1 00:00:02,400 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,680 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,520 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amerie Hordern. Join us each day 4 00:00:18,760 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,960 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,319 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:35,880 Speaker 2: Terminal and the Bloomberg Business app. 10 00:00:36,560 --> 00:00:39,400 Speaker 3: The President saying he has preferred fed Share candidate, but 11 00:00:39,720 --> 00:00:42,240 Speaker 3: is in no hurry to make an announcement. Mark Banna, 12 00:00:42,360 --> 00:00:44,839 Speaker 3: Bank of America joins us now for more. Mark, I 13 00:00:44,920 --> 00:00:47,800 Speaker 3: am curious from your vantage point and good morning, how 14 00:00:47,840 --> 00:00:50,279 Speaker 3: relevant you find all these comments job. 15 00:00:50,080 --> 00:00:51,159 Speaker 1: Owning the Fedger Reserve. 16 00:00:51,720 --> 00:00:55,200 Speaker 3: What's your takeaway when you hear President Trump continue to 17 00:00:55,240 --> 00:00:57,200 Speaker 3: talk and really bash fetcher? 18 00:00:57,280 --> 00:01:00,000 Speaker 4: Jerome Powell, good morning, Happy New Year. 19 00:01:00,000 --> 00:01:01,960 Speaker 5: I hope you had a nice holiday with you your family. 20 00:01:02,960 --> 00:01:05,759 Speaker 4: So our take is that we've heard this so many 21 00:01:05,800 --> 00:01:09,680 Speaker 4: times before, and what we're really interested in is who 22 00:01:09,760 --> 00:01:12,399 Speaker 4: is the individual going to be? What is their preference 23 00:01:12,440 --> 00:01:15,640 Speaker 4: on policy broadly, and then will there be any further 24 00:01:15,840 --> 00:01:18,479 Speaker 4: turnover or change within the Federal Reserve. 25 00:01:19,280 --> 00:01:20,200 Speaker 5: It is a committee. 26 00:01:20,400 --> 00:01:23,039 Speaker 4: We do know that it takes a number of individuals 27 00:01:23,080 --> 00:01:25,960 Speaker 4: to move the needle on FED policy and impact interest rates, 28 00:01:26,200 --> 00:01:27,960 Speaker 4: and we're really trying to figure out who that's going 29 00:01:27,959 --> 00:01:30,560 Speaker 4: to be, what their preferences are, and how does the 30 00:01:30,600 --> 00:01:33,640 Speaker 4: committee composition change. So we, just like the rest of 31 00:01:33,680 --> 00:01:35,679 Speaker 4: the market, are waiting for guidance on this. So we 32 00:01:35,720 --> 00:01:38,440 Speaker 4: do think it'll come relatively soon. As you know, at 33 00:01:38,440 --> 00:01:41,760 Speaker 4: the end of January, that's when Stephen Moran's term ends. 34 00:01:41,840 --> 00:01:45,200 Speaker 5: He can stay on, but we do expect that as his. 35 00:01:45,240 --> 00:01:47,480 Speaker 4: Term comes to a close, we will get the nomination 36 00:01:47,560 --> 00:01:50,080 Speaker 4: for the next FED chair. If it is an outsider, 37 00:01:50,160 --> 00:01:53,120 Speaker 4: a e not Bowman or Waller, then they're going to 38 00:01:53,200 --> 00:01:55,600 Speaker 4: likely want to be confirmed by the end of January, 39 00:01:56,320 --> 00:01:59,040 Speaker 4: and then they will join the committee serving in a 40 00:01:59,040 --> 00:02:02,160 Speaker 4: bit of a shadow chair capacity, and we're going to 41 00:02:02,200 --> 00:02:04,760 Speaker 4: learn a little bit more about what their preferences are 42 00:02:04,760 --> 00:02:07,720 Speaker 4: on rates and what that means for the general outlook 43 00:02:07,800 --> 00:02:09,280 Speaker 4: for policy in the near future. 44 00:02:11,040 --> 00:02:13,639 Speaker 6: Mar good morning, it's this guy. Is it important if 45 00:02:13,680 --> 00:02:19,760 Speaker 6: Powell when he steps down, leaves entirely entirely or continues 46 00:02:19,800 --> 00:02:22,960 Speaker 6: to retain a seat. Is that going to be important 47 00:02:22,960 --> 00:02:24,000 Speaker 6: and how pivotal could it be? 48 00:02:24,760 --> 00:02:27,000 Speaker 4: Yeah, it doesn't matter a lot because it influences that 49 00:02:27,080 --> 00:02:29,720 Speaker 4: composition of the committee. As you know, it takes seven 50 00:02:29,800 --> 00:02:32,640 Speaker 4: voters for any action at the FED. And if Powell 51 00:02:32,680 --> 00:02:37,360 Speaker 4: chooses to stay, which would be historically unprecedented, then it 52 00:02:37,400 --> 00:02:41,440 Speaker 4: will mean that there's probably less willingness to cut rates aggressively. 53 00:02:41,760 --> 00:02:44,079 Speaker 4: If he leaves, it'll give the Trump administration one more 54 00:02:44,080 --> 00:02:47,520 Speaker 4: seat in which they can potentially remake that committee and 55 00:02:48,040 --> 00:02:51,680 Speaker 4: potentially then advocate for lower rates. History would suggest that 56 00:02:51,720 --> 00:02:54,399 Speaker 4: Powell will step down, but this is indeed his decision, 57 00:02:55,320 --> 00:02:57,720 Speaker 4: and if he goes, it's just going to mean one 58 00:02:57,760 --> 00:03:01,120 Speaker 4: more vote for potentially lower rates and reference to likely 59 00:03:01,200 --> 00:03:04,480 Speaker 4: overweight the unemployment side of the Fed's mandate versus the 60 00:03:04,520 --> 00:03:06,040 Speaker 4: inflation side of the feds mandate. 61 00:03:06,440 --> 00:03:08,240 Speaker 5: And look, when we think about the outlook. 62 00:03:07,919 --> 00:03:09,960 Speaker 4: For interest rates over the course of twenty twenty six, 63 00:03:10,040 --> 00:03:12,560 Speaker 4: we do think that the FED composition is extremely important, 64 00:03:12,880 --> 00:03:14,760 Speaker 4: and that's one of the reasons that we do believe 65 00:03:14,760 --> 00:03:17,079 Speaker 4: that the distribution of risk to the rate outlook is 66 00:03:17,160 --> 00:03:20,040 Speaker 4: kewed to the downside, we do believe it means likely 67 00:03:20,080 --> 00:03:23,480 Speaker 4: lower rates. It's deeper curve, lower real rates, higher inflation, 68 00:03:23,680 --> 00:03:26,160 Speaker 4: lower volatility, which, by the way, I do think is 69 00:03:27,320 --> 00:03:29,480 Speaker 4: quite a story for the end of twenty twenty five. 70 00:03:29,520 --> 00:03:31,799 Speaker 4: That doesn't get a ton of airplay, but that low 71 00:03:31,919 --> 00:03:35,960 Speaker 4: ball environment is so important for US rates, for US 72 00:03:36,000 --> 00:03:39,680 Speaker 4: fixed income more broadly, for elements of the dollar, elements 73 00:03:39,680 --> 00:03:42,000 Speaker 4: of the commodities trade and the goal trade that you 74 00:03:42,040 --> 00:03:46,400 Speaker 4: were talking about before, and that FED composition does very 75 00:03:46,480 --> 00:03:49,880 Speaker 4: much influence the outlook for rates and the outlet for 76 00:03:50,000 --> 00:03:51,840 Speaker 4: VALL and we do think that that's going to be 77 00:03:51,840 --> 00:03:54,760 Speaker 4: a very very relevant theme as we start twenty twenty six. 78 00:03:56,160 --> 00:03:57,880 Speaker 6: Mark, I was thinking about this as well this morning. 79 00:03:58,840 --> 00:04:01,880 Speaker 6: The move index that you guys create been tracking lower 80 00:04:02,000 --> 00:04:04,600 Speaker 6: throughout the back half of the year. What I don't 81 00:04:04,640 --> 00:04:07,480 Speaker 6: get is if I have a more volatile FED, if 82 00:04:07,480 --> 00:04:10,760 Speaker 6: I have a more volatile FMC, why doesn't that translate 83 00:04:10,840 --> 00:04:12,360 Speaker 6: into a more volatile market. 