WEBVTT - Surveillance: Markets with Wu Silverman 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keene, along with Jonathan Farrell and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best and economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.400 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.880 Bloomberg dot Com, the Bloomberg Terminal and the Bloomberg Business app. 0:00:30.080 --> 0:00:32.360 What is around a table? And we were Silverman, no 0:00:32.479 --> 0:00:35.200 idea if you went to First Republic when Right Spot 0:00:37.000 --> 0:00:40.199 Congratulations had a disy strategy. OBBOUC Capital Markets. You've got 0:00:40.240 --> 0:00:42.520 a great phrase in your notes, Aman, wonderful to see 0:00:42.520 --> 0:00:45.000 you in person. By why you guys, you said this 0:00:45.159 --> 0:00:46.440 the paddling duck market. 0:00:46.640 --> 0:00:47.040 What's that? 0:00:47.960 --> 0:00:50.400 That's the market we're in right now. I mean, we 0:00:50.520 --> 0:00:54.240 got this chill, cool duck hanging out on the surface, 0:00:54.360 --> 0:00:58.320 furiously paddling underneath. And that's the equity volatility bid. You know, 0:00:58.360 --> 0:01:01.040 we don't see it in VIX headline. VIC is really low, right, 0:01:01.120 --> 0:01:04.080 but the reality is VIS call open interest, that demand 0:01:04.120 --> 0:01:07.040 for volatility going higher is at all time highs. 0:01:07.520 --> 0:01:10.160 I'm speaking when Nacim Tolb in I like three or 0:01:10.200 --> 0:01:12.840 four weeks, and we'll go to the tails immediately. And 0:01:12.880 --> 0:01:15.199 you make it real clear in your note that there's 0:01:15.240 --> 0:01:18.520 a tail irregularity here. Everybody's focused on the left tail. 0:01:18.800 --> 0:01:21.160 Tell me about the right A tale of optimism. 0:01:21.760 --> 0:01:25.400 Yeah, so the tale of optimism does not exist. You know, 0:01:25.680 --> 0:01:29.160 I've been visiting kind of clients in Europe and Canada, 0:01:29.280 --> 0:01:33.160 and the US consensus bearishness across the board. It's really 0:01:33.200 --> 0:01:37.840 overwhelmingly so. And so you get to this point where 0:01:37.880 --> 0:01:39.760 you have to ask, you know, the right tail is 0:01:39.800 --> 0:01:43.080 so underpriced. Is there a possibility of a congressional miracle? 0:01:43.120 --> 0:01:46.560 Who knows? But right now folks are pricing that this 0:01:46.640 --> 0:01:49.360 is going to be a very tumultuous debt ceiling if 0:01:49.440 --> 0:01:52.160 it at all comes in a little bit easier than 0:01:52.200 --> 0:01:54.480 we expect, that that right tail is very cheap. 0:01:54.640 --> 0:01:54.800 Woa. 0:01:54.920 --> 0:01:57.280 This is actually going against the consensus in a big way. 0:01:57.320 --> 0:01:59.280 People have come on the show again and again and said, 0:01:59.280 --> 0:02:02.880 nobody's pricing actually a debt ceiling debacle where you end 0:02:02.960 --> 0:02:04.920 up with some sort of default, except perhaps in the 0:02:05.120 --> 0:02:07.560 one month t bell market. Are you saying that's not true, 0:02:07.600 --> 0:02:10.360 that it's actually aggressively being priced in the equity world. 0:02:11.120 --> 0:02:14.560 Yeah, So here's the nuance, Lisa. What is happening is 0:02:14.639 --> 0:02:18.120 essentially the volvatility market is saying the tail has to 0:02:18.120 --> 0:02:20.880 wag the dog first, meaning we have to see action 0:02:21.120 --> 0:02:24.520 in the equity market, which means a draw down before 0:02:24.560 --> 0:02:27.200 we see some sort of action in congress. Does that 0:02:27.240 --> 0:02:30.119 mean an actual default, maybe not, but it's definitely going 0:02:30.160 --> 0:02:33.680 to be eleventh hour twenty eleven type style. And if 0:02:33.680 --> 0:02:36.200 you actually plot the VIX right now against what the 0:02:36.280 --> 0:02:38.400 VIX looked like in twenty eleven, it was right around 0:02:38.480 --> 0:02:40.640 here in twenty eleven, and then we saw that it 0:02:40.639 --> 0:02:44.560 peaked around fifty in August, and it sustainably was above thirty. 