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Speaker 2: Scrid thing is serious stuff. Are you rebuilding America Front Center?
Speaker 2: And it's It's a story that's not going to go away.
Speaker 2: Wayley mentions that with a great chart on materials, We're
Speaker 2: thrilled that she could join us this morning for an
Speaker 2: extended conversation chief investment strategists for the world for mister
Speaker 2: Fink and Blackrock this morning. Wyley, you're out on LinkedIn.
Speaker 2: Dan Roth emailed me at LinkedIn, He says, Tom pitch LinkedIn. Okay,
Speaker 2: you want to join LinkedIn, folks for no other reason
Speaker 2: to watch way Lee of black Rock and Urine timor
Speaker 2: Fidelity and I'll mentioned Marcains as well at Pangaea in Washington. Wayley,
Speaker 2: this chart is spectacular on the emotion evaluation, energy up
Speaker 2: versus earnings, where technology continues to win. Whatever the word
Speaker 2: outcome is on July fourth, technology is going to continue
Speaker 2: to win, right.
Speaker 3: Well, This is a sentiment emotional market, it's not a
Speaker 3: fundamental market. The chart that you refer to Tom shows the
Speaker 3: energy sector is the best performing, not surprisingly so far
Speaker 3: this year, but in terms of earnings is the worst
Speaker 3: in terms of earnings delivery. But it doesn't matter when
Speaker 3: market is a repricing risk premier, and by the way,
Speaker 3: it's repricing risk premium in an extremely extremely tropy ways
Speaker 3: so far this week. It's just the latest evidence that
Speaker 3: we cannot predict the blow by blow in terms of announcements,
Speaker 3: which is white directionally with flattening exposure to equities.
Speaker 4: Flattening exposure to equities.
Speaker 5: Is that suggesting way that maybe these markets are maybe
Speaker 5: too sanguine about the risk opposed by perhaps higher energy
Speaker 5: prices for longer.
Speaker 6: I would say two things.
Speaker 3: First is this, Yes, there is a disconnect between energy
Speaker 3: market that is pricing in doable disruption and.
Speaker 6: Broader risk assets.
Speaker 3: You look at US equities that's just down I think
Speaker 3: four percent from the beginning of the conflict, So there
Speaker 3: is definitely a disconnect. And the second thing I would
Speaker 3: say is that I've spoken to a lot of investors
Speaker 3: the last three weeks, and lots of clients globally as well.
Speaker 3: There are really just two ways to invest in and
Speaker 3: navigate this market. The first one is directionally, second one
Speaker 3: is thematically. So what flattening exposure directionally because in the
Speaker 3: near term it's just so trophy reacting to headlines.
Speaker 6: But thematically, as a.
Speaker 3: Result of events in the Middle East is to every
Speaker 3: single company, every single government globally, they are going to
Speaker 3: think even harder about supply chain resilience, even harder about
Speaker 3: energy independence, and those are the things that we want
Speaker 3: to lean into.
Speaker 5: So waylia, are there certain sectors here that even though
Speaker 5: you're kind of taking down your risk appetite that thematically
Speaker 5: is it defense?
Speaker 4: Is it infrastructure?
Speaker 5: Is that a place to hide or maybe try to
Speaker 5: take advantage of this uncertainty?
Speaker 3: Absolutely, So the adjustment that we have made is to
Speaker 3: brain broad US acrodies from modest overweight to neutral, recognizing
Speaker 3: that there is a disconnect between the energy market pricing
Speaker 3: and where risk assets are. And then we're also leaning
Speaker 3: into you know, like we up the European government bond
Speaker 3: front to end from neutral to models overweight and recognizing
Speaker 3: government bonds broadly the front end they have gone through
Speaker 3: significant reprising, really notable, So there is a big pash
Speaker 3: buffer to be to be built. But you talked about infrastructure,
Speaker 3: defense and energy. Visit the themes that we want to
Speaker 3: lean into Waily with us.
Speaker 2: And we continue with our sheu's with black Rock as
Speaker 2: Global Chief Investment Strategies. Paul helped me here because I'm
Speaker 2: sick of Duke and we'll talk about that in a moment.
Speaker 2: Is the University of Cambridge in March madness?
Speaker 4: No, I don't think they are.
Speaker 2: They're not in there. Okay, Wayley over at Duke, which
Speaker 2: is going to win the tournament. According to Paul Sweeney,
Speaker 2: there's a professor Cameron Harvey, Cam Harvey, and he is
Speaker 2: definitive on the idea that bonds lead stocks, that the
Speaker 2: price dynamics of bonds are out front of what equities
Speaker 2: will do. Do you buy that within your mathematical work, Cambridge?
Speaker 3: I think it depends on lead by how much? Really,
Speaker 3: it's not unusual that the bond markets price in one
Speaker 3: version of the world and accadey market is pricing another
Speaker 3: version of the world. This is why we say that
Speaker 3: bond investors are a bit more bearish as in personality
Speaker 3: than accudy investors. But the jokes aside I would say
Speaker 3: that we have seen meaningful, meaningful repricing in bond market,
Speaker 3: both on the front end and also to some extent
Speaker 3: on the on the back end. You look at concerns
Speaker 3: around inflation, concerns around fiscal and they have yet to
Speaker 3: be reflexed in equities.