84 00:04:12,480 --> 00:04:13,280 Speaker 1: Can you explain that? 85 00:04:14,120 --> 00:04:16,040 Speaker 4: Yeah, So, the way that we think about it is 86 00:04:16,040 --> 00:04:18,400 Speaker 4: that there may be disagreement within the FED, but as 87 00:04:18,400 --> 00:04:20,960 Speaker 4: you get the shift in composition at the FED, what 88 00:04:21,000 --> 00:04:23,799 Speaker 4: it does is it just narrows the range of potential 89 00:04:23,880 --> 00:04:27,000 Speaker 4: rate outcomes, and as you increasingly staff the FED with 90 00:04:27,080 --> 00:04:29,719 Speaker 4: individuals that are going to be advocating for at worst 91 00:04:29,800 --> 00:04:33,279 Speaker 4: rates on hold or potentially lower rates, what it does 92 00:04:33,360 --> 00:04:35,880 Speaker 4: is that just further trims the potential that rates will 93 00:04:35,880 --> 00:04:39,000 Speaker 4: be moving higher. And as you narrow the range of outcomes, 94 00:04:39,040 --> 00:04:42,760 Speaker 4: that does mean that VAUL should be moving lower and lower. 95 00:04:42,839 --> 00:04:46,359 Speaker 4: Rate VAULT does touch a wide set of financial markets, 96 00:04:46,360 --> 00:04:47,720 Speaker 4: and we do think that that's going to be a 97 00:04:47,839 --> 00:04:51,599 Speaker 4: key and persistent theme over the first half of twenty 98 00:04:51,640 --> 00:04:54,520 Speaker 4: twenty six. As you get later into twenty twenty six, 99 00:04:54,640 --> 00:04:58,640 Speaker 4: the range of outcomes widens, there's midterms to consider and 100 00:04:59,200 --> 00:05:03,560 Speaker 4: just natural uncertainty that that rises with time. But in 101 00:05:03,600 --> 00:05:05,599 Speaker 4: the first half of twenty twenty six, we do things 102 00:05:05,600 --> 00:05:07,400 Speaker 4: that VUL will remain low, and that's going to keep 103 00:05:07,440 --> 00:05:10,960 Speaker 4: financial conditions quite easy, and that's going to be generally 104 00:05:10,960 --> 00:05:13,840 Speaker 4: supportive for the growth backdrop. As long as you have 105 00:05:14,000 --> 00:05:18,720 Speaker 4: FED that's not hiking, then you've got really only, you know, either. 106 00:05:18,560 --> 00:05:21,000 Speaker 5: Stable rates or lower rates to seriously consider. 107 00:05:21,160 --> 00:05:23,520 Speaker 3: I can think of all the metals traders out there 108 00:05:23,640 --> 00:05:26,800 Speaker 3: listening to this conversation and saying, but gold it's telling 109 00:05:26,880 --> 00:05:27,320 Speaker 3: us something. 110 00:05:27,400 --> 00:05:28,320 Speaker 1: What is it telling us? 111 00:05:28,520 --> 00:05:31,080 Speaker 3: The idea that copper has been on a tear, that 112 00:05:31,160 --> 00:05:33,440 Speaker 3: silver has been on a tear, that you have seen 113 00:05:33,520 --> 00:05:36,479 Speaker 3: a depreciation of the dollar, and frankly and underperformance of 114 00:05:36,560 --> 00:05:40,680 Speaker 3: US assets in relation to some of these precious metals. 115 00:05:40,720 --> 00:05:42,480 Speaker 3: Do you think that this is telling you of some 116 00:05:42,600 --> 00:05:45,440 Speaker 3: kind of inflationary impulse that will come out in what 117 00:05:45,480 --> 00:05:47,800 Speaker 3: we're seeing with respect to steeper yield curves and even 118 00:05:47,800 --> 00:05:51,440 Speaker 3: if it's not volatility, that that will grind wider throughout 119 00:05:51,480 --> 00:05:54,000 Speaker 3: the year and potentially put a cap on some of 120 00:05:54,000 --> 00:05:55,279 Speaker 3: that risk appetite. 121 00:05:55,720 --> 00:05:56,160 Speaker 5: Well, we do. 122 00:05:56,240 --> 00:05:58,159 Speaker 4: I mean, look, we think it's going to be a 123 00:05:58,240 --> 00:06:02,520 Speaker 4: dynamic that is characterized by very strong growth, by inflation, 124 00:06:02,839 --> 00:06:08,040 Speaker 4: albeit sticky that generally gets overlooked in favor of driving 125 00:06:08,160 --> 00:06:11,840 Speaker 4: a continued strong labor market and keeps it all out. 126 00:06:11,960 --> 00:06:14,440 Speaker 4: All of those things will be very, very supportive of growth, 127 00:06:14,480 --> 00:06:16,800 Speaker 4: and I do think that metals are very consistent with 128 00:06:16,839 --> 00:06:19,840 Speaker 4: that right now. Doctor Copper, as you mentioned, certainly is 129 00:06:19,880 --> 00:06:22,279 Speaker 4: telling me that growth is going to be very strong 130 00:06:22,480 --> 00:06:26,279 Speaker 4: globally over the course of twenty twenty six. What we 131 00:06:26,360 --> 00:06:29,080 Speaker 4: see in gold and silver, there's no doubt some technicals 132 00:06:29,120 --> 00:06:31,479 Speaker 4: that are at play there that drove the very very 133 00:06:31,480 --> 00:06:35,240 Speaker 4: sharp spike in silver and then slight rebound or slight 134 00:06:35,279 --> 00:06:37,360 Speaker 4: decline that we've seen over the last few days. 135 00:06:37,680 --> 00:06:39,240 Speaker 5: But I do think that there is a bit of 136 00:06:39,279 --> 00:06:40,720 Speaker 5: a debasement concern there. 137 00:06:40,839 --> 00:06:41,280 Speaker 7: I e. 138 00:06:41,520 --> 00:06:44,120 Speaker 4: Central banks, especially the FED, that may be a little 139 00:06:44,160 --> 00:06:47,480 Speaker 4: bit more dismissive of inflation than they've traditionally been, and 140 00:06:47,520 --> 00:06:50,240 Speaker 4: that should mean weaker dollar, should mean lower rates, and 141 00:06:50,279 --> 00:06:53,480 Speaker 4: that again should be tailwinds broadly for financial conditions. 142 00:06:54,440 --> 00:06:56,839 Speaker 5: All of this points to a better growth backdrop. 143 00:06:56,920 --> 00:07:00,200 Speaker 4: All of this points to a very supportive backdrop for 144 00:07:00,320 --> 00:07:04,160 Speaker 4: activity and continued easing in financial conditions of the course 145 00:07:04,200 --> 00:07:07,520 Speaker 4: of twenty twenty six. We think the biggest risk do 146 00:07:07,640 --> 00:07:11,640 Speaker 4: all of that is inflation. The biggest risk is that 147 00:07:11,680 --> 00:07:15,920 Speaker 4: the FED has to consider raising rates at some point 148 00:07:15,960 --> 00:07:18,240 Speaker 4: over the course of next year. We put very low 149 00:07:18,280 --> 00:07:21,240 Speaker 4: probability on that right now. The market does as well 150 00:07:21,280 --> 00:07:24,360 Speaker 4: it seems, but that would be the biggest shift that 151 00:07:24,440 --> 00:07:27,800 Speaker 4: could potentially throw a wrench into the low ball and 152 00:07:27,880 --> 00:07:32,200 Speaker 4: easy financial conditions and high overall base metal price conditions 153 00:07:32,240 --> 00:07:33,520 Speaker 4: that we are currently seeing today. 154 00:07:33,640 --> 00:07:35,760 Speaker 3: So next year we're going to see the one big 155 00:07:35,760 --> 00:07:38,960 Speaker 3: beautiful bill. In some of the tax cuts that people 156 00:07:39,120 --> 00:07:41,920 Speaker 3: are already expecting, we could potentially see two thousand dollars 157 00:07:42,040 --> 00:07:43,480 Speaker 3: checks sent out. 158 00:07:43,320 --> 00:07:45,160 Speaker 1: To different individuals. 159 00:07:45,400 --> 00:07:48,640 Speaker 3: There is a concern about budget deficits, especially if AIPA 160 00:07:48,760 --> 00:07:49,720 Speaker 3: is overturned. 161 00:07:50,080 --> 00:07:52,880 Speaker 1: What happened to bond vigilantes? Are they of sleep? Do 162 00:07:52,960 --> 00:07:53,840 Speaker 1: they not exist? 