WEBVTT - Israel Latest, Bond Market, Pepsi Earnings, and SBF 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:05.240 my co host Matt Miller. 0:00:05.640 --> 0:00:09.720 Every business day, we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.600 and Bloomberg experts, along with essential market moven news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets Podcast on Apple Podcasts or wherever 0:00:17.400 --> 0:00:20.520 you listen to podcasts, and at Bloomberg dot com slash podcast. 0:00:21.040 --> 0:00:21.919 All right, we need to get. 0:00:21.840 --> 0:00:26.360 The latest reporting from Israel and obviously a fluid situation. 0:00:26.440 --> 0:00:29.680 Ethan Browner joins us. He is the bureau chief in 0:00:29.840 --> 0:00:32.760 Israel for Bloomberg News. He's in Tel Aviv. Even thanks 0:00:32.800 --> 0:00:35.120 so much for joining us here. Can you give us 0:00:35.120 --> 0:00:38.080 the latest reporting from the ground in Israel? 0:00:38.880 --> 0:00:40.000 What's developing right now? 0:00:40.760 --> 0:00:46.080 Sure, we're still in basically a large waiting mode for 0:00:46.320 --> 0:00:50.080 Israel to begin the next part of its massive operation. 0:00:50.240 --> 0:00:53.440 Still his three hundred thousand guys in uniform. They've kind 0:00:53.440 --> 0:00:57.360 of they've built a contemporary base with infrastructure near Gaza 0:00:57.640 --> 0:01:01.920 from which they're going to launch operation. It's almost certain 0:01:01.920 --> 0:01:04.679 it's a ground operation, but they haven't officially announced it. 0:01:05.440 --> 0:01:08.360 At the same time, the Americans have sent a bunch 0:01:08.400 --> 0:01:11.880 of help because the Israelis say that their material is 0:01:12.000 --> 0:01:16.800 fairly stretched, both in terms of their ability to monitor 0:01:16.840 --> 0:01:20.360 from the air what they're hitting and even basic things 0:01:20.440 --> 0:01:23.480 like helmets for their soldiers. They say, everyone has a helmet, 0:01:23.520 --> 0:01:26.840 but some of them are old and lousy, and there's 0:01:26.880 --> 0:01:30.560 some protective gear some. By the way, some of the 0:01:30.720 --> 0:01:34.880 protest movement that was working very hard against the government 0:01:34.920 --> 0:01:38.440 has now turned itself into a fundraising operation to help 0:01:38.520 --> 0:01:41.760 troops and families in the south, and they've raised tens 0:01:41.760 --> 0:01:47.520 of millions of dollars in order to excuse me, I'm sorry, 0:01:48.200 --> 0:01:50.480 in order to help those in the south and soldiers 0:01:50.480 --> 0:01:56.000 get protective gear. So there is a lot going on 0:01:56.040 --> 0:01:58.760 at the same time as southern Lebanon. People are afraid 0:01:59.080 --> 0:02:01.600 that something's going to happen there. They are driving away 0:02:02.200 --> 0:02:04.600 that could because his ballood does decide to come in. 0:02:05.240 --> 0:02:08.400 I live in Tel Aviv and we have had missiles 0:02:08.400 --> 0:02:13.440 from Gaza hit Tel Aviv three times today. Hasbella is 0:02:13.440 --> 0:02:16.760 also known to have long range missiles that can reach here, 0:02:17.160 --> 0:02:18.680 so it's pretty intense. 0:02:19.600 --> 0:02:24.240 So Ethan, what does it look like to a mass 0:02:24.280 --> 0:02:26.399 three hundred thousand soldiers. 0:02:25.960 --> 0:02:26.960 Outside of Gaza. 0:02:27.080 --> 0:02:31.079 I mean, that's a large number of people for an 0:02:31.160 --> 0:02:34.320 area of land that I'm going to say is roughly 0:02:34.360 --> 0:02:37.160 the size of you know, New York plus Westchester. 0:02:38.320 --> 0:02:40.240 No, look, it's a good question. I mean they're not 0:02:40.320 --> 0:02:43.600 all in one spot, but I mean there are because 0:02:43.600 --> 0:02:45.520 there are people have gone north there, people have gone 0:02:45.560 --> 0:02:46.640 to the West Bank. 0:02:46.880 --> 0:02:47.520 There are people. 