1 00:00:05,080 --> 00:00:09,160 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Lisa Abramoids along 2 00:00:09,200 --> 00:00:12,160 Speaker 1: with Tom Keane and Jonathan Ferrow, joining us each day 3 00:00:12,200 --> 00:00:16,440 Speaker 1: for insight from the best in economics, geopolitics, finance and investment. 4 00:00:16,760 --> 00:00:20,279 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 5 00:00:20,360 --> 00:00:23,840 Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com, 6 00:00:23,840 --> 00:00:27,080 Speaker 1: the Bloomberg Terminal and the Bloomberg Business app. Lori Kelvacina 7 00:00:27,160 --> 00:00:30,160 Speaker 1: joining head of US Equity Strategy to RBC Capital Markets. 8 00:00:30,520 --> 00:00:32,320 Speaker 1: Do you agree with that that when you look under 9 00:00:32,320 --> 00:00:35,640 Speaker 1: the hood, you're seeing massive breakdowns that are reflective of 10 00:00:35,720 --> 00:00:38,000 Speaker 1: a great deal of pain that people really gloss over. 11 00:00:39,520 --> 00:00:41,720 Speaker 2: I think that's fair, Lisa. I mean, I think Jana 12 00:00:41,800 --> 00:00:43,440 Speaker 2: hit the nail on the head when she talked about 13 00:00:43,479 --> 00:00:46,160 Speaker 2: small caps making a new low. I always tell people 14 00:00:46,159 --> 00:00:48,239 Speaker 2: about small caps, even if you can't buy them, they 15 00:00:48,280 --> 00:00:49,920 Speaker 2: tell you a lot about what's going on in the 16 00:00:49,960 --> 00:00:52,839 Speaker 2: broader market. And I think what's going on is that 17 00:00:52,840 --> 00:00:56,120 Speaker 2: they're really taking the brunt of the pain as regards 18 00:00:56,120 --> 00:00:58,680 Speaker 2: to the big increase in tenure yields that we've seen now. 19 00:00:58,680 --> 00:01:00,560 Speaker 2: Of course, the tech stocks and the cap part of 20 00:01:00,600 --> 00:01:02,000 Speaker 2: the market are getting knocked around by. 21 00:01:01,880 --> 00:01:02,520 Speaker 3: That as well. 22 00:01:02,880 --> 00:01:05,919 Speaker 2: But small caps, it doesn't matter to how many charts 23 00:01:05,920 --> 00:01:09,200 Speaker 2: I can show people suggesting that the balance sheets are 24 00:01:09,240 --> 00:01:12,400 Speaker 2: not that bad. People simply don't want to hear it. 25 00:01:12,680 --> 00:01:14,720 Speaker 2: And there's a view that small caps are simply not 26 00:01:14,800 --> 00:01:17,040 Speaker 2: going to be able to weather the storm that's created 27 00:01:17,040 --> 00:01:19,039 Speaker 2: by the surge and interest rates, whether it's ten year 28 00:01:19,080 --> 00:01:22,280 Speaker 2: yields or fed funds. And again, I have so many charts, 29 00:01:22,319 --> 00:01:24,119 Speaker 2: Lisa that I've been showing people for the last six 30 00:01:24,160 --> 00:01:26,520 Speaker 2: months saying, hey, small caps have done a good job 31 00:01:26,520 --> 00:01:29,119 Speaker 2: of shifting towards long term debt, the variable rates down, 32 00:01:29,680 --> 00:01:32,120 Speaker 2: the weighted average maturities are really not that bad on 33 00:01:32,200 --> 00:01:34,680 Speaker 2: average about four and a half years. People simply don't 34 00:01:34,680 --> 00:01:35,480 Speaker 2: want to hear it, Lisa. 35 00:01:35,480 --> 00:01:36,240 Speaker 3: There's just been a. 36 00:01:36,200 --> 00:01:39,240 Speaker 2: Long adage that small caps don't weather higher interest rates 37 00:01:39,360 --> 00:01:40,840 Speaker 2: very well, and I think that's one of the big 38 00:01:40,880 --> 00:01:42,520 Speaker 2: reasons why they're getting punished right now. 39 00:01:42,880 --> 00:01:45,240 Speaker 4: Laurie, can you talk about sector performance within the small 40 00:01:45,240 --> 00:01:47,640 Speaker 4: caps sectors, because I do think that the sectors are 41 00:01:47,640 --> 00:01:49,840 Speaker 4: telling an interesting tale in small caps that maybe we're 42 00:01:49,880 --> 00:01:51,600 Speaker 4: not picking up in large cups. 43 00:01:52,720 --> 00:01:54,800 Speaker 2: So if you think about you know, think about it. 44 00:01:54,840 --> 00:01:58,120 Speaker 2: From evaluation perspective, I will say that most sectors in 45 00:01:58,200 --> 00:02:01,280 Speaker 2: small cap look cheap relative to their low large cap counterparts. 