part on the fact that 244 00:10:20,800 --> 00:10:24,280 Speaker 5: what intervention does is it doesn't change the trend, it 245 00:10:24,360 --> 00:10:27,120 Speaker 5: changes a psychology. So you know, typically what we can 246 00:10:27,160 --> 00:10:30,280 Speaker 5: see is at least two weeks of this intervention working. 247 00:10:30,880 --> 00:10:32,520 Speaker 5: I would say what we need on the other side 248 00:10:32,640 --> 00:10:34,920 Speaker 5: is we do need to see the trajectory of the 249 00:10:34,960 --> 00:10:36,920 Speaker 5: dollar change. We do need to see the fundamentals in 250 00:10:37,040 --> 00:10:39,320 Speaker 5: US change. I don't think that's going to change in 251 00:10:39,360 --> 00:10:41,600 Speaker 5: favor of a stronger again in the short term, but 252 00:10:41,679 --> 00:10:44,559 Speaker 5: as you mentioned, the BOJ does have an impact, and 253 00:10:44,760 --> 00:10:46,120 Speaker 5: you know, I think part of what if we go 254 00:10:46,200 --> 00:10:48,600 Speaker 5: back to like every major central bank when they started 255 00:10:48,640 --> 00:10:52,400 Speaker 5: normalizing policy over the last couple of years, everyone chronically 256 00:10:52,640 --> 00:10:54,680 Speaker 5: underestimated what the terminal rate was. 257 00:10:55,160 --> 00:10:56,880 Speaker 1: And I think this was a part of it. It's 258 00:10:56,880 --> 00:10:57,720 Speaker 1: price discovery. 259 00:10:57,760 --> 00:11:00,840 Speaker 5: Where in the new world central banks are are essentially 260 00:11:01,120 --> 00:11:04,120 Speaker 5: their forward guidance and their forecasts themselves have not been 261 00:11:04,160 --> 00:11:06,600 Speaker 5: able to articulate exactly where they think the terminal rate 262 00:11:06,640 --> 00:11:07,200 Speaker 5: should be either. 263 00:11:07,520 --> 00:11:08,120 Speaker 1: So it's bad. 264 00:11:08,200 --> 00:11:11,200 Speaker 5: Basically, you know, the market has basically been forced to 265 00:11:11,280 --> 00:11:13,160 Speaker 5: kind of go through this process of figuring it out 266 00:11:13,200 --> 00:11:15,560 Speaker 5: for trial and error. And I think basically what we 267 00:11:15,559 --> 00:11:18,560 Speaker 5: should think about is that the BOJ and the japan 268 00:11:19,520 --> 00:11:22,120 Speaker 5: policy rate, the natural policy rate is. 269 00:11:22,160 --> 00:11:23,920 Speaker 1: Much higher than what's being priced in the markets. 270 00:11:23,920 --> 00:11:26,880 Speaker 5: If you look at one year one year Japanese basis 271 00:11:26,880 --> 00:11:29,360 Speaker 5: price swap from basically around fifty basis points, I would 272 00:11:29,440 --> 00:11:30,960 Speaker 5: argue it's much higher than that. 273 00:11:31,000 --> 00:11:32,200 Speaker 1: It's probably above one. 274 00:11:32,800 --> 00:11:35,040 Speaker 5: So I think at some point, whether or not it's 275 00:11:35,080 --> 00:11:37,320 Speaker 5: because of the currency, or whether or not just because 276 00:11:37,880 --> 00:11:39,880 Speaker 5: you know the level what's pricing the market and where 277 00:11:39,920 --> 00:11:42,719 Speaker 5: inflation is a bit more sticky in Japan. You know, 278 00:11:42,720 --> 00:11:44,200 Speaker 5: if you look at some of the stuff that's dropped 279 00:11:44,240 --> 00:11:46,640 Speaker 5: out of the inflation basket in Tokyo, and some of 280 00:11:46,679 --> 00:11:49,840 Speaker 5: the other indicators you track in Japan, they're