WEBVTT - Markets Rally as Powell and Policy Uncertainty Loom 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.800 --> 0:00:17.880 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:21.960 on Apple CarPlay or Android Auto with the Bloomberg Business app. 0:00:22.320 --> 0:00:25.640 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.040 us live on YouTube. 0:00:27.560 --> 0:00:30.600 In the game of getting your message out, you wander 0:00:30.640 --> 0:00:32.960 into late May and you have a meeting over some 0:00:33.080 --> 0:00:35.720 Stille Sanka coffee and you go, this is what the 0:00:35.760 --> 0:00:38.560 outlook looks like, and then you blow it up ten 0:00:38.640 --> 0:00:42.120 times on the way to June thirty, two thousand whatever, 0:00:42.479 --> 0:00:45.720 Jeffrey Rosenberg set a record. They had to rewrite there 0:00:45.880 --> 0:00:49.120 bond quarterly here with the events going on something like 0:00:49.200 --> 0:00:51.720 fourteen times. Are you on speaking terms for the Rick 0:00:51.800 --> 0:00:53.920 reader or is it just forever broken? 0:00:54.400 --> 0:00:56.080 Oh no, it's all good. 0:00:56.200 --> 0:01:00.600 Yes, it's all good. In this report, how does different 0:01:00.600 --> 0:01:02.600 from where it would have been thirty days ago? 0:01:03.000 --> 0:01:06.640 Yeah, that's I mean, so much has happened between you 0:01:06.640 --> 0:01:09.320 know where we were, you know sixty days ago, the 0:01:09.560 --> 0:01:12.520 and the and the tariffs and the concerns and bonds. 0:01:12.560 --> 0:01:15.440 You know, the outlook has had to change a lot, 0:01:15.480 --> 0:01:17.640 and you've seen it in terms of you know what 0:01:17.680 --> 0:01:19.360 you're talking about and in terms of the number of 0:01:19.360 --> 0:01:22.200 contributors to that piece and trying to get the trying 0:01:22.240 --> 0:01:23.039 to get the tone right. 0:01:23.920 --> 0:01:24.840 But you know, the the. 0:01:24.760 --> 0:01:27.400 Big issue there is is still that you know, it's 0:01:27.440 --> 0:01:30.920 relatively sanguine in terms of the rate range bound in 0:01:30.959 --> 0:01:31.360 terms of. 0:01:31.280 --> 0:01:32.679 The biggest input impact. 0:01:32.720 --> 0:01:34.960 And we talked about in fixed singcam out looked for 0:01:35.000 --> 0:01:37.479 the ten years, you know, not not as much volatility 0:01:37.520 --> 0:01:38.840 as what you've seen, say the equity market. 0:01:38.880 --> 0:01:39.840 Paul's been great on this. 0:01:39.920 --> 0:01:41.600 I mean, Paul's not the way on this, but but 0:01:41.680 --> 0:01:44.280 the bottom line, Paul is it's bringing duration. 0:01:44.120 --> 0:01:44.640 Right, Yep. 0:01:44.720 --> 0:01:46.679 Absolutely, I'm just looking at some something coming off the 0:01:46.680 --> 0:01:47.680 Bloomberg News desk. 0:01:47.920 --> 0:01:50.760 The treasury market is wrapping up its best monthly return 0:01:50.840 --> 0:01:55.000 since February and its biggest first half stretch in five years. 0:01:55.520 --> 0:01:57.040 So you guys, aren't I mean, people want to talk 0:01:57.040 --> 0:01:57.840 to you guys now right. 0:01:58.000 --> 0:02:00.280 Yeah, you know, bonds have been, bounds have been okay. 0:02:00.320 --> 0:02:02.800 And the big story, and Rick's talked so much about 0:02:02.800 --> 0:02:06.520 this is the restoration of income. And you know part 0:02:06.560 --> 0:02:08.840 of that is just where the Fed is and the 0:02:08.919 --> 0:02:11.960 redsence to say even cut rates. But that you brought 0:02:12.040 --> 0:02:15.040 interest rates back up above the level of inflation. And 0:02:15.120 --> 0:02:18.080 for a very long time period you just didn't have that. 0:02:18.120 --> 0:02:21.040 You had very negative real interest rates and that was 0:02:21.040 --> 0:02:22.959 a penalty to fixed income because. 