46 00:02:01,280 --> 00:02:03,280 Speaker 2: But where it gets really interesting is on some of 47 00:02:03,280 --> 00:02:06,240 Speaker 2: the cyclical sectors. So it's not just small cap financials 48 00:02:06,560 --> 00:02:10,120 Speaker 2: that are dragging down the rustle two thousand from evaluation perspective. 49 00:02:10,440 --> 00:02:13,799 Speaker 2: Healthy sectors from a fundamental perspective, like industrials, also look 50 00:02:13,840 --> 00:02:16,680 Speaker 2: pretty cheap relative to large cap. In the small cap space, 51 00:02:16,760 --> 00:02:20,640 Speaker 2: consumer discretionary stocks really look kind of left for dead 52 00:02:21,280 --> 00:02:24,119 Speaker 2: if you look at valuations there. They're deeply, deeply cheap, 53 00:02:24,120 --> 00:02:26,680 Speaker 2: and they were actually really down around recession type flows 54 00:02:26,720 --> 00:02:31,360 Speaker 2: last summer. So we're really seeing that pain very very widespread. 55 00:02:31,960 --> 00:02:33,959 Speaker 4: And given we are in the midst of earning season, 56 00:02:34,040 --> 00:02:36,120 Speaker 4: is there anything that you're getting out of earnings that 57 00:02:36,160 --> 00:02:38,480 Speaker 4: maybe is not getting picked up by the markets, considering 58 00:02:38,520 --> 00:02:40,760 Speaker 4: the markets are so captivatd like what's happening in these 59 00:02:40,800 --> 00:02:43,400 Speaker 4: macro indicators, So I. 60 00:02:43,360 --> 00:02:47,079 Speaker 2: Think people are really misunderstanding what's going on with inflation 61 00:02:47,240 --> 00:02:50,400 Speaker 2: moderating and what that does to companies. One of the 62 00:02:50,440 --> 00:02:52,880 Speaker 2: things that we've seen when we compare our numbers versus 63 00:02:52,919 --> 00:02:54,760 Speaker 2: the street consensus and we actually, you know, we use 64 00:02:54,760 --> 00:02:57,120 Speaker 2: the Bloomberg data to monitor the street consensus and it 65 00:02:57,160 --> 00:03:00,640 Speaker 2: does a really good job of articulating how margin expansion 66 00:03:00,680 --> 00:03:03,680 Speaker 2: is baked into a number of different sectors next year. Well, 67 00:03:03,680 --> 00:03:06,560 Speaker 2: in my modeling, we actually don't have margin expansion. We 68 00:03:06,639 --> 00:03:08,760 Speaker 2: kind of have margins going back to twenty twenty two 69 00:03:08,800 --> 00:03:10,880 Speaker 2: type levels. And one of the reasons why is that 70 00:03:10,919 --> 00:03:14,120 Speaker 2: we don't give margins a big benefit from sliding inflation. 71 00:03:14,760 --> 00:03:16,920 Speaker 2: We simply haven't seen a justification to do that in 72 00:03:16,960 --> 00:03:19,840 Speaker 2: our back test. And when you go through all the transcripts, 73 00:03:19,880 --> 00:03:22,400 Speaker 2: what we're really noticing is that companies are picking. 