WEBVTT - Market Melt Up Amid Policy Uncertainty 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.160 us live on YouTube. 0:00:27.360 --> 0:00:30.560 Ian Lingoln joins right now with demo capital markets. Ian, 0:00:30.640 --> 0:00:34.159 let's begin with first principles. Do you still maintain that 0:00:34.360 --> 0:00:36.960 out there we will see price up and yield down? 0:00:39.000 --> 0:00:41.360 Yeah, I certainly do. I think that the path for 0:00:41.920 --> 0:00:44.720 ten and thirty years yields from here is certainly lower. 0:00:44.880 --> 0:00:47.760 We've seen four percent hold on a couple of occasions, 0:00:48.000 --> 0:00:50.280 but I think that as quick as or as soon 0:00:50.360 --> 0:00:53.680 as this weekend, we could see a weekly close below 0:00:53.760 --> 0:00:56.680 four percent in tins, which is constructive for the longer term. 0:00:56.760 --> 0:00:58.400 Of course, with Ian Lingoln, I had to set up 0:00:58.400 --> 0:01:01.440 a chart that would make Katie commence blush. Okay, it's 0:01:01.720 --> 0:01:04.440 log ten year yield, which is gorgeous. 0:01:04.480 --> 0:01:06.639 Spector are you ready? 0:01:06.680 --> 0:01:11.120 Two standard deviations down like an Ian Lingodn direction is 0:01:11.160 --> 0:01:13.800 a three point seven seven that's what. 0:01:13.720 --> 0:01:17.600 We're talking about. Can you imagine I can refinance the mortgage? Exactly? 0:01:17.840 --> 0:01:19.800 What does it do to in Lingodn's mortgage. 0:01:19.840 --> 0:01:22.759 Paul, So, I we're sitting here with a ten year 0:01:22.760 --> 0:01:26.520 at about four percent here, What is my Federal Reserve 0:01:26.560 --> 0:01:29.039 going to do here? Assuming they have some data that 0:01:29.120 --> 0:01:31.440 maybe we don't have, how do you think they're going 0:01:31.440 --> 0:01:34.680 to proceed over the next two, three four meetings? 0:01:35.560 --> 0:01:38.360 Well, they do have some data that we might not have. 0:01:38.440 --> 0:01:41.600 They certainly have models that tell them what the trajectory 0:01:41.600 --> 0:01:44.640 of the economy was before the government shut down. I 0:01:44.640 --> 0:01:47.400 think the path of base resistance is twenty five basis 0:01:47.440 --> 0:01:53.040 point cuts in October and December, followed by a pause 0:01:53.040 --> 0:01:56.720 in January, and shifting two quarterly cuts of twenty five 0:01:56.760 --> 0:01:58.040 basis points next year. 0:01:58.880 --> 0:02:01.640 All right, So I mean is that? I mean, how 0:02:01.640 --> 0:02:03.880 do you think the FED is looking at this economy here? 0:02:04.240 --> 0:02:08.760 I mean, the inflation despite the tariffs, seems to be 0:02:08.800 --> 0:02:10.799 in check here? So is do you think their focus 0:02:10.880 --> 0:02:13.000 is really more so on the labor market? 0:02:14.480 --> 0:02:18.240 I think that after the major BLS revisions and this 0:02:18.320 --> 0:02:23.560 summer's payrolls prints, that the Fed's focus clearly shifted towards 0:02:23.639 --> 0:02:27.120 the employment aspect of its dual mandate. As you point out, 0:02:27.320 --> 0:02:31.280 realized inflation hasn't been shockingly high. There has been some 0:02:31.320 --> 0:02:33.920 evidence of tariff passed through, but it hasn't been to 0:02:33.960 --> 0:02:36.520 the point that it's troubling for the FED. And so 0:02:37.400 --> 0:02:39.280 I suspect that what the FED is doing at this 0:02:39.400 --> 0:02:43.320 moment is they're not as worried about the performance of 0:02:43.360 --> 0:02:47.639 the real economy today, but they're normalizing rates in anticipation 0:02:47.919 --> 0:02:50.600 of trouble ahead in twenty twenty six. 0:02:50.800 --> 0:02:53.080 So and you're up at ce far with me today. 