0:02:47.840 --> 0:02:53.560 But three hundred thousand men are in uniform as reservists, So. 0:02:54.040 --> 0:02:54.840 It's a lot of people. 0:02:54.919 --> 0:02:58.240 I agree with you. Now, they're obviously going to try 0:02:58.320 --> 0:03:02.880 to take them into Gaza soon because they feel that 0:03:02.919 --> 0:03:05.160 they need to strike while the ironness out, while the 0:03:05.200 --> 0:03:08.600 world still has in its mind the images of the 0:03:08.639 --> 0:03:12.600 slaughter on Saturday, of kids at a rave concert and 0:03:13.960 --> 0:03:16.519 families that are key boots and so on. So they 0:03:16.520 --> 0:03:18.560 clearly want to move quickly. One of the things that 0:03:18.600 --> 0:03:21.800 they've had more trouble with than they expected is was 0:03:21.880 --> 0:03:26.120 the sort of securing of the south and the border fence. 0:03:27.000 --> 0:03:29.920 They have largely done that now, but that was so 0:03:30.120 --> 0:03:34.480 incredibly breached by Hamas fighters on Saturday, and they now 0:03:34.560 --> 0:03:37.000 it looks like there were probably close to two thousand 0:03:37.040 --> 0:03:37.960 Hamas guys. 0:03:37.720 --> 0:03:39.119 Who came in on Saturday. 0:03:39.120 --> 0:03:41.800 They'd been saying one thousand, but today they said that 0:03:41.840 --> 0:03:45.440 they found fifteen hundred bodies of Hamas guys, and they've 0:03:45.480 --> 0:03:49.040 taken a bunch of people prisoners, so it's closer to 0:03:49.040 --> 0:03:49.960 two than one. 0:03:50.280 --> 0:03:53.360 So ethan, what is the expectation for the next step 0:03:53.360 --> 0:03:56.160 for Isra? Are they going to send in tens of 0:03:56.200 --> 0:04:00.640 thousands or more troops into Gaza? And if so, what 0:04:00.680 --> 0:04:01.600 would be the objective? 0:04:03.120 --> 0:04:05.600 So they're not, of course telling us, and we can 0:04:05.680 --> 0:04:14.280 only speculate, but the objective seems to be to put 0:04:14.320 --> 0:04:16.440 in a large way, the way they're saying it is, 0:04:16.480 --> 0:04:19.240 it's to send a message and make clear to Ramas 0:04:19.520 --> 0:04:22.560 that it never again will carry out an attack like 0:04:22.600 --> 0:04:24.800 it did on Saturday. It will not have the capacity 0:04:25.000 --> 0:04:27.920 because we're going to take down every ability of their 0:04:28.279 --> 0:04:31.120 to do so. Now, is this really possible? And if 0:04:31.160 --> 0:04:33.400 you go door to door in this way, aren't you 0:04:33.480 --> 0:04:36.080 going to lose a lot of guys? It does seem 0:04:36.120 --> 0:04:37.760 like they're going to lose a lot of guys. It 0:04:37.760 --> 0:04:40.680 feels like they have decided that they're going in that 0:04:40.760 --> 0:04:45.680 there is an almost existential cause that they think that 0:04:45.760 --> 0:04:49.160 they have here to send this message not just to Ramas, 0:04:49.320 --> 0:04:52.359 but to the greater greater region, to Isbela and to 0:04:52.440 --> 0:04:56.520 Iran that Israel is willing to lose people and to 0:04:56.640 --> 0:05:02.080 fight in an ugly way to It's a very interesting 0:05:02.120 --> 0:05:04.640 shift that has occurred here because just a week ago, 0:05:04.720 --> 0:05:07.599 if you like, it was all about making you know, 0:05:07.640 --> 0:05:11.640 the new Middle East with Saudi Arabia and railroads and 0:05:12.120 --> 0:05:15.640 optic fibers. And now it's we are we have to 0:05:15.680 --> 0:05:18.560 send a military message of muscle, and that's what we're 0:05:18.600 --> 0:05:19.200 focused on. 0:05:19.279 --> 0:05:19.559 Now. 0:05:19.920 --> 0:05:22.400 It'll I think it's a hell of a gambole. We 0:05:22.480 --> 0:05:23.560 shall see where it goes. 