WEBVTT - Bloomberg Surveillance TV: May 8, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.920 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.080 Terminal and the Bloomberg Business app. We begin with our 0:00:37.080 --> 0:00:39.960 top story, stop sending out a fourth day of gains, 0:00:40.159 --> 0:00:43.199 Tracey McMillan of Wells Fargo writing this, we remain more 0:00:43.240 --> 0:00:46.480 cautious at current levels in both fixed income and equities 0:00:46.560 --> 0:00:50.680 until valuations improve and better opportunities present themselves. We expect 0:00:50.720 --> 0:00:54.200 to see broader opportunities inequities over the next six to 0:00:54.280 --> 0:00:56.319 twelve months. I'm please to say that joining us now 0:00:56.640 --> 0:00:59.040 is Tracy. Tracy. Let's talk about this more course, on 0:00:59.080 --> 0:01:01.920 both stocks and on fixed income as well. How does 0:01:01.920 --> 0:01:04.560 a view a one asset class inform the other? Currently? 0:01:07.080 --> 0:01:10.479 Good morning, John, So we are cautious on both equities 0:01:10.560 --> 0:01:14.399 and on fixed income, and we're really waiting for better 0:01:14.480 --> 0:01:15.720 opportunities to. 0:01:15.840 --> 0:01:19.119 Add to both of those asset classes. Right now, what. 0:01:19.040 --> 0:01:21.440 We see is that at the short end of the 0:01:21.920 --> 0:01:26.560 fixed income curve, the yield is over five percent, and 0:01:26.600 --> 0:01:29.960 so you have to compare that to the opportunity and equities, 0:01:30.400 --> 0:01:34.720 and our large cap forecast for the end of twenty 0:01:34.760 --> 0:01:38.600 twenty four is fifty two hundred at the midpoint. So 0:01:38.640 --> 0:01:42.000 there's not a lot of upside potential that we see 0:01:42.040 --> 0:01:44.279 in equities going out to the end. 0:01:44.160 --> 0:01:45.160 Of twenty twenty four. 0:01:45.480 --> 0:01:48.160 Now twenty twenty five we think could be a better year, 0:01:48.320 --> 0:01:53.200 so we continue to favor large cap equities. But right 0:01:53.240 --> 0:01:57.720 now the balance between the risk reward between fixed income 0:01:57.840 --> 0:02:02.440 and equities does have a more cautious inequities going up 0:02:02.480 --> 0:02:05.320 in quality going up and quality and fixed income and 0:02:05.360 --> 0:02:08.240 staying towards the short end of that fixed income curve. 0:02:08.520 --> 0:02:10.480 Could you clarify something for me, how do you think 0:02:10.520 --> 0:02:13.760 bonds would behave in a drawdown in equitcies? Would they 0:02:13.760 --> 0:02:14.360 still perform? 0:02:14.440 --> 0:02:15.760 Well? 0:02:15.919 --> 0:02:18.560 Yeah, so that's a really interesting question because over the 0:02:18.600 --> 0:02:21.880 past couple of years, what we've seen is higher correlations 0:02:21.919 --> 0:02:25.640 between both equities and fixed income, and that's because of 0:02:25.680 --> 0:02:30.040 the driver of the downturn in both of those markets, 0:02:30.240 --> 0:02:34.400 or conversely, the upturn in both of those markets, and 0:02:34.440 --> 0:02:38.760 that's been the expectations for interest rates based on inflation. 0:02:39.160 --> 0:02:43.720 And so as inflation expectations have changed, we've typically seen 0:02:44.760 --> 0:02:48.919 bond yields rise, We've seen equities come down, so both 0:02:48.919 --> 0:02:51.839 of those negative at the same time. And then conversely, 0:02:52.600 --> 0:02:58.000 what we are telling investors is that going forward that 0:02:58.080 --> 0:03:02.160 should start to normalize as an inflation that comes under 0:03:02.200 --> 0:03:07.160 better control, and diversify, diversify into assets that do not 0:03:07.560 --> 0:03:12.399 have that strong positive correlation right now, like commodities and alternatives. 