Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordernt. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business app. Nearly twenty energy executives
Speaker 2: meeting with President Donald Trump today to discuss rebuilding Venezuela's
Speaker 2: oil infrastructure. The lineup includes representatives from Chevron, Exon, and
Speaker 2: Conoco Phillips, among others. Also attending the meeting will be
Speaker 2: the US Interist Secretary tug Bergham, who joined us now.
Speaker 2: Mister Secretary. Welcome to the program sour and a happy
Speaker 2: new year. Just frame for us. The expectations for today's conversation.
Speaker 3: Expectation todays have a great conversation about the opportunity to
Speaker 3: continue President Trump's agenda, which is the agenda course has
Speaker 3: been always about the safety and security, national security of
Speaker 3: our country. That begins with you can't have national security
Speaker 3: without border security. You can't have national security without energy security.
Speaker 3: So that's going to be on the table, and of
Speaker 3: course the prosperity of America that's based on energy as well,
Speaker 3: because if without a plentiful, abundant, reliable, secure energy, you're
Speaker 3: going to have the inflation like we saw in the
Speaker 3: previous administration. President Trump is turning that around. So this
Speaker 3: is really at the core, it's a discussion about peace
Speaker 3: in the world and prosperity at home, and what an opportunity,
Speaker 3: economic opportunity to restore normal relations with Venezuela and for companies,
Speaker 3: including many of these that had operations in Venezuela for
Speaker 3: decades ago when Venezuela was a big economic partner in
Speaker 3: the United States before it's collapse, get a chance to
Speaker 3: return to that. So looking forward to it, it's exciting
Speaker 3: and lots of interest in coming to the meeting today.
Speaker 3: They're not enough seats in the room in terms of
Speaker 3: executives that wanted to join in the meeting today with
Speaker 3: President Trump.
Speaker 1: Secretary Bergham, I know that you and Secretary Writer have
Speaker 1: that outreach with the oil and industry right now. But
Speaker 1: what I'm hearing is that they are certainly lining up
Speaker 1: for meeting with the president, but not necessarily lining up
Speaker 1: to go back into Venezuela. What are they telling you.
Speaker 4: Well, I think the very strong interest.
Speaker 3: How can you not be interested in the world's largest
Speaker 3: oil reserves in the same hemisphere. So I think there's questions,
Speaker 3: of course, questions about security, questions about what the long
Speaker 3: term profile is going to be. But the interest level
Speaker 3: is through the roof across from the small wild catador
Speaker 3: to upstream, midstream, downstream, the majors. There's so much interest
Speaker 3: to this, and not just an energy people are reaching
Speaker 3: out because the mining industry collapsed in Venezuela. Their entire
Speaker 3: electrical generation industry has collapsed. The opportunity with sanctions being
Speaker 3: selectively listed for the US companies to sell into that
Speaker 3: market as it rebuilds is very interesting. And of course
Speaker 3: we've got a number of energy companies that have spent
Speaker 3: their careers going into some of the world's dangerous places
Speaker 3: to develop oil resources, and those folks, some of those
Speaker 3: will be in the room today as well.
Speaker 1: But it's going to take tens of billions of dollars
Speaker 1: them to allocate capital to go back into Venezuela. Does
Speaker 1: the math make sense when WTI is trading blow sixty
Speaker 1: dollars a arrow.
Speaker 4: Well, the market is going to decide.
Speaker 3: But I know that one thing that happened this week,
Speaker 3: people keep saying, oh, below sixty, there's going to.
Speaker 4: Be no interest.
Speaker 3: Through the Department of Interior, we're holding our as required
Speaker 3: legal lease sales, the one that we held in New
Speaker 3: Mexico earlier this week. On January sixth, three hundred and
Speaker 3: twenty seven million dollars of royalty payments enter record, the
Speaker 3: highest since these leases have begun under the new format
Speaker 3: over almost forty years. Thirty nine years ago in nineteen
Speaker 3: eighty seven was when the new rules came in place.
Speaker 3: It was two hundred nineteen thousand dollars per acre on
Speaker 3: one of the leases in Permian. So I would say
Speaker 3: the interest US and in Venezuela very strong in this
Speaker 3: industry because they see they look ahead and they see
Speaker 3: the demand for energy going up and of course driven
Speaker 3: by economic growth. Twenty twenty six could be a banner year,
Speaker 3: but also the energy required for US to win the
Speaker 3: AI arms race. So there's a strong, strong interest in
Speaker 3: this investing in this western hemisphere.
