WEBVTT - Markets in Flux as Iran War Drags On 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. 0:00:22.320 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.200 us live on YouTube. 0:00:27.520 --> 0:00:31.560 Scrid thing is serious stuff. Are you rebuilding America Front Center? 0:00:31.600 --> 0:00:35.360 And it's It's a story that's not going to go away. 0:00:35.479 --> 0:00:38.640 Wayley mentions that with a great chart on materials, We're 0:00:38.720 --> 0:00:41.279 thrilled that she could join us this morning for an 0:00:41.320 --> 0:00:46.800 extended conversation chief investment strategists for the world for mister 0:00:46.840 --> 0:00:50.080 Fink and Blackrock this morning. Wyley, you're out on LinkedIn. 0:00:51.280 --> 0:00:55.400 Dan Roth emailed me at LinkedIn, He says, Tom pitch LinkedIn. Okay, 0:00:55.520 --> 0:00:58.400 you want to join LinkedIn, folks for no other reason 0:00:58.440 --> 0:01:01.880 to watch way Lee of black Rock and Urine timor 0:01:02.040 --> 0:01:08.160 Fidelity and I'll mentioned Marcains as well at Pangaea in Washington. Wayley, 0:01:08.319 --> 0:01:13.759 this chart is spectacular on the emotion evaluation, energy up 0:01:14.440 --> 0:01:19.360 versus earnings, where technology continues to win. Whatever the word 0:01:19.440 --> 0:01:23.440 outcome is on July fourth, technology is going to continue 0:01:23.480 --> 0:01:24.520 to win, right. 0:01:26.480 --> 0:01:34.679 Well, This is a sentiment emotional market, it's not a 0:01:34.760 --> 0:01:41.640 fundamental market. The chart that you refer to Tom shows the 0:01:41.800 --> 0:01:46.760 energy sector is the best performing, not surprisingly so far 0:01:46.840 --> 0:01:49.840 this year, but in terms of earnings is the worst 0:01:49.920 --> 0:01:52.760 in terms of earnings delivery. But it doesn't matter when 0:01:52.880 --> 0:01:56.880 market is a repricing risk premier, and by the way, 0:01:56.880 --> 0:02:01.720 it's repricing risk premium in an extremely extremely tropy ways 0:02:01.720 --> 0:02:04.480 so far this week. It's just the latest evidence that 0:02:04.560 --> 0:02:08.840 we cannot predict the blow by blow in terms of announcements, 0:02:08.880 --> 0:02:12.560 which is white directionally with flattening exposure to equities. 0:02:13.560 --> 0:02:15.040 Flattening exposure to equities. 0:02:15.120 --> 0:02:19.280 Is that suggesting way that maybe these markets are maybe 0:02:19.320 --> 0:02:24.200 too sanguine about the risk opposed by perhaps higher energy 0:02:24.200 --> 0:02:25.080 prices for longer. 0:02:26.600 --> 0:02:27.920 I would say two things. 0:02:28.120 --> 0:02:31.480 First is this, Yes, there is a disconnect between energy 0:02:32.240 --> 0:02:36.320 market that is pricing in doable disruption and. 0:02:36.480 --> 0:02:37.960 Broader risk assets. 0:02:37.960 --> 0:02:41.200 You look at US equities that's just down I think 0:02:41.240 --> 0:02:43.919 four percent from the beginning of the conflict, So there 0:02:43.960 --> 0:02:46.640 is definitely a disconnect. And the second thing I would 0:02:46.639 --> 0:02:48.840 say is that I've spoken to a lot of investors 0:02:48.880 --> 0:02:52.720 the last three weeks, and lots of clients globally as well. 0:02:52.720 --> 0:02:56.000 There are really just two ways to invest in and 0:02:56.120 --> 0:03:00.519 navigate this market. The first one is directionally, second one 0:03:00.600 --> 0:03:05.080 is thematically. So what flattening exposure directionally because in the 0:03:05.120 --> 0:03:08.920 near term it's just so trophy reacting to headlines. 0:03:08.960 --> 0:03:10.960 But thematically, as a. 0:03:11.040 --> 0:03:14.120 Result of events in the Middle East is to every 0:03:14.160 --> 0:03:17.080 single company, every single government globally, they are going to 0:03:17.480 --> 0:03:22.080 think even harder about supply chain resilience, even harder about 0:03:22.200 --> 0:03:24.480 energy independence, and those are the things that we want 0:03:24.480 --> 0:03:24.959 to lean into. 0:03:25.919 --> 0:03:29.280 So waylia, are there certain sectors here that even though 0:03:29.280 --> 0:03:33.559 you're kind of taking down your risk appetite that thematically 0:03:33.760 --> 0:03:34.519 is it defense? 