0:02:53.240 --> 0:02:56.040 I've been asking people for good. Good questions are smarter 0:02:56.200 --> 0:02:59.600 than mine. What is the question you would ask Christopher 0:02:59.720 --> 0:03:02.760 Wall who is on that short list to be chairman 0:03:02.840 --> 0:03:03.280 of the FED. 0:03:05.200 --> 0:03:09.120 I would be very curious where he sees the combination 0:03:09.440 --> 0:03:13.880 of neutral and the overall participation of the balance sheet 0:03:13.919 --> 0:03:17.000 and SOMA in twenty twenty six, right, because if he 0:03:17.120 --> 0:03:20.720 has a lower gut estimate, let's say two seventy five, 0:03:20.840 --> 0:03:24.400 two fifty, I think that would be a shift from 0:03:24.440 --> 0:03:27.200 the market's thinking. Or if he's at three fifty or 0:03:27.200 --> 0:03:30.400 three twenty five, that's also key information that the market's 0:03:30.440 --> 0:03:30.880 looking for. 0:03:31.040 --> 0:03:36.800 Link that into the balance sheet quantitative tightening, quantitative accommodation, 0:03:37.320 --> 0:03:40.560 link that into the balance sheet debate. This keeps coming 0:03:40.640 --> 0:03:44.120 up Paul, with Michael McKee and Christopher Whalen and now 0:03:44.160 --> 0:03:46.320 at Ian Lingen. I think our audience doesn't know this. 0:03:46.400 --> 0:03:51.040 I certainly don't link the monetary policy rate Ian Lingoln 0:03:51.400 --> 0:03:54.520 into what Christopher Waller and the Fed is doing with 0:03:54.600 --> 0:03:55.400 the balance sheet. 0:03:57.040 --> 0:04:01.240 So currently the Fed is winding down or reducing its 0:04:01.280 --> 0:04:05.800 balance sheet, selling more or allowing mortgages and treasuries to mature, 0:04:05.880 --> 0:04:09.920 and not reinvesting them in their entirety. What the messaging 0:04:09.960 --> 0:04:13.200 from Powell was yesterday was that that will probably end 0:04:13.320 --> 0:04:15.760 in the next few months. So that means we'll reach 0:04:15.800 --> 0:04:19.000 a stable balance sheet, which should be good for risk assets, 0:04:19.000 --> 0:04:21.080 it should be good for the real economy. It will 0:04:21.080 --> 0:04:25.280 also be good for best funding needs. As he contemplates 0:04:25.320 --> 0:04:27.960 how he's going to fund the deficit. 0:04:28.240 --> 0:04:29.840 Is he going to fund you think it? Is he 0:04:29.880 --> 0:04:31.960 going to fund it with short term paper? Or is 0:04:32.000 --> 0:04:34.719 he going to start Can you see it now? US 0:04:34.880 --> 0:04:37.640 fifty year bonds swening will line up at. 0:04:37.480 --> 0:04:39.960 The shore for that. How are we going to fund 0:04:39.960 --> 0:04:40.600 this deficit? 0:04:42.120 --> 0:04:44.320 I think for the foreseeable future it's going to be 0:04:44.400 --> 0:04:47.600 funded in the bill market. There's plenty of capacity, there's 0:04:47.680 --> 0:04:50.520 plenty of demand, in the very short end of the curve, 0:04:50.920 --> 0:04:54.479 and once we get to the second half of next year, presumably, 0:04:54.800 --> 0:04:57.279 if my forecasts are right, will be in a lower 0:04:57.400 --> 0:05:00.320 rate environment for tens and thirties, and it's at that 0:05:00.360 --> 0:05:04.160 point that VESNT might consider increasing borrowing further out the curve. 0:05:04.920 --> 0:05:07.599 Ian long ago, Lisa Bromwitz told me, I need to 0:05:07.600 --> 0:05:09.360 focus on the two ten spread. 0:05:09.360 --> 0:05:11.440 I got the two year, I don't know three fifty. 0:05:11.480 --> 0:05:13.680 I got the ten year like four percent, So that's 0:05:14.080 --> 0:05:16.480 fifty basis points of steepening there. 0:05:16.960 --> 0:05:18.680 How do I interpret that? Is that a good thing? 0:05:20.880 --> 0:05:24.320 Well, it's upward sloping, which is good for the economy. 