more temporary, 281 00:11:49,880 --> 00:11:53,320 Speaker 5: they're related to fiscal stimulus is come through if they've 282 00:11:53,360 --> 00:11:56,480 Speaker 5: come through on subsidies. So but the level of inflation 283 00:11:56,520 --> 00:11:59,480 Speaker 5: in Japan is generally pretty higher. So I would argue 284 00:11:59,520 --> 00:12:01,440 Speaker 5: here that the BOJ is going to be forced to 285 00:12:01,520 --> 00:12:04,800 Speaker 5: tighten more aggressively at what price in the market that. 286 00:12:04,720 --> 00:12:06,600 Speaker 1: Will help stabilize the end. 287 00:12:06,920 --> 00:12:09,400 Speaker 5: But for the process to turn lower, you just need 288 00:12:09,400 --> 00:12:13,280 Speaker 5: a much more dubbish FED, which looks increasingly unlikely at 289 00:12:13,360 --> 00:12:14,720 Speaker 5: least for the remainder of this year. 290 00:12:14,960 --> 00:12:17,040 Speaker 4: Well, Mark Gouffo, I want to ask, if short term 291 00:12:17,080 --> 00:12:20,360 Speaker 4: the US dollar is not going anywhere, won't the BOJ, 292 00:12:20,600 --> 00:12:24,200 Speaker 4: the financial chiefs in the currency chiefs in Japan just 293 00:12:24,200 --> 00:12:26,200 Speaker 4: be dealing with this episode again. 294 00:12:27,920 --> 00:12:29,679 Speaker 5: Well, I think a big component here is if you 295 00:12:29,720 --> 00:12:32,680 Speaker 5: think about what drives dollar yet, I think there's two 296 00:12:32,679 --> 00:12:34,560 Speaker 5: factors right now that we could kind of see in 297 00:12:34,559 --> 00:12:36,480 Speaker 5: some of the models in data we track. It's hedge 298 00:12:36,520 --> 00:12:39,439 Speaker 5: funds because there's a trade in it, and it's Japanese 299 00:12:39,920 --> 00:12:41,079 Speaker 5: institutional investors. 300 00:12:41,520 --> 00:12:43,240 Speaker 1: So I think a big piece of it is the 301 00:12:43,280 --> 00:12:44,199 Speaker 1: market wants. 302 00:12:43,960 --> 00:12:47,880 Speaker 5: To see institutional investors kind of front run movements in 303 00:12:47,920 --> 00:12:50,760 Speaker 5: the policy, and I would argue that they are lagging indicators. 304 00:12:50,760 --> 00:12:54,760 Speaker 5: So if you think about pension funds, insurance companies, even corporations, 305 00:12:55,120 --> 00:12:59,000 Speaker 5: you know, essentially these are probably some of the institutions. 306 00:12:58,360 --> 00:12:59,959 Speaker 1: That are caught on the wrong side of this trade. 307 00:13:00,520 --> 00:13:02,280 Speaker 5: I think a lot of these places we're probably thinking 308 00:13:02,360 --> 00:13:06,400 Speaker 5: between that's top and dollar yen, So a lot of 309 00:13:06,400 --> 00:13:10,640 Speaker 5: these institutions were probably essentially short dollars long en and 310 00:13:10,720 --> 00:13:13,000 Speaker 5: basically the move to one sixty just was too much, 311 00:13:13,040 --> 00:13:13,480 Speaker 5: too fast. 312 00:13:13,480 --> 00:13:15,200 Speaker 1: So that's where you start to see the shoulder taps. 313 00:13:15,559 --> 00:13:18,080 Speaker 5: But I think in terms of the movements in dollar 314 00:13:18,200 --> 00:13:21,640 Speaker 5: yen over the longer term, the pension fund rebalancing, the 315 00:13:21,720 --> 00:13:26,480 Speaker 5: insurance companies, all these these institutions that are really running low, 316 00:13:26,559 --> 00:13:29,520 Speaker 5: unheaged levels in dollar yen, these are the ones that'll 