74 00:03:22,160 --> 00:03:22,560 Speaker 5: Up on this. 75 00:03:22,600 --> 00:03:25,760 Speaker 2: So the pricing discussion has simply gotten much much swishier, 76 00:03:26,120 --> 00:03:27,880 Speaker 2: and companies are saying it's going to be a softer 77 00:03:28,000 --> 00:03:30,200 Speaker 2: pricing environment. Of course, there are a couple that are 78 00:03:30,240 --> 00:03:33,320 Speaker 2: out there saying they're going to raise prices to infinity 79 00:03:33,360 --> 00:03:36,000 Speaker 2: and beyond. That's not really the norm here, And what 80 00:03:36,040 --> 00:03:38,560 Speaker 2: we're really seeing is that companies are acknowledging that they're 81 00:03:38,560 --> 00:03:40,600 Speaker 2: not going to have an excuse to push these prices 82 00:03:40,640 --> 00:03:44,200 Speaker 2: through as the cost environment moderates, and so we're not 83 00:03:44,600 --> 00:03:47,120 Speaker 2: going to necessarily see this big boon to margin expansion 84 00:03:47,160 --> 00:03:49,720 Speaker 2: simply from cost coming down and prices staying high. And 85 00:03:49,760 --> 00:03:51,360 Speaker 2: I think that's really what's embedded in a lot of 86 00:03:51,360 --> 00:03:52,760 Speaker 2: street assumptions for next year. 87 00:03:53,000 --> 00:03:54,600 Speaker 6: The Laurie I'd like to build on what Gina was 88 00:03:54,720 --> 00:03:58,560 Speaker 6: referring to about sectors and specifically sector dispersion amongst large 89 00:03:58,600 --> 00:04:00,480 Speaker 6: cap names, right. I mean it's usually out of ties 90 00:04:00,480 --> 00:04:02,720 Speaker 6: sturn periods of distressed I'm thinking two thousand and two 91 00:04:02,720 --> 00:04:05,480 Speaker 6: thousand and eight. Yet sector dispersion has been very high 92 00:04:05,560 --> 00:04:08,560 Speaker 6: since the pandemic started. I mean, I wonder what you 93 00:04:08,600 --> 00:04:10,360 Speaker 6: take from that. I mean, certainly we look at some 94 00:04:10,400 --> 00:04:13,120 Speaker 6: of the interest rate sensitive sectors and how they've underperformed. 95 00:04:13,160 --> 00:04:14,839 Speaker 6: I mean, is that going to continue? I mean, what's 96 00:04:14,840 --> 00:04:16,920 Speaker 6: it going to take to kind of get these correlations 97 00:04:16,920 --> 00:04:17,480 Speaker 6: the right way? 98 00:04:18,760 --> 00:04:20,720 Speaker 2: So I'll tell you Damian what I feel like I've 99 00:04:20,720 --> 00:04:23,159 Speaker 2: noticed in the sector data over the last couple of months. 100 00:04:23,160 --> 00:04:24,520 Speaker 2: And this is looking at the S and P five 101 00:04:24,600 --> 00:04:27,240 Speaker 2: hundred specifically, But it feels like anytime there's a part 102 00:04:27,240 --> 00:04:28,920 Speaker 2: of the market that gets a little bit of leadership, 103 00:04:28,960 --> 00:04:31,560 Speaker 2: it can't sustain it for that long. And I've described 104 00:04:31,560 --> 00:04:33,680 Speaker 2: it as you know, sort of this sniper that goes out. 105 00:04:33,800 --> 00:04:37,280 Speaker 2: Anything good we have just gets taken away. And we 106 00:04:37,320 --> 00:04:40,440 Speaker 2: saw you know, utilities, you know, for example, was having 107 00:04:40,520 --> 00:04:42,600 Speaker 2: a really nice moment late in the summer and then 108 00:04:42,640 --> 00:04:45,200 Speaker 2: all of a sudden, just the bottom fell out. We've 109 00:04:45,200 --> 00:04:47,799 Speaker 2: also seen energy just really kind of lose that luster, 110 00:04:48,200 --> 00:04:50,279 Speaker 2: and I think the problem is that the market is 111 00:04:50,320 --> 00:04:53,720 Speaker 2: losing confidence in any one narrative. We really can't get 112 00:04:53,720 --> 00:04:56,919 Speaker 2: a rotation going because, on the one hand, tech stocks 113 00:04:57,080 --> 00:05:00,400 Speaker 2: look expensive, they look crowded, they're earning stam it is 114 00:05:00,440 --> 00:05:02,920 Speaker 2: starting to fade, and hey, interest rates are not usually 115 00:05:02,960 --> 00:05:04,599 Speaker 2: a good thing for those stocks, so that's starting to 116 