WEBVTT - The Tax Bill and Treasury Auction 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.040 us live on YouTube. 0:00:27.360 --> 0:00:27.520 Well. 0:00:27.520 --> 0:00:31.640 Stephanie Roth joins US now chief economist at Wolf Research. 0:00:32.159 --> 0:00:36.120 The fact, Stephanie is I got a thirty year bond. 0:00:36.960 --> 0:00:40.080 Lisa was talking it was a five eleven rounded up, 0:00:40.120 --> 0:00:45.479 it's now a five thirteen. Are the bonvigilantes telling the 0:00:45.520 --> 0:00:49.519 politicians what to do and does it then amend your 0:00:49.600 --> 0:00:51.080 economic forecasts? 0:00:51.320 --> 0:00:53.480 I think there might be work that the bond vigilantes 0:00:53.479 --> 0:00:54.920 will continue to do in the next. 0:00:54.720 --> 0:00:55.440 Couple of weeks. 0:00:55.640 --> 0:00:58.520 At this point, there's not enough that would really change policy, 0:00:58.560 --> 0:01:01.880 but there's a real reality that we might have yields 0:01:01.920 --> 0:01:05.800 continue to sell off such that it makes policymakers blink 0:01:05.840 --> 0:01:06.400 to some extent. 0:01:06.400 --> 0:01:08.240 But we are tire there to be clear. 0:01:08.319 --> 0:01:10.440 You'll hire price down years. 0:01:10.280 --> 0:01:13.840 Ye'll higher price down, but we are not there such 0:01:13.880 --> 0:01:18.080 that at this point, the you know, the bill will 0:01:18.120 --> 0:01:21.240 continue to move on until this happens such that it 0:01:21.280 --> 0:01:23.880 creates a big sell off inequities. This is not our 0:01:23.920 --> 0:01:25.720 base case, but there's a real possibility of it. 0:01:25.880 --> 0:01:29.200 Is a five thirteen thirty year bond and eight percent mortgage. 0:01:29.240 --> 0:01:31.039 I don't know, it's not mean good folks that are 0:01:31.040 --> 0:01:32.720 good about here go out and try to buy a 0:01:32.760 --> 0:01:35.560 house this weekend. So Stephanie, what are you guys thinking 0:01:35.600 --> 0:01:37.360 about this economy here? I mean again, as we think 0:01:37.360 --> 0:01:39.680 about the tariffs. I was just reading a note by 0:01:39.959 --> 0:01:43.400 Torsen Slock. He makes it very simple. You know, tariffs 0:01:43.440 --> 0:01:45.800 were about three percent. Now they're on a weighted basis 0:01:45.840 --> 0:01:49.240 about eighteen percent. That's got to impact the economy. Do 0:01:49.280 --> 0:01:51.640 you guys have a recession call out there, or do 0:01:51.680 --> 0:01:53.480 you just have a slowing economy. 0:01:53.720 --> 0:01:56.320 We don't have a recession call. We're looking for Actually, 0:01:56.360 --> 0:01:58.880 growth could be above one percent this year, really okay, 0:01:59.080 --> 0:02:00.840 somewhere between one and one and a half percent. So 0:02:00.880 --> 0:02:02.680 you do have a big tariff hit to the economy. 0:02:03.000 --> 0:02:05.240 With the rollbacks of China that was significant. 0:02:05.400 --> 0:02:05.600 Yep. 0:02:05.800 --> 0:02:08.080 So tariffs could weigh on the economy by about seventy 0:02:08.120 --> 0:02:10.640 basis points. But the Reconciliation bill has a bit of 0:02:10.639 --> 0:02:14.959 a positive impact as well. Why because the business provisions 0:02:15.000 --> 0:02:17.240 do get pulled forward into twenty twenty five, so about 0:02:17.240 --> 0:02:17.799 twenty basis. 0:02:17.880 --> 0:02:22.000 So it has stimulus like COVID type of stimulus effect. 