0:05:24.320 --> 0:05:26.159 It's good for the system as a whole. So it 0:05:26.200 --> 0:05:30.200 has normalized. It's not as steep as many ourselves included, 0:05:30.480 --> 0:05:32.719 would have expected at this point in the cycle. The 0:05:32.760 --> 0:05:34.840 Fed has already told us they're going back to neutral, 0:05:34.839 --> 0:05:37.520 which is three percent. I would have expected that we 0:05:37.560 --> 0:05:40.680 would have seen either two year yields closer to three 0:05:40.800 --> 0:05:44.160 twenty five as opposed to three fifty, or a bit 0:05:44.240 --> 0:05:47.960 more bearishness further out the curve, as there does seem 0:05:48.000 --> 0:05:51.120 to be some positive momentum lingering in the real economy, and. 0:05:51.240 --> 0:05:53.520 Thank you for the brief, really really appreciate it. I'm 0:05:53.520 --> 0:05:56.280 going to mention you today with Christopher at Waller there 0:05:56.320 --> 0:06:01.920 that's smart observation on possibly a static balance sheet at 0:06:02.560 --> 0:06:02.960 the FAD. 0:06:03.440 --> 0:06:04.159 Stay with us. 0:06:04.400 --> 0:06:07.640 More from Bloomberg Surveillance coming up after this. 0:06:14.880 --> 0:06:18.479 You're listening to the Bloomberg Surveillance podcast. Catch US Live 0:06:18.520 --> 0:06:21.720 weekday afternoons from seven to ten am Eastern Listen on 0:06:21.760 --> 0:06:25.440 Applecarplay and Android Auto with the Bloomberg Business app, or 0:06:25.600 --> 0:06:27.080 watch US live on YouTube. 0:06:27.400 --> 0:06:30.320 Right now, too quick a visit with Daniel Tannebaum with 0:06:30.440 --> 0:06:32.760 Oliver Wyman. Dan, I just want to go to the 0:06:32.800 --> 0:06:36.040 first line of your note, which is just simply the 0:06:36.080 --> 0:06:39.599 imf IF meetings is just when are we going to 0:06:39.600 --> 0:06:42.360 be adults about containing Russia? 0:06:42.520 --> 0:06:46.240 Give us an update? No, that's right, Tom. There's at 0:06:46.320 --> 0:06:50.839 least discussions in the private forum of concern around when 0:06:50.839 --> 0:06:53.080 will the US finally take action. We've seen a lot 0:06:53.120 --> 0:06:56.320 of words, We've seen the President express disappointment. We know 0:06:56.400 --> 0:07:01.240 there's pending Senate legislation that would significantly increasealies on Russia, 0:07:01.279 --> 0:07:04.000 but we just haven't used any of them, and so 0:07:04.360 --> 0:07:07.160 it is leaving our allies. And I was in Brussels 0:07:07.160 --> 0:07:09.840 two weeks ago, feeling like they're left holding the bag 0:07:09.920 --> 0:07:11.440 without US support. 0:07:11.920 --> 0:07:14.360 And Dan, I just again reading your note, it just 0:07:14.400 --> 0:07:16.920 kind of jumped out of me. There have been zero 0:07:17.200 --> 0:07:21.240 new sanctions levied by President Trump since returning to office. 0:07:21.280 --> 0:07:25.760 That kind of surprised me, given what's taken place in Ukraine. 0:07:26.320 --> 0:07:27.720 What's the feeling in DC here? 0:07:28.520 --> 0:07:31.680 I think the feeling is a question of why, what 0:07:32.120 --> 0:07:34.440 is the hold up the discussions? 0:07:34.440 --> 0:07:34.960 Previously? 0:07:35.000 --> 0:07:38.960 The President said this that sanctions will somehow impede the 0:07:39.040 --> 0:07:42.680 negotiations with Russia. I mean, Russia has only increased the 0:07:42.760 --> 0:07:47.560 aggression since the Alaska Summit, which feels like an eternity ago, 0:07:47.920 --> 0:07:51.080 and with no tangible actions against Russia. The focus has 0:07:51.120 --> 0:07:55.840 been on pressuring allies to Ukraine more so than actually 0:07:55.880 --> 0:08:01.840 pressuring Ukraine, pressuring Russia, I mean, to to stop this war. 0:08:02.000 --> 0:08:04.000 So it is a real question mark as to what 0:08:04.040 --> 0:08:05.840 will it take to see actual action. 0:08:07.560 --> 0:08:11.200 Is there some feeling within Congress that Congress can just 0:08:11.520 --> 0:08:14.600 without the President, go on alone a little bit and 0:08:14.600 --> 0:08:17.200 impose some sanctions or do they need a full support 0:08:17.200 --> 0:08:17.760 of the President. 0:08:18.160 --> 0:08:21.960 They absolutely can, and they've done it before in twenty seventeen, 0:08:22.000 --> 0:08:26.480 which was definitely an eternity ago Congress imposed sanctions without 0:08:26.520 --> 0:08:29.200 the president's go ahead. It actually was to ensure that 0:08:29.240 --> 0:08:32.840 the President didn't lift existing sanctions on Russia. They will 0:08:32.880 --> 0:08:35.240 not act without them. Boone will not put this bill 0:08:35.280 --> 0:08:35.880 on the floor. 