0:02:44.560 --> 0:02:46.360 And I think that's what these bets in the market 0:02:46.400 --> 0:02:48.000 are saying right now. They think we're going to get 0:02:48.040 --> 0:02:48.399 back there. 0:02:48.600 --> 0:02:50.800 I love this idea that the common the market is 0:02:50.840 --> 0:02:53.000 people not willing to make a move by selling what 0:02:53.040 --> 0:02:55.960 they own, but they're doing it all through derivatives. So, 0:02:56.040 --> 0:02:59.160 based on pairing those two, what is the most underpriced 0:02:59.200 --> 0:03:02.040 reality right now? Is it this upside surprise or is 0:03:02.080 --> 0:03:02.720 it something else? 0:03:03.360 --> 0:03:06.680 The most underpriced reality right now is the idea that 0:03:06.720 --> 0:03:10.920 this debt sealing situation actually gets resolved quicker and easier 0:03:10.960 --> 0:03:12.880 than we think. That is not what is being priced 0:03:12.880 --> 0:03:15.960 in the market. Folks are very very well prepared for 0:03:16.000 --> 0:03:18.440 a debacle, and so if we don't get it, it 0:03:18.480 --> 0:03:21.079 would be very interesting to see all these hedges roll off. 0:03:21.200 --> 0:03:22.320 You know, that is not being priced. 0:03:22.360 --> 0:03:24.919 So sometimes there's a big difference between ideas and execution, 0:03:25.280 --> 0:03:27.160 and it frustrates people at home, and you speak to 0:03:27.160 --> 0:03:30.640 those people, those people in the market. If I wanted 0:03:30.639 --> 0:03:33.240 to position for a so called up crash, your language 0:03:33.240 --> 0:03:35.600 the language other people use it as well, before I 0:03:35.640 --> 0:03:38.840 get the downdraft and the tension. Because ultimately we're acknowledging 0:03:38.840 --> 0:03:40.320 and you've alluded to it. Do you need to get 0:03:40.360 --> 0:03:42.120 the crisis before you get the solution, or get very 0:03:42.120 --> 0:03:44.280 close to the crisis before you get the solution. Can 0:03:44.320 --> 0:03:46.640 you talk to me about how you execute that trade. 0:03:47.120 --> 0:03:50.640 Do you wait to position to capture that upside when 0:03:50.680 --> 0:03:52.640 you start to see some of the drama take place, 0:03:52.720 --> 0:03:53.880 or can you position for it now? 0:03:54.760 --> 0:03:55.040 Yeah? 0:03:55.160 --> 0:03:57.440 You know, And that's the tricky part. I think right 0:03:57.480 --> 0:04:00.800 now it becomes Look, if we get the draw down right, 0:04:00.800 --> 0:04:03.360 so the market move happens a little bit, then that 0:04:03.440 --> 0:04:06.200 upcrash scenario becomes a little bit more expensive because we've 0:04:06.240 --> 0:04:08.640 already taken that down hit. So in some ways you 0:04:08.680 --> 0:04:10.720 do have to start placing it right now. The good 0:04:10.760 --> 0:04:13.720 news is it's relatively inexpensive. One of the reasons, and 0:04:13.960 --> 0:04:16.279 I've been saying this to investors, the reason VIX looks 0:04:16.279 --> 0:04:19.919 so low isn't because SMP puts are cheap. It's because 0:04:20.000 --> 0:04:22.480 SMP calls are cheap, and those are both weighted in 0:04:22.520 --> 0:04:24.680 the vis. That's part of the reason you see that 0:04:24.720 --> 0:04:27.320 being subdued. So if you own that right tail, just 0:04:27.360 --> 0:04:30.840 say owning SMP calls, you know that's inexpensive right now, 0:04:31.080 --> 0:04:33.359 and that would happen if you know, we get closer 0:04:33.400 --> 0:04:35.279 to that X state and actually there is a resolution. 0:04:35.400 --> 0:04:38.120 You know, Biden flies home and these folks get actually 0:04:38.120 --> 0:04:39.960 their feet on the ground and do something that would 0:04:40.000 --> 0:04:40.760 be quite interesting. 