0:02:22.639 --> 0:02:25.440 A lot more, a lot more modest this year. Next 0:02:25.480 --> 0:02:27.960 year we should have actually a decent amount of stimulus 0:02:28.000 --> 0:02:31.079 from this bill. Combination of the business provisions as well 0:02:31.120 --> 0:02:34.120 as the individual provisions, things like no tax on tips, 0:02:34.120 --> 0:02:37.200 no tax on overtime, that really has an impact next year. 0:02:37.760 --> 0:02:40.720 So that this all flows down to the consumer, which 0:02:40.760 --> 0:02:43.359 of course is seventy percent of this US economy. How 0:02:43.440 --> 0:02:45.680 is the consumer out there from your perspective, So part of. 0:02:45.639 --> 0:02:48.120 The consumer's okay, nothing that bad has happened to them. 0:02:48.639 --> 0:02:52.360 Jobs continue to grow, they continue to have solid wage gains, 0:02:52.440 --> 0:02:55.880 and as long unless that can change is the consumer 0:02:55.919 --> 0:02:57.360 will continue to chug along. 0:02:57.360 --> 0:03:01.359 Here, what's the biggest mystery of your research forecast? You 0:03:01.440 --> 0:03:04.760 got an Excel spreadsheet. She's awesome at it, so yeah, 0:03:04.800 --> 0:03:08.400 she does formulus like no one. What's the biggest hole 0:03:08.440 --> 0:03:09.880 in that Excel spreadsheet? 0:03:10.040 --> 0:03:10.880 The biggest secret? 0:03:11.040 --> 0:03:15.639 I think the real question is the multiplier effect from 0:03:15.639 --> 0:03:19.560 the tariffs. So you could say the tariff dollars raised, 0:03:19.760 --> 0:03:22.360 have every dollar that gets raised from tariffs has a 0:03:22.360 --> 0:03:24.520 one dollar impact on GDP. That's kind of the more 0:03:24.520 --> 0:03:26.880 extreme outlook, in which case you could have a bigger 0:03:26.880 --> 0:03:30.080 impact negative impact on the economy this year, or you 0:03:30.080 --> 0:03:31.960 could say it has a more you know, the lower 0:03:32.040 --> 0:03:33.880 end of the range, kind of zero point five. So 0:03:33.919 --> 0:03:36.240 for every dollar that's raised in tariffs, it's about a 0:03:36.240 --> 0:03:39.440 fifty cent hit two to GDP, which would then make 0:03:39.480 --> 0:03:42.040 it a lot more modest. And the real impact here, 0:03:42.120 --> 0:03:44.840 or the question is to what extent there's uncertainty that 0:03:45.160 --> 0:03:47.520 really weighs in the economy, And being that Trump has 0:03:47.600 --> 0:03:51.240 paired back to tariffs, it suggests a slightly lower multiplier 0:03:51.280 --> 0:03:51.600 on this. 0:03:51.760 --> 0:03:54.600 Paul Gary out on the The Light Chat on YouTube, 0:03:54.640 --> 0:03:58.000 I like learn show on this. I'm sorry, Gary kills 0:03:58.040 --> 0:04:00.680 it welcome back to the Vulcar era. 0:04:00.640 --> 0:04:02.200 Young pupps. It's coming. 0:04:02.760 --> 0:04:06.480 I mean, it's inflammatory exactly, but I'm watching the thirty 0:04:06.560 --> 0:04:10.240 year bond here. It's seven point rounded up five excuse me, 0:04:10.320 --> 0:04:14.560 five point one three percent. It's not Vulcar, but it's 0:04:14.560 --> 0:04:15.600 a shift, to. 0:04:15.520 --> 0:04:16.200 Say the least. 0:04:16.360 --> 0:04:19.000 Eric from the back room rights in Anna Wang is 0:04:19.120 --> 0:04:23.479 arguing tariff revenue will neutralize the deficit impact. 0:04:23.480 --> 0:04:24.400 That's my next. 0:04:24.279 --> 0:04:27.760 Question is Stephanie, thank you doctor Wang for I mean, 0:04:27.839 --> 0:04:28.800 we got help from girl. 0:04:28.880 --> 0:04:31.280 We got help from Wang. Today it's too too long. 0:04:31.360 --> 0:04:34.320 Everybody's terrors bringing money right there? 0:04:34.560 --> 0:04:35.080 Where's it go? 0:04:35.560 --> 0:04:38.560 So base cases the tariffs bring in three to four 0:04:38.640 --> 0:04:41.640 hundred billion dollars a year, which is not nothing. It 0:04:41.680 --> 0:04:45.400 does help to offset the deficit impact. Granted, the deficit 0:04:45.480 --> 0:04:47.840 is still going to be somewhere between six and seven 0:04:47.880 --> 0:04:50.159 percent over the next decade, so it's really not great. 0:04:51.960 --> 0:04:54.719 In a positive scenario, maybe you're in the five percent range, 0:04:54.760 --> 0:04:56.680 but you're so certainly nowhere near the three percent that 0:04:56.720 --> 0:04:57.880 Besson has been targeting. 