0:03:34.639 --> 0:03:35.760 Is it infrastructure? 0:03:36.560 --> 0:03:38.240 Is that a place to hide or maybe try to 0:03:38.240 --> 0:03:40.280 take advantage of this uncertainty? 0:03:41.520 --> 0:03:44.920 Absolutely, So the adjustment that we have made is to 0:03:45.040 --> 0:03:49.360 brain broad US acrodies from modest overweight to neutral, recognizing 0:03:49.360 --> 0:03:53.200 that there is a disconnect between the energy market pricing 0:03:53.400 --> 0:03:58.240 and where risk assets are. And then we're also leaning 0:03:58.280 --> 0:04:03.080 into you know, like we up the European government bond 0:04:03.240 --> 0:04:06.880 front to end from neutral to models overweight and recognizing 0:04:07.320 --> 0:04:11.120 government bonds broadly the front end they have gone through 0:04:11.200 --> 0:04:15.280 significant reprising, really notable, So there is a big pash 0:04:15.320 --> 0:04:18.240 buffer to be to be built. But you talked about infrastructure, 0:04:18.279 --> 0:04:20.920 defense and energy. Visit the themes that we want to 0:04:21.000 --> 0:04:22.720 lean into Waily with us. 0:04:22.600 --> 0:04:25.680 And we continue with our sheu's with black Rock as 0:04:25.760 --> 0:04:29.880 Global Chief Investment Strategies. Paul helped me here because I'm 0:04:29.920 --> 0:04:32.039 sick of Duke and we'll talk about that in a moment. 0:04:32.240 --> 0:04:34.800 Is the University of Cambridge in March madness? 0:04:35.160 --> 0:04:36.400 No, I don't think they are. 0:04:36.440 --> 0:04:39.520 They're not in there. Okay, Wayley over at Duke, which 0:04:39.600 --> 0:04:41.920 is going to win the tournament. According to Paul Sweeney, 0:04:42.160 --> 0:04:45.919 there's a professor Cameron Harvey, Cam Harvey, and he is 0:04:46.040 --> 0:04:52.400 definitive on the idea that bonds lead stocks, that the 0:04:52.520 --> 0:04:57.280 price dynamics of bonds are out front of what equities 0:04:57.320 --> 0:05:00.840 will do. Do you buy that within your mathematical work, Cambridge? 0:05:02.839 --> 0:05:07.440 I think it depends on lead by how much? Really, 0:05:07.720 --> 0:05:11.400 it's not unusual that the bond markets price in one 0:05:11.520 --> 0:05:14.279 version of the world and accadey market is pricing another 0:05:14.400 --> 0:05:17.000 version of the world. This is why we say that 0:05:17.240 --> 0:05:21.400 bond investors are a bit more bearish as in personality 0:05:21.400 --> 0:05:24.960 than accudy investors. But the jokes aside I would say 0:05:25.000 --> 0:05:29.320 that we have seen meaningful, meaningful repricing in bond market, 0:05:29.440 --> 0:05:32.000 both on the front end and also to some extent 0:05:32.040 --> 0:05:34.279 on the on the back end. You look at concerns 0:05:34.320 --> 0:05:37.599 around inflation, concerns around fiscal and they have yet to 0:05:37.640 --> 0:05:40.120 be reflexed in equities. 0:05:40.320 --> 0:05:42.760 And this is the dissonance that we are aware. 0:05:42.839 --> 0:05:45.240 We're trying to take advantage of and lean into with 0:05:45.560 --> 0:05:47.640 the adjustments that we have made. 0:05:47.720 --> 0:05:50.400 You've got a radar like no one out there way 0:05:50.520 --> 0:05:54.080 leading your visits with black red clients. Not what are 0:05:54.080 --> 0:05:57.760 they thinking, what their emotion is, but what are they 0:05:58.000 --> 0:06:00.920 doing in a reallocation a mid. 0:06:00.640 --> 0:06:06.520 War Well, the first observation I would make is that 0:06:06.839 --> 0:06:13.760 actually there has been some continued momentum into US assets. 