1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Bramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:34,080 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. The 7 00:00:34,159 --> 00:00:38,000 Speaker 1: dollar is down more than seven percent versus the world's 8 00:00:38,159 --> 00:00:41,240 Speaker 1: major currencies so far this year. That is the most 9 00:00:41,640 --> 00:00:44,960 Speaker 1: in over a decade. So what are we expecting for 10 00:00:45,040 --> 00:00:47,600 Speaker 1: next year? Will it just be more of the same. 11 00:00:47,720 --> 00:00:50,400 Speaker 1: Here to answer that question is Daniel Katsi. He's head 12 00:00:50,400 --> 00:00:53,440 Speaker 1: of FX Strategy in North America for BNP Pariba and 13 00:00:53,479 --> 00:00:55,680 Speaker 1: he joins us now. Danielle, thank you so much for 14 00:00:55,760 --> 00:00:58,760 Speaker 1: joining us. Thank you. So what are you expecting for 15 00:00:58,800 --> 00:01:01,280 Speaker 1: next year for the dollar? Well, more of the same 16 00:01:01,360 --> 00:01:03,200 Speaker 1: on net. I think by the end of next year 17 00:01:03,240 --> 00:01:05,920 Speaker 1: the dollar will be weaker again. But we think right 18 00:01:05,959 --> 00:01:08,520 Speaker 1: now we're in a period where the dollar is bouncing 19 00:01:08,520 --> 00:01:11,800 Speaker 1: a little bit counter to that that structural move, uh 20 00:01:11,800 --> 00:01:13,760 Speaker 1: and we think we have it maybe three or four 21 00:01:14,280 --> 00:01:16,200 Speaker 1: five percent move ahead of us. For a lot of 22 00:01:16,240 --> 00:01:20,040 Speaker 1: the dollar pairs over the next few weeks and months 23 00:01:20,080 --> 00:01:22,959 Speaker 1: before the longer term down trend resumes. Wait, just to 24 00:01:23,000 --> 00:01:25,039 Speaker 1: make sure that I'm understanding that. In other words, you 25 00:01:25,040 --> 00:01:29,319 Speaker 1: think that the dollar could strengthen four against a number 26 00:01:29,360 --> 00:01:34,560 Speaker 1: of its peers before returning to a down trend. Exactly. Yeah. 27 00:01:34,600 --> 00:01:37,640 Speaker 1: We think right now the markets under pricing the significance 28 00:01:37,680 --> 00:01:40,480 Speaker 1: of what US rates have been doing, under pricing the 29 00:01:40,720 --> 00:01:44,880 Speaker 1: likelihood UH and the and the consequences of tax legislation, 30 00:01:45,480 --> 00:01:47,760 Speaker 1: and it is generally just under owned. In a world 31 00:01:47,840 --> 00:01:51,040 Speaker 1: where markets looking for a rates and you'll and you'll 32 00:01:51,560 --> 00:01:54,880 Speaker 1: yield delivering currencies, Well, what is held back the dollar 33 00:01:55,000 --> 00:01:58,720 Speaker 1: from posting those kinds of gains recently? I mean this 34 00:01:58,840 --> 00:02:01,560 Speaker 1: is not none of this is in new news. No, 35 00:02:01,680 --> 00:02:03,960 Speaker 1: that's true. I think the market has built up a 36 00:02:04,000 --> 00:02:05,960 Speaker 1: short position to some extent, and I think part of 37 00:02:05,960 --> 00:02:09,320 Speaker 1: that reflects this understanding that, yes, the structure, even if 38 00:02:09,360 --> 00:02:12,320 Speaker 1: you have the opportunity for a cyclical bounce, the big 39 00:02:12,600 --> 00:02:15,320 Speaker 1: ten percent type moves over the next few years are 40 00:02:15,360 --> 00:02:17,440 Speaker 1: going to be to the dollar downside. So there's been 41 00:02:17,400 --> 00:02:20,040 Speaker 1: a reluctance to own the dollar. I think the market 42 00:02:20,040 --> 00:02:23,919 Speaker 1: has been reluctant to fully priced in, uh the consequences 43 00:02:23,919 --> 00:02:26,560 Speaker 1: of tax reform until it actually passes, having kind of 44 00:02:26,600 --> 00:02:29,600 Speaker 1: gotten caught the wrong way, um, the legislative agenda before 45 00:02:30,040 --> 00:02:33,960 Speaker 1: and UM. I think there's a cumulative effect of rising 46 00:02:34,000 --> 00:02:36,120 Speaker 1: front end rates, which is what's been happening in the 47 00:02:36,200 --> 00:02:39,320 Speaker 1: US over the last uh two months. The US front 48 00:02:39,360 --> 00:02:41,440 Speaker 1: and rates have been grinding higher, and this does have 49 00:02:41,480 --> 00:02:45,799 Speaker 1: a cumulative effect on hedging decisions and investment decisions, which 50 00:02:46,000 --> 00:02:48,359 Speaker 1: I think is going to only show up potentially over 51 00:02:48,400 --> 00:02:50,120 Speaker 1: time if the market does can't price it in ahead 52 00:02:50,160 --> 00:02:52,400 Speaker 1: of time for whatever reason. So, just to put this 53 00:02:52,480 --> 00:02:56,240 Speaker 1: all into perspective, the moves in the dollar will be 54 00:02:56,280 --> 00:02:59,320 Speaker 1: tremendously important to a lot of different asset classes. And 55 00:02:59,440 --> 00:03:03,200 Speaker 1: I'm thinking increasingly as I talk with investors and analysts 56 00:03:03,240 --> 00:03:06,400 Speaker 1: that there is a growing complacency that perhaps the dollar 57 00:03:06,440 --> 00:03:09,080 Speaker 1: will rally a little bit against its peers, but ultimately 58 00:03:09,320 --> 00:03:12,000 Speaker 1: will remain in this sort of weekend state, if not 59 00:03:12,680 --> 00:03:15,520 Speaker 1: decline in value over the next year. And I'm just 60 00:03:15,560 --> 00:03:18,040 Speaker 1: wondering what happens if it goes the other way. Let's 61 00:03:18,040 --> 00:03:20,560 Speaker 1: say it does strengthen, how much would it have to 62 00:03:20,880 --> 00:03:24,720 Speaker 1: gain against its rivals in order to disrupt things like 63 00:03:24,840 --> 00:03:27,760 Speaker 1: emerging markets. Well, I think it's a very good question. 64 00:03:27,800 --> 00:03:29,639 Speaker 1: I mean, I think the one thing when I talk 65 00:03:29,680 --> 00:03:32,840 Speaker 1: to people about what's going to happen next year, uh, 66 00:03:32,880 --> 00:03:34,840 Speaker 1: the one thing that would really surprise people, as if 67 00:03:34,840 --> 00:03:37,200 Speaker 1: the dollar moved back to the kind of levels we 68 00:03:37,240 --> 00:03:41,240 Speaker 1: saw after the election, that that would really challenge a 69 00:03:41,240 --> 00:03:43,720 Speaker 1: lot of assumptions about where things are going. We don't 70 00:03:43,720 --> 00:03:46,200 Speaker 1: expect that. It's not our base case either. But if 71 00:03:46,200 --> 00:03:49,040 Speaker 1: I'm looking for the pain trade or the surprise uh 72 00:03:49,120 --> 00:03:50,800 Speaker 1: for markets in the in the first half, and often 73 00:03:50,800 --> 00:03:52,600 Speaker 1: we do get surprises in the first few months of 74 00:03:52,640 --> 00:03:54,360 Speaker 1: the year, it would be the dollar does a lot 75 00:03:54,400 --> 00:03:57,480 Speaker 1: better that this cumulative tightening that the fed from the 76 00:03:57,480 --> 00:04:00,040 Speaker 1: FED finally begins to kick in, and that all the 77 00:04:00,120 --> 00:04:02,040 Speaker 1: things that people talk about, well, other central banks are 78 00:04:02,080 --> 00:04:03,880 Speaker 1: hiking as well, that that's too far in the future 79 00:04:03,880 --> 00:04:06,680 Speaker 1: to really provide sustained support for their currencies, and we 80 00:04:06,720 --> 00:04:08,400 Speaker 1: get kind of a move to something like one ten 81 00:04:08,480 --> 00:04:12,320 Speaker 1: and euro USD and yet again not our base case, 82 00:04:12,360 --> 00:04:13,680 Speaker 1: but I think that would be a big surprise for 83 00:04:13,720 --> 00:04:16,559 Speaker 1: the market and which challenge UH a lot of different 84 00:04:16,560 --> 00:04:19,880 Speaker 1: asset classes to to respond. Well. Daniel talking about that 85 00:04:19,960 --> 00:04:22,680 Speaker 1: response from different asset classes. What does that translate to 86 00:04:22,920 --> 00:04:27,400 Speaker 1: lower oil prices, lower inflation? It could uh, you know, 87 00:04:27,520 --> 00:04:30,640 Speaker 1: for if the example I would go back to is, 88 00:04:30,839 --> 00:04:33,280 Speaker 1: you know, how things played out in early seen. At 89 00:04:33,320 --> 00:04:35,359 Speaker 1: that point, the dollar had been gaining a lot, and 90 00:04:35,400 --> 00:04:39,479 Speaker 1: I think many people in the market underestimated how much 91 00:04:39,839 --> 00:04:43,920 Speaker 1: feedback that would create into the economy, into um uh, 92 00:04:44,279 --> 00:04:49,000 Speaker 1: credit markets, energy markets, equity markets, um into the Fed's 93 00:04:49,040 --> 00:04:51,640 Speaker 1: own thinking um and just you know, remember at that 94 00:04:51,680 --> 00:04:54,080 Speaker 1: point the year on year rate in the broad trade 95 00:04:54,080 --> 00:04:56,120 Speaker 1: weighted dollar it got up to about something like like 96 00:04:56,200 --> 00:04:58,320 Speaker 1: fifteen percent. It's hard for us to do that now 97 00:04:58,360 --> 00:05:01,000 Speaker 1: because the base effects just really aren't really the same 98 00:05:01,000 --> 00:05:02,640 Speaker 1: as they were in twenty sixteen, and or wards of 99 00:05:02,680 --> 00:05:05,720 Speaker 1: dollars already still, even though it's been weak this year, 100 00:05:05,720 --> 00:05:08,120 Speaker 1: as you pointed out, the dollars still at relatively strong levels. 101 00:05:08,400 --> 00:05:09,919 Speaker 1: It's gonna be hard to get as much of a 102 00:05:10,000 --> 00:05:12,480 Speaker 1: headwind from f X as we got at that time. 103 00:05:12,920 --> 00:05:15,240 Speaker 1: But even something you know, smaller than that, you know, 104 00:05:15,360 --> 00:05:19,919 Speaker 1: does create a lot of feedback into other markets. So, Daniel, 105 00:05:20,080 --> 00:05:22,280 Speaker 1: how much do you think that the dollar will weakend 106 00:05:22,800 --> 00:05:26,000 Speaker 1: versus its peers by the end of next year compared 107 00:05:26,040 --> 00:05:28,480 Speaker 1: with where we are today. Well, we've been using our 108 00:05:28,600 --> 00:05:31,560 Speaker 1: long term equilibrium fair value model to try and answer 109 00:05:31,560 --> 00:05:34,120 Speaker 1: that question, and the idea is that you know, the 110 00:05:34,160 --> 00:05:38,520 Speaker 1: dollar got very expensive during the period in when FED 111 00:05:38,600 --> 00:05:41,800 Speaker 1: policy was diverging from policy everywhere else, and over the 112 00:05:41,800 --> 00:05:44,720 Speaker 1: next few years, as other central banks start tightening and 113 00:05:44,760 --> 00:05:47,760 Speaker 1: the FED ends its cycle, uh, we're gonna have reconvergence 114 00:05:47,760 --> 00:05:49,520 Speaker 1: and monetary policies. So we think we could go back 115 00:05:49,520 --> 00:05:53,240 Speaker 1: to these long term equilibrium levels. The biggest excrepancies are 116 00:05:53,279 --> 00:05:56,200 Speaker 1: in versus currencies where the other central bank has been 117 00:05:56,240 --> 00:05:59,560 Speaker 1: doing QI. So, for example, you're a USD our long 118 00:05:59,640 --> 00:06:03,000 Speaker 1: term mac librium estimate is one thirty three UM. We 119 00:06:03,000 --> 00:06:05,360 Speaker 1: don't think we're gonna get there in We think we'll 120 00:06:05,360 --> 00:06:07,280 Speaker 1: get there by the end of so that'll be a 121 00:06:07,600 --> 00:06:09,920 Speaker 1: gradual process with ups and downs along the way. By 122 00:06:09,920 --> 00:06:13,960 Speaker 1: the end, we're thinking one twenty two for euro USD 123 00:06:14,040 --> 00:06:16,520 Speaker 1: so it's basically getting back to where we got around 124 00:06:16,560 --> 00:06:18,760 Speaker 1: the middle of this year. We think dollar end could 125 00:06:18,800 --> 00:06:22,080 Speaker 1: get UM as low as well as high as one 126 00:06:22,240 --> 00:06:24,680 Speaker 1: seventeen in the near term, but then back down to 127 00:06:24,760 --> 00:06:27,279 Speaker 1: one twelve by the end of next year. So a 128 00:06:27,279 --> 00:06:29,719 Speaker 1: bit of a you know, uh V shape or upside 129 00:06:29,760 --> 00:06:32,200 Speaker 1: down V shape. You know, I just want to follow 130 00:06:32,279 --> 00:06:34,480 Speaker 1: up on that, because when you talk about Europe and Japan, 131 00:06:34,520 --> 00:06:36,600 Speaker 1: we're we're heading into a week of a lot of decisions. 132 00:06:36,640 --> 00:06:38,240 Speaker 1: We're going to hear from the e c B in 133 00:06:38,279 --> 00:06:40,720 Speaker 1: the Bank of England, and I'm just wondering, you know, 134 00:06:40,800 --> 00:06:42,880 Speaker 1: who's driving the bus here? Is it the e c 135 00:06:43,040 --> 00:06:45,159 Speaker 1: B or is it the Fed? You know, people talk 136 00:06:45,200 --> 00:06:48,040 Speaker 1: about Trump and the Trump trade, but is it really 137 00:06:48,080 --> 00:06:50,159 Speaker 1: that Europe is doing better than expected, that they're going 138 00:06:50,200 --> 00:06:54,080 Speaker 1: to be forced to start tapering and possibly even lift 139 00:06:54,080 --> 00:06:57,400 Speaker 1: deposit rates sooner than people are expecting. The market is 140 00:06:57,520 --> 00:07:01,320 Speaker 1: very sensitive to any indication that these currency central banks 141 00:07:01,320 --> 00:07:03,760 Speaker 1: like the ECB and the Bank in Japan might be 142 00:07:03,960 --> 00:07:07,000 Speaker 1: beginning to exit. Uh So, you see, whenever the ECB 143 00:07:07,040 --> 00:07:09,960 Speaker 1: says anything even slightly hawkish, you see a big reaction 144 00:07:10,000 --> 00:07:11,680 Speaker 1: in your U s D for example, Whereas the FED 145 00:07:11,760 --> 00:07:15,000 Speaker 1: can actually hike rates, and you know, the benefit for 146 00:07:15,040 --> 00:07:17,240 Speaker 1: the dollar seems much smaller. I think that reflects the 147 00:07:17,280 --> 00:07:20,360 Speaker 1: Euro's cheapness as always expensiveness, and this perception and over 148 00:07:20,400 --> 00:07:22,559 Speaker 1: the next few years things are going to be changing. 