163 00:07:53,920 --> 00:07:55,480 Speaker 3: Is that going to be a story that's going to 164 00:07:55,640 --> 00:07:57,200 Speaker 3: come back in twenty twenty six? 165 00:07:58,560 --> 00:08:01,360 Speaker 4: It could right now. You're right, Lisa, that the market 166 00:08:01,400 --> 00:08:04,040 Speaker 4: is very unconcerned with that. If you look at asset 167 00:08:04,080 --> 00:08:06,640 Speaker 4: swap spreads in addition to VALL, they tell you that 168 00:08:07,280 --> 00:08:09,800 Speaker 4: the bond vinchil Anti concerns are very very low. We 169 00:08:09,880 --> 00:08:12,960 Speaker 4: think that they remain at bay and a big part 170 00:08:13,000 --> 00:08:16,520 Speaker 4: of that is due to changes that we are seeing 171 00:08:16,560 --> 00:08:21,360 Speaker 4: with US Treasury issuance changes very technically that the FED 172 00:08:21,440 --> 00:08:24,280 Speaker 4: is pursuing in terms of these reserve management purchases and 173 00:08:24,320 --> 00:08:26,760 Speaker 4: the addition of liquidity that we're seeing to really better 174 00:08:26,760 --> 00:08:31,400 Speaker 4: anchor repo rates in the Fed's target range, and potentially 175 00:08:32,400 --> 00:08:36,720 Speaker 4: changes that are happening on the regulatory front for banks 176 00:08:36,760 --> 00:08:40,640 Speaker 4: and as well as dealers. There's also important market structure changes, 177 00:08:41,440 --> 00:08:43,880 Speaker 4: very technical in nature that I won't go into in 178 00:08:43,920 --> 00:08:46,240 Speaker 4: great depth, but you're going to get cross margining benefits, 179 00:08:46,240 --> 00:08:48,679 Speaker 4: you're going to get something called collateral and loo. All 180 00:08:48,720 --> 00:08:51,480 Speaker 4: of these things we do think will be supportive of 181 00:08:51,600 --> 00:08:55,360 Speaker 4: increasing dealer intermediation capacity. And what that will mean is 182 00:08:55,400 --> 00:08:58,160 Speaker 4: that you're just going to have a better environment for 183 00:08:58,400 --> 00:09:01,640 Speaker 4: risk taking and fixed income, specially in the treasury market. 184 00:09:02,200 --> 00:09:05,000 Speaker 4: And that should mean that you don't get these type 185 00:09:05,040 --> 00:09:07,080 Speaker 4: of bond vigilanity concerns in a big way. 186 00:09:07,160 --> 00:09:07,920 Speaker 5: It helps a lot. 187 00:09:08,040 --> 00:09:11,320 Speaker 4: The Treasury is really only increasing issuance at the very 188 00:09:11,320 --> 00:09:14,079 Speaker 4: front end of the curve where duration risk is very, 189 00:09:14,160 --> 00:09:17,160 Speaker 4: very minimal, and what that should mean is that that 190 00:09:17,200 --> 00:09:20,080 Speaker 4: will limit those concerns of bard and vigilantes from really 191 00:09:20,120 --> 00:09:23,480 Speaker 4: taking off despite all of the headwinds that you just mentioned. 192 00:09:24,800 --> 00:09:26,959 Speaker 6: Well, can I come that question from a different angle. 193 00:09:27,120 --> 00:09:29,679 Speaker 6: I'm talking a little bit about market structure. There is 194 00:09:29,720 --> 00:09:34,680 Speaker 6: an increasing more we're seeing the treasury market being held 195 00:09:34,679 --> 00:09:39,480 Speaker 6: increasingly by private foreign holders, right and the data you 196 00:09:39,480 --> 00:09:41,960 Speaker 6: look at, the ticket data that supports that when you 197 00:09:42,040 --> 00:09:45,520 Speaker 6: get shifts in sentiment, does that mean that you're going 198 00:09:45,559 --> 00:09:50,480 Speaker 6: to see those shifts in sentiment being amplified because traditional 199 00:09:50,520 --> 00:09:55,360 Speaker 6: reserve managers although kind of more stable position, private owners don't, 200 00:09:55,440 --> 00:09:59,719 Speaker 6: and therefore are likely to change opinions and more dramatically 201 00:10:00,160 --> 00:10:01,240 Speaker 6: once once the ground. 202 00:10:01,040 --> 00:10:01,840 Speaker 5: Shifts under them. 203 00:10:02,360 --> 00:10:04,280 Speaker 6: If we do see some sort of a change in 204 00:10:04,320 --> 00:10:07,240 Speaker 6: twenty twenty six, if inflation is a problem, does that 205 00:10:07,280 --> 00:10:09,599 Speaker 6: mean the magnitude of that shift is going to be 206 00:10:09,640 --> 00:10:10,200 Speaker 6: even greater? 207 00:10:12,160 --> 00:10:13,079 Speaker 5: It certainly could. 208 00:10:13,559 --> 00:10:17,000 Speaker 4: Now when we think about ownership of treasuries, you rightly 209 00:10:17,040 --> 00:10:22,520 Speaker 4: highlight that private foreign demand has been remarkably resilient despite 210 00:10:22,679 --> 00:10:25,800 Speaker 4: all of the concerns that were evidenced over the course 211 00:10:25,800 --> 00:10:28,480 Speaker 4: of twenty twenty five. But when we think about for 212 00:10:29,400 --> 00:10:31,840 Speaker 4: private foreign demand, I really think of it coming through 213 00:10:31,960 --> 00:10:35,079 Speaker 4: two different ways, One through let's say the more traditional 214 00:10:35,120 --> 00:10:38,240 Speaker 4: asset manager or real money investor, and then the second 215 00:10:38,400 --> 00:10:42,480 Speaker 4: through a highly levered let's say relative value hedge fund 216 00:10:42,600 --> 00:10:46,600 Speaker 4: type trade. In the real money sector. We think that 217 00:10:46,600 --> 00:10:49,880 Speaker 4: that money should be pretty stable, that should be pretty sticky, 218 00:10:50,679 --> 00:10:53,840 Speaker 4: And that's largely because when we talk to global investors, 219 00:10:53,920 --> 00:10:56,800 Speaker 4: what they frequently reiterate is just that there's not a 220 00:10:56,840 --> 00:10:59,880 Speaker 4: lot of great alternatives in the global fixed income markets 221 00:11:00,080 --> 00:11:03,720 Speaker 4: away from the US dollar fixed income and if you 222 00:11:03,840 --> 00:11:06,640 Speaker 4: want relatively risk free assets, like you get in the 223 00:11:06,640 --> 00:11:09,439 Speaker 4: treasury market. The size of the market, the depth of 224 00:11:09,480 --> 00:11:12,920 Speaker 4: the market is really unparalleled, and so many investors feel like, well, 225 00:11:12,920 --> 00:11:15,040 Speaker 4: they might not want to be in dollars, but they 226 00:11:15,040 --> 00:11:17,320 Speaker 4: don't have many other good alternatives, so they have to 227 00:11:17,360 --> 00:11:18,120 Speaker 4: remain there. 228 00:11:18,679 --> 00:11:20,080 Speaker 5: Now, where we do get a little. 229 00:11:19,840 --> 00:11:23,000 Speaker 4: Bit more concern is when we think about the relative 230 00:11:23,120 --> 00:11:27,320 Speaker 4: value and highly levered let's say hedge fund positions. Those 231 00:11:27,360 --> 00:11:31,040 Speaker 4: investors are worldwide, but there's a high concentration of those investors, 232 00:11:31,120 --> 00:11:33,760 Speaker 4: especially in the UK. And what we do worry about 233 00:11:33,760 --> 00:11:38,520 Speaker 4: there is anything that could potentially trigger elevated volatility and 234 00:11:39,080 --> 00:11:42,959 Speaker 4: subsequent deleveraging That could come from the repo market, it 235 00:11:43,000 --> 00:11:45,800 Speaker 4: could come from a very volatile macro environment, and we 236 00:11:45,880 --> 00:11:49,559 Speaker 4: do worry about the concentration of ownership. There is potentially 237 00:11:49,640 --> 00:11:54,040 Speaker 4: exacerbating volatility if it were to rise meaningfully. Now we 238 00:11:54,160 --> 00:11:56,160 Speaker 4: don't think that'll be the case in the first half 239 00:11:56,160 --> 00:11:59,800 Speaker 4: of twenty twenty six. We do think that low fall inflation, 240 00:12:00,000 --> 00:12:02,800 Speaker 4: it's moving generally lower, a FED that's at worst on hold, 241 00:12:02,800 --> 00:12:06,560 Speaker 4: if not cutting, will characterize the market in the first 242 00:12:06,640 --> 00:12:09,800 Speaker 4: half of twenty twenty six. But that concentration is in 243 00:12:09,920 --> 00:12:13,000 Speaker 4: data risk that these market structure and regulatory changes should 244 00:12:13,160 --> 00:12:15,960 Speaker 4: help limit that risk in the near term. 245 00:12:17,240 --> 00:12:20,679 Speaker 2: Stay with US multile impag Savannah's counting up off. 246 00:12:20,480 --> 00:12:20,800 Speaker 5: To this. 247 00:12:29,480 --> 00:12:31,640 Speaker 3: Investors looking ahead to fresh data in the new year 248 00:12:31,679 --> 00:12:34,720 Speaker 3: to get a clear read on the US economy, Constance 249 00:12:34,800 --> 00:12:38,320 Speaker 3: Hunter of Economist Intelligence writing, the US will face a 250 00:12:38,360 --> 00:12:41,000 Speaker 3: bumpy road. If twenty twenty six were a fairy tale, 251 00:12:41,080 --> 00:12:43,280 Speaker 3: it would be a mashup of chicken little and ugly 252 00:12:43,320 --> 00:12:47,200 Speaker 3: duckling to talk about this story to Constance joins us, now, 253 00:12:47,360 --> 00:12:49,839 Speaker 3: do we have a sense of how clear the data 254 00:12:49,920 --> 00:12:52,440 Speaker 3: has been so far? In other words, have we gotten 255 00:12:52,480 --> 00:12:54,880 Speaker 3: any tell from the data in November and December that 256 00:12:55,000 --> 00:12:57,280 Speaker 3: has been muddied by the government shutdown. 