0:06:14.120 --> 0:06:18.520 So Regreader was just sharing this. So rec Raader was 0:06:18.640 --> 0:06:23.000 just can hear me? Sorry, there is are t give me. 0:06:23.120 --> 0:06:24.919 Somebody is calling me. Chean Balvan is calling me. 0:06:25.120 --> 0:06:28.799 So reg Raader was just sharing me this flow chart 0:06:29.000 --> 0:06:33.160 that shows that inflows into US assets across Appleism bonds 0:06:33.200 --> 0:06:37.880 have been quite strong. And this is despite the fact 0:06:37.880 --> 0:06:42.240 that steflationary momentum has been building, right, and I think 0:06:42.320 --> 0:06:47.279 that has really been the reason behind why these markets 0:06:47.279 --> 0:06:50.159 have been holding up reasonably while even in the face 0:06:50.200 --> 0:06:54.360 of the broad supply disruption. So that's one observation I 0:06:54.360 --> 0:06:57.799 would make around flow. The second observation is that investors 0:06:57.800 --> 0:07:02.880 are not meaningfully, meaning fully kind of position for extreme 0:07:03.040 --> 0:07:07.559 scenarios yet because it takes it takes time, and also 0:07:07.640 --> 0:07:13.440 it takes a huge kind of conviction to position for 0:07:13.560 --> 0:07:16.360 a totally different automative scenario. So there's a lot of 0:07:16.360 --> 0:07:18.640 discussions around kind of Plan B, Plan. 0:07:18.560 --> 0:07:21.840 C, but meaningful overhaul or for. 0:07:21.920 --> 0:07:24.440 The scenarios I have yet to see coming through in 0:07:24.480 --> 0:07:25.800 my conversation with clients. 0:07:25.840 --> 0:07:28.360 We continue with the way we leave with Blackrock here 0:07:28.400 --> 0:07:31.840 as well. Markets deteriorate futures in negative forty seven right now, 0:07:31.840 --> 0:07:34.720 the Vicks twenty seven point five four in oil moving, 0:07:34.720 --> 0:07:37.080 we're gonna get a one oh four one oh three 0:07:37.200 --> 0:07:40.320 point four to four on branch crewed up a solid 0:07:40.360 --> 0:07:43.280 three and a half percent. Paul Sweeney with Way Lee 0:07:43.360 --> 0:07:44.560 of Blackrock. 0:07:44.320 --> 0:07:48.040 Welly twenty twenty five was a really good year for 0:07:48.280 --> 0:07:51.640 global equity markets. The US did quite well, but many 0:07:52.160 --> 0:07:55.760 non US markets did even better. And maybe I don't know, 0:07:55.840 --> 0:07:58.240 not not sure if that was to sell America trade 0:07:58.360 --> 0:08:01.840 or just because a dollar was weak in twenty twenty five. 0:08:02.160 --> 0:08:05.920 How's your allocation geographically these days US versus rest of 0:08:05.960 --> 0:08:06.320 the world. 0:08:08.320 --> 0:08:11.200 We think that over the longer term there is steel 0:08:11.280 --> 0:08:15.200 space for US to continue to play a leading role 0:08:15.240 --> 0:08:18.280 if you just look at kind of the relative earnings momentum. 0:08:18.600 --> 0:08:22.320 But as I also said at the beginning of this interview, 0:08:22.360 --> 0:08:25.679 we have flattened over the very near term in terms 0:08:25.720 --> 0:08:30.520 of the exposure to actuality directionally, and that means us 0:08:30.720 --> 0:08:35.480 we are flat. Were neutral, Europe were neutral, Japan were neutral, 0:08:35.800 --> 0:08:39.199 and broader emergent markets were neutral. And that is really 0:08:39.520 --> 0:08:43.200 recognizing that so far we haven't seen arrangeable avenues of 0:08:43.240 --> 0:08:51.840 actions that point to sustained polls to this broader supply disruption. 0:08:51.960 --> 0:08:54.840 But having said it, over the slightly longer term, we 0:08:54.920 --> 0:08:58.920 still expect the feedback mechanism from higher oil price to bind. 0:08:59.120 --> 0:09:01.320 Is just that this bread told that binds maybe more 0:09:01.320 --> 0:09:02.800 painful than he looked initially. 0:09:02.840 --> 0:09:06.880 But you mentioned Wayy, the modern disease. You say you're 0:09:06.920 --> 0:09:10.920 neutral here, neutral there, neutral everywhere. I think of Gina 0:09:10.960 --> 0:09:15.520 Martin Adams on this Wayley, the modern American financial media 0:09:16.240 --> 0:09:20.520 says neutral is go to cash. What is the trap 0:09:20.679 --> 0:09:23.960 of going to cash here? If Black Rock says have 0:09:24.120 --> 0:09:26.080 courage and be neutral. 