0:08:36.120 --> 0:08:38.720 Good Dan, Let me ask the elephant in the room question. 0:08:39.520 --> 0:08:41.559 I mean, what is, with all of your. 0:08:41.440 --> 0:08:44.520 Experience, including with a fuller reserve in New York, Dan Tanebam, 0:08:44.960 --> 0:08:48.600 how close is President Trump to mister Putin? 0:08:49.640 --> 0:08:52.640 I mean, that is the million dollar question. We don't 0:08:52.679 --> 0:08:57.720 really know. He's clearly shown a view towards the more 0:08:57.880 --> 0:09:02.440 autocratic leaders is a model that he aspires towards. Now 0:09:02.600 --> 0:09:07.120 he's certainly said repeatedly in recent weeks of the continued disappointment, 0:09:07.160 --> 0:09:12.200 particularly with drone and military intervention in NATO territory. 0:09:12.520 --> 0:09:14.200 But that is the question. 0:09:14.320 --> 0:09:17.520 He has not said anything positive about Vladimir Putin recently, 0:09:17.559 --> 0:09:20.720 so I guess that's a win. But it's hard to 0:09:20.800 --> 0:09:22.360 understand the calculus here. 0:09:22.600 --> 0:09:24.200 I mean, you're one of the few people I know 0:09:24.240 --> 0:09:28.400 it's going to actually answer intelligently. So it's a victory 0:09:28.440 --> 0:09:32.600 in Israel Gaza. Can the president translate that over to 0:09:32.720 --> 0:09:36.880 a quote unquote victory in Ukraine. I think he can. 0:09:37.040 --> 0:09:40.280 I mean, let's give the president credit on the Gaza deal. 0:09:40.320 --> 0:09:43.120 It's something that few others could have really done to 0:09:43.160 --> 0:09:46.640 bring both Hamas and Israel to the table to come 0:09:46.679 --> 0:09:49.240 to a deal. I think if the President put his 0:09:49.440 --> 0:09:53.120 energy into it, used the mouthpiece that he has joined 0:09:53.200 --> 0:09:55.760 back with the G seven allies that are trying to 0:09:55.960 --> 0:09:58.680 curb and get Russia out of Ukraine, I think it 0:09:58.720 --> 0:10:01.160 would make a difference. I think it would be something 0:10:01.200 --> 0:10:03.640 that gets him towards that famous Nobel prize that he 0:10:03.679 --> 0:10:07.400 seems so excited about. But he hasn't done it yet, 0:10:07.440 --> 0:10:09.280 and that is the question is what will it take 0:10:09.320 --> 0:10:10.599 to get him off the sidelines? 0:10:10.960 --> 0:10:13.520 Tanab, I'm shortlisted for the nobil. 0:10:13.320 --> 0:10:15.840 Sure, absolutely, Dan. 0:10:16.400 --> 0:10:20.520 In reality, there is everybody just waiting for the President 0:10:20.559 --> 0:10:22.600 to decide which way to go, because there are some 0:10:22.720 --> 0:10:26.760 serious sanctions in terms of frozen Russian assets that could 0:10:26.800 --> 0:10:30.480 be levied here that could have significant impacts on Russia. 0:10:30.559 --> 0:10:33.280 But is it at the discretion of the president here well, so. 0:10:33.320 --> 0:10:36.320 That's the one area where the President probably has less influence. 0:10:36.400 --> 0:10:39.400 The bulk of the immobilized Russian sovereign assets are actually 0:10:39.480 --> 0:10:42.600 in Europe, and there's been discussions for months, well for years, 0:10:42.640 --> 0:10:46.680 but really recently they've escalated within Brussels in the European 0:10:46.679 --> 0:10:49.840 Commission around what to do with these immobilized assets. Do 0:10:49.920 --> 0:10:52.719 we seize them? Do we generate alone off them? Which 0:10:52.760 --> 0:10:56.440 is already a plan leveraging the interest gain from the 0:10:56.640 --> 0:11:01.960 matured securities that were held with some institutions in Europe. 0:11:02.080 --> 0:11:05.040 But the president here, if he said he was supportive, 0:11:05.080 --> 0:11:07.080 I think it will help the cause. But this is 0:11:07.120 --> 0:11:09.559 really an issue that Europe needs to solve predominantly. 