317 00:13:29,559 --> 00:13:33,400 Speaker 5: start to repatriate that capital. Yes, you need some movements 318 00:13:33,480 --> 00:13:35,880 Speaker 5: coming from the FED and from the US curve, but 319 00:13:36,000 --> 00:13:37,600 Speaker 5: essentially at the same time, you also if you have 320 00:13:37,679 --> 00:13:40,160 Speaker 5: BOJ tightening policy a little bit more aggressively than what 321 00:13:40,320 --> 00:13:43,040 Speaker 5: markets are pricing, we will see the repatrion of those 322 00:13:43,080 --> 00:13:45,120 Speaker 5: flows over time, which is. 323 00:13:45,120 --> 00:13:47,120 Speaker 1: Our expectations, but that's not going to be the short 324 00:13:47,200 --> 00:13:47,880 Speaker 1: term trade. 325 00:13:47,960 --> 00:13:50,160 Speaker 5: That is a process of how they look at an investment, 326 00:13:50,200 --> 00:13:53,280 Speaker 5: which those rebalancings usually come quarterly or even annually. 327 00:13:53,320 --> 00:13:55,319 Speaker 2: If you want just joining us big moves overnight in 328 00:13:55,360 --> 00:13:57,560 Speaker 2: the FX market, allow me to run through them for you. 329 00:13:57,640 --> 00:14:00,599 Speaker 2: We brought through one sixty late last night. Dolli en. 330 00:14:00,679 --> 00:14:03,000 Speaker 2: This mark has just been bullying the Japanese yen, pushing 331 00:14:03,040 --> 00:14:05,240 Speaker 2: it ever higher over the last month or so. Some 332 00:14:05,320 --> 00:14:08,040 Speaker 2: big numbers taken out, numbers we haven't seen since the 333 00:14:08,040 --> 00:14:12,120 Speaker 2: early nineteen nineties that range this morning one sixty seventeen 334 00:14:12,160 --> 00:14:15,120 Speaker 2: at the high than the low, one fifty four, fifty four. 335 00:14:15,440 --> 00:14:18,120 Speaker 2: Japanese yen kicking in some strength big time in the 336 00:14:18,200 --> 00:14:20,840 Speaker 2: last few hours or so, and a lot of suspicion 337 00:14:21,240 --> 00:14:23,960 Speaker 2: that the Ministry of Finance has intervened in this market. 338 00:14:24,080 --> 00:14:26,640 Speaker 2: The official comment from them so far is no comment. 339 00:14:26,920 --> 00:14:30,680 Speaker 2: This from Dow Jones that financial authorities have intervened in 340 00:14:30,720 --> 00:14:33,200 Speaker 2: the FX market. Mark I want to wrap things up 341 00:14:33,240 --> 00:14:35,640 Speaker 2: more broadly in foreign exchange. This came from Mary Robinson 342 00:14:35,640 --> 00:14:38,440 Speaker 2: of Stanchart. He said this for EM the combination of 343 00:14:38,480 --> 00:14:41,480 Speaker 2: weaker currencies and stronger commodity prices you alluded to them, 344 00:14:41,840 --> 00:14:44,200 Speaker 2: is creating a major dilemma that could put rate cuts 345 00:14:44,200 --> 00:14:47,520 Speaker 2: on hold indefinitely. Mark, how do you think this story 346 00:14:47,560 --> 00:14:49,760 Speaker 2: at the moment? Pair what's happening with the US dollar 347 00:14:49,960 --> 00:14:52,360 Speaker 2: with what's happening with commodities. How does it shape central 348 00:14:52,360 --> 00:14:54,000 Speaker 2: bank decisions worldwide? 349 00:14:55,120 --> 00:14:58,160 Speaker 1: Yeah, it's absolutely critical. It's a very strong point the two. 350 00:14:58,240 --> 00:14:59,640 Speaker 5: There's a way to think about it, right, If you 351 00:14:59,720 --> 00:15:02,840 Speaker 5: have strong growth, and strong growth is leading to central 352 00:15:02,840 --> 00:15:03,560 Speaker 5: bank changes. 