257 00:12:58,360 --> 00:13:00,840 Speaker 8: We've gotten very little data that's showed the impact of 258 00:13:00,840 --> 00:13:03,560 Speaker 8: the government shutdown. The first piece of data would be 259 00:13:03,640 --> 00:13:07,640 Speaker 8: the Job's data that we received earlier this month, and 260 00:13:07,760 --> 00:13:10,640 Speaker 8: of course that shows that the number of people who 261 00:13:10,760 --> 00:13:15,599 Speaker 8: took the early retirement packages that came into effect in October. 262 00:13:15,920 --> 00:13:18,880 Speaker 8: But of course we know that the October collection for 263 00:13:19,000 --> 00:13:25,840 Speaker 8: both jobs and NCPI had flaws, so there's not a 264 00:13:25,880 --> 00:13:30,320 Speaker 8: lot there, And honestly, I don't think that matters that much. 265 00:13:30,679 --> 00:13:35,240 Speaker 8: What matters is how the interplay of the risks and 266 00:13:35,320 --> 00:13:38,559 Speaker 8: the tailwinds are going to interplay in twenty twenty six. 267 00:13:39,000 --> 00:13:41,480 Speaker 8: So of course we have tailwinds in the fact that 268 00:13:41,520 --> 00:13:44,720 Speaker 8: we have really strong consumption in the US. The Q 269 00:13:44,800 --> 00:13:48,560 Speaker 8: three GDP report was solid. If you had a smooth 270 00:13:48,640 --> 00:13:52,120 Speaker 8: road ahead of you, that would absolutely be the ugly 271 00:13:52,200 --> 00:13:55,720 Speaker 8: duckling right where it turns into a swan, and everybody 272 00:13:55,800 --> 00:13:58,720 Speaker 8: thinks it's beautiful, But of course there are potholes in 273 00:13:58,720 --> 00:14:02,840 Speaker 8: the road, and that acorn that falls on Chicken Little's 274 00:14:02,840 --> 00:14:05,440 Speaker 8: head may in fact mean that there are more acorns 275 00:14:05,480 --> 00:14:07,600 Speaker 8: than that. The sky may fall right, So we have 276 00:14:08,000 --> 00:14:11,079 Speaker 8: the whole situation with trade, so not just that the 277 00:14:11,120 --> 00:14:14,079 Speaker 8: IEPA tariffs may be overturned, but the US MCA is 278 00:14:14,160 --> 00:14:18,559 Speaker 8: up for renegotiation. And remember these agreements that have been 279 00:14:18,600 --> 00:14:22,120 Speaker 8: made are not trade deals. It takes decades to negotiate 280 00:14:22,160 --> 00:14:26,200 Speaker 8: trade deals, and so there's still a great deal of 281 00:14:26,240 --> 00:14:28,880 Speaker 8: uncertainty there. And then, of course, as we've been talking 282 00:14:28,880 --> 00:14:32,400 Speaker 8: about all morning, is the geopolitical uncertainty, whether we're talking 283 00:14:32,440 --> 00:14:35,520 Speaker 8: about the Middle East, whether we're talking about China Taiwan, 284 00:14:35,680 --> 00:14:38,400 Speaker 8: which is now of course saber rattling to send a 285 00:14:38,400 --> 00:14:42,520 Speaker 8: message to Japan, whether we talk about China making breakthroughs 286 00:14:42,600 --> 00:14:46,400 Speaker 8: in the Arctic, whether we're talking about strikes against Venezuela. 287 00:14:46,480 --> 00:14:48,960 Speaker 7: There's a lot of political. 288 00:14:48,440 --> 00:14:50,440 Speaker 9: Uncertainty on the horizon as well. 289 00:14:50,520 --> 00:14:51,480 Speaker 1: So con says this to me. 290 00:14:51,840 --> 00:14:54,560 Speaker 3: There is the unknown unknown, right, which is the geopolitics, 291 00:14:54,600 --> 00:14:57,160 Speaker 3: and then there's a known unknown, which is whether we 292 00:14:57,200 --> 00:14:59,600 Speaker 3: see any kind of resurgence in the labor market or 293 00:14:59,720 --> 00:15:01,840 Speaker 3: whether we see a resurgence in inflation. 294 00:15:02,080 --> 00:15:04,640 Speaker 1: Which do you think is the bigger risk some sort of. 295 00:15:04,600 --> 00:15:08,880 Speaker 3: Resurgence in inflation or a real substantial deterioration in the 296 00:15:08,920 --> 00:15:10,440 Speaker 3: backdrop for the jobs market. 297 00:15:11,800 --> 00:15:14,920 Speaker 7: So you know, I don't know that they're mutually exclusive. 298 00:15:15,560 --> 00:15:18,040 Speaker 8: And you know, you had the Stephen Marin interview playing 299 00:15:18,080 --> 00:15:21,160 Speaker 8: earlier and he talked about it depends if you have 300 00:15:21,200 --> 00:15:23,080 Speaker 8: a surgeon demand, but you also have a surgeon, and 301 00:15:23,120 --> 00:15:25,440 Speaker 8: supply we don't think there's going to necessarily be a 302 00:15:25,480 --> 00:15:28,760 Speaker 8: surgeon to apply. One of the really interesting things about 303 00:15:28,760 --> 00:15:31,920 Speaker 8: the Q three GDP report was all of the corporate 304 00:15:31,960 --> 00:15:36,280 Speaker 8: profit information that was contained in there. So basically the 305 00:15:36,480 --> 00:15:39,960 Speaker 8: measure that's that's sort of similar to retained earnings rose 306 00:15:40,160 --> 00:15:44,000 Speaker 8: thirty three percent. Quoter a q Q three over Q three, 307 00:15:44,040 --> 00:15:47,480 Speaker 8: so year over year in the third quarter, firms retained 308 00:15:47,520 --> 00:15:49,480 Speaker 8: a huge amount of earnings, and we saw in the 309 00:15:49,560 --> 00:15:52,400 Speaker 8: data that they didn't hire, They really slowed hiring. They 310 00:15:52,440 --> 00:15:55,320 Speaker 8: absorbed some of the costs of the tariffs. They also 311 00:15:55,440 --> 00:15:58,360 Speaker 8: front loaded those tariffs right by importing at the end 312 00:15:58,360 --> 00:16:00,920 Speaker 8: of last year and beginning of this year. And we 313 00:16:00,960 --> 00:16:04,000 Speaker 8: really think that that that something has to give there, Right, 314 00:16:04,080 --> 00:16:07,800 Speaker 8: So firms don't keep thirty three percent retain year over 315 00:16:07,880 --> 00:16:11,400 Speaker 8: year retained earnings, they invest in capex, they pay them 316 00:16:11,440 --> 00:16:13,840 Speaker 8: out in the form of dividends, or they hire more people. 317 00:16:14,880 --> 00:16:17,400 Speaker 7: We think some combination of those things will happen. 318 00:16:17,320 --> 00:16:22,680 Speaker 8: In conjunction with them passing on higher prices. In addition, 319 00:16:22,800 --> 00:16:25,080 Speaker 8: we're going to get the tax refunds from the One 320 00:16:25,120 --> 00:16:28,200 Speaker 8: Big Beautiful Bill Act. So the first quarter GDP data 321 00:16:28,280 --> 00:16:30,360 Speaker 8: and all of the data leading up to that release 322 00:16:30,400 --> 00:16:33,200 Speaker 8: of the first quarter GDP is going to look fairly 323 00:16:33,240 --> 00:16:36,880 Speaker 8: strong after coming off a pretty weak Q four because 324 00:16:36,880 --> 00:16:40,520 Speaker 8: of the government shutdown. Right, So it's going to be 325 00:16:40,640 --> 00:16:44,440 Speaker 8: a very confusing data landscape. And I think people have 326 00:16:44,560 --> 00:16:46,680 Speaker 8: this idea that the tariffs are behind us, and that 327 00:16:46,720 --> 00:16:50,600 Speaker 8: the the uncertainty from tariffs are behind us. 328 00:16:50,640 --> 00:16:51,440 Speaker 9: That is not our view. 329 00:16:51,480 --> 00:16:53,920 Speaker 8: We think that that uncertainty is going to prevail next year. 330 00:16:54,480 --> 00:16:57,360 Speaker 8: And again, one of those signals from that high retained 331 00:16:57,440 --> 00:17:01,440 Speaker 8: earnings shows that firms are paralyzed. They're uncertain what are 332 00:17:01,480 --> 00:17:03,680 Speaker 8: what are they going to do with this profits? And 333 00:17:03,720 --> 00:17:06,480 Speaker 8: I think that's the big The answer to that question 334 00:17:06,680 --> 00:17:08,600 Speaker 8: is going to be the answer to the contour of 335 00:17:08,640 --> 00:17:10,000 Speaker 8: the economy. 