WEBVTT - Bloomberg Surveillance TV: September 22nd, 2025 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.680 --> 0:00:15.480 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.720 with Lisa Bromwitz and Amrie Hordernt. Join us each day 0:00:18.760 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.960 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.319 am Eastern. Subscribe to the podcast on Apple, Spotify, or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:36.920 Terminal and the Bloomberg Business app. For the broader market, 0:00:36.960 --> 0:00:39.040 Here's the view on Wall Street this morning, Andrew Sheets 0:00:39.080 --> 0:00:42.680 of Morgan Stanley writing, lowering interest rates into easy financial 0:00:42.680 --> 0:00:46.080 conditions raises the odds of a more speculative boom if 0:00:46.120 --> 0:00:49.559 growth does not weaken. Andrew joins us now for more, Andrew, 0:00:49.680 --> 0:00:52.120 let's talk about what that means for credit. Multi decade 0:00:52.159 --> 0:00:55.000 tights on investment grade high yield. Near the tides of 0:00:55.040 --> 0:00:57.840 the year, Andrew, We're starting to see that speculative move 0:00:58.080 --> 0:00:58.800 start to build. 0:01:00.400 --> 0:01:03.000 Yeah, thanks, good morning. So look, I think you are 0:01:03.040 --> 0:01:05.040 starting to see early signs of it. And again, the 0:01:05.520 --> 0:01:08.319 Fed has a difficult job. The FEDS at a difficult position, 0:01:08.920 --> 0:01:12.440 but it's certainly taking a risk by lowering interest rates 0:01:12.480 --> 0:01:15.440 and saying it's still going to lower them further despite 0:01:15.720 --> 0:01:19.040 inflation being above its target other measures of growth holding 0:01:19.120 --> 0:01:22.880 up large government deficits. And I think importantly some very 0:01:22.959 --> 0:01:25.760 easy financial conditions. As you mentioned, spreads are in your 0:01:25.840 --> 0:01:30.000 multi decade tights, equity valuations are in your multi decade highs. 0:01:30.440 --> 0:01:30.959 And I think. 0:01:30.840 --> 0:01:34.080 Importantly we're starting to see M and A activity really 0:01:34.319 --> 0:01:36.920 pick up. We're seeing IPO activity pick up, We're seeing 0:01:36.920 --> 0:01:39.880 more signs of corporate confidence. So while those levels are 0:01:39.959 --> 0:01:44.240 still low by historical standards, they're certainly moving towards more activity. 0:01:44.240 --> 0:01:45.840 And that's a trend we think continues. 0:01:46.040 --> 0:01:46.520 How does that. 0:01:46.480 --> 0:01:49.040 Square andrew with the idea that we've gotten some negative 0:01:49.120 --> 0:01:53.360 economic news in terms of the nonfarm payrolls report, some 0:01:53.400 --> 0:01:55.760 of the jobless claims data, albeit somewhat. 0:01:55.440 --> 0:01:57.960 Noisy, does bad news equals bad. 0:01:57.800 --> 0:02:01.040 News when you start seeing two reading labor market? 0:02:02.640 --> 0:02:02.840 Yeah? 0:02:02.880 --> 0:02:04.840 So I think this is what's so fascinating about the 0:02:04.920 --> 0:02:07.120 data at the moment is that you do see in 0:02:07.560 --> 0:02:11.120 labor market data and some other kind of traditional early 0:02:11.160 --> 0:02:14.960 cycle indicators, you really do see some weakness you everything 0:02:15.000 --> 0:02:18.440 from the jobs market to heavy truck sales, but you 0:02:18.520 --> 0:02:21.000 also see some other data that looks a lot better. 0:02:21.080 --> 0:02:24.240 You know, GDP tracking measures are holding up, retail sales 0:02:24.280 --> 0:02:26.839 have held up, and I think a really interesting one 0:02:26.880 --> 0:02:29.320 is if you look at commercial bank loan growth in 0:02:29.320 --> 0:02:31.040 the US, which is, you know, kind of one of 0:02:31.040 --> 0:02:34.440 our favorite credit cycle indicators to follow. 0:02:34.600 --> 0:02:36.520 It's accelerating higher. 