0:05:24.400 --> 0:05:28.040 Do you think we're gonna have to see this fight 0:05:28.160 --> 0:05:30.640 broadened out? I mean you mentioned hes belaw is lobbing 0:05:30.640 --> 0:05:35.600 down missiles from Lebanon, and of course all of this 0:05:35.640 --> 0:05:39.839 hamas Hesbelah is funded. I think, to the tune of 0:05:39.920 --> 0:05:43.320 I heard this morning, ninety three percent by Iran. 0:05:43.360 --> 0:05:43.839 I'm an. 0:05:44.080 --> 0:05:47.360 So you know, I suppose you can have an academic 0:05:48.400 --> 0:05:52.880 debate about whether or not Iran new every single detail 0:05:52.960 --> 0:05:55.400 of this plan and green stamped it at every step 0:05:55.400 --> 0:05:55.760 of the way. 0:05:55.760 --> 0:05:56.799 But it doesn't really matter. 0:05:57.240 --> 0:06:00.400 If they're the ones who are funding everything, you need 0:06:00.440 --> 0:06:01.599 to take the fight to them. 0:06:03.320 --> 0:06:05.240 Well, I mean, I don't think that they want to 0:06:05.240 --> 0:06:08.000 take the fight to them, right, I mean in that 0:06:08.560 --> 0:06:12.000 would be a really a kind of regional conflagration that 0:06:12.120 --> 0:06:15.800 is almost unimaginable, both in terms of supplies of oil 0:06:15.880 --> 0:06:19.320 and everything to the world and the number of people involved. 0:06:19.360 --> 0:06:22.120 So in fact, the US has sent this big fleet 0:06:22.320 --> 0:06:25.000 right to the eastern med it's on its way to 0:06:25.040 --> 0:06:27.640 send a message to his Ballah to say don't send 0:06:27.680 --> 0:06:31.360 any missiles down, and to send a message to a 0:06:31.440 --> 0:06:33.479 Ran to say we're going to limit it to this. 0:06:34.080 --> 0:06:37.880 So I don't Ran meanwhile sending messages saying, if you 0:06:37.920 --> 0:06:41.400 guys go and start killing people in Gaza, you should 0:06:41.480 --> 0:06:42.000 know that you're. 0:06:41.839 --> 0:06:42.599 Going to pay a price. 0:06:42.680 --> 0:06:45.400 We don't know what that means, but it may mean something. 0:06:45.839 --> 0:06:47.919 So I don't think the goal here is to bring 0:06:47.960 --> 0:06:51.760 it to a broader front, but it may happen anyway. 0:06:52.000 --> 0:06:54.800 I'm not sure how well thought out this all is. 0:06:55.279 --> 0:06:58.279 I do know there is an incredible sense of fury 0:06:58.360 --> 0:07:01.920 and humiliation in Israel, and I'm not sure that makes 0:07:01.920 --> 0:07:03.080 for the best laid plans. 0:07:03.160 --> 0:07:04.120 It's definitely scary. 0:07:04.400 --> 0:07:09.240 Yeah, I wonder what the mood is like on the ground, Ethan. 0:07:09.279 --> 0:07:11.800 I mean, you're you know, covering this. 0:07:11.960 --> 0:07:15.640 I imagine in a professional sense every waking moment of your 0:07:15.680 --> 0:07:19.360 life right now. But when you stop and reflect personally, 0:07:19.440 --> 0:07:22.280 or when you look around at the you know, human costs. 0:07:22.280 --> 0:07:24.200 I mean, how terrifying is it. 0:07:24.200 --> 0:07:25.040 It's terrifying. 0:07:25.040 --> 0:07:29.040 It's utterly terrifying. And and I'm you know, I'm not 0:07:29.080 --> 0:07:32.160 in Israeli and so I don't have that same sense 0:07:32.160 --> 0:07:35.680 that they have. But I have been amazed since Saturday 0:07:35.680 --> 0:07:39.040 morning at the complete shift turning on a dime of 0:07:39.080 --> 0:07:41.880 people I know here who all they cared about before 0:07:42.080 --> 0:07:45.360 was stopping the judicial overhaul and trying to drive Benjamin 0:07:45.480 --> 0:07:48.040 Sanyahu from office, And now all they want to do 0:07:48.520 --> 0:07:52.760 is go in and be hard asses in Gaza. 0:07:53.080 --> 0:07:54.000 They it's just. 0:07:54.440 --> 0:07:57.160 They want to go in and they want to fight back. 0:07:57.200 --> 0:08:02.360 They've