1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,680 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,520 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amrie Hordernt. Join us each day 4 00:00:18,760 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,960 --> 00:00:27,720 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,319 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:38,480 Speaker 2: Terminal and the Bloomberg Business app. Nearly twenty energy executives 10 00:00:38,520 --> 00:00:41,680 Speaker 2: meeting with President Donald Trump today to discuss rebuilding Venezuela's 11 00:00:41,720 --> 00:00:45,800 Speaker 2: oil infrastructure. The lineup includes representatives from Chevron, Exon, and 12 00:00:45,880 --> 00:00:49,159 Speaker 2: Conoco Phillips, among others. Also attending the meeting will be 13 00:00:49,200 --> 00:00:51,919 Speaker 2: the US Interist Secretary tug Bergham, who joined us now. 14 00:00:51,960 --> 00:00:53,960 Speaker 2: Mister Secretary. Welcome to the program sour and a happy 15 00:00:54,000 --> 00:00:58,520 Speaker 2: new year. Just frame for us. The expectations for today's conversation. 16 00:01:00,000 --> 00:01:03,880 Speaker 3: Expectation todays have a great conversation about the opportunity to 17 00:01:03,880 --> 00:01:07,200 Speaker 3: continue President Trump's agenda, which is the agenda course has 18 00:01:07,240 --> 00:01:10,080 Speaker 3: been always about the safety and security, national security of 19 00:01:10,080 --> 00:01:13,840 Speaker 3: our country. That begins with you can't have national security 20 00:01:13,880 --> 00:01:17,440 Speaker 3: without border security. You can't have national security without energy security. 21 00:01:17,760 --> 00:01:19,720 Speaker 3: So that's going to be on the table, and of 22 00:01:19,720 --> 00:01:25,559 Speaker 3: course the prosperity of America that's based on energy as well, 23 00:01:25,600 --> 00:01:30,080 Speaker 3: because if without a plentiful, abundant, reliable, secure energy, you're 24 00:01:30,080 --> 00:01:31,760 Speaker 3: going to have the inflation like we saw in the 25 00:01:31,760 --> 00:01:35,280 Speaker 3: previous administration. President Trump is turning that around. So this 26 00:01:35,319 --> 00:01:38,080 Speaker 3: is really at the core, it's a discussion about peace 27 00:01:38,080 --> 00:01:41,640 Speaker 3: in the world and prosperity at home, and what an opportunity, 28 00:01:41,680 --> 00:01:47,000 Speaker 3: economic opportunity to restore normal relations with Venezuela and for companies, 29 00:01:47,040 --> 00:01:50,840 Speaker 3: including many of these that had operations in Venezuela for 30 00:01:51,040 --> 00:01:54,120 Speaker 3: decades ago when Venezuela was a big economic partner in 31 00:01:54,120 --> 00:01:57,160 Speaker 3: the United States before it's collapse, get a chance to 32 00:01:57,160 --> 00:01:59,840 Speaker 3: return to that. So looking forward to it, it's exciting 33 00:02:00,240 --> 00:02:02,520 Speaker 3: and lots of interest in coming to the meeting today. 34 00:02:02,520 --> 00:02:05,600 Speaker 3: They're not enough seats in the room in terms of 35 00:02:05,680 --> 00:02:07,840 Speaker 3: executives that wanted to join in the meeting today with 36 00:02:08,680 --> 00:02:09,400 Speaker 3: President Trump. 37 00:02:09,760 --> 00:02:12,120 Speaker 1: Secretary Bergham, I know that you and Secretary Writer have 38 00:02:12,240 --> 00:02:14,480 Speaker 1: that outreach with the oil and industry right now. But 39 00:02:14,560 --> 00:02:16,600 Speaker 1: what I'm hearing is that they are certainly lining up 40 00:02:16,639 --> 00:02:19,440 Speaker 1: for meeting with the president, but not necessarily lining up 41 00:02:19,480 --> 00:02:22,120 Speaker 1: to go back into Venezuela. What are they telling you. 42 00:02:23,000 --> 00:02:26,560 Speaker 4: Well, I think the very strong interest. 43 00:02:27,120 --> 00:02:29,880 Speaker 3: How can you not be interested in the world's largest 44 00:02:30,080 --> 00:02:34,400 Speaker 3: oil reserves in the same hemisphere. So I think there's questions, 45 00:02:34,440 --> 00:02:38,840 Speaker 3: of course, questions about security, questions about what the long 46 00:02:38,919 --> 00:02:41,160 Speaker 3: term profile is going to be. But the interest level 47 00:02:41,240 --> 00:02:45,639 Speaker 3: is through the roof across from the small wild catador 48 00:02:46,080 --> 00:02:52,280 Speaker 3: to upstream, midstream, downstream, the majors. There's so much interest 49 00:02:52,320 --> 00:02:55,079 Speaker 3: to this, and not just an energy people are reaching 50 00:02:55,080 --> 00:02:59,040 Speaker 3: out because the mining industry collapsed in Venezuela. Their entire 51 00:02:59,160 --> 00:03:03,920 Speaker 3: electrical generation industry has collapsed. The opportunity with sanctions being 52 00:03:03,960 --> 00:03:06,920 Speaker 3: selectively listed for the US companies to sell into that 53 00:03:07,000 --> 00:03:10,160 Speaker 3: market as it rebuilds is very interesting. And of course 54 00:03:10,200 --> 00:03:13,080 Speaker 3: we've got a number of energy companies that have spent 55 00:03:13,160 --> 00:03:17,480 Speaker 3: their careers going into some of the world's dangerous places 56 00:03:17,520 --> 00:03:20,600 Speaker 3: to develop oil resources, and those folks, some of those 57 00:03:20,600 --> 00:03:21,919 Speaker 3: will be in the room today as well. 58 00:03:22,080 --> 00:03:24,120 Speaker 1: But it's going to take tens of billions of dollars 59 00:03:24,120 --> 00:03:27,519 Speaker 1: them to allocate capital to go back into Venezuela. Does 60 00:03:27,520 --> 00:03:30,360 Speaker 1: the math make sense when WTI is trading blow sixty 61 00:03:30,400 --> 00:03:31,120 Speaker 1: dollars a arrow. 62 00:03:32,639 --> 00:03:34,359 Speaker 4: Well, the market is going to decide. 63 00:03:34,360 --> 00:03:36,760 Speaker 3: But I know that one thing that happened this week, 64 00:03:37,080 --> 00:03:40,000 Speaker 3: people keep saying, oh, below sixty, there's going to. 65 00:03:39,920 --> 00:03:40,600 Speaker 4: Be no interest. 66 00:03:41,080 --> 00:03:46,080 Speaker 3: Through the Department of Interior, we're holding our as required 67 00:03:46,240 --> 00:03:49,800 Speaker 3: legal lease sales, the one that we held in New 68 00:03:49,840 --> 00:03:54,120 Speaker 3: Mexico earlier this week. On January sixth, three hundred and 69 00:03:54,120 --> 00:03:57,920 Speaker 3: twenty seven million dollars of royalty payments enter record, the 70 00:03:58,000 --> 00:04:01,720 Speaker 3: highest since these leases have begun under the new format 71 00:04:01,760 --> 00:04:04,440 Speaker 3: over almost forty years. Thirty nine years ago in nineteen 72 00:04:04,480 --> 00:04:07,040 Speaker 3: eighty seven was when the new rules came in place. 