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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and
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Speaker 1: the Bloomberg Criminal and the Bloomberg Business App. Kelsey Barrel
Speaker 1: is probably gonna walk off the stage. Why don't you
Speaker 1: got something to read here? John? I'm sorry I lost
Speaker 1: the scriptures last night so hard. We're going to go
Speaker 1: into this and right now for Global Wall Street, We're
Speaker 1: gonna freeze time. We're gonna get through this for Bob
Speaker 1: Michael and Kelsey Barrow, because they're the real deal. They're
Speaker 1: JP Morgan Asset Management, And we're going to ask a
Speaker 1: really delicate inside baseball question. So she can go back
Speaker 1: to the new skyscraper on Park Avenue explain without addressing
Speaker 1: your bank, your business. Mister Diamond would say, that's appropriate.
Speaker 1: The decisions being made right now of my bond losses,
Speaker 1: I have to mark to market versus I can hide
Speaker 1: them somewhere else.
Speaker 2: Go right, So we've been talking about the losses in
Speaker 2: the bond market. I think it is important to put
Speaker 2: into context though the majority of the pain was last year, right,
Speaker 2: the US AD was down thirteen percent last year, down
Speaker 2: two percent this year, But more recently we have seen
Speaker 2: this backup in yields and this pain that's coming now.
Speaker 3: I think the reason why the.
Speaker 2: Stress in the banks has been a little bit less
Speaker 2: acute this time around than in March is because of
Speaker 2: the BTFP program. So the Bank Term Funding Program close
Speaker 2: not exactly though, so BTFP. The Fed put that in
Speaker 2: place in March, and I think if there's one thing
Speaker 2: that really was crucial to turning the markets around at
Speaker 2: a point where we were very stressed, We were very uncertain.
Speaker 3: About how things would go in the future.
Speaker 2: That BTFP program was important because banks can now pledge
Speaker 2: those treasury securities and even though they have a price
Speaker 2: in the marketplace of seventy or eighty dollars, they can
Speaker 2: be pledged at par So there's been this stabilization factor
Speaker 2: that was not there back during the March crisis.
Speaker 4: So we're saying, is these unrealized losses get greater, they
Speaker 4: matter less.
Speaker 3: They are mattering less right now.
Speaker 2: I think there is still stress though.
Speaker 3: This is not the end of the story.
Speaker 2: Right even though this facility is in place, people are
Speaker 2: using it, there's one hundred and eight billion in the facility,
Speaker 2: there still is going to be pressure on margins. You know,
Speaker 2: it's not only about the mark to market losses, but
Speaker 2: it's about the fact that net interest margins are under pressure.
Speaker 2: So you know, as an investor in financials, you do
Speaker 2: need to be very cautious about where you're investing, understanding
Speaker 2: the portfolios and the balance sheets of the banks that
Speaker 2: you are investing in, and being aware of the game changer.
Speaker 3: That was the way the FED reacted back in March.
Speaker 4: The bank's ability to finance, the economy curtailed by the
Speaker 4: dynamics we're talking about. Are they constrained?
Speaker 3: Yeah.
Speaker 2: So if you look at the H eight data, and
Speaker 2: I love to look at this every single week on Fridays,
Speaker 2: I'm looking at Lisa because I know she looks at
Speaker 2: it too, what you're going to see is that credit
Speaker 2: has been contracting in the economy. If you look at
Speaker 2: CNI lending over the last three and six months, it's negative.
Speaker 2: If you look at the Senior Loan Officer Survey, it's
Speaker 2: showing that there is tightness in credit conditions. And like
Speaker 2: you mentioned, Lisa, this is exactly what the FED wanted, right,
Speaker 2: They want to engineer tighter financial conditions. So I disagree
Speaker 2: with the quote from Goulesby that he doesn't know where
Speaker 2: this is coming from. I really do think that the
Speaker 2: stems from the September FOMC meeting and the dot plot. Sure,
Speaker 2: they shill still showed cuts next year, but what they
Speaker 2: showed is a real policy rate that actually goes up
Speaker 2: by fifty basis points next year. That is a very
Speaker 2: HAWKUS message and the market is still trying to digest
Speaker 2: that right now.
Speaker 5: So if we're talking game theory, this is basically the idea.
Speaker 5: From your perspective, it sounds like that the FED is
Speaker 5: trying to signal hawkishness they can engineer the landing so
Speaker 5: that then they can reverse course and cut rates. How
Speaker 5: do you respond then to people, including what we heard
Speaker 5: from Delip saying over at PGYM, there is a structural
Speaker 5: change in the bond market where some of the long
Speaker 5: standing price and sensitive buyers are no longer there.
Speaker 2: So there has been a big repricing. And I think
Speaker 2: this is why you need to look at this not
Speaker 2: just from an emotional perspective, not just from you know,
Speaker 2: the ping pong narrative, but also from a logical perspective.
Speaker 2: You know, what do valuations look right like right now?
Speaker 2: And what are the guardrails to those valuations. Look at
Speaker 2: the five year five year real yield right now, it's
Speaker 2: around two point three percent. That is the same or
Speaker 2: the average rate that the five year five year real
Speaker 2: yield was from two thousand and three to two thousand
Speaker 2: and seven. So we've already repriced not just to the
Speaker 2: pre COVID levels, but to the pre GFC levels.
Speaker 3: So regime shift has really already happened.
Speaker 2: In our view, it's actually an overshoot it, but it's
Speaker 2: already happened.