Speaker 1: Does the administration have a goal of getting oil to
Speaker 1: fifty dollars a barrel?
Speaker 3: Well, I think what President Trump wants is he wants
Speaker 3: to break the back of inflation. And he knows that
Speaker 3: there's a component of energy in the food you eat,
Speaker 3: the clothes you wear, the car you drive. If you
Speaker 3: can get energy prices down, that's the best way to
Speaker 3: lick inflation. And affordability is something that matters. President Trump
Speaker 3: has stopped the runaway in flame the prior administration.
Speaker 4: He wants to keep it going.
Speaker 3: When we talk about how do we get prices down,
Speaker 3: part of it is we've cut so much red tape
Speaker 3: in the last year.
Speaker 4: We've lowered the break even point.
Speaker 3: That plus the technological innovation from this industry. The oil
Speaker 3: and gas industry is not what it was fifty years ago.
Speaker 3: This is a super high tech industry. You take a
Speaker 3: look at my home state in North Dakota and you
Speaker 3: look at the capability and the productivity increases of the
Speaker 3: people developing there. It's just been amazing the gains that
Speaker 3: they continue to make. And again, the shale revolution tied
Speaker 3: with deregulation, cutting some of the red tape that was
Speaker 3: put in place. We know that their break even point
Speaker 3: is getting lower and lower, and that's why it makes
Speaker 3: it the great industry. And that's why we've got the
Speaker 3: greatest industry in the country in the world because in
Speaker 3: the US we've got competition. We don't have a nationalized
Speaker 3: oil industry that has become a monopoly and lethargic. We've
Speaker 3: got great companies that get out and compete. We're going
Speaker 3: to be with some of those great companies today and
Speaker 3: excited to hear their ideas about how to go in
Speaker 3: and break free the incredible opportunity that is for both
Speaker 3: the US and Venezuela in developing this resource.
Speaker 4: Mister Secretary, a.
Speaker 5: Lot to unpact there, including about the shale patch. I
Speaker 5: do want to stay on this question of US backing
Speaker 5: of some of these US companies going into Venezuela and
Speaker 5: building out the infrastructure there. President Trump has talked about
Speaker 5: potentially a one hundred billion dollar investment potentially over the
Speaker 5: next eighteen months. Where would the funds come from in
Speaker 5: the United States for some of these energy companies to
Speaker 5: help back those investments.
Speaker 3: Well, the discussions right now have been that the capital
Speaker 3: is going to come from the capital markets and come
Speaker 3: from the energy companies. I don't see that these companies
Speaker 3: are going to need a support from the US other
Speaker 3: than things around security. I mean, if we can provide
Speaker 3: a secure, stable environment. The resource here is so significant
Speaker 3: and so large that it's going to be attractive for
Speaker 3: people to go in and develop that, and particularly as
Speaker 3: the US maintains the embargo.
Speaker 4: This is key.
Speaker 3: You reported on it just now, President Trump serious, I
Speaker 3: mean sanctions under President Trump actually mean a sanction. The
Speaker 3: failed sanctions under the Biden administration just turned Venezuela and
Speaker 3: other places into the discount gas stations for China and
Speaker 3: other countries. And President Trump is We're going to make
Speaker 3: sure that this is secure and we're controlling the flow,
Speaker 3: both of energy going in and energy coming out. Venezuela's
Speaker 3: heavy crude requires diluting. It requires a light crude like
Speaker 3: we've got in the United States. To go down there,
Speaker 3: one barrel's got to go into Venezuela for every five
Speaker 3: barrel that comes out. Russia controlled that market. That market's
Speaker 3: coming back to the US. And the synergy between our
Speaker 3: refinery sector in the United States, which was built around
Speaker 3: Venezuelan oil. Getting back to that's great news for refiners,
Speaker 3: great news for gas prices for Americans, great news for
Speaker 3: the opportunity to sell modern equipment, to modernize this industry.
Speaker 4: So lots of news for beyond even.
