Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Ameri Hordert. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
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Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business app. And Victoria Fernandez of
Speaker 2: Crossmark warning against chasing this market. She writes, we have
Speaker 2: seen this story before. Breath deterioration coupled with bullish sentiment
Speaker 2: can lead to five to ten percent pullbacks, and we
Speaker 2: wouldn't be surprised if the story repeated itself here. Victoria
Speaker 2: joined us. Now for more, Victoria, welcome. I'm going to
Speaker 2: kick things off with the same question that I asked
Speaker 2: George can Carve us about an hour ago. Have you
Speaker 2: ever seen a free cat like this one over to
Speaker 2: two to three percent pullback on the S and P
Speaker 2: five hundred.
Speaker 3: Yeah, I mean yes, we have seen these pullbacks before,
Speaker 3: and it was what you were just talking about. When
Speaker 3: we have that breadth deterioration in this market, when you
Speaker 3: have this internal weakness kind of bubbling under the surface,
Speaker 3: but at the same time you have this, for lack
Speaker 3: of a better word, you have this exuberance, you have
Speaker 3: this sentiment that is extremely bullish. At some point those
Speaker 3: two worlds start to collide and you see this pullback.
Speaker 4: But look, Jonathan, we are still.
Speaker 3: Not that far below all time highs really when we
Speaker 3: look at the markets as a whole. So I still
Speaker 3: think there's probably some room to see more pullback, especially
Speaker 3: when you're seeing small caps down as much as they are.
Speaker 3: We know the tech stocks kind of led this rally.
Speaker 3: We see them leading the pullback we're having here, But
Speaker 3: I do think some of the internal weakness is driving this,
Speaker 3: and the fact that.
Speaker 4: The government shut down is now over.
Speaker 3: I think investors are starting to look and go, wait
Speaker 3: a minute, we've been ignoring some of these facts that
Speaker 3: have been out Here are some of these warning signs.
Speaker 3: Now they're starting to pay attention to it, and we're
Speaker 3: getting a little bit of a consolidation of a correction here.
Speaker 2: This is going to sound slightly cliche, but I'm going
Speaker 2: to run with it. Just how strong are the hands
Speaker 2: in this market right now? Victoria I was listening to
Speaker 2: Amy bu Silverman of RBC earlier on this morning. She
Speaker 2: tuned into Bloomberg Radio and she phoned in and she
Speaker 2: said something, Mike, I would describe people at the moment
Speaker 2: as fully invested. Bess how fragile has the buying actually been.
Speaker 4: I think that's a great description of where a lot
Speaker 4: of investors are.
Speaker 3: It's where a lot of our clients, I think, feel
Speaker 3: like they are because we tell them you want to
Speaker 3: be invested in this market. The pulldown that we've seen
Speaker 3: so far has not changed the trends. The trends are
Speaker 3: still higher. Until we see the trends change, we see
Speaker 3: negative relative performance coming out of some of these leadership sectors,
Speaker 3: and staples start to perform a lot better.
Speaker 4: Than I think.
Speaker 3: You continue to see the market, although it will churn,
Speaker 3: you will continue to see it move higher. And that's
Speaker 3: why you want to be invested in the market. But
Speaker 3: there are these warning signals. We haven't been getting the
Speaker 3: data we're about to get it. What is it going
Speaker 3: to tell us? Is it going to say we're weaker
Speaker 3: than what we thought some of the private data was
Speaker 3: actually telling us.
Speaker 4: If so, then yes, you will continue to have.
Speaker 3: Some spaces where you want to put some defensive components
Speaker 3: in your portfolio. So it does make sense it is
Speaker 3: fully invested, but a little bit of a bearish outlook Victoria.
Speaker 5: Just to build on what John was asking about, it
Speaker 5: does seem like institutional investors are fully invested, especially if
Speaker 5: they missed out in the rally or earlier this year.
Speaker 5: It does seem low though, Like there is retail selling
Speaker 5: and when you take a look at some of the
Speaker 5: high momentum sides of the market, that's what's.