Speaker 6: And this is the dissonance that we are aware.
Speaker 3: We're trying to take advantage of and lean into with
Speaker 3: the adjustments that we have made.
Speaker 2: You've got a radar like no one out there way
Speaker 2: leading your visits with black red clients. Not what are
Speaker 2: they thinking, what their emotion is, but what are they
Speaker 2: doing in a reallocation a mid.
Speaker 3: War Well, the first observation I would make is that
Speaker 3: actually there has been some continued momentum into US assets.
Speaker 3: So Regreader was just sharing this. So rec Raader was
Speaker 3: just can hear me? Sorry, there is are t give me.
Speaker 6: Somebody is calling me. Chean Balvan is calling me.
Speaker 3: So reg Raader was just sharing me this flow chart
Speaker 3: that shows that inflows into US assets across Appleism bonds
Speaker 3: have been quite strong. And this is despite the fact
Speaker 3: that steflationary momentum has been building, right, and I think
Speaker 3: that has really been the reason behind why these markets
Speaker 3: have been holding up reasonably while even in the face
Speaker 3: of the broad supply disruption. So that's one observation I
Speaker 3: would make around flow. The second observation is that investors
Speaker 3: are not meaningfully, meaning fully kind of position for extreme
Speaker 3: scenarios yet because it takes it takes time, and also
Speaker 3: it takes a huge kind of conviction to position for
Speaker 3: a totally different automative scenario. So there's a lot of
Speaker 3: discussions around kind of Plan B, Plan.
Speaker 6: C, but meaningful overhaul or for.
Speaker 3: The scenarios I have yet to see coming through in
Speaker 3: my conversation with clients.
Speaker 2: We continue with the way we leave with Blackrock here
Speaker 2: as well. Markets deteriorate futures in negative forty seven right now,
Speaker 2: the Vicks twenty seven point five four in oil moving,
Speaker 2: we're gonna get a one oh four one oh three
Speaker 2: point four to four on branch crewed up a solid
Speaker 2: three and a half percent. Paul Sweeney with Way Lee
Speaker 2: of Blackrock.
Speaker 5: Welly twenty twenty five was a really good year for
Speaker 5: global equity markets. The US did quite well, but many
Speaker 5: non US markets did even better. And maybe I don't know,
Speaker 5: not not sure if that was to sell America trade
Speaker 5: or just because a dollar was weak in twenty twenty five.
Speaker 5: How's your allocation geographically these days US versus rest of
Speaker 5: the world.
Speaker 3: We think that over the longer term there is steel
Speaker 3: space for US to continue to play a leading role
Speaker 3: if you just look at kind of the relative earnings momentum.
Speaker 3: But as I also said at the beginning of this interview,
Speaker 3: we have flattened over the very near term in terms
Speaker 3: of the exposure to actuality directionally, and that means us
Speaker 3: we are flat. Were neutral, Europe were neutral, Japan were neutral,
Speaker 3: and broader emergent markets were neutral. And that is really
Speaker 3: recognizing that so far we haven't seen arrangeable avenues of
Speaker 3: actions that point to sustained polls to this broader supply disruption.
Speaker 3: But having said it, over the slightly longer term, we
Speaker 3: still expect the feedback mechanism from higher oil price to bind.
Speaker 3: Is just that this bread told that binds maybe more
Speaker 3: painful than he looked initially.
Speaker 2: But you mentioned Wayy, the modern disease. You say you're
Speaker 2: neutral here, neutral there, neutral everywhere. I think of Gina
Speaker 2: Martin Adams on this Wayley, the modern American financial media
Speaker 2: says neutral is go to cash. What is the trap
Speaker 2: of going to cash here? If Black Rock says have
Speaker 2: courage and be neutral.
Speaker 3: Well, I would say that it's very important to be invested.
Speaker 6: Our CEO and chairman Larry it.
Speaker 3: Is published his letter let me just pull up this
Speaker 3: key stet so over time, staying investors is mattered far
Speaker 3: more than getting the timing right. Over the last two decades,
Speaker 3: every dollar invested in S and P five hundred grew
Speaker 3: more than eightfold. Missed just ten best days, you would
Speaker 3: have earned less than half of that right. So I
Speaker 3: think staying investors, even in the face of droopolitical ANSWERSNTY,
Speaker 3: is important. But neutral is our way to tighten risk exposure.
Speaker 3: But we're also very dynamic in looking to lean into
Speaker 3: thematic opportunities and looking to potentially.
Speaker 6: Up if we see signs of tangible action.
Speaker 2: Paul, this is just so great you and I. It's
Speaker 2: mister Fink, It's Lawrence Film for Wayly, It's like share.
Speaker 4: It's just well exactly and we knew exactly who she
Speaker 4: was referring to.