353 00:15:03,840 --> 00:15:06,200 Speaker 1: That has one way of thinking the FX market. 354 00:15:06,240 --> 00:15:09,920 Speaker 5: If it's strong growth and generally contained disinflation, that is 355 00:15:10,160 --> 00:15:12,920 Speaker 5: bearish for the dollar, and that's where the commodity store 356 00:15:13,000 --> 00:15:13,320 Speaker 5: kicks in. 357 00:15:13,360 --> 00:15:14,440 Speaker 1: You get a terms of trade shock. 358 00:15:14,520 --> 00:15:17,000 Speaker 5: That's good for em especially in the context that they 359 00:15:17,000 --> 00:15:19,480 Speaker 5: have really high level of interest rates in terms of carry. 360 00:15:19,680 --> 00:15:22,120 Speaker 5: What we've seen recently though, this is how it changes 361 00:15:22,160 --> 00:15:25,080 Speaker 5: the market. These are policy shocks, and the policy shocks 362 00:15:25,160 --> 00:15:28,800 Speaker 5: driven by inflation is what causes rate differentials to matter 363 00:15:28,840 --> 00:15:30,760 Speaker 5: a lot. So I think you could see this last 364 00:15:30,760 --> 00:15:34,400 Speaker 5: week Bank of Indonesia surprise markets by hiking rates. No 365 00:15:34,440 --> 00:15:36,800 Speaker 5: one was expecting that we are now dealing with the 366 00:15:36,840 --> 00:15:40,640 Speaker 5: policy trade off for G ten and emerging market central 367 00:15:40,640 --> 00:15:43,160 Speaker 5: banks that if the FED is basically priced to the 368 00:15:43,200 --> 00:15:45,600 Speaker 5: point where they can cut once or cut not cut 369 00:15:45,640 --> 00:15:47,880 Speaker 5: at all, or even depending on who wins the election, 370 00:15:47,960 --> 00:15:49,640 Speaker 5: whether or not they actually have to hike next year. 371 00:15:50,000 --> 00:15:52,840 Speaker 5: What we're seeing is these policy shocks are usually risk off, 372 00:15:53,200 --> 00:15:55,400 Speaker 5: good for the dollar. I think in the context of the 373 00:15:55,400 --> 00:15:57,160 Speaker 5: commodities there's some cushion for the. 374 00:15:57,080 --> 00:15:59,960 Speaker 1: Commodity exporters like Brazil and some of the. 375 00:15:59,880 --> 00:16:02,640 Speaker 5: Other countries around the world, but it's very small and 376 00:16:02,680 --> 00:16:05,320 Speaker 5: it's going to be marginal in terms of the context 377 00:16:05,400 --> 00:16:08,280 Speaker 5: of whether or not these policy shocks driven by US inflation, 378 00:16:08,600 --> 00:16:11,200 Speaker 5: which is starting to accelerate relative to other currencies that 379 00:16:11,240 --> 00:16:14,120 Speaker 5: we track and is more bullish for the dollar, that's 380 00:16:14,160 --> 00:16:16,480 Speaker 5: going to force central banks that will have the ability 381 00:16:16,520 --> 00:16:19,000 Speaker 5: to cut to change their perspective. 382 00:16:19,080 --> 00:16:21,240 Speaker 1: In that changing of perspective. 383 00:16:20,760 --> 00:16:24,000 Speaker 5: Is what titans financial conditions, and it's what changes the 384 00:16:24,040 --> 00:16:26,400 Speaker 5: growth outlook for the next six to twelve months, which 385 00:16:26,440 --> 00:16:29,800 Speaker 5: can be mutually reinforcing and negative for risk and strong 386 00:16:29,840 --> 00:16:30,640 Speaker 5: for the dollar and mark. 387 00:16:30,720 --> 00:16:42,640 Speaker 2: This is great, just fantastic, gay fe' so no'll design 388 00:16:42,680 --> 00:16:45,560 