00:05:04,600 --> 00:05:06,799 Speaker 2: take a toll. But anything the market wants to rotate 117 00:05:06,800 --> 00:05:10,120 Speaker 2: into just can't seem to maintain its footing for all 118 00:05:10,160 --> 00:05:12,719 Speaker 2: that long from a fundamental perspective either. So it's just 119 00:05:12,760 --> 00:05:15,279 Speaker 2: been a real struggle, I think, both to find something 120 00:05:15,320 --> 00:05:18,080 Speaker 2: to generate intercremental excitement in the market and to really 121 00:05:18,120 --> 00:05:19,800 Speaker 2: allow that rotation to play out. 122 00:05:20,080 --> 00:05:22,640 Speaker 6: Well, Laurie, I'm so happy you managed you mentioned utilities, 123 00:05:22,640 --> 00:05:26,000 Speaker 6: because it's been utilities and consumer staples, those traditionally low beated, 124 00:05:26,040 --> 00:05:29,520 Speaker 6: defensive sectors that have underperformed. I'm wondering, you know, how 125 00:05:29,520 --> 00:05:33,040 Speaker 6: do you position defensively in today's market, so I. 126 00:05:32,960 --> 00:05:35,359 Speaker 2: Think it's very tough. I've actually got an underweight on 127 00:05:35,440 --> 00:05:39,840 Speaker 2: consumer staples. I'm neutral on utilities. I'm overweight healthcare. That 128 00:05:39,839 --> 00:05:41,960 Speaker 2: one's had a tough time getting going as well. But 129 00:05:42,080 --> 00:05:45,560 Speaker 2: to me, it's got the nicest combination of decent valuations. 130 00:05:45,800 --> 00:05:48,640 Speaker 2: At least until recently, it's had strong earnings revision trends. 131 00:05:48,680 --> 00:05:50,719 Speaker 2: We've seen the medtech space sort of take a little 132 00:05:50,760 --> 00:05:52,279 Speaker 2: bit of a hit, and there's been a concern about 133 00:05:52,279 --> 00:05:54,520 Speaker 2: the weight loss drugs that emerged. I've been trying to 134 00:05:54,560 --> 00:05:56,760 Speaker 2: tell people that happened at a time when the medtech 135 00:05:56,800 --> 00:05:59,719 Speaker 2: stocks looked like they were kind of over their skis 136 00:05:59,720 --> 00:06:02,200 Speaker 2: from earning revision perspective anyway. But if you look in 137 00:06:02,279 --> 00:06:04,720 Speaker 2: other areas like pharm a biotech, if you look at 138 00:06:04,720 --> 00:06:07,360 Speaker 2: the providers in services space, you have a really nice 139 00:06:07,440 --> 00:06:09,680 Speaker 2: kind of ramp up in earning provision trends that feels 140 00:06:09,680 --> 00:06:11,919 Speaker 2: like it has more room to run. It's not a 141 00:06:11,920 --> 00:06:14,160 Speaker 2: perfect story by any stretch, but other than the weight 142 00:06:14,240 --> 00:06:16,239 Speaker 2: loss drugs, it does feel like it has less macro 143 00:06:16,320 --> 00:06:18,000 Speaker 2: hair than say, utilities and staples. 144 00:06:18,640 --> 00:06:19,400 Speaker 3: With staples, I. 145 00:06:19,320 --> 00:06:21,160 Speaker 2: Will tell you my analyst is starting to feel a 146 00:06:21,200 --> 00:06:23,919 Speaker 2: little bit better there, just based on the fact that 147 00:06:23,960 --> 00:06:25,719 Speaker 2: we did have this big sell loss from the weight 148 00:06:25,760 --> 00:06:28,760 Speaker 2: loss drugs and valuations, I will admit to you are 149 00:06:28,760 --> 00:06:31,320 Speaker 2: pretty compelling, but I do continue to worry about that 150 00:06:31,400 --> 00:06:33,840 Speaker 2: sector from just a pricing perspective. I think it's right 151 00:06:33,880 --> 00:06:35,719 Speaker 2: at the sort of center of the storm I mentioned 152 00:06:35,960 --> 00:06:37,960 Speaker 2: in terms of not being able to pass through higher 153 00:06:37,960 --> 00:06:40,640 Speaker 2: prices for much longer. We're seeing those companies actually