WEBVTT - Surveillance: UAW begins strike 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 Keane, 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. 0:00:30.560 --> 0:00:33.480 Sarah Hunt with us now Chief market Strategist to Alpine 0:00:33.680 --> 0:00:36.920 Saxon Woods. Sarah, wonderful to see you. Let's start here. 0:00:37.159 --> 0:00:39.720 Give us one good reason to buy gm Ford and 0:00:39.760 --> 0:00:41.360 stillansis with this going on. 0:00:42.080 --> 0:00:43.480 I think that's a very difficult question. 0:00:43.520 --> 0:00:45.000 I mean, you'll see that the stocks are only a 0:00:45.040 --> 0:00:46.720 little bit lower in pre market. It really is going 0:00:46.760 --> 0:00:48.680 to depend on how long this takes to work through. 0:00:49.000 --> 0:00:50.559 I think there's a lot of things that are on 0:00:50.600 --> 0:00:52.880 the table. I think job security is definitely part of 0:00:52.920 --> 0:00:55.200 it for the union, and I think the real question 0:00:55.280 --> 0:00:57.640 for those three is how you continue to be competitive 0:00:57.680 --> 0:01:01.160 globally when you've got these issues going on at home, 0:01:01.520 --> 0:01:03.920 and you've got issues with higher oil prices, right because 0:01:03.960 --> 0:01:05.840 those cars are more expensive, not only to buy, but 0:01:05.880 --> 0:01:07.840 to fuel right now too. So I think that there 0:01:07.840 --> 0:01:09.800 are a lot of problems right now in the auto sector, 0:01:10.040 --> 0:01:12.280 and I think for those three in particular, this is 0:01:12.680 --> 0:01:14.319 not a great time for them to be facing this 0:01:14.360 --> 0:01:14.920 sort of action. 0:01:15.240 --> 0:01:19.000 The emotion here of a president today goes down to 0:01:19.760 --> 0:01:24.800 the manufacturing multiplier yours in my ute, where it was 0:01:24.880 --> 0:01:28.600 simple a manufacturing job was better than being a TV 0:01:28.800 --> 0:01:32.880 anchor because it was more productive for America. Is there 0:01:32.920 --> 0:01:35.720 a manufacturing multiplier still. 0:01:35.440 --> 0:01:36.080 In this nation? 0:01:36.800 --> 0:01:39.360 Well, I think there's definitely a manufacturing multiplier, and I 0:01:39.400 --> 0:01:41.840 think that the targeted strikes are showing you exactly how 0:01:41.880 --> 0:01:44.720 when you've changed the manufacturing to each plant does a 0:01:44.760 --> 0:01:48.280 different thing and gets it to the ultimate end assembly 0:01:48.480 --> 0:01:50.200 that I can strike anywhere, and I can have a 0:01:50.200 --> 0:01:52.720 big effect on a giant network in a small way. 0:01:53.000 --> 0:01:56.600 So there's definitely a problem there. And the question about manufacturing, 0:01:56.600 --> 0:01:59.120 we're trying to reshore manufacturing right so this is part 0:01:59.120 --> 0:02:01.080 of I think the big labor question of when I 0:02:01.120 --> 0:02:04.840 reachhore manufacturing, what's going to happen to prices? And I 0:02:04.840 --> 0:02:08.160 think globally we're setting ourselves up between energy situations and 0:02:08.280 --> 0:02:12.520 re bringing production back home to have just higher prices 0:02:12.520 --> 0:02:14.440 across the board. So I think that there's a longer, 0:02:14.480 --> 0:02:16.799 big tail here to some of these discussions that are 0:02:16.800 --> 0:02:18.919 not just about individual micro situations. 