Speaker 3: The oil majors, Lots of great news economically as we
Speaker 3: open up this trading and normalized trading relationship with Venezuela.
Speaker 5: Yeah, certainly Valero as a refiner has seen the benefits
Speaker 5: of this. Mister Secretary, you talk about security guarantees, and
Speaker 5: if the safety is there, the oil majors will go
Speaker 5: in with frankly, capital markets behind them. What kind of
Speaker 5: security guarantees are they asking for.
Speaker 3: Well, we'll find out some of that more today. But
Speaker 3: I think what they really want to understand is, you know,
Speaker 3: how serious is the US in maintaining the embargo, How
Speaker 3: serious is the US in maintaining stability in Venezuela. And
Speaker 3: I think the actions that they're seeing this week speak
Speaker 3: loudly to that, the actions of President Trump enforcing the
Speaker 3: embargo and already the cooperation. I mean earlier this morning,
Speaker 3: President Trump just in the last half hour tweeted out
Speaker 3: that the Venezuelan interim government is releasing political prisoners. They're
Speaker 3: taking actions to demonstrate that they want to have a
Speaker 3: successful economic relationship with the United States of America. The
Speaker 3: interim governments committed that they're going to be buying equipment
Speaker 3: material from the US companies. I mean, these are all
Speaker 3: the signals that we're looking for that to keep us
Speaker 3: moving towards normalized relationships.
Speaker 2: Mister secretary, as you know, to establish stability in this region,
Speaker 2: it might require massive expense from the US government, which
Speaker 2: might require a lot of money from taxpayers. If these
Speaker 2: oil may just go in with the support of the
Speaker 2: US government, mister secretary, will the president want a slice
Speaker 2: of that revenue for the US government?
Speaker 3: Well, I think President Trump is always looking for good
Speaker 3: deals for the American people, but he also is a
Speaker 3: business person. He understands that we have to have the
Speaker 3: right economic conditions for companies to go in and deploy
Speaker 3: their own capital and solve these problems. So I think
Speaker 3: in the end, what we're going to see is we've
Speaker 3: got to We're so fortunate to have a president who
Speaker 3: has got the willingness and the courage and the understanding
Speaker 3: of how to use force, just like past presidents. I mean,
Speaker 3: we wouldn't have the Panama Canal without bold action by
Speaker 3: Theodore Roosevelt one hundred and twenty five years ago, and
Speaker 3: now under President Trump again taking a corollary of the
Speaker 3: Monroe doctrine, which is saying, Hey, if we've got criminal
Speaker 3: enterprises running countries and destroying countries in our hemisphere, that's
Speaker 3: bad for the neighborhood.
Speaker 4: Let's go in and clean it up and do that.
Speaker 3: But when it comes to rebuilding, I think again, what
Speaker 3: we've seen is that if we can create the right
Speaker 3: market conditions, we're not going to need taxpayer dollars to
Speaker 3: go do this. And who's going to benefit the taxpayers
Speaker 3: because you're going to see lower prices at the pump
Speaker 3: here in America.
Speaker 2: The reason I bring up this question says, because, as
Speaker 2: you know, there was some conversation about chips being sold
Speaker 2: into China and the government getting a share of the
Speaker 2: revenue associated with those chips, and I wonder if the
Speaker 2: same kind of thing applies here, because I think the
Speaker 2: executive's going to g into this meeting later trying to
Speaker 2: figure out what kind of meeting then coming into is
Speaker 2: it an opportunity to explore Venezuela themselves or alongside the
Speaker 2: US government, and what kind of agreement could be established
Speaker 2: further down the road.
Speaker 3: Well, I think initially it's going to be alongside the
Speaker 3: US government, because that has been stated publicly this week.
Speaker 3: The US intends to control the disposition of the oil
Speaker 3: coming out of Venezuela, and as I said earlier, it's
Speaker 3: going to control whatever material and supplies and in this case,
Speaker 3: the millions of barrels of deliument that need to go
Speaker 3: in to distract this heavy VENs and crude that is
Speaker 3: going to be controlled by the US during this period
Speaker 3: in cooperation with the interim government in Venezuela. So I
Speaker 3: think that they can hear more about that firsthand today,
Speaker 3: but it's going to match what they've heard publicly this week.