0:02:37.080 --> 0:02:40.519 And that's before we get you know, the expected deregulation 0:02:40.639 --> 0:02:43.400 of the banking sector, which we think is coming. So 0:02:44.200 --> 0:02:45.959 I think the FED is taking the view that look 0:02:46.120 --> 0:02:50.440 usually the labor market is the most important cycle indicators, 0:02:50.480 --> 0:02:52.880 the most important driver of sessions. It's part of the 0:02:52.880 --> 0:02:55.720 Fed's mandate. That's what we're going to focus on. But 0:02:55.760 --> 0:02:58.480 the data is generally mixed, and with changes to immigration 0:02:58.639 --> 0:03:01.680 and other policy, there are a variety of factors that 0:03:01.720 --> 0:03:04.840 could be distorting the labor market in unusual ways. 0:03:05.080 --> 0:03:07.440 When you put this together, it sounds like, Andrew, there's 0:03:07.480 --> 0:03:10.840 a greater risk of upside to the economy the idea 0:03:10.840 --> 0:03:14.320 of a reacceleration. There is some sort of downside, the 0:03:14.400 --> 0:03:16.840 idea that you could see a real further deterioration in 0:03:16.880 --> 0:03:20.040 the labor market. What's the implication of how far that 0:03:20.080 --> 0:03:22.840 can go. People have talked about bubbles, people have talked 0:03:22.840 --> 0:03:25.560 about already tight levels and credit. People have talked about 0:03:25.560 --> 0:03:27.960 the idea of a steepening yield curve. Where do you 0:03:28.000 --> 0:03:31.079 see the potential mispricing of such a reacceleration. 0:03:32.720 --> 0:03:34.720 Yeah, so I think there are a couple of factors. 0:03:34.720 --> 0:03:36.800 So first, I think, certainly for the credit market, the 0:03:36.800 --> 0:03:38.240 market that myself and my. 0:03:38.200 --> 0:03:39.440 Team follow most closely. 0:03:40.120 --> 0:03:44.160 You know, of those two tails, the weaker growth scenario 0:03:44.280 --> 0:03:46.200 is I think the much worse tail than the more 0:03:46.560 --> 0:03:50.760 speculative boom scenario. That boom can take some time. And 0:03:50.800 --> 0:03:53.440 I think importantly, you know, we're still I think in 0:03:53.480 --> 0:03:56.280 the very early innings of the type of M and 0:03:56.360 --> 0:03:59.800 A activity that we would expect if things really pick up. 0:04:00.240 --> 0:04:03.760 You're still below average in terms of levels of M 0:04:03.800 --> 0:04:05.960 and A adjusted for the size of the economy or 0:04:06.000 --> 0:04:07.040 adjusted for trends. 0:04:07.080 --> 0:04:09.320 So there's a lot further that that can go. 0:04:09.360 --> 0:04:11.920 And I think for as much as we rightfully focus 0:04:12.000 --> 0:04:17.320 on higher levels of optimism, say among retail investors, corporate optimism, 0:04:17.480 --> 0:04:20.440 corporate activity levels have not been elevated, and I think 0:04:20.480 --> 0:04:23.520 there's more room to go there, So companies that benefit 0:04:23.560 --> 0:04:27.120 from from M and A transactions some of those advisors. 0:04:27.680 --> 0:04:30.520 Those are stocks that my colleagues on the equity side 0:04:30.560 --> 0:04:33.640 are more positive on. And I also think kind of 0:04:33.680 --> 0:04:36.520 importantly there are you know, this is a market that 0:04:36.600 --> 0:04:39.800 is still providing a discount to things that are small 0:04:39.880 --> 0:04:42.240 or more cyclical on the equity side in a way 0:04:42.279 --> 0:04:44.880 that's not true on the credit side. So again, I 0:04:44.920 --> 0:04:47.479 think this dilemma that the credit market has is that 0:04:47.520 --> 0:04:49.719 if you believe that things could get a lot better, 0:04:49.839 --> 0:04:53.200 there are lots of small, cyclical, more levered stocks you 0:04:53.200 --> 0:04:56.080 can buy at large discounts, But in credit we're often 0:04:56.160 --> 0:04:59.520 already pricing those things at twenty year thirty year lows. 0:05:00.000 --> 0:05:01.880 So Andrew, we at a space right now with the 0:05:01.880 --> 0:05:04.560 FED is cutting into what you view as a reacceleration 0:05:04.720 --> 0:05:05.279 of growth. 