0:09:27.200 --> 0:09:32.360 Well, I would say that it's very important to be invested. 0:09:32.679 --> 0:09:34.920 Our CEO and chairman Larry it. 0:09:35.120 --> 0:09:37.920 Is published his letter let me just pull up this 0:09:38.320 --> 0:09:42.120 key stet so over time, staying investors is mattered far 0:09:42.200 --> 0:09:45.640 more than getting the timing right. Over the last two decades, 0:09:45.679 --> 0:09:48.160 every dollar invested in S and P five hundred grew 0:09:48.360 --> 0:09:51.880 more than eightfold. Missed just ten best days, you would 0:09:51.880 --> 0:09:53.839 have earned less than half of that right. So I 0:09:53.880 --> 0:09:57.520 think staying investors, even in the face of droopolitical ANSWERSNTY, 0:09:57.760 --> 0:10:02.239 is important. But neutral is our way to tighten risk exposure. 0:10:02.400 --> 0:10:05.640 But we're also very dynamic in looking to lean into 0:10:05.720 --> 0:10:08.120 thematic opportunities and looking to potentially. 0:10:08.040 --> 0:10:10.200 Up if we see signs of tangible action. 0:10:10.559 --> 0:10:12.560 Paul, this is just so great you and I. It's 0:10:12.640 --> 0:10:17.640 mister Fink, It's Lawrence Film for Wayly, It's like share. 0:10:18.240 --> 0:10:21.120 It's just well exactly and we knew exactly who she 0:10:21.240 --> 0:10:21.920 was referring to. 0:10:22.400 --> 0:10:29.120 Wall Again, before the Iran War started, the theme for 0:10:29.240 --> 0:10:32.080 most investors in most markets was AI. 0:10:32.920 --> 0:10:34.760 How are you playing AI these days? 0:10:34.800 --> 0:10:37.360 Because it's gone from being just we're going to buy 0:10:37.360 --> 0:10:39.440 whoever spending the most money to now we really need 0:10:39.480 --> 0:10:42.000 to think about can generate a return on all this investment. 0:10:43.320 --> 0:10:46.319 That's absolutely right, and I think the infrastructure to build 0:10:46.360 --> 0:10:51.040 out layer is still very much well positioned at this 0:10:51.240 --> 0:10:55.360 point of AI transformation because it may take longer for 0:10:55.600 --> 0:10:59.120 the winners of the adoption phase to emerge, and right now, 0:10:59.320 --> 0:11:02.720 so far the narrative this year at least has focused 0:11:02.720 --> 0:11:04.920 a lot on the losers of the adoption pace. So 0:11:04.920 --> 0:11:07.600 the big picture is that here today we have seen 0:11:07.720 --> 0:11:13.000 focus shifting from AI winners to AI losers. If you 0:11:13.040 --> 0:11:15.600 think about kind of software and the reasons for that, 0:11:15.679 --> 0:11:17.680 it's not entirely left field. 0:11:17.760 --> 0:11:17.920 Right. 0:11:17.920 --> 0:11:21.280 Like we've been flagging that it takes time for kapex 0:11:21.360 --> 0:11:23.079 spent to then lead to. 0:11:23.120 --> 0:11:24.240 New revenue generation. 0:11:24.679 --> 0:11:28.080 Markets can be in patient, and markets are periodically going 0:11:28.120 --> 0:11:31.600 to just question the return on investment of this investors 0:11:31.720 --> 0:11:36.920 or of the capex spent. But the conviction in AI 0:11:36.960 --> 0:11:41.480 transformation has increased, not decreased. And if you look at 0:11:41.760 --> 0:11:44.959 multiples after the derating that we have seen so far 0:11:45.040 --> 0:11:49.439 this year Max seven in media, they aretting at close 0:11:49.520 --> 0:11:52.840 to the same levels that they were at the beginning 0:11:52.880 --> 0:11:57.200 of tragedy the launch. So there are good value opportunities 0:11:57.480 --> 0:12:00.000 right now given the derating and we continue. 0:12:00.080 --> 0:12:02.079 Do you like it as a thing degrading is. 0:12:02.040 --> 0:12:06.240 Priced down in University of Cambridge Shock Paul. Forward to 0:12:06.320 --> 0:12:11.200 the summer of this year, Microsoft PE twenty two point seven. 0:12:11.360 --> 0:12:14.120 Yeah, I did not know that. Now, that's amazing. 