0:02:22.720 --> 0:02:24.000 It propagated out the curve. 0:02:24.320 --> 0:02:26.400 And so it's a very different environment and that you 0:02:26.440 --> 0:02:29.800 know over all, you know, in terms of interest rate moves, 0:02:29.840 --> 0:02:31.799 it's just the starting point. You know, fixed income is 0:02:31.840 --> 0:02:35.160 about yield, and yield is the driver of returns. 0:02:35.160 --> 0:02:36.480 It's a little bit different than equities. 0:02:36.480 --> 0:02:38.840 It's a little bit simpler that you're starting yield is 0:02:38.880 --> 0:02:42.320 your best predictor of your future return. And that's the 0:02:42.320 --> 0:02:44.639 big story, is that we've returned. 0:02:44.840 --> 0:02:47.880 Holders hold exactly right, and then that's what buy them 0:02:47.880 --> 0:02:49.680 and hold them? How about credit risk here? 0:02:49.720 --> 0:02:51.919 What are we doing on the credit side here? 0:02:52.080 --> 0:02:55.040 So there's two sides of the credit risks story, which 0:02:55.120 --> 0:02:58.239 it's been for a long time, and that is you've 0:02:58.240 --> 0:03:00.920 got the pricing of credit risk, which is, you know, 0:03:01.120 --> 0:03:06.560 not particularly attractive in terms of is there an entry 0:03:06.600 --> 0:03:09.240 point here from timing, But again it comes back to 0:03:09.280 --> 0:03:13.360 the difference between price return and income, and the income 0:03:13.400 --> 0:03:16.920 piece is the bigger story from credit where yield plus 0:03:16.960 --> 0:03:20.720 spread is attractive. Spread on its own is a little 0:03:20.720 --> 0:03:23.520 bit less attractive in terms of like you're pricing in 0:03:23.880 --> 0:03:28.440 you know, very very benign conditions. But newsflash, it is 0:03:28.480 --> 0:03:31.080 a very benign outlook in terms of what's going on 0:03:31.160 --> 0:03:34.040 in terms of fundamentals. Now that's what we've realized now 0:03:34.200 --> 0:03:38.280 going forward that may change. Markets are pricing in a 0:03:39.640 --> 0:03:41.880 very benign credit environment. So there's a little bit of 0:03:41.920 --> 0:03:43.600 asymmetric downside. 0:03:43.840 --> 0:03:44.400 You see that. 0:03:44.520 --> 0:03:46.760 You know most of the time in credit, it's a 0:03:46.760 --> 0:03:48.120 little bit exacerbated this time. 0:03:48.160 --> 0:03:49.240 So you want to be kind. 0:03:49.080 --> 0:03:51.040 Of more up in quality and a little bit more 0:03:51.120 --> 0:03:55.480 up in defensiveness just given the where the asymmetry is. 0:03:55.520 --> 0:03:58.480 But credit has been the dog here that has embarked. 0:03:58.600 --> 0:04:01.440 There's all these manufacturers products. I'm gonna say, folks are 0:04:01.520 --> 0:04:04.960 collared out and manipulated and maybe somebody makes a bigger 0:04:04.960 --> 0:04:08.440 fee just cut to the you know, fabose chase, the 0:04:08.480 --> 0:04:11.480 mark who it's chased does a sixty forty portfolio work 0:04:11.480 --> 0:04:12.360 here that. 0:04:12.440 --> 0:04:14.680 Is definitely cutting to the chase, And you know, I 0:04:14.720 --> 0:04:19.119 think you have to rethink that idea and what made 0:04:19.200 --> 0:04:22.200 sixty forty really work for a very long period of time, 0:04:22.520 --> 0:04:26.280 very simple idea that we lived in an environment of 0:04:26.400 --> 0:04:30.200 too little inflation, and when you live in an environment 0:04:30.240 --> 0:04:34.960 of too little inflation, the FED has no constraint on 0:04:35.120 --> 0:04:38.160 its ability to be accommodative when you need them to be. 0:04:38.640 --> 0:04:39.760 That's really important. 0:04:39.839 --> 0:04:42.719 That cascades down into a thing we call the divine 0:04:42.760 --> 0:04:46.599 coincidence of monetary policy basically says when there isn't an 0:04:46.600 --> 0:04:49.880 inflation risk, the only thing the FED has to focus on. 0:04:49.800 --> 0:04:51.880 Is growth, and that means it's really good for your equition. 