0:05:07.720 --> 0:05:10.520 So I think that there's a number of data that's 0:05:10.560 --> 0:05:13.920 suggesting that's a real possibility, and again that it might 0:05:13.920 --> 0:05:16.320 not even be a reacceleration of growth, but just if 0:05:16.360 --> 0:05:18.800 growth holds up, you know, just of growth is kind 0:05:18.800 --> 0:05:23.599 of stable, then the FED cutting into still above average 0:05:24.360 --> 0:05:28.080 inflation and rising inflation, the FED cutting into these already 0:05:28.120 --> 0:05:32.280 easy financial conditions and then I think also really importantly 0:05:32.320 --> 0:05:35.320 the FED cutting into what looks like a really historic 0:05:35.480 --> 0:05:38.760 boom in capex. You know, the amount of spending that 0:05:39.120 --> 0:05:42.480 we at Morgan Stanley are expecting from the AI Data 0:05:42.560 --> 0:05:47.400 Center revival growth is just enormous. You know, it's in 0:05:47.400 --> 0:05:51.159 the neighborhood of three trillion dollars we think between now 0:05:51.200 --> 0:05:53.480 and the end of twenty twenty eight. So again, these 0:05:53.520 --> 0:05:56.440 things might not be you know, three percent GDP type 0:05:56.480 --> 0:05:58.560 of numbers, but if the cycle can hold up for 0:05:58.680 --> 0:06:01.960 longer and extend for long longer, there are these There 0:06:02.000 --> 0:06:04.600 is this kind of dry tender of potential for m 0:06:04.640 --> 0:06:07.800 and a potential for more strategic activity, potential for more 0:06:07.839 --> 0:06:11.480 CAPEX that could kind of heat up conditions in our people. 0:06:12.279 --> 0:06:12.920 Stay with us. 0:06:13.240 --> 0:06:25.680 More Bloomberg surveillance coming up after this, Divisions on the 0:06:25.680 --> 0:06:28.719 Federal Reserve, clouding the fence communication as FED share. 0:06:28.800 --> 0:06:30.360 Jay Powell is said to speak tomorrow. 0:06:30.560 --> 0:06:33.599 Kristna Giller of Evercore ICI writing the active debate for 0:06:33.640 --> 0:06:36.880 policy going forward will be predominantly within the twelve who 0:06:36.920 --> 0:06:40.000 see more cuts in twenty five, not the seven who 0:06:40.040 --> 0:06:42.760 do not. Krishna joins us now for more Christna welcome 0:06:42.800 --> 0:06:44.840 to the program. Let's just start with that division of 0:06:44.920 --> 0:06:46.840 the Federal Reserve. Just how material is it and how 0:06:46.880 --> 0:06:49.160 different is it to what we've seen in years gone by. 0:06:51.520 --> 0:06:55.560 So I think we learned two things at the meeting 0:06:55.720 --> 0:06:59.360 just gone First, that this is still Powell's committee. He 0:06:59.480 --> 0:07:05.760 can still muster majority support, particularly although not disclosed among 0:07:06.120 --> 0:07:10.120 the voting members, if you guessimate whose starts or who's 0:07:10.160 --> 0:07:14.679 for the policy path that he prefers. And that's market 0:07:14.840 --> 0:07:18.400 risk friendly because Powell is on the more duvish side 0:07:18.600 --> 0:07:23.200 of the committee, the more preemptive risk management side. But 0:07:24.000 --> 0:07:27.640 there is this large block seven Fed officials who don't 0:07:27.680 --> 0:07:31.520 see any further cuts after the September cut this year. 0:07:32.000 --> 0:07:34.920 So the question is what influence will that seven have 0:07:35.160 --> 0:07:39.240 on the debate. My sense is not that much. I 0:07:39.280 --> 0:07:42.120 think the debate will mostly be among those who see 0:07:42.160 --> 0:07:44.920 their need likely to cut rates further, but will be 0:07:44.960 --> 0:07:51.200 debating exactly the economic conditionality in cadence rather than that 0:07:51.320 --> 0:07:55.880 block of hawks. But you can't completely dismiss the seven 0:07:56.000 --> 0:07:56.680 no cutters. 0:07:56.920 --> 0:07:58.880 Christ And when you started talking about the Federal Reserve, 0:07:59.720 --> 0:08:02.040 point to add that this was Chairman Pal's feder Reserve 0:08:02.240 --> 0:08:04.680 almost like it was his committee, is it too early 0:08:04.720 --> 0:08:07.440 to begin pricing a post Pal fared. 