0:11:10.000 --> 0:11:12.440 Dan, thank you so much. In Washington. D tan Obaum 0:11:12.440 --> 0:11:16.920 with Oliver Whyman, stay with us. More from Bloomberg Surveillance 0:11:17.000 --> 0:11:25.400 coming up after this. 0:11:25.400 --> 0:11:29.319 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:11:29.360 --> 0:11:32.640 starting at seven am Eastern on Applecarplay and Android Auto 0:11:32.760 --> 0:11:35.720 with the Bloomberg Business app. You can also listen live 0:11:35.800 --> 0:11:39.400 on Amazon Alexa from our flagship New York station, Just 0:11:39.440 --> 0:11:41.880 say Alexa Play Bloomberg eleven thirty. 0:11:42.160 --> 0:11:45.760 David Balen. He's the CEO of CIO Capitol Group. 0:11:45.880 --> 0:11:48.520 David it is formerly Chief Investment Officer in Global Head 0:11:48.520 --> 0:11:51.760 of Investments at City Global Wealth. So he's been around 0:11:51.760 --> 0:11:54.720 the block once or twice. Hey, David, A lot. 0:11:54.520 --> 0:11:55.880 Of cross currents out there. 0:11:56.200 --> 0:11:59.160 We like to focus on the fundamentals like interest rates 0:11:59.200 --> 0:12:03.120 and earnings, but boy, there's geopolitical issues out there. There's 0:12:03.240 --> 0:12:06.959 just domestic political issues as it relates to tariffs and 0:12:06.960 --> 0:12:09.120 so on and so forth. When you talk to your clients, 0:12:09.120 --> 0:12:11.079 what's the message you try to get across. 0:12:12.880 --> 0:12:15.559 Right now, we're looking at next year's earnings being of 0:12:15.640 --> 0:12:18.040 about ten percent, We're looking at industrates coming down a 0:12:18.040 --> 0:12:20.920 little bit, and we're looking at an extraordinarily resilient economy 0:12:20.920 --> 0:12:24.000 that's pretty much ignored some of the major news, both 0:12:24.000 --> 0:12:27.880 a shutdown and also the tariff negotiations with China. But 0:12:27.960 --> 0:12:30.160 what we're seeing in client portfolio is a little bit 0:12:30.200 --> 0:12:34.000 more troubling, which is a great concentration in areas like technology. 0:12:34.000 --> 0:12:37.080 You know, managed portfolios have large exposures, but then clients 0:12:37.120 --> 0:12:39.920 have added on more to that, and they've avoided shares, 0:12:40.000 --> 0:12:41.960 you know, offshore shares, which I think will do well 0:12:42.000 --> 0:12:44.920 next year. They've avoided healthcare shares, which will do well 0:12:45.280 --> 0:12:47.719 next year as well. And so really we want to 0:12:47.720 --> 0:12:51.360 see people reorient their portfolios a little bit away from 0:12:51.360 --> 0:12:53.840 tech simply because of the concentration risks that they have, 0:12:54.520 --> 0:12:56.720 even though we expect earnings to go up in the 0:12:56.760 --> 0:13:00.280 technology sector. So it's a complacency that we're really most 0:13:00.280 --> 0:13:01.600 concerned about, to be honest with you. 0:13:02.000 --> 0:13:06.400 Okay, So when it comes to portfolio construction, how big 0:13:06.440 --> 0:13:08.559 of a moat do I have to have around my castle? 0:13:10.080 --> 0:13:12.840 Well, it's funny, you know, the sixty forty portfolio isn't 0:13:12.840 --> 0:13:14.640 going to work so well. But I think that clients 0:13:14.960 --> 0:13:17.840 don't have enough bonds and high quality bonds in their portfolio. 0:13:18.040 --> 0:13:21.200 They typically don't have gold, They probably have virtually no 0:13:21.360 --> 0:13:24.200 or zero exposure to big coin reating digital currency, and 0:13:24.280 --> 0:13:26.720 as already mentioned, they don't have much exposure to China 0:13:26.760 --> 0:13:30.240 tech or even to offshore equities. So there are lots 0:13:30.240 --> 0:13:33.640 of places where you want clients to reorient their portfolios. 0:13:33.920 --> 0:13:36.600 And we're talking about a reorientation that could be twelve 0:13:36.679 --> 0:13:38.760 to fourteen percent of their assets. So it's not a 0:13:38.760 --> 0:13:41.560 small change that we're recommending for twenty twenty six. 0:13:42.760 --> 0:13:47.319 So in your outlook there, David, what role does do 0:13:47.440 --> 0:13:50.560 alternatives play? And you know, I think falterners for most 0:13:50.600 --> 0:13:53.920 most of us are private equity, private credit, maybe hedge 0:13:53.920 --> 0:13:56.439 funds think things like that. How do you think about alternatives? 