Speaker 5: Although I will just push back and I know that
Speaker 5: you've been bullish on treasuries and talking about going back
Speaker 5: down to three percent. Have you reconsidered that call at all,
Speaker 5: especially in light of some of these structural changes. Yes,
Speaker 5: we can talk about inflation, but towards the slock of
Speaker 5: apologies putting out treasury auction sizes will increase on average
Speaker 5: twenty three percent in twenty twenty four. We have evidence
Speaker 5: that a lot of the central banks around the world
Speaker 5: traditional buyers are no longer buying. Doesn't this change your
Speaker 5: outlook more materially?
Speaker 2: So the technicals do matter, particularly in the shorter term horizons,
Speaker 2: but we do think ultimately the fundamentals and the valuations
Speaker 2: are going to weigh over those technicals.
Speaker 3: Over the medium term. Inflation.
Speaker 2: Right now, the three month runrate on core PC is
Speaker 2: two point one six percent.
Speaker 3: I mean, we're at the FEDS target.
Speaker 2: We're not in the nineteen seventies in the nineteen eighties
Speaker 2: here in terms of the economic growth environment or the
Speaker 2: inflation environment. I think that there has been a buyer
Speaker 2: strike cut.
Speaker 1: To the chase they're fighting. The last war is that
Speaker 1: what you're saying. You're having coffee with Mike Feroli over
Speaker 1: at JP Morgan. Can you guys agree Goolesby and the
Speaker 1: rest of them are fighting the last war.
Speaker 2: Yeah, they're fighting inflation that I think is already clearly
Speaker 2: coming down. And I understand why they're going to wait
Speaker 2: until it's painfully obvious. But in my mind that only
Speaker 2: just reinforces the risk that hard landing should be much
Speaker 2: more of a higher probability than soft landing, because the
Speaker 2: FED is telling you, they're telling you we're not going
Speaker 2: to stop until it's painfully obvious that the economy can't
Speaker 2: handle it, and the housing market. You look at the
Speaker 2: mortgage application data from yesterday, it clearly.
Speaker 3: Can't handle it.
Speaker 2: We think that the economy is not going to be
Speaker 2: able to handle these rates, but the FED is going
Speaker 2: to be the last to admit that.
Speaker 4: Cassie Power that f Jpmokan Asset Managements Sarah Hunt joined
Speaker 4: just now. Chief Market is trying to just to Aupine
Speaker 4: sexon Woods. Sarah, good morning, good I always got to
Speaker 4: energy with you at the end of the interview. We
Speaker 4: should go there at the stop. Crude was dreadful yesterday
Speaker 4: down almost six percent. I know that things at Cushing
Speaker 4: looking a little bit better on the stock past side
Speaker 4: of things. Gasoline demand really softest well, based on a
Speaker 4: recent read. What do you make of the recent moves?
Speaker 6: Well, I think I mean we talked about this last time.
Speaker 6: If crude prices rise really quickly, then gasoline prices come
Speaker 6: up commensurately, and then all of a sudden you do
Speaker 6: have a backing down and demand. And I think part
Speaker 6: of it was the demand numbers on gasoline. I think
Speaker 6: part of it is also sort of the parallel to
Speaker 6: the bond market, which is, all of a sudden, the
Speaker 6: market's going well, if we do have a recession or
Speaker 6: if the world is slowing down, then crude prices may
Speaker 6: be too high. And part of the reason they're highest
Speaker 6: because the statutis have taken some off the market. It's
Speaker 6: not just a problem of higher demand and not enough supply.
Speaker 6: But I think the supply side is going to stay
Speaker 6: somewhat restricted, and I think that's really going to ultimately
Speaker 6: be the longer term story. But you are going to
Speaker 6: have these convulsive moves, and the stacks haven't caught up,
Speaker 6: not all of them anyway. To the higher prices and
Speaker 6: crude anyway, So I think that there is still some
Speaker 6: room in there, but it is going to be a
Speaker 6: volatile trade.
Speaker 1: I'm calling this never ever Thursday because I'm looking at
Speaker 1: bond charts that I've never ever thought about or imagined
Speaker 1: or visualized mathematically. Folks, this is truly without ache. This
Speaker 1: is truly original territory. How do equity participants react never
Speaker 1: ever thing's in the bond market.
Speaker 6: Well, I think it's problematic for the equity markets that
Speaker 6: you're having such convulsive moves in the bond markets. And
Speaker 6: I think that part of the issue with equities has
Speaker 6: always been if rates do stay higher, what are we
Speaker 6: discounting those cash flows at I don't disagree that technology
Speaker 6: is one of the places that will actually do well
Speaker 6: even in a higher rate environment, because you've got that
Speaker 6: stability of earnings and they've also got a lot of
Speaker 6: cash on their balance sheets. But I think that the
Speaker 6: question of what everybody else is going to do and
Speaker 6: how that's going to impact people's balance sheets. Corporations in Europe.
Speaker 6: I read a story this morning on Bloomberg that said
Speaker 6: the corporations in Europe are finally back breaking down and
Speaker 6: issuing bonds at higher rates than they would have a
Speaker 6: year ago. So are people starting to accept that? And
Speaker 6: if so, that's going to take some of the money
Speaker 6: out of the income statement because they're going to be
Speaker 6: paying higher price. So I think that some of that
Speaker 6: is going to impact the earnings for next year. And
Speaker 6: that's still what I don't think is really reflected through
Speaker 6: next year.
Speaker 1: The heart and soul of this is Q four into
Speaker 1: next year. Do you go with a diversified virtual index
Speaker 1: fund tight our squared approach or are you active and
Speaker 1: take a less diversification approach, which is I got my
Speaker 1: own opinion, But which do you think?