0:04:52.400 --> 0:04:55.200 Drinking the kool aid here of Allen Meltzer and Marvin Short, 0:04:55.760 --> 0:04:58.120 I mean, it's just so Carnegie Melon exactly. 0:04:58.520 --> 0:05:00.320 I'm looking at the eye end. Go funk on the 0:05:00.320 --> 0:05:05.080 Bloomberg terminal, Bloomberg Index browser. The best performance in US 0:05:05.120 --> 0:05:09.040 fixing come has been US corporate high yield. I mean, 0:05:09.080 --> 0:05:10.520 people don't mind taking the risk. 0:05:10.600 --> 0:05:11.919 It seems like they don't. 0:05:11.960 --> 0:05:14.200 And that again, that's because it's been a very benign 0:05:14.360 --> 0:05:17.479 environment for what we've seen realized in terms of in 0:05:17.520 --> 0:05:20.719 terms of corporations, of cash flows, default risk, and the 0:05:20.800 --> 0:05:24.560 pricing there got a little bit concerned around the April ninth, 0:05:24.640 --> 0:05:28.040 April second tariff piece, and so you had a big 0:05:28.120 --> 0:05:33.279 recovery from credit spread wides in every environment so far, 0:05:33.440 --> 0:05:36.680 it's been one where widening's have been you know, purchase 0:05:36.880 --> 0:05:39.520 buying opportunities. Again, you got to take a little bit 0:05:39.520 --> 0:05:42.000 of a bigger picture there to remember, this is a 0:05:42.000 --> 0:05:44.919 credit cycle, and if all of these concerns around the 0:05:44.920 --> 0:05:48.760 economics slow down eventually manifest themselves, then you're going to 0:05:48.839 --> 0:05:51.479 see an uptick in defaults. But that's forward looking. I 0:05:51.480 --> 0:05:53.240 haven't seen any of that so far. That's why I've 0:05:53.240 --> 0:05:54.680 seen the really strong performance in corporate. 0:05:54.680 --> 0:05:57.200 There's there forcing me, the media people are forcing me 0:05:57.240 --> 0:06:00.320 to rewrite my bio. And it's torture, folks, I can 0:06:00.360 --> 0:06:03.680 tell you. And it's about the conversation with Jeff Rosenberg 0:06:03.800 --> 0:06:06.800 and others. The first name I mentioned in the bio 0:06:07.080 --> 0:06:10.280 is Alan Meltzer, and one of yours in my heroes 0:06:10.640 --> 0:06:15.360 at Carnegie Mellon and Professor Meltzer told me aggregate data 0:06:15.440 --> 0:06:19.159 for America. Can we do that now? Jeff Rosenberg is 0:06:19.160 --> 0:06:23.320 a template at Blackrock, a glass half full in this 0:06:23.520 --> 0:06:25.480 wild Barbel America. 0:06:25.560 --> 0:06:27.839 Yeah, yeah, yeah, your term is exactly right, you know, 0:06:27.920 --> 0:06:30.200 Barbel America, k shaped America. 0:06:30.240 --> 0:06:32.000 The aggregation of data is. 0:06:32.040 --> 0:06:35.760 Very problematic in that it masks over a lot of 0:06:35.800 --> 0:06:39.240 the really underlying issues inside the economy, and. 0:06:39.120 --> 0:06:41.159 That's really important, especially. 0:06:40.680 --> 0:06:43.760 When you're thinking about not kind of you know, the 0:06:43.839 --> 0:06:46.440 direction you a macro variable like the ten year interest 0:06:46.520 --> 0:06:48.919 rate really can kind of map to the aggregate. But 0:06:48.960 --> 0:06:50.839 when you talk about the corporate bond market or you 0:06:50.839 --> 0:06:53.719 talk about the equity market, where the cross section of 0:06:53.800 --> 0:06:57.599 performance is much more important, taking into account things like 0:06:57.640 --> 0:07:01.520 the distributional aspect underneath the economic data becomes much more important. 