Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Abramowitz Jay Ley, we bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance on Apple Podcast, SoundCloud, Bloomberg
Speaker 1: dot Com, and of course on the Bloomberg terminal. Shimbus
Speaker 1: with his chief equity and quantitative strategist of a coras I, Jennie,
Speaker 1: and you call this the gray zone. One of that's
Speaker 1: just the gray zone. The gray zone is. Look, we
Speaker 1: had a reasonably epic bear market from January to June
Speaker 1: that was not only the epitome of don't fight the Fed,
Speaker 1: but the markets took the hawkish narrative and ran with
Speaker 1: it in an unprecedented way, causing you know, if you
Speaker 1: look at the stock bond quadrant, uh, you know, the
Speaker 1: biggest losses in the combined sixty forty portfolio we've seen
Speaker 1: in years. And then it all turned in June and
Speaker 1: into a few weeks ago. Uh. And now we're at
Speaker 1: a point where do we go back to the don't
Speaker 1: fight the Fed mantra or do we think about it
Speaker 1: and we think about the unfolding, you know, perhaps the
Speaker 1: FED easing off, which is not at all in the
Speaker 1: script right now, even though people this is important to
Speaker 1: that point. In the last twenty two hours, we've heard
Speaker 1: here David Rosenberg and Looked till You of Wilmington Trust
Speaker 1: both scream the disinflation story. Edward Hyman screams. Ed Hyman says,
Speaker 1: we're going from eight ish nine ish and we're going down,
Speaker 1: not to two, but we're going to four percent. What
Speaker 1: does your world do if we get an ed Heiman disinflation?
Speaker 1: Stocks do well? Stocks they do double digit well? Like
Speaker 1: do they roar? Not in this environment, not yet, because
Speaker 1: that likelihood is that if that happens. Ed's view of
Speaker 1: one percent GDP is probably where we are in and
Speaker 1: that's still a constrained environment. But I want to make
Speaker 1: a point here. Okay, you've got three FED speakers today, Okay,
Speaker 1: and if you think about it, going back to the
Speaker 1: first hike in March, every time there was an extreme
Speaker 1: sort of market response to anything that Pal said, both
Speaker 1: either hawkish or dubbish. The FED speakers come out and
Speaker 1: have moderated the tone. It's going to be very informative
Speaker 1: what they say. Can we give him on every day
Speaker 1: the other day, I mean, just to lighten it up here,
Speaker 1: people can talk to his people. So far, Julian, to
Speaker 1: your point, the other FED officials have absolutely double down.
Speaker 1: They have not watered down j Powell's message at all.
Speaker 1: They've gone quite the other way. How does that inform
Speaker 1: your assertion, which is rather dramatic, that the growth led
Speaker 1: rally is over. You're basically repudiating this idea that big
Speaker 1: tech can rally in the face of perhaps more economic weakness,
Speaker 1: even with a FED that is determined to high grades. Well.
Speaker 1: And again, it's surprising to the extent in the last
Speaker 1: couple of days how much the other FED officials have
Speaker 1: doubled down. But what it does is it just when
Speaker 1: you when you look at yields, you know they're going
Speaker 1: up on the short end rates, but also when you
Speaker 1: think about the fact that tomorrow we're gonna start billion
Speaker 1: a month in QT, it's hard not to make the
Speaker 1: case that yields on the long end or going up
Speaker 1: as well. And again, as we've seen in this positively
Speaker 1: correlated stock bond world, that's a massive headwind for stocks,
Speaker 1: particularly for growth stocks. What kind of downside are you
Speaker 1: seeing Julian. I would say the key here is does
Speaker 1: the consumer hold in in September? If you think about it,
Speaker 1: one of the anomalies of this year is that consumer
Speaker 1: sentiment has been absolutely abysmal the entire year, and spending
Speaker 1: has been fine. Obviously, that's one of the strangeness is
Speaker 1: about a new inflationary environment. But if you think about it,
Speaker 1: you know, could you get into this idea where back
Speaker 1: to the office, we're back to school Septembers is challenge?
Speaker 1: That is the kind of environment. If the consumer holds in,
Speaker 1: we could be okay, we you know, but if not,
Speaker 1: there's a potential retest of the lows and store. Well,
Speaker 1: that's just a bigger question, Jenny. And it's not about
Speaker 1: whether inflation comes down to four percent, it's what price
Speaker 1: you're wanting to pay to get inflation down to four percent?