Speaker 5: Wall Again, before the Iran War started, the theme for
Speaker 5: most investors in most markets was AI.
Speaker 4: How are you playing AI these days?
Speaker 5: Because it's gone from being just we're going to buy
Speaker 5: whoever spending the most money to now we really need
Speaker 5: to think about can generate a return on all this investment.
Speaker 3: That's absolutely right, and I think the infrastructure to build
Speaker 3: out layer is still very much well positioned at this
Speaker 3: point of AI transformation because it may take longer for
Speaker 3: the winners of the adoption phase to emerge, and right now,
Speaker 3: so far the narrative this year at least has focused
Speaker 3: a lot on the losers of the adoption pace. So
Speaker 3: the big picture is that here today we have seen
Speaker 3: focus shifting from AI winners to AI losers. If you
Speaker 3: think about kind of software and the reasons for that,
Speaker 3: it's not entirely left field.
Speaker 6: Right.
Speaker 3: Like we've been flagging that it takes time for kapex
Speaker 3: spent to then lead to.
Speaker 6: New revenue generation.
Speaker 3: Markets can be in patient, and markets are periodically going
Speaker 3: to just question the return on investment of this investors
Speaker 3: or of the capex spent. But the conviction in AI
Speaker 3: transformation has increased, not decreased. And if you look at
Speaker 3: multiples after the derating that we have seen so far
Speaker 3: this year Max seven in media, they aretting at close
Speaker 3: to the same levels that they were at the beginning
Speaker 3: of tragedy the launch. So there are good value opportunities
Speaker 3: right now given the derating and we continue.
Speaker 6: Do you like it as a thing degrading is.
Speaker 2: Priced down in University of Cambridge Shock Paul. Forward to
Speaker 2: the summer of this year, Microsoft PE twenty two point seven.
Speaker 4: Yeah, I did not know that. Now, that's amazing.
Speaker 5: So whainly as you think about some of the software
Speaker 5: names that got sold off, I mean, how do you
Speaker 5: try to differentiate a winner and a loser on the
Speaker 5: software side, because it seemed like for a while there
Speaker 5: investors were just kind of selling everything.
Speaker 3: Yeah, it has been a bit of a discrimin, indiscriminated
Speaker 3: to sell off, throwing the baby's out of the bath water,
Speaker 3: But there is huge room for dispersion and then being selective.
Speaker 3: So retail software providers with little mode could be more vulnerable,
Speaker 3: whereas enterprise software providers with deep vertical integration that can
Speaker 3: actually benefit from AI integration and productivity boost they are
Speaker 3: better positions. So I think this is really an environment
Speaker 3: for active stock selection and being very dynamic.
Speaker 2: Generous time Waye, thank you, thank you so much for
Speaker 2: the perspective today, and again I can't say enough folks
Speaker 2: about her commitment to informing the public. Out on LinkedIn
Speaker 2: way Lee with Blackrock, their global chief investment strategists. Stay
Speaker 2: with us. More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern. Listen on
Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or
Speaker 1: watch us live on YouTube.
Speaker 2: Joining us right now. Mark Howard's senior multa as a
Speaker 2: specialist at BMP Perry Bah under the category many talk
Speaker 2: but others do. Mark Howard driving for a Band of Parents.
Speaker 4: This is a.
Speaker 2: Charity you do every year in ice hockey, discuss pediatic
Speaker 2: cancer and what you're doing.
Speaker 7: You know, when you see kids suffer and their families suffer,
Speaker 7: it is just incredibly heart wrenching. And so band of
Speaker 7: Parents does this thing at Madison Square Garden where old
Speaker 7: guys like I get to go out and whip around
Speaker 7: the ice and play a game behind it rather.
Speaker 2: Than the Rangers last night with nine shots.
Speaker 7: It wasn't pretty. It wasn't pretty, but it's it's a
Speaker 7: tremendous cause. It brings people from across the country. They
Speaker 7: actually come to play from Chicago and from other.
Speaker 2: And at Madison Square. Yeah, so it's a it's a.
Speaker 7: Wonderful charity and and uh and and the outcomes the
Speaker 7: research that it supports at MSK and at other institutions
Speaker 7: actually leads to positive outcomes with kids with these rare cancers.
Speaker 2: Explain the uniqueness of memorials slung Cottering in.
Speaker 7: Cancer just world class and very deep pockets and very creative.
Speaker 7: I've also been an active participant in Cycle for Survival,
Speaker 7: which you're probably familiar with. A lot of organizations in
Speaker 7: New York do that as well, which again provides for
Speaker 7: MSK to do groundbreaking work, long tail work that requires
Speaker 7: consistent funding but leads to really positive outcomes.
Speaker 2: Mark hard being prepared by their on cancer in pediatric cancer.
Speaker 2: We have a war. I guess the optimism is someday
Speaker 2: it will be over. Do you prepare now for the
Speaker 2: good news of an end of the war.