0:07:01.920 --> 0:07:04.640 What's our feter reserve going to do here today this year? 0:07:04.680 --> 0:07:08.159 I'm looking at the WRP function kind of pressing and 0:07:08.200 --> 0:07:10.320 maybe two, maybe a little bit more than two rate 0:07:10.400 --> 0:07:12.720 cuts this year. What do you think they should do? 0:07:13.520 --> 0:07:15.560 So that's been where we've been for a while, around 0:07:15.640 --> 0:07:19.200 around two cuts. You know, I think they should be 0:07:19.440 --> 0:07:23.960 in a weight and see mode, as Powell has has discussed, 0:07:24.320 --> 0:07:28.160 because we're in this interim period where we don't really 0:07:28.280 --> 0:07:31.040 know what the impact to the macro data is going 0:07:31.080 --> 0:07:33.200 to be of the policy and policy uncertainty. 0:07:33.280 --> 0:07:34.760 So far, it's been better. 0:07:34.880 --> 0:07:38.320 Than feared, and we've had four or five in a 0:07:38.400 --> 0:07:41.120 row better than feared inflation reports. 0:07:41.320 --> 0:07:42.960 This is the time, and you know, this is. 0:07:42.960 --> 0:07:45.320 The week prior to payrolls, and so that becomes a 0:07:45.360 --> 0:07:48.280 really important input because we're starting to see some slow down. 0:07:48.280 --> 0:07:51.320 You can see in the Bloomberg that consensus for Friday, 0:07:51.360 --> 0:07:53.200 you know, slowing. I think it's around one to ten. 0:07:54.240 --> 0:07:56.880 You know, it's a significant slow down. But it's still 0:07:56.920 --> 0:07:59.720 a pretty strong market. So they've got the room to wait, 0:08:00.680 --> 0:08:02.120 and I think that's the right thing to do. 0:08:02.200 --> 0:08:03.280 But wait for what? 0:08:03.600 --> 0:08:06.040 Wait for whether or not you know, this inflation in 0:08:06.120 --> 0:08:08.920 terms of the tariffs really shows up in a more 0:08:08.920 --> 0:08:13.080 significant way. That's going to validate them holding off, or 0:08:13.320 --> 0:08:16.600 this slow down in jobs accelerates, and then the waiting 0:08:16.640 --> 0:08:17.559 will be proven wrong. 0:08:17.720 --> 0:08:19.640 But they'll pivot, and I think that's. 0:08:19.440 --> 0:08:22.160 The key, is that they'll pivot to the data. 0:08:22.880 --> 0:08:25.280 Jeffrey, Thank you so much. Jeffrey Rosenberg. Now was a 0:08:25.280 --> 0:08:27.960 six point thirty view for Blackrock. You can run, but 0:08:28.080 --> 0:08:31.600 you can't hedge the bond markets. Warning shot. Get that 0:08:31.720 --> 0:08:34.680 from Blackrock. Please you protect the copyright of all of 0:08:34.720 --> 0:08:35.280 our guests. 0:08:39.760 --> 0:08:43.360 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:08:43.400 --> 0:08:46.600 weekday afternoons from seven to ten am Eastern Listen on 0:08:46.640 --> 0:08:50.320 Applecarplay and Android Auto with the Bloomberg Business app or 0:08:50.480 --> 0:08:51.960 watch us live on YouTube. 0:08:52.120 --> 0:08:56.880 Henrietta Trey's has been just fabulous at Veda Partners. Henrietta, 0:08:56.880 --> 0:08:59.360 I just use Google Gemini because I'm hip and I 0:08:59.400 --> 0:09:02.960 do a and I typed in what is the vhotama? 0:09:03.400 --> 0:09:04.520 And it exploded. 0:09:05.559 --> 0:09:08.040 The servers exploded at Google. 0:09:08.120 --> 0:09:11.960 What in God's name, coach trace is voter rama? 0:09:12.960 --> 0:09:15.880 Oh, it's so exciting. Gear up to watch. He's been 0:09:16.000 --> 0:09:19.080 two all day long. It will be nothing short of riveting. 0:09:19.400 --> 0:09:21.920 It's actually really cool. You know, the Senate is a 0:09:22.000 --> 0:09:27.000 highly scripted, very regimented body, and voter rama is like 0:09:27.040 --> 0:09:30.880 our free for all. So all amendments are germane. You 0:09:30.920 --> 0:09:32.199 can throw anything at the. 0:09:32.160 --> 0:09:35.280 Wall here and they will be voting all day, all night, 0:09:35.360 --> 0:09:38.040 maybe even into tomorrow. So it's really exciting if you're 0:09:38.280 --> 0:09:39.040 into that kind of thing. 