Speaker 2: Franklin Sampletson expecting cuts the stock in September at the 389 00:16:45,600 --> 00:16:48,040 Speaker 2: earliest and rights in this I believe this will be 390 00:16:48,080 --> 00:16:51,000 Speaker 2: a short and shallow right cutting cycle and expect that 391 00:16:51,120 --> 00:16:53,920 Speaker 2: tenure notes will jump around in a full twenty five 392 00:16:54,000 --> 00:16:56,800 Speaker 2: to four seventy five range. After the shallow right cut 393 00:16:56,840 --> 00:16:59,440 Speaker 2: cycle is done, we're likely to see long gen yields 394 00:16:59,480 --> 00:17:00,920 Speaker 2: moving kaigh due. 395 00:17:00,720 --> 00:17:02,240 Speaker 1: To fiscal pressures. 396 00:17:02,440 --> 00:17:04,600 Speaker 2: So now let's start the journey with Wednesday if we can, 397 00:17:04,640 --> 00:17:06,520 Speaker 2: and great to catch up with you as always. What 398 00:17:06,520 --> 00:17:08,439 Speaker 2: are you looking for from chair and Pow in that 399 00:17:08,480 --> 00:17:09,240 Speaker 2: press conference? 400 00:17:10,440 --> 00:17:10,520 Speaker 5: So? 401 00:17:10,600 --> 00:17:11,879 Speaker 1: I think it's going to be the usual. 402 00:17:12,040 --> 00:17:16,680 Speaker 6: I think unfortunately Chairman Powell has a very difficult time 403 00:17:17,200 --> 00:17:21,159 Speaker 6: sticking with a hawkish tone during the Q and A, 404 00:17:21,520 --> 00:17:24,320 Speaker 6: so I wouldn't be surprised if in the Q and A, 405 00:17:24,440 --> 00:17:26,879 Speaker 6: you know, he turned a little bit dubbish left to 406 00:17:26,920 --> 00:17:30,480 Speaker 6: open some roads for rate cuts sooner than I think 407 00:17:30,520 --> 00:17:35,879 Speaker 6: the Fed probably will cut. But you know, this is 408 00:17:35,880 --> 00:17:39,240 Speaker 6: a pretty robust economy. We're looking at a strong labor market, 409 00:17:39,280 --> 00:17:41,720 Speaker 6: we're looking at decent wage growth, we're looking at decent 410 00:17:41,760 --> 00:17:48,960 Speaker 6: productivity gains, and the underlying underlying GDP data last week 411 00:17:49,040 --> 00:17:52,640 Speaker 6: was pretty darn strong and inflation sticky. There's very little 412 00:17:52,720 --> 00:17:57,280 Speaker 6: room for the Fed to be particularly dubbish or quick 413 00:17:57,560 --> 00:17:58,679 Speaker 6: in terms of rate cuts. 414 00:17:58,680 --> 00:18:00,159 Speaker 2: Are the save yes, and I as you know, they 415 00:18:00,200 --> 00:18:03,159 Speaker 2: thought they were on a journey directly towards two percent 416 00:18:03,480 --> 00:18:05,720 Speaker 2: and maybe cutting interest rates, and the market certainly thought 417 00:18:05,760 --> 00:18:07,600 Speaker 2: it was going to be set up to cut interest rates, 418 00:18:07,600 --> 00:18:09,760 Speaker 2: maybe as soon as March. And ultimately we start to 419 00:18:09,800 --> 00:18:11,600 Speaker 2: get these bumps and they refer to them as bumps 420 00:18:11,640 --> 00:18:13,399 Speaker 2: in the road. Do you think they are just bumps 421 00:18:13,400 --> 00:18:15,320 Speaker 2: in the road or if they change course. 422 00:18:16,240 --> 00:18:18,000 Speaker 6: I'll just say that if they're bumps on the road, 423 00:18:18,040 --> 00:18:20,280 Speaker 6: it's a pretty bumpy road, and it's a pretty long one, 424 00:18:20,800 --> 00:18:22,840 Speaker 6: you know. I don't think that these are just bumps 425 00:18:22,840 --> 00:18:25,760 Speaker 6: in the road. I think what you're seeing is genuine 426 00:18:25,760 --> 00:18:30,280 Speaker 6: stickiness and inflation, and it's coming from a lot of misreading. 