really 154 00:06:40,680 --> 00:06:43,000 Speaker 2: talk about how consumers are pushing back. 155 00:06:43,240 --> 00:06:45,160 Speaker 1: Laurie, What does it tell you that you can have 156 00:06:45,240 --> 00:06:47,800 Speaker 1: the right idea in terms of the solidness of a 157 00:06:47,839 --> 00:06:50,160 Speaker 1: corporate balance seat, that you can have the right idea 158 00:06:50,240 --> 00:06:54,000 Speaker 1: about historical valuation, and that investors just won't bite that 159 00:06:54,080 --> 00:06:56,760 Speaker 1: it doesn't actually work in trading practice. 160 00:06:58,360 --> 00:07:00,360 Speaker 2: I think it tells you that, you know, so, whether 161 00:07:00,440 --> 00:07:02,960 Speaker 2: it's the Middle East, whether it's interest rates, we're in 162 00:07:02,960 --> 00:07:05,600 Speaker 2: a sentiment driven market at this point in time, and 163 00:07:05,680 --> 00:07:08,680 Speaker 2: confidence is just very, very fragile. One of the things 164 00:07:08,720 --> 00:07:11,360 Speaker 2: we've talked about, Lisa a lot this year is how 165 00:07:11,720 --> 00:07:14,400 Speaker 2: twenty twenty two, twenty twenty three has felt a lot 166 00:07:14,440 --> 00:07:17,080 Speaker 2: like twenty ten, twenty eleven, and two thousand and two 167 00:07:17,160 --> 00:07:19,360 Speaker 2: two thousand and three, which were kind of messy extended 168 00:07:19,360 --> 00:07:22,640 Speaker 2: post crisis normalization periods. I lived through both of those 169 00:07:22,800 --> 00:07:25,240 Speaker 2: as a strategist, and what we saw was that confidence 170 00:07:25,360 --> 00:07:27,960 Speaker 2: was just very fragile. There was a constant fear of 171 00:07:28,000 --> 00:07:29,440 Speaker 2: the next skeleton coming out of. 172 00:07:29,440 --> 00:07:31,120 Speaker 7: The closet and blowing things up. 173 00:07:31,640 --> 00:07:35,320 Speaker 2: Constant fear of tipping into another economic downturn. And I 174 00:07:35,320 --> 00:07:38,040 Speaker 2: think that's the environment we've been in recently, and so 175 00:07:38,240 --> 00:07:41,480 Speaker 2: anytime we have issues that come up, there's just not 176 00:07:41,520 --> 00:07:45,360 Speaker 2: a lot of confidence that either companies or management teams, 177 00:07:45,400 --> 00:07:47,280 Speaker 2: or the market as a whole, or the economy is 178 00:07:47,320 --> 00:07:49,120 Speaker 2: going to be able to weather the storm. And that 179 00:07:49,200 --> 00:07:51,640 Speaker 2: kind of felt like it was easing over the summer, 180 00:07:51,640 --> 00:07:53,760 Speaker 2: but I feel like we're getting sucked right back into 181 00:07:53,800 --> 00:07:56,560 Speaker 2: that messy normalization period again where confidence is low. 182 00:07:56,720 --> 00:07:59,160 Speaker 1: Laurie Kevesy, No of RBC Capital Markets, thank you so 183 00:07:59,240 --> 00:08:06,680 Speaker 1: much for being with us. Andrew Sheets, global head of 184 00:08:06,720 --> 00:08:09,000 Speaker 1: credit research at Morgan Stanley, is going to be on 185 00:08:09,280 --> 00:08:12,120 Speaker 1: tender hooks parsing through all of this. What's most important 186 00:08:12,120 --> 00:08:12,800 Speaker 1: for you this week? 187 00:08:13,080 --> 00:08:13,400 Speaker 7: Thanks? 188 00:08:13,400 --> 00:08:15,320 Speaker 3: So. I think several things are important. 189 00:08:15,360 --> 00:08:18,360 Speaker 5: I think that confirming that the FED is pausing, and 190 00:08:18,680 --> 00:08:20,920 Speaker 5: we do think that the FED will not raise rates, 191 00:08:20,920 --> 00:08:23,680 Speaker 5: and that that can kind of further reinforce the idea 192 00:08:23,720 --> 00:08:27,160 Speaker 5: that they are done raising rates for this rate cycle, 193 00:08:27,200 --> 00:08:31,320 Speaker 5: which we think is important for generating and stabilizing bonds. 