0:03:12.880 --> 0:03:14.679 I'm wondering you talk a lot about the consumer and 0:03:14.720 --> 0:03:17.359 a weakening and the consumer. How much can we get 0:03:17.360 --> 0:03:19.000 a rid of that from the recent earnings which have 0:03:19.080 --> 0:03:21.960 been pretty strong on an earnings per share basis, But 0:03:22.000 --> 0:03:24.400 you've seen revenue come in light at a number of places, 0:03:24.440 --> 0:03:27.640 including an uber. They're talking about bookings coming in lighter 0:03:27.680 --> 0:03:29.040 than expected, expecting. 0:03:28.720 --> 0:03:29.559 That to continue. 0:03:29.760 --> 0:03:32.720 They talk about Latin America bookings having to do with this. 0:03:32.760 --> 0:03:35.120 They talk about early holidays. Do you think this is 0:03:35.160 --> 0:03:38.640 evidence of just tighter competition of price pressure by the 0:03:38.680 --> 0:03:40.240 consumer or all of the above. 0:03:41.440 --> 0:03:44.760 It's probably all of the above, Lisa. What we're seeing 0:03:44.840 --> 0:03:48.400 in terms of the consumer is that you mentioned this 0:03:48.440 --> 0:03:52.440 a little bit earlier. Consumer confidence does appear to be waning, 0:03:52.960 --> 0:03:56.320 and there is a bifurcation, as you also mentioned, in 0:03:56.360 --> 0:04:03.640 the upper income quintile the bottom four income quintiles, which 0:04:04.680 --> 0:04:09.040 which have exhausted all of their pandemic savings, so really 0:04:09.080 --> 0:04:12.880 relying on just that upper end consumer now to carry 0:04:13.280 --> 0:04:16.520 the market. We'll see retail sales next week and that 0:04:16.600 --> 0:04:19.800 will give us a further indication of whether or not 0:04:19.920 --> 0:04:23.039 consumers are continuing to spend. But some of the underlying 0:04:23.640 --> 0:04:27.400 information that we're getting out of recent data and recent 0:04:27.440 --> 0:04:31.440 reports is that consumers are pushing back on some of 0:04:31.480 --> 0:04:35.800 the price increases and that companies are feeling less confident 0:04:36.000 --> 0:04:38.200 about their ability to raise prices. 0:04:38.279 --> 0:04:39.719 So all in all, that. 0:04:39.680 --> 0:04:43.760 Could be good for inflation, but we do see the 0:04:43.800 --> 0:04:46.440 consumers starting to pull back in aggregate. 0:04:46.640 --> 0:04:48.320 I think a lot of people would agree with you, Tracy, 0:04:48.600 --> 0:04:51.440 the issues just the speed and exactly where this is 0:04:51.480 --> 0:04:53.520 going to go. In terms of the weakening. You have 0:04:53.560 --> 0:04:55.040 some people come on and say we're going to see 0:04:55.040 --> 0:04:57.640 a protracted weakening and we're going to get that true downturn. 0:04:57.680 --> 0:05:00.360 Francis Donald than you live talking about that yesterday, and 0:05:00.400 --> 0:05:02.240 then you have other people saying, actually, it's just the 0:05:02.240 --> 0:05:05.080 appropriate softening to us small caps to rally. 0:05:05.279 --> 0:05:09.120 Which camp do you fit into? So we do think 0:05:09.160 --> 0:05:11.880 that we're going to see more of a soft patch. 0:05:12.200 --> 0:05:15.560 We think that the data last week is supporting that 0:05:15.720 --> 0:05:19.560 view that we'll probably see that soft patch growth slowdown, 0:05:20.080 --> 0:05:24.640 labor market slow down starting to occur in the second 0:05:24.680 --> 0:05:27.240 half of this year, so, you know, more of a 0:05:27.240 --> 0:05:28.039 soft patch. 0:05:28.360 --> 0:05:31.720 We think there's less risk of a recession. 