Speaker 3: And I know from talking to a number of these
Speaker 3: executives this week. Chris Wright has talked to a number
Speaker 3: of these executives week. There is a lot of interest
Speaker 3: in getting back into the world's largest proven reserves right
Speaker 3: here in our hemisphere. And again that's a great benefit
Speaker 3: to the entire Western hemisphere, but absolutely it's a benefit
Speaker 3: to the American citizens.
Speaker 2: Stay with us. More Bloomberg surveillance coming up after this
Speaker 2: Stephen major of tradition, writing economic data relative to expectations
Speaker 2: has softened, there is fundamental support to keep luring the
Speaker 2: Fed funds rate to a level below weather forwards are
Speaker 2: currently implying. Steven joins us now for more. Stephen, welcome
Speaker 2: to the program. So it's always good to see you
Speaker 2: when congratulations on the new seat. Let's talk about the
Speaker 2: data this morning. How relevant is the jobs report at
Speaker 2: eight thirty with your opinion in mind?
Speaker 4: Well, I think your setup said it all. John.
Speaker 6: There's other stuff going on, isn't there. So there's the
Speaker 6: fiscal news perhaps coming through later, and everything else that's
Speaker 6: happening globally. So it's just one it's just one data point,
Speaker 6: and I think you've covered it pretty well regarding this one.
Speaker 6: What really matters is the evidence about what all this
Speaker 6: does for wages, because I think there's been a clear
Speaker 6: trend these last few months where the path of wage
Speaker 6: growth is consistent with something nearer to the two percent
Speaker 6: inflation target. So what you want today is something that
Speaker 6: doesn't disrupt that. Really. Of course, it's complicated because you've
Speaker 6: got the labor pool being affected by migration factors, and
Speaker 6: you've got some softening of demand for labor that's been
Speaker 6: evident in previous months. Overall, it's all very well looking
Speaker 6: at the unemployment rate and the payrolls number, but it's
Speaker 6: the bigger picture how this fits into the bigger picture
Speaker 6: that matters.
Speaker 4: Well, Steve.
Speaker 2: The bigger picture, I think for many is that we've
Speaker 2: seen a notable increase in slack, captured by several data points.
Speaker 2: Your point of wages, you can point to the unemployment
Speaker 2: rate rising more recently as well. There is a take
Speaker 2: on Wall Street at the moment, Steve, and I wonder
Speaker 2: if you push back. If things stabilized, particularly with things
Speaker 2: like the unemployment rate, it closes the door on interest
Speaker 2: rate cuts see things differently for the year ahead.
Speaker 6: I don't know about that, John, because so first of all,
Speaker 6: given all the things that have been happening, and you
Speaker 6: listed the surprises the shocks that we've been experiencing these
Speaker 6: last few weeks, Given all of that, would you have
Speaker 6: believed that the ten year treasury would have been in
Speaker 6: a range of six basis points. I'm told by my
Speaker 6: colleagues downstairs six basis points this year, six six whole
Speaker 6: basis points. In fact, it's been in a tight range
Speaker 6: for quite some time now, even before the start of
Speaker 6: this year. So you know, I think that the bomb
Speaker 6: markets holding in pretty well. The If you've got at
Speaker 6: a strong data release today, something that indicated the economy
Speaker 6: was much stronger than we expected, I think the cynics
Speaker 6: out there might question whether the data was correct in
Speaker 6: the same way that you could say if it was
Speaker 6: exceedingly I think it's the broader trend that matters. You've
Speaker 6: got to smooth these numbers out over a period of time.
Speaker 6: I think the trend in the path is quite clear
Speaker 6: towards lower rates, and therefore there's an asymmetric bias in place.
Speaker 6: If you get a shock that says that the rates
Speaker 6: aren't going down, I don't think it's going to bother
Speaker 6: the market that much. But we're skewed towards opening the
Speaker 6: floor for rates and seeing how far they can go down.
Speaker 6: I don't see that many people talking about rate hikes anymore.
Speaker 6: It's only a few months ago that that was being
Speaker 6: mentioned on shows like this.