0:04:58.440 --> 0:05:01.600 So what is FED Chairman J. Paldow. He looks at 0:05:01.640 --> 0:05:05.200 this legislation today, he says, does it change his outlook 0:05:05.200 --> 0:05:07.000 at all about how he thinks about interest rates for 0:05:07.000 --> 0:05:07.799 this economy? 0:05:07.960 --> 0:05:08.159 Yeah? 0:05:08.200 --> 0:05:10.159 I think at the margin, it reduces the odds that 0:05:10.160 --> 0:05:11.360 the FED able to cut this year. 0:05:12.040 --> 0:05:13.159 We technically have two. 0:05:13.000 --> 0:05:16.200 Cuts on paper, but the odds are certainly lower than 0:05:16.240 --> 0:05:20.279 that rather than more so, especially when you think about 0:05:20.279 --> 0:05:23.560 the sort of the net impact of tariffs, which now 0:05:23.720 --> 0:05:26.520 there's a lot less uncertainty, there's less concern around empty shelves, 0:05:26.560 --> 0:05:30.320 which meets the consumer more likely to spend, and we 0:05:30.440 --> 0:05:32.479 have a bit of a fiscal stimulus this year helping 0:05:32.520 --> 0:05:34.040 to offset some of the tariff drag. And the next 0:05:34.120 --> 0:05:36.080 year we're just talking about net fiscal stimulus, so growth 0:05:36.120 --> 0:05:37.200 potentially above two percent. 0:05:37.400 --> 0:05:40.239 The special edition of Bloomberg Surveying. That's a historic moment 0:05:40.320 --> 0:05:42.440 for those waking up across America. 0:05:43.000 --> 0:05:44.640 Two minutes to the hour this. 0:05:44.520 --> 0:05:48.839 Morning, Nathan Hager on air, the House passed this historic 0:05:48.960 --> 0:05:52.480 text legislation. Thank you Terry Haynes and David Gurra for 0:05:52.560 --> 0:05:56.039 wisdom here and Stephanie Roth briefness right now with Wolf 0:05:56.080 --> 0:05:59.560 Research and Anna Wong out moments ago with an extensive 0:05:59.600 --> 0:06:02.839 node including work Paul from the Yale Budget Lab and 0:06:02.880 --> 0:06:05.840 the Text Foundation, I mean, Ernie Tedesky and the team, 0:06:05.920 --> 0:06:08.680 and Maam mcguinnis these are our budget people folk. 0:06:08.800 --> 0:06:12.200 We will have them on air in the coming days. 0:06:12.600 --> 0:06:16.640 Is Stephanie is Eric mentioned with the team doctor Wang 0:06:16.680 --> 0:06:17.760 Paul mentioning. 0:06:17.480 --> 0:06:19.719 You know what terror springing money they do? 0:06:20.000 --> 0:06:22.680 They do and you know maybe it's the tariffs. Plus 0:06:22.720 --> 0:06:26.880 this House budget could be near deficit neutral, according to 0:06:27.080 --> 0:06:30.400 Enna Wong. So Stephanie, what's the next data point for you? 0:06:30.480 --> 0:06:32.560 What's the big issue for you to see where this 0:06:32.640 --> 0:06:36.080 economy maybe tips on the margin over the next six months. 0:06:36.120 --> 0:06:36.560 What are you looking for? 0:06:36.720 --> 0:06:40.279 Is it I'd like her to say six to twelve hours, yes, exactly? 0:06:40.680 --> 0:06:43.280 Is that labor? Is it bed? What are you looking at? 0:06:43.560 --> 0:06:45.000 The next thing to watch out for is labor. 0:06:45.440 --> 0:06:50.440 So one thing that we're watching, especially after the Supreme 0:06:50.440 --> 0:06:53.520 Court ruled on Venezuelan's that their TPS is going to 0:06:53.520 --> 0:06:56.120 be expiring for them, which is a hawk shoutcome that 0:06:56.240 --> 0:06:58.640 suggests that the program chn v. 0:06:58.800 --> 0:07:00.240 Cuba hating a Garab woman whale. 0:07:00.240 --> 0:07:03.039 There's about five hundred thousand people that's held up in 0:07:03.120 --> 0:07:06.440 courts and Trump tried to end all of their visas overnight. 0:07:06.920 --> 0:07:10.520 This suggests that the margin that these visas might also 0:07:10.600 --> 0:07:13.040 be ruled in a similar way, such that we might 0:07:13.040 --> 0:07:14.680 lose about five hundred thousand people from. 0:07:14.560 --> 0:07:15.520 The labor force overnight. 