0:05:31.200 --> 0:05:35.040 Than there was in twenty twenty three, but that doesn't 0:05:35.120 --> 0:05:39.880 necessarily give us the refresh, the reset that we would need, 0:05:40.440 --> 0:05:43.600 the clearing of markets that we would need for small 0:05:43.680 --> 0:05:49.159 caps to reassert themselves. Small caps for really for decades now, 0:05:49.279 --> 0:05:54.320 have seen the ranks of non earners increasing, and that 0:05:54.360 --> 0:05:57.960 gives us some longer term concern about small caps. But 0:05:58.040 --> 0:06:00.800 there's certainly a place in the cycle to invest in them. 0:06:00.800 --> 0:06:04.400 We just don't think that the time is quite right yet. 0:06:04.960 --> 0:06:07.320 Tracy. All morning, we've been talking about the developments in 0:06:07.360 --> 0:06:09.200 the Middle East, and in your note you talk about 0:06:09.200 --> 0:06:11.840 how this could still be a risk to oil prices, 0:06:11.839 --> 0:06:14.800 which we've seen pulled back quite significantly. What kind of 0:06:14.880 --> 0:06:16.480 upside do you think we can see in the oil 0:06:16.520 --> 0:06:18.599 market now? 0:06:18.640 --> 0:06:22.359 We have a price target on oil between eighty and 0:06:22.480 --> 0:06:25.000 ninety dollars a barrow through the end of this year. 0:06:25.640 --> 0:06:28.839 But we could see towards the upper end of that 0:06:29.040 --> 0:06:33.600 target range if we were to see oil trade restricted 0:06:33.800 --> 0:06:37.160 more in the Middle East. We did get good inventory 0:06:37.240 --> 0:06:41.080 numbers here in the US, and certainly US mint producers 0:06:41.160 --> 0:06:44.400 could ramp up production, but that will that will probably 0:06:44.440 --> 0:06:47.040 take a little bit of time, and in the interim 0:06:47.080 --> 0:06:53.599 we could see some supply constraints that would push prices higher. 0:06:53.760 --> 0:06:56.360 And don't forget about you know, Opak being able to 0:06:56.520 --> 0:07:00.400 bring on more supply as well. So we don't see 0:07:00.600 --> 0:07:04.719 oil price is necessarily skyrocketing, but we could see certainly 0:07:04.760 --> 0:07:06.560 the upper end of that range, and we think that 0:07:06.560 --> 0:07:10.200 would again put pressure on markets because it could imply 0:07:11.160 --> 0:07:12.800 inflation if. 0:07:12.640 --> 0:07:15.440 That were to be the case, a ninety dollars a barrel. 0:07:15.560 --> 0:07:18.360 Where would you potentially want to shift in your portfolio? 0:07:19.400 --> 0:07:23.480 Yeah, so we have already shifted towards commodities with an 0:07:23.480 --> 0:07:26.600 overweight there again, you know that the non correlation. We 0:07:26.840 --> 0:07:31.000 like that about commodities. We've certainly seen precious metals performing well, 0:07:31.080 --> 0:07:34.640 gold in particular, and we think that oil does have 0:07:34.680 --> 0:07:38.440 some upside from here. So you know, a commodities position, 0:07:38.560 --> 0:07:41.880 we think is probably a smart thing to do at 0:07:41.880 --> 0:07:42.280 this point. 0:07:42.520 --> 0:07:44.760 Crude a little bit lower on a session this morning, Tricy. 0:07:44.760 --> 0:07:46.360 He always wonderful to hear from you, a triceman than 0:07:46.400 --> 0:07:59.400 in that of whilst FAGA. Minneapolis FED President Neil Kashigawari, 0:07:59.560 --> 0:08:02.000 urging core, adding the FED will like to keep rates 0:08:02.040 --> 0:08:05.040 on hold for a quote extended period. More Fed speak 0:08:05.080 --> 0:08:07.600 on TAT with Jefferson, Collins, and Cook all speaking today 0:08:07.800 --> 0:08:10.600 Janet Henry and the team at HSBC expecting the Fed's 0:08:10.640 --> 0:08:14.080 first cut in September and expecting the ECB and BOW 0:08:14.600 --> 0:08:17.800 to move in June. Janet joins us Now for more, Janet, 0:08:17.800 --> 0:08:20.679 some people might say September has become the new June. 0:08:20.840 --> 0:08:23.520 What is the risk that December becomes the new September 0:08:23.600 --> 0:08:24.280 and pretty soon? 0:08:26.440 --> 0:08:29.280 Yeah, there's always risks where markets that are concerned. As 0:08:29.280 --> 0:08:31.880 you well know, it's not so long ago that markets 0:08:31.920 --> 0:08:34.640 were pretty convinced that the first rate cup was going 0:08:34.679 --> 0:08:37.439 to be in March, and then it briefly went right 0:08:37.480 --> 0:08:40.840 to the end of the year, and