427 00:18:30,400 --> 00:18:33,680 Speaker 6: I think what went on in the post COVID period 428 00:18:34,000 --> 00:18:36,600 Speaker 6: where everyone assumed that, you know, the economy had fallen 429 00:18:36,640 --> 00:18:39,800 Speaker 6: over and gone to sleep for an extended period, and 430 00:18:39,840 --> 00:18:43,600 Speaker 6: it hadn't, and there was so much a fiscal expansion 431 00:18:43,680 --> 00:18:45,960 Speaker 6: during that period, and we continue to see the impact 432 00:18:46,000 --> 00:18:47,680 Speaker 6: even today. I think it's going to be a long 433 00:18:47,720 --> 00:18:50,200 Speaker 6: time before we start seeing in fishion going all the 434 00:18:50,240 --> 00:18:53,480 Speaker 6: way back to to certainly not this year, sonya Ja Pulowski. 435 00:18:53,560 --> 00:18:57,200 Speaker 7: Here, we were talking earlier before we went live about 436 00:18:58,040 --> 00:19:01,119 Speaker 7: why one should own bonds or buy bonds, and we're not. 437 00:19:01,320 --> 00:19:05,200 Speaker 7: We're very underweight treasuries here at TPW Advisory. You talked 438 00:19:05,200 --> 00:19:08,440 Speaker 7: about strong growth. That's the reason why we're very underweight. 439 00:19:08,960 --> 00:19:12,440 Speaker 7: Strong growth is not really constructive for treasuries. So I'm 440 00:19:12,480 --> 00:19:16,720 Speaker 7: curious what would be the case if you could make 441 00:19:16,760 --> 00:19:20,680 Speaker 7: the case for buying bonds here at these levels or 442 00:19:20,920 --> 00:19:24,040 Speaker 7: where What level would you suggest people should get long? 443 00:19:24,080 --> 00:19:26,240 Speaker 6: But I think it's I think it's very fair. What 444 00:19:26,240 --> 00:19:30,399 Speaker 6: you're saying is definitely a fair point. On the other hand, 445 00:19:30,720 --> 00:19:35,040 Speaker 6: you would say, I would say that most institutional investors 446 00:19:35,080 --> 00:19:38,440 Speaker 6: retail investors are massively underweight bonds. I'm not suggesting going 447 00:19:38,480 --> 00:19:41,720 Speaker 6: massively long here. We were short and we did go 448 00:19:41,880 --> 00:19:44,600 Speaker 6: neutral over the last several months, and we're slightly long 449 00:19:44,720 --> 00:19:48,320 Speaker 6: right now. But I would say that that range that 450 00:19:48,400 --> 00:19:52,159 Speaker 6: I'm talking about in anticipation of a rate cutting cycle 451 00:19:52,520 --> 00:19:55,479 Speaker 6: orbit shallow, and I don't anticipate that this is going 452 00:19:55,520 --> 00:19:57,880 Speaker 6: to be the rally to end all rallies. I see 453 00:19:57,920 --> 00:20:01,639 Speaker 6: some point in actually diversifying fixed income ideally plays a 454 00:20:01,680 --> 00:20:07,320 Speaker 6: diversification role in portfolios, and I think that's really the 455 00:20:07,440 --> 00:20:10,399 Speaker 6: case to be made to whole treasure. So when I 456 00:20:10,400 --> 00:20:13,720 Speaker 6: talk about it being shallow, the reason is I think 457 00:20:13,760 --> 00:20:18,080 Speaker 6: over the longer term, it is inevitable almost that we 458 00:20:18,119 --> 00:20:23,080 Speaker 6: see treasuries moving systematically higher for a while, so we 459 00:20:23,200 --> 00:20:25,320 Speaker 6: might see them come down. And I