0:02:18.960 --> 0:02:20.480 But AI is going to solve it all. It's going 0:02:20.520 --> 0:02:23.040 to create robots and all sorts of programs that can 0:02:23.120 --> 0:02:24.680 just make all of the things that we need. I mean, 0:02:24.680 --> 0:02:26.720 this is sort of the great hope to keep pricing down. 0:02:27.000 --> 0:02:29.560 Why wouldn't you just head your bets and going to 0:02:29.639 --> 0:02:32.960 strong into energy, go strong ino tech, and forget the 0:02:32.960 --> 0:02:33.440 rest of it. 0:02:34.320 --> 0:02:36.600 Well, you know, we've been positive amount energy and that 0:02:36.639 --> 0:02:38.280 has not been the best thing to be all year. 0:02:38.360 --> 0:02:39.919 But I think it's finally starting to come around. And 0:02:39.960 --> 0:02:42.600 it's actually coming around almost too quickly because oil prices 0:02:42.639 --> 0:02:45.080 have risen so quickly that it's almost an issue. But 0:02:45.160 --> 0:02:48.079 I think that that's part of the problem for the 0:02:48.440 --> 0:02:50.680 general populace is that if I am going to do 0:02:50.720 --> 0:02:52.480 this with robots, if AAI is going to save me 0:02:52.520 --> 0:02:54.480 from a productivity standpoint, then what am I then? 0:02:54.480 --> 0:02:55.800 How am I going to have job security? 0:02:55.800 --> 0:02:57.600 And I think that that's part of the tension that's 0:02:57.639 --> 0:02:59.480 going on right now, especially with the automakers. 0:02:59.560 --> 0:03:02.560 Elaborate on that why do you say almost too quickly. 0:03:02.760 --> 0:03:05.480 Because it does have demand destruction issues. Right when oil 0:03:05.480 --> 0:03:08.520 prices shoot up dramatically, you do start to see demand destruction. 0:03:08.680 --> 0:03:10.560 And part of the reason the oil prices have gone 0:03:10.600 --> 0:03:13.000 up is because the Saudias are taking oil off the market, 0:03:13.280 --> 0:03:16.240 and at a time when we've essentially depleted our spr 0:03:16.480 --> 0:03:18.480 so there isn't a lot of backstop in terms of 0:03:18.480 --> 0:03:21.640 excess productivity I mean xx production of oil, and especially 0:03:21.639 --> 0:03:24.080 with the US, as John pointed out earlier, at record 0:03:24.160 --> 0:03:27.560 highs for production. So I think that that movement higher 0:03:27.960 --> 0:03:29.520 is not The stocks haven't caught up to it. 0:03:29.440 --> 0:03:30.880 Because they don't really believe it right. 0:03:30.919 --> 0:03:33.200 So from an investment standpoint, you're not getting the benefit 0:03:33.200 --> 0:03:35.440 of those higher oil prices, but you are seeing them 0:03:35.480 --> 0:03:37.800 on a consumer problem as a consumer problem. 0:03:37.880 --> 0:03:40.400 Thirty five percent move since June our has been quite 0:03:40.440 --> 0:03:43.480 a move, Sarah. Do you see these multinationals, these big 0:03:43.520 --> 0:03:47.160 oil integrated companies leaning harder into fossil fuels. There's a 0:03:47.160 --> 0:03:49.960 big conversation about where BP is going in Europe, Where 0:03:50.000 --> 0:03:52.400 shall it's going in Europe? What are the US players 0:03:52.440 --> 0:03:53.520 doing in energy? 0:03:54.040 --> 0:03:55.960 I think every single one of them is trying to 0:03:55.960 --> 0:03:58.280 find a way to be both relevant in fossil fuels, 0:03:58.280 --> 0:04:00.880 but also to look towards the future where fossil fuels 0:04:00.920 --> 0:04:03.280 pay us play a smaller part. The question really is 0:04:03.320 --> 0:04:05.280 the timing on that. And I've said before that I 0:04:05.280 --> 0:04:07.120 think that that tail is a lot longer than people 0:04:07.160 --> 0:04:10.000 want it to be in terms of what countries are 0:04:10.040 --> 0:04:12.320 trying to legislate and also what people would like to see. 0:04:12.400 --> 0:04:14.320 But the truth of the matter is that you do 0:04:14.400 --> 0:04:15.960 need fossil fuels, and you're going to need them for 0:04:15.960 --> 0:04:19.000 a longer period of time. And the earlier discussion about 0:04:19.000 --> 0:04:20.800 emerging markets that they're not going to be able to 0:04:20.839 --> 0:04:24.000 transition to electric all that quickly. The infrastructure isn't even there. 0:04:24.080 --> 0:04:26.440 So as they grow bigger their demand for oil, even 0:04:26.440 --> 0:04:28.680 if it's coming down in OECD countries, it's going to 0:04:28.680 --> 0:04:29.479 be going up another place. 