Speaker 1: Was unemployment when inflation comes down to four percent? What's
Speaker 1: happened at g d P when inflation comes down to
Speaker 1: four percent? Jenny? It's not that easy, is it just
Speaker 1: to say we come down to four percent, that's good
Speaker 1: for stocks? No, not at all. And and look, if
Speaker 1: we've learned anything this year, or I'd argue the last
Speaker 1: two and a half years, is that the tail outcomes.
Speaker 1: You know, when people talk about black swans, they happen
Speaker 1: a heck of a lot more frequently than we would
Speaker 1: have ever imagined. And that's really what you've seen to
Speaker 1: a large extent this year. And and so you know,
Speaker 1: there's a lot of different potential outcomes. As we had
Speaker 1: into the fall, wet trying to say, super super open
Speaker 1: minded about this, Judy, and can you help us do
Speaker 1: that the short and shadow consensus around a recession in America?
Speaker 1: How are you being the team thinking about maybe the
Speaker 1: tail risks here? So we continue to think that you're
Speaker 1: not likely to have a recession. But if Ed's view
Speaker 1: of one percent GDP next year is correct and we
Speaker 1: see asymmetrical pardon me, symmetrical risks around that number, it's
Speaker 1: still going to feel for asset markets from time to
Speaker 1: time as if there's a recession that argues for higher volatility.
Speaker 1: And then again, you know Ed said it a couple
Speaker 1: of days ago, it argues for humility and forecast. As
Speaker 1: that sent out the memo, everyone get back to the office.
Speaker 1: There's a real question did he do a Solomon the memo?
Speaker 1: You know, day after labor day. We're we're we're we're
Speaker 1: guns blazing. Get back in that ties a backup notice
Speaker 1: as wold something, did you notice that a message when
Speaker 1: was with us from government? I noticed the tie was back,
Speaker 1: but only after the interview. But the tie was the
Speaker 1: time pandemic. Yean took it off both times. Gone Tom,
Speaker 1: the tie is gone. No, Jillian, thank you. It's got
Speaker 1: to see you on the open. Christian Nodding joins its
Speaker 1: collobal chief investment officer at Deutsche Bank Private Bank. Christian,
Speaker 1: we have taken out the June highs on a two
Speaker 1: year year old. And the question a lot of people
Speaker 1: are asking is whether they secuity market has to test
Speaker 1: that June loves your thoughts well. From from our point
Speaker 1: of view, if you think from a gross perspective, we
Speaker 1: do think there is at least my procession coming in
Speaker 1: the US, and there's also a recession unavoidable for US
Speaker 1: in the Eurozone. And from that perspective, I wouldn't be
Speaker 1: surprised if equity markets going on a bit further from here.
Speaker 1: And we have been calling um saying the June Judy
Speaker 1: uptick is probably not is a bear market. Relly is
Speaker 1: probably not. Where we end we've been arguing for by
Speaker 1: the next tip, and I wouldn't be surprised if we
Speaker 1: see and if you look at the the markets, is
Speaker 1: another three four or five six percent depending on the
Speaker 1: markets downside, I wouldn't pull out that we get there
Speaker 1: from from our point of view, Christianity, what do you
Speaker 1: do with bands? The chart that I put up earlier,
Speaker 1: price flat yield, I guess up a little bit. Global
Speaker 1: bonds on an aggregate basis are back eleven years? What
Speaker 1: do you do with that institution? Like? Well, from all
Speaker 1: point of you, it has been right to be short duration,
Speaker 1: and we kept it. So from that perspective, at least
Speaker 1: you can avoid to be super long duration, as as
Speaker 1: many investors sometimes have to be. I think that's number one.
Speaker 1: And then you really need to look at quality from
Speaker 1: our point of view, So um you had discussed before.
Speaker 1: If there's a recession, what doesn't mean to credit spreads?
Speaker 1: I think we also need to look a little bit ahead,
Speaker 1: as we don't expect, at least in the US sustained
Speaker 1: long recession. Maybe it's two quarters, three quarters. I think
Speaker 1: if spreads are widening, there is an opportunity if you
Speaker 1: look into investment grade. I would be a bit more
Speaker 1: careful on on the high yield side from our point
Speaker 1: if we don't think these levels which seem attractive but
Speaker 1: from our point of view, is not where we want
Speaker 1: to go in right now. Christian, is is European a
Speaker 1: toxic place to invest in right now based on the
Speaker 1: energy backdrop and some of the volatility there? Or are
Speaker 1: you still seeing perhaps some opportunities even ahead of the US.