0:09:39.080 --> 0:09:41.959 Are any important, Yes. 0:09:41.880 --> 0:09:43.120 They're critically important. 0:09:43.720 --> 0:09:47.679 There are millions of individuals at risk of losing Medicaid 0:09:47.760 --> 0:09:50.760 in this package. That will be a big amendment vote 0:09:50.800 --> 0:09:54.240 from Rick Scott, Republican in Florida that will need to 0:09:54.360 --> 0:09:57.200 pass otherwise it could risk as many as four Republican 0:09:57.240 --> 0:10:01.240 senators defecting away from this bill. However, if it is passed, 0:10:01.240 --> 0:10:03.960 it may fail in the House. So it's a very 0:10:04.000 --> 0:10:07.160 delicate balance that Republicans need to walk here. 0:10:07.280 --> 0:10:09.679 The most important one is going to be. 0:10:10.000 --> 0:10:16.480 A procedural change that fundamentally undermines and effectively removes the 0:10:16.520 --> 0:10:19.440 filibuster from the United States Senate for the rest of 0:10:19.480 --> 0:10:23.679 all time. This is a massive deficit increasing provision, and 0:10:23.800 --> 0:10:27.720 it authorizes the use of current policy baseline by overriding 0:10:27.760 --> 0:10:31.360 the parliamentarian our referee, and it will pave the way 0:10:31.400 --> 0:10:35.600 for increase in the deficit by four trillion dollars without 0:10:35.640 --> 0:10:38.960 paying for it in this package. So a lot is 0:10:39.160 --> 0:10:40.040 very heavy stuff on. 0:10:40.040 --> 0:10:40.640 The line today. 0:10:41.000 --> 0:10:45.160 Is there any political fallout for anybody, Henriette, for raising 0:10:45.200 --> 0:10:47.400 these deficits by I don't know the fourth trillion you 0:10:47.440 --> 0:10:48.280 just mentioned. 0:10:49.600 --> 0:10:52.680 Yeah, I think that there are. You don't often see 0:10:52.679 --> 0:10:54.160 this without an election happening. 0:10:54.200 --> 0:10:57.400 But Tom Tillis, for example, Republican of North Carolina, has 0:10:57.440 --> 0:11:00.280 decided this bill is so atrocious, who's quitting the entire it, 0:11:00.880 --> 0:11:02.520 And so he's going to vote against the package and 0:11:02.520 --> 0:11:04.320 he's moving on with his life, which is a shame. 0:11:04.360 --> 0:11:08.640 He's an excellent senator with some incredible staff that we've 0:11:08.640 --> 0:11:10.839 worked with and been lucky to work with now for years. 0:11:11.400 --> 0:11:14.600 But this is real ramifications in real time. And the 0:11:14.640 --> 0:11:17.560 next time you hear someone say, you know, Rome died 0:11:17.600 --> 0:11:19.840 because of its deficits and debt, ask him how they 0:11:19.960 --> 0:11:20.720 voted on this bill. 0:11:21.400 --> 0:11:25.440 President Trump is on one heck of a winning streak here. 0:11:26.280 --> 0:11:28.000 Do the Democrats recognize this? 0:11:28.200 --> 0:11:31.400 Is there any pushback, any sense of we want to 0:11:31.400 --> 0:11:32.319 get our message out? 0:11:33.520 --> 0:11:34.320 What message? 0:11:34.520 --> 0:11:34.840 I mean? 0:11:35.080 --> 0:11:39.280 This bill is filled with literally trillions of dollars worth 0:11:39.320 --> 0:11:44.680 of messages, and the Republican package is so massive that 0:11:44.800 --> 0:11:47.880 they've sort of just been washed over by the flood 0:11:47.920 --> 0:11:51.239 of it. So if you follow an individual member's statements, 0:11:51.280 --> 0:11:53.680 you can catch you know where they stand on Medicaid 0:11:53.720 --> 0:11:55.640 and things along those lines. But it's really hard to 0:11:55.640 --> 0:11:57.520 get a message through. I was actually with a doctor 0:11:57.559 --> 0:11:59.520 friend of mine this weekend, who you know, and I 0:11:59.559 --> 0:12:02.840 cover this now for the entire year, and I just 0:12:02.920 --> 0:12:07.360 learned that sixty five percent of births in Louisiana come 0:12:07.400 --> 0:12:10.920 from Medicaid patients. And this is cutting millions of people 0:12:10.960 --> 0:12:13.280 off of Medicaid nationwide, twelve million. 