0:04:29.680 --> 0:04:32.200 They got airlines flat on their back. Airlines have been 0:04:32.720 --> 0:04:36.920 a post pandemic disaster. In terms of shareholder return, I've 0:04:36.960 --> 0:04:39.880 got Exxon with three percent diviot and okay, generous, I 0:04:39.880 --> 0:04:43.800 guess the five year dividend growth rate is totally unacceptable. 0:04:44.000 --> 0:04:46.000 Are they going to get used to cast religion? Are 0:04:46.040 --> 0:04:49.080 they going to become like Apple and start throwing cash back. 0:04:49.600 --> 0:04:53.160 I wouldn't want to opine on Exxon specifically. I think 0:04:53.200 --> 0:04:55.560 some of the other oil stocks have definitely gotten religion 0:04:55.560 --> 0:04:57.840 on the divid end and return of capital to shareholders, 0:04:58.000 --> 0:04:59.760 because I think that that was something that they've been 0:04:59.800 --> 0:05:02.000 told by Wall Street and by investors that they want. 0:05:02.040 --> 0:05:03.400 They don't want them to go out and spend all 0:05:03.440 --> 0:05:06.000 this money on production when oil prices are not as 0:05:06.040 --> 0:05:08.000 high as they were right now, but they would like 0:05:08.040 --> 0:05:09.640 to see some return of capital. So I think that 0:05:09.680 --> 0:05:12.320 there has been some change in the way that capital 0:05:12.320 --> 0:05:14.040 allocation is looked at across the industry. 0:05:14.120 --> 0:05:16.120 Does it matter who's in the White House when it 0:05:16.160 --> 0:05:17.920 comes to the energy patch. We make a big deal 0:05:17.920 --> 0:05:21.320 about policy coming out of President Biden, former President Donald Trump. 0:05:21.800 --> 0:05:24.440 Crudes back in the nineties, but crude production in America 0:05:24.520 --> 0:05:27.279 it's close to all time highs Sarah. And that's happening 0:05:27.360 --> 0:05:29.640 with this very anti fossil fuel tone coming out of 0:05:29.640 --> 0:05:31.479 the White House. Does it even make a difference, what 0:05:31.520 --> 0:05:32.200 they've got to say? 0:05:32.360 --> 0:05:34.520 It makes a difference when it comes to permitting, and 0:05:34.560 --> 0:05:36.000 it makes a difference when it comes to. 0:05:36.000 --> 0:05:37.320 Production that you don't have yet. 0:05:37.400 --> 0:05:39.960 Right if you're looking at an area where we've been 0:05:40.000 --> 0:05:42.160 able to extract a lot more oil out of fields 0:05:42.160 --> 0:05:44.520 that we're already there with the technology changes, and that's 0:05:44.560 --> 0:05:47.760 where your productivity comes in. Then is it matters less 0:05:47.760 --> 0:05:49.919 when it comes to looking at new areas to be 0:05:49.960 --> 0:05:52.440 able to either explore or drill. Then it starts to 0:05:52.440 --> 0:05:53.479 make it different on the edges. 0:05:53.800 --> 0:05:55.600 Sarah Hunt, thank you. It's going to see you here 0:05:55.600 --> 0:05:57.520 in New York. Sarah Hunt of v APPI Saxon. 0:05:57.240 --> 0:06:12.159 Woods bearing gifts this morning from New Orleans on television. 0:06:12.320 --> 0:06:17.320 It is aunt Sally's pralines. They're for Bramo And here 0:06:17.320 --> 0:06:18.479 you go, Lisa. 0:06:18.560 --> 0:06:25.400 We're not saying Sally. I was saying Sally, not Sally's accent. 0:06:25.560 --> 0:06:29.159 No, I don't I don't have a they count on radio. 0:06:29.320 --> 0:06:31.920 It's yeah, it's like a calorie count on radio. That's 0:06:31.960 --> 0:06:35.839 all you need to know. Anya Trees joins us here 0:06:35.839 --> 0:06:41.839 from Encyclopedic on Washington, and very importantly Henriette. In this moment, 0:06:41.920 --> 0:06:43.880 this is a president who's got to come up with 0:06:43.960 --> 0:06:48.000 a new statement for a president on labor unrest. 