Speaker 4: Led the draw down. It raises this question.
Speaker 5: Earlier this year retail and buying actually led to the upside,
Speaker 5: and investors chase that is this going to be the
Speaker 5: reverse of that retail selling and then eventually institutions chasing
Speaker 5: that as well, or are they stepping in to actually
Speaker 5: pick this up.
Speaker 3: Yeah, Unfortunately, I think you do see a lot of
Speaker 3: the retails chasing that market, and like you said, the
Speaker 3: reverse right now, institutional investors tend to take a little
Speaker 3: bit of a longer term approach, and so they are
Speaker 3: slower to move on some of these changes, they look
Speaker 3: and say, what are we looking at three, six, nine,
Speaker 3: twelve months out. Retail investors tend to be a little
Speaker 3: bit more emotional investors, and so you see things change
Speaker 3: more quickly and more turnover, and some of those portfolios.
Speaker 3: We have said all along, don't chase this market. Let
Speaker 3: it come to you. There's going to be an opportunity
Speaker 3: here because of the weakness that we saw in Breadth
Speaker 3: and internally that the market's going to come to you,
Speaker 3: and that's what it's doing right now. So I would
Speaker 3: actually take this as an opportunity to add to some
Speaker 3: of the names that you've liked. Some of the sectors
Speaker 3: that you're starting to see troughs and see up trends.
Speaker 3: We've talked about them before. You look at healthcare, you
Speaker 3: look at the big banks, you look at some of
Speaker 3: the materials components and the metals that are.
Speaker 4: There, and even energy.
Speaker 3: We saw about forty percent of the S and P
Speaker 3: energy sector actually make three month highs earlier this week.
Speaker 3: I think there's some places you can play. Institutional investors
Speaker 3: will start stepping into that, but retail investors tend to
Speaker 3: be a little bit more emotional and move with what
Speaker 3: they're seeing in the headlines.
Speaker 5: You didn't mention tech Victoria, and I do think that
Speaker 5: we have to focus on that, given the fact that
Speaker 5: not only has the tone shifted, but there's been a
Speaker 5: shift in the fundamentals of some of these companies. Not
Speaker 5: that they're not earning tons of money, but it does
Speaker 5: seem like the debt issue ins of the past few
Speaker 5: months has really caused some concern. You are seeing bond
Speaker 5: markets start to push back, You're seeing concessions in some
Speaker 5: of the new issue market. You are seeing some bonds
Speaker 5: lose a ton of value, particularly from Oracle. I'm just
Speaker 5: wondering if this is a warning shot to you that
Speaker 5: there has been a material shift in the tech sector
Speaker 5: and greater risk going forward.
Speaker 3: It's definitely a warning signal, Lisa. You know, we watch
Speaker 3: spreads very closely in the bond market. They are a
Speaker 3: warning signal, that canary and the coal mine to tell
Speaker 3: you what's happening. And we've seen the widening over the
Speaker 3: last month and even over the last quarter year to date,
Speaker 3: we're about equal.
Speaker 4: At this point in time. We been extremely tight.
Speaker 3: We've seen spreads wide now and yes, when it comes
Speaker 3: to tech, you're seeing large issuance come out, and it's
Speaker 3: been a question for a while, how are a lot
Speaker 3: of these companies going to pay for what they're saying
Speaker 3: they're going to do, and how is that going to
Speaker 3: aff affect free cash flow? How is that going to
Speaker 3: affect their debt ratios? And we're seeing some of that
Speaker 3: come to fruition. Now we're seeing some concerns about what
Speaker 3: that means longer term, especially if we're not getting the
Speaker 3: revenue generation that a lot of these companies say they're
Speaker 3: going to. So definitely something to watch and to be
Speaker 3: careful on when you're looking at the debt market.
Speaker 2: These companies Victoria seem absolutely determined to spend They've said
Speaker 2: that repeatedly. They are determined not to underinvest, and they
Speaker 2: don't mind taking the risk of over investing. Do you
Speaker 2: really see this market in a position at the moment
Speaker 2: at least to inflict discipline on those hyperscalis who are
Speaker 2: absolutely determined to spend hundreds of billions of dollars on
Speaker 2: this effort.