0:08:09.720 --> 0:08:13.560 So I think the market sensibly, in my view, is 0:08:14.000 --> 0:08:16.480 looking at two different time horizons in a different way. 0:08:16.800 --> 0:08:20.760 Right through the end of this year. Indeed, e've been 0:08:20.840 --> 0:08:23.280 through really at the end of Q one, early Q 0:08:23.440 --> 0:08:26.200 two to the very end of Pal's term. I think 0:08:26.360 --> 0:08:30.560 Chair Pal will continue to drive the committee. I think 0:08:30.600 --> 0:08:32.520 there is a lot of loyalty to Powell, and I 0:08:32.559 --> 0:08:34.880 think that the divisions among the central group, while they're 0:08:34.920 --> 0:08:38.880 there for sure and amplified by these political strains, I 0:08:38.920 --> 0:08:42.600 don't think they're very very deep. I think most of 0:08:42.640 --> 0:08:46.320 that core group would agree with Powell that you want 0:08:46.400 --> 0:08:49.480 to be stepping rates back to a more neutral setting 0:08:50.679 --> 0:08:54.200 thin and that if the labor side continues to look 0:08:54.280 --> 0:08:56.920 quite weak, you want to do that in a timely manner. 0:08:57.120 --> 0:08:59.760 So that's the success of September October, the Sema Cutz 0:09:00.120 --> 0:09:02.959 versus perhaps if the data were to pick up, then 0:09:03.000 --> 0:09:06.640 you might slow down that process. Separately, the market needs 0:09:06.640 --> 0:09:08.920 to look forward through the end of next year and 0:09:08.960 --> 0:09:13.560 beyond and ask what might change under new leadership. And 0:09:13.600 --> 0:09:15.680 I think when you look at the market pricing through 0:09:15.720 --> 0:09:18.640 the end of next year, you very clearly put some 0:09:18.840 --> 0:09:22.760 weight on the prospect of a more dovish shift in 0:09:22.800 --> 0:09:26.320 the FED reaction function as new leadership takes over. 0:09:26.679 --> 0:09:31.120 Krishna, has this market adequately appreciated just how duvish this 0:09:31.240 --> 0:09:34.240 central bank already has been. The idea that they're cutting 0:09:34.360 --> 0:09:37.440 at the most aggressive pace going back to the nineteen 0:09:37.559 --> 0:09:39.720 eighties when we weren't in recession. I mean, this is 0:09:39.760 --> 0:09:43.640 really an unusual type of paradigm. Given the inflation has 0:09:43.679 --> 0:09:47.240 remained above the two percent target for more than four 0:09:47.320 --> 0:09:50.480 years and is expected to remain above that for the remaining. 0:09:50.480 --> 0:09:51.440 Upcoming two years. 0:09:51.440 --> 0:09:54.880 I mean, at what point is this market not appreciating 0:09:55.240 --> 0:09:58.119 how hot this FED is already running the economy. 0:10:00.160 --> 0:10:02.600 So I certainly agree with you that this is a 0:10:02.840 --> 0:10:07.960 quite unusual set of circumstances. I think it's important to 0:10:08.040 --> 0:10:11.440 caveat that in two ways. First, the FED is not 0:10:11.760 --> 0:10:16.480 cutting rates to at least under Powell. It's not contemplating 0:10:16.559 --> 0:10:19.800 cutting rates to what the FED at least would cons 0:10:21.000 --> 0:10:25.160 a stimulative territory. What they're talking about is removing what 0:10:25.240 --> 0:10:28.320 they estimate to be the remaining restraint in the economy. 0:10:28.360 --> 0:10:31.720 That's the roughly seventy five basis points of restraint between 0:10:31.760 --> 0:10:33.600 where we were on the eve of the September meeting 0:10:33.960 --> 0:10:36.559 and a spot neutral setting that might be in the 0:10:36.640 --> 0:10:38.199 zip code of three and a half three and three 0:10:38.280 --> 0:10:41.800 quarters separate from where the long term neutral rate by 0:10:41.920 --> 0:10:45.120 lie when things settle down to equilibrium, which many still 0:10:45.160 --> 0:10:48.080 see at the FED as more like three percent. So 0:10:48.280 --> 0:10:52.160 you're talking about removing restraints, not providing stimulus. The other 0:10:52.200 --> 0:10:55.439 thing is, of course you're seeing, i think, under Powell's leadership, 0:10:55.480 --> 0:10:58.920 and of course with a pressure intellectual pressure from Waller 0:10:59.040 --> 0:11:02.360 and one few others, the FED taking a view that 0:11:02.600 --> 0:11:05.720 maybe they should be at least to some significant degree 0:11:05.960 --> 0:11:10.640 looking through that current elevated inflation because it's to a 0:11:10.720 --> 0:11:15.119 large extent reflecting the pass through of Tariff's c enter prices, 0:11:15.400 --> 0:11:18.000 and of course, from a textbook sense, at least you 0:11:18.120 --> 0:11:24.240 want to look through that first round mechanical tax impact 0:11:24.240 --> 0:11:26.000 if you like, it's a bit like a sales tax 0:11:26.000 --> 0:11:28.160 in that regard, and you want to be focused on 0:11:28.200 --> 0:11:31.360 where you think the underlying inflation dynamics are going, what 0:11:31.520 --> 0:11:34.559 risk there is of inflation persistence, And you know, if 0:11:34.559 --> 0:11:36.960 you look at wages minus productivity, if you look at 0:11:37.160 --> 0:11:40.160 a lot of the services, particularly the more market based services. 0:11:40.240 --> 0:11:43.640 You look at expectations, the news on that second round 0:11:43.880 --> 0:11:48.760 inflation dynamic is reasonably constructive, but I certainly still take 0:11:48.840 --> 0:11:53.800 your point that the FED is cutting onerous management grounds 0:11:53.840 --> 0:11:58.719 into what maybe the early stages of a cyclical re acceleration. 0:11:59.160 --> 0:12:01.480 I think the market is going to want to see 0:12:01.600 --> 0:12:05.160 more evidence on that birming inactivity and if it's passing 0:12:05.400 --> 0:12:10.160 on to affirming in the labor side too, before it 0:12:10.240 --> 0:12:13.080 really starts to trade that. But if you were to 0:12:13.120 --> 0:12:16.520 see that, then I think at a minimum, people would 0:12:16.559 --> 0:12:19.640 start to pay more attention not just to these three cuts, 0:12:21.160 --> 0:12:24.240 but the prospect that when the next chair picks up 0:12:24.240 --> 0:12:27.000 the cutting baton, we might well be in danger of 0:12:27.080 --> 0:12:27.719 overdoing it. 0:12:28.080 --> 0:12:30.920 Let's say the FED cuts rates and long term rates 0:12:31.080 --> 0:12:35.559 also decline. Will that help housing affordability? Will that help 0:12:35.840 --> 0:12:38.640 with this sort of declining trend and inflation that is 0:12:38.720 --> 0:12:42.560 hinged to the housing market, frankly, which has kind of 0:12:42.920 --> 0:12:44.079 gotten slack. 0:12:46.720 --> 0:12:49.079 Well, So certainly I think if longer term rates were 0:12:49.120 --> 0:12:51.839 to come down from here in an appreciable way, then 0:12:51.920 --> 0:12:56.840 obviously that would lower the classic thirty effects type financing costs, 0:12:57.040 --> 0:13:00.160 and that would certainly help buyers at the margin. I'd 0:13:00.160 --> 0:13:04.040 actually work a little bit more on price than on 0:13:04.200 --> 0:13:06.560 quantity in a number of cases, but certainly it would 0:13:06.559 --> 0:13:08.959 be good for housing, good for housing stocks. I think 0:13:08.960 --> 0:13:11.080 in the absence of that, what we're likely to see 0:13:11.280 --> 0:13:13.360 is more people moving to fund at the front end 0:13:13.679 --> 0:13:17.520 through arms, because, of course, as the front end rates, 0:13:17.760 --> 0:13:22.160 the FED sensitive rates do come down as an opportunity 0:13:22.160 --> 0:13:24.640 potentially to finance the front end rather than financed through 0:13:24.640 --> 0:13:29.200 the classic thirty year. I don't think that there is 0:13:29.280 --> 0:13:31.640 a huge amount of scope for ten year yelds to 0:13:31.679 --> 0:13:35.760 come down further from here. If we are indeed in 0:13:35.800 --> 0:13:40.400 the early stages of at least cyclical stabilization and possibly 0:13:40.480 --> 0:13:44.520 even cyclical re acceleration, and