0:12:13.440 --> 0:12:15.240 Though it's pretty substantial. 0:12:14.960 --> 0:12:18.480 It's sixty thousand feet and I've got a nodding memory 0:12:18.480 --> 0:12:22.319 of this is this the pullback of the great society 0:12:22.880 --> 0:12:25.520 is what we're really talking here. I get into the 0:12:25.559 --> 0:12:30.120 maths forty and twenty sixty years on. We're slamming ourselves 0:12:30.160 --> 0:12:33.000 back to Pleasantville and Dwight David Eisenhower. 0:12:33.920 --> 0:12:36.079 I mean, this is the end of caring about deficits. 0:12:36.120 --> 0:12:38.280 This is the end of paying for legislation on a 0:12:38.280 --> 0:12:42.080 go forward basis. So, for example, any tax provision that 0:12:42.120 --> 0:12:44.840 you like right now that's on the books can be 0:12:44.960 --> 0:12:48.120 extended into perpetuity without ever paying for it ever. Again, 0:12:48.480 --> 0:12:50.920 So any short term provision you put in there, the 0:12:50.960 --> 0:12:54.280 salt cap, the IRA tax credits, the child tax credit, 0:12:54.320 --> 0:12:56.640 whatever it may be. These are hundreds of billions of 0:12:56.640 --> 0:12:58.520 dollars on a line by line basis. 0:12:58.800 --> 0:13:00.880 But perhaps the biggest comp into this bill is the 0:13:00.880 --> 0:13:01.720 wealth transfer. 0:13:02.360 --> 0:13:04.719 Think about the tariffs that have been put on by 0:13:04.720 --> 0:13:07.800 this Trump administration. I don't think that's a win, but 0:13:07.840 --> 0:13:10.200 the President has made it appear as though he's really, 0:13:10.320 --> 0:13:11.200 you know, strong army. 0:13:11.200 --> 0:13:13.840 But it's four hundred billion dollars entire for revenue collection. 0:13:14.240 --> 0:13:15.199 The entirety of. 0:13:15.160 --> 0:13:18.440 The president's campaign agenda, no taxes on tips, no taxes 0:13:18.480 --> 0:13:21.840 on you know, retirement payments and things like that is 0:13:21.840 --> 0:13:25.319 one hundred and sixty three hundred and sixty three billion 0:13:25.360 --> 0:13:27.360 dollars worth of this package, and the tariffs are four 0:13:27.400 --> 0:13:30.360 hundred billion dollars in revenue. So we are passing a 0:13:30.480 --> 0:13:34.679 massively regressive tax bill that does not return what the 0:13:35.160 --> 0:13:37.320 President is giving you on. 0:13:36.080 --> 0:13:39.960 That at a time. How many pages will this legislation be? 0:13:40.480 --> 0:13:41.920 I mean asking for John Tuckner. 0:13:41.960 --> 0:13:43.160 He's going to read it at the beach. 0:13:44.480 --> 0:13:45.720 It has already read aloud. 0:13:45.760 --> 0:13:47.760 It took something like fifteen and a half hours and 0:13:47.800 --> 0:13:49.320 it's nine hundred and forty pages. 0:13:51.040 --> 0:13:53.679 Forty okay, Henritta Trace. 0:13:53.400 --> 0:13:54.079 Thank you so much. 0:13:54.120 --> 0:13:58.000 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:13:58.040 --> 0:14:01.040 starting at seven am Eastern on a Corplay and Android 0:14:01.040 --> 0:14:04.079 otto with the Bloomberg Business App. You can also listen 0:14:04.200 --> 0:14:07.439 live on Amazon Alexa from our flagship New York station, 0:14:08.000 --> 0:14:10.640 Just say Alexa Play Bloomberg eleven thirty. 0:14:10.880 --> 0:14:14.920 The patron out of Oxford University in Lbs, Ibrahim Abari 0:14:15.800 --> 0:14:20.320 joins this iconic city group with Villimbauder, Catherine Mann and others. 0:14:20.400 --> 0:14:25.440 Nathan Sheets and now with Absolute Strategy Research and working 0:14:25.480 --> 0:14:30.080 with Tina Fordham Fordham Global Foresight for a terrific brief. Yeah. Iber, 0:14:30.240 --> 0:14:32.000 First of all, your notes are way too long. 0:14:32.240 --> 0:14:33.280 Can you cut it half? 0:14:33.360 --> 0:14:35.480 I mean, just for starters. 