Speaker 1: But I wouldn't call it toxic place to be very honest.
Speaker 1: But of course it's tough to be very optimistic about
Speaker 1: you at this point in time. Let's call it like this.
Speaker 1: I think there are opportunities. If you think the e
Speaker 1: c B is is doing quite a lot, as we do,
Speaker 1: we can imagine over the next twelve months the ECB
Speaker 1: is moving from zero now to two, which is quite something.
Speaker 1: I would say. There is I think opportunities in European
Speaker 1: financials which could profit from that. But for the overall market,
Speaker 1: it depends really on the energy crisis and how the
Speaker 1: winds plays out to be, and from that perspective, it's
Speaker 1: not going to be easy for Europe the next month.
Speaker 1: I think, Christian, did you just say that you're investing
Speaker 1: in European banks. Yeah, I think European financials have upside because,
Speaker 1: as I said, if the e c B is moving,
Speaker 1: they can profit from from a higher interest rate level.
Speaker 1: And from that perspective, now we are at zero and
Speaker 1: I would expect the ECB not to look so much
Speaker 1: at growth because their targets really price stability and to
Speaker 1: move up in increasing rates. And from that perspective, I
Speaker 1: think that would be positive for them. Yes, the Christian
Speaker 1: how can it to a recession? What's more important here?
Speaker 1: It's the right hikes, So they came a backdrop. Yeah,
Speaker 1: but I think yeah, recession, yes, but also here in Europe,
Speaker 1: I think it's not a recession which is a deep recession,
Speaker 1: which which takes quarters and quarters. From that perspective, yes,
Speaker 1: there is some implication and you have not seen a
Speaker 1: massive movement upwards. Although the market is pricing some of
Speaker 1: the s B hikes, not all. I think the e
Speaker 1: CB is doing more and from that perspective, I think
Speaker 1: there could be some positives being overgrowth looking at rate hikes.
Speaker 1: From our point of view, well that's the try for
Speaker 1: the Brive Christian, Thank you, sir Christian. Now in their
Speaker 1: bank private bank. Deborah Cunningham wakes us up for September
Speaker 1: Global liquidity markets officers Federated rome As were thrilled she
Speaker 1: could join us this morning. What does CFOs do in September?
Speaker 1: I get the idea of equities, everybody comes back, They recalibrate,
Speaker 1: blah blah blah. What does CFOs do about the issuance
Speaker 1: of UH bills, notes and bonds come September? Well, I
Speaker 1: think they look at what the plans are for the
Speaker 1: rest of the year, where they're going into the next year,
Speaker 1: and decide on short term, long term how much UM
Speaker 1: you know, in in what secretary of the market they're issuing.
Speaker 1: We'll see debt come come into the marketplace. I agree.
Speaker 1: Robert Schiffman has a stunning essay out on Amazon at
Speaker 1: Bloomberg Intelligence this morning of the financing that they could
Speaker 1: do for a one billion dollar possible transaction just to
Speaker 1: get the firepower in year world. Is a lot of
Speaker 1: debt going to be issued just to get the firepower ready?
Speaker 1: You know, I think there have been companies that have
Speaker 1: UM have have already termed out some debt taking advantage
Speaker 1: of what they think are the shortest or the lowest
Speaker 1: rates that are going to be UM, you know, available
Speaker 1: to them for a while as inflation continues to be
Speaker 1: an issue. UM. But I don't think it's everyone. I
Speaker 1: think you've still got you know, asset backed issuers. I
Speaker 1: think you have corporates. I think you have financials that
Speaker 1: are all looking still for additional debt financing in the
Speaker 1: short term sector as well as maybe the you know,
Speaker 1: short to intermediate area of the bond curve over the
Speaker 1: next UM, over the rest of this year and into
Speaker 1: two thousand and twenty three, debor you've got a front
Speaker 1: row seat and to one of the biggest questions in
Speaker 1: markets coming up, particularly starting this week, with the acceleration
Speaker 1: of the runoff and the balance sheet and what that
Speaker 1: will do with respect the removal of liquidity in up markets,
Speaker 1: how much that will inject volatility, UH into a lot
Speaker 1: of the banking sphere in particular, what's your view in
Speaker 1: terms of what you're seeing on the ground with liquidity
Speaker 1: exiting certain aspects of the market that really have been
Speaker 1: fueling some of the frontier areas well. Certainly, you know,
Speaker 1: it's been going on since June. Now it's gonna double,
Speaker 1: you know, starting next month, starting starting tomorrow, UM and
Speaker 1: it's been masked by other issues in the economy. So
Speaker 1: you know, what we have seen so far from a
Speaker 1: roll off of treasury and mortgage backed securities has already
Speaker 1: been overshadowed by the increasing rate environment that we've experienced
Speaker 1: and the sell off in those securities UM in response
Speaker 1: to that. Uh, you know, the expectation would be as
Speaker 1: they double it, you're looking at something that has an
Speaker 1: impact of probably another twenty five or fifty basis point,
Speaker 1: like tightening by UM, by the f O m C.