0:07:15.800 --> 0:07:17.160 So the thing that we're going to be watching from 0:07:17.160 --> 0:07:19.920 the labor market reports is what's happening with the foreign 0:07:19.920 --> 0:07:22.520 born workforce and are we're starting to see non farm 0:07:22.560 --> 0:07:25.880 pails shift down substantially because of the slowdown in immigration. 0:07:26.120 --> 0:07:28.160 Sephanie, we're off bond strategists with us. 0:07:28.240 --> 0:07:30.960 I got a ten year real yield not breaking out yet, 0:07:30.960 --> 0:07:34.800 but a two point two three percent up substantially off 0:07:34.800 --> 0:07:38.680 of the negative one percent COVID thing. I'm not back 0:07:38.720 --> 0:07:41.760 to a four percent real yield of the year two thousand. 0:07:42.240 --> 0:07:45.120 But do you just assume a higher inflation just to 0:07:45.240 --> 0:07:49.360 yield dampen's business or is that an animal spirit that 0:07:49.440 --> 0:07:51.000 folds into nominal GDP? 0:07:51.560 --> 0:07:51.800 Yeah? 0:07:51.840 --> 0:07:54.040 I mean I think it could damp into some extent, 0:07:54.120 --> 0:07:56.560 But for now we might be in an environment where 0:07:56.640 --> 0:07:58.559 growth is actually just surprising to the upside. 0:07:58.840 --> 0:08:01.360 Well, that's what President Trump's betting on. This is a 0:08:01.400 --> 0:08:02.360 growthiness is there? 0:08:02.520 --> 0:08:02.680 Yep? 0:08:03.120 --> 0:08:04.960 And that might be the case, even though we're still 0:08:04.960 --> 0:08:06.760 talking about one percent GDP growth. It's not that great 0:08:06.760 --> 0:08:08.840 for this year, but for next year looking ahead, growth 0:08:08.920 --> 0:08:10.720 might actually be pretty Twenty seconds. 0:08:10.720 --> 0:08:12.280 What are you writing about this morning? Just give me 0:08:12.320 --> 0:08:13.600 a theme there. I don't want to take it away 0:08:13.600 --> 0:08:16.520 from Wolf Research clients, but what's a number one message 0:08:16.520 --> 0:08:17.960 from you this morning to your clients? 0:08:18.240 --> 0:08:20.480 The main message we wrote back this morning was on 0:08:20.520 --> 0:08:24.560 the reconciliation bill. The main thing is there's there's hidden 0:08:25.520 --> 0:08:27.720 hidden sort of spending here, in the sense that a 0:08:27.720 --> 0:08:30.440 lot of the provisions end after four years, but if 0:08:30.480 --> 0:08:32.560 they are extended, which is largely the assumption, that's an 0:08:32.559 --> 0:08:36.080 additional one point two five trillion dollars in addition to 0:08:36.160 --> 0:08:37.200 the price tag of this bill. 0:08:37.679 --> 0:08:39.160 This is what the bond market Brian. 0:08:39.160 --> 0:08:40.240 Jeff I love this. 0:08:44.640 --> 0:08:48.240 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:08:48.320 --> 0:08:51.240 weekday afternoons from seven to ten am Eastern. 0:08:51.040 --> 0:08:54.959 Listen on Applecarplay and Android Otto with the Bloomberg Business app, 0:08:55.120 --> 0:08:57.000 or watch us live on YouTube. 0:08:57.600 --> 0:09:00.560 Russ brown Beck joins us to say is it black 0:09:00.679 --> 0:09:06.240 Rock is barely descriptive of the huge perspective. 0:09:05.679 --> 0:09:07.480 And the intelligence of his note. 0:09:07.720 --> 0:09:11.760 The fancy title is Global Macro Positioning Team, which means 0:09:11.760 --> 0:09:13.760 that Hobart years ago, he's the one that bought the 0:09:13.760 --> 0:09:15.359 cases of Jenny Kremel. 0:09:15.080 --> 0:09:17.800 In high school. I'm in college. I went up to 0:09:17.920 --> 0:09:20.840 visit a high school buddy mine in Hobart February. 0:09:21.160 --> 0:09:24.320 February night. It was the coldest. 