Speaker 6: I think active? I mean that's also active, more narrow,
Speaker 6: more narrow, and also looking at where you think there
Speaker 6: might be some vulnerability, which indexes can't really do right
Speaker 6: because they are going to rebalance the way they rebalance,
Speaker 6: and I think that there are some places that are
Speaker 6: going to continue to be vulnerable.
Speaker 5: Do you think the Pond sell off has been coherent
Speaker 5: with the other moves that we've seen in the markets.
Speaker 6: You know, it's so hard on these very short term
Speaker 6: moves to figure out is this a technical problem? Is
Speaker 6: this a quant problem? Is where is this coming from?
Speaker 6: Or where are these moves coming from and I think
Speaker 6: it's very difficult to parse that out and say how
Speaker 6: it interacts. But I do think that there are large
Speaker 6: positioning changes, and when those happen, it's not always easy
Speaker 6: to see. I mean, there's questions about whether or not
Speaker 6: the boj was intervening right because the yen went through,
Speaker 6: and was what did that happen? Or was that just
Speaker 6: a technical level that everybody said, oh, one fifty, we're getting.
Speaker 1: So close, we have to do something. So I'm not.
Speaker 6: Really sure on those very short term moves go together,
Speaker 6: but longer term they will start to make more sense.
Speaker 6: Although you know, you've had correlations that are very different
Speaker 6: over the last couple of years than normal, so make
Speaker 6: more sense as a relative term.
Speaker 5: The reason why I ask that is because if yields
Speaker 5: stay at levels that we're seeing right now, if there
Speaker 5: is something fundamental behind this or even structural when it
Speaker 5: comes to price sensitive buyers newly priced sensitive buyers, how
Speaker 5: much does that change the equation for you in the
Speaker 5: equity sphere, I mean, aside from oil, aside from some
Speaker 5: of these specific bets, is there a rethink about the
Speaker 5: value proposition with some of the overweights you've had to equities.
Speaker 6: Well, I think that you've been seeing that for the
Speaker 6: last two years, right since or the last year and
Speaker 6: a half, since the FED started raising rates. The question
Speaker 6: has been with their bonds. Right, where am I going
Speaker 6: with that? Because I'm now putting them back in a portfolio.
Speaker 6: When you talk about the big price erosion from the
Speaker 6: lows when the tenure was sitting at basically twenty basis
Speaker 6: points the fact that we're now up at levels that.
Speaker 1: Are over four.
Speaker 6: I think people have been looking at that the whole time,
Speaker 6: But the problem is that as they've been adding the
Speaker 6: whole time, the prices have been coming down. So there's
Speaker 6: a little bit of scorched earth on the bond side too,
Speaker 6: because people have lost money in bonds and in ways
Speaker 6: that they hadn't in the last couple in the last
Speaker 6: several decades. So I think that there is absolutely room
Speaker 6: for fixed income in people's portfolios. They are putting it back,
Speaker 6: but that was traditionally where you had some participation anyway,
Speaker 6: and I think that higher rates make that something that
Speaker 6: people look at more seriously, especially as duration starts to
Speaker 6: look a little higher priced than it was because you.
Speaker 1: Were sitting high.
Speaker 6: Rates on the low end, but on the short end,
Speaker 6: but not on the long end, and that's starting to
Speaker 6: change a little bit, not necessarily for the best for everyone.
Speaker 4: Just pulled up a quick shart average FED funds going
Speaker 4: back to the seventies averages four ninety three. I know
Speaker 4: that's skewed by decade of zero, but the average is
Speaker 4: four ninety three. Is anything on a long bond close
Speaker 4: to five percent just to screaming buy based on history?
Speaker 4: Or can you tell me that things are going to
Speaker 4: be markedly different over the next couple of decades.
Speaker 6: Well, I think if governments hadn't indebted themselves to the
Speaker 6: extent that they have, then you could look at some
Speaker 6: of those numbers and say we should have higher rates
Speaker 6: on the long end, because that was also more historic.
Speaker 6: But if I think about what that's going to cost governments,
Speaker 6: I have to wonder whether or not they can keep
Speaker 6: we can keep collectively keep rates that high. And I'm
Speaker 6: not sure that we can control the long end as much.
Speaker 6: But I do think that going back to what we
Speaker 6: used to think of as more normalized, it's a little
Speaker 6: bit difficult given the fact that we've got this massive
Speaker 6: amount of government balance sheet that we didn't have twenty
Speaker 6: years sgo.
Speaker 4: This is a big question. It's difficult to answer, but
Speaker 4: what is normal the last ten years, the ten years
Speaker 4: before that? When we say things like normal, what is
Speaker 4: normal that's going to be?
Speaker 6: I think one of the biggest issues playing out going
Speaker 6: forward is the more normal what happened after the Great
Speaker 6: Financial Crisis and now that we've gotten this level of
Speaker 6: balance sheets for governments, do we just stay here and
Speaker 6: every time we have a problem we just keep adding
Speaker 6: to them. And does that break something eventually or do
Speaker 6: we go back to something that was before that? And
Speaker 6: I don't know what the answer is, And I think
Speaker 6: that that tension is part of what's going to be
Speaker 6: playing out going forward in both the bond and the
Speaker 6: equity markets, because it definitely had an effect on the
Speaker 6: equity markets as well. You can't say that it didn't
Speaker 6: with multiples where they are right now.
Speaker 4: You can feel that tension at the moment because you
Speaker 4: get these yields that people have been wanting for a
Speaker 4: long long time lease and there is just that refusal
Speaker 4: to jump in. Sara Hunt, chief Market Strategies to Alpine
Speaker 4: sexon book.