0:13:57.400 --> 0:13:59.439 Yeah, I think there are certain areas in the alternative 0:13:59.440 --> 0:14:01.960 market this coming year that are going to be better 0:14:01.960 --> 0:14:04.800 for vintages, like, for example, with a number of you know, 0:14:04.960 --> 0:14:07.719 lack of exits of private equity companies, and with valuations 0:14:07.720 --> 0:14:10.640 of mid cap stocks you know, about three turns less 0:14:10.640 --> 0:14:14.359 than large caps. I think private equity, especially middle market private. 0:14:14.080 --> 0:14:14.800 Equity, is good. 0:14:15.120 --> 0:14:17.240 But the area that we like best is one that's 0:14:17.240 --> 0:14:20.120 actually harder to invest in, which is early stage venture capital. 0:14:20.440 --> 0:14:22.520 You know, companies that are in series A, you know, 0:14:22.720 --> 0:14:25.600 even startup equity. And the reason that we like them 0:14:25.680 --> 0:14:27.640 is that they give you really large returns, but they 0:14:27.680 --> 0:14:30.440 also give you a second and third opportunity to invest 0:14:30.480 --> 0:14:33.680 as the more successful companies come out of those portfolios 0:14:33.680 --> 0:14:36.160 and funds. So we're emphasizing that our you know, ultra 0:14:36.200 --> 0:14:39.040 high net worth clients lean into that asset class. In 0:14:39.080 --> 0:14:40.800 twenty twenty six, are. 0:14:40.720 --> 0:14:43.400 Most investors on the same page, whether it be retail, 0:14:43.640 --> 0:14:46.200 a high net worth or institutional. 0:14:47.560 --> 0:14:51.200 You know, it's interesting the retail investors are actually more active. 0:14:51.280 --> 0:14:53.600 We're seeing you know, family offices and ultra high net 0:14:53.600 --> 0:14:57.840 worth clients really focused on what they did in the past, 0:14:58.200 --> 0:15:00.800 and that's one of the dangers of FORTFOLI management is 0:15:00.800 --> 0:15:03.440 if they don't look forward and actually change their strategy, 0:15:03.680 --> 0:15:06.560 they actually are taking on increased risk. When markets have 0:15:06.600 --> 0:15:08.200 done as well as they have for the last four 0:15:08.280 --> 0:15:12.160 or five years, all of these concentration risks build up, 0:15:12.480 --> 0:15:15.480 and that's what we're seeing. You know, even as families 0:15:15.520 --> 0:15:18.120 have become wealthier, even as family officer have done better, 0:15:18.400 --> 0:15:21.360 the fact is that their portfolios have become far riskier, 0:15:21.400 --> 0:15:24.040 and that I think is underappreciated. 0:15:24.480 --> 0:15:27.640 So fixed income here, it feels like fixed income kind 0:15:27.640 --> 0:15:29.600 of getting squeezed out over the last several years with 0:15:29.600 --> 0:15:32.760 a strong performance of the equity market. But you know, 0:15:33.520 --> 0:15:37.000 how do you think about fixed income allocations? How much 0:15:37.080 --> 0:15:39.120 credit risk do you want to take on fixed income side? 0:15:40.200 --> 0:15:43.360 Right, So you're hitting upon it a critical point. One 0:15:43.400 --> 0:15:45.400 of the things that's be't squeezed out is fixed income. 