Speaker 4: Discipline is an interesting word, Donathan. I'm not sure that
Speaker 4: they are.
Speaker 3: These investors right now look at these companies and they
Speaker 3: believe what they're telling them, they're saying Okay, even though
Speaker 3: we saw free cash flow taking Vida out of the
Speaker 3: equation down almost twenty percent year over year for a
Speaker 3: lot of these companies, and now we're seeing debt issuants
Speaker 3: move higher, investors still say they're going to be able
Speaker 3: to do what they're doing. You heard Lisa Sue this
Speaker 3: week talk about eighty percent revenues from data centers for
Speaker 3: the next three to five years year over year. That's
Speaker 3: a lot of positivity coming from these companies.
Speaker 4: But yet at the same time, we're hearing.
Speaker 3: Builders can't deliver on data centers where there's not enough
Speaker 3: energy and power for some of these data centers. So
Speaker 3: I would be a little more skeptical than maybe the
Speaker 3: average investor is. But you know, I'm a bond girl
Speaker 3: at heart, so that makes sense that I would be
Speaker 3: a little more cautious. But I do think for now
Speaker 3: they are taking these companies out their word because their
Speaker 3: earnings are supporting it. The minute we don't see earning supportive,
Speaker 3: that's when I think you'll see it all.
Speaker 4: Flip Victoria, so how are you handling this?
Speaker 5: Are you selling tech stocks and selling the bonds as well?
Speaker 5: Are you buying this docs selling the credit? How are
Speaker 5: you playing it.
Speaker 3: Yeah, So we're trimming on some of our big tech names,
Speaker 3: but also we want to stay within you know, we
Speaker 3: parameters within the benchmark of where we need to be
Speaker 3: on these and because there's such strong holdings in the benchmark,
Speaker 3: we can't just eliminate these holdings completely.
Speaker 4: You have to have exposure to them.
Speaker 3: But we are taking the opportunity to put it to
Speaker 3: work into other areas, both on the equity side and
Speaker 3: on debt. And looking at that debt like seven to
Speaker 3: ten years out, we're starting to see the yield curve
Speaker 3: steep in. That two to thirty spread was a like
Speaker 3: sub one hundred and an hour about one fifteen, so
Speaker 3: we're starting to steep in a little bit.
Speaker 4: It's good for financials.
Speaker 3: That's our main area of where we're looking, but we're
Speaker 3: also looking at healthcare, buying some bonds and some equity there,
Speaker 3: and then like I said, looking at materials a little
Speaker 3: bit as well. I think those areas on both sides
Speaker 3: of the equation you can have in your portfolio.
Speaker 2: Stay with us. Mulblomberg Savannah's coming up off to this
Speaker 2: Official Economics data sets a return after they record long
Speaker 2: government shutdown delayed releases for more than a month. Joining
Speaker 2: us now the former BLS Commissioner, Bill Beach, But welcome
Speaker 2: back to the program. Can you give us some insight
Speaker 2: into how the BLS will be operating at the moment
Speaker 2: after a month plus long government shutdown. What the first
Speaker 2: order of business actually is.
Speaker 6: Well, I think they turned the data systems on yesterday.
Speaker 7: It's sort of in that data desert that you just
Speaker 7: referred to, and so hopefully everything rebooted. Well, that's always
Speaker 7: a question. And then they have to ask about the
Speaker 7: field staff. How many people are coming back to work.
Speaker 7: You know, some of those people probably took early retirement
Speaker 7: or retirement. It's kind of an older staff. Anyway, we
Speaker 7: might want to talk about the CPI. Back to the
Speaker 7: jobs report that doctor has it mentioned, It is true
Speaker 7: the jobs number which is acquired from firms through an
Speaker 7: electronic survey. Now BLS will prompt those firms to send
Speaker 7: their survey in electronically to Chicago or Fort Walton Beach
Speaker 7: where those forms are collected, and we will probably have
Speaker 7: a jobs number for October. But the household survey, which
Speaker 7: is collected largely by calling people on the telephone and
Speaker 7: asking them a series of questions, quite a lot, a
Speaker 7: lot of questions. We may never have those data, and
Speaker 7: that includes not only the unemployment rate, but all of
Speaker 7: the breakout by race, by region, labor force participation, all
Speaker 7: those things that are really important for policymakers to follow.