0:06:48.040 --> 0:06:48.920 What does it sound like? 0:06:49.040 --> 0:06:51.839 I think you're exactly right, falling back on that Scranton 0:06:51.920 --> 0:06:55.839 narrative and speaking to labor unions, the way that this 0:06:55.880 --> 0:07:00.400 administration has their entire term. We've done this before, they 0:07:00.440 --> 0:07:02.520 have a huge success rate. So I think there's a 0:07:02.560 --> 0:07:06.000 lot of maybe not surprise in DC, but it's a 0:07:06.040 --> 0:07:10.200 different circumstance now that there's actually striking happening, and I 0:07:10.240 --> 0:07:12.520 assume it's Defcon one up there and they're all going 0:07:12.560 --> 0:07:13.880 to work to result this one. 0:07:14.240 --> 0:07:16.640 What do you think this response is going to be. 0:07:16.800 --> 0:07:19.360 And let's dig into this. He already cut off the 0:07:19.440 --> 0:07:22.000 railroad workers from striking. He can't do that with this. 0:07:23.120 --> 0:07:25.240 Even though they did that, they still went around saying 0:07:25.240 --> 0:07:27.440 that they were the most pro union administration in the 0:07:27.480 --> 0:07:29.920 history of all administrations in the United States of America. 0:07:29.960 --> 0:07:31.840 I'm not sure how you can be so pre union 0:07:31.880 --> 0:07:35.160 without giving people the right to strike. Now they're on strike, 0:07:35.200 --> 0:07:36.520 shouldn't you be supporting them? 0:07:36.800 --> 0:07:39.000 And it's interesting to watch because there's a number of 0:07:39.080 --> 0:07:41.840 Democratic lawmakers in the Senate and the House who are 0:07:41.920 --> 0:07:44.000 going to join the strike. Right So you have this 0:07:44.080 --> 0:07:46.920 situation where the White House is obviously going to try 0:07:46.960 --> 0:07:48.600 to get the strike to conclude, but there's a host 0:07:48.600 --> 0:07:50.480 of Democrats who are actually going to strike with them. 0:07:50.760 --> 0:07:55.920 So it's a bit of a two sided videotape right there. 0:07:56.200 --> 0:07:58.720 What about the Republicans? Where should they be coming in 0:07:58.840 --> 0:08:02.040 or where are they coming in to try to capitalize 0:08:02.040 --> 0:08:04.720 on something that's fraught on both sides, because this is 0:08:04.760 --> 0:08:08.240 no longer a one party kind of issue with unions. 0:08:08.000 --> 0:08:10.120 It's really not. And I think that Democrats really focus 0:08:10.160 --> 0:08:12.720 on this because President Trump, when he was in office, 0:08:12.840 --> 0:08:14.600 was so successful at taking so much of the union 0:08:14.680 --> 0:08:16.960 vote away from the Democratic Party, and that's a material 0:08:16.960 --> 0:08:19.480 shift that Democrats have to worry about for the future. 0:08:20.160 --> 0:08:24.160 So when you see, for example, Trump comment on this, 0:08:24.560 --> 0:08:28.600 it's really deflective and moving away to electric vehicles. So 0:08:28.720 --> 0:08:31.400 we're anti electric vehicles, which is of course a big 0:08:31.440 --> 0:08:34.560 component of this. But we've just subsidized the entire electric 0:08:34.600 --> 0:08:37.400 vehicle industry substantially, whether through. 0:08:37.280 --> 0:08:38.720 The Chips Act or through the IRA. 0:08:39.160 --> 0:08:41.840 Treasury is working on all those electric vehicle tax credits 0:08:41.880 --> 0:08:43.960 right now and more. That's what is at the heart 0:08:44.000 --> 0:08:47.520 of this debate, because they are they need less workers 0:08:47.559 --> 0:08:48.280 for those vehicles. 0:08:48.400 --> 0:08:51.719 Does it look less likely that if the auto manufacturers 0:08:51.760 --> 0:08:53.440 did to run into trouble on the heels of some 0:08:53.520 --> 0:08:56.839 of the labor pushback and their financial situation did weaken 0:08:56.880 --> 0:08:59.840 substantially that any kind of future bailout is off the 0:09:00.280 --> 0:09:02.080 the way that it was back in the day. 0:09:02.240 --> 0:09:04.240 Oh my gosh, I was in the Senate when we 0:09:04.240 --> 0:09:06.079 did the auto bailouts. I don't want to hear that again. 