Speaker 1: And as such, you know where where where are the buyers?
Speaker 1: Who are the buyers? UM? We have, from at least
Speaker 1: a treasury perspective, however, been in you know, sort of
Speaker 1: a supply demand imbalance where there hasn't been enough in
Speaker 1: supply in the marketplace. So it's really gonna be welcomed,
Speaker 1: I think to some degree, for you know, the most
Speaker 1: highest quality treasury securities in the marketplace. From an MBS standpoint,
Speaker 1: there may be a little bit more resistance, but it's
Speaker 1: smaller volume there as well. Debra, gotta leave it there,
Speaker 1: thank you, Debora. Kind of federated. I think it's coming back,
Speaker 1: and obviously a lot of this is just gonna have
Speaker 1: to the macro environment. You know, if we see markets
Speaker 1: crash again, we're going to see crypto crash along with it.
Speaker 1: I see a market recovery, we're going to see a
Speaker 1: crypto recovery along with it. But I think this is
Speaker 1: you know, it's flushed out a lot of the things
Speaker 1: that needed to be flushed out from the crypto space anyway.
Speaker 1: It wasn't dead, dead, bath and beyond. But go from
Speaker 1: billion dot eight billion network net worth makes it difficult.
Speaker 1: Two thousand four Sam Bankman free with David Rubens and
Speaker 1: this is an extremely important conversation for all wired up
Speaker 1: to crypto like me and Lisa. Mr Rubinstein joins us
Speaker 1: this morning. Look for that nine pm tonight. Um, this
Speaker 1: guy's controversial, to say the least. What is his cred
Speaker 1: What is the thing that he has that makes people
Speaker 1: in crypto listen to him? Well, he's very smart and
Speaker 1: he's made a lot of money. When you make a
Speaker 1: lot of money, that's still a lot of money to David.
Speaker 1: But at the age of thirty he was worth twenty
Speaker 1: two billion dollars. He became the youngest person to sign
Speaker 1: the Giving Pledge, and he's committed to giving away all
Speaker 1: his money. He basically spends nothing on himself. He lives
Speaker 1: in to Bahamas, basically has no clothes of any consequency,
Speaker 1: wear shorts and T shirts and tennis shoes all the time,
Speaker 1: listen to dorm with eight a friends or so. He
Speaker 1: only cares about certain public issues and public policy. But
Speaker 1: he's very unusual. How does he control or what does
Speaker 1: he believe the price of bitcoin will do? How does
Speaker 1: it discover a bid at whatever level? Well, I didn't
Speaker 1: ask him that because he's basically he operates f t X,
Speaker 1: which is an exchange, so it gives everybody the opportunity
Speaker 1: to buy or sell bit coin or other cryptocurrencies. He
Speaker 1: doesn't know what the right price should be. He recently
Speaker 1: bailed out a lot of companies that had troubles. He
Speaker 1: might lose money on all that, but he feels it
Speaker 1: was good for the industry. So why is this industry
Speaker 1: important from a social benefit kind of way? If he
Speaker 1: is David incredibly idealistic and looking for the em betterment
Speaker 1: of a social order, Well, his view is that people
Speaker 1: who have money should give away that money or do
Speaker 1: things for good social purposes. And that's what he's always
Speaker 1: believed and he now has a fair amount of money,
Speaker 1: and he's giving away a good deal of money. He's
Speaker 1: also involved in politics, and he gives a lot of
Speaker 1: money the politicians. He thinks it's good to get good
Speaker 1: public servants in government, and so he's trying to back
Speaker 1: the ones he thinks are good. He has an unusual
Speaker 1: lifestyle in that he's really not buying any of the
Speaker 1: accouterments of wealth that you normally get when you have,
Speaker 1: you know, multi billion dollar fortune. I have to pivot
Speaker 1: a little bit because David Rubinstein. I caught an article
Speaker 1: that was written about you a couple of days ago
Speaker 1: about your potential bid for the Nationals, possibly the Orioles
Speaker 1: should they come up for offer. Is this is this
Speaker 1: a moment of passion or is this something that's actually
Speaker 1: an investment at a time when a lot of people
Speaker 1: are looking for alternative assets. Well, um, you know, I
Speaker 1: realized when I was young, I wasn't going to be
Speaker 1: a professional baseball player. I thought I was a great
Speaker 1: star at six or seven, but when I got the
Speaker 1: eight or nine, I realized I probably wasn't going to
Speaker 1: make the major leagues. So I figured if I ever
Speaker 1: get the major leagues, I probably have to do it
Speaker 1: as an investor or an owner. So I have I
Speaker 1: am from Baltimore. I have looked at, uh whether buying
Speaker 1: a baseball team makes some sense, but that's too early
Speaker 1: to say. What's going to happen now? I at least
Speaker 1: that was a very dangerous question. Why is it dangerous, David?