Speaker 7: I'm also concerned about the CPI, but I think on
Speaker 7: the labor side where that'll be the biggest hole. I
Speaker 7: do expect the jobs report to come out for September,
Speaker 7: which was fully collected but not.
Speaker 6: Quite written up yet. I expect that next week. I
Speaker 6: think they're right about that.
Speaker 2: Oh you mentioned inflation a few times. Just describe the
Speaker 2: CPI process, the data collection, how the survey's put together,
Speaker 2: and why so difficult to produce that number.
Speaker 6: So the CPI is collected from the first of the
Speaker 6: month to the end of the month.
Speaker 7: They put as many working days in there as possible,
Speaker 7: and it's largely collected. I'd say about seventy percent of
Speaker 7: all of the observations or goods services are collected by
Speaker 7: people going into stores.
Speaker 6: These are BLS employees.
Speaker 7: And literally going down the aisles and marking down the
Speaker 7: price and seeing how many potato chips are in the bag.
Speaker 7: So it's a labor intensive thing. Now we're starting that
Speaker 7: process probably next Monday. That only gives us two weeks
Speaker 7: to collect four weeks of data. Now, it is true
Speaker 7: that a lot of that data comes in electronically. The
Speaker 7: housing stuff, the gasoline, automobile prices, those are electronically produced
Speaker 7: data from private sources.
Speaker 6: So thirty percent find no problem. But you can't.
Speaker 7: You can't have a CPI with only thirty percent of
Speaker 7: the data. So I'm worried about the CPI. I'm worried
Speaker 7: about the quality of the October CPI, So that's an
Speaker 7: issue and we'll see how that works. The November numbers
Speaker 7: are also at risk because we're going to be collecting
Speaker 7: those November numbers as well as collecting as many of
Speaker 7: the data on the October side as we possibly can.
Speaker 7: That's going to be really dicey, but I think the
Speaker 7: staff is probably up to it. So let me just
Speaker 7: say bottom line, no unemployment rate, no labor force data
Speaker 7: that shows the demographics, and I think people should be
Speaker 7: concerned about the CPI. The PPI is collected largely electronically,
Speaker 7: and of course thet export indexes are entirely collected from
Speaker 7: administrative data from the Commerce Department.
Speaker 5: Bill just quickly here, how much are you seeing the
Speaker 5: reduction in staff for the Bureau of Labor Statistics, just
Speaker 5: generally presenting a problem in both ramping up but also
Speaker 5: going forward presenting the same kind of accurate data.
Speaker 7: Well, at the beginning of the shutdown, we had a
Speaker 7: really firm number. It was about one out of every
Speaker 7: five employees at BLS had quit. But there are two
Speaker 7: areas of really great concern. First off, the field, and
Speaker 7: I've mentioned that several times. You know, so many of
Speaker 7: our data from the Employment Cost Index, which is field
Speaker 7: collected to CPI, the household survey that does the unemployment rate.
Speaker 7: These are labor intensive, so you have to be really
Speaker 7: concerned for the thousand people, one thousand people basically who
Speaker 7: work in the field. We don't know how many of
Speaker 7: those people are coming back to work. Honestly, they're largely
Speaker 7: an older staff, and that means they may have choices
Speaker 7: in whether they work or not work. And then the
Speaker 7: other area that I'm very concerned about is the senior
Speaker 7: leadership of BLS. About thirty one positions that are absolutely crucial,
Speaker 7: and about twelve thirteen of those we think are now vacant.
Speaker 7: That's the largest vacancy rate, ever, and so this is
Speaker 7: expert that just can't be replaced quickly by going out
Speaker 7: to you know, indeed dot com and finding some good
Speaker 7: resume you.