194 00:08:31,640 --> 00:08:34,440 Speaker 5: And I think the earning season remains very important. I mean, again, 195 00:08:34,480 --> 00:08:36,520 Speaker 5: you had this kind of interesting dynamic where so far 196 00:08:36,600 --> 00:08:40,840 Speaker 5: the underlying reported earnings are pretty decent, but the guidance 197 00:08:40,880 --> 00:08:43,560 Speaker 5: has been disappointing. The market's reaction to that has generally 198 00:08:43,600 --> 00:08:46,920 Speaker 5: been to punish misses pretty severely, and we've seen quite 199 00:08:46,960 --> 00:08:49,760 Speaker 5: a bit of idiosyncratic risk coming out of earnings single 200 00:08:49,800 --> 00:08:51,200 Speaker 5: stock risk, which also matters. 201 00:08:51,200 --> 00:08:52,839 Speaker 3: So those are two things that are at the top 202 00:08:52,880 --> 00:08:53,360 Speaker 3: of our list. 203 00:08:53,960 --> 00:08:55,559 Speaker 4: You also mentioned at the top of your list that 204 00:08:55,640 --> 00:09:00,000 Speaker 4: fiscal policy is key across the US, across Europe, across China. 205 00:09:00,400 --> 00:09:04,280 Speaker 4: Fiscal policy is playing an elevated role in market dynamics 206 00:09:04,360 --> 00:09:07,000 Speaker 4: this year. Tell us about your views on fiscal policy. 207 00:09:08,600 --> 00:09:11,480 Speaker 5: So, I do think the fiscal story is really interesting 208 00:09:11,640 --> 00:09:15,160 Speaker 5: one that affects the US, it affects Europe, it affects China, 209 00:09:15,760 --> 00:09:17,880 Speaker 5: and so you know, we focus on it in a 210 00:09:17,920 --> 00:09:20,320 Speaker 5: couple of ways. I mean, my colleague Chetanaya, who's are 211 00:09:20,360 --> 00:09:23,440 Speaker 5: head of Asia Economics. Yous just some great charts that 212 00:09:23,559 --> 00:09:26,280 Speaker 5: show just how much fiscal policy in China and the 213 00:09:26,400 --> 00:09:30,480 Speaker 5: US have diverged, where China's been tightening fiscal policy while 214 00:09:30,520 --> 00:09:32,959 Speaker 5: the US has been loosening it. We do think that 215 00:09:33,040 --> 00:09:35,880 Speaker 5: in order to get more bullish on China, we do 216 00:09:36,000 --> 00:09:38,640 Speaker 5: need to see a larger response, a larger fiscal response 217 00:09:38,679 --> 00:09:41,080 Speaker 5: than what we've seen so far in the US. I 218 00:09:41,080 --> 00:09:43,880 Speaker 5: think the real key is how much can the States 219 00:09:43,960 --> 00:09:46,120 Speaker 5: pick up the slack on the fiscal response side. I 220 00:09:46,120 --> 00:09:47,520 Speaker 5: think there's a lot of focus, a lot of right 221 00:09:47,559 --> 00:09:50,440 Speaker 5: focus on you know, we have these large deficits, these 222 00:09:50,520 --> 00:09:53,360 Speaker 5: unusually large deficits in the US relative the strength of 223 00:09:53,360 --> 00:09:55,880 Speaker 5: the economy. But if you go below the surface, the 224 00:09:55,920 --> 00:09:59,560 Speaker 5: state and municipality spending actually holds up pretty well on 225 00:09:59,600 --> 00:10:02,000 Speaker 5: our four pass over the next twelve months, and that 226 00:10:02,080 --> 00:10:05,520 Speaker 5: keeps we think, the US economy out of recession and stable, 227 00:10:05,600 --> 00:10:07,559 Speaker 5: even as federal spending pulls back a bit. But I 228 00:10:07,600 --> 00:10:10,440 Speaker 5: think that's also really important and really important of how 229 00:10:10,520 --> 00:10:12,960 Speaker 5: you can get a soft landing even with so much 230 00:10:12,960 --> 00:10:14,880 Speaker 5: fiscal support from the federal government. 