there's almost like a genetic impact here on Jewish 0:08:02.440 --> 0:08:05.680 DNA and Israel that what they saw happen on Saturday 0:08:05.720 --> 0:08:09.200 reminded them of the Holocaust, reminded them of pilgrums, reminded 0:08:09.240 --> 0:08:13.320 them of things that they decided to build this state 0:08:13.480 --> 0:08:18.720 to stop from happening. And that sense deep fury and 0:08:18.920 --> 0:08:22.840 cause and purpose is everywhere right now. I know it 0:08:22.880 --> 0:08:25.640 won't last, but it is everywhere right now. And when 0:08:25.640 --> 0:08:29.440 you see also videos of the soldiers gathered near Gaza. 0:08:29.840 --> 0:08:34.040 They are pumped up and they are ready to go in. 0:08:34.760 --> 0:08:39.560 So, Ethan, how are the folks. So you're in Tel Aviv? Now, 0:08:39.600 --> 0:08:40.680 do you have family there as well? 0:08:42.240 --> 0:08:45.240 I have cousins, I do have a wife. I don't 0:08:45.280 --> 0:08:47.640 have children here kids in New York. 0:08:47.679 --> 0:08:47.839 Yah. 0:08:47.880 --> 0:08:48.000 Yah. 0:08:48.000 --> 0:08:50.240 I'll be interesting to see because it's just it's such 0:08:50.240 --> 0:08:51.920 a difficult situation there on the. 0:08:51.840 --> 0:08:52.920 Ground, very difficult. 0:08:53.040 --> 0:08:57.400 And everybody's got kids, cousins, brothers, husbands and who are 0:08:57.480 --> 0:09:01.320 now in uniforms. So a lot of people know people 0:09:01.400 --> 0:09:03.680 who died on Saturdays as well. 0:09:04.080 --> 0:09:06.000 All right, Ethan, thank you so much. We really appreciate 0:09:06.040 --> 0:09:08.400 getting some time with you. Ethan Bronner. He is the 0:09:08.400 --> 0:09:12.199 bureau chief Bloomberg News in Tel Aviv, Israeli bureau chief. 0:09:12.240 --> 0:09:14.240 Appreciate getting a few minutes of his time. We understand. 0:09:14.280 --> 0:09:16.000 I'll tell you what we don't is you know, we 0:09:16.120 --> 0:09:21.360 haven't and we don't I guess on radio or television 0:09:21.440 --> 0:09:27.800 go into the horrendous crimes that were committed over the weekend. 0:09:27.880 --> 0:09:29.640 I mean Ethan mentioned the. 0:09:32.360 --> 0:09:35.320 Mass murders at the music festival, and when you read 0:09:35.360 --> 0:09:36.720 some of the reporting about that. 0:09:37.559 --> 0:09:40.400 It's just so bad that it's hard even to talk 0:09:40.440 --> 0:09:41.719 about publicly. No, and that's why. 0:09:41.920 --> 0:09:44.240 And I can't imagine how human beings would do that. 0:09:45.040 --> 0:09:48.200 You know, maybe someone a sick individual, but how would 0:09:48.200 --> 0:09:50.840 a group of humans do that to another group? 0:09:50.840 --> 0:09:52.920 And that's why getting Ethan's on the ground reporting was 0:09:52.920 --> 0:09:54.800 fantastic to get a sense of kind of what he's 0:09:54.800 --> 0:09:57.840 seeing with the people on the street and how committed 0:09:58.360 --> 0:10:01.720 they are to you know, going in and kind of 0:10:01.760 --> 0:10:05.760 re and re retaliating. So again, probably some more difficult 0:10:05.760 --> 0:10:07.640 news before it gets better over there, but we will 0:10:07.679 --> 0:10:09.880 obviously have full reporting going forward. 0:10:11.120 --> 0:10:14.520 You're listening to the team Ken's are Live program Bloomberg 0:10:14.559 --> 0:10:17.960 Markets weekdays at ten am Eastern on Bloomberg dot com, 0:10:18.000 --> 0:10:21.160 the iHeartRadio app, and the Bloomberg Business app, or listen 0:10:21.240 --> 0:10:23.360 on demand wherever you get your podcasts. 