Speaker 6: That's those two areas I'm very concerned about.
Speaker 8: Stay with us.
Speaker 2: More Bloomberg surveillance coming up after this. Wall Street watching
Speaker 2: for fresh trade deals from the White House. The Trump
Speaker 2: administration announcing new framework agreements with Latin American countries as
Speaker 2: tours continue with China. The former White House Senior Trade
Speaker 2: advisor Kellyan Shore, writing, one thing is clear, despite the shutdown,
Speaker 2: USTR has been extremely busy negotiating.
Speaker 8: Kelly Ann joined us now for more. Kelly, I'm welcome back.
Speaker 2: We've been tracking this together since it started back in
Speaker 2: early April, in fact, since the election took place more
Speaker 2: than twelve months ago. Are you seeing this administration and
Speaker 2: White House start to change course a little bit?
Speaker 9: Yeah, good morning, Thanks ver much for having me back on.
Speaker 9: I see directionally, the White House continuing strategy that it
Speaker 9: started with, which is we are going to impose these
Speaker 9: very high tariff rates and then negotiate with trading partners
Speaker 9: to try to land them at a place that's a
Speaker 9: bit more reasonable. And so they're continuing to do so,
Speaker 9: notwithstanding the White House's concern, which is clearly focused on
Speaker 9: the issue of affordability, consumer confidence, how much you're paying
Speaker 9: at the grocery store. Now, on top of this, on
Speaker 9: top of those four deals that were announced, plus we
Speaker 9: had South Korea that framework which was released last night,
Speaker 9: a potential upcoming deal with Switzerland, an interim deal potentially
Speaker 9: with Brazil, you're seeing the White House tees a more
Speaker 9: significant tariff relief package which would really hit Americans at
Speaker 9: the grocery store. Now, this would be a departure from
Speaker 9: where they've been going, but I do think directionally all
Speaker 9: along they've anticipated that they would need to course correct,
Speaker 9: that there would be recalibrations where there had been over corrections.
Speaker 4: So I think we're starting to see the first part
Speaker 4: of this.
Speaker 2: There's some contradictory messaging kit You're well aware of that.
Speaker 2: On the one hand, you're saying that tarifs don't lead
Speaker 2: to higher prices, on the other hand, just saying we
Speaker 2: need to do more on affordability, We're going to drop tariffs.
Speaker 8: How do you massage the messaging?
Speaker 9: Yeah, there was always a little bit of dissonance between
Speaker 9: these two messages, and this was always the White House's
Speaker 9: case to make to the American people that if we
Speaker 9: impose an average fifteen to twenty percent tariff on all
Speaker 9: goods coming from all countries, that's not going to lead
Speaker 9: to higher prices at the grocery store. It's not going
Speaker 9: to make your vacations more expensive. I think the American
Speaker 9: people have always been a little bit skeptical of this argument,
Speaker 9: and this is something the White House is going to
Speaker 9: have to continue to message moving forward. Now that said,
Speaker 9: what they'll point to is the fact that we impose
Speaker 9: hundreds of billions of dollars of tariffs and Trump one
Speaker 9: point zero, and that did not lead to inflation.
Speaker 4: And if you look at countries like.
Speaker 9: India or South Korea, which naturally have very high teriff rates,
Speaker 9: they're not concerned about that leading to inflation on a
Speaker 9: day to day basis. So why would that pattern hold
Speaker 9: in the United States? But I do think voters are
Speaker 9: not quite there yet, and this is something the White
Speaker 9: House is going to have to navigate.
Speaker 5: Kelly, how much is this argument a liability for the
Speaker 5: White House when it comes to the Supreme Court case?
Speaker 5: The idea that they're arguing that this is a national
Speaker 5: security issue while also talking about reducing tariffs for cost
Speaker 5: of living concerns.
Speaker 9: Well, I think we've got a bunch of different types
Speaker 9: of tariffs, some of which are being challenged right now
Speaker 9: at the Supreme Court, others which aren't. And we've always
Speaker 9: had carve out since the beginning of certain product categories
Speaker 9: like your iPhone, your laptops, some of the pharmaceutical products,
Speaker 9: and aircraft and airplane parts have always had different tariff treatment.