0:09:06.800 --> 0:09:08.920 I mean, not to bring it in, but you know, 0:09:08.920 --> 0:09:12.880 Mitt Romney is retiring, so maybe we that's terrible, But no, 0:09:13.000 --> 0:09:15.120 I don't think that there would be another bailout. I 0:09:15.160 --> 0:09:18.000 don't think that that is something that this administration or 0:09:18.679 --> 0:09:21.360 America is prepared for. At this point. We passed a 0:09:21.360 --> 0:09:24.599 lot of spending bills. I don't see a sector specific 0:09:24.840 --> 0:09:26.480 bailout occurring anytime soon. 0:09:26.760 --> 0:09:32.200 Twenty twenty union vote Biden fifty seven percent, Trump forty percent. 0:09:32.400 --> 0:09:35.640 At the margin, critically from four years before, Biden did 0:09:35.720 --> 0:09:41.160 way better than Hillary Clinton. Where are we now, drag 0:09:41.200 --> 0:09:44.440 it forward three and a half years. Does Biden still 0:09:44.480 --> 0:09:46.160 have the union vote majority. 0:09:47.120 --> 0:09:50.360 I think that when you look at not necessarily the 0:09:50.480 --> 0:09:53.880 union vote, but all voting turnout, there are other issues 0:09:53.880 --> 0:09:56.760 that are bigger than just union issues. And we've kept 0:09:56.800 --> 0:09:59.760 all those tariffs on which labor unions are in some 0:09:59.800 --> 0:10:02.600 case supportive of the administration has gone a long way 0:10:02.640 --> 0:10:06.600 towards reshoring those Union votes, so I think they stay. 0:10:07.640 --> 0:10:11.440 But Trump is got a stranglehold on his party and 0:10:11.440 --> 0:10:12.880 so none of those voters are leaving. So I wouldn't 0:10:12.880 --> 0:10:14.320 be surprised if it was exactly the same. 0:10:14.360 --> 0:10:16.480 I'm not sure how we can have a viable auto 0:10:16.520 --> 0:10:19.800 industry in Europe or in the United States without monster 0:10:19.920 --> 0:10:23.720 tariffs protecting this industry. I'm not sure how it can 0:10:23.800 --> 0:10:26.400 be viable given what's happening in China at the moment. 0:10:26.880 --> 0:10:29.520 The opportunity that they have to produce vehicles at much 0:10:29.559 --> 0:10:32.120 lower price, is much lower cost than the Europeans. The 0:10:32.120 --> 0:10:34.679 Europeans are already complaining about that. Isn't that the direction 0:10:34.760 --> 0:10:37.760 we're traveling in here? That Europe's about to smack tariffs 0:10:37.800 --> 0:10:40.280 even higher and basically say the same thing as America. 0:10:40.400 --> 0:10:42.280 You want to sell here, produce here. 0:10:42.840 --> 0:10:47.439 Absolutely, I mean tariff's, state subsidization, domestic subsidization for endshoring, 0:10:47.520 --> 0:10:49.200 all of that is very much in the cards, and 0:10:49.240 --> 0:10:52.080 I think for the foreseeable future under this administration or 0:10:52.080 --> 0:10:53.400 in the case that Trump wins. 0:10:53.200 --> 0:10:56.160 Have we thought this through about what this ev transition 0:10:56.280 --> 0:10:58.920 is actually going to look like and how costly it 0:10:58.920 --> 0:11:03.160 could be governments Europe, China, the United States. 0:11:03.800 --> 0:11:05.920 I don't think so. And you're seeing that in a 0:11:05.920 --> 0:11:08.200 lot of the delays of these regulations coming out on 0:11:08.320 --> 0:11:11.360 clean energy, not necessarily just on electric vehicles, but the solar, 0:11:11.480 --> 0:11:15.280 the hydrogen, all of those alternative clean energy components are 0:11:15.280 --> 0:11:19.000 requiring tremendous amounts of manpower at Treasury, and one of 0:11:19.040 --> 0:11:21.280 the things I hear most frequently is we just don't 0:11:21.280 --> 0:11:24.880 have the experts to finalize these rags. We're working on it. 0:11:25.200 --> 0:11:27.720 We know that Commerce Secretary Romando is staffing up Commerce 0:11:27.720 --> 0:11:29.720 with one hundred and fifty two hundred new people to 0:11:29.840 --> 0:11:32.200 address how to roll this money out where it should go, 0:11:32.920 --> 0:11:37.000 how slowly to phase in these changes, how tire freights 0:11:37.000 --> 0:11:40.640 should work in conjunction, whether with the EU or with Mexico. 