73 00:04:07,840 --> 00:04:11,600 Speaker 3: It was two hundred nineteen thousand dollars per acre on 74 00:04:11,600 --> 00:04:13,520 Speaker 3: one of the leases in Permian. So I would say 75 00:04:13,560 --> 00:04:18,000 Speaker 3: the interest US and in Venezuela very strong in this 76 00:04:18,080 --> 00:04:20,760 Speaker 3: industry because they see they look ahead and they see 77 00:04:20,800 --> 00:04:23,119 Speaker 3: the demand for energy going up and of course driven 78 00:04:23,160 --> 00:04:26,840 Speaker 3: by economic growth. Twenty twenty six could be a banner year, 79 00:04:26,839 --> 00:04:29,760 Speaker 3: but also the energy required for US to win the 80 00:04:29,760 --> 00:04:32,880 Speaker 3: AI arms race. So there's a strong, strong interest in 81 00:04:32,920 --> 00:04:35,720 Speaker 3: this investing in this western hemisphere. 82 00:04:35,760 --> 00:04:38,800 Speaker 1: Does the administration have a goal of getting oil to 83 00:04:38,839 --> 00:04:40,000 Speaker 1: fifty dollars a barrel? 84 00:04:41,240 --> 00:04:43,320 Speaker 3: Well, I think what President Trump wants is he wants 85 00:04:43,560 --> 00:04:45,760 Speaker 3: to break the back of inflation. And he knows that 86 00:04:46,520 --> 00:04:48,720 Speaker 3: there's a component of energy in the food you eat, 87 00:04:48,800 --> 00:04:51,680 Speaker 3: the clothes you wear, the car you drive. If you 88 00:04:51,680 --> 00:04:53,920 Speaker 3: can get energy prices down, that's the best way to 89 00:04:53,960 --> 00:04:58,080 Speaker 3: lick inflation. And affordability is something that matters. President Trump 90 00:04:58,640 --> 00:05:01,320 Speaker 3: has stopped the runaway in flame the prior administration. 91 00:05:01,400 --> 00:05:02,440 Speaker 4: He wants to keep it going. 92 00:05:03,160 --> 00:05:05,800 Speaker 3: When we talk about how do we get prices down, 93 00:05:05,880 --> 00:05:08,160 Speaker 3: part of it is we've cut so much red tape 94 00:05:08,160 --> 00:05:08,839 Speaker 3: in the last year. 95 00:05:08,880 --> 00:05:10,279 Speaker 4: We've lowered the break even point. 96 00:05:10,320 --> 00:05:13,840 Speaker 3: That plus the technological innovation from this industry. The oil 97 00:05:13,839 --> 00:05:17,800 Speaker 3: and gas industry is not what it was fifty years ago. 98 00:05:17,920 --> 00:05:20,360 Speaker 3: This is a super high tech industry. You take a 99 00:05:20,400 --> 00:05:22,240 Speaker 3: look at my home state in North Dakota and you 100 00:05:22,240 --> 00:05:25,359 Speaker 3: look at the capability and the productivity increases of the 101 00:05:25,360 --> 00:05:29,120 Speaker 3: people developing there. It's just been amazing the gains that 102 00:05:29,160 --> 00:05:33,440 Speaker 3: they continue to make. And again, the shale revolution tied 103 00:05:33,520 --> 00:05:36,320 Speaker 3: with deregulation, cutting some of the red tape that was 104 00:05:36,360 --> 00:05:39,359 Speaker 3: put in place. We know that their break even point 105 00:05:39,440 --> 00:05:41,760 Speaker 3: is getting lower and lower, and that's why it makes 106 00:05:41,760 --> 00:05:43,560 Speaker 3: it the great industry. And that's why we've got the 107 00:05:43,600 --> 00:05:46,960 Speaker 3: greatest industry in the country in the world because in 108 00:05:47,000 --> 00:05:50,440 Speaker 3: the US we've got competition. We don't have a nationalized 109 00:05:50,440 --> 00:05:54,040 Speaker 3: oil industry that has become a monopoly and lethargic. We've 110 00:05:54,040 --> 00:05:56,400 Speaker 3: got great companies that get out and compete. We're going 111 00:05:56,440 --> 00:05:59,080 Speaker 3: to be with some of those great companies today and 112 00:05:59,400 --> 00:06:01,640 Speaker 3: excited to hear their ideas about how to go in 113 00:06:01,680 --> 00:06:05,720 Speaker 3: and break free the incredible opportunity that is for both 114 00:06:05,760 --> 00:06:09,040 Speaker 3: the US and Venezuela in developing this resource. 115 00:06:09,160 --> 00:06:09,960 Speaker 4: Mister Secretary, a. 116 00:06:09,960 --> 00:06:12,320 Speaker 5: Lot to unpact there, including about the shale patch. I 117 00:06:12,360 --> 00:06:15,839 Speaker 5: do want to stay on this question of US backing 118 00:06:16,040 --> 00:06:19,919 Speaker 5: of some of these US companies going into Venezuela and 119 00:06:19,960 --> 00:06:22,520 Speaker 5: building out the infrastructure there. President Trump has talked about 120 00:06:22,560 --> 00:06:25,040 Speaker 5: potentially a one hundred billion dollar investment potentially over the 121 00:06:25,120 --> 00:06:28,240 Speaker 5: next eighteen months. Where would the funds come from in 122 00:06:28,279 --> 00:06:31,680 Speaker 5: the United States for some of these energy companies to 123 00:06:31,680 --> 00:06:33,560 Speaker 5: help back those investments. 124 00:06:34,839 --> 00:06:38,120 Speaker 3: Well, the discussions right now have been that the capital 125 00:06:38,160 --> 00:06:40,400 Speaker 3: is going to come from the capital markets and come 126 00:06:40,400 --> 00:06:45,240 Speaker 3: from the energy companies. I don't see that these companies 127 00:06:45,240 --> 00:06:47,880 Speaker 3: are going to need a support from the US other 128 00:06:47,920 --> 00:06:50,440 Speaker 3: than things around security. I mean, if we can provide 129 00:06:50,480 --> 00:06:54,320 Speaker 3: a secure, stable environment. The resource here is so significant 130 00:06:54,360 --> 00:06:57,320 Speaker 3: and so large that it's going to be attractive for 131 00:06:57,360 --> 00:07:00,320 Speaker 3: people to go in and develop that, and particularly as 132 00:07:00,360 --> 00:07:02,080 Speaker 3: the US maintains the embargo. 133 00:07:02,160 --> 00:07:02,720 Speaker 4: This is key. 134 00:07:03,320 --> 00:07:05,960 Speaker 3: You reported on it just now, President Trump serious, I 135 00:07:05,960 --> 00:07:09,120 Speaker 3: mean sanctions under President Trump actually mean a sanction. The 136 00:07:09,160 --> 00:07:13,160 Speaker 3: failed sanctions under the Biden administration just turned Venezuela and 137 00:07:13,240 --> 00:07:16,880 Speaker 3: other places into the discount gas stations for China and 138 00:07:16,920 --> 00:07:19,920 Speaker 3: other countries. And President Trump is We're going to make 139 00:07:19,960 --> 00:07:23,600 Speaker 3: sure that this is secure and we're controlling the flow, 140 00:07:23,720 --> 00:07:28,400 Speaker 3: both of energy going in and energy coming out. Venezuela's 141 00:07:28,400 --> 00:07:32,600 Speaker 3: heavy crude requires diluting. It requires a light crude like 142 00:07:32,640 --> 00:07:35,200 Speaker 3: we've got in the United States. To go down there, 143 00:07:35,640 --> 00:07:38,160 Speaker 3: one barrel's got to go into Venezuela for every five 144 00:07:38,160 --> 00:07:41,600 Speaker 3: barrel that comes out. Russia controlled that market. That market's 145 00:07:41,640 --> 00:07:45,200 Speaker 3: coming back to the US. And the synergy between our 146 00:07:46,240 --> 00:07:49,040 Speaker 3: refinery sector in the United States, which was built around 147 00:07:49,120 --> 00:07:52,360 Speaker 3: Venezuelan oil. Getting back to that's great news for refiners, 148 00:07:52,400 --> 00:07:55,920 Speaker 3: great news for gas prices for Americans, great news for 149 00:07:56,000 --> 00:08:00,720 Speaker 3: the opportunity to sell modern equipment, to modernize this industry. 