0:12:14.480 --> 0:12:17.280 So whainly as you think about some of the software 0:12:17.360 --> 0:12:19.600 names that got sold off, I mean, how do you 0:12:19.640 --> 0:12:23.200 try to differentiate a winner and a loser on the 0:12:23.200 --> 0:12:25.440 software side, because it seemed like for a while there 0:12:25.520 --> 0:12:27.280 investors were just kind of selling everything. 0:12:28.600 --> 0:12:31.880 Yeah, it has been a bit of a discrimin, indiscriminated 0:12:31.960 --> 0:12:34.440 to sell off, throwing the baby's out of the bath water, 0:12:34.640 --> 0:12:38.120 But there is huge room for dispersion and then being selective. 0:12:38.240 --> 0:12:43.280 So retail software providers with little mode could be more vulnerable, 0:12:43.360 --> 0:12:48.760 whereas enterprise software providers with deep vertical integration that can 0:12:48.800 --> 0:12:53.319 actually benefit from AI integration and productivity boost they are 0:12:53.440 --> 0:12:56.600 better positions. So I think this is really an environment 0:12:56.720 --> 0:13:00.800 for active stock selection and being very dynamic. 0:13:01.640 --> 0:13:04.439 Generous time Waye, thank you, thank you so much for 0:13:04.520 --> 0:13:07.120 the perspective today, and again I can't say enough folks 0:13:07.480 --> 0:13:11.040 about her commitment to informing the public. Out on LinkedIn 0:13:11.320 --> 0:13:17.959 way Lee with Blackrock, their global chief investment strategists. Stay 0:13:18.000 --> 0:13:21.880 with us. More from Bloomberg Surveillance coming up after this. 0:13:29.120 --> 0:13:32.720 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:13:32.760 --> 0:13:35.920 weekday afternoons from seven to ten am Eastern. Listen on 0:13:36.000 --> 0:13:39.680 Applecarplay and Android Auto with the Bloomberg Business app, or 0:13:39.840 --> 0:13:41.400 watch us live on YouTube. 0:13:41.559 --> 0:13:43.920 Joining us right now. Mark Howard's senior multa as a 0:13:44.040 --> 0:13:48.400 specialist at BMP Perry Bah under the category many talk 0:13:48.520 --> 0:13:52.160 but others do. Mark Howard driving for a Band of Parents. 0:13:52.360 --> 0:13:52.760 This is a. 0:13:52.800 --> 0:13:56.160 Charity you do every year in ice hockey, discuss pediatic 0:13:56.280 --> 0:13:57.520 cancer and what you're doing. 0:13:57.960 --> 0:14:02.880 You know, when you see kids suffer and their families suffer, 0:14:03.080 --> 0:14:06.040 it is just incredibly heart wrenching. And so band of 0:14:06.120 --> 0:14:09.400 Parents does this thing at Madison Square Garden where old 0:14:09.440 --> 0:14:12.199 guys like I get to go out and whip around 0:14:12.200 --> 0:14:14.400 the ice and play a game behind it rather. 0:14:14.240 --> 0:14:16.280 Than the Rangers last night with nine shots. 0:14:16.880 --> 0:14:19.920 It wasn't pretty. It wasn't pretty, but it's it's a 0:14:20.000 --> 0:14:22.600 tremendous cause. It brings people from across the country. They 0:14:22.640 --> 0:14:25.560 actually come to play from Chicago and from other. 0:14:26.560 --> 0:14:29.800 And at Madison Square. Yeah, so it's a it's a. 0:14:29.760 --> 0:14:32.680 Wonderful charity and and uh and and the outcomes the 0:14:32.760 --> 0:14:37.720 research that it supports at MSK and at other institutions 0:14:37.800 --> 0:14:41.880 actually leads to positive outcomes with kids with these rare cancers. 0:14:42.040 --> 0:14:45.080 Explain the uniqueness of memorials slung Cottering in. 0:14:45.240 --> 0:14:50.239 Cancer just world class and very deep pockets and very creative. 0:14:50.680 --> 0:14:54.960 I've also been an active participant in Cycle for Survival, 0:14:55.000 --> 0:14:57.240 which you're probably familiar with. A lot of organizations in 0:14:57.280 --> 0:15:00.360 New York do that as well, which again provides for 0:15:00.480 --> 0:15:05.239 MSK to do groundbreaking work, long tail work that requires 0:15:05.280 --> 0:15:08.520 consistent funding but leads to really positive outcomes. 0:15:08.680 --> 0:15:14.200 Mark hard being prepared by their on cancer in pediatric cancer. 