0:09:23.920 --> 0:09:27.000 Weather I ever experienced. I was darn near in Canada. 0:09:27.000 --> 0:09:29.520 I felt like, what am I doing? That's the cold 0:09:29.679 --> 0:09:33.280 and dark, cold and dark exactly. That's where Russ sped 0:09:33.280 --> 0:09:35.120 for years out of Hobart. So, Russ, what are you 0:09:35.200 --> 0:09:37.559 doing with this market here? I mean, there's so much uncertainty. 0:09:37.559 --> 0:09:40.079 We've seen the equity markets go down twenty percent, retrace 0:09:40.160 --> 0:09:42.640 a lot of that. We had a crazy treasury market 0:09:42.679 --> 0:09:45.160 a couple of months ago. How are you guys just 0:09:45.200 --> 0:09:47.320 sitting back and saying, where do we want to be 0:09:47.360 --> 0:09:48.680 positioned in this kind of environment? 0:09:48.800 --> 0:09:48.959 Yep? 0:09:49.040 --> 0:09:51.840 So this is the super Bowl for macro. Okay, you 0:09:51.880 --> 0:09:55.160 know the the uncertainty. And by the way, the uncertainty 0:09:55.200 --> 0:09:57.480 has been with us for several years. And when we 0:09:57.520 --> 0:10:01.760 had a historic FED tightening cycle, a regional banking crisis 0:10:01.800 --> 0:10:04.120 that was scary in the moment, we had an acrimonious, 0:10:04.360 --> 0:10:07.840 historic election last year, and now you know, an uncertain 0:10:07.880 --> 0:10:10.679 period as policy gets rolled out, and so you know, 0:10:10.760 --> 0:10:13.840 it's a wonderful opportunity in fixed income y'all. In an 0:10:13.840 --> 0:10:16.720 earlier segment, we're talking about high real yields. It's an 0:10:16.760 --> 0:10:21.400 incredible opportunity in fixed income markets to harness very attractive 0:10:21.440 --> 0:10:25.400 income and do so in a very optimized way, high quality. 0:10:25.520 --> 0:10:28.319 But oh wise, when folks I can't say enough about 0:10:28.320 --> 0:10:31.160 the acuity of his note. We could literally do one 0:10:31.160 --> 0:10:34.359 hour through us and go two sentences by two sentences 0:10:34.360 --> 0:10:36.360 through the intelligence of his note. 0:10:36.440 --> 0:10:39.480 Okay, that's new money captures a real yield. 0:10:39.800 --> 0:10:42.760 New money captures a you know, ten year yield to 0:10:42.800 --> 0:10:44.160 four point six one percent. 0:10:44.320 --> 0:10:44.760 Wow. 0:10:45.120 --> 0:10:48.560 But the old buddies seeing price go down? Do people 0:10:48.640 --> 0:10:52.520 take losses? How does like if you're in JGB twenty year, 0:10:52.600 --> 0:10:55.720 you got a loss. In the US you got a loss? 0:10:56.000 --> 0:10:57.080 Do you take losses? 0:10:57.120 --> 0:10:57.320 Here? 0:10:57.360 --> 0:10:59.920 So again you're pointing to the tactical opportunities that exist. 0:11:00.080 --> 0:11:03.400 The way we position our multisector portfolios is to avoid 0:11:03.480 --> 0:11:07.720 those longer duration assets that have all that volatility today. 0:11:07.920 --> 0:11:09.480 And if you're in the front to the belly of 0:11:09.480 --> 0:11:12.160 the curve, and then you're marrying corporate credit and securitized 0:11:12.160 --> 0:11:14.760 assets on top of that, you know you're getting enough 0:11:14.760 --> 0:11:18.120 income where you can ride out short term periods of 0:11:18.480 --> 0:11:21.000 volatility that give you price losses from one day to 0:11:21.000 --> 0:11:23.760 the next. Over the course of the year, that carry 0:11:23.840 --> 0:11:24.520 just builds up night. 0:11:24.720 --> 0:11:26.840 How do you this is like with Ira Jersey here 0:11:26.880 --> 0:11:30.800 it'll be the same question, how do you feel the 0:11:30.960 --> 0:11:33.720 losses in long term paper? 