150 00:08:00,800 --> 00:08:03,640 Speaker 4: So lots of news for beyond even. 151 00:08:03,400 --> 00:08:07,000 Speaker 3: The oil majors, Lots of great news economically as we 152 00:08:07,080 --> 00:08:10,720 Speaker 3: open up this trading and normalized trading relationship with Venezuela. 153 00:08:10,800 --> 00:08:13,440 Speaker 5: Yeah, certainly Valero as a refiner has seen the benefits 154 00:08:13,480 --> 00:08:16,520 Speaker 5: of this. Mister Secretary, you talk about security guarantees, and 155 00:08:16,720 --> 00:08:19,360 Speaker 5: if the safety is there, the oil majors will go 156 00:08:19,480 --> 00:08:22,960 Speaker 5: in with frankly, capital markets behind them. What kind of 157 00:08:23,000 --> 00:08:24,680 Speaker 5: security guarantees are they asking for. 158 00:08:25,880 --> 00:08:27,880 Speaker 3: Well, we'll find out some of that more today. But 159 00:08:27,960 --> 00:08:30,320 Speaker 3: I think what they really want to understand is, you know, 160 00:08:30,480 --> 00:08:35,040 Speaker 3: how serious is the US in maintaining the embargo, How 161 00:08:35,120 --> 00:08:40,120 Speaker 3: serious is the US in maintaining stability in Venezuela. And 162 00:08:40,200 --> 00:08:43,040 Speaker 3: I think the actions that they're seeing this week speak 163 00:08:43,080 --> 00:08:46,480 Speaker 3: loudly to that, the actions of President Trump enforcing the 164 00:08:46,520 --> 00:08:50,000 Speaker 3: embargo and already the cooperation. I mean earlier this morning, 165 00:08:50,240 --> 00:08:53,439 Speaker 3: President Trump just in the last half hour tweeted out 166 00:08:53,480 --> 00:08:58,880 Speaker 3: that the Venezuelan interim government is releasing political prisoners. They're 167 00:08:58,960 --> 00:09:03,160 Speaker 3: taking actions to demonstrate that they want to have a 168 00:09:03,200 --> 00:09:07,240 Speaker 3: successful economic relationship with the United States of America. The 169 00:09:08,240 --> 00:09:11,080 Speaker 3: interim governments committed that they're going to be buying equipment 170 00:09:11,200 --> 00:09:14,000 Speaker 3: material from the US companies. I mean, these are all 171 00:09:14,000 --> 00:09:16,280 Speaker 3: the signals that we're looking for that to keep us 172 00:09:16,320 --> 00:09:18,960 Speaker 3: moving towards normalized relationships. 173 00:09:18,440 --> 00:09:22,320 Speaker 2: Mister secretary, as you know, to establish stability in this region, 174 00:09:22,360 --> 00:09:26,240 Speaker 2: it might require massive expense from the US government, which 175 00:09:26,320 --> 00:09:29,400 Speaker 2: might require a lot of money from taxpayers. If these 176 00:09:29,440 --> 00:09:31,160 Speaker 2: oil may just go in with the support of the 177 00:09:31,280 --> 00:09:33,880 Speaker 2: US government, mister secretary, will the president want a slice 178 00:09:33,880 --> 00:09:35,679 Speaker 2: of that revenue for the US government? 179 00:09:37,120 --> 00:09:40,120 Speaker 3: Well, I think President Trump is always looking for good 180 00:09:40,160 --> 00:09:42,200 Speaker 3: deals for the American people, but he also is a 181 00:09:42,200 --> 00:09:44,280 Speaker 3: business person. He understands that we have to have the 182 00:09:44,360 --> 00:09:48,760 Speaker 3: right economic conditions for companies to go in and deploy 183 00:09:48,840 --> 00:09:51,160 Speaker 3: their own capital and solve these problems. So I think 184 00:09:51,200 --> 00:09:53,839 Speaker 3: in the end, what we're going to see is we've 185 00:09:53,880 --> 00:09:57,360 Speaker 3: got to We're so fortunate to have a president who 186 00:09:57,520 --> 00:10:01,120 Speaker 3: has got the willingness and the courage and the understanding 187 00:10:01,160 --> 00:10:04,800 Speaker 3: of how to use force, just like past presidents. I mean, 188 00:10:04,840 --> 00:10:07,480 Speaker 3: we wouldn't have the Panama Canal without bold action by 189 00:10:07,520 --> 00:10:10,360 Speaker 3: Theodore Roosevelt one hundred and twenty five years ago, and 190 00:10:10,480 --> 00:10:16,240 Speaker 3: now under President Trump again taking a corollary of the 191 00:10:16,240 --> 00:10:18,600 Speaker 3: Monroe doctrine, which is saying, Hey, if we've got criminal 192 00:10:18,679 --> 00:10:22,760 Speaker 3: enterprises running countries and destroying countries in our hemisphere, that's 193 00:10:22,800 --> 00:10:23,840 Speaker 3: bad for the neighborhood. 194 00:10:24,280 --> 00:10:26,760 Speaker 4: Let's go in and clean it up and do that. 195 00:10:26,800 --> 00:10:29,080 Speaker 3: But when it comes to rebuilding, I think again, what 196 00:10:29,080 --> 00:10:31,880 Speaker 3: we've seen is that if we can create the right 197 00:10:31,960 --> 00:10:35,280 Speaker 3: market conditions, we're not going to need taxpayer dollars to 198 00:10:35,280 --> 00:10:37,400 Speaker 3: go do this. And who's going to benefit the taxpayers 199 00:10:37,400 --> 00:10:39,360 Speaker 3: because you're going to see lower prices at the pump 200 00:10:39,920 --> 00:10:40,720 Speaker 3: here in America. 201 00:10:40,960 --> 00:10:43,000 Speaker 2: The reason I bring up this question says, because, as 202 00:10:43,080 --> 00:10:45,280 Speaker 2: you know, there was some conversation about chips being sold 203 00:10:45,280 --> 00:10:48,080 Speaker 2: into China and the government getting a share of the 204 00:10:48,080 --> 00:10:50,480 Speaker 2: revenue associated with those chips, and I wonder if the 205 00:10:50,480 --> 00:10:52,160 Speaker 2: same kind of thing applies here, because I think the 206 00:10:52,160 --> 00:10:54,760 Speaker 2: executive's going to g into this meeting later trying to 207 00:10:54,760 --> 00:10:57,240 Speaker 2: figure out what kind of meeting then coming into is 208 00:10:57,280 --> 00:11:01,720 Speaker 2: it an opportunity to explore Venezuela themselves or alongside the 209 00:11:01,800 --> 00:11:04,200 Speaker 2: US government, and what kind of agreement could be established 210 00:11:04,200 --> 00:11:05,040 Speaker 2: further down the road. 211 00:11:06,240 --> 00:11:08,880 Speaker 3: Well, I think initially it's going to be alongside the 212 00:11:08,960 --> 00:11:11,840 Speaker 3: US government, because that has been stated publicly this week. 213 00:11:12,520 --> 00:11:15,920 Speaker 3: The US intends to control the disposition of the oil 214 00:11:16,600 --> 00:11:20,400 Speaker 3: coming out of Venezuela, and as I said earlier, it's 215 00:11:20,440 --> 00:11:25,320 Speaker 3: going to control whatever material and supplies and in this case, 216 00:11:26,240 --> 00:11:29,360 Speaker 3: the millions of barrels of deliument that need to go 217 00:11:29,440 --> 00:11:32,280 Speaker 3: in to distract this heavy VENs and crude that is 218 00:11:32,320 --> 00:11:35,240 Speaker 3: going to be controlled by the US during this period 219 00:11:35,559 --> 00:11:39,840 Speaker 3: in cooperation with the interim government in Venezuela. So I 220 00:11:39,840 --> 00:11:42,600 Speaker 3: think that they can hear more about that firsthand today, 221 00:11:42,600 --> 00:11:45,640 Speaker 3: but it's going to match what they've heard publicly this week. 222 00:11:45,880 --> 00:11:47,679 Speaker 3: And I know from talking to a number of these 223 00:11:47,720 --> 00:11:50,520 Speaker 3: executives this week. Chris Wright has talked to a number 224 00:11:50,520 --> 00:11:52,840 Speaker 3: of these executives week. There is a lot of interest 225 00:11:53,440 --> 00:11:57,520 Speaker 3: in getting back into the world's largest proven reserves right 226 00:11:57,559 --> 00:12:02,080 Speaker 3: here in our hemisphere. And again that's a great benefit 227 00:12:02,679 --> 00:12:05,720 Speaker 3: to the entire Western hemisphere, but absolutely it's a benefit 228 00:12:05,760 --> 00:12:06,880 Speaker 3: to the American citizens. 