0:15:14.320 --> 0:15:18.360 We have a war. I guess the optimism is someday 0:15:18.520 --> 0:15:22.080 it will be over. Do you prepare now for the 0:15:22.120 --> 0:15:24.280 good news of an end of the war. 0:15:25.080 --> 0:15:27.440 I think you have to prepare for multiple outcomes. Tom 0:15:27.720 --> 0:15:31.120 clients I talked to and our trading desks are gaming 0:15:31.160 --> 0:15:36.200 out using real game theory to anticipate various outcomes, because 0:15:36.240 --> 0:15:39.520 as we saw yesterday with an incredible whipsaw and we 0:15:39.560 --> 0:15:41.920 could see that tomorrow the next day. You have to 0:15:41.920 --> 0:15:45.640 be prepared for multiple scenarios because this is not like tariffs, 0:15:46.080 --> 0:15:48.640 where a simple strike of the pen can reverse and 0:15:48.680 --> 0:15:51.520 you go back to close to where we started. The 0:15:51.600 --> 0:15:55.240 damage to infrastructure is going to take years to replace, 0:15:55.400 --> 0:15:59.960 The damage to trust, and the implications on global inflation 0:16:00.720 --> 0:16:02.400 are going to be here for a while. So I 0:16:02.440 --> 0:16:05.280 think you have to be prepared for better but not 0:16:05.560 --> 0:16:08.200 normal outcomes. But you also have to be prepared for 0:16:08.760 --> 0:16:11.960 weaker outcomes. Haven't we haven't seen the knock on to 0:16:13.120 --> 0:16:16.600 corporate profit expectations. I think we will see that in 0:16:16.640 --> 0:16:18.520 the months to come, So you have to prepare for both. 0:16:19.040 --> 0:16:22.800 So how are you positioning these days? At BNP Pirie 0:16:22.840 --> 0:16:27.120 bought multi asset specialists. What asset are you guys focusing 0:16:27.160 --> 0:16:29.680 on these days or how are you positioning amongst the assets? 0:16:30.080 --> 0:16:32.760 That's a great question. I wish there was one silver bullet, 0:16:32.800 --> 0:16:35.520 one great asset, but there is no one. I think 0:16:35.560 --> 0:16:39.720 diversification is how you prepare and deal with this adversity. 0:16:40.240 --> 0:16:42.280 There are also some asset classes that you might have 0:16:42.400 --> 0:16:45.720 ignored because they seemed a little sleepy, or perhaps less 0:16:46.080 --> 0:16:49.520 compelling but stand out now like mortgagees. You know, the 0:16:49.600 --> 0:16:52.360 number two fixed income asset class category doesn't get a 0:16:52.360 --> 0:16:55.960 whole lot of commentary from time to time, but it 0:16:56.040 --> 0:16:59.960 actually is a is a really you know, compelling opportunity. 0:17:00.280 --> 0:17:02.960 How much bigger is the yield on a mortgage piece 0:17:03.000 --> 0:17:04.040 than a full faith. 0:17:03.800 --> 0:17:07.720 And credit Well, it depends, you know, it varies, but 0:17:07.800 --> 0:17:11.359 it could be anywhere from thirty to fifty basis points. 0:17:11.359 --> 0:17:14.159 It's not a tremendous amount, but in terms of a 0:17:14.240 --> 0:17:16.560 store of value, a place of safety where you get 0:17:16.600 --> 0:17:21.400 some extra spread is quite compelling, particularly at a time 0:17:21.440 --> 0:17:24.160 when treasuries have been, you know, kind of backing up aggressively. 0:17:24.240 --> 0:17:27.000 Until yesterday, Tom's been making the point that we're not 0:17:27.200 --> 0:17:29.280 for a rin. One of the bigger. 0:17:28.960 --> 0:17:31.439 Issues for Global Wall streeting these markets to deal with 0:17:31.560 --> 0:17:34.960 is private credit and really how much of a risk 0:17:35.600 --> 0:17:38.520 that represents for investors. We know it's a two trillion 0:17:38.600 --> 0:17:42.720 dollar market. Gary Gensler a couple of days ago said, yeah, 0:17:42.760 --> 0:17:44.840 it's two trillion dollars, but the global capital markets are 0:17:44.840 --> 0:17:47.280 one hundred and twenty trillion, So put it into context, 0:17:47.720 --> 0:17:48.760 how do you guys think about that? 0:17:49.359 --> 0:17:54.159 Yeah, it's a great concern amongst investors right now. My 0:17:54.240 --> 0:17:56.879 colleague Calvin C who you know, was recently in Asia 0:17:56.880 --> 0:17:59.240 and in particularly in Japan, and it was the number 0:17:59.280 --> 0:18:02.720 one question Calvin received from every client he visited in Japan. 