Speaker 7: I think you have to prepare for multiple outcomes. Tom
Speaker 7: clients I talked to and our trading desks are gaming
Speaker 7: out using real game theory to anticipate various outcomes, because
Speaker 7: as we saw yesterday with an incredible whipsaw and we
Speaker 7: could see that tomorrow the next day. You have to
Speaker 7: be prepared for multiple scenarios because this is not like tariffs,
Speaker 7: where a simple strike of the pen can reverse and
Speaker 7: you go back to close to where we started. The
Speaker 7: damage to infrastructure is going to take years to replace,
Speaker 7: The damage to trust, and the implications on global inflation
Speaker 7: are going to be here for a while. So I
Speaker 7: think you have to be prepared for better but not
Speaker 7: normal outcomes. But you also have to be prepared for
Speaker 7: weaker outcomes. Haven't we haven't seen the knock on to
Speaker 7: corporate profit expectations. I think we will see that in
Speaker 7: the months to come, So you have to prepare for both.
Speaker 5: So how are you positioning these days? At BNP Pirie
Speaker 5: bought multi asset specialists. What asset are you guys focusing
Speaker 5: on these days or how are you positioning amongst the assets?
Speaker 7: That's a great question. I wish there was one silver bullet,
Speaker 7: one great asset, but there is no one. I think
Speaker 7: diversification is how you prepare and deal with this adversity.
Speaker 7: There are also some asset classes that you might have
Speaker 7: ignored because they seemed a little sleepy, or perhaps less
Speaker 7: compelling but stand out now like mortgagees. You know, the
Speaker 7: number two fixed income asset class category doesn't get a
Speaker 7: whole lot of commentary from time to time, but it
Speaker 7: actually is a is a really you know, compelling opportunity.
Speaker 2: How much bigger is the yield on a mortgage piece
Speaker 2: than a full faith.
Speaker 7: And credit Well, it depends, you know, it varies, but
Speaker 7: it could be anywhere from thirty to fifty basis points.
Speaker 7: It's not a tremendous amount, but in terms of a
Speaker 7: store of value, a place of safety where you get
Speaker 7: some extra spread is quite compelling, particularly at a time
Speaker 7: when treasuries have been, you know, kind of backing up aggressively.
Speaker 4: Until yesterday, Tom's been making the point that we're not
Speaker 4: for a rin. One of the bigger.
Speaker 5: Issues for Global Wall streeting these markets to deal with
Speaker 5: is private credit and really how much of a risk
Speaker 5: that represents for investors. We know it's a two trillion
Speaker 5: dollar market. Gary Gensler a couple of days ago said, yeah,
Speaker 5: it's two trillion dollars, but the global capital markets are
Speaker 5: one hundred and twenty trillion, So put it into context,
Speaker 5: how do you guys think about that?
Speaker 7: Yeah, it's a great concern amongst investors right now. My
Speaker 7: colleague Calvin C who you know, was recently in Asia
Speaker 7: and in particularly in Japan, and it was the number
Speaker 7: one question Calvin received from every client he visited in Japan.
Speaker 7: So it's not just a domestic concern. A lot of
Speaker 7: money has flown into the asset class ball and so
Speaker 7: I think the question is not so much the systemic impact,
Speaker 7: because I think most people who have really thought it
Speaker 7: through don't see a systemic knock on, but rather they
Speaker 7: see a rotational effect. They see people halting their investments
Speaker 7: into what was a hot new category and now we're
Speaker 7: seeing actually reversals, people trying to put the money out.
Speaker 2: It's Paul's important question, folks. I don't think there's any
Speaker 2: other question more important right now for Global Wall Street
Speaker 2: other than this war. Brent crude right now one oh
Speaker 2: one seventy three up a dollars seventy nine and private
Speaker 2: credit in this the people in the game saying this
Speaker 2: is not a big deal. That's the summary. Everybody's radars up.
Speaker 2: I'm sorry it's on the cover of Bloomberg cover the
Speaker 2: Ft and that BOYD does it feel like two thousand
Speaker 2: and six? Does it feel like two thousand and six.
Speaker 7: We're getting tom where Yeah, I think six is more
Speaker 7: accurate than perhaps eight. And but the on ramp is there,
Speaker 7: and if certain dominoes don't go the right way, absolutely,
Speaker 7: that's gonna be a real problem.
Speaker 2: Story. Can I do a story? You won't walk out
Speaker 2: of the studio?
Speaker 3: Yeah.
Speaker 2: I'm in the Saint Regis in Beijing, dumpy old hotel
Speaker 2: before the fancy Saint Regis, sitting in a chair six
Speaker 2: Laido five. Two bankers are giggling about whatever they're giggling about.
Speaker 2: I got the ft open in Gillian tet Is lecturing
Speaker 2: me on cdo squares. It was frozen in time that
Speaker 2: moment as I listened to the synthetic unsynthetic derivatives. Why
Speaker 2: is this, Paul, Why is this any different? You tell me?
Speaker 4: I hope it is so?
Speaker 5: Mark? What do you where's the risk in this market here?