149 00:07:23,160 --> 00:07:25,480 Speaker 1: But you know, what I think, really the market sometimes 150 00:07:25,560 --> 00:07:28,240 Speaker 1: forgets is that even if the ECB is talking a 151 00:07:28,280 --> 00:07:30,680 Speaker 1: little bit more about exit, there's still a year away 152 00:07:30,720 --> 00:07:33,720 Speaker 1: from doing anything really meaningful new on the on the 153 00:07:33,800 --> 00:07:36,400 Speaker 1: rate front, at least a year away. And in the meantime, 154 00:07:37,440 --> 00:07:39,559 Speaker 1: if you want to be long euros and hold Euros, 155 00:07:39,600 --> 00:07:42,520 Speaker 1: you have to pay uh, you have to pay care. 156 00:07:42,600 --> 00:07:44,400 Speaker 1: You have to be you know, if your your dollar funded, 157 00:07:44,440 --> 00:07:46,480 Speaker 1: you have to pay a negative rate differential to hold 158 00:07:46,520 --> 00:07:49,160 Speaker 1: that position. So that you know, I think it's important 159 00:07:49,200 --> 00:07:53,280 Speaker 1: to listen to the signal, but not forget that the 160 00:07:53,360 --> 00:07:55,400 Speaker 1: reality on the ground right now is that policy is 161 00:07:55,440 --> 00:07:58,760 Speaker 1: still very accommodative in Europe. Yes, the economy is hot, 162 00:07:58,840 --> 00:08:02,040 Speaker 1: but what that does is create a real downward pressure 163 00:08:02,080 --> 00:08:04,920 Speaker 1: on real rates. Because inflation goes up in Europe, nominal 164 00:08:05,000 --> 00:08:07,679 Speaker 1: rates are held stable and real rates actually get get lower, 165 00:08:08,080 --> 00:08:10,320 Speaker 1: which can hurt the currency in the near term. Thanks 166 00:08:10,440 --> 00:08:13,000 Speaker 1: very much for being with us. Daniel Katze is the 167 00:08:13,080 --> 00:08:17,240 Speaker 1: head of FX strategy in North America for BNP party. Bob. 168 00:08:32,559 --> 00:08:36,160 Speaker 1: There was an election yesterday in al Obama and the 169 00:08:36,360 --> 00:08:41,160 Speaker 1: verdict was somewhat surprising. This very red state turned blue 170 00:08:41,240 --> 00:08:44,720 Speaker 1: for the first time in more than twenty years. Here 171 00:08:44,760 --> 00:08:47,720 Speaker 1: to talk about what the implications are is Jonathan Bernstein, 172 00:08:47,720 --> 00:08:51,920 Speaker 1: Bloomberg View columnist, coming to us from San Antonio. Jonathan, 173 00:08:51,960 --> 00:08:54,440 Speaker 1: thank you so much for being with us. What's your 174 00:08:54,480 --> 00:08:57,960 Speaker 1: main takeaway from the election of Doug Jones to be uh, 175 00:08:58,080 --> 00:09:04,520 Speaker 1: the senator representing the long read Alabama in the Senate. Well, 176 00:09:04,600 --> 00:09:07,640 Speaker 1: we'll be in the Senate. You know, every single Senate 177 00:09:07,760 --> 00:09:10,040 Speaker 1: vote counts, and there's a huge difference between having a 178 00:09:10,080 --> 00:09:13,800 Speaker 1: fifty two majority as the Republicans did you know still 179 00:09:13,840 --> 00:09:17,599 Speaker 1: do until he gets went into having a majority. You know, 180 00:09:18,360 --> 00:09:21,040 Speaker 1: the Vice President Pence has already had to break ties 181 00:09:21,120 --> 00:09:25,360 Speaker 1: six times because Republicans couldn't keep all fifty two together. Um, 182 00:09:25,840 --> 00:09:28,720 Speaker 1: you know, all else equal, Republicans would have lost all 183 00:09:28,760 --> 00:09:30,760 Speaker 1: six of those votes, and we're gonna have more of 184 00:09:30,840 --> 00:09:33,120 Speaker 1: that in the year to come. Well, Jonathan, maybe just 185 00:09:33,200 --> 00:09:35,760 Speaker 1: go through some of the list of the defeated Todd Aiken, 186 00:09:36,559 --> 00:09:42,160 Speaker 1: Richard Moredock, Christine O'Donnell. This could have been the Republicans time, 187 00:09:42,280 --> 00:09:46,000 Speaker 1: but something happened. Yeah, you know, this is yet another 188 00:09:46,080 --> 00:09:52,280 Speaker 1: time where a tea party or an extremist Republican got nominated. Um. 189 00:09:52,760 --> 00:09:55,400 Speaker 1: You know, before Steve Bannon was involved in politics at all, 190 00:09:55,440 --> 00:09:57,719 Speaker 1: this was happening, and now it happens even more with 191 00:09:58,760 --> 00:10:03,559 Speaker 1: Bannonite UH candidates, UM, and they're they're nominating people who 192 00:10:03,640 --> 00:10:06,679 Speaker 1: they should give away seats. Alabama, this should have been 193 00:10:06,720 --> 00:10:11,000 Speaker 1: a lack election, even with the president very unpopular overall. 194 00:10:11,320 --> 00:10:13,719 Speaker 1: Alabama is a very Republican state. They should have won this, 195 00:10:13,840 --> 00:10:17,199 Speaker 1: but they nominated somebody who was a terrible candidate. Well, so, 196 00:10:17,320 --> 00:10:21,559 Speaker 1: Jonathan to that point, how much is this an idiosyncratic 197 00:10:21,679 --> 00:10:24,720 Speaker 1: issue that had to do with choosing a bad candidate 198 00:10:25,360 --> 00:10:28,000 Speaker 1: and how much is it a harbinger for next year 199 00:10:28,080 --> 00:10:31,800 Speaker 1: we get a whole slew of midterm elections. Well, it's 200 00:10:32,040 --> 00:10:35,880 Speaker 1: in some cases both. Um. The three things went into 201 00:10:36,280 --> 00:10:40,520 Speaker 1: the victory for Doug Jones the Democrats. One was that 202 00:10:40,800 --> 00:10:44,040 Speaker 1: Roy Moore has always been unpopular in Alabama. He's won, 203 00:10:44,200 --> 00:10:46,840 Speaker 1: but he won by much less than Republicans typically one 204 00:10:46,920 --> 00:10:49,959 Speaker 1: in his previous statewide races. The second was the scandal 205 00:10:50,760 --> 00:10:52,839 Speaker 1: um which came up after he was nominated. And the 206 00:10:53,000 --> 00:10:56,920 Speaker 1: third was that Trump is just a very unpopular Republican president. 