Speaker 5: Well, it seems like Stephen, this is no longer a
Speaker 5: data dependent market, as you just laid out, at least
Speaker 5: on a data point dependent market, just because people have
Speaker 5: so many questions around the data. This is potentially a
Speaker 5: market though that could be roiled by events, and you
Speaker 5: mentioned some of them, including the IEPA ruling that could
Speaker 5: come as soon as today. What kind of effect would
Speaker 5: it have on the bond market if the tariffs passed
Speaker 5: under the AEPA rule the United States were to be repealed,
Speaker 5: pushed back in any kind of way.
Speaker 6: Okay, that kind of scenario is going to blow us
Speaker 6: out of that six basis point range. And the question
Speaker 6: is whether we would close still outside of the range,
Speaker 6: or whether we'd still be outside of the range next week. Ultimately,
Speaker 6: we're looking at whether there is a path I'm using
Speaker 6: that word path again towards a fiscal number that is manageable.
Speaker 6: I mean, is it possible that the deficit is within
Speaker 6: a reasonable level. Now, of course, there could be some
Speaker 6: disruption to the to the president's plans, and it's clear
Speaker 6: there's a risk here. But you know, ultimately the bomb
Speaker 6: market's going to clear. The auctions are going to get done.
Speaker 6: That there's a question about at what price and at
Speaker 6: what cost? Because the bomb market is going to get done,
Speaker 6: I can assure you of that. The question is whether
Speaker 6: it's going to come at the expense of some other
Speaker 6: asset class.
Speaker 4: Yeah, but that's really the issue, right, See.
Speaker 5: When you keep talking about the six bass point gap,
Speaker 5: and you're right. I mean, even when you look at
Speaker 5: the move the forward imply volatility index in tenure treasury yields,
Speaker 5: it's incredibly low. You aren't necessarily seeing much expectation for disruption.
Speaker 5: How do you know that this is resiliency and our complacency?
Speaker 6: Yeah, look, that's a fair fair point too. Maybe we're
Speaker 6: all just so beaten up and already exhausted with the shock.
Speaker 6: I'll I'll give you an anecdote on this. You're putting
Speaker 6: together my most recent piece. Like many analysts, you tend
Speaker 6: to go through it at the weekend. So I'm sitting
Speaker 6: there on a Sunday looking at the text and thinking,
Speaker 6: oh no. With the newsflow last weekend over Venezuela, I
Speaker 6: was thinking everything I've written here is irrelevant. But I
Speaker 6: came in on Monday morning and I was still able.
Speaker 7: To publish it.
Speaker 4: How is that possible?
Speaker 7: It just.
Speaker 6: How could I have been so wrong with my judgment
Speaker 6: on the Sunday compared to the Monday. And I think
Speaker 6: that most of us are experiencing the same thing. Anyone
Speaker 6: who's involved in this market at the moment. So it
Speaker 6: could be that we're complacent, but it could also be
Speaker 6: with the fact that we're resigning ourselves to the reality
Speaker 6: that rates aren't going up and they're probably going to
Speaker 6: go down. So, as I said, I think the data
Speaker 6: is consistent with dates going down towards where the forwards imply,
Speaker 6: and maybe less, and with some of the changes coming
Speaker 6: at the FED, I would suggest that the balance is
Speaker 6: tipping to rates going even lower.
Speaker 1: A lot has already happened too.
Speaker 4: A lot has already happened.
Speaker 1: From Sunday, Stephen the President this week has really taken
Speaker 1: a focus on the housing market. Even if continues to
Speaker 1: cut interest rates, Is that going to help the US
Speaker 1: housing market?
Speaker 4: Will that help mortgage rates?
Speaker 6: Look so, so, what proportion is that money of the
Speaker 6: total stock of mortgages?
Speaker 4: It's not that high, is it.
Speaker 6: I haven't run all of the all the numbers yet,
Speaker 6: but we're talking about a few hundred billion in a
Speaker 6: multi trillion market, So I don't know whether how much
Speaker 6: of a game changer is Ultimately getting the ten year
Speaker 6: rate down towards three rather than four would be one
Speaker 6: of the best things that could be done. For the
Speaker 6: housing market right now. So I guess the intervention that's
Speaker 6: just happened is going to help, but I haven't run
Speaker 6: the numbers yet. I don't know whether it's going to
Speaker 6: have a major impact.
Speaker 1: I actually mean, if the FED cuts interest rates, is
Speaker 1: that really going to meaningfully help the mortgage market?