0:15:45.520 --> 0:15:48.200 And with rates where they are right now, both in 0:15:48.240 --> 0:15:51.040 the traditional markets and the high yield markets, there really 0:15:51.040 --> 0:15:53.440 are opportunities for people to capture and hold on to 0:15:53.640 --> 0:15:56.280 very good fixed income rates that are highly likely to 0:15:56.320 --> 0:15:59.000 come down next year. And you're right, people are very 0:15:59.120 --> 0:16:01.720 under allocated to that as well. Again as equities have 0:16:02.200 --> 0:16:04.520 done well, So we want to see clients take on 0:16:04.560 --> 0:16:07.520 a full slug of that, right, even including municipals in 0:16:07.560 --> 0:16:09.760 the United States, And that's why we have such a 0:16:09.840 --> 0:16:14.280 large orientation to reorienting portfolios. And we also want clients 0:16:14.280 --> 0:16:17.720 to think about their cash balances. The typical client today 0:16:17.720 --> 0:16:20.280 has more than eight percent of their money in cash, 0:16:20.560 --> 0:16:23.640 earning less than three percent when they could be earning 0:16:23.640 --> 0:16:25.800 four and a half percent right if they actively manage it. 0:16:26.080 --> 0:16:28.640 And they have two higher cash balances and they're earning 0:16:28.640 --> 0:16:31.160 too little on them. So there's a lot for clients 0:16:31.240 --> 0:16:33.120 to do in twenty twenty six and getting ready for 0:16:33.160 --> 0:16:33.600 next year. 0:16:33.920 --> 0:16:36.960 David, here's the softball for you. Don't turn it into 0:16:36.960 --> 0:16:40.120 a commercial. But what happens at the intersection of AI 0:16:40.200 --> 0:16:41.120 and wealth management. 0:16:42.680 --> 0:16:45.200 A lot is going to happen at the intersection. First 0:16:45.200 --> 0:16:47.480 of all, in terms of benefits to clients. We're going 0:16:47.520 --> 0:16:52.000 to see clients develop hyper efficient portfolios. Right, they need 0:16:52.040 --> 0:16:55.000 to spend less for their fund management, for even their 0:16:55.000 --> 0:16:57.440 wealth management and advice, and they're going to be able 0:16:57.480 --> 0:17:00.280 to do that by looking at their entire portfolios using 0:17:00.400 --> 0:17:03.480 data aggregation, taking a look at where they're just getting 0:17:03.480 --> 0:17:05.800 index exposure, like the S and P or the NASDAC, 0:17:06.200 --> 0:17:09.080 bringing that down to the lowest possible cost, and then 0:17:09.160 --> 0:17:11.439 doing the reallocations we just talked about right in a 0:17:11.520 --> 0:17:15.080 very methodical way. What AI doesn't do well is anticipate 0:17:15.200 --> 0:17:17.879 some of the market conditions that we actually have right now. 0:17:18.040 --> 0:17:20.320 That's where you need people to do that job, the 0:17:20.359 --> 0:17:23.919 CIO part. But in terms of making portfolios efficient, it 0:17:24.040 --> 0:17:26.359 is just remarkable right that the state of the wealth 0:17:26.400 --> 0:17:29.800 management industry right now is that the typical retail client 0:17:29.840 --> 0:17:32.800 will will spend one point one to one point five 0:17:32.840 --> 0:17:36.200 percent to get asset management services and fun including their 0:17:36.200 --> 0:17:36.840 fund costs. 0:17:36.960 --> 0:17:37.879 And that's ridiculous. 0:17:37.920 --> 0:17:39.720 It won't it won't be that high in two years. 0:17:40.160 --> 0:17:42.840 David, Thanks for joining us. Always appreciate getting the benefits 0:17:42.840 --> 0:17:45.880 of your wisdom. David Balen, CEO of CIO Capital Group. 0:17:45.920 --> 0:17:49.280 I note that Stephen Whiting, formerly of City, recently enjoying it. 0:17:49.680 --> 0:17:52.400 David Balen, stay with us. More from Bloomberg Surveillance. Coming 0:17:52.480 --> 0:18:06.840 up after this. 0:18:00.160 --> 0:18:04.040 Is the Bloomberg Surveillance podcast. Listen live each weekday starting 0:18:04.080 --> 0:18:07.280 at seven am Eastern on Applecarplay and Android auto with 0:18:07.359 --> 0:18:10.320 the Bloomberg Business app. You can also watch us live 0:18:10.400 --> 0:18:13.920 every weekday on YouTube and always on the Bloomberg Terminal. 0:18:14.080 --> 0:18:15.879 We actually have a guest who really is an expert 0:18:15.920 --> 0:18:18.920 on this whole energy stuff, Regina Mayor, a global head 0:18:18.920 --> 0:18:21.680 of clients and Markets at kp MG. 0:18:22.840 --> 0:18:23.280 Regina. 