Speaker 9: So shifting some of that around or targeting certain food
Speaker 9: products I don't really think is going to make that
Speaker 9: much of a difference in terms of how the Supreme
Speaker 9: Court is looking at this.
Speaker 5: Do you think though, that, Kelly, when you talk to
Speaker 5: some of your clients, there is a feeling that maybe
Speaker 5: we've seen the peak in terms of the tit for
Speaker 5: trade war type of behavior, just simply because the cost
Speaker 5: of living concerns are starting to trump the concern about
Speaker 5: national security and the concern about getting leverage internationally.
Speaker 9: Well, I think, regardless of how voters are viewing cost
Speaker 9: of living, that we effectively had reached sort of the
Speaker 9: peak of this trade war. To begin with, the President
Speaker 9: was always going to come out swinging at the beginning
Speaker 9: to make this huge move to try to negotiate with
Speaker 9: every country on Earth and then land the plane at
Speaker 9: a lower rate, and that's what we saw him do
Speaker 9: in August. I think we're beginning to see more and
Speaker 9: more tariff reductions as part of these deals being negotiated,
Speaker 9: but I wasn't expecting these huge swings moving forward. I
Speaker 9: think this is effectively where the President wants to land
Speaker 9: things and have the teriff rate be on average at
Speaker 9: the end of his four years now. I do think
Speaker 9: that consumer confidence and affordability is a significant issue for
Speaker 9: the White House, which is why you're seeing them take
Speaker 9: this head on, as opposed to the prior messaging which
Speaker 9: was more about don't worry, the economy's doing great, kind
Speaker 9: of ignore how you feel. They're not there. Now they're
Speaker 9: head on addressing this, and I think that these recalibrations
Speaker 9: on our reflection.
Speaker 7: Of that.
Speaker 8: Stay with us.
Speaker 2: Mul Bloomberg surveillance coming up after this equity's pulling back
Speaker 2: is try to digest hawkish signals from the Federal Reserve.
Speaker 2: Daryl Krunk of wilst FAGO highlighting the three eyes that
Speaker 2: matter inflation, interest rates, and illiquidity rights in the recent
Speaker 2: self is more about positioning. It's sentiment extremes and weak
Speaker 2: hands that have changed to underlying fundamentals.
Speaker 6: Darrow.
Speaker 2: John is now for more. Darrek, good morning, Good morning, John.
Speaker 2: Just build on that a little bit. Okay, the fundamentals
Speaker 2: are strong, are they? The fundamentals are still strong. I
Speaker 2: don't think that there's a lot of debate about that.
Speaker 2: What I would say the two things maybe in yesterdays
Speaker 2: sell off, the people missed right. Number one, you had
Speaker 2: all the FED speakers out being hawkish.
Speaker 8: Right.
Speaker 1: So for a moment in time, FED funds futures for
Speaker 1: a December cut dip below fifty percent right, the prior
Speaker 1: day just within the reference they were at sixty nine percent.
Speaker 1: Month part of that they were ninety five percent, right.
Speaker 1: So that's a pretty big move. That's the spark that
Speaker 1: lit this thing yesterday afternoon that we started the sell off.
Speaker 6: Right.
Speaker 1: What I found was interesting yesterday was you know, obviously
Speaker 1: decent breadth on the equity sell off, But if you
Speaker 1: looked at yesterday, treasuries were negative, Bitcoin was negative, gold
Speaker 1: was negative, the dollar was negative, right, which is everything.
Speaker 1: So going back to the point about weekends and stuff,
Speaker 1: when when positioning and sent thement gets out over their
Speaker 1: skis are off sides and people have to cover margin
Speaker 1: calls and other things. You sell what you can now
Speaker 1: what you want right, and so you're forced to sell
Speaker 1: strong assets treasuries, right, gold, things that you would normally
Speaker 1: hang on to to meet some of those extremes in markets.