336 00:17:10,640 --> 00:17:12,920 Speaker 6: Okay, let's let's break that down a little bit. 337 00:17:13,160 --> 00:17:13,560 Speaker 1: Consons. 338 00:17:13,560 --> 00:17:15,879 Speaker 6: Can the FED continue to cut with inflation sounding as 339 00:17:15,880 --> 00:17:17,800 Speaker 6: sticky as you make it sound. 340 00:17:19,560 --> 00:17:22,920 Speaker 8: Well, I suppose it could, depending upon the makeup of 341 00:17:23,000 --> 00:17:26,160 Speaker 8: the FOMC. Is it likely to in the first half 342 00:17:26,160 --> 00:17:28,879 Speaker 8: of the year. We don't think so. We think that 343 00:17:28,920 --> 00:17:33,400 Speaker 8: there will continue to be descents and that the FED 344 00:17:33,480 --> 00:17:36,159 Speaker 8: will will hold rate steady for the first half of 345 00:17:36,160 --> 00:17:36,520 Speaker 8: the year. 346 00:17:37,840 --> 00:17:39,640 Speaker 7: On the other hand, if we see. 347 00:17:39,520 --> 00:17:44,560 Speaker 8: Deterioration as a result of higher tariffs, and if firms 348 00:17:44,600 --> 00:17:46,639 Speaker 8: margins compress in the second half of the year, then 349 00:17:46,680 --> 00:17:48,840 Speaker 8: we could very well see two rate cuts in the 350 00:17:48,880 --> 00:17:52,240 Speaker 8: second half of the year, especially as the pass through 351 00:17:52,280 --> 00:17:55,080 Speaker 8: from tariffs is likely to have dissipated by that time. 352 00:17:56,040 --> 00:17:59,479 Speaker 8: But it's a big unknown when and how firms are 353 00:17:59,480 --> 00:18:01,520 Speaker 8: going to pass on tear frates. We also don't know 354 00:18:01,560 --> 00:18:05,399 Speaker 8: if these tari frates are the permanent tariff rates. We 355 00:18:05,480 --> 00:18:08,600 Speaker 8: know that the administration likes to move things around as 356 00:18:08,640 --> 00:18:12,520 Speaker 8: a matter of strategy, right, so there's a lot of 357 00:18:12,600 --> 00:18:14,320 Speaker 8: uncertainty in that realm. 358 00:18:14,720 --> 00:18:18,240 Speaker 2: Stay with us. Mulpleinberg Savanna's coming up off to this. 359 00:18:27,240 --> 00:18:30,320 Speaker 3: The stocks going nowhere as traders trim bets on megacap 360 00:18:30,400 --> 00:18:32,920 Speaker 3: tech stocks heading into the end of twenty twenty five. 361 00:18:33,200 --> 00:18:36,800 Speaker 3: Data Doria Investment joins us now Data. You did some 362 00:18:36,880 --> 00:18:40,120 Speaker 3: work on what a Santa rally actually is, looking at 363 00:18:40,280 --> 00:18:42,080 Speaker 3: how often you usually see gains. 364 00:18:42,119 --> 00:18:44,200 Speaker 1: Why is it not working this time around? 365 00:18:45,040 --> 00:18:46,960 Speaker 7: Yeah, unfortunately it's not. 366 00:18:47,040 --> 00:18:48,800 Speaker 10: I mean, of course, we have nothing to complain about, 367 00:18:48,880 --> 00:18:52,200 Speaker 10: right that this has been another double digit year, and 368 00:18:52,480 --> 00:18:55,399 Speaker 10: you know, the economy has remained very strong in spite 369 00:18:55,440 --> 00:18:57,639 Speaker 10: of kind of taking some crazy hits. So when we 370 00:18:57,640 --> 00:19:00,280 Speaker 10: look back across the course of the air may not 371 00:19:00,359 --> 00:19:02,879 Speaker 10: hit that twenty percent. It's not looking good at this 372 00:19:02,960 --> 00:19:03,680 Speaker 10: stage of the game. 373 00:19:04,080 --> 00:19:04,880 Speaker 7: But it's still been. 374 00:19:04,800 --> 00:19:07,480 Speaker 10: A phenomenal year in markets, and I think, you know, 375 00:19:07,560 --> 00:19:09,520 Speaker 10: it might be too much to expect at this point, 376 00:19:09,600 --> 00:19:11,760 Speaker 10: you know, and stocks don't really have a catalyst, right 377 00:19:12,240 --> 00:19:15,120 Speaker 10: there's you know, to your point on you know, kind 378 00:19:15,119 --> 00:19:18,760 Speaker 10: of FED meeting minutes coming out later this afternoon. We'll 379 00:19:18,800 --> 00:19:21,920 Speaker 10: get some interesting content there, but you know, and jobs 380 00:19:21,920 --> 00:19:23,880 Speaker 10: be who are coming out. But I mean, where things 381 00:19:23,920 --> 00:19:26,439 Speaker 10: stand today, there's not a huge amount that's going to 382 00:19:26,440 --> 00:19:27,920 Speaker 10: happen in the course of this week that's going to 383 00:19:28,000 --> 00:19:29,040 Speaker 10: kind of drive stocks forward. 384 00:19:29,080 --> 00:19:29,520 Speaker 7: I think we. 385 00:19:29,600 --> 00:19:32,199 Speaker 10: Probably have to be happy with the phenomenal performance we 386 00:19:32,200 --> 00:19:33,400 Speaker 10: already received this year. 387 00:19:33,640 --> 00:19:35,800 Speaker 3: That probably is too much to ask for people waiting 388 00:19:35,800 --> 00:19:37,879 Speaker 3: for extra gains to put into their stocking at year end. 389 00:19:37,880 --> 00:19:39,800 Speaker 3: There is this question though about whether we are seeing 390 00:19:39,840 --> 00:19:42,760 Speaker 3: a true rotation, and that's what you're seeing this morning 391 00:19:42,840 --> 00:19:45,119 Speaker 3: on the margins. I mean, it is tepid, Let's be honest. 392 00:19:45,119 --> 00:19:47,399 Speaker 3: It's not exactly an active trading session. But you are 393 00:19:47,400 --> 00:19:50,080 Speaker 3: seeing the outperformance come from the rustle two thousand and 394 00:19:50,240 --> 00:19:52,320 Speaker 3: you have seen that over the past three weeks. Is 395 00:19:52,320 --> 00:19:54,040 Speaker 3: that something you can kind of sink your teeth into 396 00:19:54,080 --> 00:19:55,760 Speaker 3: and say it has lasting power? 397 00:19:57,080 --> 00:19:57,679 Speaker 7: We'll see. 398 00:19:57,960 --> 00:20:01,479 Speaker 10: We certainly have economic data point that suggests that the 399 00:20:01,480 --> 00:20:03,640 Speaker 10: FED saying that there's one R eight cut coming next 400 00:20:03,680 --> 00:20:06,639 Speaker 10: year is low. Right, we know FED Fund's futures already 401 00:20:06,640 --> 00:20:08,320 Speaker 10: thinks that you know, we're going to have more than 402 00:20:08,359 --> 00:20:12,240 Speaker 10: that if employment keeps weakening, if inflation kind of stays 403 00:20:12,240 --> 00:20:15,200 Speaker 10: somewhat cool, it's hard to imagine that the FED doesn't 404 00:20:15,200 --> 00:20:15,560 Speaker 10: cut more. 405 00:20:15,560 --> 00:20:17,760 Speaker 7: And if the FED cuts more, that's great for small caps. 406 00:20:17,920 --> 00:20:19,800 Speaker 10: And so I think to a certain extent, some of 407 00:20:19,800 --> 00:20:22,760 Speaker 10: that might be filtering into you know, the expectation set 408 00:20:22,840 --> 00:20:25,720 Speaker 10: for that part of the economy. Look, I'm a strong 409 00:20:25,800 --> 00:20:28,879 Speaker 10: believer in having that kind of diversification in the portfolio 410 00:20:28,880 --> 00:20:32,160 Speaker 10: to begin with. I mean, obviously large caps have outpaced 411 00:20:32,240 --> 00:20:34,360 Speaker 10: small caps this year, but I think if you take 412 00:20:34,400 --> 00:20:37,639 Speaker 10: a step back and look from just a broad diversification theme, 413 00:20:38,040 --> 00:20:42,879 Speaker 10: we've had a phenomenal year for diversification, right, International developed, 414 00:20:42,920 --> 00:20:46,239 Speaker 10: emerging market stocks thirty plus returns, so as good as 415 00:20:46,280 --> 00:20:48,240 Speaker 10: it's been in the US market. If you had a 416 00:20:48,280 --> 00:20:50,960 Speaker 10: diversify outlook in your portfolio, probably did better. 417 00:20:51,200 --> 00:20:53,320 Speaker 7: And small caps are around fifteen percent. 