0:18:23.440 --> 0:18:26.520 You know, I note that WTI crude oil has got 0:18:26.520 --> 0:18:28.879 a fifty eight handle. I mean, I think the folks 0:18:28.880 --> 0:18:30.440 down in your neck of the woods, they're not real 0:18:30.480 --> 0:18:33.240 happy with that. Talk to us about kind of where 0:18:33.320 --> 0:18:35.879 oil is now and what does that mean for the 0:18:35.880 --> 0:18:37.240 economics of the energy business. 0:18:38.280 --> 0:18:41.120 Yeah, So it's really interesting because we've got dueling forecasts 0:18:41.160 --> 0:18:43.920 going on and an attempt to seize the narrative. So 0:18:44.280 --> 0:18:48.960 opek is saying supply demand roughly in equilibrium, IEA predicting 0:18:48.960 --> 0:18:52.240 a big supply gut. The industry titans trying to say 0:18:52.280 --> 0:18:54.719 it's short term, it'll work itself out in the medium 0:18:54.720 --> 0:18:56.960 and long term. My own view is I think we're 0:18:57.000 --> 0:19:00.240 near the floor. Why do I think that? Cushe is 0:19:00.280 --> 0:19:03.320 out a six year low for inventory so US space. 0:19:03.840 --> 0:19:06.399 I do think for shale we're going to see flat 0:19:06.440 --> 0:19:09.480 to low production in twenty twenty six. We're starting to 0:19:09.480 --> 0:19:13.639 see more speculative plays. We're moving into more marginal territory. 0:19:13.760 --> 0:19:16.959 I think that'll put some of the supply off and 0:19:17.040 --> 0:19:20.400 we might be even approaching acentangle market where we start 0:19:20.400 --> 0:19:25.680 to see some uneconomic behavior. We're already seeing floating storage 0:19:25.840 --> 0:19:28.560 doubled twenty million barrels to forty million barrels. You're on, 0:19:28.640 --> 0:19:31.200 colleague covey Er bloss Broad actually a really interesting piece 0:19:31.200 --> 0:19:34.000 about that. So we think it's the floor. So we 0:19:34.040 --> 0:19:37.879 don't necessarily like WTI at fifty eight. I think it 0:19:37.920 --> 0:19:40.640 should be comfortably in the mid sixties, and we'll still 0:19:40.640 --> 0:19:44.720 see really strong growth from energy companies in twenty twenty six. 0:19:44.880 --> 0:19:48.320 All right, backwardation in contango. One of these days, somebody's 0:19:48.359 --> 0:19:51.960 going to give me a clear, clear explanation of that. Hey, 0:19:52.000 --> 0:19:55.320 One of the regional issues we're facing here Regina is 0:19:55.880 --> 0:19:59.680 a debate, a really intense debate over a proposed pipeline 0:19:59.680 --> 0:20:03.359 that would from Pennsylvania through New Jersey through the Raritan 0:20:03.440 --> 0:20:06.760 Bay under the water and to Queen's you know, the 0:20:06.800 --> 0:20:12.280 governor here for it, the congressional delegation against it. Can 0:20:12.320 --> 0:20:15.199 you talk to us about where we are in the 0:20:15.280 --> 0:20:20.880 debate between oil, gas, and renewables. 0:20:22.680 --> 0:20:26.120 So right now we have an environment that is probably 0:20:26.200 --> 0:20:28.959 more friendly toward oil and gas. I shared the story 0:20:28.960 --> 0:20:32.160 with Tom and Paul earlier this year at an Astros game. 0:20:32.240 --> 0:20:34.080 I know he's a Red Sox fan, but for the 0:20:34.080 --> 0:20:37.480 first time in a long time, I'm seeing oil companies advertise, 0:20:37.680 --> 0:20:40.200 you know, baseball brought to you by oil and gas. 0:20:40.280 --> 0:20:42.879 You would not have seen that two years ago, so 0:20:43.040 --> 0:20:45.760 I think that the industry is trying to take advantage 0:20:45.760 --> 0:20:48.359 of that. I actually think your part of the country 0:20:48.400 --> 0:20:52.000 would really benefit from more access to natural gas. In 0:20:52.080 --> 0:20:55.760 the New England, New York, New Jersey area, you know, 0:20:55.560 --> 0:20:58.879 you have propane deliveries. It still go house to house 0:20:58.920 --> 0:21:02.400 with heating oil, and if we had natural gas lines in. 0:21:02.680 --> 0:21:06.240 We have a ubiquitousness of natural gas, particularly from Appalachia 0:21:06.520 --> 0:21:10.320 really close by, relatively inexpensive. So I think we're trying 0:21:10.359 --> 0:21:11.200 to do more of that. 0:21:11.400 --> 0:21:12.200