Speaker 1: Joining us hugely qualified. Peter Scheer had a macro Strategy
Speaker 1: Academy Securities. He's enjoyed these kind of moves before Bank
Speaker 1: of America before they blew it up. Bob Sinch in
Speaker 1: Foreign Exchange really experienced. And a guy Ryan heard, a
Speaker 1: guy named David Goldman who was in my book. David
Speaker 1: Goldman told me, once look at the tranches, and you
Speaker 1: nail this in your note, and everybody's looking at worry
Speaker 1: read distress South African ran blah blah blah, and the
Speaker 1: David Goldman tranch is the quality stuff up here? You
Speaker 1: write about previously deemed safe assets. How close are we
Speaker 1: are we to those better tranches of credit being previously
Speaker 1: deemed safe assets?
Speaker 7: Yes? And you know, I've always looked at this world
Speaker 7: of you know, you've got high yield than IG and
Speaker 7: treasure has always been that safe asset, super safe, And
Speaker 7: it feels like something's cracking. I think this time we're
Speaker 7: going to be okay. I think we're going to get
Speaker 7: the ten year back below four forty because we're going
Speaker 7: to see kind of a really quick gap lower in
Speaker 7: yields as data comes up weak. But I do think
Speaker 7: something is cracked. And for the first time in my lifetime,
Speaker 7: people are actually questioning the trajectory of where treasuries are
Speaker 7: going to be. And that is very concerning to me
Speaker 7: because every financial bubble that we've ever had has always
Speaker 7: come when it's a safe asset that breaks. It's never
Speaker 7: the risky assets. It's when a safe asset breaks. And
Speaker 7: we had a whiff of that in the past kind
Speaker 7: of week or two.
Speaker 4: It was a test yesterday, though, and I think the
Speaker 4: test is always for developed markets, when bad things happen
Speaker 4: to we buy treasuries. Something negative happened, We've got a
Speaker 4: soft ADP report for whatever that's worth. We bought treasuries.
Speaker 4: Isn't that a decent stress test just to understand that
Speaker 4: if things do go south in the economy, this still works.
Speaker 1: You know.
Speaker 7: I think there's a lot of ebbs and flows. So
Speaker 7: everyone got so barish on treasuries. People were piling into it.
Speaker 7: People have tried to buy treasures. I've liked them since
Speaker 7: four to twenty five, four forty so people were very reluctant.
Speaker 7: So we finally had a bit of that capitulation trade.
Speaker 7: Right now. I think as weak data comes out, we're
Speaker 7: going to see treasure yields go lower, and then we're
Speaker 7: going to get back to thinking, Okay, what is really
Speaker 7: the long term trade? And I think that's probably now
Speaker 7: higher yields.
Speaker 4: You think there's a limit to how much bonds can rally,
Speaker 4: yields can fall on negative data?
Speaker 7: I think right now, Yes, I think this overlying fear
Speaker 7: that DC no longer cares about our debt trajectory is problematic.
Speaker 7: I think if you look at the US as a creditor,
Speaker 7: we don't seem to care about the debt. We don't
Speaker 7: seem to even necessarily want to pay the debt. There's
Speaker 7: all these kind of weird messages coming out of DC,
Speaker 7: and I think that's going to weigh on the market.
Speaker 5: When you said that the longer term trade is higher yields,
Speaker 5: how much higher?
Speaker 8: Right?
Speaker 5: And what are we talking about at a time when
Speaker 5: you say that something has cracked, that the sell off
Speaker 5: that we've seen so far has something sort of damaging
Speaker 5: inherent in it.
Speaker 7: So I think you're right. When we were talking about
Speaker 7: no one could figure out why we kept moving wider
Speaker 7: every day, right, Yields kept going higher and higher. So
Speaker 7: there is I think a lot of things at motion.
Speaker 7: You have China no longer buying treasuries. I think you've
Speaker 7: got our supply issue. The only thing I think that
Speaker 7: it's really going to prevent treasuries from next year breaking
Speaker 7: about five percent or higher is DC kind of getting
Speaker 7: its act together, starting to put forward budgets, starting to
Speaker 7: put forward something that resembles, you know, fiscal responsibility. If
Speaker 7: we don't get that, I think people are losing faith
Speaker 7: in that, and that's really problematic.
Speaker 5: But when you say that basically we're going to get
Speaker 5: a drift lower and then when people start to understand
Speaker 5: that they're going to go higher again, isn't there sort
Speaker 5: of a self limiting feature to this? You said, you know,
Speaker 5: something cracked in terms of where we were going, the
Speaker 5: speed we were moving. Aren't we going to get some
Speaker 5: sort of bigger financial accident like everyone's been saying, if
Speaker 5: we lead to you know, yields of five percent on
Speaker 5: the tenure on a persistent basis.
Speaker 7: I don't think we get a financial accident necessarily. It
Speaker 7: depends on how rapid it is. So one I think
Speaker 7: we get back to that four forty. I don't think
Speaker 7: we get back to four percent because, like you say,
Speaker 7: we've had this experience. I think it's a six month
Speaker 7: to a year long experiment where we start seeing what
Speaker 7: happens with the election, what the trajectory of the debt is.