my hunches, if that's the 0:13:44.559 --> 0:13:46.680 path we're on, then the ten year year will be 0:13:46.760 --> 0:13:49.400 higher six or twelve months from now, not lower, and 0:13:49.440 --> 0:13:53.160 with it, of course, than those conforming loan rates. With 0:13:53.200 --> 0:13:56.400 respect to housing and inflation. I get the point you make, 0:13:56.440 --> 0:13:59.240 and it's a something one about the relationship between home 0:13:59.280 --> 0:14:03.760 construction and ultimately you know, oeer rent and those other 0:14:03.840 --> 0:14:07.720 housing services related components on inflation. I think that's right. 0:14:08.040 --> 0:14:11.600 I still think overall, though higher longer term interest rates 0:14:12.040 --> 0:14:15.240 will tend to restrict the economy in aggregate across all 0:14:15.240 --> 0:14:18.720 the sectors and put downward pressure on inflation and vice versa. 0:14:18.760 --> 0:14:19.720 If the tenure goes down. 0:14:21.280 --> 0:14:21.920 Stay with us. 0:14:22.240 --> 0:14:34.960 More Bloomberg Surveillance coming up after this. Counsei Parau of 0:14:35.080 --> 0:14:38.440 JP Morgan Asseid Management, writing the low higher low fire 0:14:38.520 --> 0:14:41.680 labor market is keeping wage growth moderate, allowing the feder 0:14:41.760 --> 0:14:44.720 ease policy in twenty five basis point increments over the 0:14:44.760 --> 0:14:47.720 next two to three meeting. Calci joins us now for more. 0:14:47.760 --> 0:14:50.080 Calci Good Mornic, Good morning. It's kind of the easy 0:14:50.120 --> 0:14:52.520 piece of this, potentially the next two to three meetings. 0:14:52.880 --> 0:14:55.000 Then it gets hard. What's the call for twenty six? 0:14:55.280 --> 0:14:58.080 Yeah, I think we're in a critical juncture right now 0:14:58.120 --> 0:15:01.400 as it relates to the direction for the US economy 0:15:01.480 --> 0:15:05.000 beyond the next three months. So there's kind of two 0:15:05.040 --> 0:15:08.320 ways that this could break. On one hand, you have 0:15:08.440 --> 0:15:10.640 the labor market, which is clearly weakening. 0:15:10.720 --> 0:15:12.560 I think it's not just supply. I do think it's 0:15:12.600 --> 0:15:13.160 a demand. 0:15:13.600 --> 0:15:16.600 But you have growth data that remains fairly robust and 0:15:16.680 --> 0:15:19.720 guidance from Corporate America that suggests a lot of optimism. 0:15:19.880 --> 0:15:22.320 So you have kind of two ways that that can resolve. 0:15:22.800 --> 0:15:25.720 One way is that the growth data starts to catch 0:15:25.880 --> 0:15:28.480 down to the labor market data, and the labor market 0:15:28.560 --> 0:15:32.240 data is the signal. The other scenario is that the 0:15:32.320 --> 0:15:36.560 labor market data is about to stabilize, the FED is 0:15:36.600 --> 0:15:40.560 going to cut rates, easy financial conditions are already there 0:15:40.600 --> 0:15:42.760 in the background, and in three to six months, or 0:15:42.800 --> 0:15:46.480 you're looking at companies that actually want to restart their 0:15:46.600 --> 0:15:50.600 hiring plans, continue their capex, and we could be looking 0:15:50.640 --> 0:15:53.600 at a FED that doesn't need to cut rates anymore 0:15:53.920 --> 0:15:57.040 and an economy that is operating above trend. So right 0:15:57.080 --> 0:16:00.120 now we're subtrend. I feel pretty comfortable with where we 0:16:00.160 --> 0:16:03.400 are now and the carry and credit we have in 0:16:03.440 --> 0:16:06.440 our portfolios. But there's still a lot of uncertainty about 0:16:06.480 --> 0:16:09.320 which way the economy breaks in the next six to 0:16:09.360 --> 0:16:09.960 twelve months. 0:16:10.080 --> 0:16:12.800 What's the market pricing? Which way does the market believe 0:16:13.000 --> 0:16:14.440 that this economy is going to break. 