207 00:10:57,040 --> 00:11:01,520 Speaker 1: So it's idiosyncratic of the specific things that happened with 208 00:11:01,559 --> 00:11:05,440 Speaker 1: more but it's not even astocratic that Republicans have made 209 00:11:05,480 --> 00:11:08,760 Speaker 1: a habit of nominating these terrible candidates, and every time 210 00:11:08,840 --> 00:11:11,120 Speaker 1: that happens, they give away a seat. They may wind 211 00:11:11,200 --> 00:11:14,360 Speaker 1: up doing it in the Senate races in Nevada and 212 00:11:14,640 --> 00:11:18,240 Speaker 1: or Arizona. So, Jonathan, I want to press you on 213 00:11:18,320 --> 00:11:20,439 Speaker 1: that one point. You said that this has to do 214 00:11:20,640 --> 00:11:23,920 Speaker 1: with President Trump being very unpopular. Does it? I mean, 215 00:11:24,000 --> 00:11:26,240 Speaker 1: can we really gauge that this had anything to do 216 00:11:26,400 --> 00:11:30,880 Speaker 1: with that, because ultimately, if Roy Moore was unpopular, he 217 00:11:31,000 --> 00:11:34,200 Speaker 1: was unpopular, and yes, Trump added his support at the end, 218 00:11:34,679 --> 00:11:37,880 Speaker 1: But is this really a referendum on him. It's not 219 00:11:38,000 --> 00:11:40,240 Speaker 1: something to a referendum. It's not the people you know 220 00:11:40,720 --> 00:11:43,200 Speaker 1: in Alabama said I'm going to vote against more because 221 00:11:43,200 --> 00:11:45,840 Speaker 1: of Trump. But having an unpopular president of your own 222 00:11:45,880 --> 00:11:50,560 Speaker 1: party depresses enthusiasm within the party. Voters are less likely 223 00:11:50,640 --> 00:11:53,959 Speaker 1: to turn out the other party is more enthusiastic. Um. 224 00:11:54,160 --> 00:11:58,240 Speaker 1: You know, that's what produced a landslide for Republicans against 225 00:11:58,920 --> 00:12:04,559 Speaker 1: Barack Obama and funny ten and um. Right now, Donald 226 00:12:04,559 --> 00:12:08,200 Speaker 1: Trump is about twelve point percentage points less popular than 227 00:12:08,240 --> 00:12:12,160 Speaker 1: Obama was at the same point by years ago. Jonathan, 228 00:12:12,200 --> 00:12:13,880 Speaker 1: you make the point in yours and one of your 229 00:12:13,880 --> 00:12:18,720 Speaker 1: most recent columns, you talk about how Florida's Senator Marco 230 00:12:18,840 --> 00:12:21,880 Speaker 1: Rubio and Utah's Senator Mike Lee had an amendment to 231 00:12:22,000 --> 00:12:26,679 Speaker 1: expand the child credit. Just tell people exactly how that 232 00:12:26,880 --> 00:12:30,400 Speaker 1: played out and what that informs you of. Well, you know, 233 00:12:30,480 --> 00:12:33,040 Speaker 1: that was an interesting case where you had two Republican 234 00:12:33,120 --> 00:12:35,760 Speaker 1: senators who had an amendment that they wanted to push. 235 00:12:35,800 --> 00:12:39,199 Speaker 1: It would have increased the child tax credit, and it 236 00:12:39,240 --> 00:12:41,520 Speaker 1: would have they would have raised the corporate rate a 237 00:12:41,559 --> 00:12:43,240 Speaker 1: little bit or you know, not lowered it as much 238 00:12:43,280 --> 00:12:47,560 Speaker 1: to make up for two senators in a fiftiest majority. 239 00:12:47,920 --> 00:12:52,600 Speaker 1: They didn't have the cloud by themselves to force miss 240 00:12:52,679 --> 00:12:55,840 Speaker 1: mcconnald to make a deal. Now, some people criticize them. 241 00:12:55,840 --> 00:12:57,840 Speaker 1: They could have still tried to They could have found 242 00:12:57,880 --> 00:13:00,240 Speaker 1: a third senator. But now with a fifty one already 243 00:13:00,280 --> 00:13:04,360 Speaker 1: nine two senators, any two senators, Republican senators could go 244 00:13:04,440 --> 00:13:06,120 Speaker 1: to Mitch mcconllull and say, I'm not going to vote 245 00:13:06,120 --> 00:13:08,720 Speaker 1: for this unless you give me my amendment. That one. 246 00:13:09,120 --> 00:13:10,959 Speaker 1: You know, it seems like it's not a big deal, 247 00:13:11,040 --> 00:13:14,000 Speaker 1: one out of a hundred, but in fact, it makes 248 00:13:14,040 --> 00:13:18,520 Speaker 1: it easier for different small groups to be able to 249 00:13:18,600 --> 00:13:20,880 Speaker 1: get their way in the Senate, making it much more 250 00:13:20,920 --> 00:13:22,640 Speaker 1: difficult for the Senate to get anything done for the 251 00:13:22,679 --> 00:13:27,040 Speaker 1: Republicans in the Senate to get anything done. So, just 252 00:13:27,320 --> 00:13:31,640 Speaker 1: going forward, what sort of the strategy for the GOP, 253 00:13:31,840 --> 00:13:35,160 Speaker 1: how are they going to frame this? Well, you know, 254 00:13:35,920 --> 00:13:38,719 Speaker 1: there's what they need to do is to find some 255 00:13:38,880 --> 00:13:42,679 Speaker 1: way to improve the two things, to find some way 256 00:13:42,720 --> 00:13:46,520 Speaker 1: to defeat uh these Bannon type Tea Party type candidates 257 00:13:46,520 --> 00:13:48,560 Speaker 1: who are terrible candidate, who are giving away seats. They 258 00:13:48,600 --> 00:13:50,920 Speaker 1: haven't figured out a way to do that. Um, they 259 00:13:50,960 --> 00:13:53,600 Speaker 1: had thought they did. Mitch McConnell thought that they were 260 00:13:53,960 --> 00:13:57,760 Speaker 1: making some progress in that in the nomination season. We'll 261 00:13:57,800 --> 00:14:01,240 Speaker 1: see what happens as goes along. The other thing that 262 00:14:01,320 --> 00:14:02,840 Speaker 1: they need to do is find some way to make 263 00:14:02,880 --> 00:14:07,000 Speaker 1: Donald Trump less unpopular. You know, good luck figuring that 264 00:14:07,080 --> 00:14:09,360 Speaker 1: one out. I want to thank want to thank you 265 00:14:09,559 --> 00:14:14,319 Speaker 1: very much. Jonathan Bernstein. He is a Bloomberg View columnist 266 00:14:14,440 --> 00:14:18,640 Speaker 1: and previously political science professor at the University of Texas 267 00:14:18,760 --> 00:14:24,800 Speaker 1: at San Antonio. Fascinating, fascinating election yesterday, and the turnout 268 00:14:24,880 --> 00:14:27,720 Speaker 1: was really interesting, and that was definitely something that people 269 00:14:27,720 --> 00:14:31,200 Speaker 1: are to be watching. Is uh is the Democratic Party galvanized? 270 00:14:31,840 --> 00:14:33,960 Speaker 1: What will it take to galvanize the Republican Party in 271 00:14:34,000 --> 00:14:35,640 Speaker 1: the same kind of way for the mid terms. Yes, 272 00:14:53,880 --> 00:14:58,760 Speaker 1: technology alone cannot save your business from cyber attacks, so 273 00:14:58,960 --> 00:15:02,120 Speaker 1: says our net guest. Chris Young is the chief executive 274 00:15:02,200 --> 00:15:06,080 Speaker 1: of McAfee, of course, previously purchased by Intel, and he 275 00:15:06,240 --> 00:15:09,000 Speaker 1: joins us here in our eleven three oh studios. Chris Young, 276 00:15:09,040 --> 00:15:10,720 Speaker 1: thank you very much for coming in. What do you 277 00:15:10,800 --> 00:15:14,040 Speaker 1: mean by this? Technology alone isn't going to save a 278 00:15:14,160 --> 00:15:17,960 Speaker 1: business from cyber attacks. So technology is really important and 279 00:15:18,080 --> 00:15:21,920 Speaker 1: obviously putting together the foundation for security for any organization, 280 00:15:22,520 --> 00:15:25,520 Speaker 1: but you have to have an addition to that, a 281 00:15:25,680 --> 00:15:29,120 Speaker 1: culture of security across your organization. This is really important. 