Speaker 5: Aside from the geopolitical risk here? What do you guys
Speaker 5: maybe staying away from maybe hedging.
Speaker 7: What are those conversations like, well, I think inflation is
Speaker 7: a risk. And you know you had a great speaker
Speaker 7: on last week. I belie I believe it was Loop
Speaker 7: and Ramen great boiler, and she frames some of the
Speaker 7: important not so obvious factors around the sovereign debt markets
Speaker 7: in the developed markets, not just in emerging markets. And
Speaker 7: I think people take for granted. You know, there's a
Speaker 7: view that a Trump put exists. There's also a view
Speaker 7: that the you know, the fedkins come to the rescue,
Speaker 7: that fiscal policy can come to the rescue, and and
Speaker 7: others are saying that's not the case. You can't assume
Speaker 7: that there's going to be fiscal largessit. There's going to
Speaker 7: be monetary backstops the way there have been in the past,
Speaker 7: because the degrees of freedom, the flexibility to starn't there.
Speaker 2: Alexis what was the shopping show years ago on the
Speaker 2: channel QVC QVC QVC Folks, it's loop in Ramen's new book,
Speaker 2: The Sovereign Debt Investors, she's TEMPCO, I AMF. She was
Speaker 2: in the other day. This is the best two hundred
Speaker 2: page non math walkthrough of Mark Howard's World. We thank
Speaker 2: you and a QVC it's yours for sixteen.
Speaker 5: There you go, mar we heard from the FED recently.
Speaker 5: What do you think the Fed's thinking about these days?
Speaker 5: Because it looks like if you look at the WRP function.
Speaker 5: It seems like the market has no idea cut rates,
Speaker 5: raise rates, kind of. It looks like the markets right
Speaker 5: now is just pricing in nothing.
Speaker 7: Yeah, it's a really difficult time to be a central banker,
Speaker 7: and not just here but around the world, particularly in
Speaker 7: places where inflation is the primary or only mandate. At
Speaker 7: least here, we've got both growth and inflation as a mandate,
Speaker 7: So they're looking at everything, and as you know, with
Speaker 7: a supply shock, the first order is usually on inflation,
Speaker 7: the second order is on growth. So they're trying to
Speaker 7: calibrate the severity and the duration of both the shock
Speaker 7: and then the now gone to growth. And it's a
Speaker 7: very imprecise thing because you have other vectors such as
Speaker 7: deficit spending, such as trade, etc. So it's a very
Speaker 7: complex calculus.
Speaker 2: Markhart, thank you so much. BMP Perry bout stay with us.
Speaker 2: More from Bloomberg's Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
Speaker 1: Apple Karplay and Android Auto with the Bloomberg Business app,
Speaker 1: or watch us live on YouTube.
Speaker 2: One of the great joys of Bloomberg is the absolute
Speaker 2: depth of the academics backing up the news and analysis
Speaker 2: that we do. Jennifer Welch has chief you Economics analysts
Speaker 2: for Bloomberg Economics out of the Bucknell East Asian Studies
Speaker 2: combined with Eric Lofkran. Jennifer, I want to start there,
Speaker 2: where is China in this war debate? You've done a
Speaker 2: lot of work on that, including work in Beijing. Where
Speaker 2: do you see China fitting in to the uncertainties we
Speaker 2: face with President Trump, with mister net Yahoo, and with Iran.
Speaker 8: I think China is playing a balancing actor right now.
Speaker 8: It's also playing the long game. It is being careful
Speaker 8: to maintain it's rhetorical support for Iran, which has a
Speaker 8: strategic partnership with Beijing packed a formal pack signed in
Speaker 8: twenty twenty one, but it is not going so far
Speaker 8: as to provide around material support in this war, at
Speaker 8: least as far as we can tell, in part because
Speaker 8: China is worried about balancing its ties to other goal
Speaker 8: states who it also sees important partners in the region.
Speaker 8: So I think what we're likely to see from Beijing
Speaker 8: is this continued calibrated approach of right backing Iran, but
Speaker 8: only so far.
Speaker 2: What is a distinction of that versus mister putin Moscow
Speaker 2: and Russia.
Speaker 8: Moscow is going in a little bit further tilts with Iran.
Speaker 8: We're seeing reports that Russia is, for example, providing targeting
Speaker 8: intelligence and other intelligence sharing with Iran to support its
Speaker 8: actual military activity against the US and Israel. That is
Speaker 8: certainly further than where China has been willing to go
Speaker 8: to a date. But I think even for Russia, we're
Speaker 8: unlikely to see Russia get directly involved in this pray.
Speaker 8: It remains very much focused on the war in Ukraine,
Speaker 8: and it is also a little bit leery of doing
Speaker 8: anything that would draw Washington's iire maybe pushed the United
Speaker 8: States to either support Ukraine more deeply or to heightened
Speaker 8: distinctions on Russia.