0:14:35.800 --> 0:14:38.800 The heritage of Rabari. 0:14:38.560 --> 0:14:42.560 Economics and this plays off Villimbauder is an old world 0:14:42.680 --> 0:14:47.360 respect for the balance sheet. It's very non American to me. 0:14:47.760 --> 0:14:51.240 It's not foreign, it's just a different view across the water. 0:14:51.960 --> 0:14:55.680 The state of the American balance sheet or the guests 0:14:55.680 --> 0:14:58.680 on that balance sheet three or five years out. 0:15:00.240 --> 0:15:03.480 Well, I think the state of the American balance sheet 0:15:03.520 --> 0:15:06.520 is a tailor's two stories, and I think that's what's 0:15:06.560 --> 0:15:08.880 allowed asset prices to continue to do so well as 0:15:08.880 --> 0:15:12.400 they continue even as we enter this week. Private sector 0:15:12.440 --> 0:15:15.480 balance heats are the best we've seen for decades, and 0:15:15.560 --> 0:15:18.520 that's given the public sector a bit of an excuse 0:15:18.680 --> 0:15:20.480 to maybe use. 0:15:20.360 --> 0:15:21.600 That financial capital. 0:15:21.720 --> 0:15:27.040 So our concerns, my concerns are predominantly about the health 0:15:27.080 --> 0:15:29.880 of the public sector balance heat to some degree, how 0:15:29.880 --> 0:15:32.360 we can keep the two together in a way that 0:15:32.880 --> 0:15:36.560 keeps the economy running and pumping. But if I'm honest 0:15:36.600 --> 0:15:38.480 with you, I am concerned. I do think we will 0:15:38.560 --> 0:15:41.680 run into a major point of tension in the next 0:15:41.760 --> 0:15:44.400 couple of years, and what we've heard from Congress over 0:15:44.440 --> 0:15:47.600 the last week or so probably adds to these concerns 0:15:47.720 --> 0:15:48.640 rather than reduce it them. 0:15:49.280 --> 0:15:52.880 So given that backdrop here, at least in the near term, 0:15:53.480 --> 0:15:55.640 it feels like the market is expecting this Fed to 0:15:55.760 --> 0:15:58.160 cut rates, maybe not a lot, but on maybe a 0:15:58.160 --> 0:15:59.760 couple of times this year. 0:16:00.160 --> 0:16:01.600 Does that seem reasonable to you? 0:16:02.960 --> 0:16:04.920 It does? It does seem reasonable. 0:16:04.920 --> 0:16:05.120 Now. 0:16:05.200 --> 0:16:07.040 I should say I came into the year thinking the 0:16:07.080 --> 0:16:09.360 FED is going to cut a lot, and because it 0:16:09.440 --> 0:16:12.640 was facing going to face the perfect storm from much 0:16:12.640 --> 0:16:16.080 weaker growth than people expected, a very weak stock market, 0:16:16.080 --> 0:16:18.600 which of course at the beginning of the year we had, 0:16:18.880 --> 0:16:21.880 and one point that often comes up, the FED nominally 0:16:21.920 --> 0:16:24.520 is still very restrictive, so it's starting at a very 0:16:24.600 --> 0:16:25.040 high point. 0:16:25.080 --> 0:16:25.280 Now. 0:16:25.520 --> 0:16:28.440 Most of these things have played out, with one big exception, 0:16:28.520 --> 0:16:30.520 of course, which is that the stock market rebounded with 0:16:30.560 --> 0:16:34.840 a vengeance. As you're already remarked upon. Now, the reason 0:16:34.880 --> 0:16:38.480 why I think the FED is probably wise to cut 0:16:39.200 --> 0:16:42.040 at least from an insurance standpoint a little bit, is 0:16:42.080 --> 0:16:44.920 because the economy has been showing signs of signs of 0:16:44.960 --> 0:16:47.360 slowing more signs of slowing than we've seen for a 0:16:47.400 --> 0:16:50.040 while in some areas pretty concerning signs of slowing and 0:16:50.080 --> 0:16:52.320 the label market and the housing market. So again, if 0:16:52.360 --> 0:16:55.680 you start from one one and a half points above neutral, 0:16:55.800 --> 0:16:58.120 you're probably better off cutting a little bit and then 0:16:58.160 --> 0:16:59.760 seeing where you are in a couple of months time. 0:17:00.120 --> 0:17:02.920 So you know, I don't know the economy is slowing, 0:17:03.000 --> 0:17:05.280 but I think we've taken recession off the table. I 0:17:05.280 --> 0:17:09.200 haven't heard that discussed in the last four or five months. Inflation, 0:17:10.160 --> 0:17:13.040 I think surprisingly to most people, we've not seen that 0:17:13.080 --> 0:17:16.440 really create too much into the economy. So it seems 0:17:16.480 --> 0:17:20.159 like maybe the Fed's kind of got this continued soft landing. 