418 00:20:53,680 --> 00:20:56,560 Speaker 10: This is not a bad outcome, right for spreading your dollars, 419 00:20:56,560 --> 00:20:59,119 Speaker 10: spreading the risk a little bit, particularly when we know 420 00:20:59,160 --> 00:21:02,200 Speaker 10: the large cap index is so concentrated, it's so heavily 421 00:21:02,640 --> 00:21:05,680 Speaker 10: dependent and top heavy on you know, certain stocks. So 422 00:21:06,280 --> 00:21:09,600 Speaker 10: whether we're rotating into small caps or you know, we're 423 00:21:09,600 --> 00:21:12,000 Speaker 10: seeing some of the effective interest rate chatter, I think 424 00:21:12,040 --> 00:21:14,280 Speaker 10: it's a great thing to have that kind of diversification 425 00:21:14,320 --> 00:21:15,159 Speaker 10: in your portfolio. 426 00:21:16,920 --> 00:21:19,040 Speaker 6: Dana. Let's dig into that a little bit more. Does 427 00:21:19,080 --> 00:21:22,240 Speaker 6: the dollar continue to weaken in twenty twenty six? You 428 00:21:22,359 --> 00:21:24,040 Speaker 6: just talked about the fact that maybe the Fed continues 429 00:21:24,080 --> 00:21:26,120 Speaker 6: to cut That would imply maybe it does. 430 00:21:27,720 --> 00:21:28,360 Speaker 7: Yeah, for sure. 431 00:21:28,440 --> 00:21:30,000 Speaker 10: I mean, obviously the dollar has been kind of a 432 00:21:30,040 --> 00:21:32,720 Speaker 10: release valve here over the course of the last year, 433 00:21:33,160 --> 00:21:36,639 Speaker 10: and you know, notwithstanding that, you know, we don't know 434 00:21:36,720 --> 00:21:40,080 Speaker 10: for sure what's happening with inflation, right we see a 435 00:21:40,240 --> 00:21:43,240 Speaker 10: report that came out the data we know, because of 436 00:21:43,240 --> 00:21:46,360 Speaker 10: the shutdown the data, there's questions around that. We want 437 00:21:46,359 --> 00:21:48,600 Speaker 10: to get back to a place where we're collecting data 438 00:21:48,680 --> 00:21:51,919 Speaker 10: very effectively efficiently as we used to and getting what 439 00:21:51,960 --> 00:21:54,640 Speaker 10: we feel is a really solid look at what inflation 440 00:21:54,840 --> 00:21:57,240 Speaker 10: is doing. And that's obviously going to have a huge 441 00:21:57,240 --> 00:21:59,600 Speaker 10: impact on where the dollar goes in twenty twenty six. 442 00:22:00,119 --> 00:22:02,199 Speaker 10: For sure, you know, to the extent that we have 443 00:22:02,280 --> 00:22:04,639 Speaker 10: interest rate cuts, you know, and by the way, this 444 00:22:04,720 --> 00:22:07,359 Speaker 10: is just sort of to a large extent, getting the 445 00:22:07,440 --> 00:22:10,080 Speaker 10: US on pace with the accommodative policy. 446 00:22:10,280 --> 00:22:12,439 Speaker 7: We've seen it in the rest of the globe, you know, 447 00:22:12,480 --> 00:22:13,560 Speaker 7: throughout the year as well. 448 00:22:13,840 --> 00:22:16,159 Speaker 10: So this isn't you know, it's not to say that 449 00:22:16,200 --> 00:22:19,960 Speaker 10: this is terministic, but we have zumer inflation goes and yes, 450 00:22:20,080 --> 00:22:23,800 Speaker 10: interest rate cuts. Of course, if they're significantly more than expected, 451 00:22:23,840 --> 00:22:24,680 Speaker 10: we'll have that impact. 452 00:22:26,440 --> 00:22:29,680 Speaker 6: Dana, you talk about the diversification trade in dollar terms. 453 00:22:29,720 --> 00:22:32,440 Speaker 6: If I'm a dollar investor, I made thirty percent in 454 00:22:32,480 --> 00:22:34,640 Speaker 6: the foot Set one hundred this year, twenty five percent 455 00:22:35,200 --> 00:22:37,400 Speaker 6: in the cat care on the DAX has delivered nearly 456 00:22:37,440 --> 00:22:40,359 Speaker 6: forty percent, the Spanish market is delivered nearly seventy percent. 457 00:22:40,880 --> 00:22:43,960 Speaker 6: Are those kinds of numbers for US investors going to 458 00:22:44,000 --> 00:22:47,200 Speaker 6: be available next year? How much emphasis do I need 459 00:22:47,240 --> 00:22:49,840 Speaker 6: to put on the x US part of my portfolio? 460 00:22:51,000 --> 00:22:55,000 Speaker 10: I think, you know, the starting point from an academic perspective, right, 461 00:22:55,200 --> 00:22:58,080 Speaker 10: if nothing else, first principles here, the starting point is what. 462 00:22:58,119 --> 00:22:59,960 Speaker 7: Is the global ratio? Right? 463 00:23:00,160 --> 00:23:03,199 Speaker 10: So MSCI AQUI all country World index. That gives me 464 00:23:03,240 --> 00:23:05,600 Speaker 10: a great starting point for where I potentially want to 465 00:23:05,640 --> 00:23:08,440 Speaker 10: have international stocks. Now, of course, you know, coming from 466 00:23:08,440 --> 00:23:11,800 Speaker 10: a place where it's retail investors, it's advisors needing to 467 00:23:11,840 --> 00:23:14,520 Speaker 10: keep clients discipline in their in their portfolios, which is 468 00:23:14,560 --> 00:23:15,720 Speaker 10: sort of job number one. 469 00:23:16,080 --> 00:23:18,359 Speaker 7: You know, you have to measure that to a certain extent. 470 00:23:18,560 --> 00:23:22,000 Speaker 10: If US as gangbusters next year and they're measuring against 471 00:23:22,040 --> 00:23:23,840 Speaker 10: the S and P five hundred index, it may be 472 00:23:23,880 --> 00:23:26,639 Speaker 10: hard to keep them in place if international stocks don't deliver. 473 00:23:26,920 --> 00:23:29,040 Speaker 10: So to a certain extent, there's a behavioral question here 474 00:23:29,080 --> 00:23:31,919 Speaker 10: around how much can the can the person tolerate what 475 00:23:31,960 --> 00:23:34,439 Speaker 10: are they looking to as the benchmark against that portfolio. 476 00:23:34,680 --> 00:23:36,760 Speaker 10: If they're looking to a world index, I think the 477 00:23:36,840 --> 00:23:39,320 Speaker 10: starting point being the world you know, that Aqui index 478 00:23:39,359 --> 00:23:41,840 Speaker 10: that includes emerging markets. But if they're not, if they're 479 00:23:41,880 --> 00:23:44,280 Speaker 10: really tied to a US view, then maybe you have 480 00:23:44,359 --> 00:23:47,840 Speaker 10: a little bit of a reduced you know, diversification heads 481 00:23:47,840 --> 00:23:49,920 Speaker 10: there with international, but it's not as big in the 482 00:23:49,960 --> 00:23:53,160 Speaker 10: portfolio as otherwise would be because the client just you know, 483 00:23:53,840 --> 00:23:56,679 Speaker 10: if US does poorly, they're expecting their portfolio not to 484 00:23:56,720 --> 00:23:57,240 Speaker 10: do as well. 485 00:23:57,440 --> 00:24:00,360 Speaker 7: But if US outperforms, it's tough for them to kind 486 00:24:00,359 --> 00:24:00,960 Speaker 7: of stay put. 487 00:24:01,160 --> 00:24:04,360 Speaker 10: And you know, these are just kind of the behavioral considerations, 488 00:24:04,480 --> 00:24:07,479 Speaker 10: and I'll again say, I think small caps have a place. 489 00:24:07,840 --> 00:24:11,120 Speaker 7: You know, both small caps and value stocks over time 490 00:24:11,200 --> 00:24:12,080 Speaker 7: have outperformed. 491 00:24:12,160 --> 00:24:13,640 Speaker 10: We haven't seen a lot of that in the last 492 00:24:13,640 --> 00:24:16,239 Speaker 10: several years, but I think some of these fundamentals, these 493 00:24:16,280 --> 00:24:19,880 Speaker 10: first principle fundamentals are good not only for the potential 494 00:24:19,920 --> 00:24:22,879 Speaker 10: to outperform over the long haul, but also for diversifying. 