0:16:14.600 --> 0:16:16.960 I think the market is pricing that the economy is 0:16:17.000 --> 0:16:22.160 going to break more towards continued expansion and companies that 0:16:22.280 --> 0:16:28.240 after a period of pause, start to reinvigorate their activities 0:16:28.280 --> 0:16:31.400 and start and that labor market weakness that we're seeing 0:16:31.480 --> 0:16:33.800 is temporary. And the way that I see that is 0:16:34.040 --> 0:16:35.360 I like to look at the what. 0:16:35.280 --> 0:16:38.240 The market is priced in terms of the Fed, and. 0:16:38.120 --> 0:16:39.560 I think the way to look at it is you 0:16:39.600 --> 0:16:41.760 look at the median and you also look at the 0:16:41.760 --> 0:16:44.640 most hawkish and the most dubbish. Right now, for the 0:16:44.680 --> 0:16:47.560 next six to twelve months, the market is priced up 0:16:47.800 --> 0:16:51.360 somewhere between the median dot and the most dubbish dot, 0:16:51.720 --> 0:16:54.800 you know, so still reflecting the fact that the balance 0:16:54.840 --> 0:16:57.600 of risks for the Fed is more likely that they 0:16:57.640 --> 0:17:01.360 cut faster than they don't cut it all. But then 0:17:01.720 --> 0:17:04.760 if you look at the longer term trajectory for the 0:17:04.800 --> 0:17:07.520 FED funds rate, it kind of looks like we sometimes 0:17:07.560 --> 0:17:11.520 call it the Nike swoosh, because the policy path starts 0:17:11.520 --> 0:17:12.320 to turn up. 0:17:12.640 --> 0:17:14.200 And if you look at what the market. 0:17:13.920 --> 0:17:17.280 Is pricing for the long term, the market is actually 0:17:17.680 --> 0:17:22.120 slightly above the most hawkish expectation for the FED funds 0:17:22.200 --> 0:17:24.879 rate in the long term, and that reflects some of 0:17:24.920 --> 0:17:29.080 that longer term optimism around growth prospects that has kept 0:17:29.160 --> 0:17:31.280 yield structurally higher in this environment. 0:17:31.280 --> 0:17:33.080 So what you're saying is actually really interesting. 0:17:33.280 --> 0:17:36.359 The idea that long term rates potentially could go higher 0:17:36.400 --> 0:17:39.720 in a reacceleration trend, where you're saying suggests maybe that's 0:17:39.720 --> 0:17:42.280 not the case. Maybe that long end rates right now 0:17:42.359 --> 0:17:45.320 as they are, even with yield curf flattening, are already 0:17:45.359 --> 0:17:48.320 pricing in that reacceleration. And actually, if you get some 0:17:48.359 --> 0:17:51.399 sort of real deceleration the labor market, you get a 0:17:51.400 --> 0:17:52.080 bigger rally. 0:17:52.240 --> 0:17:55.000 Is that what you're basically leveraged too. 0:17:55.119 --> 0:17:58.359 Yeah, I mean, I think that speaks to the asymmetry 0:17:58.400 --> 0:18:01.120 and the value in owning jury. So I would say 0:18:01.119 --> 0:18:04.480 that the path for the market is priced for the 0:18:04.480 --> 0:18:07.360 FED in the short term is you know, priced fairly 0:18:07.520 --> 0:18:11.320 to the trailing data. But where we still see that 0:18:11.440 --> 0:18:15.200 there is valuation opportunities is in those long dated forwards 0:18:15.240 --> 0:18:17.879 where they are very elevated. They are pricing in a 0:18:17.880 --> 0:18:20.760 lot of optimism. And then on the other hand, you know, 0:18:20.800 --> 0:18:24.560 a lot of people have been concerned about the structural 0:18:24.720 --> 0:18:27.359 supply demand dynamics in the treasury market. You know, are 0:18:27.440 --> 0:18:30.280 there going to be foreign buyers coming in? So far, 0:18:30.359 --> 0:18:32.840 we've seen that the demand for fixed income is there. 0:18:33.240 --> 0:18:38.160 The other concern has been around the mix of treasury supply, 0:18:39.080 --> 0:18:40.760 and you know, and that's not even just a trend 0:18:40.760 --> 0:18:43.800 in the US. You know, the long end has had 0:18:43.880 --> 0:18:47.800 question marks around it across most developed market government bond markets, 0:18:48.320 --> 0:18:51.600 and what we're seeing there is signs that debt management 0:18:51.640 --> 0:18:56.160 offices and the Treasury in the US are actually probably 0:18:56.200 --> 0:18:58.760 going to be more active in terms of shifting the 0:18:58.840 --> 0:19:01.879 issuans to where the band is, which we see still 0:19:01.960 --> 0:19:03.280 in the five to ten year. 0:19:03.680 --> 0:19:04.560 Belly of the curve. 