Speaker 5: Jennifer, The market's very uncertain as to the status of
Speaker 5: what's going on in Aron, particular as it relates to negotiations. Yesterday,
Speaker 5: President Trump issued via social media that talks were in
Speaker 5: fact taking place, and he was so enthusia that he
Speaker 5: was going to pause some military options. Yet we've not
Speaker 5: really heard anything confirming that from the other side, Do
Speaker 5: you have any insight as to what's actually going on.
Speaker 8: Yeah, we're actually hearing directly contradictory things from Iran, which
Speaker 8: is flat out denying that talks are happening, including denying
Speaker 8: this Axios report regarding specific talks that were happening between
Speaker 8: Steve Whitkoff, Jared Kushner, and Ron's parliament speaker, with the
Speaker 8: Irani and parliament speaker coming out on x and saying
Speaker 8: he is not involved in those negotiations. I think to
Speaker 8: be clear, we should recognize that both sides have an
Speaker 8: interest in putting out different language on this, that the
Speaker 8: US wants to reassure markets, and Iranian officials probably don't
Speaker 8: want to to negotiating with the United States while still
Speaker 8: under attack. That being said, the United States does seem
Speaker 8: to be pursuing negotiations. Talks might be happening through back
Speaker 8: channels or indirectly through mediators. There does seem to be
Speaker 8: some sort of communication occurring. But I think the larger
Speaker 8: question is does that mean we're any closer to a ceasefire?
Speaker 8: And at this stage we would say no. Both sides
Speaker 8: seem to be very far apart on what the terms
Speaker 8: of that would be, and so we see the odds
Speaker 8: of a full resolution of this conflict in the near
Speaker 8: term is rather unlikely. Instead, what we might see is
Speaker 8: either further escalation, as the United States is considering deploying
Speaker 8: additional forces to the region, or a dip into a
Speaker 8: lower intensity conflict that could still pose major risks of
Speaker 8: the global energy market.
Speaker 5: Jenniferser, from your sources, is there a sense that there's
Speaker 5: a possibility or probability or a likelihood that President Trump
Speaker 5: may just wake up some day and say I'm kind
Speaker 5: of bored of all this and say we've achieved our
Speaker 5: objectives and just kind of walk away.
Speaker 4: Is that in the cards at all.
Speaker 8: It does seem, and it has seemed for at least
Speaker 8: two weeks now, that President Trump is looking for an
Speaker 8: exit ramp. He's referred to the war as having already
Speaker 8: achieved many of his objectives, as being very complete, and
Speaker 8: he did an end to it would come very soon.
Speaker 8: I think that being said, the fact that we're still
Speaker 8: continuing to see US strike Center on suggests it hasn't
Speaker 8: achieved or he doesn't feel he has the leverage of
Speaker 8: the terms that he's looking.
Speaker 9: For to end this war.
Speaker 8: And I think in particular, what he's concerned about is
Speaker 8: reopening her moves before he can fully back away.
Speaker 2: Jennifer, one final question. It's outside your remit, but you're
Speaker 2: more than qualified to handle this. I'm looking at yields
Speaker 2: higher in many different flavors, including the inflation had just
Speaker 2: yield the cost of capital, if you will, Does Jennifer
Speaker 2: Welch believe in markets telling politics what to do? Do
Speaker 2: you believe in ed Yard Denny's bond vigilantes?
Speaker 6: Well, I would say this.
Speaker 8: I think President Trump is uniquely quite sensitive to markets,
Speaker 8: and that's part of what we've seen in terms of
Speaker 8: his rhetoric shifting over the last week or two. In particular,
Speaker 8: his message yesterday morning when markets are about to open
Speaker 8: that he was seeking talks at the run, kind of
Speaker 8: backing away from his prior threat to strike running and
Speaker 8: energy facilities. That seemed very much directed at shaping markets
Speaker 8: as they were opening in the United States.
Speaker 2: It's great brief, Jennifer. Well, it's hugely valuable. Thank you
Speaker 2: so much, Chief to you economics analysts for Bloomberg Economics.
Speaker 2: Stay with us. More from Bloomberg Surveillance coming up after this.
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Speaker 2: Aaron Kevin joins us in studio right now, co founder's
Speaker 2: CEO Clear Harbor Asset Management. On the moment at hand,
Speaker 2: I understand this is now uncertain key and not measurable risk.
Speaker 2: If I stand aside, what do I stand aside into cash?
Speaker 4: Well, it's been challenging Tom.
Speaker 9: This all began the weekend of February twenty eighth, and
Speaker 9: there's been no place to hide. Gold is off one
Speaker 9: thousand dollars an ounce, bonds are higher and yield lower
Speaker 9: in price by what thirty to fifty basis points, and
Speaker 9: equities are off somewhat measurably. So there's been a very
Speaker 9: I guess unless you were just sort of long the
Speaker 9: dollar and maybe your triple levered cash, there's very very
Speaker 9: difficult place to be right now.
Speaker 2: What do you do with duration in the fixed income space?
Speaker 2: And all your work at City Group over the years
Speaker 2: in RBC, I mean duration's a tool, right, Explain that
Speaker 2: to people that don't get convexity.