229 00:12:07,080 --> 00:12:10,559 Speaker 2: Stay with us. More Bloomberg surveillance coming up after this 230 00:12:19,840 --> 00:12:23,840 Speaker 2: Stephen major of tradition, writing economic data relative to expectations 231 00:12:23,840 --> 00:12:27,040 Speaker 2: has softened, there is fundamental support to keep luring the 232 00:12:27,040 --> 00:12:29,960 Speaker 2: Fed funds rate to a level below weather forwards are 233 00:12:29,960 --> 00:12:32,839 Speaker 2: currently implying. Steven joins us now for more. Stephen, welcome 234 00:12:32,880 --> 00:12:34,240 Speaker 2: to the program. So it's always good to see you 235 00:12:34,240 --> 00:12:36,959 Speaker 2: when congratulations on the new seat. Let's talk about the 236 00:12:37,040 --> 00:12:39,360 Speaker 2: data this morning. How relevant is the jobs report at 237 00:12:39,400 --> 00:12:41,559 Speaker 2: eight thirty with your opinion in mind? 238 00:12:43,160 --> 00:12:45,720 Speaker 4: Well, I think your setup said it all. John. 239 00:12:46,559 --> 00:12:50,080 Speaker 6: There's other stuff going on, isn't there. So there's the 240 00:12:50,120 --> 00:12:54,040 Speaker 6: fiscal news perhaps coming through later, and everything else that's 241 00:12:54,080 --> 00:12:57,760 Speaker 6: happening globally. So it's just one it's just one data point, 242 00:12:57,800 --> 00:13:01,160 Speaker 6: and I think you've covered it pretty well regarding this one. 243 00:13:01,559 --> 00:13:05,560 Speaker 6: What really matters is the evidence about what all this 244 00:13:05,640 --> 00:13:08,920 Speaker 6: does for wages, because I think there's been a clear 245 00:13:09,000 --> 00:13:13,079 Speaker 6: trend these last few months where the path of wage 246 00:13:13,080 --> 00:13:16,800 Speaker 6: growth is consistent with something nearer to the two percent 247 00:13:16,840 --> 00:13:19,760 Speaker 6: inflation target. So what you want today is something that 248 00:13:19,840 --> 00:13:23,440 Speaker 6: doesn't disrupt that. Really. Of course, it's complicated because you've 249 00:13:23,440 --> 00:13:28,040 Speaker 6: got the labor pool being affected by migration factors, and 250 00:13:28,679 --> 00:13:31,320 Speaker 6: you've got some softening of demand for labor that's been 251 00:13:31,320 --> 00:13:35,760 Speaker 6: evident in previous months. Overall, it's all very well looking 252 00:13:35,800 --> 00:13:39,559 Speaker 6: at the unemployment rate and the payrolls number, but it's 253 00:13:39,600 --> 00:13:42,319 Speaker 6: the bigger picture how this fits into the bigger picture 254 00:13:42,320 --> 00:13:43,080 Speaker 6: that matters. 255 00:13:42,800 --> 00:13:43,160 Speaker 4: Well, Steve. 256 00:13:43,160 --> 00:13:44,920 Speaker 2: The bigger picture, I think for many is that we've 257 00:13:44,920 --> 00:13:48,160 Speaker 2: seen a notable increase in slack, captured by several data points. 258 00:13:48,160 --> 00:13:49,960 Speaker 2: Your point of wages, you can point to the unemployment 259 00:13:50,000 --> 00:13:52,200 Speaker 2: rate rising more recently as well. There is a take 260 00:13:52,240 --> 00:13:53,920 Speaker 2: on Wall Street at the moment, Steve, and I wonder 261 00:13:53,920 --> 00:13:57,000 Speaker 2: if you push back. If things stabilized, particularly with things 262 00:13:57,040 --> 00:13:59,360 Speaker 2: like the unemployment rate, it closes the door on interest 263 00:13:59,400 --> 00:14:01,480 Speaker 2: rate cuts see things differently for the year ahead. 264 00:14:03,480 --> 00:14:08,080 Speaker 6: I don't know about that, John, because so first of all, 265 00:14:08,160 --> 00:14:11,240 Speaker 6: given all the things that have been happening, and you 266 00:14:11,360 --> 00:14:16,000 Speaker 6: listed the surprises the shocks that we've been experiencing these 267 00:14:16,040 --> 00:14:18,400 Speaker 6: last few weeks, Given all of that, would you have 268 00:14:18,559 --> 00:14:20,960 Speaker 6: believed that the ten year treasury would have been in 269 00:14:21,000 --> 00:14:24,000 Speaker 6: a range of six basis points. I'm told by my 270 00:14:24,080 --> 00:14:28,240 Speaker 6: colleagues downstairs six basis points this year, six six whole 271 00:14:28,320 --> 00:14:31,960 Speaker 6: basis points. In fact, it's been in a tight range 272 00:14:31,960 --> 00:14:35,760 Speaker 6: for quite some time now, even before the start of 273 00:14:35,760 --> 00:14:39,440 Speaker 6: this year. So you know, I think that the bomb 274 00:14:39,480 --> 00:14:45,320 Speaker 6: markets holding in pretty well. The If you've got at 275 00:14:45,720 --> 00:14:49,280 Speaker 6: a strong data release today, something that indicated the economy 276 00:14:49,360 --> 00:14:52,479 Speaker 6: was much stronger than we expected, I think the cynics 277 00:14:52,680 --> 00:14:57,400 Speaker 6: out there might question whether the data was correct in 278 00:14:57,440 --> 00:14:59,280 Speaker 6: the same way that you could say if it was 279 00:14:59,320 --> 00:15:03,840 Speaker 6: exceedingly I think it's the broader trend that matters. You've 280 00:15:03,840 --> 00:15:06,680 Speaker 6: got to smooth these numbers out over a period of time. 281 00:15:06,760 --> 00:15:09,120 Speaker 6: I think the trend in the path is quite clear 282 00:15:09,160 --> 00:15:13,360 Speaker 6: towards lower rates, and therefore there's an asymmetric bias in place. 283 00:15:13,440 --> 00:15:16,280 Speaker 6: If you get a shock that says that the rates 284 00:15:16,320 --> 00:15:18,480 Speaker 6: aren't going down, I don't think it's going to bother 285 00:15:18,560 --> 00:15:23,080 Speaker 6: the market that much. But we're skewed towards opening the 286 00:15:23,560 --> 00:15:26,800 Speaker 6: floor for rates and seeing how far they can go down. 287 00:15:27,440 --> 00:15:30,400 Speaker 6: I don't see that many people talking about rate hikes anymore. 