0:04:41.080 --> 0:04:44.600 Every crash in the hindsight is about opacity. I didn't 0:04:44.600 --> 0:04:47.080 see it coming. It was a mystery, the cliches, the 0:04:47.120 --> 0:04:50.559 shadows in that nineteen eighty seven, nineteen ninety eight, et cetera. 0:04:50.839 --> 0:04:53.080 What's the biggest mystery for you right now? Where's the 0:04:53.160 --> 0:04:55.440 dearth of information? To me? 0:04:55.640 --> 0:04:58.480 The most fragile part of this market, tom is this 0:04:58.680 --> 0:05:01.800 problem of breath. So one thing I looked at that 0:05:01.800 --> 0:05:04.039 I think is really interesting is if you just take 0:05:04.680 --> 0:05:07.479 S and P consensus price target on Apple right now, 0:05:07.960 --> 0:05:11.480 that that sharp ratio is negative on Apple, meaning you're 0:05:11.520 --> 0:05:14.360 actually better off in cash. If you assume expected rate 0:05:14.360 --> 0:05:16.599 of return of the S and P of the Apple 0:05:16.640 --> 0:05:19.320 price target, then you are an Apple. The breadth of 0:05:19.320 --> 0:05:22.480 the market is so heavily weighted and it's very fragile. 0:05:22.600 --> 0:05:25.400 Is that sharp ratio adjusted because of the velocity of 0:05:25.440 --> 0:05:27.480 the risk free rate? You know, had no risk free 0:05:27.560 --> 0:05:30.559 rate for three years, we have exactly doing it, and pop, 0:05:30.640 --> 0:05:33.600 there's the risk free rate tumbling. Do you have an 0:05:33.640 --> 0:05:35.080 accurate risk free rate? 0:05:35.640 --> 0:05:36.320 There's a belief. 0:05:36.360 --> 0:05:38.840 Do you have a belief institutionally in a risk free 0:05:38.920 --> 0:05:39.480 rate forward? 0:05:39.960 --> 0:05:42.720 Yeah, so we're assuming a risk free rate right now 0:05:42.760 --> 0:05:45.800 of just you know what we're getting on cash right now. 0:05:45.839 --> 0:05:48.000 So obviously that could go down. But if you just 0:05:48.080 --> 0:05:50.440 take from last year to this year, it going from 0:05:50.440 --> 0:05:53.919 about one percent to almost five percent across the board. 0:05:54.040 --> 0:05:57.680 Obviously all equity sharp rashes decline, but also your forward 0:05:57.680 --> 0:05:59.080 looking price targets are declining. 0:05:59.120 --> 0:06:00.440 I just want to follow up in one thing that 0:06:00.480 --> 0:06:03.160 you said, where you said it's very fragile because of 0:06:03.200 --> 0:06:06.839 a very very narrow depth. How much does that suggest 0:06:06.880 --> 0:06:10.240 to a downside shock versus an upside shock or does 0:06:10.279 --> 0:06:12.240 it not matter. It just suggests there will be a 0:06:12.279 --> 0:06:14.680 break one way or another. It will be significant. 0:06:15.080 --> 0:06:17.719 I think the biggest thing to watch right now is 0:06:17.880 --> 0:06:20.919 if the market decides that megacap tech is not a 0:06:20.960 --> 0:06:25.080 safe haven, because you could actually get financials ripping or 0:06:25.120 --> 0:06:27.640 industrials ripping, and it wouldn't matter on an S and 0:06:27.680 --> 0:06:30.320 P level. You could actually see the index level trade 0:06:30.360 --> 0:06:33.240 down right because the heavy weights are the ones selling off. 0:06:33.279 --> 0:06:35.039 And that's what I think is very interesting about this 0:06:35.160 --> 0:06:38.680 market is you could get that turn because maybe recession 0:06:38.720 --> 0:06:41.160 fears aren't as bad as expected, But the reality is 0:06:41.200 --> 0:06:42.559 the market's actually selling off. 0:06:42.640 --> 0:06:45.160 The action happens beneath the surface most crowded trades B 0:06:45.240 --> 0:06:49.279 of A. In the survey, what the indications short banks, 0:06:49.920 --> 0:06:53.120 long tech, top two traits, top two traits identified by 0:06:53.120 --> 0:06:54.400 people in that survey ex and. 0:06:54.320 --> 0:06:56.760 The lack of breadth is what the phrase I used, 0:06:56.839 --> 0:06:59.839 choiceset there's no choice set out there now. I could 0:07:00.279 --> 0:07:05.479 run a prospect to structured