0:11:34.400 --> 0:11:35.800 Will clear just done? 0:11:35.840 --> 0:11:39.000 It? To go to Friedrich Kayak on a Hiachian basis, 0:11:39.559 --> 0:11:44.880 what's the process to clear a twenty year yield loss? 0:11:45.080 --> 0:11:47.880 You know, I actually think that question was answered in 0:11:47.880 --> 0:11:51.120 twenty twenty two. That was the year that the aggregate index, 0:11:51.160 --> 0:11:53.320 as a proxy for the fixed income market, it broke. 0:11:53.360 --> 0:11:56.120 It had its worst down year in a generation. And 0:11:56.160 --> 0:11:58.199 so here we are three years later, and everything seems 0:11:58.240 --> 0:12:00.319 to be functioning reasonably well. So I think I think 0:12:00.320 --> 0:12:02.559 we've learned that lesson. You always like to say, as 0:12:02.559 --> 0:12:06.239 the X axis extends, you know, you have more certainties. 0:12:06.360 --> 0:12:11.000 Lisa, somebody listens to the show. Okay, is the axis, 0:12:11.240 --> 0:12:14.439 folks whore ripping up the script? Is the xaxis given 0:12:14.480 --> 0:12:17.640 this legislation, given the uncertainty of the. 0:12:17.600 --> 0:12:20.760 Secretary of Treasure in Trump? Is the xaxis. 0:12:20.240 --> 0:12:24.000 Logarithmic where there's a non linear dynamic in time right now? 0:12:24.200 --> 0:12:26.000 So you know, again I talked about it being the 0:12:26.040 --> 0:12:30.600 super Bowl of macro. You know this the EBB and flow. 0:12:30.679 --> 0:12:33.120 The narrative has been so negative, and yet underpinning all 0:12:33.160 --> 0:12:36.600 of it is I think an incredible positive story for fundamentals, 0:12:36.920 --> 0:12:40.800 particularly as it pertains to corporate credit, securitized assets and 0:12:40.840 --> 0:12:42.720 the like. So, you know, I love a wall of 0:12:42.760 --> 0:12:45.719 worry in markets, and I think underpinning it all is 0:12:45.760 --> 0:12:46.480 an optimism. 0:12:46.640 --> 0:12:48.679 We talked about it a lot late last year. We 0:12:48.760 --> 0:12:49.600 forgot all about it. 0:12:49.640 --> 0:12:52.000 All we talk about is what's what's scary today? 0:12:52.080 --> 0:12:54.040 How about credit? Here, Russ, how much credit risk are 0:12:54.080 --> 0:12:55.720 you guys taking in at black Rock these days? 0:12:55.840 --> 0:12:58.839 So the credit markets are higher quality than they've really 0:12:58.880 --> 0:13:01.760 ever been, certainly in my career, and they're supported by 0:13:01.840 --> 0:13:05.319 really profound technicals. Here's a great statistic for you, so 0:13:05.320 --> 0:13:09.439 I for you're cocktail party statistics, exactly, I need it. 0:13:10.440 --> 0:13:15.120 The entire high yield market the index market capitalization one 0:13:15.160 --> 0:13:18.920 point four trillion dollars. The treasury market grows by that 0:13:19.040 --> 0:13:21.800 size every nine months by virtue of the deficit. So 0:13:22.120 --> 0:13:27.000 it speaks to the deficit of yielding assets in market today. 0:13:27.080 --> 0:13:30.360 And when you marry that with really solid fundamentals that 0:13:30.480 --> 0:13:33.600 underpin credit quality, it's it's it's really just about where 0:13:33.760 --> 0:13:37.720 is optimal. So you know, back when spreads widened in 0:13:37.960 --> 0:13:41.440 the tariff event of April, we wanted to move into 0:13:41.520 --> 0:13:44.360 high quality assets that had widened a significant amount those 0:13:44.400 --> 0:13:47.240 of retraced. Now we're thinking about moving down the stack 0:13:47.280 --> 0:13:50.680 a little bit opportunistically, taking advantage of technicals and those 0:13:50.679 --> 0:13:51.680 positive fundamentals. 0:13:51.800 --> 0:13:55.120 How do you guys deal with private credit that's been 0:13:55.440 --> 0:13:58.240 such a growth story over the last fifteen years. That 0:13:58.320 --> 0:14:00.160 was in early in our careers we didn't have really 0:14:00.160 --> 0:14:02.600 probably had private equity, We didn't really have private credit. 