288 00:15:30,880 --> 00:15:32,880 Speaker 6: It's only a few months ago that that was being 289 00:15:33,360 --> 00:15:34,880 Speaker 6: mentioned on shows like this. 290 00:15:35,280 --> 00:15:37,200 Speaker 5: Well, it seems like Stephen, this is no longer a 291 00:15:37,280 --> 00:15:39,600 Speaker 5: data dependent market, as you just laid out, at least 292 00:15:39,640 --> 00:15:41,800 Speaker 5: on a data point dependent market, just because people have 293 00:15:41,840 --> 00:15:45,000 Speaker 5: so many questions around the data. This is potentially a 294 00:15:45,120 --> 00:15:48,400 Speaker 5: market though that could be roiled by events, and you 295 00:15:48,520 --> 00:15:51,280 Speaker 5: mentioned some of them, including the IEPA ruling that could 296 00:15:51,320 --> 00:15:54,120 Speaker 5: come as soon as today. What kind of effect would 297 00:15:54,160 --> 00:15:57,920 Speaker 5: it have on the bond market if the tariffs passed 298 00:15:58,040 --> 00:16:01,960 Speaker 5: under the AEPA rule the United States were to be repealed, 299 00:16:02,160 --> 00:16:03,880 Speaker 5: pushed back in any kind of way. 300 00:16:05,600 --> 00:16:07,960 Speaker 6: Okay, that kind of scenario is going to blow us 301 00:16:07,960 --> 00:16:12,040 Speaker 6: out of that six basis point range. And the question 302 00:16:12,120 --> 00:16:15,360 Speaker 6: is whether we would close still outside of the range, 303 00:16:15,440 --> 00:16:18,640 Speaker 6: or whether we'd still be outside of the range next week. Ultimately, 304 00:16:18,680 --> 00:16:22,440 Speaker 6: we're looking at whether there is a path I'm using 305 00:16:22,440 --> 00:16:29,040 Speaker 6: that word path again towards a fiscal number that is manageable. 306 00:16:29,280 --> 00:16:33,240 Speaker 6: I mean, is it possible that the deficit is within 307 00:16:33,840 --> 00:16:36,520 Speaker 6: a reasonable level. Now, of course, there could be some 308 00:16:36,680 --> 00:16:41,480 Speaker 6: disruption to the to the president's plans, and it's clear 309 00:16:41,520 --> 00:16:45,200 Speaker 6: there's a risk here. But you know, ultimately the bomb 310 00:16:45,200 --> 00:16:49,320 Speaker 6: market's going to clear. The auctions are going to get done. 311 00:16:50,160 --> 00:16:53,080 Speaker 6: That there's a question about at what price and at 312 00:16:53,120 --> 00:16:55,640 Speaker 6: what cost? Because the bomb market is going to get done, 313 00:16:55,680 --> 00:16:57,560 Speaker 6: I can assure you of that. The question is whether 314 00:16:57,600 --> 00:16:59,600 Speaker 6: it's going to come at the expense of some other 315 00:16:59,680 --> 00:17:00,680 Speaker 6: asset class. 316 00:17:00,760 --> 00:17:03,480 Speaker 4: Yeah, but that's really the issue, right, See. 317 00:17:03,280 --> 00:17:05,760 Speaker 5: When you keep talking about the six bass point gap, 318 00:17:05,760 --> 00:17:06,960 Speaker 5: and you're right. I mean, even when you look at 319 00:17:07,000 --> 00:17:11,040 Speaker 5: the move the forward imply volatility index in tenure treasury yields, 320 00:17:11,080 --> 00:17:16,119 Speaker 5: it's incredibly low. You aren't necessarily seeing much expectation for disruption. 321 00:17:16,960 --> 00:17:20,120 Speaker 5: How do you know that this is resiliency and our complacency? 322 00:17:22,080 --> 00:17:26,240 Speaker 6: Yeah, look, that's a fair fair point too. Maybe we're 323 00:17:26,280 --> 00:17:32,400 Speaker 6: all just so beaten up and already exhausted with the shock. 324 00:17:32,560 --> 00:17:35,359 Speaker 6: I'll I'll give you an anecdote on this. You're putting 325 00:17:35,359 --> 00:17:38,240 Speaker 6: together my most recent piece. Like many analysts, you tend 326 00:17:38,320 --> 00:17:40,000 Speaker 6: to go through it at the weekend. So I'm sitting 327 00:17:40,000 --> 00:17:42,720 Speaker 6: there on a Sunday looking at the text and thinking, 328 00:17:42,760 --> 00:17:45,960 Speaker 6: oh no. With the newsflow last weekend over Venezuela, I 329 00:17:46,000 --> 00:17:48,919 Speaker 6: was thinking everything I've written here is irrelevant. But I 330 00:17:49,000 --> 00:17:51,120 Speaker 6: came in on Monday morning and I was still able. 331 00:17:50,960 --> 00:17:51,560 Speaker 7: To publish it. 332 00:17:52,920 --> 00:17:53,920 Speaker 4: How is that possible? 333 00:17:54,440 --> 00:17:54,920 Speaker 7: It just. 334 00:17:56,400 --> 00:17:58,760 Speaker 6: How could I have been so wrong with my judgment 335 00:17:58,760 --> 00:18:01,440 Speaker 6: on the Sunday compared to the Monday. And I think 336 00:18:01,480 --> 00:18:04,840 Speaker 6: that most of us are experiencing the same thing. Anyone 337 00:18:04,840 --> 00:18:08,879 Speaker 6: who's involved in this market at the moment. So it 338 00:18:08,920 --> 00:18:11,560 Speaker 6: could be that we're complacent, but it could also be 339 00:18:11,960 --> 00:18:16,119 Speaker 6: with the fact that we're resigning ourselves to the reality 340 00:18:16,160 --> 00:18:18,359 Speaker 6: that rates aren't going up and they're probably going to 341 00:18:18,400 --> 00:18:20,720 Speaker 6: go down. So, as I said, I think the data 342 00:18:20,800 --> 00:18:24,720 Speaker 6: is consistent with dates going down towards where the forwards imply, 343 00:18:24,920 --> 00:18:29,240 Speaker 6: and maybe less, and with some of the changes coming 344 00:18:29,240 --> 00:18:32,040 Speaker 6: at the FED, I would suggest that the balance is 345 00:18:32,080 --> 00:18:34,240 Speaker 6: tipping to rates going even lower. 346 00:18:34,720 --> 00:18:35,920 Speaker 1: A lot has already happened too. 347 00:18:36,200 --> 00:18:37,280 Speaker 4: A lot has already happened. 348 00:18:37,320 --> 00:18:40,840 Speaker 1: From Sunday, Stephen the President this week has really taken 349 00:18:40,840 --> 00:18:45,439 Speaker 1: a focus on the housing market. Even if continues to 350 00:18:45,480 --> 00:18:47,760 Speaker 1: cut interest rates, Is that going to help the US 351 00:18:47,840 --> 00:18:48,440 Speaker 1: housing market? 352 00:18:48,440 --> 00:18:49,760 Speaker 4: Will that help mortgage rates? 353 00:18:51,320 --> 00:18:55,000 Speaker 6: Look so, so, what proportion is that money of the 354 00:18:55,040 --> 00:18:56,320 Speaker 6: total stock of mortgages? 355 00:18:56,720 --> 00:18:57,800 Speaker 4: It's not that high, is it. 356 00:18:58,720 --> 00:19:00,800 Speaker 6: I haven't run all of the all the numbers yet, 357 00:19:00,840 --> 00:19:03,560 Speaker 6: but we're talking about a few hundred billion in a 358 00:19:03,680 --> 00:19:07,720 Speaker 6: multi trillion market, So I don't know whether how much 359 00:19:07,720 --> 00:19:12,640 Speaker 6: of a game changer is Ultimately getting the ten year 360 00:19:12,800 --> 00:19:17,640 Speaker 6: rate down towards three rather than four would be one 361 00:19:17,640 --> 00:19:19,520 Speaker 6: of the best things that could be done. For the 362 00:19:19,560 --> 00:19:24,240 Speaker 6: housing market right now. So I guess the intervention that's 363 00:19:24,359 --> 00:19:27,480 Speaker 6: just happened is going to help, but I haven't run 364 00:19:27,520 --> 00:19:29,960 Speaker 6: the numbers yet. I don't know whether it's going to 365 00:19:29,640 --> 00:19:31,040 Speaker 6: have a major impact. 366 00:19:31,600 --> 00:19:34,119 Speaker 1: I actually mean, if the FED cuts interest rates, is 367 00:19:34,160 --> 00:19:36,920 Speaker 1: that really going to meaningfully help the mortgage market? 