0:11:41.120 --> 0:11:43.440 Those clean steel TIFFs, what are those really about? 0:11:43.480 --> 0:11:43.680 You know? 0:11:43.760 --> 0:11:46.920 So they're all connected. But I think it's slow going, 0:11:47.200 --> 0:11:51.800 and industry is very very keen on getting the details. 0:11:51.880 --> 0:11:53.240 We're going to be talking about this for a while, 0:11:53.320 --> 0:11:55.160 no doubt about it. And Redda, thank you, it's great 0:11:55.160 --> 0:11:56.839 to see you and redd to trace their Veda pounas, 0:11:56.880 --> 0:11:58.720 and thank you for the treats ys well, I appreciate 0:11:58.720 --> 0:11:59.040 that too. 0:12:04.320 --> 0:12:07.360 Joining us now amid this flow and we're watching from 0:12:07.360 --> 0:12:09.240 the White House to see when the President will speak. 0:12:09.280 --> 0:12:13.040 As R J. Gallo, Senior Vice President con Federated or measin. 0:12:12.840 --> 0:12:14.640 We're thrilled that he could join us this morning because 0:12:14.640 --> 0:12:17.240 he's got the smartest bond note of the week. 0:12:18.160 --> 0:12:18.319 R J. 0:12:18.520 --> 0:12:19.800 Gallow knows that one of. 0:12:19.760 --> 0:12:22.280 The efficacious things to do in bonds is look at 0:12:22.280 --> 0:12:25.640 the Bloomberg Total Return Index and see that for all 0:12:25.720 --> 0:12:29.800 the talk yap about coupon credit spreads blah blah blah, 0:12:30.200 --> 0:12:31.280 bonds have gone nowhere. 0:12:31.400 --> 0:12:31.559 R J. 0:12:31.720 --> 0:12:35.000 Gallow hypothesizes that bonds are not back. 0:12:35.400 --> 0:12:36.240 Thank you, r J. 0:12:36.400 --> 0:12:39.000 I looked at the chart off your note and I 0:12:39.120 --> 0:12:43.400 was thunderstruck. How the blended price of bonds is really 0:12:43.480 --> 0:12:47.239 not advanced? Is it still a bond depression? 0:12:47.760 --> 0:12:50.319 Well, in the note that you were talking about there, 0:12:50.880 --> 0:12:53.120 I made the point that when we started the year, 0:12:53.160 --> 0:12:54.760 we felt that it was going to be a favorable 0:12:54.760 --> 0:12:57.720 one for bonds, and clearly it's fallen short. The Treasury 0:12:57.760 --> 0:13:00.240 index is basically zero, the egg is up I think 0:13:00.280 --> 0:13:03.199 a half a percent, So yes, it's been disappointing. 0:13:03.360 --> 0:13:05.360 I would also note glass half full. 0:13:06.160 --> 0:13:08.480 The double digit losses of last year, or call the 0:13:08.480 --> 0:13:11.760 ages down like thirteen percent, are clearly behind us, and 0:13:11.800 --> 0:13:15.760 looking forward, we're much more optimistic that the time for 0:13:15.840 --> 0:13:18.960 fixed income giving you sort of mid low single digit 0:13:19.080 --> 0:13:22.840 positive returns and acting as a powerful diversifier in your portfolio. 0:13:23.160 --> 0:13:25.560 That is, in fact back with the yields at the 0:13:25.600 --> 0:13:28.600 highest in the last twelve to fifteen years. We think 0:13:28.679 --> 0:13:31.839 value has been restored and fixed income investors should think 0:13:31.840 --> 0:13:35.520 about extending some duration. Getting out of cash legging into 0:13:35.600 --> 0:13:37.480 fixed income will be a good move over the next 0:13:37.520 --> 0:13:38.720 twelve twenty four months. 0:13:38.800 --> 0:13:40.960 Okay, twelve to twenty four months. I'm going to get going. 0:13:41.000 --> 0:13:43.520 When do I get back to the regression line that 0:13:43.559 --> 0:13:46.560 I had for thirty years? You know, the bill gross 0:13:46.559 --> 0:13:50.400 great moderation, price up, up, up up up. How many 0:13:50.480 --> 0:13:53.040 years is it going to take to recover from what 0:13:53.080 --> 0:13:54.679 we've seen in the last two years. 