Speaker 7: If people lose faith in that, then I think you
Speaker 7: go rapidly above five point fifty. You start testing that,
Speaker 7: and that's where you get the force selling. The reason
Speaker 7: I'm always concerned about safe assets is twofold one people
Speaker 7: own them in huge size and their portfolios because they
Speaker 7: were never worried about losses. If you start worrying about losses,
Speaker 7: that causes force selling. And the other part is what
Speaker 7: does the banking system own a lot of And if
Speaker 7: the banking system, which is always levered, owns a lot
Speaker 7: of treasuries and you see this never ending push to
Speaker 7: yields higher, I think you see some force selling and
Speaker 7: risk management there. So I don't think we're there yet,
Speaker 7: but I think that's the trigger that we've kind of
Speaker 7: got just a sniff of this time around. And go
Speaker 7: back even with housing, right, we had housing bubble. You know,
Speaker 7: it's broke a little bit in early two thousand and seven,
Speaker 7: late two thousand and seven. The ultimate prom didn't hit
Speaker 7: until two thousand and eight.
Speaker 4: Pete, you're making me want to just go and hide
Speaker 4: under a rock. What on Earth do I own? If
Speaker 4: that's your round book.
Speaker 7: So for now I'm actually bullish early enough, right, I
Speaker 7: do think we're going to get this weak economic data.
Speaker 7: I think oil is way overdone. I think we're going
Speaker 7: to get this relief trade. Okay, there's not this inflation pressure,
Speaker 7: you'll start drifting back to four forty. We send stocks hire,
Speaker 7: everyone's underweight again, so we have to suck out that
Speaker 7: kind of pessimism. Then once everyone gets bullish again, I
Speaker 7: can get really very.
Speaker 5: Position in struct Kay, what are you talking about? Are
Speaker 5: you basically saying that there is a bubble in treasuries
Speaker 5: it's going to burst with catastrophic implications to build on
Speaker 5: what John was talking about.
Speaker 7: I don't know if it will or not, but that's
Speaker 7: all of a sudden became awareness of everyone and DC
Speaker 7: can fix this, right, DC can get its act together.
Speaker 7: I just think everyone's kind of grimacing because no one
Speaker 7: really believes DC is going to get its act together.
Speaker 7: But I think that's really the hope is something comes
Speaker 7: through and DC starts going back to the days where
Speaker 7: you run a budget deficit when times are torough, but
Speaker 7: when times are good you try and cut it back.
Speaker 4: Let's finish it. What does this mean for portfolio construction?
Speaker 4: A lot of people listening might sit down with a
Speaker 4: financial advisor and they've given the same old spiel. What
Speaker 4: we're going to do is split up this portfolio sixty
Speaker 4: forty and they're going to go on to explain why
Speaker 4: doesn't that all go out the window.
Speaker 7: I think you have to be very careful and you're
Speaker 7: looking for constantly risk management. Right what looks overdone? What
Speaker 7: doesn't look overdone? You the two year seems safe, But
Speaker 7: I think there's no value in the two year. At
Speaker 7: four ninety, there was a lot of value in the tenure.
Speaker 7: I think down at four forty you want to expose that.
Speaker 7: But as YO start shrinking and getting to these narrow
Speaker 7: ends of the range, take them off, take some bets there.
Speaker 7: I think you want to expose yourself to equity risk
Speaker 7: right now, you know you really start making sure those exposures.
Speaker 7: Where do you want to be in the world, And
Speaker 7: I think outside the US could be interested. I continue
Speaker 7: to look at emerging markets. I think you see a
Speaker 7: lot of trends there that are beneficial for emerging markets
Speaker 7: over US.
Speaker 1: There is acclaimed and he wrote a great one volume
Speaker 1: on financial history. Chris Whalen, our Christopher Whalen, and he
Speaker 1: had a note last night which goes to the heart
Speaker 1: of the bid walking away and fixed income. It's the
Speaker 1: Whalen's silence, and that is you've got a piece to
Speaker 1: sell and you get on the phone and there's nobody
Speaker 1: on the other side of the transaction. How close are
Speaker 1: we to the Whalen silence?
Speaker 7: I think we had again whiffs of that right the
Speaker 7: treasury market perfect, and that's all we've had so far.
Speaker 7: And I think though across all assets, you look at
Speaker 7: what's going on with oil, we've gone to this electronic
Speaker 7: algo driven trading. So I think there's this perception of
Speaker 7: liquidity and there's no depth of liquidity. So the ability
Speaker 7: for Marcus to move very quickly is very high because
Speaker 7: we have this fake or full equidity where everyone's scrambling
Speaker 7: around trying to make their penny or eighth of a point,
Speaker 7: and the reality is big moves push us very quickly.
Speaker 4: Bottle it clinic a big what if, A lot of
Speaker 4: worries for a lot of people who might be listening
Speaker 4: to some of this fada, but ultimately buying risk in
Speaker 4: the short term right.
Speaker 3: By risking shortload the boot.
Speaker 7: But I would say this does remind me a bit
Speaker 7: when I was trading the credit to rib of indices
Speaker 7: back in two thousand and seven, where you would just gap.
Speaker 7: You would go from sixty basis points to sexty eight
Speaker 7: basis points, knowing you why, and then you look and
Speaker 7: you traded around sixty eight. And that's the sort of
Speaker 7: moves I think we've been getting in these markets. Whether
Speaker 7: it's oil, whether it's trades, you get these gap moves,
Speaker 7: you air pocket. Everyone tries to make some semblance of it,
Speaker 7: but it's.
Speaker 1: Just one day option. Thing is that the new portfolio insurance.
Speaker 7: You know, people are definitely pushing on that, and I
Speaker 7: think it's the opposite of portfolio insurance. I think it's
Speaker 7: used heavily to drive markets, push gamma trades, and I
Speaker 7: think everyone forgets that it can be used on the
Speaker 7: downside just as easily as is in the upside. This
Speaker 7: isn't like some of the other trades which for bullies
Speaker 7: so only like we saw with the ape stocks. This
Speaker 7: is really the ability to push direction, and I think
Speaker 7: they can lean on markets down as easily as.