0:10:25.240 --> 0:10:27.080 All right, let's bring in Ira Jersey here. He's a 0:10:27.120 --> 0:10:30.280 chief US interest rate strategist for Bloomberg Intelligence. We're going 0:10:30.320 --> 0:10:33.520 to get some inflation data over the next couple of days, 0:10:33.520 --> 0:10:35.920 and I think most people feel like it's going to 0:10:36.000 --> 0:10:40.640 show continued moderation in inflation, both at the producier level 0:10:40.640 --> 0:10:43.720 and at the consumer level. If I'm the Fed, is 0:10:43.720 --> 0:10:45.400 that enough to kind of say, all right, I can 0:10:45.480 --> 0:10:47.160 just sit on my hands for a while and see 0:10:47.200 --> 0:10:48.760 how things play out. Is that kind of how it 0:10:48.840 --> 0:10:49.360 should be? 0:10:50.679 --> 0:10:53.600 Well, assuming we do continue to get moderation, I think 0:10:53.600 --> 0:10:56.040 that there's a risk that some of the moves that 0:10:56.080 --> 0:10:58.959 we saw last month in oil prices are going to 0:10:59.000 --> 0:11:01.480 maybe lift the headline numbers a little bit, particularly in 0:11:01.520 --> 0:11:04.800 the consumer price data. But it's really the key, I 0:11:04.840 --> 0:11:07.760 think will be the core inflation data. So what is 0:11:07.840 --> 0:11:11.080 core core CPI? Does that continue to moderate and assuming 0:11:11.080 --> 0:11:12.960 it does that, then it probably gives some cover for 0:11:13.000 --> 0:11:17.040 the Federal Reserve to to not hike again in November. 0:11:17.800 --> 0:11:20.439 I still think that that, you know, there's less than 0:11:20.440 --> 0:11:23.640 fifty to fifty chance that they actually do at this point, 0:11:23.679 --> 0:11:26.560 and I think things like, you know, global geopolitical tensions 0:11:26.600 --> 0:11:30.240 increasing certainly is something else that will weigh on whether 0:11:30.320 --> 0:11:32.760 or not they're going to hike interest rates again. So 0:11:33.040 --> 0:11:35.520 so yeah, you know, I would argue that that, yes, 0:11:35.600 --> 0:11:38.560 this data that we're getting this week is critical, but 0:11:38.800 --> 0:11:41.839 it's there's a lot of other moving pieces obviously. 0:11:41.400 --> 0:11:43.600 To the to the mathematics of another hike or not. 0:11:46.080 --> 0:11:48.400 One of those moving pieces, I guess is real rates, 0:11:48.559 --> 0:11:52.240 And in intense it reminds me of Mike mclonoy says 0:11:52.280 --> 0:11:53.120 higher prices are. 0:11:53.000 --> 0:11:54.920 The best cure for high prices exactly. 0:11:56.440 --> 0:11:58.200 I guess it's the opposite in the bond world, right. 0:11:58.240 --> 0:12:00.640 If these prices fall to a loone enough, everyone's going 0:12:00.679 --> 0:12:02.119 to come in and start buying them. 0:12:03.040 --> 0:12:03.280 Yeah. 0:12:03.320 --> 0:12:06.600 So I think for rates, you know, there is a 0:12:06.720 --> 0:12:11.000 level where where bond yields are attractive. And certainly when 0:12:11.040 --> 0:12:13.280 you look at things like tips yields two and a 0:12:13.320 --> 0:12:15.319 half percent, you know, a little bit lessan two and 0:12:15.320 --> 0:12:18.600 a half percent for ten year tips yields, You know 0:12:18.640 --> 0:12:21.040 that I think is pretty attractive to some people. 0:12:21.080 --> 0:12:22.400 But then when you go back and you look at 0:12:22.400 --> 0:12:23.400 the historical. 0:12:23.000 --> 0:12:25.480 Context, where were those types of yields in the late 0:12:25.520 --> 0:12:28.680 nineteen nineties when tips started to trade, and then before 0:12:28.720 --> 0:12:32.120 the global financial crisis, you still had tips yields that were. 0:12:31.960 --> 0:12:33.240 Were three percent or above. 