495 00:24:22,920 --> 00:24:24,160 Speaker 7: Again, what is a very. 496 00:24:24,080 --> 00:24:27,760 Speaker 10: Concentrated, top heavy you know index at this point, and 497 00:24:27,800 --> 00:24:30,200 Speaker 10: most people have that in their portfolios, right unless you 498 00:24:30,240 --> 00:24:32,560 Speaker 10: have a massive tracking error to the index. You have 499 00:24:32,680 --> 00:24:35,480 Speaker 10: a ton of AI trade, right, a ton of big tech. 500 00:24:35,680 --> 00:24:38,360 Speaker 3: Well, the diversification trade is sort of taken on new 501 00:24:38,400 --> 00:24:40,639 Speaker 3: meaning every single year is people try to cry the 502 00:24:40,640 --> 00:24:43,159 Speaker 3: death of the sixty forty portfolio. I just wonder how 503 00:24:43,240 --> 00:24:46,520 Speaker 3: much you have seen a true shift toward precious metals 504 00:24:46,760 --> 00:24:48,919 Speaker 3: as a diversifier at a time where you've seen an 505 00:24:48,960 --> 00:24:51,080 Speaker 3: incredible run so far this year. 506 00:24:51,920 --> 00:24:55,240 Speaker 10: Yeah, no doubt people sort of it was this Barbell 507 00:24:55,400 --> 00:24:58,200 Speaker 10: kind of approach right to how people were putting portfolios together, 508 00:24:58,560 --> 00:25:00,840 Speaker 10: and so you had I want to not miss out 509 00:25:00,840 --> 00:25:02,879 Speaker 10: on the AI trade, but at the same time, the 510 00:25:02,920 --> 00:25:06,840 Speaker 10: ballast of my portfolio becomes gold or even silver. Now 511 00:25:06,840 --> 00:25:09,480 Speaker 10: at this point, I do think what's happening in the 512 00:25:09,520 --> 00:25:13,840 Speaker 10: retail space as well is more diversification into these sort 513 00:25:13,840 --> 00:25:16,480 Speaker 10: of alternative asset classes. And a lot of that is 514 00:25:16,480 --> 00:25:19,159 Speaker 10: happening because of product innovation in the space, so not 515 00:25:19,200 --> 00:25:23,359 Speaker 10: only commodities, not only precious metals, but private equity, private 516 00:25:23,400 --> 00:25:26,040 Speaker 10: credit in particular, and a lot of that's happening because 517 00:25:26,040 --> 00:25:29,679 Speaker 10: there's vehicle availability that allows retail investors through things like 518 00:25:29,720 --> 00:25:30,399 Speaker 10: interval funds. 519 00:25:30,400 --> 00:25:31,480 Speaker 7: These are point and clicks. 520 00:25:31,680 --> 00:25:33,719 Speaker 10: You can't get out of the fund as quickly as 521 00:25:33,720 --> 00:25:36,520 Speaker 10: you can in generate a standard mutual fund, but you 522 00:25:36,560 --> 00:25:39,000 Speaker 10: can get in and you can get access to a 523 00:25:39,000 --> 00:25:42,520 Speaker 10: different return stream. We all know there's correlation there. It's 524 00:25:42,520 --> 00:25:44,840 Speaker 10: the mark to market that kind of makes that correlation 525 00:25:45,040 --> 00:25:47,240 Speaker 10: look lower than it is. But at the same time, 526 00:25:47,240 --> 00:25:49,320 Speaker 10: you are getting access to companies that you're not going 527 00:25:49,359 --> 00:25:51,280 Speaker 10: to get in the public equity markets. And so what 528 00:25:51,280 --> 00:25:53,960 Speaker 10: we're seeing in the retail space is massive interest and 529 00:25:54,000 --> 00:25:57,160 Speaker 10: sort of to your point, diversifying that sixty forty and 530 00:25:57,200 --> 00:26:00,720 Speaker 10: doing it with alternative assets now that they're more accessible 531 00:26:00,800 --> 00:26:01,720 Speaker 10: to the average client. 532 00:26:03,480 --> 00:26:06,800 Speaker 2: Stay with us. Mult Blomberg Savanna's coming up off to. 533 00:26:06,840 --> 00:26:18,600 Speaker 3: This, So turning to the labor market picture, we want 534 00:26:18,600 --> 00:26:21,439 Speaker 3: to speak with Nicole. The show of Zippercrudo, who wrote 535 00:26:21,560 --> 00:26:24,320 Speaker 3: the low higher, low fire environment that defined much of 536 00:26:24,359 --> 00:26:27,280 Speaker 3: twenty twenty five will persist into early twenty twenty six, 537 00:26:27,600 --> 00:26:30,680 Speaker 3: but with a crucial difference. Employers are preparing for growth, 538 00:26:30,960 --> 00:26:31,959 Speaker 3: not just survival. 539 00:26:32,160 --> 00:26:34,199 Speaker 1: Nicole joins us. Now, Nicole, thank you so much for 540 00:26:34,240 --> 00:26:34,880 Speaker 1: being with us. 541 00:26:34,920 --> 00:26:37,080 Speaker 3: So let's get into that this idea that you could 542 00:26:37,160 --> 00:26:39,480 Speaker 3: start to see a revival of a labor market that 543 00:26:39,600 --> 00:26:42,159 Speaker 3: has been pretty mora bound for the second half of 544 00:26:42,160 --> 00:26:42,600 Speaker 3: this year. 545 00:26:44,400 --> 00:26:48,040 Speaker 11: Whatever movements we see in twenty twenty six will be gradual. 546 00:26:48,240 --> 00:26:50,240 Speaker 11: This is going to be slow and steady wins the 547 00:26:50,359 --> 00:26:53,679 Speaker 11: race here instead of any sort of dramatic surge that 548 00:26:53,720 --> 00:26:57,920 Speaker 11: could reignite inflation pressures. We will see hiring activities slowly 549 00:26:57,960 --> 00:27:01,080 Speaker 11: start to pick up as clear kind of comes into 550 00:27:01,160 --> 00:27:05,560 Speaker 11: view around policies like inflation and tariffs and how these 551 00:27:05,560 --> 00:27:08,240 Speaker 11: factors are going to continue to impact employers into the 552 00:27:08,280 --> 00:27:08,640 Speaker 11: new year. 553 00:27:10,760 --> 00:27:13,600 Speaker 6: Nicole, Who's going to be employed in this next phase. 554 00:27:13,680 --> 00:27:16,320 Speaker 6: Is it going to be graduates? Is it going to 555 00:27:16,440 --> 00:27:19,200 Speaker 6: be workers on AI data centers? Kind of where is 556 00:27:19,240 --> 00:27:21,520 Speaker 6: the growth going to come from. 557 00:27:22,160 --> 00:27:26,120 Speaker 11: We're not seeing AI really reshaping where people are working. 558 00:27:26,240 --> 00:27:29,160 Speaker 11: We're really seeing AI right now impacting the labor market 559 00:27:29,320 --> 00:27:33,040 Speaker 11: in how certain roles are showing up. Workers who are 560 00:27:33,080 --> 00:27:39,040 Speaker 11: able to utilize AI to increase productivity, to streamline their processes, 561 00:27:39,359 --> 00:27:41,399 Speaker 11: that's where we're going to see the most demand. And 562 00:27:41,520 --> 00:27:45,920 Speaker 11: we're already seeing employers start to focus on upscilling their 563 00:27:45,960 --> 00:27:49,880 Speaker 11: current workforce and employers who are able to remove unnecessary 564 00:27:49,920 --> 00:27:52,879 Speaker 11: barriers to make it easier to integrate AI into their 565 00:27:52,920 --> 00:27:55,760 Speaker 11: workflows and to train employees on how to use those 566 00:27:55,760 --> 00:27:58,480 Speaker 11: tools properly. That's where we're going to see the biggest 567 00:27:58,880 --> 00:28:03,040 Speaker 11: hiring bumps in the new year, Employers who are really 568 00:28:03,040 --> 00:28:05,560 Speaker 11: going to be able to take advantage of those movements. 569 00:28:06,080 --> 00:28:08,439 Speaker 11: When we look at the new grads side of the house, 570 00:28:08,640 --> 00:28:10,800 Speaker 11: we have seen, you know, obviously this is a really 571 00:28:10,920 --> 00:28:15,320 Speaker 11: challenging labor market for new entrants. There is evidence from 572 00:28:15,400 --> 00:28:18,639 Speaker 11: some surveys that we've done at zip Recruiter that employers 573 00:28:18,680 --> 00:28:21,560 Speaker 11: are eager to hire more new grads into the year, 574 00:28:22,240 --> 00:28:25,520 Speaker 11: more early early talent into their pipeline. That has kind 575 00:28:25,560 --> 00:28:28,680 Speaker 11: of been missed over the last couple of years as 576 00:28:28,680 --> 00:28:32,520 Speaker 11: focus has been shifted away from those higher tenured roles 577 00:28:32,560 --> 00:28:35,639 Speaker 11: into earlier processes in the labor market. 578 00:28:36,960 --> 00:28:38,200 Speaker 6: What does this mean for wages? 579 00:28:39,840 --> 00:28:43,280 Speaker 11: Wages will likely start to stagnate across twenty twenty six. 580 00:28:43,680 --> 00:28:46,960 Speaker 11: We've seen wages and inflation kind of converging together over. 581 00:28:46,840 --> 00:28:48,040 Speaker 9: The past several months. 