Speaker 6: Ah, thank you, thank you. I thought you were talking
Speaker 6: referring to the intervention for Freddie and Fanny. Now, if
Speaker 6: the short rate goes down another one hundred basis points,
Speaker 6: the whole term structure is going to come down. The
Speaker 6: ten year on current form isn't falling as much, but
Speaker 6: it doesn't mean to say it won't still go down.
Speaker 6: So depends what the delta is between the rate cuts
Speaker 6: and the ten year I would I would suggest if
Speaker 6: policy rates go towards two percent or even less than
Speaker 6: you could imagine that tens are going to have a
Speaker 6: three handle and probably low threes.
Speaker 2: Fun of question, Steve, what's more likely year end the
Speaker 2: the tenure yield? Is it three percent? Or west Ham
Speaker 2: is playing Premier League football?
Speaker 6: That's a possible one to answer. Look, John, the based
Speaker 6: on the fact that west Ham was seven points adrift,
Speaker 6: is pretty obvious. Where the probabilities lie there, but you
Speaker 6: think things can change. It looks like a close call
Speaker 6: between the two and I'm I'm not going to give
Speaker 6: you an answer if you don't mind.
Speaker 2: Stay with us. More Bloomberg surveillance coming up after this
Speaker 2: premiss of JP Morgan looking for a cleaner read writing
Speaker 2: the Bloomberg consensus of seventy thousand clid and unemployment should
Speaker 2: be the goldilocks market pricing of low hiring, low firing
Speaker 2: can continue. Pray it joins us now for more prayer,
Speaker 2: Good monic morning.
Speaker 4: Can the right cuts continue?
Speaker 7: Yes?
Speaker 8: I mean if we get the Bloomber consensus, does the
Speaker 8: FED cut in January? Probably not unless we get some big,
Speaker 8: much lower inflation. But look at the market pricing. Markets
Speaker 8: not pricing for the FED to likely cut in in Jam.
Speaker 8: The market has the two cuts priced and for the
Speaker 8: rest of the year. I think that pricing can remain
Speaker 8: because when we're looking at the totality of data, we're
Speaker 8: still not seeing hiring.
Speaker 7: Nothing in the fiscal stimulation in.
Speaker 8: The one big Beautiful Bill is essentially saying that that
Speaker 8: companies are going to start to increase hiring. Look at
Speaker 8: this last week, look at all the headlines that we're
Speaker 8: getting policy and certainty is still high.
Speaker 7: So if hiring stays.
Speaker 8: Low and inflation comes down, in our view, you know,
Speaker 8: you look at inflation across the board, whether it's shelter inflation,
Speaker 8: whether it's wage.
Speaker 7: Inflation, it's all heading lower.
Speaker 8: As inflation comes down, I think the Fed is going
Speaker 8: to say, okay, can start to cut you know a
Speaker 8: little bit more. I think it's the bar to cut
Speaker 8: rates is higher. But we do think that the Fed
Speaker 8: later this year is going to cut one or two
Speaker 8: more times. So I think that market pricing of that
Speaker 8: terminal rate stays. That's essentially what that tenure is essentially banking.
Speaker 2: On what is going to wake up this bond market,
Speaker 2: this very snowzy, range bound, sleepy treasury market.
Speaker 8: I think it's great. I mean, interst rate ball has
Speaker 8: been extremely low. I think the President is focused on
Speaker 8: the tenure. He's told us that before. I think what
Speaker 8: can wake the volatility up would be essentially if we
Speaker 8: get additional fiscal stimulus, not one big beautiful bill, if
Speaker 8: you get tariff dividends.
Speaker 7: Now I'm not even.
Speaker 8: Sure post AIPA that the tariff revenues will be as high.
Speaker 8: We do think that AFP is struck down that the
Speaker 8: President's going to, you know, essentially come up with APA
Speaker 8: like Tariff's under a different name. But you know, if
Speaker 8: there's additional fiscal stimulus, yes, then rates can rise. All
Speaker 8: those deficit hawks can come up. I think that's an opportunity.
Speaker 8: If you do get interest rates moving higher, any beast
Speaker 8: in the curve we would look to fade. I think
Speaker 8: the tenure in our base case three seventy five to
Speaker 8: four and a quarter.