0:17:20.160 --> 0:17:20.640 I guess. 0:17:20.800 --> 0:17:23.840 I think there's a narrow path, and I think your 0:17:25.000 --> 0:17:27.320 your remarks are very much on point that we're facing 0:17:27.560 --> 0:17:31.159 a bimode outlook for the US economy. For financial markets, 0:17:31.240 --> 0:17:34.080 what's maybe the single most interesting thing across financial markets 0:17:34.160 --> 0:17:36.960 right now is how differently equity markets and the bond 0:17:37.000 --> 0:17:38.359 market are looking at the economy. 0:17:38.640 --> 0:17:39.600 And I don't just mean at. 0:17:39.520 --> 0:17:42.959 The headline level, but the evolution of interest rates over 0:17:43.000 --> 0:17:45.680 the last couple of weeks versus how cyclicals have. 0:17:45.640 --> 0:17:48.879 Done within equities. It's one of the bigger divergences. 0:17:49.080 --> 0:17:51.200 And one of the reasons I highlight, other than that 0:17:51.440 --> 0:17:53.919 I think people haven't taken enough notice of it, is 0:17:53.960 --> 0:17:58.200 that that diversion does sometimes show up at cyclical inflection points. 0:17:58.400 --> 0:18:02.520 So it's not totally clear, but bonds on average or 0:18:02.520 --> 0:18:06.000 a better predictor of what happens at these inflection points. 0:18:06.280 --> 0:18:07.360 So when I. 0:18:07.280 --> 0:18:10.000 Hear you speak, I in my head, I'm playing through 0:18:10.440 --> 0:18:13.240 is this Goldilock scenario going to continue to play out? 0:18:13.560 --> 0:18:15.480 Or are we facing a scenario? Actually, we're facing a 0:18:15.520 --> 0:18:17.160 bit of a cliff not too far from now. 0:18:17.280 --> 0:18:21.720 Extended conversation with Ibrahim Avari of Absolute Strategy Research. We 0:18:21.800 --> 0:18:24.400 welcome all of you on your commute here last day, 0:18:24.520 --> 0:18:28.120 the second quarter commute across America. Good morning, ninety nine 0:18:28.119 --> 0:18:30.800 one FM in Washington. Was Nathan in today? 0:18:31.119 --> 0:18:33.360 I don't know, I mean, you know, yes? 0:18:33.440 --> 0:18:33.480 He? 0:18:33.760 --> 0:18:34.760 Oh, he was in today? 0:18:34.760 --> 0:18:35.840 Okay, he darkened the door. 0:18:36.119 --> 0:18:39.800 Nathan Hager at ninety nine one FM in Washington. On 0:18:39.840 --> 0:18:45.280 YouTube subscribe to Bloomberg Podcast. Absolutely humbled by the last 0:18:45.320 --> 0:18:49.040 six months of the YouTube buildout. I'm learning every day 0:18:49.440 --> 0:18:53.240 about this strange digital ballet. I want to go back 0:18:53.240 --> 0:18:55.399 to the FED, which I usually don't want to do, 0:18:55.480 --> 0:18:59.080 but I think it's so important, Ibraham. They are trapped 0:18:59.800 --> 0:19:05.440 in this cycnical inflection point and maybe bimodal a ambiguous 0:19:05.520 --> 0:19:10.320 outcome by having to justify a trend of rate cuts. 0:19:10.880 --> 0:19:14.240 Why can't they just do one and done and the 0:19:14.840 --> 0:19:18.400 chairman come out and say, we're cutting interest rates at 0:19:18.400 --> 0:19:21.679 the next meeting. We're not sure where we're going, but 0:19:21.800 --> 0:19:24.600 we're just bringing it in for one. Where did that 0:19:25.560 --> 0:19:28.960 surgical view disappear to? Oh? 0:19:29.040 --> 0:19:31.960