282 00:15:29,160 --> 00:15:33,240 Speaker 1: Security has got to be something that everybody from your employees, 283 00:15:33,400 --> 00:15:36,720 Speaker 1: your partners, your executive staff, as well as your board, 284 00:15:37,200 --> 00:15:40,080 Speaker 1: all parties involved, have to make sure that security is 285 00:15:40,160 --> 00:15:43,320 Speaker 1: a priority and it's something that's part of our consciousness 286 00:15:43,400 --> 00:15:46,320 Speaker 1: and inside of any organization. So that culture is critical 287 00:15:46,720 --> 00:15:49,560 Speaker 1: to augment. Also, you know, augment what you're doing with technology, 288 00:15:49,880 --> 00:15:53,000 Speaker 1: all right? When you walked in here, I asked, ingest, 289 00:15:53,560 --> 00:15:55,760 Speaker 1: do you live in a constant state of paranoia. And 290 00:15:55,840 --> 00:15:57,760 Speaker 1: you were talking about how you would never plug your 291 00:15:57,800 --> 00:16:00,800 Speaker 1: phone into a public outlat outlet because you don't know 292 00:16:00,840 --> 00:16:02,720 Speaker 1: who's on the other side of it, And I have 293 00:16:02,920 --> 00:16:05,520 Speaker 1: to wonder, I mean, I operate by going around thinking, 294 00:16:05,960 --> 00:16:08,200 Speaker 1: are there that many people out there that are trying 295 00:16:08,280 --> 00:16:12,520 Speaker 1: to fleece me? Are there? In reality, the number of 296 00:16:13,880 --> 00:16:16,400 Speaker 1: the number of people who get you know, hit a 297 00:16:16,520 --> 00:16:19,160 Speaker 1: hit in these in these situations are pretty small from 298 00:16:19,200 --> 00:16:23,480 Speaker 1: a mathematical perspective. But the problem is, you know, cybersecurity 299 00:16:23,640 --> 00:16:26,320 Speaker 1: and cyber attacks are getting more pervasive. The numbers are 300 00:16:26,360 --> 00:16:29,080 Speaker 1: going up every year, um, and it's something that everybody 301 00:16:29,160 --> 00:16:31,240 Speaker 1: has to pay attention to well. But I guess from 302 00:16:31,240 --> 00:16:36,120 Speaker 1: a corporate standpoint, have the number of attacks increased exponentially 303 00:16:36,360 --> 00:16:39,160 Speaker 1: and have they gotten more and more sophisticated to the 304 00:16:39,240 --> 00:16:44,240 Speaker 1: point where uh, companies are facing daily barrages that they're 305 00:16:44,280 --> 00:16:46,920 Speaker 1: having trouble keeping up with. So the answer to that 306 00:16:47,120 --> 00:16:49,520 Speaker 1: is yes. I mean we see literally, if I was 307 00:16:49,600 --> 00:16:52,040 Speaker 1: to show you any chart and pick it an attack type, 308 00:16:52,200 --> 00:16:54,280 Speaker 1: literally every attack type is up into the right in 309 00:16:54,400 --> 00:16:57,440 Speaker 1: terms of absolute numbers that we see, Um, we've got 310 00:16:57,520 --> 00:16:58,840 Speaker 1: If I was if I was able to show you 311 00:16:58,920 --> 00:17:01,040 Speaker 1: a presentation. I've got a presentation that I do that 312 00:17:01,160 --> 00:17:04,879 Speaker 1: shows the last thirty years of cyber attacks. One of 313 00:17:04,920 --> 00:17:07,399 Speaker 1: the things you see is that no individual form of 314 00:17:07,440 --> 00:17:10,760 Speaker 1: attack actually ever goes away. They all change, they more 315 00:17:10,800 --> 00:17:13,480 Speaker 1: if they get more sophisticated over time. And now what 316 00:17:13,560 --> 00:17:15,560 Speaker 1: we're seeing a lot of these guys do is there 317 00:17:15,560 --> 00:17:18,840 Speaker 1: actually combining attack types to come up with new attacks 318 00:17:18,880 --> 00:17:20,639 Speaker 1: that you that a lot of those of us who 319 00:17:20,680 --> 00:17:24,560 Speaker 1: are defending have a hard time conceptualizing because they're completely 320 00:17:24,640 --> 00:17:28,399 Speaker 1: different approaches to UH achieving your mission, so to speak, 321 00:17:28,440 --> 00:17:30,439 Speaker 1: if you're a cyber attacker. Well, and it seems as 322 00:17:30,440 --> 00:17:35,040 Speaker 1: though they're also combining the fruits of their labors. For example, 323 00:17:35,160 --> 00:17:37,840 Speaker 1: there is a database that's been reported of about one 324 00:17:37,920 --> 00:17:42,440 Speaker 1: point for billion user passwords has been discovered on the 325 00:17:42,720 --> 00:17:48,520 Speaker 1: dark web, and this is data that is UH taken 326 00:17:48,640 --> 00:17:53,520 Speaker 1: from LinkedIn, MySpace, Netflix, a variety of other sites. And 327 00:17:53,800 --> 00:17:56,280 Speaker 1: the comment is that none of the passwords are encrypted, 328 00:17:56,640 --> 00:17:59,080 Speaker 1: and they've already tested them so that now they can 329 00:17:59,160 --> 00:18:01,399 Speaker 1: be sold through out the world. This is really a 330 00:18:01,440 --> 00:18:03,760 Speaker 1: big business, isn't it. It's one of the reasons you 331 00:18:03,840 --> 00:18:06,240 Speaker 1: have to change your password frequently. I know For some 332 00:18:06,400 --> 00:18:09,119 Speaker 1: people they feel that's annoying to have to change their password. 333 00:18:09,200 --> 00:18:12,000 Speaker 1: But it's back to that culture of security. Security is 334 00:18:12,040 --> 00:18:15,280 Speaker 1: everyone's responsibility, whether you're the person on the street or 335 00:18:15,400 --> 00:18:18,120 Speaker 1: the CEO of an organization, whether you're in the business 336 00:18:18,280 --> 00:18:21,639 Speaker 1: like we are at McAfee of protecting people, um, or 337 00:18:21,720 --> 00:18:25,120 Speaker 1: whether you're there the person who answers the phones here 338 00:18:25,160 --> 00:18:28,440 Speaker 1: at Bloomberg. Everyone has to take responsibility. So how much 339 00:18:28,520 --> 00:18:32,800 Speaker 1: have McAfee's profits gone up. We've we've we've been a 340 00:18:32,920 --> 00:18:36,159 Speaker 1: successful business. As you know. We just spun ourselves out 341 00:18:36,240 --> 00:18:39,879 Speaker 1: of Intel earlier this year in April, to be exact, 342 00:18:40,080 --> 00:18:43,720 Speaker 1: and we've you know, we're one of the largest independent 343 00:18:43,760 --> 00:18:47,639 Speaker 1: cybersecurity companies today. UM, we are, you know, we're I 344 00:18:47,760 --> 00:18:51,000 Speaker 1: like to joke internally that we're um, we're kind of 345 00:18:51,080 --> 00:18:53,119 Speaker 1: like a startup, but we're actually quite large. You've been 346 00:18:53,119 --> 00:18:56,399 Speaker 1: in the business for for several years and it's