institutional portfolio, John, because you 0:07:05.560 --> 0:07:08.680 have to have X number of ideas in the portfolio, 0:07:08.839 --> 0:07:10.920 and there's not enough ideas out there right now. 0:07:11.200 --> 0:07:13.120 I just think this is fascinating, this idea that you 0:07:13.120 --> 0:07:16.160 could get a better than expected economics shift, whether it's 0:07:16.200 --> 0:07:18.240 the debt ceiling or whether it's data, and all of 0:07:18.280 --> 0:07:21.559 a sudden you end up with index level losses because 0:07:21.560 --> 0:07:24.720 everyone floods out of the very narrow range of stocks 0:07:24.720 --> 0:07:26.160 that have really been driving all the games. 0:07:26.200 --> 0:07:27.840 I mean, Amy's with us for the entire hour. 0:07:27.920 --> 0:07:29.960 We got to talk to about the scenario you're coming 0:07:30.000 --> 0:07:32.480 out of an edtheim in two point eight percent inflation. 0:07:32.800 --> 0:07:33.720 No one's prepared for them. 0:07:33.800 --> 0:07:34.840 Nobody told me about that. 0:07:36.440 --> 0:07:37.800 Face it is trying to suggest it. 0:07:38.240 --> 0:07:40.160 Amy, Thank you, thanks wonderful to say it. Griats a 0:07:40.160 --> 0:07:42.640 seal in person. I'my with Silver, theman that of BOMBC 0:07:42.760 --> 0:07:44.040 Capital Markets. 0:07:48.040 --> 0:07:51.080 Right now to drivers forward in Washington. If I was 0:07:51.120 --> 0:07:53.640 to say all this, it would be maybe Tom that's 0:07:53.640 --> 0:07:57.080 off the mark. But when Libby Cantrell writes about pearl 0:07:57.120 --> 0:08:00.720 clutching in Washington, you pay attention, and it's make a 0:08:00.800 --> 0:08:03.760 modo double A's and Tiffany's strands of pearls down there. 0:08:03.800 --> 0:08:06.720 I love how you do that pearl clutching in Washington. 0:08:06.840 --> 0:08:10.000 Is Margaret Smith the ghost of Margaret Chase Smith down 0:08:10.040 --> 0:08:11.880 there theears right now? 0:08:12.000 --> 0:08:14.440 Yeah? Yeah, I mean there. I think there there's been 0:08:14.520 --> 0:08:18.320 quite a lot of hysteria pearl clutching, if you will, 0:08:18.720 --> 0:08:21.120 regarding the dead ceiling. But you know our view, and 0:08:21.200 --> 0:08:23.960 I think to your or your earlier conversation, certainly the 0:08:24.000 --> 0:08:27.120 mood music is positive. We would argue the mo mune 0:08:27.200 --> 0:08:29.920 music has been actually quite positive for for quite a while. 0:08:30.800 --> 0:08:33.319 I think the contours of a deal are absolutely there. 0:08:33.440 --> 0:08:36.200 The details just to be filled in the fact that 0:08:36.240 --> 0:08:40.559 they have Silanda Young, Steve Richet Orcutty. These people are 0:08:40.679 --> 0:08:43.560 serious sort of adults in the room. They are going 0:08:43.600 --> 0:08:46.520 to be the president's proxy while he's in Japan. And 0:08:47.080 --> 0:08:48.679 you know, I wouldn't be surprised if we didn't see 0:08:48.679 --> 0:08:50.400 a deal by this weekend. I mean I think that 0:08:50.480 --> 0:08:52.920 the I think a deal is imminent. I actually don't 0:08:52.920 --> 0:08:56.319 think it's going to necessarily require uh, the equity market 0:08:56.400 --> 0:08:59.480 or equity evall like we've seen in previous dead ceiling. 0:08:59.600 --> 0:09:01.360 That seems to be the conclusion of so many people 0:09:01.360 --> 0:09:03.080 down Wall Street. You need to get close to a 0:09:03.120 --> 0:09:05.199 crisis before you get a solution. Why are you taking 0:09:05.320 --> 0:09:06.280 a slightly different well. 0:09:06.240 --> 0:09:08.240 I think, well, again, and John, I've just been looking 0:09:08.240 --> 0:09:11.040 at the political incentives here for several months, and nobody 0:09:11.080 --> 0:09:13.480 has any sort of political incentive to even get that 0:09:13.559 --> 0:09:15.920 close to default. I mean, if you look at sort 0:09:15.960 --> 0:09:19.080 of Speaker McCarthy's hand, I mean, he doesn't