you're September for 0:08:41.000 --> 0:08:43.480 us is the new June. But you'll also know that 0:08:43.520 --> 0:08:47.640 back in December we were saying June. So it really 0:08:47.679 --> 0:08:51.240 will depend on the data. But as Powell keeps telling us, 0:08:51.480 --> 0:08:54.480 it's the totality of the data. Yes, they need to 0:08:54.480 --> 0:08:57.559 see further improvement on inflation, but they don't need to 0:08:57.600 --> 0:09:01.040 wait until they get back to two percent. The urgency 0:09:01.120 --> 0:09:03.720 with which they will feel the need for act will 0:09:03.760 --> 0:09:07.160 depend on all of the data, including the labor market. 0:09:07.400 --> 0:09:08.880 So it may be that, you know. 0:09:09.000 --> 0:09:12.240 The progress on inflation is relatively modest, but if they 0:09:12.280 --> 0:09:14.600 see more that scares them in the labor market data, 0:09:15.280 --> 0:09:17.840 that could cause them to act. But if in December 0:09:17.920 --> 0:09:20.840 we're still an unemployment less than four percent, still getting 0:09:20.840 --> 0:09:24.559 payroll prints of two hundred thousand, and inflation core PCU 0:09:24.720 --> 0:09:26.960 is still above two and a half percent, then what's 0:09:27.000 --> 0:09:27.520 the urgency. 0:09:27.640 --> 0:09:29.480 It's pretty impressive. It's not where we thought we would 0:09:29.480 --> 0:09:32.640 be even three four months ago. Jenna, let's talk about 0:09:32.640 --> 0:09:34.520 September and not the economic data. Can we just talk 0:09:34.520 --> 0:09:37.400 about the politics briefly. You're not alone on September. Other 0:09:37.400 --> 0:09:39.520 people have that monked on the calendar as well, including 0:09:39.520 --> 0:09:41.920 a then Center over Morgan Stanley. I think the natural 0:09:41.960 --> 0:09:45.160 question for us to ask is is the politics relevant 0:09:45.200 --> 0:09:48.600 here going into the election in November. Is September still 0:09:48.600 --> 0:09:51.200 adore an option that's open to this feder reserve. 0:09:52.600 --> 0:09:55.480 I think every meeting is open to the feeder or 0:09:55.520 --> 0:09:59.320 reserve because I think in anyone scenarios, including the most 0:09:59.400 --> 0:10:04.199 likely scenari for any FOMC member, is that the next 0:10:04.240 --> 0:10:07.600 move in rates, and any scenario is still on the table, 0:10:08.160 --> 0:10:09.400 the next move in rates. 0:10:09.160 --> 0:10:10.160 Will be a small one. 0:10:10.200 --> 0:10:13.760 We're talking about a twenty five basis point move in rates. 0:10:13.920 --> 0:10:17.160 Is what's going to happen now. While that is consequential 0:10:17.240 --> 0:10:20.160 because hopefully it will be the beginning of a sequence 0:10:20.200 --> 0:10:23.320 of rates. Even if it's not every quarter or every meeting, 0:10:23.760 --> 0:10:26.880 maybe it is a bit more intermittent, they will take 0:10:26.920 --> 0:10:30.040 the decision when it is appropriate based on the data. 0:10:30.200 --> 0:10:32.160 I don't think it will be oh, we've got to 0:10:32.200 --> 0:10:35.199 wait until after the election and we can't be too political. Yes, 0:10:35.360 --> 0:10:37.040 a lot of them will be having that thought at 0:10:37.080 --> 0:10:40.120 the back of their mind, but it will be about 0:10:40.120 --> 0:10:44.280 what is most likely to settle inflation at least a 0:10:44.280 --> 0:10:47.800 bit more confidently back on track towards the two percent level, 0:10:47.840 --> 0:10:51.280 even if we never really get there without inflicting more 0:10:51.360 --> 0:10:54.240 damage than is necessary in terms of what's happening in 0:10:54.240 --> 0:10:55.120 the labor market. 