582 00:28:48,280 --> 00:28:51,720 Speaker 11: As inflation continues to cool, wages will likely continue to 583 00:28:52,320 --> 00:28:52,960 Speaker 11: come down. 584 00:28:52,760 --> 00:28:53,560 Speaker 9: From where they're at. 585 00:28:53,920 --> 00:28:56,480 Speaker 11: We saw around three point five percent annual growth in 586 00:28:56,520 --> 00:29:00,520 Speaker 11: the last labor market readout, and well we see that 587 00:29:00,560 --> 00:29:03,440 Speaker 11: continuing to slip a bit into twenty twenty six as well. 588 00:29:03,600 --> 00:29:06,240 Speaker 3: How much nicole Are we starting to see the employment 589 00:29:06,280 --> 00:29:09,160 Speaker 3: picture move away from healthcare at some of these defensive 590 00:29:09,200 --> 00:29:11,440 Speaker 3: areas that need bodies. 591 00:29:11,280 --> 00:29:12,920 Speaker 1: And go to more growth areas. 592 00:29:12,600 --> 00:29:16,040 Speaker 3: I'm thinking of services, I'm thinking of manufacturing. 593 00:29:16,080 --> 00:29:18,360 Speaker 1: Are you starting to see any of that shift whatsoever? 594 00:29:20,160 --> 00:29:21,080 Speaker 9: Quite the opposite. 595 00:29:21,200 --> 00:29:25,080 Speaker 11: We're still seeing healthcare being the dominant industry, as well 596 00:29:25,120 --> 00:29:28,240 Speaker 11: as construction and other manual labor and skilled labor trades. 597 00:29:29,120 --> 00:29:32,440 Speaker 11: Healthcare is going to continue to dominate throughout twenty twenty 598 00:29:32,480 --> 00:29:36,520 Speaker 11: six and beyond, especially as US population continues to age. 599 00:29:36,720 --> 00:29:38,000 Speaker 9: There will be more demand for. 600 00:29:37,960 --> 00:29:42,480 Speaker 11: Healthcare services, especially support roles like nursing and home health aids. 601 00:29:42,840 --> 00:29:46,440 Speaker 11: As we're seeing the population demographics kind of point towards 602 00:29:47,040 --> 00:29:49,640 Speaker 11: a more bulk in that workforce for the future, so 603 00:29:49,680 --> 00:29:52,640 Speaker 11: we will continue to see those manual and skilled trades 604 00:29:53,040 --> 00:29:56,360 Speaker 11: kind of pushing up the labor market, and the cyclical 605 00:29:56,960 --> 00:30:01,720 Speaker 11: cycles of industries where we look at manufacturing and retail, 606 00:30:01,920 --> 00:30:04,680 Speaker 11: those are going to continue to stay stagnant while while 607 00:30:04,760 --> 00:30:06,280 Speaker 11: employers are figuring out. 608 00:30:06,040 --> 00:30:07,640 Speaker 9: How tariffs are really going. 609 00:30:07,480 --> 00:30:09,920 Speaker 11: To be impacting their business lines moving forward. 610 00:30:10,160 --> 00:30:11,840 Speaker 3: Taking a step back, Nicole, when we take a look 611 00:30:11,880 --> 00:30:14,000 Speaker 3: at twenty twenty five, a lot of people will say 612 00:30:14,280 --> 00:30:17,040 Speaker 3: this was the year when suddenly the labor market was 613 00:30:17,080 --> 00:30:21,480 Speaker 3: buffeted by a secular trend with artificial intelligence and companies 614 00:30:21,560 --> 00:30:25,000 Speaker 3: not wanting to hire, particularly entry level jobs because in 615 00:30:25,160 --> 00:30:30,960 Speaker 3: entry level positions because they could see potential efficiencies with technology. 616 00:30:31,440 --> 00:30:33,880 Speaker 1: Do you have any evidence to back that up. Do 617 00:30:33,920 --> 00:30:35,960 Speaker 1: you think that that's going to become an even greater 618 00:30:36,080 --> 00:30:37,760 Speaker 1: story in twenty twenty six. 619 00:30:39,840 --> 00:30:41,520 Speaker 11: I don't, and I don't know that there's a lot 620 00:30:41,520 --> 00:30:45,080 Speaker 11: of evidence that really points to AI being the actual reason, 621 00:30:45,240 --> 00:30:48,160 Speaker 11: whether that's in the headlines or not being the actual 622 00:30:48,200 --> 00:30:50,600 Speaker 11: reason for a lot of the slowdowns and hiring we've seen. 623 00:30:50,960 --> 00:30:54,560 Speaker 9: It's a convenient excuse for low hiring. 624 00:30:54,840 --> 00:30:57,360 Speaker 11: Given a lot of the other factors going on in 625 00:30:57,400 --> 00:31:00,160 Speaker 11: the macro environment that are impacting businesses right now. Now, 626 00:31:00,960 --> 00:31:03,400 Speaker 11: when we look ahead to twenty twenty six, you know, 627 00:31:03,440 --> 00:31:06,640 Speaker 11: there's a lot of room for AI to continue to 628 00:31:06,720 --> 00:31:10,000 Speaker 11: reshape how workers show up to their jobs. But there's 629 00:31:10,080 --> 00:31:12,320 Speaker 11: so much work that's not able to be taken over 630 00:31:12,360 --> 00:31:15,360 Speaker 11: by AI, especially not where we're at right now. So 631 00:31:15,440 --> 00:31:17,320 Speaker 11: this is still going to be a gradual pickup to 632 00:31:17,360 --> 00:31:20,400 Speaker 11: where we see AI really you know, hitting its stride 633 00:31:20,480 --> 00:31:23,000 Speaker 11: and taking over a lot of the automated tasks in 634 00:31:23,040 --> 00:31:23,680 Speaker 11: the workforce. 635 00:31:24,000 --> 00:31:26,040 Speaker 9: But that's not necessarily what we're seeing right. 636 00:31:25,960 --> 00:31:28,000 Speaker 5: Now, Nikole. 637 00:31:28,120 --> 00:31:30,720 Speaker 6: The FED has delivered a series of right cuts which 638 00:31:31,200 --> 00:31:37,160 Speaker 6: were labeled insurance cuts. Insurance about relating to a labor 639 00:31:37,200 --> 00:31:41,040 Speaker 6: market that was apparently slowing down. A well, those insurance 640 00:31:41,040 --> 00:31:44,600 Speaker 6: cuts required and B if they were acquired, what effects 641 00:31:44,600 --> 00:31:45,120 Speaker 6: have they had. 642 00:31:47,400 --> 00:31:50,960 Speaker 11: Unemployment has been rising throughout the second half of twenty 643 00:31:51,000 --> 00:31:56,160 Speaker 11: twenty five, so the cuts intending to stabilize unemployment, you know, 644 00:31:56,480 --> 00:31:59,640 Speaker 11: did come at the right time. But the goal of 645 00:31:59,680 --> 00:32:02,880 Speaker 11: those is to stimulate more hiring. Activity, and we have 646 00:32:03,040 --> 00:32:06,280 Speaker 11: not seen that happen yet. We haven't seen businesses be 647 00:32:06,360 --> 00:32:10,160 Speaker 11: able to translate those lower rates into actual hires and 648 00:32:10,160 --> 00:32:13,320 Speaker 11: more job growth that hopefully will come in the next 649 00:32:13,320 --> 00:32:15,800 Speaker 11: couple of months. This is also coming at a really 650 00:32:15,920 --> 00:32:18,440 Speaker 11: challenging time, as you all know, with this big kind 651 00:32:18,480 --> 00:32:21,280 Speaker 11: of data blackout and murkey data situation due to the 652 00:32:21,280 --> 00:32:24,320 Speaker 11: government shutdown. So as we look ahead to next week 653 00:32:24,360 --> 00:32:27,360 Speaker 11: where we're anticipating a new Job Support and and JOLTS 654 00:32:27,360 --> 00:32:30,920 Speaker 11: report to look at how openings and job growth look 655 00:32:31,640 --> 00:32:33,840 Speaker 11: towards the end of this year, that will really help 656 00:32:33,880 --> 00:32:36,320 Speaker 11: to clarify, you know, whether or not we're actually seeing 657 00:32:36,760 --> 00:32:38,960 Speaker 11: those cuts to do what they're intended to do, or 658 00:32:39,000 --> 00:32:42,440 Speaker 11: if we're still seeing a lot of stagnation as tariffs 659 00:32:42,840 --> 00:32:46,160 Speaker 11: and sticky inflation continue to take hold of employers. 660 00:32:47,720 --> 00:32:51,240 Speaker 2: This is the Bloomberg Sevendents podcast, bringing you the best 661 00:32:51,280 --> 00:32:54,600 Speaker 2: in markets, economics, angient politics. You can watch the show 662 00:32:54,640 --> 00:32:57,600 Speaker 2: live on Bloomberg TV weekday mornings from six am to 663 00:32:57,720 --> 00:33:01,480 Speaker 2: nine am Easton. Subscribe to the podcast on Apple, Spotify 664 00:33:01,640 --> 00:33:03,840 Speaker 2: or anywhere else you listen, and as always on the 665 00:33:03,880 --> 00:33:06,280 Speaker 2: Bloomberg Terminal and the Bloomberg Business app 666 00:33:10,320 --> 00:33:10,840 Speaker 3: Mm hmm.