Speaker 4: Up pay This was great. Always walk away from our
Speaker 4: conversations with tons to think about. Put a share of
Speaker 4: accountomy securities.
Speaker 1: Kevin Tyne, enjoin us here, what's important about our senior
Speaker 1: automobiles and analysts for Bloomberg Intelligence? And he's kept count
Speaker 1: He's got a woodmark in his garage, folks of the
Speaker 1: number of times he's put the screw down the Chrysler
Speaker 1: distributor when he's changing the plugs. Kevin Tyne and the
Speaker 1: real thing in the auto, Kevin, I've been dying to
Speaker 1: ask you, and it's in the zeitgeist. When are we
Speaker 1: done buying one hundred thousand dollars Evy vehicles that weigh
Speaker 1: the size of a Hummer H two. When does that
Speaker 1: party end?
Speaker 9: I think very soon. Well, I looked at it, and
Speaker 9: you know, look, the production launch and the new EV's
Speaker 9: coming out are set through twenty twenty four and probably beyond.
Speaker 9: But I think what you're going to get as an
Speaker 9: inflection point is if you don't or if the automakers
Speaker 9: don't start to see, you know, real demand and real
Speaker 9: profitability in that drive train type. I think you're going
Speaker 9: to start to see by twenty twenty five, twenty six,
Speaker 9: and plans beyond that start to shift. To something a
Speaker 9: little bit more practical, and we've been saying that might
Speaker 9: be the plug in hybrid makes a re emergence, you know,
Speaker 9: with battery technology. Maybe that's a fifty to one hundred
Speaker 9: mile range in electric with the you know, range extending
Speaker 9: internal combustion or hybrid engine on top of it. You know,
Speaker 9: so you're talking about four hundred miles of range which
Speaker 9: out without the anxiety of where to charge or the
Speaker 9: you know this charging infrastructure that isn't quite ready.
Speaker 1: Yeah, I got any more questions on this, but I
Speaker 1: believe there's a Lisa help me here. There's a strike
Speaker 1: still going on. Yes, it's just been buried by the news.
Speaker 1: I mean, there's no other way to put it. What's
Speaker 1: the new new on the UAW strike.
Speaker 9: Yeah. Look, from my view, I think what you're going
Speaker 9: to get is a big number for the UAW, but
Speaker 9: not a whole lot else. And I think that's probably
Speaker 9: what the issues are. The artomakers can't hide their profitability
Speaker 9: over the past ten years, and this mixshift to truck
Speaker 9: from car has been very profitable for them, you know,
Speaker 9: and everybody sees it, right, But at the same time
Speaker 9: they've done that with fewer units so I think on
Speaker 9: the one hand, the manufacturers are saying, Okay, we can
Speaker 9: give you a share of those profits, but we can't
Speaker 9: guarantee that we're going to be growing in size. And
Speaker 9: I think what a big number does, whether it's a
Speaker 9: thirty percent or somewhere in that ballpark, what it does.
Speaker 9: It also enables the union to go and show that
Speaker 9: contract to some of the non union, whether it's pure
Speaker 9: PLAYEV manufacturers or transplants in the US that are operating
Speaker 9: with non union labor, to say, look what we did
Speaker 9: for our membership. Because at the end of the day,
Speaker 9: if the UAW wants to increase its member base, they
Speaker 9: can't keep going back to GM, Ford and Stillantis. They're
Speaker 9: not growing in that way, right, So if this is
Speaker 9: about increasing your membership for the UAW, you're going to
Speaker 9: have to go knock on some other doors. And I
Speaker 9: think a backhanded way that the legacy automakers, the domestic
Speaker 9: for GM and STILLANTIS brands can do it is to say,
Speaker 9: here's your big number, but we got to have the
Speaker 9: flexibility to get out of some capacity going forward. But
Speaker 9: go show this to some of those other plants and
Speaker 9: see what they say, Kevin.
Speaker 5: We're getting some sense from the auto manufacturers of just
Speaker 5: how much the strikes have been costing them. General Motors
Speaker 5: came out yesterday and said it already has cost them
Speaker 5: about two hundred million dollars since the strike began. We've
Speaker 5: heard from Ford talking about the f one fifty deliveries
Speaker 5: and how much they've been plunging on the heels of
Speaker 5: a number of shuttering factories. I'm just wondering at what
Speaker 5: point we can expect this to precede price rises in
Speaker 5: some of the cars that they deliver with the justification
Speaker 5: really they've got to compensate for these costs.
Speaker 9: Yeah, and look that production is not necessarily all lost.
Speaker 9: It'll shift to the next quarter or into twenty twenty four.
Speaker 9: But it's exactly that. And this is what we've seen
Speaker 9: and it didn't really start just with production disruptions during
Speaker 9: the pandemic. You know, the automakers have been moving to
Speaker 9: this smaller model, you know, more trucks, higher transaction prices,
Speaker 9: fewer units, so it isn't so much about scale anymore.
Speaker 9: And this is another part of that where there's inventory
Speaker 9: on the ground, probably not quite enough, but ultimately all
Speaker 9: it does is firm up prices and the increased cost
Speaker 9: although you know, maybe the labor portion of cost of
Speaker 9: goods going forward is minimal after the contract, but at
Speaker 9: the end of the day, it's going to remove affordability
Speaker 9: from the consumer, right because automakers are going to have
Speaker 9: to continue to keep supply and demand tight and move
Speaker 9: up market to be profitable on the operations. So that's
Speaker 9: really going to hurt the consumer at the end.