0:12:33.400 --> 0:12:36.200 So I think from when people look at these charts, 0:12:36.200 --> 0:12:38.400 it's only relative to the last ten or fifteen years 0:12:38.440 --> 0:12:42.880 that real yields are particularly high. So I do think 0:12:42.880 --> 0:12:46.319 that though that you know, they're not they're not unattractive 0:12:46.360 --> 0:12:48.679 at these levels would be would be what I would say. 0:12:48.720 --> 0:12:51.480 And now there are much more interesting inflation hedge than 0:12:51.480 --> 0:12:54.240 they were when tips yields were negative. Right when tip 0:12:54.320 --> 0:12:56.960 yields were negative one hundred basis points, that meant in 0:12:57.040 --> 0:12:59.240 order to you know, just to break even, you'd have 0:12:59.280 --> 0:13:01.360 to have inflation of at least one hundred basis points. 0:13:01.400 --> 0:13:03.240 But you know, for a bond investor, you want to 0:13:03.280 --> 0:13:05.280 have a return above inflation. 0:13:05.559 --> 0:13:06.920 And you know, we're finally at a. 0:13:06.920 --> 0:13:09.520 Level where I think people could be comfortable that we're 0:13:10.120 --> 0:13:14.000 reasonably enough above inflation in terms of the yield that 0:13:14.040 --> 0:13:16.440 you get that that you can continue to see some 0:13:16.440 --> 0:13:19.800 some nipping at the at the edges there, especially if 0:13:19.800 --> 0:13:21.600 the Federal Reserve is going to be done hiking rates. 0:13:22.080 --> 0:13:24.719 Well as you well know, I it's world known here 0:13:24.760 --> 0:13:27.080 that I have taken recession off the table, and I 0:13:27.080 --> 0:13:28.880 think the yield curve is kind of supporting me here. 0:13:28.920 --> 0:13:31.079 I'm going at the inversion inversion of the yield curve. 0:13:31.080 --> 0:13:33.800 It's only negative thirty basis points today, and back in 0:13:33.880 --> 0:13:35.680 July was you know, north of one hundred. 0:13:36.120 --> 0:13:38.000 So what's that tell you? 0:13:39.480 --> 0:13:42.160 Yeah, So, so it's not a surprise to me that 0:13:42.200 --> 0:13:45.000 we've we've become less inverted. It's the way that we 0:13:45.120 --> 0:13:47.720 become less inverted that was a little bit surprising to me. So, 0:13:47.960 --> 0:13:50.440 you know, our our view had been that as the 0:13:50.440 --> 0:13:53.800 Federal Reserve winds down its hiking cycle, that we'd see 0:13:54.360 --> 0:13:57.600 two year yields start to come down versus ten year 0:13:57.679 --> 0:13:59.720 yields basically staying the same, and we've gotten. 0:13:59.520 --> 0:14:00.400 Just the opposite of that. 0:14:00.440 --> 0:14:03.360 And I think that that's a reflection and a major reflection. 0:14:03.920 --> 0:14:05.599 Not so much of that the Fed is going to 0:14:05.640 --> 0:14:07.480 be done, because the Fed, even if it hikes again, 0:14:07.559 --> 0:14:11.080 is probably done after one more hike. It's more how 0:14:11.120 --> 0:14:14.320 long do they keep rates at this level and if 0:14:14.360 --> 0:14:16.360 you're right, Paul, and we don't get a recession, which 0:14:16.679 --> 0:14:19.120 is more or less the view that we take here 0:14:19.280 --> 0:14:25.120 at Bloomberg Intelligence rates strategy is the yields can wind up, 0:14:25.720 --> 0:14:28.600 you know, basically pancaking. So we're calling it a pancake 0:14:28.640 --> 0:14:30.800 of a yield curve where you can have two year yields, 0:14:30.840 --> 0:14:33.040 five year yields, ten year yelds basically at the same 0:14:33.280 --> 0:14:37.960 ish level and wind up maintaining that for the next 0:14:37.960 --> 0:14:41.280 six to nine months, and then you probably start to see, 0:14:41.480 --> 0:14:43.720 you know, calls for a cut, people worry about growth 0:14:43.720 --> 0:14:45.720 in twenty twenty five and the like. Because the longer 0:14:45.760 --> 0:14:49.080 the Fed holds rates high, the deeper a recession that 0:14:49.160 --> 0:14:51.000 the market's going to price. So I do think that 0:14:51.080 --> 0:14:53.200 eventually it's going to be time to get into what 0:14:53.240 --> 0:14:56.600 we call both steepening, which is buy two year notes, 0:14:56.720 --> 0:14:59.040 keep ten year notes kind of market weight or underweight, 0:14:59.280 --> 0:15:01.880 and then you wind up seeing a pretty significant steepening 0:15:01.920 --> 0:15:02.560 of the YILD curve. 