0:14:02.640 --> 0:14:04.400 Now it's become such a big asset class. How do 0:14:04.400 --> 0:14:05.520 you guys think about that? 0:14:05.640 --> 0:14:08.480 Another awesome opportunity for us. You know, we don't really 0:14:08.520 --> 0:14:10.520 make much of a delineation between. 0:14:10.200 --> 0:14:11.400 Public and private markets. 0:14:11.679 --> 0:14:13.880 You look first and you say, am I getting enough 0:14:14.000 --> 0:14:16.760 risk premium on the asset? And secondly, am I getting 0:14:16.840 --> 0:14:20.840 enough illiquidity premium? And if you are, then it belongs 0:14:20.840 --> 0:14:22.960 in the portfolio to the work of. 0:14:23.200 --> 0:14:26.360 This is a Fidelty years ago, the giant George Vanderhyden 0:14:27.000 --> 0:14:29.840 and I think of Jeff Winnick and others the parlor 0:14:29.920 --> 0:14:32.720 game of buying a twenty year zero Are you so 0:14:33.040 --> 0:14:37.960 optimistic about total return, price up, yield down that you 0:14:38.040 --> 0:14:41.960 can speculate on a long duration zero coupon bond full 0:14:42.000 --> 0:14:42.760 of faith and credit? 0:14:43.000 --> 0:14:45.360 So you know, again, we're going to look for the 0:14:45.400 --> 0:14:47.840 optimal opportunity set. We don't think it's at the back 0:14:47.920 --> 0:14:50.640 end of the curve. I will say, you know, there's 0:14:50.680 --> 0:14:53.280 a lot of barishness about term needs to be more 0:14:53.640 --> 0:14:54.160 term premium. 0:14:54.200 --> 0:14:55.760 That's a very popular trade today. 0:14:55.920 --> 0:14:59.680 Another great statistic, only eight point seven percent of marketable 0:14:59.680 --> 0:15:02.680 treasure are twenty years or longer. If you think about 0:15:02.680 --> 0:15:05.760 the long aggregate index twenty years and longer, it's less 0:15:05.760 --> 0:15:09.560 than three trillion in market capitalization. You think about long 0:15:09.640 --> 0:15:13.000 duration assets, pension funds, insurance companies, you know estimates of 0:15:13.040 --> 0:15:16.400 around five trillion. The technicals are pretty profound. So you 0:15:16.440 --> 0:15:19.800 can push the long end of the market down in 0:15:19.840 --> 0:15:22.560 a speculative way. Over the short run, it's really hard 0:15:22.600 --> 0:15:24.160 to keep it down, and you've seen. This is the 0:15:24.280 --> 0:15:28.520 third sort of bond vigilanty scare quote unquote we've had 0:15:28.600 --> 0:15:30.560 over the past three years. The first two didn't really 0:15:30.560 --> 0:15:33.120 play out. My guess is that this one won't either. 0:15:33.560 --> 0:15:35.320 Russ Tom and I've been talking about over the last 0:15:35.320 --> 0:15:37.600 several days that thirty year treasury, which we don't talk 0:15:37.600 --> 0:15:39.440 about very much, but the thirty year treasury is now 0:15:39.480 --> 0:15:42.680 five point four percent. What does that tell you? 0:15:43.280 --> 0:15:45.640 Well, so I think if you are a long duration 0:15:45.960 --> 0:15:49.880 asset allocator five percent for the thirty year treasury or 0:15:49.960 --> 0:15:52.120 a thirty year corporate, that might yield to six percent 0:15:52.480 --> 0:15:55.800 is pretty attractive relative to the opportunity set. If I'm 0:15:55.840 --> 0:15:59.160 thinking about a sixty forty portfolio that's optimal, I want 0:15:59.160 --> 0:16:01.520 to own that front a belly expression that I talked 0:16:01.560 --> 0:16:04.120 about with corporate credit and securitized and if I want 0:16:04.120 --> 0:16:06.840 a long duration asset, truly, I'm gonna buy equities. So 0:16:06.880 --> 0:16:09.080 the sixty forty portfolio kind of gets you the best 0:16:09.120 --> 0:16:10.480 of both without owning the long. 0:16:11.160 --> 0:16:13.280 Again, smart people like you come in here all the time, 0:16:13.280 --> 0:16:15.440 and I hear that consistently. I want to own the 0:16:15.520 --> 0:16:18.120 short of the belly of the curb, not necessarily take 0:16:18.160 --> 0:16:21.320 the who's buying the duration? If you guys aren't buying it, well, 0:16:21.400 --> 0:16:24.560 so here anybody coming in her. I love buying long 0:16:24.640 --> 0:16:25.360 duration bonds. 