0:10:55.320 --> 0:10:57.080 But Janet, whether or not they come out and they 0:10:57.120 --> 0:10:59.400 say we don't plan to be political, that's going to 0:10:59.400 --> 0:11:01.560 be the optic. So what's the bar and the data 0:11:01.600 --> 0:11:04.560 they need to see to almost feel comfortable about taking 0:11:04.600 --> 0:11:06.840 that move, knowing that many are going to view it 0:11:06.880 --> 0:11:08.080 through this political lens. 0:11:09.480 --> 0:11:11.440 Well, you know, we get back to the data. 0:11:11.600 --> 0:11:14.359 You've going to remember in the last set of projections 0:11:14.400 --> 0:11:17.400 that we had back in March, what was in the 0:11:17.440 --> 0:11:21.400 FED forecasts for core PCEE for the end of twenty 0:11:21.520 --> 0:11:24.679 twenty four was two point six. You know, we're at 0:11:24.720 --> 0:11:27.080 two point eight. We know this is a bunply ride 0:11:27.120 --> 0:11:30.400 for inflation. But just as everyone got overly excited at 0:11:30.400 --> 0:11:33.040 the end of last year on a few downside surprises 0:11:33.080 --> 0:11:37.199 to the inflation releases, they've got really really hawkish early 0:11:37.240 --> 0:11:39.880 part of the year, when inflation surprised for three months 0:11:39.960 --> 0:11:42.400 via about point one, you know, on a monthly basis 0:11:42.720 --> 0:11:43.120 for that. 0:11:43.120 --> 0:11:46.320 Kind of period, So I think what they do need 0:11:46.360 --> 0:11:47.880 to see now it seems. 0:11:47.600 --> 0:11:50.760 To really pull the trigger is get a core PCEE 0:11:50.840 --> 0:11:54.080 print that probably is more like two point five as 0:11:54.120 --> 0:11:57.840 the headline figure. But they will also need further evidence 0:11:57.920 --> 0:12:03.480 in the data slower growth, employment growth in particular, and 0:12:03.520 --> 0:12:04.480 the wage numbers. 0:12:04.880 --> 0:12:06.720 That's by no means the most important factor. 0:12:06.920 --> 0:12:09.360 But the more point twos we get our monthly inflation 0:12:10.640 --> 0:12:13.240 and the lower the payrolls release, that's probably what we 0:12:13.280 --> 0:12:15.400 do need to see to get that September rate. 0:12:15.960 --> 0:12:18.920 Say September comes and goes and they don't make that cut, 0:12:18.960 --> 0:12:21.360 do you think they push it to December or there 0:12:21.440 --> 0:12:23.720 is a chance that November could be a live meeting. 0:12:25.720 --> 0:12:30.640 I think it would be usual to cut in an 0:12:30.679 --> 0:12:34.280 election month. In fact, when we looked back at this, 0:12:34.360 --> 0:12:37.760 and certainly when I spoke to other previous FOMC members, 0:12:38.120 --> 0:12:44.040 they could only remember one meeting whereby the timing of 0:12:44.040 --> 0:12:46.240 an election, and I think it was a midterm election 0:12:47.080 --> 0:12:49.280 actually influenced the Fed's outcome. 0:12:49.360 --> 0:12:51.240 And actually it was under green Span ahead of our 0:12:51.240 --> 0:12:52.160 midterm elections. 0:12:52.480 --> 0:12:54.920 But the next move straight after the election was a 0:12:54.960 --> 0:12:58.920 seventy five basis point move, so it was really consequential 0:12:58.960 --> 0:13:01.240 when you're delivering a rate a rate rise of that 0:13:01.400 --> 0:13:04.720 kind of magnitude, So I think November will be unlikely 0:13:04.800 --> 0:13:06.720 for me. It really is a case of we either 0:13:06.760 --> 0:13:09.480 go in September or we will wait until December. 0:13:09.800 --> 0:13:11.480 But I wouldn't rule anything out. 0:13:11.720 --> 0:13:14.040 One of the most interesting aspects of your forecast is 0:13:14.040 --> 0:13:15.880 that you now call for twenty five basis points of 0:13:15.960 --> 0:13:19.000 rate clides this year. It was seventy five basis points previously, 0:13:19.400 --> 0:13:21.960 but you keep your forecast for seventy five basis points 0:13:22.000 --> 0:13:24.400 next year. Do you think that we're heading toward a 0:13:24.480 --> 0:13:25.760 higher neutral rate. 0:13:25.720 --> 0:13:27.000 Than you previously expected. 