necessarily have 0:09:19.160 --> 0:09:22.360 a very strong hand going into these negotiations. He only 0:09:22.400 --> 0:09:25.480 has a four seat majority, meaning he can only actually 0:09:25.559 --> 0:09:30.680 just lose five members in order to to sort of 0:09:30.840 --> 0:09:34.319 stay along with this deal. And you know, I think 0:09:34.400 --> 0:09:37.880 very importantly here, your President Biden has been you know, 0:09:38.200 --> 0:09:40.559 now open to negotiation. So I think there's sort of 0:09:40.640 --> 0:09:42.160 the if you just sort of look at the kind 0:09:42.200 --> 0:09:46.200 of political landscape here, that the bottom line is that 0:09:46.320 --> 0:09:49.000 a deal will get done. And I think again, sort 0:09:49.000 --> 0:09:50.960 of in advance of the X state, and to Tom's 0:09:51.000 --> 0:09:53.160 earlier point, the X date is real here, and I 0:09:53.200 --> 0:09:56.040 think this is where Secretary Yellen has now kind of 0:09:56.080 --> 0:09:59.720 corroborated her earlier estimate of June first. I mean, tax 0:09:59.720 --> 0:10:03.120 re are quite weak, not only because of personal income taxes, 0:10:03.160 --> 0:10:08.320 but because of the sort of disaster zone dynamic, particularly 0:10:08.320 --> 0:10:10.120 in California, where a lot of folks are actually not 0:10:10.200 --> 0:10:13.000 having to file their taxes and so that is going 0:10:13.040 --> 0:10:15.400 to be delayed receipts to the government. So, you know, 0:10:15.440 --> 0:10:17.240 we think that the X state has to be taken seriously, 0:10:17.280 --> 0:10:19.439 and we think members of Congress are also taking it seriously. 0:10:19.480 --> 0:10:21.240 So all this is all a long way of saying 0:10:21.480 --> 0:10:25.160 that despite the pearl clutching, as one staffer said, passing 0:10:25.240 --> 0:10:27.439 the debt ceilings like passing a kidney stone. We all 0:10:27.480 --> 0:10:29.680 know what will pass. It's just a question how difficult 0:10:29.720 --> 0:10:32.520 it will be. Sorry for the graphic analogy such pretan 0:10:33.160 --> 0:10:35.160 but that is but that I think has been our 0:10:35.240 --> 0:10:37.800 operating assumption, and as the market's operating assumption right now 0:10:37.800 --> 0:10:38.120 as well. 0:10:38.160 --> 0:10:39.720 The peddling duck is going to pass. 0:10:39.800 --> 0:10:42.000 Gating sort of this morning has been quite something. 0:10:42.160 --> 0:10:43.480 One of the reasons why I love to speaking with you, 0:10:43.559 --> 0:10:46.560 Libya is because you have incredible experience working on Capitol Hill. 0:10:46.559 --> 0:10:50.120 You understand the political wranglings that go into getting this done. 0:10:50.360 --> 0:10:52.839 What do you think the contours of this deal will 0:10:52.880 --> 0:10:55.400 look like? What changes will really take place? 0:10:55.600 --> 0:10:57.720 Well, look, I think very importantly is sort of the 0:10:57.720 --> 0:11:01.120 semantics here. So President Biden will characterize this as a 0:11:01.120 --> 0:11:05.720 budget deal associated with fiscal twenty four spending, where Speaker 0:11:05.760 --> 0:11:08.000 McCarthy will characterize us as a debt seiling deal. I 0:11:08.000 --> 0:11:10.079 would say that's a distinction without a difference, and from 0:11:10.080 --> 0:11:12.880 a market's perspective, But what we're expecting is that there 0:11:12.920 --> 0:11:16.559 will be some recision of the COVID unspent COVID money. 0:11:16.559 --> 0:11:19.240 That's not very much, it's about forty fifty billion dollars, 0:11:19.280 --> 0:11:21.680 but it still kind of helps from a deficit perspective. 0:11:22.240 --> 0:11:25.840 We also expect some sort of downpayment energy permitting reform. 