368 00:19:37,119 --> 00:19:39,720 Speaker 6: Ah, thank you, thank you. I thought you were talking 369 00:19:39,840 --> 00:19:45,160 Speaker 6: referring to the intervention for Freddie and Fanny. Now, if 370 00:19:45,200 --> 00:19:47,639 Speaker 6: the short rate goes down another one hundred basis points, 371 00:19:47,680 --> 00:19:49,679 Speaker 6: the whole term structure is going to come down. The 372 00:19:49,720 --> 00:19:53,800 Speaker 6: ten year on current form isn't falling as much, but 373 00:19:53,840 --> 00:19:55,680 Speaker 6: it doesn't mean to say it won't still go down. 374 00:19:56,040 --> 00:19:58,800 Speaker 6: So depends what the delta is between the rate cuts 375 00:19:59,040 --> 00:20:01,400 Speaker 6: and the ten year I would I would suggest if 376 00:20:01,760 --> 00:20:05,520 Speaker 6: policy rates go towards two percent or even less than 377 00:20:05,600 --> 00:20:07,600 Speaker 6: you could imagine that tens are going to have a 378 00:20:07,640 --> 00:20:10,000 Speaker 6: three handle and probably low threes. 379 00:20:10,920 --> 00:20:13,720 Speaker 2: Fun of question, Steve, what's more likely year end the 380 00:20:13,720 --> 00:20:16,120 Speaker 2: the tenure yield? Is it three percent? Or west Ham 381 00:20:16,160 --> 00:20:17,320 Speaker 2: is playing Premier League football? 382 00:20:21,040 --> 00:20:26,760 Speaker 6: That's a possible one to answer. Look, John, the based 383 00:20:26,800 --> 00:20:29,040 Speaker 6: on the fact that west Ham was seven points adrift, 384 00:20:30,320 --> 00:20:34,119 Speaker 6: is pretty obvious. Where the probabilities lie there, but you 385 00:20:34,240 --> 00:20:37,360 Speaker 6: think things can change. It looks like a close call 386 00:20:37,440 --> 00:20:40,560 Speaker 6: between the two and I'm I'm not going to give 387 00:20:40,560 --> 00:20:42,119 Speaker 6: you an answer if you don't mind. 388 00:20:42,080 --> 00:20:45,560 Speaker 2: Stay with us. More Bloomberg surveillance coming up after this 389 00:20:54,600 --> 00:20:57,280 Speaker 2: premiss of JP Morgan looking for a cleaner read writing 390 00:20:57,320 --> 00:21:01,160 Speaker 2: the Bloomberg consensus of seventy thousand clid and unemployment should 391 00:21:01,160 --> 00:21:04,080 Speaker 2: be the goldilocks market pricing of low hiring, low firing 392 00:21:04,440 --> 00:21:06,440 Speaker 2: can continue. Pray it joins us now for more prayer, 393 00:21:06,440 --> 00:21:07,359 Speaker 2: Good monic morning. 394 00:21:07,400 --> 00:21:08,879 Speaker 4: Can the right cuts continue? 395 00:21:09,280 --> 00:21:09,520 Speaker 7: Yes? 396 00:21:09,600 --> 00:21:12,440 Speaker 8: I mean if we get the Bloomber consensus, does the 397 00:21:12,480 --> 00:21:17,359 Speaker 8: FED cut in January? Probably not unless we get some big, 398 00:21:18,040 --> 00:21:21,240 Speaker 8: much lower inflation. But look at the market pricing. Markets 399 00:21:21,280 --> 00:21:23,800 Speaker 8: not pricing for the FED to likely cut in in Jam. 400 00:21:23,920 --> 00:21:26,240 Speaker 8: The market has the two cuts priced and for the 401 00:21:26,280 --> 00:21:28,560 Speaker 8: rest of the year. I think that pricing can remain 402 00:21:28,640 --> 00:21:31,720 Speaker 8: because when we're looking at the totality of data, we're 403 00:21:31,760 --> 00:21:33,040 Speaker 8: still not seeing hiring. 404 00:21:33,600 --> 00:21:35,600 Speaker 7: Nothing in the fiscal stimulation in. 405 00:21:37,400 --> 00:21:40,119 Speaker 8: The one big Beautiful Bill is essentially saying that that 406 00:21:40,200 --> 00:21:42,879 Speaker 8: companies are going to start to increase hiring. Look at 407 00:21:42,920 --> 00:21:45,480 Speaker 8: this last week, look at all the headlines that we're 408 00:21:45,480 --> 00:21:47,280 Speaker 8: getting policy and certainty is still high. 409 00:21:47,560 --> 00:21:48,960 Speaker 7: So if hiring stays. 410 00:21:48,640 --> 00:21:51,520 Speaker 8: Low and inflation comes down, in our view, you know, 411 00:21:51,720 --> 00:21:54,520 Speaker 8: you look at inflation across the board, whether it's shelter inflation, 412 00:21:54,560 --> 00:21:55,440 Speaker 8: whether it's wage. 413 00:21:55,200 --> 00:21:56,720 Speaker 7: Inflation, it's all heading lower. 414 00:21:57,000 --> 00:21:59,280 Speaker 8: As inflation comes down, I think the Fed is going 415 00:21:59,320 --> 00:22:01,199 Speaker 8: to say, okay, can start to cut you know a 416 00:22:01,200 --> 00:22:03,680 Speaker 8: little bit more. I think it's the bar to cut 417 00:22:03,760 --> 00:22:05,960 Speaker 8: rates is higher. But we do think that the Fed 418 00:22:06,040 --> 00:22:07,520 Speaker 8: later this year is going to cut one or two 419 00:22:07,560 --> 00:22:09,720 Speaker 8: more times. So I think that market pricing of that 420 00:22:09,840 --> 00:22:14,440 Speaker 8: terminal rate stays. That's essentially what that tenure is essentially banking. 421 00:22:14,119 --> 00:22:15,919 Speaker 2: On what is going to wake up this bond market, 422 00:22:16,000 --> 00:22:19,760 Speaker 2: this very snowzy, range bound, sleepy treasury market. 423 00:22:20,000 --> 00:22:22,560 Speaker 8: I think it's great. I mean, interst rate ball has 424 00:22:22,600 --> 00:22:25,840 Speaker 8: been extremely low. I think the President is focused on 425 00:22:25,880 --> 00:22:28,359 Speaker 8: the tenure. He's told us that before. I think what 426 00:22:28,480 --> 00:22:32,000 Speaker 8: can wake the volatility up would be essentially if we 427 00:22:32,040 --> 00:22:35,199 Speaker 8: get additional fiscal stimulus, not one big beautiful bill, if 428 00:22:35,240 --> 00:22:36,360 Speaker 8: you get tariff dividends. 429 00:22:36,359 --> 00:22:37,240 Speaker 7: Now I'm not even. 430 00:22:37,080 --> 00:22:40,920 Speaker 8: Sure post AIPA that the tariff revenues will be as high. 431 00:22:41,000 --> 00:22:43,720 Speaker 8: We do think that AFP is struck down that the 432 00:22:43,720 --> 00:22:47,320 Speaker 8: President's going to, you know, essentially come up with APA 433 00:22:47,520 --> 00:22:51,160 Speaker 8: like Tariff's under a different name. But you know, if 434 00:22:51,160 --> 00:22:54,239 Speaker 8: there's additional fiscal stimulus, yes, then rates can rise. All 435 00:22:54,240 --> 00:22:56,879 Speaker 8: those deficit hawks can come up. I think that's an opportunity. 436 00:22:56,880 --> 00:22:59,840 Speaker 8: If you do get interest rates moving higher, any beast 437 00:23:00,240 --> 00:23:02,240 Speaker 8: in the curve we would look to fade. I think 438 00:23:02,280 --> 00:23:05,040 Speaker 8: the tenure in our base case three seventy five to 439 00:23:05,080 --> 00:23:05,720 Speaker 8: four and a quarter. 440 00:23:05,760 --> 00:23:08,359 Speaker 7: I think that's the range we should expect for this year. 441 00:23:09,000 --> 00:23:12,560 Speaker 8: If hiring continues to be low and firing starts to 442 00:23:12,600 --> 00:23:15,000 Speaker 8: pick up, I think that's the tail risk here. I 443 00:23:15,000 --> 00:23:17,919 Speaker 8: think the asymmetry in the bond market is rates are 444 00:23:17,920 --> 00:23:20,159 Speaker 8: going to go lower. I think that's what nobody's talking about. 