0:13:29.080 --> 0:13:32.319 Well, I've long been contacting over the last few years 0:13:32.400 --> 0:13:35.959 that we are moving towards a higher neutral rate. Obviously, 0:13:36.000 --> 0:13:39.520 the movement on the dot plot and the longer term 0:13:39.600 --> 0:13:42.320 dot from the FOMC has edged up from. 0:13:42.200 --> 0:13:43.800 Two point five to two point six. 0:13:44.080 --> 0:13:47.400 But I really get the impression from various FOMC members 0:13:47.440 --> 0:13:50.800 that they actually think it's more like about about three percent. 0:13:51.800 --> 0:13:55.079 But I guess what we've got in our projections. 0:13:54.760 --> 0:13:59.359 Is the idea that policy will need to stay relatively restrictive. 0:13:59.880 --> 0:14:02.559 I think this is what you might hear from from 0:14:02.600 --> 0:14:04.960 more central banks. You could potentially hear something like that 0:14:04.960 --> 0:14:08.120 from the Bank of England tomorrow. The idea that rates 0:14:08.120 --> 0:14:12.400 can be cut a little bit and still be restrictive. 0:14:12.559 --> 0:14:14.280 If we're still at four percent FED. 0:14:14.120 --> 0:14:16.600 Funds, which we are on our forecast by the end 0:14:16.640 --> 0:14:20.880 of twenty twenty five, arguably that is still restrictive to 0:14:21.080 --> 0:14:23.960 ensure an ongoing disinflationary process. 0:14:24.240 --> 0:14:26.480 We don't have core PCE at two percent by the 0:14:26.560 --> 0:14:27.320 end of twenty. 0:14:27.120 --> 0:14:30.760 Twenty five, Janet Wells said, appreciate the clarity as always, 0:14:30.840 --> 0:14:44.200 Janet Henry the of HSBC breaking down the Federal Reserve. Mandy, 0:14:44.240 --> 0:14:47.640 you call this the persistent kink in the vix futures curve. 0:14:47.720 --> 0:14:48.560 Can you walk us through it. 0:14:48.760 --> 0:14:50.960 Yeah, So we've been observing this since the beginning of 0:14:51.000 --> 0:14:53.400 the year, where the October future of vix Future is 0:14:53.400 --> 0:14:55.880 training at a premium to the September by about two 0:14:55.880 --> 0:14:59.520 to three points. And that's unusual because a we're still 0:14:59.600 --> 0:15:02.120 many minut a month away from the election. If you 0:15:02.160 --> 0:15:04.720 look at this point in the twenty twenty cycle, there 0:15:04.760 --> 0:15:07.080 was only about a one point difference between the September 0:15:07.120 --> 0:15:10.680 and October contract back then, so a lot more volatility 0:15:10.720 --> 0:15:14.040 being embedded this early on in the cycle. And the 0:15:14.080 --> 0:15:16.400 second thing I mentioned before was, you know, the November 0:15:16.440 --> 0:15:18.840 If you look at the November future, it actually doesn't 0:15:18.920 --> 0:15:22.920 show expectations of persistent volatility. People are expecting it to 0:15:22.920 --> 0:15:25.360 be quickly resolved, which I think is you know, interesting 0:15:25.400 --> 0:15:26.720 given the candidates involved. 0:15:26.840 --> 0:15:28.880 You know, just to broad down a little bit this 0:15:29.000 --> 0:15:31.680 concept of volatility, a lot of people have been saying, oh, 0:15:31.680 --> 0:15:33.560 the market is getting more volatile. We look at a 0:15:33.560 --> 0:15:35.440 lot of the overall marred metrics, they're. 0:15:35.280 --> 0:15:37.760 Not really getting all of that more volatile, right, But you. 0:15:37.760 --> 0:15:40.640 Look at specific stocks and their whip sign. We're seeing 0:15:40.680 --> 0:15:41.560 that just this morning. 0:15:41.920 --> 0:15:42.920 How do you put that together? 0:15:43.720 --> 0:15:46.520 Actually, we have a great metric to exactly illustrate that. 0:15:46.680 --> 0:15:49.640 So this has been a key feature of the markets 0:15:49.640 --> 0:15:51.360 of the past I would say eighteen month is that 0:15:51.560 --> 0:15:56.720 while index volatility or macrovolatility has been muted, single stock 0:15:56.800 --> 0:15:59.200 volatility has not. So if you look at the stock 0:15:59.320 --> 0:16:02.600 of exactly your point, there's been some wild swing at 0:16:02.600 --> 0:16:04.640 the stock and the sector level. So, in other words, 0:16:04.800 --> 0:16:07.960 dispersion of stocks has been high in terms of performance, 0:16:08.280 --> 0:16:11.400 while because of the low correlation, index returns have been muted. 