Speaker 1: It was a dangerous question. Gonna come back again. UM
Speaker 1: to the point of baseball and sports the stereotype of
Speaker 1: big hitters as they can buy any sports team and
Speaker 1: it never goes down, It just always goes up. Why
Speaker 1: is that it's hard to lose money on a sports
Speaker 1: team generally when you own them. The NFL teams they
Speaker 1: make money as hand over fist um, Baseball, basketball, um.
Speaker 1: Other teams they make money when you tend to sell
Speaker 1: the team UM. And so people rarely lose money selling
Speaker 1: a team. In the end, if you you can support
Speaker 1: the team without current income from the team, you can
Speaker 1: do quite well just holding it for quite some time.
Speaker 1: But if you look at most people who have made
Speaker 1: money in baseball is by selling the team, not operating
Speaker 1: a daily On the other hand, some teams are very
Speaker 1: profitable on cash flow basis. Where are you and Carlisle
Speaker 1: with the investments over the years on public investment in stadium. Now,
Speaker 1: you don't need to do that in Baltimore because Camden
Speaker 1: Yards is truly one of our jewels. But but should
Speaker 1: public funds be spent I'm trying to think of the
Speaker 1: city right now where this is a raging debate should
Speaker 1: we buy new baseball stadiums? Well, every every government official
Speaker 1: presumably is elected by people, and they make the decisions
Speaker 1: that hopefully reflect what their population wants. So populations tend
Speaker 1: to want these things. People like the sports teams. You
Speaker 1: have such an enduring place in philanthropy. If Mr Sam
Speaker 1: Bankman Freed enjoys going from twenty two billion down to
Speaker 1: eight billion, and let's say bitcoin cracks and goes down
Speaker 1: to whatever, twelve thousand, whatever, does he change? I don't
Speaker 1: think he changes a lot. He's remember, he's not spending
Speaker 1: this on his personal kind of uh needs. He's not
Speaker 1: buying homes or planes or things like that. And I
Speaker 1: think whether he's worth eight billion, twenty two billion, or
Speaker 1: one billion, I don't think he's going to change very much.
Speaker 1: He's very young, he's only thirty years old. I'd like
Speaker 1: you to come back and talk to me for one
Speaker 1: hour about the National Archives, which is being dragged for
Speaker 1: the mud right now. I know this is a third
Speaker 1: rail for you, and if you find the time and
Speaker 1: the energy, I would love to do a half hour
Speaker 1: non stop on what is anytime, heart and soul. The
Speaker 1: National Archives is a great institution in Washington and has
Speaker 1: all of the records of the federal government and it's
Speaker 1: been around from the nineteen twenties. Um, they don't have
Speaker 1: a current head because uh, David Ferry O resigned, were tired,
Speaker 1: but there will be somebody who is likely to be
Speaker 1: confirmed soon, the first woman to be the chief arcibus
Speaker 1: United States. She talked right around me there. What if
Speaker 1: the right wing part of America goes after your National
Speaker 1: Archives with your philanthropy on magnet card and the rest, Well,
Speaker 1: there are people in Congress, so I think we'll prevent
Speaker 1: that from happen. System will prevent it, I hope, so, right, David,
Speaker 1: Thank you so much, David Rubinstein. We know tonight with
Speaker 1: f t X CEO Sam Bankman Fried and as Lisa
Speaker 1: Bramwitz said to me in my ear, Orioles three games
Speaker 1: behind in the wild card race as well. Thank you
Speaker 1: for that information. You keep throwing me under the bus, right,
Speaker 1: and you have the badge words tomorrow. This is the
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Speaker 1: Tom Keene, and this is Bloomberg