445 00:23:20,359 --> 00:23:23,520 Speaker 8: Remember last year, all the narratives around the deficit cell America, 446 00:23:23,680 --> 00:23:25,600 Speaker 8: that's all way behind us. I think now we have 447 00:23:25,640 --> 00:23:28,280 Speaker 8: to think about the tenure being in a narrow range 448 00:23:28,320 --> 00:23:31,760 Speaker 8: housing affordabilities of focus, and the risk is that if 449 00:23:31,880 --> 00:23:34,959 Speaker 8: actually we start to see the layoffs, then rates can 450 00:23:35,000 --> 00:23:35,520 Speaker 8: go lower. 451 00:23:35,600 --> 00:23:37,200 Speaker 5: So you think the best part of the Yeald curve 452 00:23:37,280 --> 00:23:38,119 Speaker 5: right now is the tenure. 453 00:23:38,600 --> 00:23:40,440 Speaker 8: We do like the five to ten year part of 454 00:23:40,480 --> 00:23:42,280 Speaker 8: the rate curve. I think the front end starts to 455 00:23:42,280 --> 00:23:45,040 Speaker 8: get really tricky. You have to have a clear view 456 00:23:45,119 --> 00:23:48,080 Speaker 8: on inflation in the next month, on the unemployment rate. 457 00:23:48,280 --> 00:23:50,159 Speaker 8: But when you're looking at the five year tenure, I 458 00:23:50,160 --> 00:23:53,160 Speaker 8: think that's the part number one that impacts the housing market. 459 00:23:53,520 --> 00:23:56,520 Speaker 8: That's the one that the President's focused on. That's the 460 00:23:56,520 --> 00:23:59,320 Speaker 8: one that prices in the feed to slowly get closer 461 00:23:59,320 --> 00:24:00,200 Speaker 8: to that three percent. 462 00:24:00,040 --> 00:24:00,760 Speaker 7: And terminal rates. 463 00:24:00,840 --> 00:24:02,680 Speaker 8: So I think that's the one that we have more 464 00:24:02,720 --> 00:24:05,760 Speaker 8: conviction in that is likely to stay in a low range. 465 00:24:05,880 --> 00:24:08,480 Speaker 8: And you know, I think that's what you own, particularly 466 00:24:08,560 --> 00:24:10,840 Speaker 8: if you own risk assets, if you own stocks, if 467 00:24:10,880 --> 00:24:13,240 Speaker 8: you own credit. Your biggest risk here is that the 468 00:24:13,280 --> 00:24:16,920 Speaker 8: economy actually struggles because there's so much complacency about those 469 00:24:16,960 --> 00:24:18,080 Speaker 8: goldilocks continuing. 470 00:24:18,280 --> 00:24:20,400 Speaker 5: That makes sense to me, the hedge against some kind 471 00:24:20,400 --> 00:24:23,560 Speaker 5: of falling off a cliff of the economy or significant deterioration. 472 00:24:23,920 --> 00:24:26,480 Speaker 5: What makes less sense to me is that the Fed 473 00:24:26,560 --> 00:24:30,040 Speaker 5: has room to cut rates because inflation is lower, and 474 00:24:30,080 --> 00:24:33,000 Speaker 5: that that will naturally bring the entire yield curve lower 475 00:24:33,200 --> 00:24:35,399 Speaker 5: because of the wealth effect, because this is going to 476 00:24:35,440 --> 00:24:38,280 Speaker 5: boost acid prices that much more, which will only encourage 477 00:24:38,280 --> 00:24:39,920 Speaker 5: people to spend that much more. You're going to see 478 00:24:39,920 --> 00:24:42,000 Speaker 5: inflation in some of these higher end items, which is 479 00:24:42,040 --> 00:24:43,480 Speaker 5: really what's been driving some of this. 480 00:24:43,840 --> 00:24:44,959 Speaker 4: I mean, how do you square that? 481 00:24:45,240 --> 00:24:47,639 Speaker 8: So I think the key shaped economy, the case shape 482 00:24:47,640 --> 00:24:48,520 Speaker 8: market continues. 483 00:24:48,720 --> 00:24:50,760 Speaker 7: So to your point, spending. 484 00:24:50,280 --> 00:24:52,320 Speaker 8: And you know, if people are getting a refund check, 485 00:24:52,320 --> 00:24:55,400 Speaker 8: they're going to spend it. Acid price inflation can stay high. 486 00:24:55,680 --> 00:24:57,840 Speaker 8: But what we're looking at what the Fed care is 487 00:24:57,840 --> 00:25:01,320 Speaker 8: about their dual mandate is PCE and full employment. That 488 00:25:01,480 --> 00:25:05,080 Speaker 8: PCE number can on inflation can continue to head lower 489 00:25:05,320 --> 00:25:08,800 Speaker 8: because that's a function of shelter inflation on how you 490 00:25:08,880 --> 00:25:12,879 Speaker 8: know housing, you know beyond housing housing x X housing 491 00:25:12,960 --> 00:25:16,439 Speaker 8: service inflation. Look at those numbers, they're slowly heading lower. 492 00:25:16,560 --> 00:25:19,080 Speaker 8: The tariff effect is going to go away from inflation 493 00:25:19,280 --> 00:25:20,320 Speaker 8: by the middle of this year. 494 00:25:20,720 --> 00:25:22,399 Speaker 7: So I think, you know, if you think about the 495 00:25:22,480 --> 00:25:23,280 Speaker 7: rate cuts. 496 00:25:23,000 --> 00:25:25,800 Speaker 8: From the Fed, it was inflation in twenty twenty four, 497 00:25:25,920 --> 00:25:28,600 Speaker 8: it was the unemployment rate in twenty twenty five. This year, 498 00:25:28,640 --> 00:25:31,399 Speaker 8: you've got two parts through which the Fed can cut. 499 00:25:31,560 --> 00:25:34,959 Speaker 8: There is that inflation pard as inflation heads lower, not 500 00:25:35,040 --> 00:25:38,400 Speaker 8: asset price inflation, but PCE, which the Fed cares about 501 00:25:38,480 --> 00:25:41,200 Speaker 8: as we get close to two, maybe it's two point five. 502 00:25:41,320 --> 00:25:43,600 Speaker 8: The Fed will feel more confident in the hawks that 503 00:25:43,680 --> 00:25:46,480 Speaker 8: have been very vocal that inflation is above target. They're 504 00:25:46,480 --> 00:25:48,440 Speaker 8: going to then step back and say, okay, we can 505 00:25:48,520 --> 00:25:50,600 Speaker 8: maybe neutral is closer to three and not three and 506 00:25:50,600 --> 00:25:52,320 Speaker 8: a half. I think that's the debate we're going to 507 00:25:52,359 --> 00:25:52,920 Speaker 8: have all year. 508 00:25:53,080 --> 00:25:53,760 Speaker 7: What's neutral? 509 00:25:54,040 --> 00:25:56,399 Speaker 1: Create Your reaction to the President last night saying he's 510 00:25:56,400 --> 00:25:58,840 Speaker 1: giving special attention to the housing market and telling his 511 00:25:58,960 --> 00:26:03,200 Speaker 1: representatives to two hundred billion dollars of mortgage backed securities 512 00:26:03,200 --> 00:26:04,160 Speaker 1: and home loans. 513 00:26:04,160 --> 00:26:04,960 Speaker 7: I think it's great. 514 00:26:05,359 --> 00:26:09,560 Speaker 8: Now we don't we don't need you know, just one 515 00:26:09,640 --> 00:26:12,960 Speaker 8: thing for housing. Housing is an extremely complicated issue. 516 00:26:13,440 --> 00:26:14,160 Speaker 7: If they need to. 517 00:26:14,119 --> 00:26:16,320 Speaker 8: Fix housing, they need to fix the demand side, the 518 00:26:16,320 --> 00:26:18,600 Speaker 8: supply side. I was a little nervous if all we 519 00:26:18,600 --> 00:26:19,080 Speaker 8: were going to. 520 00:26:19,000 --> 00:26:20,399 Speaker 7: Get was on the supply front. 