0:18:02.840 --> 0:18:05.520 So it's not just a domestic concern. A lot of 0:18:05.560 --> 0:18:08.399 money has flown into the asset class ball and so 0:18:09.440 --> 0:18:13.199 I think the question is not so much the systemic impact, 0:18:13.280 --> 0:18:15.679 because I think most people who have really thought it 0:18:15.720 --> 0:18:19.240 through don't see a systemic knock on, but rather they 0:18:19.280 --> 0:18:23.600 see a rotational effect. They see people halting their investments 0:18:23.600 --> 0:18:26.440 into what was a hot new category and now we're 0:18:26.480 --> 0:18:29.160 seeing actually reversals, people trying to put the money out. 0:18:29.320 --> 0:18:32.120 It's Paul's important question, folks. I don't think there's any 0:18:32.160 --> 0:18:35.600 other question more important right now for Global Wall Street 0:18:35.600 --> 0:18:39.480 other than this war. Brent crude right now one oh 0:18:39.640 --> 0:18:43.479 one seventy three up a dollars seventy nine and private 0:18:43.560 --> 0:18:46.840 credit in this the people in the game saying this 0:18:47.000 --> 0:18:50.919 is not a big deal. That's the summary. Everybody's radars up. 0:18:50.960 --> 0:18:53.439 I'm sorry it's on the cover of Bloomberg cover the 0:18:53.520 --> 0:18:56.280 Ft and that BOYD does it feel like two thousand 0:18:56.320 --> 0:18:58.879 and six? Does it feel like two thousand and six. 0:18:59.440 --> 0:19:02.640 We're getting tom where Yeah, I think six is more 0:19:02.640 --> 0:19:05.880 accurate than perhaps eight. And but the on ramp is there, 0:19:05.960 --> 0:19:09.640 and if certain dominoes don't go the right way, absolutely, 0:19:09.640 --> 0:19:10.719 that's gonna be a real problem. 0:19:10.880 --> 0:19:13.359 Story. Can I do a story? You won't walk out 0:19:13.400 --> 0:19:13.960 of the studio? 0:19:14.119 --> 0:19:14.320 Yeah. 0:19:14.720 --> 0:19:17.960 I'm in the Saint Regis in Beijing, dumpy old hotel 0:19:18.000 --> 0:19:21.400 before the fancy Saint Regis, sitting in a chair six 0:19:21.520 --> 0:19:25.639 Laido five. Two bankers are giggling about whatever they're giggling about. 0:19:25.920 --> 0:19:29.240 I got the ft open in Gillian tet Is lecturing 0:19:29.280 --> 0:19:34.440 me on cdo squares. It was frozen in time that 0:19:34.560 --> 0:19:39.600 moment as I listened to the synthetic unsynthetic derivatives. Why 0:19:39.720 --> 0:19:43.240 is this, Paul, Why is this any different? You tell me? 0:19:43.400 --> 0:19:44.719 I hope it is so? 0:19:45.240 --> 0:19:47.800 Mark? What do you where's the risk in this market here? 0:19:47.840 --> 0:19:50.639 Aside from the geopolitical risk here? What do you guys 0:19:50.680 --> 0:19:52.600 maybe staying away from maybe hedging. 0:19:53.160 --> 0:19:55.680 What are those conversations like, well, I think inflation is 0:19:55.720 --> 0:19:59.160 a risk. And you know you had a great speaker 0:19:59.160 --> 0:20:01.160 on last week. I belie I believe it was Loop 0:20:01.200 --> 0:20:06.280 and Ramen great boiler, and she frames some of the 0:20:06.280 --> 0:20:10.400 important not so obvious factors around the sovereign debt markets 0:20:10.440 --> 0:20:13.159 in the developed markets, not just in emerging markets. And 0:20:13.160 --> 0:20:16.000 I think people take for granted. You know, there's a 0:20:16.080 --> 0:20:18.520 view that a Trump put exists. There's also a view 0:20:18.600 --> 0:20:21.000 that the you know, the fedkins come to the rescue, 0:20:21.000 --> 0:20:23.679 that fiscal policy can come to the rescue, and and 0:20:23.720 --> 0:20:26.040 others are saying that's not the case. You can't assume 0:20:27.000 --> 0:20:30.040 that there's going to be fiscal largessit. There's going to 0:20:30.080 --> 0:20:32.800 be monetary backstops the way there have been in the past, 0:20:32.840 --> 0:20:35.240 because the degrees of freedom, the flexibility to starn't there. 