0:15:04.600 --> 0:15:08.000 What would do you think cause the Fed to cut rates? 0:15:08.040 --> 0:15:12.040 Are we talking about unemployment breaching a certain level for 0:15:12.440 --> 0:15:15.240 and a half percent for example? Is it about the 0:15:15.280 --> 0:15:18.000 speed rather than the level, you know, if it jumps 0:15:18.080 --> 0:15:19.800 up all of a sudden to over four or. 0:15:21.600 --> 0:15:24.480 Is it about you know, GDP slowdown? What do you think? 0:15:25.600 --> 0:15:27.840 Yeah, so, if there's some kind of exogynous shock that 0:15:27.920 --> 0:15:31.360 causes mass layoffs, then certainly the Federal Reserve would take notice. 0:15:31.760 --> 0:15:35.040 But remember I do think that in this environment, and 0:15:35.520 --> 0:15:39.920 given how difficult it has been for the Federal Reserve 0:15:39.960 --> 0:15:44.200 to kind of get inflation expectations and maintain inflation expectations 0:15:45.280 --> 0:15:48.320 to be relatively low, I think that you have to 0:15:48.360 --> 0:15:52.520 have not only an increase in the unemployment rate, but 0:15:52.600 --> 0:15:55.360 you also have to have a continued decline of inflation. 0:15:55.520 --> 0:15:59.680 So in a situation where you have the PC deflator 0:15:59.720 --> 0:16:02.680 running at three percent or three point two percent and 0:16:02.720 --> 0:16:05.680 the unemployment rate rises a little bit over a few months, 0:16:05.920 --> 0:16:08.000 I think the Fed still on hold. Right, They're still 0:16:08.000 --> 0:16:12.720 going to be worried about that inflation component of a 0:16:12.760 --> 0:16:14.880 lot of the data, right, and their mandate. They do 0:16:14.920 --> 0:16:17.200 have this dual mandate, which sometimes makes a little tricky 0:16:17.240 --> 0:16:19.600 for them. Right, If you're the European Central Bank and 0:16:19.640 --> 0:16:23.640 you only care about inflation, then you know, it's a 0:16:23.680 --> 0:16:26.800 little bit easier to kind of manage your rate and 0:16:26.880 --> 0:16:29.960 rate expectations. So I do think it has to be 0:16:30.000 --> 0:16:32.320 the unemployment rate rising very quickly, but only in an 0:16:32.400 --> 0:16:36.280 environment where inflation is moderate continuing to moderate. 0:16:36.960 --> 0:16:37.240 HIRA. 0:16:37.280 --> 0:16:39.880 When you talk to your institutional investor clients, the folks 0:16:39.880 --> 0:16:42.640 you've been talking to for years, what's the trade they're 0:16:42.680 --> 0:16:45.000 talking about most these days. 0:16:46.600 --> 0:16:49.640 Yeah, So it was a couple of weeks ago. The 0:16:49.720 --> 0:16:54.000 idea of being long duration because typically typically the longer 0:16:54.080 --> 0:16:55.880 end of the yield curve does pretty. 0:16:55.560 --> 0:16:56.360 Well when the Fed. 0:16:57.160 --> 0:17:00.000 When the FED stops its hiking cycles, and I think 0:17:00.080 --> 0:17:02.000 a lot of people were the wrong way. So people 0:17:02.080 --> 0:17:04.680 are a little bit nervous and and you know, don't 0:17:04.680 --> 0:17:07.040 want to take big positions right now because there's a 0:17:07.040 --> 0:17:10.000 lot of uncertainty and the direction not so much of 0:17:10.000 --> 0:17:13.480 monetary policy, but more in terms of positioning in the market, 0:17:14.000 --> 0:17:16.919 what the supply story is going to be, because deficits 0:17:16.960 --> 0:17:19.879 continue to be run pretty high, so people are worried 0:17:19.920 --> 0:17:22.480 that there's there's been a supply shock a little bit, 0:17:22.480 --> 0:17:25.320 although that's our data and our work suggests that that's 0:17:25.359 --> 0:17:28.760 not as much the case. But nonetheless, I think there's 