don't expect them 460 00:20:25,359 --> 00:20:28,080 Speaker 6: to rally all the way down to two percent. I 461 00:20:28,119 --> 00:20:30,879 Speaker 6: don't expect the FED cuts to take us to two percent, 462 00:20:30,960 --> 00:20:34,040 Speaker 6: and certainly treasure aren't going to rally anywhere close to 463 00:20:34,080 --> 00:20:37,920 Speaker 6: what we've seen in the last fifteen years. But then 464 00:20:37,960 --> 00:20:39,800 Speaker 6: we will start seeing the sell off which comes from 465 00:20:39,840 --> 00:20:41,560 Speaker 6: the fiscal pressures, which is going to go on for 466 00:20:41,600 --> 00:20:45,000 Speaker 6: several years, I would anticipate, So it's a period, it's 467 00:20:45,040 --> 00:20:46,399 Speaker 6: a short cutting cycle. 468 00:20:46,520 --> 00:20:48,160 Speaker 1: I think that's really important. 469 00:20:47,720 --> 00:20:50,439 Speaker 7: To think about. Yeah, and I would agree with that completely, Sonia, 470 00:20:50,520 --> 00:20:53,119 Speaker 7: what about credit versus treasuries? And then could you just 471 00:20:53,160 --> 00:20:57,560 Speaker 7: touch on that fiscal pressure, because you're absolutely correct, people 472 00:20:57,640 --> 00:21:00,760 Speaker 7: have very much underestimated the power of the physical side 473 00:21:00,760 --> 00:21:03,560 Speaker 7: of things because we've been so used to monetary policy 474 00:21:03,640 --> 00:21:06,960 Speaker 7: driving everything since a great financial crisis, So help me 475 00:21:07,040 --> 00:21:10,800 Speaker 7: understand the view between credit in the US or globally 476 00:21:11,160 --> 00:21:14,520 Speaker 7: versus treasuries. And then this idea of fiscal how much 477 00:21:14,560 --> 00:21:17,679 Speaker 7: of a window do we have between a rally in 478 00:21:17,800 --> 00:21:21,000 Speaker 7: bonds before that fiscal pressure really manifests. 479 00:21:21,720 --> 00:21:24,119 Speaker 6: So I'd say that the first bit on credit, the 480 00:21:24,200 --> 00:21:27,399 Speaker 6: reality is all in credit yields will still give you 481 00:21:28,000 --> 00:21:30,280 Speaker 6: if you're talking about high yield seven and a half percent, 482 00:21:30,320 --> 00:21:32,399 Speaker 6: and so you can find pockets of value there. The 483 00:21:32,520 --> 00:21:34,920 Speaker 6: all in yield is somewhat attractive, and I can see 484 00:21:34,920 --> 00:21:38,720 Speaker 6: that in spread terms, we're looking at pretty tight spreads. Again, 485 00:21:39,119 --> 00:21:41,960 Speaker 6: the case can be made reasonably and I'm sure you 486 00:21:42,000 --> 00:21:45,560 Speaker 6: would make this one that we're looking at corporates which 487 00:21:45,560 --> 00:21:48,320 Speaker 6: are in better financial health than they happen historically. So 488 00:21:49,160 --> 00:21:52,280 Speaker 6: I accept all that, and I think that credit definitely 489 00:21:52,280 --> 00:21:56,240 Speaker 6: has a space in portfolios, despite how tight it is. 490 00:21:56,359 --> 00:21:59,679 Speaker 6: From an all in perspective, there is room for some 491 00:21:59,720 --> 00:22:04,080 Speaker 6: credit in portfolios. I'd say the second point that you 492 00:22:04,160 --> 00:22:09,119 Speaker 6: were making, which is when does the fiscal ax for 493 00:22:10,880 --> 00:22:13,960 Speaker 6: we have begun to see it, and we periodically see 494 00:22:13,960 --> 00:22:17,200 Speaker 6: it when the market focuses on the fact