Speaker 7: Of the day.
Speaker 5: Kevin I was reading about bid which is becoming the
Speaker 5: biggest electric vehicle maker in China, and I was reading
Speaker 5: about how they grew up out of first imitating Toyota
Speaker 5: and then becoming so efficient that even Toyota was trying
Speaker 5: to understand exactly how they were doing it.
Speaker 3: How does the US.
Speaker 5: Compete with China, all things being equal, without tariffs, without
Speaker 5: some other guards between the two industries, if there's a
Speaker 5: very different playing field.
Speaker 9: Yeah, it's going to be it's going to be very difficult.
Speaker 9: Look though, the macroeconomic the government influence varies region by region.
Speaker 9: You know, so the subsidies that you had and bid,
Speaker 9: you know, back in the day that's a company that
Speaker 9: was you know, direct subsidy from the government was well
Speaker 9: over a billion dollars probably over forty thousand dollars per vehicle.
Speaker 9: We won't do that here, so you know, it's it'll
Speaker 9: be difficult to keep them out. And the other thing
Speaker 9: I think that's going to happen is if we're going
Speaker 9: to get a rush of Chinese built evs in this country,
Speaker 9: they're going to go directly to the dealer network, where
Speaker 9: we have this sort of perception now that the direct
Speaker 9: sales model what Tesla does or Revine and Lucid is
Speaker 9: the way to go. I think those companies are going
Speaker 9: to achieve immediate distribution sale scale by going to the
Speaker 9: dealer base and saying like, will you sell our product,
Speaker 9: as opposed to trying to deliver it directly to the consumer,
Speaker 9: which has issues with when you get paid for those vehicles. Right,
Speaker 9: you can't book that revenue till you deliver them, But
Speaker 9: if you deliver them to the dealership, you can, right,
Speaker 9: so your gross margin stays firm and you have instant
Speaker 9: scale in terms of distribution. So it could happen very quickly,
Speaker 9: although there's still a lot of hurdles to get over
Speaker 9: for really China small manufacturers or EV manufacturers to get
Speaker 9: into this country.
Speaker 4: Hey, Kevin. Just to wrap things up, and I've touched
Speaker 4: on this briefly, but what are the odds that some
Speaker 4: of these manufacturers just don't get this transition done. They
Speaker 4: look into the future and they throw them in the
Speaker 4: town and say this isn't going to happen.
Speaker 9: Yeah, And look, I don't know that that's not a
Speaker 9: binary bet of bankruptcy or not bankruptcy, or you exist
Speaker 9: or you don't exist.
Speaker 1: Oh.
Speaker 9: Absolutely, there's certainly a scenario where you know, legacy automakers
Speaker 9: or global automakers leave that drive train business to the
Speaker 9: niche manufacturers, to Tesla to and it's a smaller part
Speaker 9: of the market, you know, certainly here but maybe in
Speaker 9: other countries. And what you can get is to say, like,
Speaker 9: and Toyota has been saying this the whole time, is like,
Speaker 9: there needs to be options, right, So internal combustion will
Speaker 9: work in some regions or for some people. So will
Speaker 9: plug in hybrids, So will gas hybrid, so will electric.
Speaker 9: Maybe hydrogen is an option too, you know, So I
Speaker 9: think that if it's about climate, right, there needs to
Speaker 9: be options. If it's about capitalism, you know, that gets.
Speaker 4: A little bitcisely that Kevin. You know where I'm going
Speaker 4: with this. If it's about climate, it's not about massive
Speaker 4: SUVs that just happen to be electric. Let's you know,
Speaker 4: let's face it, so it's not about climate precisely, Kevin
Speaker 4: sign it, thank you, sir.
Speaker 10: Limpegan Tenochens, a gentleman from western Michigan outside Green Rapids
Speaker 10: on the fields of Michigan, joins us snow Bill heisig
Speaker 10: and Bill, you know the last the thing that we've seen.
Speaker 1: For the last thirty six hours. I actually thought of you,
Speaker 1: and yet people of nuke. Gingrich has identified it as
Speaker 1: four percent of GDP. We went from Lincoln Southwest of
Speaker 1: your family's heritage to ninety six percent of the GOP
Speaker 1: in crisis. How do you people get back control of
Speaker 1: the party, How do you get back control of the narrative.
Speaker 8: That's a great question. In fact, I happened to see
Speaker 8: former Speaker Gingridge last night at a dinner. But it
Speaker 8: is it is interesting. I do have to comment. You know,
Speaker 8: you played Senator Blumenthal's quote, and yes, the house is
Speaker 8: a bit of a mess right now. But I would
Speaker 8: just point out those who live in glass sentence shouldn't
Speaker 8: throw stones, all right, because they have not done anything
Speaker 8: anything when it comes to the appropriations bills until this year,
Speaker 8: and it was only when the House threatened and really
Speaker 8: pushed this whole notion that we needed to pass those
Speaker 8: swellove appropriations bills that they actually passed anything out of committee.
Speaker 8: So I'm glad to see that people are realizing that
Speaker 8: these massive Christmas tree omnibus bills are a horrible way
Speaker 8: of moving forward. But yes, we've got a mess in
Speaker 8: the House. We can't do anything until we pick a speaker,
Speaker 8: and hopefully that that's going to come sooner rather than later.
Speaker 8: But I'm not sure that we're there yet.
Speaker 1: I look, Congressman at the joy that America has it.