0:20:35.240 --> 0:20:38.119 Alexis what was the shopping show years ago on the 0:20:38.200 --> 0:20:42.320 channel QVC QVC QVC Folks, it's loop in Ramen's new book, 0:20:42.560 --> 0:20:46.639 The Sovereign Debt Investors, she's TEMPCO, I AMF. She was 0:20:46.720 --> 0:20:49.600 in the other day. This is the best two hundred 0:20:49.680 --> 0:20:54.359 page non math walkthrough of Mark Howard's World. We thank 0:20:54.400 --> 0:20:57.600 you and a QVC it's yours for sixteen. 0:20:59.040 --> 0:21:02.360 There you go, mar we heard from the FED recently. 0:21:03.280 --> 0:21:05.119 What do you think the Fed's thinking about these days? 0:21:05.160 --> 0:21:07.720 Because it looks like if you look at the WRP function. 0:21:08.040 --> 0:21:10.600 It seems like the market has no idea cut rates, 0:21:10.800 --> 0:21:12.760 raise rates, kind of. It looks like the markets right 0:21:12.800 --> 0:21:13.879 now is just pricing in nothing. 0:21:14.280 --> 0:21:17.080 Yeah, it's a really difficult time to be a central banker, 0:21:17.080 --> 0:21:19.240 and not just here but around the world, particularly in 0:21:19.280 --> 0:21:22.719 places where inflation is the primary or only mandate. At 0:21:22.800 --> 0:21:25.240 least here, we've got both growth and inflation as a mandate, 0:21:25.280 --> 0:21:27.919 So they're looking at everything, and as you know, with 0:21:28.040 --> 0:21:31.240 a supply shock, the first order is usually on inflation, 0:21:31.359 --> 0:21:33.720 the second order is on growth. So they're trying to 0:21:33.760 --> 0:21:37.159 calibrate the severity and the duration of both the shock 0:21:37.320 --> 0:21:39.600 and then the now gone to growth. And it's a 0:21:39.720 --> 0:21:42.760 very imprecise thing because you have other vectors such as 0:21:42.760 --> 0:21:47.120 deficit spending, such as trade, etc. So it's a very 0:21:47.119 --> 0:21:48.280 complex calculus. 0:21:48.400 --> 0:21:52.920 Markhart, thank you so much. BMP Perry bout stay with us. 0:21:53.200 --> 0:21:56.440 More from Bloomberg's Surveillance coming up after this. 0:22:03.680 --> 0:22:07.280 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:22:07.320 --> 0:22:10.480 weekday afternoons from seven to ten am Eastern Listen on 0:22:10.560 --> 0:22:14.000 Apple Karplay and Android Auto with the Bloomberg Business app, 0:22:14.160 --> 0:22:15.880 or watch us live on YouTube. 0:22:16.080 --> 0:22:18.720 One of the great joys of Bloomberg is the absolute 0:22:18.800 --> 0:22:22.760 depth of the academics backing up the news and analysis 0:22:22.760 --> 0:22:26.280 that we do. Jennifer Welch has chief you Economics analysts 0:22:26.320 --> 0:22:30.120 for Bloomberg Economics out of the Bucknell East Asian Studies 0:22:30.160 --> 0:22:33.800 combined with Eric Lofkran. Jennifer, I want to start there, 0:22:34.000 --> 0:22:37.040 where is China in this war debate? You've done a 0:22:37.119 --> 0:22:40.040 lot of work on that, including work in Beijing. Where 0:22:40.080 --> 0:22:44.840 do you see China fitting in to the uncertainties we 0:22:44.920 --> 0:22:48.960 face with President Trump, with mister net Yahoo, and with Iran. 0:22:50.040 --> 0:22:52.479 I think China is playing a balancing actor right now. 0:22:52.480 --> 0:22:55.360 It's also playing the long game. It is being careful 0:22:55.480 --> 0:22:58.879 to maintain it's rhetorical support for Iran, which has a 0:22:58.920 --> 0:23:02.840 strategic partnership with Beijing packed a formal pack signed in 0:23:02.880 --> 0:23:05.760 twenty twenty one, but it is not going so far 0:23:05.880 --> 0:23:08.520 as to provide around material support in this war, at 0:23:08.560 --> 0:23:10.879 least as far as we can tell, in part because 0:23:11.000 --> 0:23:14.280 China is worried about balancing its ties to other goal 0:23:14.359 --> 0:23:17.439