0:16:11.480 --> 0:16:13.600 So if you look at vics that's low. If you 0:16:13.600 --> 0:16:17.440 look at our dispersion index DSPX, that's actually near historically 0:16:17.520 --> 0:16:20.720 high levels. And that kind of exactly illustrates that dilemma. 0:16:20.400 --> 0:16:23.320 Many given we know what happened after the twenty twenty election, 0:16:23.640 --> 0:16:27.400 where is this conviction coming from from traders to say, actually, 0:16:27.440 --> 0:16:29.160 there's little fear of a contested election. 0:16:29.600 --> 0:16:32.200 So I think you're going to separate up because even 0:16:32.200 --> 0:16:35.560 in twenty twenty, right, and we saw headlines about you know, 0:16:35.920 --> 0:16:39.040 is there election fraud and obviously one Candida not conceding, 0:16:39.360 --> 0:16:41.840 But even in twenty twenty, volatility came in very rapidly 0:16:41.840 --> 0:16:44.600 in November. So I think in terms of realistic path 0:16:44.640 --> 0:16:47.200 to a contested election, I think the hurdle is actually 0:16:47.280 --> 0:16:49.280 quite high, and I think that's what investors are really 0:16:49.400 --> 0:16:51.880 kind of focusing on. So like you makee noise, you 0:16:51.920 --> 0:16:54.160 make it headlines, but at the end of the day, 0:16:54.200 --> 0:16:56.680 there is a process in place, and investors at this 0:16:56.720 --> 0:16:59.560 point still trust that process and that's why you're not 0:16:59.600 --> 0:17:02.800 seeing that resistant king in the curve. 0:17:02.920 --> 0:17:04.440 You've explored this a little bit as well, How does 0:17:04.440 --> 0:17:06.560 this compare to previous elections, not just twenty twenty, but 0:17:06.640 --> 0:17:08.240 going back even further, is this normal? 0:17:08.760 --> 0:17:10.640 Is this so what it's been priced in? I would 0:17:10.640 --> 0:17:12.879 say at this point in the cycle is higher than 0:17:12.920 --> 0:17:14.240 what we see at this point in the cycle. But 0:17:14.240 --> 0:17:17.040 if you look at how the vic actually performs in October, 0:17:17.200 --> 0:17:20.359 it's actually underpricing relative to some of the more recent cycles. 0:17:20.440 --> 0:17:23.639 So both twenty sixteen and twenty twenty we saw more 0:17:23.920 --> 0:17:27.000 significant jumps in volatility in the month of October than 0:17:27.000 --> 0:17:30.000 one is actually currently priced in. So I think twenty 0:17:30.000 --> 0:17:32.840 sixteen twenty twenty average about ten point increase in the 0:17:32.920 --> 0:17:35.040 VICX right now two to three. You know, I think 0:17:35.280 --> 0:17:37.720 as we get closer to the election, we'll probably start 0:17:37.760 --> 0:17:39.119 to see that actually increase. 0:17:39.200 --> 0:17:41.159 How does this stack out with what you would advocate for? 0:17:41.280 --> 0:17:45.280 So it's Steve Eisman right, basically tariff Sun China big deal. 0:17:45.480 --> 0:17:47.960 He said this about the Inflation Reduction Act. You might 0:17:47.960 --> 0:17:50.199 get changes that might be talk of repeating get we 0:17:50.320 --> 0:17:51.960 might move on that for a single day, but at 0:17:52.000 --> 0:17:54.119 the end of the day, nothing will happen. Would you 0:17:54.160 --> 0:17:56.320 advocate for the same thing? Is that how you view things? 