something that, uh, 347 00:18:56,960 --> 00:18:59,359 Speaker 1: we're very proud of. What do you actually do? So 348 00:18:59,520 --> 00:19:04,800 Speaker 1: we're we provide cybersecurity products and services across consumer markets 349 00:19:04,880 --> 00:19:09,239 Speaker 1: as well as commercial markets. We serve governments and businesses. UM. 350 00:19:09,359 --> 00:19:11,840 Speaker 1: We provide products, we've got services, we do a lot 351 00:19:11,880 --> 00:19:15,119 Speaker 1: of protection and at the foundation of everything we do 352 00:19:15,960 --> 00:19:20,760 Speaker 1: is really strong threat detection and helping stop threats. You 353 00:19:21,240 --> 00:19:24,080 Speaker 1: you recently made a purchase of a sky High UH 354 00:19:24,400 --> 00:19:27,040 Speaker 1: Networks and this has to do with cloud computing. Are 355 00:19:27,080 --> 00:19:31,520 Speaker 1: there specific risks associated with so much data and corporate 356 00:19:31,560 --> 00:19:36,119 Speaker 1: activity moving to the cloud where the people involved may 357 00:19:36,200 --> 00:19:38,760 Speaker 1: not even know where the data resides. They're absolutely, they 358 00:19:38,760 --> 00:19:40,800 Speaker 1: absolutely are. If you think about where the world is 359 00:19:40,880 --> 00:19:44,119 Speaker 1: going in the future state, it's going to be a 360 00:19:44,240 --> 00:19:46,920 Speaker 1: worker in any any organization is just gonna be They're 361 00:19:46,920 --> 00:19:50,280 Speaker 1: gonna be on some device, They're gonna be accessing applications 362 00:19:50,320 --> 00:19:53,359 Speaker 1: and data that are in the cloud, potentially in a 363 00:19:53,400 --> 00:19:55,719 Speaker 1: public cloud environment, and that's going to be the way 364 00:19:55,760 --> 00:19:58,720 Speaker 1: the world is going to work. And so we at McAfee, 365 00:19:58,960 --> 00:20:01,320 Speaker 1: you know, have decided that together when we close the 366 00:20:01,359 --> 00:20:03,800 Speaker 1: transaction with sky High, which happens in the early part 367 00:20:03,840 --> 00:20:06,280 Speaker 1: of next year, will now be able to provide that 368 00:20:06,520 --> 00:20:08,440 Speaker 1: end to end security from you know, kind of the 369 00:20:08,520 --> 00:20:11,439 Speaker 1: devices that users are working with all the way out 370 00:20:11,480 --> 00:20:13,480 Speaker 1: through the applications and data that are in the cloud. 371 00:20:13,520 --> 00:20:17,480 Speaker 1: Where Skyhis establishes established themselves as a leader, we think 372 00:20:17,520 --> 00:20:19,680 Speaker 1: that's the future of where the world is headed not 373 00:20:19,800 --> 00:20:22,440 Speaker 1: only from an I T perspective, but the cybersecurity models 374 00:20:22,480 --> 00:20:24,800 Speaker 1: got to operate that way as well. Just quickly, what's 375 00:20:24,840 --> 00:20:27,280 Speaker 1: your biggest fear with respect to some kind of massive 376 00:20:27,320 --> 00:20:30,639 Speaker 1: data breach? UM? My biggest fear when it comes to 377 00:20:30,760 --> 00:20:35,159 Speaker 1: attacks is is you know the impact on um, you know, 378 00:20:35,280 --> 00:20:37,880 Speaker 1: on major systems. You know, like I, for example, at 379 00:20:37,880 --> 00:20:39,720 Speaker 1: a conference a couple of years ago, I had Ted 380 00:20:39,840 --> 00:20:42,320 Speaker 1: Coppel come and talk because he wrote that book called 381 00:20:42,400 --> 00:20:44,680 Speaker 1: lights Out on you know, an attack, potential attack on 382 00:20:44,760 --> 00:20:47,560 Speaker 1: the power grid. UM. So I do worry about those things. 383 00:20:47,640 --> 00:20:49,680 Speaker 1: I think those are real issues that we have to 384 00:20:49,760 --> 00:20:52,680 Speaker 1: wrestle with, and I think there's a lot of infrastructure 385 00:20:52,720 --> 00:20:54,200 Speaker 1: that needs to be put in place. I think there's 386 00:20:54,200 --> 00:20:55,800 Speaker 1: a lot of process and a lot of back to 387 00:20:55,920 --> 00:20:58,960 Speaker 1: my cultural security, a lot of prioritization that has to 388 00:20:59,000 --> 00:21:02,480 Speaker 1: be placed on the cyber security model in and around 389 00:21:02,480 --> 00:21:04,800 Speaker 1: those critical systems. I do have to say, though, when 390 00:21:04,840 --> 00:21:08,520 Speaker 1: you change your passwords so frequently, it leads to people 391 00:21:08,720 --> 00:21:11,360 Speaker 1: writing down all their passwords in one place, which could 392 00:21:11,400 --> 00:21:13,520 Speaker 1: just just then get hacked. I'm just saying before you 393 00:21:13,600 --> 00:21:16,520 Speaker 1: could use a password manager, that's true, I guess you could. 394 00:21:16,560 --> 00:21:19,040 Speaker 1: You could get more tech savvy Christian. Thank you so 395 00:21:19,160 --> 00:21:22,080 Speaker 1: much for joining us Christians. Chief executive officer of McAfee, 396 00:21:22,480 --> 00:21:25,399 Speaker 1: based in Santa Clara, California. I hope that you are 397 00:21:25,440 --> 00:21:44,359 Speaker 1: okay with the wildfires. It's supposed to be a quiet 398 00:21:44,440 --> 00:21:48,080 Speaker 1: time of the year for municipal bond issuance, but preliminary 399 00:21:48,160 --> 00:21:51,119 Speaker 1: numbers indicate that at least nine billion dollars worth of 400 00:21:51,240 --> 00:21:53,960 Speaker 1: muni debt is expected to be issued during the week 401 00:21:54,080 --> 00:21:57,160 Speaker 1: of well this week December eighteenth alone, actually next week, 402 00:21:57,200 --> 00:21:59,760 Speaker 1: but we're already ahead of ourselves. Now. This is according 403 00:21:59,800 --> 00:22:01,800 Speaker 1: to out of that we've compiled here at Bloomberg, and 404 00:22:01,880 --> 00:22:05,000 Speaker 1: that is more than double more than double the average 405 00:22:05,280 --> 00:22:08,440 Speaker 1: issuance during the last two weeks of December. You have 406 00:22:08,520 --> 00:22:12,920 Speaker 1: to go back to nineteen eighty five to find these 407 00:22:13,040 --> 00:22:15,399 Speaker 1: kinds of numbers. Uh. And here to tell us a 408 00:22:15,440 --> 00:22:18,840 Speaker 1: little bit about this and other things involving the world 409 00:22:18,880 --> 00:22:21,119 Speaker 1: of interest rates and yielding bonds is Rich Taylor. He 410 00:22:21,200 --> 00:22:24,680 Speaker 1: has fixed income client portfolio manager for American Century. They're 411 00:22:24,680 --> 00:22:27,879 Speaker 1: based in Mountain View, California, and he helps manage more 412 00:22:27,960 --> 00:22:31,840 Speaker 1: than forty billion dollars in fixed income assets. Rich thank 413 00:22:31,840 --> 00:22:33,719 Speaker 1: you very much for joining us in our eleven three 414 00:22:33,760 --> 00:22:37,720 Speaker 1: oh studios, your thoughts about muni bonds in this this 415 00:22:37,840 --> 00:22:41,240 Speaker 1: sort of wave of issuance that's that's coming. Is this 416 00:22:41,640 --> 00:22:44,440 Speaker 1: uh directly related to the tax overhaul bill? Yes, I 417 00:22:44,480 --> 00:22:46,399 Speaker 1: think it is. Pemin Again, thank you both for having me, 418 00:22:46,560 --> 00:22:49,600 Speaker 1: and Merry Christmas to you and yours. Um. Yes, Uh. 419 00:22:49,720 --> 00:22:53,680 Speaker 1: Normally as December is a very low supply month, usually 420 00:22:53,720 --> 00:22:55,880 Speaker 1: around six seven billion, but as you know, we're getting 421 00:22:56,119 --> 00:22:59,840 Speaker 1: probably closer to fifties sixty billion this this month alone. Uh. 422 00:23:00,000 --> 00:23:03,119 Speaker 1: That is still being readily absorbed due to the increased demand. 