Speaker 9: Right, I mean clearly if you're of the view and
Speaker 9: your long duration your for every basis point moving the
Speaker 9: bond market, as you move out the duration curve of
Speaker 9: your as rates move lower, you're capturing oftentimes multiples of
Speaker 9: the upside relative to when rates move lower in the
Speaker 9: front end of the curve, by about four or five
Speaker 9: times and tens relative to twos, and about ten times
Speaker 9: and thirties relative to two.
Speaker 4: So it can work in your favor.
Speaker 9: But in an environment like the one we've been in
Speaker 9: over the last month where rates have gone up, if
Speaker 9: you've been just long the long bond, you would have
Speaker 9: clearly underperformed relative to just being long let's say the
Speaker 9: two year or the ten year. My view on duration
Speaker 9: at this point is really a question of where are
Speaker 9: we on inflation in the long run. If you look
Speaker 9: at ten year break evens, there are about two thirty
Speaker 9: five this morning. The ten year is about four to
Speaker 9: thirty five, so you know we have a month ago
Speaker 9: the break evens were about five basis points lower, so
Speaker 9: really unchanged in terms of long term inflation expectations.
Speaker 5: Stocks, bonds, commodities, alternatives. What's your asset allocation look today
Speaker 5: versus maybe or five weeks ago, anything.
Speaker 4: Changed, not significantly.
Speaker 9: I would just highlight that we own all major asset
Speaker 9: classes across many of our client portfolios. Even you mentioned
Speaker 9: alternatives alternas. We try to own the areas within the
Speaker 9: alternative segment that are less correlated, negatively correlated, or non
Speaker 9: correlated to long only equities and long only fixed income.
Speaker 9: And I think that's really held in there quite well
Speaker 9: for us. We're not owning just you know, sort of
Speaker 9: long only private equity, long only private credit that's highly
Speaker 9: correlated to both equities and high yield in the public markets.
Speaker 9: That doesn't provide the diversification that we're looking for in
Speaker 9: alternatives within equities. Clearly, the value trade has been on
Speaker 9: its heels month to date, but if you look over
Speaker 9: the course of just year to date or even last year,
Speaker 9: still the value orientation has generally worked both home and abroad.
Speaker 9: You know, the Russell's still up fractionally on the year,
Speaker 9: equally to S and P's up fractionally on the year.
Speaker 9: The rest of the market in the US is down
Speaker 9: on the year, Japan up on the ear, EM's up
Speaker 9: on the ear and that's a very value oriented sector
Speaker 9: or allocation there.
Speaker 5: We saw in twenty twenty five as well as the
Speaker 5: US markets did, a lot of markets outside of the
Speaker 5: US did even better, in part, maybe in large part,
Speaker 5: due to.
Speaker 4: The weakening dollar in twenty twenty five.
Speaker 5: How do you think about US versus the rest of
Speaker 5: the world in twenty twenty six.
Speaker 9: It's tricky, and I think the real question is narration
Speaker 9: of this war and Iran and the degree to which
Speaker 9: that's going to potentially keep the dollar sort of buoyant
Speaker 9: relative to possible weakening if there's an off ramp or
Speaker 9: if there's a secession of things there.
Speaker 2: How do you look at shocks? I just had an
Speaker 2: email come in thank you so much folks for all
Speaker 2: the information from listeners, and it's amazing what you can
Speaker 2: do with is AI. You can convert a leader per
Speaker 2: pound or pence into a US gallon by just typing
Speaker 2: in a couple of words.
Speaker 5: Wow.
Speaker 2: I spent a fullesser slide rule to figure that out
Speaker 2: not too long ago in London eight seventy eight cents
Speaker 2: per gallant. Thank you. In Hong Kong with Laura Davison
Speaker 2: thirteen fourteen, fifteen dollars per gallant. These shocks at some
Speaker 2: point have to affect all the bond lift we saw
Speaker 2: Friday and into Monday two. I'm gonna call it a
Speaker 2: forty eight hour structural price down, yield up and presidential reaction.
Speaker 2: Is that what moved the president to make those statements?
Speaker 9: What we'll have to see, I mean, is this a
Speaker 9: head fake for strategic reasons? Are they bringing troops in
Speaker 9: from Asia to initiate more of a ground operation, or
Speaker 9: was yesterday's overture at about seven to ten in the
Speaker 9: morning a real off ramp that indicates the beginning of
Speaker 9: the end of things. And of course we do not know.
Speaker 9: The public probably knows about twenty percent of what's happening.
Speaker 2: Right, But in all your years, the bond vigilantes, I mean,
Speaker 2: you know Doney's right, they're for real.
Speaker 4: Yeah.
Speaker 9: But if you look at the bond market too, Tom,
Speaker 9: credit spreads have widened. What some grade five year CDs
Speaker 9: is about fifteen twenty basis points wider month today. If
Speaker 9: you look at high yield five year high yield CDs
Speaker 9: is probably about forty to fifty basis points wider.