0:17:56.600 --> 0:17:58.720 So in terms of fiscal policy, I think what is 0:17:59.080 --> 0:18:01.480 important to focus on in the state of government, the 0:18:01.480 --> 0:18:04.600 state of politics nowadays, Really to get fiscal policy through, 0:18:04.800 --> 0:18:07.680 you really need to have a clean sweep, right, and 0:18:08.119 --> 0:18:09.800 that's the kind of what people are focused on. And 0:18:09.840 --> 0:18:11.399 I think part of the reason why this may be 0:18:11.560 --> 0:18:13.600 a little bit less volatility and price and relative to 0:18:13.600 --> 0:18:16.920 how actually performed last cycle, is that there's just more 0:18:16.920 --> 0:18:20.320 of a less chance of potential clean sweep by either 0:18:20.359 --> 0:18:22.760 the Democrats or the Republicans, and that's what you really 0:18:22.760 --> 0:18:25.600 need in order to enact, you know, a significant fiscal 0:18:25.600 --> 0:18:26.480 policy in the market. 0:18:26.520 --> 0:18:28.600 So divide a government means there's going to be gridlocked, 0:18:28.640 --> 0:18:31.680 but at some point they need to contend with the 0:18:31.960 --> 0:18:34.680 Trump error tax cuts they will expire in twenty twenty five. 0:18:34.960 --> 0:18:36.960 Do you expect some of them to be extended at 0:18:36.960 --> 0:18:37.920 the very minimum? 0:18:38.200 --> 0:18:40.840 So I don't have expectation in terms of the fiscal 0:18:40.880 --> 0:18:43.640 policy side, but I will say, you know, that would 0:18:43.680 --> 0:18:46.639 obviously have an impact in terms of you know, the 0:18:46.720 --> 0:18:48.640 rates market, and that's where a lot of people. 0:18:48.440 --> 0:18:49.000 Are focusing on. 0:18:49.040 --> 0:18:51.160 But the big driver you know in the rates market 0:18:51.160 --> 0:18:53.280 obviously is the Fed and monetary policy, and that is 0:18:53.280 --> 0:18:55.159 still front and center for a lot of investors. So 0:18:55.400 --> 0:18:57.320 we'll see as we get closer to the election, obviously 0:18:57.359 --> 0:18:59.960 the outcome of the election, what happens to those you know, 0:19:00.080 --> 0:19:02.600 Trump tax cuts. But so far it's still very much 0:19:02.640 --> 0:19:05.600 focused on inflation and said in potential great cuts. 0:19:05.680 --> 0:19:07.920 So let's put about one things just briefly, the spike 0:19:07.960 --> 0:19:10.879 in volatility and April. You've explored this, was it a 0:19:10.960 --> 0:19:13.240 one off? How do you guide sort of that conversation 0:19:13.280 --> 0:19:13.760 at the moment. 0:19:13.920 --> 0:19:16.720 Yeah, sure so. Insomuch as the April sell off was 0:19:16.760 --> 0:19:19.200 driven by rates, I think it's important to recognize that 0:19:19.600 --> 0:19:22.199 the balance of risus shifted and when we talk about rates, right, 0:19:22.200 --> 0:19:24.280 we've been talking about rates higher for longer, for a 0:19:24.359 --> 0:19:26.840 very long time, but now the focus is really on 0:19:27.040 --> 0:19:29.920 the longer part of that, right, how much longer, which, 0:19:30.080 --> 0:19:32.160 when you think about it, is actually volt dampening because 0:19:32.200 --> 0:19:36.119 it's talking about rates remaining unchanged for longer versus before 0:19:36.200 --> 0:19:38.000 when we were talking about rates for higher for longer, 0:19:38.119 --> 0:19:40.879 the focus was very much on higher, how much higher, 0:19:41.000 --> 0:19:43.560 how much higher inflation can go? The right tail when 0:19:43.600 --> 0:19:46.520 it comes to the rates distribution was much more significant. 0:19:46.720 --> 0:19:48.479 So to me, what stood down in April is that 0:19:48.520 --> 0:19:50.600 even though we did get a sell off in the market, 0:19:50.840 --> 0:19:53.280 volatility was actually really muted. In the rates market. If 0:19:53.320 --> 0:19:56.720 you look at TLT imply volatility for example, it double 0:19:56.800 --> 0:19:59.200 last October during the rates sell off, but this time 0:19:59.320 --> 0:20:03.439 around it actually went up very very modestly and now 0:20:03.440 --> 0:20:05.600 actually currently back down to a one year low. So 0:20:06.160 --> 0:20:09.480 the more conteined reaction that we're seeing in the bond 0:20:09.560 --> 0:20:11.760