0:11:25.920 --> 0:11:28.920 That's something actually important both for Republicans and for Democrats, 0:11:28.960 --> 0:11:31.280 so that arguability could be a win for both. And 0:11:31.320 --> 0:11:34.040 then importantly some sort of spending caps. Now this is 0:11:34.040 --> 0:11:36.640 going to be where the devil's of the details, because, 0:11:37.120 --> 0:11:39.560 of course, if you remember twenty eleven, there was a 0:11:39.559 --> 0:11:42.480 Budget Control Act as it related to the debt ceiling, 0:11:42.679 --> 0:11:45.040 and the market sold off because they were expecting big 0:11:45.080 --> 0:11:47.720 spending cuts and sort of fears of recession and what 0:11:47.760 --> 0:11:50.719 have you. We do not expect significant spending cuts to 0:11:50.720 --> 0:11:53.240 be associated with this deal, but we could see a 0:11:53.320 --> 0:11:56.120 slower growth of spending and that could also help these 0:11:56.200 --> 0:11:57.600 budget these deficit forecasts. 0:11:57.600 --> 0:11:59.240 There just kind of an irony here. If the market 0:11:59.320 --> 0:12:02.640 is expecting latility and expecting to have to respond eventually 0:12:02.720 --> 0:12:05.400 and not expecting a deal, do you expect market volatility 0:12:05.440 --> 0:12:07.200 in response to a deal that you see as soon 0:12:07.240 --> 0:12:07.800 as this weekend? 0:12:08.760 --> 0:12:10.760 Well, look, I think that we have to talk about 0:12:10.760 --> 0:12:13.120 which market we're talking about, because of course the fixed 0:12:13.160 --> 0:12:17.280 income market, which where PIMCO manages most of its assets, 0:12:16.960 --> 0:12:20.599 has reacted right. There has been a dislocation in the 0:12:20.640 --> 0:12:23.520 treasury bill market. There's been a big risker version around 0:12:23.559 --> 0:12:26.120 the bills that have expired closer to the X day. 0:12:26.200 --> 0:12:29.440 We saw that in the auction most recently in terms 0:12:29.520 --> 0:12:31.440 of the yields, and so we already are seeing some 0:12:31.559 --> 0:12:35.360 dislocation in the fixed income market. But to the market 0:12:35.440 --> 0:12:37.640 that most people refer to, the equity market, and we 0:12:37.679 --> 0:12:40.320 haven't seen that, and actually we could see I think 0:12:40.559 --> 0:12:42.400 really a little bit of a relief rally as well, 0:12:42.440 --> 0:12:44.960 even from here, because some of this sort of anxiety 0:12:45.000 --> 0:12:47.360 and uncertainty I think has been priced in to a 0:12:47.400 --> 0:12:49.800 small extent, and I think of a deal is sooner 0:12:49.840 --> 0:12:52.200 than folks expect, is pulled forward. I actually think you 0:12:52.200 --> 0:12:54.440 could see a bit of a relief. 0:12:54.600 --> 0:12:57.000 Don't tell your work with a Pimcok call in Newport 0:12:57.040 --> 0:12:59.959 the idea that we're at a five percent general statement 0:13:00.080 --> 0:13:03.200 on short term paper, do you guys believe we're coming in? 0:13:03.280 --> 0:13:04.439 Yields will come in and. 0:13:04.400 --> 0:13:07.800 Frankly benefit Washington as well, where five percent becomes a 0:13:07.880 --> 0:13:09.720 three point eight percent shield. 0:13:09.880 --> 0:13:11.800 Yeah. So I think that you know, our view in 0:13:11.880 --> 0:13:14.600 general in terms of of the FED and the economy 0:13:14.840 --> 0:13:17.959 is that the threshold for the FED cut is going 0:13:18.000 --> 0:13:20.240 to be high. We think that the FED is going 0:13:20.280 --> 0:13:24.480 to have to see sustained economics and a sustained economic 0:13:24.559 --> 0:13:27.719 slow down before they before they start cutting. So I 0:13:27.760 --> 0:13:30.760 think we disagree a bit with where the market pricing is. 0:13:30.840 --> 0:13:34.840 And you know, even with CEO Jamie Diamond said today, 0:13:35.559 --> 0:13:37.560 with that said, though, we are expecting and I think 0:13:37.600 --> 0:13:40.520 you had Tiffany on your show yesterday, we are expecting 0:13:40.640 --> 0:13:42.960 a mild sort of slow down at the end of 0:13:43.000 --> 0:13:45.360 this year, at which point we do think the FED 0:13:45.400 --> 0:13:48.240 will likely respond. But again, the threshold for them to 0:13:48.280 --> 0:13:50.240 get off of you know, around five is or what 0:13:50.320 --> 0:13:52.679 have you, is going to be quite high. So they're 0:13:52.720 --> 0:13:55.680 going to have to see a sustained economic slow down. 0:13:55.920 --> 0:13:58.520 A couple of bad jobs numbers is probably not going. 