0:17:28.760 --> 0:17:31.159 a lot of people out there who got burned and 0:17:31.280 --> 0:17:33.639 would just rather you know, stay market wade or just 0:17:33.640 --> 0:17:35.400 sit on their hands and not do a lot. Yet, 0:17:35.720 --> 0:17:40.640 until there's you know, a more significant it becomes much 0:17:40.680 --> 0:17:43.760 clearer what the direction of the economy and monetary policy 0:17:43.840 --> 0:17:44.280 is going to be. 0:17:44.760 --> 0:17:48.080 Hey, Ira, how's liquidity in the marketplace? If I if 0:17:48.119 --> 0:17:50.960 I call up my you know, the Govey desk at 0:17:51.160 --> 0:17:53.280 you know, JP Morgan and Goldman Sachs, can they make 0:17:53.320 --> 0:17:54.920 me a nice deep market. 0:17:56.920 --> 0:17:59.439 They haven't been able to recently, so the liquidity has 0:17:59.440 --> 0:17:59.960 been pretty poor. 0:18:00.080 --> 0:18:01.720 Are really in the last eighteen months. 0:18:01.720 --> 0:18:03.560 And I think a big part of that is just 0:18:03.600 --> 0:18:06.600 because the market's gotten so big, and the pipes that 0:18:06.680 --> 0:18:08.639 all of this money and all these bonds have to 0:18:08.680 --> 0:18:11.879 flow through is it has basically remained the same size. 0:18:11.920 --> 0:18:13.680 So you have a lot more flow and a lot 0:18:13.720 --> 0:18:16.280 more supply out there that needs to find a home. 0:18:16.359 --> 0:18:19.360 And on the other side, you know, you don't have 0:18:19.480 --> 0:18:22.439 dealers that are willing to take on the size and 0:18:22.480 --> 0:18:25.320 warehouse risk the way that they were you know, prior 0:18:25.359 --> 0:18:27.920 to the global financial crisis, prior to the Basle new 0:18:27.960 --> 0:18:29.680 Basle regulations that that kind. 0:18:29.600 --> 0:18:34.040 Of constrain the way that dealers can operate. So part 0:18:34.080 --> 0:18:34.840 of the. 0:18:34.640 --> 0:18:36.680 Reason why we've seen a lot of the volatility in 0:18:36.720 --> 0:18:39.439 the market has been a little bit of liquidity, you know. 0:18:39.480 --> 0:18:41.440 That being said, like top line, like, if you want 0:18:41.480 --> 0:18:44.040 to do you know, social what I call social size, 0:18:44.080 --> 0:18:44.920 you can probably. 0:18:44.640 --> 0:18:45.040 Get it done. 0:18:45.080 --> 0:18:46.840 But if you want to do a bigger trade, it's 0:18:46.880 --> 0:18:49.000 going to be more difficult to get off. So people 0:18:49.000 --> 0:18:50.919 are going to add leg into these trades, which just 0:18:51.000 --> 0:18:54.520 means that you might have, you know, longer. 0:18:54.240 --> 0:18:56.320 Periods of time that you have to shift your risk around. 0:18:56.359 --> 0:18:58.600 So another reason why you might just want to sit 0:18:58.640 --> 0:18:59.520 on your hands for a little while. 0:18:59.600 --> 0:19:06.000 What about the auctions and especially any longer dated treasury auctions. 0:19:06.440 --> 0:19:09.119 How much do dealers, primary dealers take down now? 0:19:09.320 --> 0:19:11.200 And you know who's the rest? 0:19:12.200 --> 0:19:16.000 So dealers actually have been taking down historically tiny amounts. 0:19:16.000 --> 0:19:17.840 So in a lot of in a lot of. 0:19:17.800 --> 0:19:20.399 Treasury auctions, dealers used to used to take a bulk 0:19:20.440 --> 0:19:24.120 of auctions, you know, forty forty percent, thirty percent. Now 0:19:24.240 --> 0:19:27.720 in many many auctions they take less than ten And 0:19:28.119 --> 0:19:32.600 it's really the demand from domestic asset managers and foreigners 0:19:32.600 --> 0:19:36.439 that wind up being the mix of buyers of these 0:19:36.480 --> 0:19:37.359 of these auctions. 0:19:37.760 --> 0:19:38.760 There is higher. 0:19:38.440 --> 0:19:41.840 Savings now than there was, say fifteen years ago in 0:19:41.920 --> 0:19:44.560