Speaker 1: Maybe we ought to have some successful small business people
Speaker 1: in Congress. You're one of them. You're the gravel of Michigan,
Speaker 1: run and gravel, moving it out, building things in that
Speaker 1: How do we take advantage in this crisis of a
Speaker 1: beleaguered small business. I think it's been ignored here for
Speaker 1: weeks and weeks.
Speaker 8: First of all, you got to stop crushing them. And
Speaker 8: whether it's at local level, state level. You know, I'm
Speaker 8: a former state legislator. I know what can happen on
Speaker 8: the regulatory side as well as the tax side, and
Speaker 8: certainly here at the federal level that that is writ large.
Speaker 8: But we also know the inflation impact has been massive,
Speaker 8: and I was interested in hearing I think it was
Speaker 8: Kathy who is on just prior to me, talking about
Speaker 8: this soft landing hard landing situation. A lot of us
Speaker 8: would argue that the FED was late to the table
Speaker 8: in starting to move those interest rates up, and now
Speaker 8: we've been paying. We've been paying a massive price literally
Speaker 8: for that on the way down. But we've got to stop.
Speaker 8: We got to stop this tax and regulatory crushing, plus
Speaker 8: the rhetoric, right, I mean, it's you know, small business
Speaker 8: drives the economy in so many places, and place like Michigan.
Speaker 8: All right, we're watching the UAW strikes and those kinds
Speaker 8: of things, but we've got to make sure the small
Speaker 8: businesses listen.
Speaker 1: The news flow we've had. I think this has been
Speaker 1: way under reported my anecdotes in New York City, a
Speaker 1: small business is getting absolutely crushed. There's no other way
Speaker 1: to put it.
Speaker 5: There is a real concern here being pushed and pulled
Speaker 5: on both the side of inflation, a tight labor market
Speaker 5: and also higher rates so you can't borrow cheaply. But Congressman,
Speaker 5: I would love your sense just to build on what
Speaker 5: you're talking about. Kelsey Barrow was on. She was talking
Speaker 5: about how a hard landing looks more likely a lot
Speaker 5: of people, and I would guess that that actually, perversely
Speaker 5: might be a benefit to the US fiscal profile because
Speaker 5: that will lead to lower interest expenses. Right now, people
Speaker 5: are looking at the fact that there is no leader
Speaker 5: in the House and attributing part of the move and
Speaker 5: the treasury market to that, saying that dysfunction in Congress
Speaker 5: is allowing yields to keep climbing as the fiscal profile
Speaker 5: of this nation gets called into question. Important is it
Speaker 5: to you to make sure that there is at least
Speaker 5: a functioning, at least a cross a discussion among representatives.
Speaker 8: Yeah, we have to have that. And look, I believe
Speaker 8: a number of my colleagues, some of them were chasing cameras,
Speaker 8: others of them had actual policy issues, and they erroneously,
Speaker 8: in my opinion, thought they would be able to move
Speaker 8: this process along more effectively and faster by shutting down
Speaker 8: the government. My experience both in twenty thirteen, with the
Speaker 8: Obama administration twenty eighteen, going into twenty nineteen with the
Speaker 8: Trump administration, that isn't the case. So that was bad
Speaker 8: tactics on that part. But how do we restore confidence?
Speaker 8: That's a key thing. We've got to get unified and
Speaker 8: quit the circular firing squad in the House of Representatives.
Speaker 8: But we do have long term issues that we have
Speaker 8: to have to address. I have a bill that would
Speaker 8: call for a debt commission, a fiscal commission that is
Speaker 8: going to look at all of the various trust funds.
Speaker 8: It would be something that couldn't be amended, it would
Speaker 8: be forced to be taken out of a vote taken
Speaker 8: both in the House and Senate, and it allows us
Speaker 8: to address that seventy percent of all the federal spending
Speaker 8: that happens on autopilot. I don't touch it as a
Speaker 8: House member of the House. The Senators don't touch it.
Speaker 8: The White House doesn't do anything with it. It's just
Speaker 8: on autopilot. And if we don't wrestle that dragging down
Speaker 8: to the ground and have an open and honest conversation
Speaker 8: with the American people, then we're going to be in
Speaker 8: real trouble if we see any of those bond rates
Speaker 8: continue to go up because we're knocking on the door
Speaker 8: of eight hundred billion dollars in interest alone right now.
Speaker 5: Congrisspannon, how much of an obstacle is the former President
Speaker 5: Trump to getting some sort of real discussion like this
Speaker 5: put forward, considering the fact that he was one of
Speaker 5: the people pushing for a shutdown, pushing for basically just
Speaker 5: make it not happen, don't pay the bills until you
Speaker 5: get what you want.
Speaker 8: Yeah, well, it's not helpful at the end of the day.
Speaker 8: Like I said, I think that is that's an erroneous strategy.
Speaker 8: It doesn't work. What getting back though to that long
Speaker 8: term issue. You know, both President Biden and President Trump
Speaker 8: had said you can't look at some of those massive
Speaker 8: drivers of our automatic spending. That's a mistake as well.
Speaker 8: And I'm glad to see we've actually had this bipartisan bill.
Speaker 8: It was seven Republicans, seven Democrats who are the original
Speaker 8: co sponsors of me as author to to set up
Speaker 8: this commission, you know, and that ultimately it doesn't matter
Speaker 8: what the politics is trying to dictate out there on
Speaker 8: either side of the aisle. The realities are what we
Speaker 8: have to deal with here as policymakers. And I hope
Speaker 8: my colleagues will step up and actually be policymakers and
Speaker 8: honest brokers.
Speaker 4: Congressman, thanks for your inside this morning, your perspective. Thank you, Sir,
Speaker 4: Congressman Bill Haisanga that of Michigan.
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