521 00:26:20,800 --> 00:26:23,639 Speaker 8: Now I think the President with this latest bit and 522 00:26:23,680 --> 00:26:26,160 Speaker 8: this does not need Congress. Now, the two hundred billion 523 00:26:26,200 --> 00:26:29,280 Speaker 8: is interesting. That's the amount that the agencies can buy 524 00:26:29,640 --> 00:26:32,680 Speaker 8: relative to the cap. That gap can also move high. 525 00:26:32,680 --> 00:26:35,000 Speaker 8: I think once they do the two hundred the cap 526 00:26:35,040 --> 00:26:36,400 Speaker 8: can be moved by the FHFA. 527 00:26:36,440 --> 00:26:38,040 Speaker 1: And I'm word you brought that up because the cap 528 00:26:38,080 --> 00:26:41,240 Speaker 1: is fourhund and fifty billion. They've already been accumulating billions, 529 00:26:41,520 --> 00:26:43,440 Speaker 1: so this puts us pretty much right at that cap. 530 00:26:43,440 --> 00:26:45,840 Speaker 1: But I spoke to a source last night and said, well, 531 00:26:45,840 --> 00:26:49,040 Speaker 1: the Treasury in Fahfa tried to lift the cap and 532 00:26:49,080 --> 00:26:50,960 Speaker 1: they said no. So if this just ends at the 533 00:26:50,960 --> 00:26:52,639 Speaker 1: four hundred and fifty billion, doesn't really. 534 00:26:52,520 --> 00:26:53,640 Speaker 4: Do much for the housing market. 535 00:26:53,800 --> 00:26:55,359 Speaker 8: Well, I think if it's four hund fifty it's two 536 00:26:55,400 --> 00:26:57,680 Speaker 8: hundred billion of net demand. And if you think about 537 00:26:57,680 --> 00:27:01,720 Speaker 8: the mortgage market, the marginal buyer for mortgages is really 538 00:27:01,760 --> 00:27:04,879 Speaker 8: as a managers. It used to be the GSS pre 539 00:27:05,040 --> 00:27:07,320 Speaker 8: two thousand and eight. Some of us were around back then. 540 00:27:07,320 --> 00:27:10,080 Speaker 8: I used to cover the agencies. Then it was the FED, 541 00:27:10,400 --> 00:27:13,000 Speaker 8: then it was US banks, and now if you look 542 00:27:13,000 --> 00:27:15,000 Speaker 8: at it, the banks are saying after SVB. 543 00:27:14,840 --> 00:27:15,960 Speaker 7: Well we're not going to touch this. 544 00:27:16,200 --> 00:27:19,119 Speaker 8: I think that's why the announcement announcement is interesting. You 545 00:27:19,200 --> 00:27:22,320 Speaker 8: bring a new marginal buyer in. Other investors that might 546 00:27:22,359 --> 00:27:25,199 Speaker 8: have stayed away will say, Okay, the government's behind this. 547 00:27:25,320 --> 00:27:27,879 Speaker 8: The agencies have the ability to buy. I think we 548 00:27:27,920 --> 00:27:29,760 Speaker 8: can step in, but I will say, you know, you 549 00:27:29,800 --> 00:27:31,240 Speaker 8: ask about whether that's important. 550 00:27:31,440 --> 00:27:33,600 Speaker 7: Mortgage spreads can compress. 551 00:27:33,280 --> 00:27:35,360 Speaker 8: But ultimately, if we look at the mortgage rate, it's 552 00:27:35,400 --> 00:27:37,680 Speaker 8: the ten year that's the much bigger component. 553 00:27:37,960 --> 00:27:40,080 Speaker 7: We have to keep the ten yere within that range. 554 00:27:40,119 --> 00:27:43,040 Speaker 8: If the President's focused on housing affordability, to keep the 555 00:27:43,080 --> 00:27:46,239 Speaker 8: ten year four percent three fifty to four, keep it 556 00:27:46,280 --> 00:27:47,960 Speaker 8: there and then get those mortgage spreads. 557 00:27:48,040 --> 00:27:50,760 Speaker 7: We're talking ten basis points, so you know, I get excited. 558 00:27:50,800 --> 00:27:51,560 Speaker 7: I'm a bond person. 559 00:27:51,600 --> 00:27:54,280 Speaker 8: Every basis point is very important, but I mean to 560 00:27:54,320 --> 00:27:56,440 Speaker 8: get one hundred You're not getting one hundred basis points 561 00:27:56,480 --> 00:27:59,200 Speaker 8: in mortgage rates because of this, but it does help 562 00:27:59,320 --> 00:28:02,560 Speaker 8: keep vold and then get some mortgage spread tightening through. 563 00:28:02,560 --> 00:28:04,800 Speaker 2: This might just be the appetizer, not the main course. 564 00:28:05,160 --> 00:28:06,960 Speaker 2: Is the Federal Reserve going to come along for the line, 565 00:28:07,240 --> 00:28:09,679 Speaker 2: along for the ride along new leadership? 566 00:28:11,240 --> 00:28:13,240 Speaker 8: Well, so no, I don't think the Fed's going to 567 00:28:13,240 --> 00:28:15,600 Speaker 8: do Q. I mean there's talk around the FED doing Q. No, 568 00:28:16,240 --> 00:28:18,160 Speaker 8: the FED is going to working. 569 00:28:17,960 --> 00:28:19,480 Speaker 2: Against this effort at the moment, aren't they. 570 00:28:19,680 --> 00:28:21,840 Speaker 8: Well, they are letting the portfolio run off. But I 571 00:28:21,840 --> 00:28:24,359 Speaker 8: think what the FED did in December, which was to 572 00:28:24,400 --> 00:28:26,960 Speaker 8: say that let's make sure the plumbing works. I think 573 00:28:26,960 --> 00:28:30,120 Speaker 8: that's important. They didn't let the repo market freeze up. 574 00:28:30,480 --> 00:28:33,240 Speaker 8: So yes, they're letting mortgages run off. The GCS will 575 00:28:33,280 --> 00:28:36,560 Speaker 8: easily offset that. I think on the FED, what we 576 00:28:36,720 --> 00:28:40,320 Speaker 8: really want is a credible, independent FED. And I think 577 00:28:40,400 --> 00:28:41,960 Speaker 8: we don't know who the next FED chair is going 578 00:28:42,000 --> 00:28:43,600 Speaker 8: to be. But if you look at what the Fed's 579 00:28:43,640 --> 00:28:46,320 Speaker 8: done over the last few months, they have reasserted that 580 00:28:46,360 --> 00:28:49,440 Speaker 8: they're independent. This is a committee. The chair is important, 581 00:28:49,440 --> 00:28:51,920 Speaker 8: but it's one vote. I think the FED is doing 582 00:28:52,520 --> 00:28:55,200 Speaker 8: I don't know if it was if that was an 583 00:28:55,240 --> 00:28:58,840 Speaker 8: intended reason for them to be as vocal, but they're 584 00:28:58,840 --> 00:29:02,080 Speaker 8: telling us that they can about their dual mandate. Irrespective 585 00:29:02,120 --> 00:29:04,120 Speaker 8: of the chair. I think they're doing their part. They're 586 00:29:04,200 --> 00:29:07,680 Speaker 8: keeping that term premium lower inflation risk premium. Look at 587 00:29:07,680 --> 00:29:10,240 Speaker 8: what's priced into the break even market, it's low. The 588 00:29:10,280 --> 00:29:12,880 Speaker 8: market's not concerned about freed independence rightly. 589 00:29:12,960 --> 00:29:17,400 Speaker 2: So this is the Bloomberg Survendans podcast, bringing you the 590 00:29:17,440 --> 00:29:20,720 Speaker 2: best in markets, economics, an gio politics. You can watch 591 00:29:20,720 --> 00:29:23,520 Speaker 2: the show live on Bloomberg TV weekday mornings from six 592 00:29:23,520 --> 00:29:27,920 Speaker 2: am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, 593 00:29:28,080 --> 00:29:30,280 Speaker 2: or anywhere else you listen, and as always, on the 594 00:29:30,320 --> 00:29:32,760 Speaker 2: Bloomberg terminal and the Bloomberg Business app.