423 00:23:03,200 --> 00:23:06,640 Speaker 1: But it is really issue where is trying to move 424 00:23:06,760 --> 00:23:09,320 Speaker 1: up their issuance. Normally that would come in January February 425 00:23:09,600 --> 00:23:12,200 Speaker 1: in advance of this what may come out of this 426 00:23:12,359 --> 00:23:15,639 Speaker 1: text form bill. So um, we do expect supply to 427 00:23:15,720 --> 00:23:18,560 Speaker 1: drop off dramatically in January February, but right now we're 428 00:23:18,600 --> 00:23:22,960 Speaker 1: getting a big flood, so aside from the tax plan 429 00:23:23,080 --> 00:23:25,680 Speaker 1: which is still up in the air, although there is 430 00:23:25,800 --> 00:23:29,920 Speaker 1: the expectation that Center Republicans will present a bill, possibly 431 00:23:29,960 --> 00:23:34,040 Speaker 1: some kind of final form or draft early next week. Um. 432 00:23:34,480 --> 00:23:37,360 Speaker 1: How are you arranging your portfolio heading into next year? 433 00:23:37,400 --> 00:23:41,080 Speaker 1: Any big allocation shifts. Oh, that's a great question, and 434 00:23:41,320 --> 00:23:43,359 Speaker 1: I think what we're expecting. You know, we don't have 435 00:23:43,480 --> 00:23:45,520 Speaker 1: a whole lot of clarity yet on the bill. I 436 00:23:45,600 --> 00:23:47,879 Speaker 1: think the biggest thing, that's what we're trying to do 437 00:23:48,320 --> 00:23:50,240 Speaker 1: is get in advance of it. If we get a 438 00:23:50,320 --> 00:23:54,520 Speaker 1: tax MP advance for funding elimination, that's of the market. 439 00:23:54,600 --> 00:23:56,760 Speaker 1: So what we could see if the bill goes through 440 00:23:56,880 --> 00:24:00,440 Speaker 1: and its current status, you could see a fifty percent 441 00:24:00,520 --> 00:24:03,520 Speaker 1: reduction in taxes at muni bonds. So that would vastly 442 00:24:03,640 --> 00:24:06,679 Speaker 1: change these sort of demographic of the supply because right 443 00:24:06,800 --> 00:24:10,040 Speaker 1: so we are going along that route. And also if 444 00:24:10,080 --> 00:24:13,440 Speaker 1: the state and local tax deductions get eliminated, that would 445 00:24:13,480 --> 00:24:17,000 Speaker 1: certainly potentially change the way the nature the structure of 446 00:24:17,040 --> 00:24:20,000 Speaker 1: the way state and local governments issue bonds and also 447 00:24:20,080 --> 00:24:21,960 Speaker 1: their ability to race time. But you're not actually changing 448 00:24:22,000 --> 00:24:23,920 Speaker 1: your allocation around this here, not at this point though, 449 00:24:24,000 --> 00:24:25,680 Speaker 1: because we don't have enough clarity left to know what 450 00:24:25,760 --> 00:24:27,679 Speaker 1: the bill is gonna ultimately look like. So one thing 451 00:24:27,760 --> 00:24:29,600 Speaker 1: that I'm wondering. You know, a lot of people come 452 00:24:29,640 --> 00:24:33,360 Speaker 1: in here and they say, we're in a pretty good environment. 453 00:24:33,480 --> 00:24:35,879 Speaker 1: We're not expecting any big hiccups next year. Very few 454 00:24:35,920 --> 00:24:39,879 Speaker 1: people are predicting a recession of any sort gradual tightening, 455 00:24:39,920 --> 00:24:41,879 Speaker 1: but the central banks are all petrified at the markets 456 00:24:41,920 --> 00:24:45,760 Speaker 1: and disrupting anything. Um, there's a lot of risk building. 457 00:24:46,920 --> 00:24:49,400 Speaker 1: How concerned are you about that? Very concerned a matter 458 00:24:49,440 --> 00:24:51,239 Speaker 1: of fact, that is my number one certainly said, I'm 459 00:24:51,280 --> 00:24:53,640 Speaker 1: glad you asked that question. Is that really? Since so eight, 460 00:24:54,320 --> 00:24:59,359 Speaker 1: what we've seen is bond investors have and and understandably so. Uh. 461 00:24:59,720 --> 00:25:02,960 Speaker 1: They're primary, if not soul objective in their bond portfolios 462 00:25:03,000 --> 00:25:05,919 Speaker 1: has been to maximize yield. We're a low interest rate environment. 463 00:25:06,000 --> 00:25:08,560 Speaker 1: We're no longer in an environment where you can if 464 00:25:08,600 --> 00:25:10,399 Speaker 1: when if you're tired, you can clip a coupon and 465 00:25:10,520 --> 00:25:16,080 Speaker 1: not touch your principle. And now and now obviously you 466 00:25:16,119 --> 00:25:18,240 Speaker 1: know you can't. You can't live the twenty three years 467 00:25:18,240 --> 00:25:20,359 Speaker 1: from time and I wanted two percent a year. So 468 00:25:20,600 --> 00:25:23,040 Speaker 1: what investors have done in the last several years to 469 00:25:23,119 --> 00:25:24,880 Speaker 1: get that There's only two ways to get that yield, 470 00:25:25,200 --> 00:25:27,760 Speaker 1: duration risk or credit risk, and pretty much everyone has 471 00:25:27,800 --> 00:25:31,119 Speaker 1: done it by loading, loading the boat and their portfolios 472 00:25:31,160 --> 00:25:34,440 Speaker 1: on credit risk. And now credit spreads are so tight 473 00:25:34,480 --> 00:25:37,200 Speaker 1: and evaluations are so rich, you're not being paid for 474 00:25:37,280 --> 00:25:40,280 Speaker 1: that risk. So what scares me is that as long 475 00:25:40,359 --> 00:25:43,320 Speaker 1: as we're in this goldilocks low volatility environment, that's fine. 476 00:25:43,800 --> 00:25:45,399 Speaker 1: But if we get if and when we get the 477 00:25:45,480 --> 00:25:48,960 Speaker 1: next big equity market correction or when Bolatili increases the 478 00:25:49,320 --> 00:25:52,240 Speaker 1: high correlation between the credit markets and the stock market, 479 00:25:52,840 --> 00:25:55,680 Speaker 1: I mean that the stock market goes down, the bond 480 00:25:55,760 --> 00:25:57,240 Speaker 1: the credit market is going to do the same way 481 00:25:57,240 --> 00:26:00,080 Speaker 1: with it. So I'm concerned that investors have far too 482 00:26:00,160 --> 