0:13:58.360 --> 0:13:58.600 To do it. 0:13:58.640 --> 0:14:00.439 When was the last time we got today this sit 0:14:00.480 --> 0:14:02.719 around the table together? How many years? 0:14:02.960 --> 0:14:04.839 In the last two weeks. 0:14:04.400 --> 0:14:06.720 And just started to pick wonder back up. I've said 0:14:06.720 --> 0:14:08.280 that a few times this morning. It's happening. 0:14:08.840 --> 0:14:10.800 Getting back to the office. Are people getting back to 0:14:10.840 --> 0:14:11.440 the office there? 0:14:11.720 --> 0:14:15.120 I mean, we've been never left for a very long time. 0:14:16.679 --> 0:14:17.120 Ever left. 0:14:17.160 --> 0:14:19.520 We never laughed, Thank you, John, That is actually correct. 0:14:20.600 --> 0:14:31.960 Lilly Cantrell of Pimco. 0:14:32.760 --> 0:14:36.160 Debtlimit talks between President Biden and congressional leaders intensifying. Mike 0:14:36.200 --> 0:14:38.400 Schumacher of Weils Faker and the team have got this 0:14:38.480 --> 0:14:41.040 to say. At the moment, our economics team is skeptical 0:14:41.240 --> 0:14:43.680 that a sweeping debt seiling agreement will be reached over 0:14:43.720 --> 0:14:46.120 the next month to suspend the debt scening for one 0:14:46.200 --> 0:14:49.120 to two years. A short term punt, Tom, I think 0:14:49.120 --> 0:14:51.240 that's a kick the can that buys more time for 0:14:51.280 --> 0:14:55.320 an eventual sweeping agreement is the higher probability outcome in 0:14:55.360 --> 0:14:57.800 their view. Short version TK, We're going to be playing 0:14:57.800 --> 0:14:59.960 this game for a while. Maybe yeah, we're gonna have. 0:14:59.920 --> 0:15:02.880 To see a punt their giants American football. That's when 0:15:02.880 --> 0:15:05.080 you're down three downs in the fourth down, you. 0:15:05.120 --> 0:15:06.600 Can is that the guy that comes on just to 0:15:06.680 --> 0:15:07.320 kick the boat. 0:15:07.240 --> 0:15:07.640 Just to kick. 0:15:07.640 --> 0:15:12.320 They used to have a rule he could be hit 0:15:12.400 --> 0:15:14.400 by the people coming in, but now they have goals 0:15:14.440 --> 0:15:15.120 to protect them. OK. 0:15:15.320 --> 0:15:17.880 So you think he's good. He's just kicking the boat. 0:15:18.280 --> 0:15:19.720 Yeah, nice the punter. 0:15:19.960 --> 0:15:23.000 We called it Jemmy. Goalkeepers would love that job. They 0:15:23.040 --> 0:15:25.680 would ex Premier league goalkeepers would find that so easy. 0:15:25.880 --> 0:15:29.040 A CIS Sports report. It continues in this plot as well, 0:15:29.320 --> 0:15:31.960 saving us right now, Michael Schumacher joins his global ahead 0:15:31.960 --> 0:15:35.160 of macro strategy at Wells Fargo. The courage is defined 0:15:35.200 --> 0:15:38.320 in your research note, Mike, is that you are long duration. 0:15:38.520 --> 0:15:42.240 You're saying get out there, own bonds. Yields will move lower. 0:15:42.560 --> 0:15:46.040 Discuss given the debt ballet in Washington. 0:15:48.520 --> 0:15:50.880 Yeah, that's the only time it's tiresome. But it's not 0:15:50.960 --> 0:15:53.640 going away quickly in our view. Yeah, we still look 0:15:53.680 --> 0:15:55.720 for the market to panic a bit more. It's interesting, 0:15:55.800 --> 0:15:58.560 you can talk about the market, but it's really the 0:15:58.720 --> 0:16:01.400 markets here. So the treasury bill markets in full throat 0:16:01.400 --> 0:16:03.800 of panic mode right now, you've got yields on May 0:16:03.840 --> 0:16:06.720 bills that are low threes, yields on June bills that 0:16:06.760 --> 0:16:10.280 are called medium five. So an enormous gap there. But 0:16:10.560 --> 0:16:13.800 treasury bonds tenure treasury three to fifteen neighborhood. It's been 0:16:13.800 --> 0:16:16.400 there for a while. The equity market's sort of plugging along. 