0:16:25.760 --> 0:16:28.400 I think that there are a lot of you know, 0:16:28.440 --> 0:16:32.480 asset liability managers that need long duration assets. And so 0:16:32.600 --> 0:16:35.160 you think about again your insurance companies, your pension funds, 0:16:35.360 --> 0:16:37.600 and to them, you know, five or six percent. You 0:16:37.600 --> 0:16:39.800 think about what was possible in the decade leading into 0:16:39.840 --> 0:16:41.960 the pandemic, you know, looking at the long bomb with 0:16:41.960 --> 0:16:44.200 a one handle, you know, this is a much better. 0:16:44.040 --> 0:16:46.120 Environed Nobody wanted to talk to you back in the day. Yes, 0:16:46.160 --> 0:16:49.360 you didn't have any We were. 0:16:50.320 --> 0:16:54.880 Off script. But thats your bane. How do you fold the. 0:16:54.880 --> 0:17:00.160 Japanese challenge into our full faith and credit US market? 0:17:00.160 --> 0:17:05.480 Sarah Ellis at Deutsche Bank links in the Japanese people saying, Okay, 0:17:05.520 --> 0:17:08.760 I'm out of full faith in credit US. I'm coming 0:17:08.840 --> 0:17:10.800 over to Japan and I'm going to get a strong 0:17:11.000 --> 0:17:12.640 end because all that money's coming back. 0:17:12.840 --> 0:17:14.000 Do you buy the thesis? 0:17:14.359 --> 0:17:16.400 So it's a very different thesis. 0:17:16.440 --> 0:17:20.840 You know that their fiscal dynamics are far worse than 0:17:20.880 --> 0:17:23.600 they are in the United States. They've just come off 0:17:23.640 --> 0:17:27.040 of yield curve control, they're going through quantitative tightening, and 0:17:27.080 --> 0:17:30.840 they're bringing short term interest rates higher in deference to 0:17:31.040 --> 0:17:33.640 finally a normalization of inflation higher. It's a different set 0:17:33.640 --> 0:17:36.000 of circumstances there. Again, I'm going to turn it to 0:17:36.040 --> 0:17:38.560 what we do in the US. We're looking at opportunities 0:17:38.560 --> 0:17:41.840 if you take long Japanese government bonds and swap them 0:17:41.840 --> 0:17:44.440 back into dollars so that you don't take the currency risk, 0:17:45.000 --> 0:17:47.600 you can get over an eight percent yield. So we're 0:17:47.600 --> 0:17:49.720 looking at the world through the lens of what's optimal 0:17:49.720 --> 0:17:51.280 in building our portfolios today. 0:17:51.359 --> 0:17:53.919 Here's you valuable all features us on single best Idea. 0:17:54.560 --> 0:17:57.560 Russ brownback with us with black Rock Today, just encyclopedical. 0:17:57.680 --> 0:17:59.880 That was just absolutely wonderful. 0:18:00.119 --> 0:18:03.919 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:18:03.960 --> 0:18:07.240 starting at seven am Eastern on Applecarplay. 0:18:06.480 --> 0:18:08.920 And Android Auto with the Bloomberg Business App. 0:18:09.000 --> 0:18:12.040 You can also listen live on Amazon Alexa from our 0:18:12.080 --> 0:18:16.600 flagship New York station, Just Say Alexa Play Bloomberg eleven thirty. 0:18:17.119 --> 0:18:20.320 Terry Haynes joins US now with pengea policy. I can't 0:18:20.359 --> 0:18:23.760 say enough about his public service out and linked In, 0:18:24.320 --> 0:18:27.359 not only doing his consulting with penge in all the 0:18:27.400 --> 0:18:30.320 fancy stuff he does there, but he's been very generous 0:18:30.359 --> 0:18:34.000 out on LinkedIn to explain this moment, Terry. We're gonna 0:18:34.040 --> 0:18:36.359 be with you in a bid and I've got David 0:18:36.400 --> 0:18:38.400 Gerry here with his expertise to ask some. 0:18:38.720 --> 0:18:39.720