Speaker 7: I think that's the range we should expect for this year.
Speaker 8: If hiring continues to be low and firing starts to
Speaker 8: pick up, I think that's the tail risk here. I
Speaker 8: think the asymmetry in the bond market is rates are
Speaker 8: going to go lower. I think that's what nobody's talking about.
Speaker 8: Remember last year, all the narratives around the deficit cell America,
Speaker 8: that's all way behind us. I think now we have
Speaker 8: to think about the tenure being in a narrow range
Speaker 8: housing affordabilities of focus, and the risk is that if
Speaker 8: actually we start to see the layoffs, then rates can
Speaker 8: go lower.
Speaker 5: So you think the best part of the Yeald curve
Speaker 5: right now is the tenure.
Speaker 8: We do like the five to ten year part of
Speaker 8: the rate curve. I think the front end starts to
Speaker 8: get really tricky. You have to have a clear view
Speaker 8: on inflation in the next month, on the unemployment rate.
Speaker 8: But when you're looking at the five year tenure, I
Speaker 8: think that's the part number one that impacts the housing market.
Speaker 8: That's the one that the President's focused on. That's the
Speaker 8: one that prices in the feed to slowly get closer
Speaker 8: to that three percent.
Speaker 7: And terminal rates.
Speaker 8: So I think that's the one that we have more
Speaker 8: conviction in that is likely to stay in a low range.
Speaker 8: And you know, I think that's what you own, particularly
Speaker 8: if you own risk assets, if you own stocks, if
Speaker 8: you own credit. Your biggest risk here is that the
Speaker 8: economy actually struggles because there's so much complacency about those
Speaker 8: goldilocks continuing.
Speaker 5: That makes sense to me, the hedge against some kind
Speaker 5: of falling off a cliff of the economy or significant deterioration.
Speaker 5: What makes less sense to me is that the Fed
Speaker 5: has room to cut rates because inflation is lower, and
Speaker 5: that that will naturally bring the entire yield curve lower
Speaker 5: because of the wealth effect, because this is going to
Speaker 5: boost acid prices that much more, which will only encourage
Speaker 5: people to spend that much more. You're going to see
Speaker 5: inflation in some of these higher end items, which is
Speaker 5: really what's been driving some of this.
Speaker 4: I mean, how do you square that?
Speaker 8: So I think the key shaped economy, the case shape
Speaker 8: market continues.
Speaker 7: So to your point, spending.
Speaker 8: And you know, if people are getting a refund check,
Speaker 8: they're going to spend it. Acid price inflation can stay high.
Speaker 8: But what we're looking at what the Fed care is
Speaker 8: about their dual mandate is PCE and full employment. That
Speaker 8: PCE number can on inflation can continue to head lower
Speaker 8: because that's a function of shelter inflation on how you
Speaker 8: know housing, you know beyond housing housing x X housing
Speaker 8: service inflation. Look at those numbers, they're slowly heading lower.
Speaker 8: The tariff effect is going to go away from inflation
Speaker 8: by the middle of this year.
Speaker 7: So I think, you know, if you think about the
Speaker 7: rate cuts.
Speaker 8: From the Fed, it was inflation in twenty twenty four,
Speaker 8: it was the unemployment rate in twenty twenty five. This year,
Speaker 8: you've got two parts through which the Fed can cut.
Speaker 8: There is that inflation pard as inflation heads lower, not
Speaker 8: asset price inflation, but PCE, which the Fed cares about
Speaker 8: as we get close to two, maybe it's two point five.
Speaker 8: The Fed will feel more confident in the hawks that
Speaker 8: have been very vocal that inflation is above target. They're
Speaker 8: going to then step back and say, okay, we can
Speaker 8: maybe neutral is closer to three and not three and
Speaker 8: a half. I think that's the debate we're going to
Speaker 8: have all year.
Speaker 7: What's neutral?
Speaker 1: Create Your reaction to the President last night saying he's
Speaker 1: giving special attention to the housing market and telling his
Speaker 1: representatives to two hundred billion dollars of mortgage backed securities
Speaker 1: and home loans.
Speaker 7: I think it's great.
Speaker 8: Now we don't we don't need you know, just one
Speaker 8: thing for housing. Housing is an extremely complicated issue.