00:26:03,080 Speaker 1: much credit risk in their portfolios. Is not enough diversification. Well, 483 00:26:03,320 --> 00:26:06,479 Speaker 1: does this mean that they're now going to uh lavish 484 00:26:06,560 --> 00:26:11,040 Speaker 1: themselves with a duration risk to add to their credit risk. No, not, 485 00:26:11,240 --> 00:26:13,800 Speaker 1: especially now if you've got the curve that's flattened so much, 486 00:26:13,880 --> 00:26:15,639 Speaker 1: you know, throughout this year, and if it gets a 487 00:26:15,680 --> 00:26:18,320 Speaker 1: little bit more flat uh going forward. I think it 488 00:26:18,320 --> 00:26:20,280 Speaker 1: would be a big mistake at this juncture. If the 489 00:26:20,359 --> 00:26:24,000 Speaker 1: Feds can continue to slowly renormalize rates and if inflation 490 00:26:24,119 --> 00:26:26,760 Speaker 1: starts to creep up a little bit more uh and 491 00:26:26,920 --> 00:26:30,840 Speaker 1: also with FED balance sheet restructuring that could actually take 492 00:26:31,359 --> 00:26:34,200 Speaker 1: longer rates up a little bit. So I think staying intermediate, 493 00:26:34,280 --> 00:26:36,280 Speaker 1: saying in that four or five six year area makes 494 00:26:36,320 --> 00:26:39,480 Speaker 1: the most sense. But just being modestly overweight credit risk 495 00:26:40,040 --> 00:26:43,440 Speaker 1: and and and not not make really the sole objective 496 00:26:43,440 --> 00:26:45,920 Speaker 1: of the portfolio to be maximizing yield. So do you 497 00:26:46,119 --> 00:26:50,680 Speaker 1: feel like your portfolio has pockets that have excess risk 498 00:26:50,800 --> 00:26:53,399 Speaker 1: that you in another environment would not be comfortable taking. No. 499 00:26:54,080 --> 00:26:56,800 Speaker 1: A matter of fact, we have anticipated this for quite 500 00:26:56,880 --> 00:26:59,240 Speaker 1: some time, and we have one of our hallmarks of 501 00:26:59,400 --> 00:27:01,320 Speaker 1: the way we met it's fixing come money in American 502 00:27:01,359 --> 00:27:04,120 Speaker 1: century is to seek diversified sources of return. We don't 503 00:27:04,160 --> 00:27:07,000 Speaker 1: want duration, or credit risk or sector allocation being a 504 00:27:07,480 --> 00:27:10,320 Speaker 1: big concentrated risk. The flip side of that is that 505 00:27:10,440 --> 00:27:15,000 Speaker 1: returns are likely to be lower. That's right, and the 506 00:27:15,119 --> 00:27:17,680 Speaker 1: well the world has to we have to assume and 507 00:27:17,760 --> 00:27:21,800 Speaker 1: expect lower returns. What are the returns that you're expecting returns? Uh? 508 00:27:22,000 --> 00:27:24,639 Speaker 1: You know this year core bond funds have been getting 509 00:27:24,680 --> 00:27:27,480 Speaker 1: where three, three or four percent. I'm thinking maybe two 510 00:27:27,560 --> 00:27:30,720 Speaker 1: to three next year. So that's the big get right 511 00:27:30,800 --> 00:27:33,840 Speaker 1: to two to three percent returns all in returns, price 512 00:27:34,000 --> 00:27:36,800 Speaker 1: and coupon for core bond funds that are about half 513 00:27:37,040 --> 00:27:40,639 Speaker 1: investment grade corporates and half covernments. That would be the 514 00:27:40,720 --> 00:27:43,480 Speaker 1: lowest performance in a long time in a very long time. 515 00:27:43,560 --> 00:27:45,680 Speaker 1: And again that's exactly right. And that and the thing 516 00:27:45,840 --> 00:27:50,479 Speaker 1: is is achieving those maintaining decent returns and decent yields 517 00:27:50,720 --> 00:27:53,760 Speaker 1: with an appropriate level of risk. And that's the biggest, 518 00:27:53,840 --> 00:27:57,560 Speaker 1: that's the big that's job one for managers and investors. Well, 519 00:27:57,680 --> 00:28:00,600 Speaker 1: just to report this headline from the associate depressed that 520 00:28:00,680 --> 00:28:04,200 Speaker 1: House and Senate leaders have reached a tax package deal. 521 00:28:04,760 --> 00:28:08,720 Speaker 1: We're awaiting the details, of course of that deal. You know, 522 00:28:09,040 --> 00:28:12,040 Speaker 1: rich the Uh, the issue that I that Lisa and 523 00:28:12,080 --> 00:28:13,920 Speaker 1: I speak about every now and again has to do 524 00:28:14,200 --> 00:28:18,880 Speaker 1: with automobile loans and that has been something that has 525 00:28:18,960 --> 00:28:23,080 Speaker 1: offered yield to yield start investors. But ninety day plus 526 00:28:23,200 --> 00:28:27,400 Speaker 1: delinquency rates for auto loans is up to about ten percent. 527 00:28:27,600 --> 00:28:30,960 Speaker 1: That's the highest since the first quarter of Does that 528 00:28:31,800 --> 00:28:35,399 Speaker 1: Does that give you any pause? It does? And interestingly, UM, 529 00:28:35,560 --> 00:28:38,920 Speaker 1: within the asset backed sector allocation our portfolios, we have 530 00:28:39,360 --> 00:28:43,200 Speaker 1: gone the way of sort of issued regular auto loans 531 00:28:43,240 --> 00:28:45,320 Speaker 1: and home acuity and credit card loans because again they're 532 00:28:45,400 --> 00:28:47,280 Speaker 1: very rich as well. And we've gone into some more 533 00:28:47,480 --> 00:28:51,200 Speaker 1: esoteric areas like fleet and rental cars, UH, and also 534 00:28:51,320 --> 00:28:53,560 Speaker 1: time shares. You know, the rate on a on a 535 00:28:53,640 --> 00:28:56,240 Speaker 1: time share ask back, there's you know, ten elve, so 536 00:28:56,320 --> 00:28:58,560 Speaker 1: we can get some very nice yields, and that's a 537 00:28:58,640 --> 00:29:01,320 Speaker 1: market that's been fair the untapped at this point. So 538 00:29:01,440 --> 00:29:03,880 Speaker 1: we when it comes to asset backs and kind of 539 00:29:04,720 --> 00:29:08,200 Speaker 1: mortgage credit area, we uh shy away from your traditional 540 00:29:08,360 --> 00:29:11,360 Speaker 1: asset backed areas because that does concern us and also evaluations. 541 00:29:11,920 --> 00:29:13,800 Speaker 1: Thank you so much, really a pleasure to hear what 542 00:29:13,840 --> 00:29:16,320 Speaker 1: you have to say. Rich Taylor, fixed income client portfolio 543 00:29:16,360 --> 00:29:21,240 Speaker 1: manager for American Century, which is based in Mountain View, California. 544 00:29:24,520 --> 00:29:27,040 Speaker 1: Thanks for listening to the Bloomberg p m L podcast. 545 00:29:27,400 --> 00:29:31,280 Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, 546 00:29:31,440 --> 00:29:34,880 Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm 547 00:29:34,920 --> 00:29:38,920 Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. 548 00:29:39,080 --> 00:29:41,640 Speaker 1: It's one before the podcast. You can always catch us 549 00:29:41,680 --> 00:29:43,240 Speaker 1: worldwide on Bloomberg Radio.