0:16:16.760 --> 0:16:19.040 Foreign exchange is puzzling to us. We think the end 0:16:19.040 --> 0:16:21.560 should be a big beneficiary. And oh, by the way, 0:16:21.640 --> 0:16:24.520 imply volatilities for currencies are low. So it seems like 0:16:24.520 --> 0:16:27.080 the treasury bill market at this point is the only 0:16:27.080 --> 0:16:29.840 one that's really panicking, and the rest are saying, ah, 0:16:29.960 --> 0:16:31.400 it'll get worked out, don't sweat it. 0:16:31.560 --> 0:16:35.120 What on a year basis is long duration? Is long 0:16:35.200 --> 0:16:39.520 duration five years? Or is it twelve years? Or dare 0:16:39.560 --> 0:16:42.320 I say it's an Austrian pre sought fifty years? What's 0:16:42.440 --> 0:16:43.040 long duration? 0:16:45.160 --> 0:16:47.040 Now we're not going to Austrian here. Let's keep it 0:16:47.080 --> 0:16:49.080 to call at the tenure and the reason I say that, 0:16:49.560 --> 0:16:51.680 certainly it's the benchmark. But when people want to move 0:16:51.680 --> 0:16:53.760 a lot of risk globally, that's where they go. They 0:16:53.800 --> 0:16:56.520 go to the tenure part of the US curve. Pretty consistently, 0:16:56.920 --> 0:16:59.520 tons of liquidity so you want to think about some 0:16:59.600 --> 0:17:01.600 numbers three point fifty two and change on the ten 0:17:01.640 --> 0:17:04.359 year yield right now, if things go really badly, if 0:17:04.400 --> 0:17:06.719 Elm and Luise can't figure out quite where the cliff 0:17:06.760 --> 0:17:08.800 is and go over it, maybe you're looking at three 0:17:08.840 --> 0:17:11.320 percent something like that. I certainly hope it doesn't happen, 0:17:11.400 --> 0:17:13.960 but it seems like it's pretty low cost right now 0:17:14.000 --> 0:17:15.120 to insure against that risk. 0:17:15.480 --> 0:17:18.040 I keep thinking about this paddling duck market that Amy 0:17:18.040 --> 0:17:21.800 with Silverman was talking about, because it seems very difficult 0:17:21.800 --> 0:17:24.199 to get our hands around with respect to the debt ceiling. 0:17:24.240 --> 0:17:26.600 And then some of these company profits that are coming out, 0:17:26.640 --> 0:17:28.600 these company earnings that are coming out as we get 0:17:28.600 --> 0:17:31.320 retail sales. I'm wondering if you could weigh in on 0:17:31.400 --> 0:17:35.760 Paul Donovan's point that companies are really expanding their profit 0:17:35.840 --> 0:17:39.160 margins and consumers are only just now starting to push back, 0:17:39.200 --> 0:17:42.080 and that that's a significant driver of inflation. How much 0:17:42.160 --> 0:17:44.080 is that really what you're seeing as well? 0:17:46.560 --> 0:17:49.400 Yeah, it's really interestingly soon. We think we characterize inflation 0:17:49.480 --> 0:17:52.600 right now as stubborn globally, you think about it country 0:17:52.640 --> 0:17:56.720 after country. Canadian data came in high yesterday recently Australia 0:17:56.800 --> 0:17:59.879 hiked surprise the markets. You look at the UK, inflation 0:18:00.040 --> 0:18:02.639 and data are pretty unpleasant, especially on the wage side. 0:18:02.760 --> 0:18:05.640 In the US, I'd make a similar argument. So, yes, 0:18:05.720 --> 0:18:08.399 inflation's come down as it come down nearly as quickly 0:18:08.440 --> 0:18:10.879 as the central bankers would like to see. No, And 0:18:10.960 --> 0:18:13.000 I think that's to your point that you still have 0:18:13.119 --> 0:18:15.119 pricing pressure for a lot of companies. What does it 0:18:15.160 --> 0:18:17.440 mean for markets? Means a lot of these rate cuts 0:18:17.440 --> 0:18:19.960 get priced out, and maybe some of the central banks 0:18:19.960 --> 0:18:22.400 have another hike. Maybe you see a few more surprises. 0:18:22.440 --> 0:18:25.520