Speaker 4: Haven't seen a major.
Speaker 2: Move the two of you here. I got a four
Speaker 2: ninety five thirty year yep, And I'm watching the ten
Speaker 2: year real yield is two point zero two percent. That
Speaker 2: was one eighty one ninety. Everything is Paul Sweeney and
Speaker 2: everything's creeping.
Speaker 5: Up right, absolutely, I mean that's the look if you
Speaker 5: look at the warp function, the market's kind of pulled
Speaker 5: back on any rate cut here.
Speaker 4: What did you hear from the Fed last week?
Speaker 5: And do you think that's being to what extent is
Speaker 5: of being impacted by what's going on? And Ran?
Speaker 4: I think it's interesting.
Speaker 9: I mean, clearly the Fed is in sort of a
Speaker 9: period of where there's a real predicament, right. They don't
Speaker 9: want to be accused of what they were accused of
Speaker 9: in twenty twenty one into twenty two, which is they
Speaker 9: relate to the game. Inflation was rising, headline went to
Speaker 9: nine point one percent, they reacted late. There's a lot
Speaker 9: of criticism there, but I think when you look at
Speaker 9: the source of this inflation pressure in the duration of it,
Speaker 9: which is energy and supply, I think the FED is
Speaker 9: being prudent remaining on hold here. And in fact, I
Speaker 9: would argue that if the duration of this is shorter,
Speaker 9: and perhaps even if it's longer, if growth is impacted
Speaker 9: negatively the Fed's going to be more willing to cut
Speaker 9: than the raise rates going forward.
Speaker 2: Aaron Kennon with us, we continue with clear harbor asset
Speaker 2: management this morning on fixed income, I'm going to suggest
Speaker 2: for equity participants, right now is a good time to
Speaker 2: watch all the movements within the bond market. Let me,
Speaker 2: I rarely do this. It's just, you know, it's like
Speaker 2: a bunch of numbers, but right now it matters. Three
Speaker 2: point eight eight percent in the two year Paul Sweeney
Speaker 2: noted four percent even on the two year a cup
Speaker 2: of coffee were creeping up by three basis points a
Speaker 2: four thirty seven on the ten year and the thirty
Speaker 2: year bond, I'm sorry, four point ninety five percent, close
Speaker 2: to five percent yield four point ninety five percent as well,
Speaker 2: Paul Sweeney with Aaron.
Speaker 5: You know, we kind of lose fact as some of
Speaker 5: these other news items in the marketplace. One of them
Speaker 5: is it's an election year, and historically that introduces a
Speaker 5: whole level of volatility to the markets outside of some
Speaker 5: core fundamentals like earnings and interest rates and so on
Speaker 5: and so forth.
Speaker 4: How do you guys position for that kind of volatility
Speaker 4: or you try to look past it. We do try
Speaker 4: to look beyond it.
Speaker 9: We do ask ourselves, how about the fiscal sort of
Speaker 9: momentum coming into an election year with a big, beautiful bill.
Speaker 9: Prior to this war, we were sort of constructive, right.
Speaker 9: You had the impetus for consumers to consume more with
Speaker 9: potential for paychecks coming in. You had no tax on tips,
Speaker 9: no tax on overtime. You had the ability to deduct
Speaker 9: your expenditures at the corporate level by one hundred percent
Speaker 9: year one. That was going to accelerate a lot of
Speaker 9: economic activity. That is accelerating a lot of economic activity.
Speaker 9: We are very constructive on that theme. But it's being
Speaker 9: obviously that the crosswind of this moment is problematic.
Speaker 2: I look at the makeup here of equity listening to
Speaker 2: the buying market. You say spreads have backed up. What
Speaker 2: will well, if this continues, this fragility continues, I'm going
Speaker 2: to be up three dollars on Brent Cruz here in
Speaker 2: a moment. I mean, how does what's the history here
Speaker 2: of what happens to equity markets when spreads widen? Well?
Speaker 2: I would?
Speaker 9: I mean, clearly there's a correlation. If we see how
Speaker 9: yield spreads, you know, move in a pronounced way upward,
Speaker 9: where that probably means that volatility index has spiked and
Speaker 9: equities are lower. And when VALL spikes, we know what
Speaker 9: investors and hedge fund managers and some institutions do. They
Speaker 9: reduce their risk, they reduce their exposure. And so that
Speaker 9: that's what we would anticipate. If this is a longer
Speaker 9: duration occurrence in Iran and not you know, something that's
Speaker 9: just going to settle down over the next let's call
Speaker 9: it two to four weeks, we would anticipate the VIX
Speaker 9: to probably shoot up well above thirty and then you
Speaker 9: would have risk take and come off. We haven't seen
Speaker 9: the VIX above thirty months to date, which is sort
Speaker 9: of interesting, almost but not quite.
Speaker 2: Aaron, thank you so much for the generous time this morning.
Speaker 2: Aaron Kennon with us here on fixed income course as
Speaker 2: a measurement of the rest of the market with clear
Speaker 2: harbor asset management.
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