0:19:04.840 --> 0:19:06.399 Kelsie, can you give us some more detail on that. 0:19:06.680 --> 0:19:09.760 What has the Treasury've been doing more recently that's enabled 0:19:09.760 --> 0:19:11.840 this market to reject the supply fears. 0:19:12.040 --> 0:19:12.879 What have they changed? 0:19:13.200 --> 0:19:16.840 Well, they haven't actually changed anything. It's about market sentiment 0:19:16.960 --> 0:19:20.040 around around those things. So one is that you've seen 0:19:20.359 --> 0:19:22.560 very strong auctions generally. 0:19:23.080 --> 0:19:24.440 There's been a few exceptions. 0:19:24.480 --> 0:19:28.400 There's a pretty poor tips auction last week, but generally 0:19:28.480 --> 0:19:32.200 the nominal auctions for the long end have gone very well. 0:19:33.119 --> 0:19:36.320 The other thing that has shifted in terms of perception is, 0:19:36.880 --> 0:19:40.280 you know, now we have the roadmap for fiscal we 0:19:40.359 --> 0:19:42.560 have the one big beautiful bill. We kind of know 0:19:42.640 --> 0:19:44.760 what we're going to be collecting in terms of tariffs 0:19:44.760 --> 0:19:47.679 on an annualized run rate, and we can kind of 0:19:47.720 --> 0:19:51.280 feel at least more comfortable. The depth sit trajectory isn't great, 0:19:51.359 --> 0:19:53.760 but at least you know we know where it's headed. 0:19:54.440 --> 0:19:58.520 And then you know, while the Treasury hasn't done anything dramatic, 0:19:58.800 --> 0:20:01.800 they are doing buybacks on the long end, and we 0:20:01.920 --> 0:20:05.320 do think that over time they will be able to 0:20:05.440 --> 0:20:09.040 keep the long end supply stable. If not, maybe shrink 0:20:09.080 --> 0:20:11.920 it as a share of issuings and you'll see the 0:20:11.960 --> 0:20:14.879 bill issuings as a shares is going to actually be 0:20:14.880 --> 0:20:15.680 able to rise. 0:20:15.520 --> 0:20:16.000 A little bit. 0:20:17.640 --> 0:20:21.119 Stay with us more Bloomberg Surveillance coming up after this. 0:20:30.440 --> 0:20:33.560 Vina Krishner of Marcleak's writing, we've increased our year end 0:20:33.600 --> 0:20:37.399 twenty six price target to seven K from sixty seven hundred. 0:20:37.480 --> 0:20:42.320 We expect us TACH valuations to continue reflecting constructive investor views. 0:20:42.520 --> 0:20:44.600 VI who joins us now for more good Monarch, it's 0:20:44.600 --> 0:20:46.680 going to see sir, Good morning, John. So up, great 0:20:46.720 --> 0:20:49.040 to the outlook. Let's start there. What's underpinning that view 0:20:49.080 --> 0:20:50.520 at the moment for you in the team. 0:20:50.800 --> 0:20:51.679 A couple of things. 0:20:51.680 --> 0:20:54.560 First, you know, the first half has been much stronger 0:20:54.600 --> 0:20:57.640 than what we expect it from an earning standpoint. Two, 0:20:57.720 --> 0:20:59.960 if you dig in and see what's driving that. It's 0:21:00.240 --> 0:21:02.919 tech in financials, which is over fifty percent weight of 0:21:02.960 --> 0:21:06.360 the market, and the revisions for that actually are improving. 0:21:07.080 --> 0:21:09.879 And now we're in the cusp of rate cuts, which 0:21:10.080 --> 0:21:14.520 incrementally are of course positive for the market. Right So 0:21:14.560 --> 0:21:16.840 I think when you put and then don't forget that 0:21:17.040 --> 0:21:20.840 global growth, if anything, is stabilizing, and US will exit 0:21:20.880 --> 0:21:25.040 this year economic growth by our economist estimate, it's closer 0:21:25.080 --> 0:21:28.680 to around one point eight one point nine percent range. 0:21:28.359 --> 0:21:29.520 Which is pretty healthy. 0:21:29.880 --> 0:21:32.639 So I think while there's a lot of talk about 0:21:33.520 --> 0:21:36.639 you know, valuations being extended, which I don't necessarily agree with, 0:21:37.840 --> 0:21:42.040