Speaker 6: So I think that's what you saw yesterday.
Speaker 2: Everything that's done well in the last ye Ros said
Speaker 2: yesterday did pully Yesterday got that the equity market. Is
Speaker 2: that a strongest story to get hold of When you
Speaker 2: look at the equity market right now and people are
Speaker 2: talking about five to ten percent pullbacks, is that a
Speaker 2: pullback people out somebody want to buy, or a pullback
Speaker 2: people run away from.
Speaker 6: We have a lot of conviction around this.
Speaker 1: We've been like a lot of people waiting for that
Speaker 1: kind of in trouble equity correction, five ten percent you
Speaker 1: usually get two a year, ten percent, one a year
Speaker 1: in account year. We think this is absolutely viable, right.
Speaker 1: We like the fundamentals going out into twenty twenty six.
Speaker 1: So if you get a five seven ten percent pullback,
Speaker 1: I would be using it as an opportunistic way to
Speaker 1: add capital in Now, what we did do is we
Speaker 1: downgraded technology on October thirtieth from favorable back to neutral. Neutral,
Speaker 1: still a sizable waiting obviously in a portfolio. Ironically, the
Speaker 1: Nasdaq hit it's high on October twenty ninth, So sometimes
Speaker 1: better to be lucky than good right on those type
Speaker 1: of things. But where we would put capital is in
Speaker 1: places like financials, industrials, utilities, places where you're getting some
Speaker 1: of the benefit of the horizontal expansion of AI without
Speaker 1: having to buy the valuations of the tech Okay, I.
Speaker 5: Love this the second person this morning who said, yes,
Speaker 5: by the dip not in tech but in everything else,
Speaker 5: by the dip in financials, by the dip in healthcare. Point,
Speaker 5: are we hearing an increasing aversion to buying tech at
Speaker 5: these valuations, even in a five to ten percent draw down,
Speaker 5: just simply because the structure of some of these companies
Speaker 5: has changed.
Speaker 6: Yeah, I think it's a good point.
Speaker 1: I mean the point I made about being neutral right
Speaker 1: with the market cap weightings of the index, you still
Speaker 1: have to have a meaningful position obviously in technology. But
Speaker 1: let's just admit like things got out a little bit
Speaker 1: over their skis here, they got a little white hot.
Speaker 1: We saw the same thing happen in mid October. Remember
Speaker 1: the catalyst at that point was when President Trump came
Speaker 1: out and said he was going to put one hundred
Speaker 1: percent tariffs on China and that he and Jingji weren't
Speaker 1: going to meet. And all of a sudden, the Vick
Speaker 1: spikes to twenty eight right this morning, we're twenty two.
Speaker 6: Right.
Speaker 1: So that kind of what i'd call sticky volatility that's
Speaker 1: been with us for the last thirty to forty five days,
Speaker 1: I think is emblematic of what's happening as we transition
Speaker 1: in this tech world. To us, just valuations just got
Speaker 1: to extremes to the summer months in the early fall,
Speaker 1: and we just said.
Speaker 6: Time to take some profit, right, pull that back.
Speaker 1: I don't think you abandoned tech by any means, but
Speaker 1: we find better risk reward trade off in places like financials, industrials,
Speaker 1: and utilities.
Speaker 5: Does some move that we're seeing this morning in bonds
Speaker 5: in particular make you like treasuries once again as a
Speaker 5: hedge and I'm talking about long.
Speaker 1: Term treasuries, Yes, I mean I think you can still
Speaker 1: buy treasuries here. You know what people forget is if
Speaker 1: you look at the Bloomberg, you know, US bond aggregate.
Speaker 1: It's up seven and a half percent here today, right.
Speaker 1: I mean we haven't had positive bond returns for probably
Speaker 1: four years post pandemic.
Speaker 5: Right.
Speaker 1: It's finally a creative again to portfolios, right, and so
Speaker 1: I think you can still use those bonds as a
Speaker 1: traditional way to play that sector.
Speaker 6: Right.