Speaker 7: If they need to.
Speaker 8: Fix housing, they need to fix the demand side, the
Speaker 8: supply side. I was a little nervous if all we
Speaker 8: were going to.
Speaker 7: Get was on the supply front.
Speaker 8: Now I think the President with this latest bit and
Speaker 8: this does not need Congress. Now, the two hundred billion
Speaker 8: is interesting. That's the amount that the agencies can buy
Speaker 8: relative to the cap. That gap can also move high.
Speaker 8: I think once they do the two hundred the cap
Speaker 8: can be moved by the FHFA.
Speaker 1: And I'm word you brought that up because the cap
Speaker 1: is fourhund and fifty billion. They've already been accumulating billions,
Speaker 1: so this puts us pretty much right at that cap.
Speaker 1: But I spoke to a source last night and said, well,
Speaker 1: the Treasury in Fahfa tried to lift the cap and
Speaker 1: they said no. So if this just ends at the
Speaker 1: four hundred and fifty billion, doesn't really.
Speaker 4: Do much for the housing market.
Speaker 8: Well, I think if it's four hund fifty it's two
Speaker 8: hundred billion of net demand. And if you think about
Speaker 8: the mortgage market, the marginal buyer for mortgages is really
Speaker 8: as a managers. It used to be the GSS pre
Speaker 8: two thousand and eight. Some of us were around back then.
Speaker 8: I used to cover the agencies. Then it was the FED,
Speaker 8: then it was US banks, and now if you look
Speaker 8: at it, the banks are saying after SVB.
Speaker 7: Well we're not going to touch this.
Speaker 8: I think that's why the announcement announcement is interesting. You
Speaker 8: bring a new marginal buyer in. Other investors that might
Speaker 8: have stayed away will say, Okay, the government's behind this.
Speaker 8: The agencies have the ability to buy. I think we
Speaker 8: can step in, but I will say, you know, you
Speaker 8: ask about whether that's important.
Speaker 7: Mortgage spreads can compress.
Speaker 8: But ultimately, if we look at the mortgage rate, it's
Speaker 8: the ten year that's the much bigger component.
Speaker 7: We have to keep the ten yere within that range.
Speaker 8: If the President's focused on housing affordability, to keep the
Speaker 8: ten year four percent three fifty to four, keep it
Speaker 8: there and then get those mortgage spreads.
Speaker 7: We're talking ten basis points, so you know, I get excited.
Speaker 7: I'm a bond person.
Speaker 8: Every basis point is very important, but I mean to
Speaker 8: get one hundred You're not getting one hundred basis points
Speaker 8: in mortgage rates because of this, but it does help
Speaker 8: keep vold and then get some mortgage spread tightening through.
Speaker 2: This might just be the appetizer, not the main course.
Speaker 2: Is the Federal Reserve going to come along for the line,
Speaker 2: along for the ride along new leadership?
Speaker 8: Well, so no, I don't think the Fed's going to
Speaker 8: do Q. I mean there's talk around the FED doing Q. No,
Speaker 8: the FED is going to working.
Speaker 2: Against this effort at the moment, aren't they.
Speaker 8: Well, they are letting the portfolio run off. But I
Speaker 8: think what the FED did in December, which was to
Speaker 8: say that let's make sure the plumbing works. I think
Speaker 8: that's important. They didn't let the repo market freeze up.
Speaker 8: So yes, they're letting mortgages run off. The GCS will
Speaker 8: easily offset that. I think on the FED, what we
Speaker 8: really want is a credible, independent FED. And I think
Speaker 8: we don't know who the next FED chair is going
Speaker 8: to be. But if you look at what the Fed's
Speaker 8: done over the last few months, they have reasserted that
Speaker 8: they're independent. This is a committee. The chair is important,
Speaker 8: but it's one vote. I think the FED is doing
Speaker 8: I don't know if it was if that was an
Speaker 8: intended reason for them to be as vocal, but they're
Speaker 8: telling us that they can about their dual mandate. Irrespective
Speaker 8: of the chair. I think they're doing their part. They're
Speaker 8: keeping that term premium lower inflation risk premium. Look at
Speaker 8: what's priced into the break even market, it's low. The
Speaker 8: market's not concerned about freed independence rightly.
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