0:13:55.160 --> 0:13:56.720 I hate to say it, but I think that the 0:13:56.880 --> 0:14:01.400 zero lower bound, you know, present, it's a significant wall 0:14:02.200 --> 0:14:05.120 to anything like the returns that we saw over the 0:14:05.160 --> 0:14:08.800 twenty thirty years leading up to the pandemic. If anything, 0:14:08.840 --> 0:14:12.360 we believe that it's quite possible that equilibrium mealds are 0:14:12.440 --> 0:14:15.600 higher post pandemic than they were for the decade plus prior. 0:14:16.679 --> 0:14:17.880 It'll be interesting to see if the. 0:14:17.840 --> 0:14:21.040 FED goes there with its long run dot maybe inching 0:14:21.120 --> 0:14:24.280 up in the dot plot closer to maybe three, maybe 0:14:24.280 --> 0:14:26.840 a little higher. If you look at forward curves, you 0:14:26.840 --> 0:14:28.920 can see that the market is there. The market believes 0:14:28.920 --> 0:14:32.280 equilibriy meals are higher, and in that sense, it's going 0:14:32.360 --> 0:14:35.359 to be a while before we see big price returns 0:14:35.400 --> 0:14:39.840 from taking a fixed income, high quality fixed income investment. Instead, 0:14:39.880 --> 0:14:43.400 I think we'll probably be looking for oscillating markets around 0:14:43.400 --> 0:14:46.760 a higher equilibrium, which will still provide a nice return 0:14:46.800 --> 0:14:49.720 in ballast for your portfolio, but it's not apt to 0:14:49.760 --> 0:14:52.440 be double digit price returns anytime too soon. 0:14:52.880 --> 0:14:56.400 Is this higher yield driven by inflation or driven by 0:14:56.440 --> 0:14:59.880 something else, Whether it's a budget deficit that spooks investors 0:15:00.400 --> 0:15:04.280 or a changing central bank regime in Japan, that's a 0:15:04.280 --> 0:15:04.840 great question. 0:15:04.880 --> 0:15:06.640 I think that there's been a number of factors that 0:15:06.680 --> 0:15:09.560 have shifted us towards what's probably a slightly higher equilibrium 0:15:09.600 --> 0:15:12.720 yield environment. The budget deficits a big part of it. 0:15:12.840 --> 0:15:15.880 Sovereign debt has exploded. We've got a lot of debt 0:15:15.920 --> 0:15:18.480 to roll over. Obviously, we have structural imbalances here in 0:15:18.520 --> 0:15:20.720 the US that no one wants to deal with in Washington. 0:15:21.040 --> 0:15:24.920 So that's one factor. I think on the favorable side, 0:15:25.080 --> 0:15:28.240 a lot of talk about AI about technological innovation. In 0:15:28.280 --> 0:15:30.880 the long run, when you have technological innovation, your potential 0:15:30.880 --> 0:15:35.320 growth rate goes up, higher potential growth rates, higher equilibrium yields. 0:15:35.880 --> 0:15:38.160 That's actually a positive thing that could put more people 0:15:38.200 --> 0:15:39.920 to work. Of course, you've got to talk about the 0:15:39.920 --> 0:15:42.720 issues of displacement, who gets jobs out of the new technology, 0:15:42.880 --> 0:15:46.600 who loses them? But ultimately, I think higher potential growth rates, 0:15:47.080 --> 0:15:51.680 larger budget deficits, and some pushback against internationalization, the pushback 0:15:51.680 --> 0:15:55.680 against the global trade marketplace that helped to produce low 0:15:55.720 --> 0:15:58.200 inflation and low yields prior to the pandemic. 0:15:58.240 --> 0:15:59.800 Now you're talking about on shoring. 0:16:00.320 --> 0:16:02.760 That's a big change, and I think ultimately that too 0:16:02.800 --> 0:16:04.880 is probably going to lift yelds a little higher, as 0:16:04.920 --> 0:16:07.960 the disinflationary impact of globalization might not be as strong 0:16:08.000 --> 0:16:09.160 as it was in the prior ten. 0:16:09.080 --> 0:16:09.800 Or fifteen years. 0:16:09.880 --> 0:16:12.160 That's in the years ahead. In the here and now, 0:16:12.200 --> 0:16:16.400 we're looking at an UAW strike that's roiling washing, it's Royling, Washington, DC, 0:16:16.560 --> 0:16:19.560 but also Detroit. Does that factor into your yield call? 0:16:19.640 --> 0:16:22.400 Does that factor into the bond space as you look 0:16:22.480 --> 0:16:25.520 out to understand the growth as well as the inflation picture. 