Speaker 1: What people also forget is US households own sixty one
Speaker 1: trillion dollars worth of US equities. Right, So if you
Speaker 1: do get that ten percent correction, it's meaningful. In fact,
Speaker 1: if you do the math, it means probably about three
Speaker 1: quarters to one percent of GDP that it can shave
Speaker 1: off if you get a ten percent correction, or vice
Speaker 1: versa can be additive. So part of the economic growth
Speaker 1: story has just been the wealth effect of what's happening.
Speaker 6: If you just simply do the.
Speaker 2: Math, how supportive is tariff revenue for this bumb market?
Speaker 2: And if it started to go away or was spent,
Speaker 2: how swear, what would it make for the treasury market?
Speaker 1: It would put up with pressure, no doubt on treasure
Speaker 1: yields particularly.
Speaker 8: Long developed thing is that happening right now?
Speaker 6: Maybe not quite yet.
Speaker 1: I mean obviously concerns about IEPA, but you know. To me, John,
Speaker 1: the tariff story is not about whether tariffs will be applied,
Speaker 1: it's how they'll be applied, right, Because if they're not
Speaker 1: done by IEPA, they'll be done by Section one twenty two,
Speaker 1: Section three oh one, Section two thirty two.
Speaker 6: It'll take longer to do.
Speaker 8: That's keep raising the money, right, Keep raising the money,
Speaker 8: and are they going to keep spending it too?
Speaker 2: Because we've had about six thousand toil of repeat checks
Speaker 2: this week, and it doesn't feel like that story is
Speaker 2: losing stain.
Speaker 1: Yeah, if you take if you take what they've raised
Speaker 1: already and just projected tariffs and free them. At this moment,
Speaker 1: it's about four hundred and ten billion dollars, right, that's
Speaker 1: almost twenty to twenty five percent of the one point
Speaker 1: eight trillion dollar budget deficit. Right, So it's meaningful to
Speaker 1: apply back, you know, against that if you can do it.
Speaker 1: If for some reason you're going to refund all that
Speaker 1: money back to whence it came, guess what happens to
Speaker 1: corporate margins and earnings? Right, because all that money was
Speaker 1: pulled in. If it goes back to the companies where
Speaker 1: it came from, all of a sudden, it's a monumental
Speaker 1: lift in margins and earnings.
Speaker 2: These are potential negatives for the bumb market essentially for
Speaker 2: the treasury market, the credit market supporting massive AI spend
Speaker 2: now as well.
Speaker 8: So the biggest question I think.
Speaker 2: Across treasuries and credit, well, treasuries and credit continue to
Speaker 2: put the big dreams of the equity market, given how
Speaker 2: its price the vinment going to get to a new year.
Speaker 1: So let me put it this way. Our year end
Speaker 1: twenty twenty six target for interest rates on the tenure
Speaker 1: and the thirty year are in the four and a
Speaker 1: quarter to four fifty kind of range, right, so higher
Speaker 1: from today's levels.
Speaker 6: Right.
Speaker 1: Probably the highest conviction that we have in the treasury
Speaker 1: markets right.
Speaker 6: Now is the curve steepener.
Speaker 1: We still think no matter how you play it, the
Speaker 1: curve has to steepen, whether that's short term rates coming
Speaker 1: down and long term rates staying somewhat stable, or long
Speaker 1: term rates going up. Which is your story right about
Speaker 1: concerns about fiscal concerns about tear off.
Speaker 8: Someone as the story, I'm just artick. Can I end
Speaker 8: it for Harriet?
Speaker 6: Please?
Speaker 7: No?
Speaker 6: That's right?
Speaker 1: I mean, but I think you, I think the right
Speaker 1: normal level for long term treasure yields right or in
Speaker 1: that four and a quarter to four fifty. Remember the
Speaker 1: longside of the treasury curve is a term premium, a
Speaker 1: growth premium, and an inflation premium. Right, And growth premiums
Speaker 1: and inflation breemas have been coming down. Term premiums have
Speaker 1: actually also been coming down lately, but we think we'll
Speaker 1: expand it the next year.
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