that we're 495 00:22:17,200 --> 00:22:20,639 Speaker 6: looking at six percent plus six percent of GDP plus 496 00:22:20,680 --> 00:22:23,800 Speaker 6: deficits in a forward looking way, and this is probably 497 00:22:23,880 --> 00:22:27,000 Speaker 6: conservative in the event that we have a split Congress 498 00:22:27,000 --> 00:22:29,639 Speaker 6: at the end of the next set of elections, in 499 00:22:29,680 --> 00:22:32,439 Speaker 6: the sense that it doesn't matter who wins, right, as 500 00:22:32,520 --> 00:22:34,640 Speaker 6: long as you have a split Congress, you are unlikely 501 00:22:34,680 --> 00:22:39,000 Speaker 6: to see much fiscal consolidation. That I think is an 502 00:22:39,040 --> 00:22:42,480 Speaker 6: important factor. I don't think it happens or certainly not 503 00:22:42,560 --> 00:22:43,919 Speaker 6: this year. You know, we're going to see a lot 504 00:22:43,920 --> 00:22:47,399 Speaker 6: of fiscal spending, that's a given this year, but I 505 00:22:47,400 --> 00:22:49,720 Speaker 6: think you would continue to see that. When does that 506 00:22:50,440 --> 00:22:52,879 Speaker 6: really drop that ax. I think we're going to need 507 00:22:52,920 --> 00:22:55,239 Speaker 6: to see more of a buyers strike, and as we 508 00:22:55,320 --> 00:22:59,399 Speaker 6: see long end yels move higher and higher, I think 509 00:23:00,080 --> 00:23:03,080 Speaker 6: the US will be forced to do a certain amount 510 00:23:03,119 --> 00:23:07,679 Speaker 6: of fiscal consolidation. But until we see until we see that, 511 00:23:08,240 --> 00:23:11,840 Speaker 6: I don't see that consolidation happening. And treasury yields absolutely 512 00:23:11,880 --> 00:23:14,160 Speaker 6: can go higher than five percent in that scenario. 513 00:23:14,359 --> 00:23:17,440 Speaker 2: Do you think that's a challenge to treasuries as a diversifier. 514 00:23:17,480 --> 00:23:19,600 Speaker 2: So now, if you think about where the deficit is now, 515 00:23:19,640 --> 00:23:21,320 Speaker 2: that's going to gap out if we go into an 516 00:23:21,359 --> 00:23:25,080 Speaker 2: economic downturn, and typically that's when you would by treasuries. 517 00:23:25,280 --> 00:23:25,879 Speaker 1: Is that going to be a. 518 00:23:25,920 --> 00:23:28,600 Speaker 6: Challenge to that. I think there is a challenge to that. 519 00:23:28,720 --> 00:23:32,280 Speaker 6: I think right now the growth of the economy is 520 00:23:32,320 --> 00:23:36,280 Speaker 6: something that we all have to be really grateful for 521 00:23:36,520 --> 00:23:39,000 Speaker 6: because right now there aren't that many silver bullets, certainly 522 00:23:39,080 --> 00:23:41,640 Speaker 6: not on fiscal and very few on the monetary side. 523 00:23:41,760 --> 00:23:45,000 Speaker 6: So it's the fact that the economy continues to grow 524 00:23:45,600 --> 00:23:50,080 Speaker 6: is the one somewhat saving grace here though the fact 525 00:23:50,119 --> 00:23:53,359 Speaker 6: that it continues to grow also indicates very clearly that 526 00:23:53,440 --> 00:23:55,760 Speaker 6: neither fiscal or monetary policy are particularly tight. 527 00:23:56,160 --> 00:23:57,199 Speaker 1: Yep, So no, thank you. 528 00:23:58,160 --> 00:24:01,399 Speaker 2: This is the Bloomberg sevent it's podcast bringing you the 529 00:24:01,480 --> 00:24:04,800 Speaker 2: best in markets, economics, angio politics. 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