0:16:26.040 --> 0:16:29.000 Yes, it does. I mean obviously it cuts in two ways. 0:16:29.040 --> 0:16:32.800 First and foremost, these workers are looking for raises. It's 0:16:32.880 --> 0:16:36.200 no surprise we dealt with the highest inflation in forty years. 0:16:36.640 --> 0:16:38.920 A lot of workers are looking for raises. That makes 0:16:38.960 --> 0:16:41.160 sense as they deal with the higher cost of living. 0:16:41.600 --> 0:16:44.000 You stop there, you would think that strikes have to 0:16:44.040 --> 0:16:47.800 be inflationary. Ultimately, however, you've got to consider the near 0:16:47.880 --> 0:16:51.920 term impact of a strike is less production, less economic activity, 0:16:51.960 --> 0:16:54.520 and the multiplier effects that occur in the local economies 0:16:54.560 --> 0:16:57.760 around these three plants, and if it extends to more plants, 0:16:57.800 --> 0:17:03.320 that economic impact only grows. I think ultimately, this idea 0:17:03.400 --> 0:17:09.000 of empowered labor across the country is very predictable. At 0:17:09.000 --> 0:17:11.200 a point in time like this, I think it's challenging 0:17:11.240 --> 0:17:12.760 for the White House that you guys have been saying. 0:17:13.320 --> 0:17:15.840 I think from an economic standpoint, I'm focusing a little 0:17:15.880 --> 0:17:18.280 bit more on the growth headwind that's going to produce 0:17:18.560 --> 0:17:21.000 in the near term. It's not the case that every 0:17:21.040 --> 0:17:23.480 dollar raises that the auto companies are going to give 0:17:23.480 --> 0:17:25.600 these workers to get them back on the job, that 0:17:25.680 --> 0:17:28.199 those that's going to be simply passed through one for 0:17:28.320 --> 0:17:31.360 one into higher prices at the dealership where we buy 0:17:31.400 --> 0:17:31.800 our cars. 0:17:31.920 --> 0:17:34.160 I've got an any question out, Jay, Can I squeeze 0:17:34.160 --> 0:17:36.120 it in because I've only got about thirty seconds left 0:17:36.119 --> 0:17:39.440 with you? Do I want to avoid industries that are 0:17:39.440 --> 0:17:43.840 witnessing like we see in airlines, like we see in automakers, 0:17:44.040 --> 0:17:46.240 this powerful movement from labor. 0:17:46.760 --> 0:17:49.159 In terms of what industries you would go to to avoid. 0:17:49.200 --> 0:17:51.960 Should I avoid the airlines? Should I avoid the automakers 0:17:52.080 --> 0:17:54.560 purely because of the evidence of labor market power? Should 0:17:54.560 --> 0:17:55.720 I avoid those industries? 0:17:56.040 --> 0:17:58.639 Well, I do think it's clearly a margin compression story 0:17:58.640 --> 0:18:01.240 in these industries. As of a saying the automakers won't 0:18:01.240 --> 0:18:03.800 be able to price pass through to price one for one, 0:18:04.000 --> 0:18:05.920 the raise is that their workers are going to get 0:18:06.680 --> 0:18:09.399 I clearly think that is a challenge in terms of 0:18:09.480 --> 0:18:11.360 sector rotation on the equity side. 0:18:11.680 --> 0:18:13.320 I don't know if I've necessarily avoid it. 0:18:13.359 --> 0:18:16.480 That's really not my main main area of expertise, I 0:18:16.480 --> 0:18:19.360 can tell you on the fixed income side, we've been 0:18:19.640 --> 0:18:22.960 relatively cautious on investment grade corporates and high yield because 0:18:22.960 --> 0:18:25.879 we think a broad based margin compression is a story 0:18:25.920 --> 0:18:28.320 that's still out there, and we're not as optimistic on 0:18:28.359 --> 0:18:29.760 corporate profits in general. 0:18:30.200 --> 0:18:32.520 I would focus on that from a broader macro perspective. 0:18:32.520 --> 0:18:35.359 Interesting, Alja, thank you. I chick out of the Federated 0:18:35.400 --> 0:18:37.080 Hermes on some important issues. 0:18:47.680 --> 0:18:50.240 We're going to go to Disney Plus and the intractable 0:18:50.480 --> 0:18:53.960 issues that mister Eiger faces. Getha Raganathen joins right now 0:18:53.960 --> 0:18:57.399