231 00:10:14,920 --> 00:10:16,480 Speaker 3: In the rearview, mirror, and then. 232 00:10:16,320 --> 00:10:20,200 Speaker 4: How does this fiscal landscape actually impact your corporate credit strategy. 233 00:10:20,240 --> 00:10:23,320 Speaker 4: I mean, obviously, as an equity investor, we're sort of 234 00:10:23,360 --> 00:10:26,319 Speaker 4: engaged in this conversation somewhat, and there is a concern 235 00:10:26,360 --> 00:10:29,400 Speaker 4: in the equity universe that some crowding out may occur 236 00:10:29,640 --> 00:10:32,560 Speaker 4: as a result of these extraordinary deficits in high yields. 237 00:10:32,679 --> 00:10:35,080 Speaker 4: Are you seeing any evidence of that? Is the fiscal 238 00:10:35,160 --> 00:10:37,839 Speaker 4: landscape impacting your corporate strategy at this point? 239 00:10:39,440 --> 00:10:39,520 Speaker 8: So? 240 00:10:39,600 --> 00:10:42,280 Speaker 5: I think so far, ironically, you know what's been happening 241 00:10:42,320 --> 00:10:45,160 Speaker 5: on the fiscal side, as I think been helping credit, 242 00:10:45,200 --> 00:10:47,200 Speaker 5: and I think that's an absolute and a relative case. 243 00:10:47,240 --> 00:10:50,920 Speaker 5: And in absolute terms, the fiscal support at both the 244 00:10:50,960 --> 00:10:54,000 Speaker 5: federal and state level, I think as reducing the odds 245 00:10:54,040 --> 00:10:56,800 Speaker 5: of a recession, is supported the economy and that's kind. 246 00:10:56,640 --> 00:10:58,160 Speaker 3: Of obviously helpful for credit. 247 00:10:58,600 --> 00:11:01,000 Speaker 5: But I think also in a relatives I think something 248 00:11:01,040 --> 00:11:05,200 Speaker 5: that's been weighing on treasury markets has been the income. 249 00:11:05,320 --> 00:11:08,360 Speaker 5: The carry is low because the curves inverted, you get 250 00:11:08,360 --> 00:11:10,959 Speaker 5: paid more to hold T bills than extending out the curve. 251 00:11:11,360 --> 00:11:14,960 Speaker 5: And then supply has been very heavy, or expectations of 252 00:11:15,000 --> 00:11:16,400 Speaker 5: supply are high. And then if you look at the 253 00:11:16,400 --> 00:11:18,400 Speaker 5: corporate credit market, it's kind of the other way around 254 00:11:18,520 --> 00:11:21,840 Speaker 5: that the carry on corporate credit is positive, the credit 255 00:11:21,920 --> 00:11:26,280 Speaker 5: curve is positively sloped, and issuance has been really undershooting 256 00:11:26,320 --> 00:11:29,760 Speaker 5: expectations as companies, which I think have more flexibility than 257 00:11:29,800 --> 00:11:32,880 Speaker 5: the federal government to issue or not are looking at 258 00:11:32,880 --> 00:11:35,760 Speaker 5: these yields and we think are saying this is expensive borrowing. 259 00:11:35,800 --> 00:11:37,400 Speaker 5: We're going to try not to do it to the 260 00:11:37,440 --> 00:11:40,160 Speaker 5: extent we can. So you've seen less supply on the 261 00:11:40,840 --> 00:11:43,520 Speaker 5: corporate market, especially the investment grade market, which we think 262 00:11:43,600 --> 00:11:46,600 Speaker 5: is a relatively positive technical supporting that market. 263 00:11:46,800 --> 00:11:48,880 Speaker 6: Andrew, if you go back to call it late June 264 00:11:49,240 --> 00:11:51,160 Speaker 6: early July, I think you'd be hard pressed to find 265 00:11:51,200 --> 00:11:53,840 Speaker 6: one fixed income asse class that was down on the year. 266 00:11:53,880 --> 00:11:55,720 Speaker 6: But now we look at it and it's a completely 267 00:11:55,720 --> 00:11:56,720 Speaker 6: opposite pit story. 268 00:11:56,760 --> 00:11:56,960 Speaker 9: Here. 269 00:11:57,320 --> 00:11:59,520 Speaker 6: The one asset class that stands out to me that 270 00:11:59,600 --> 00:12:01,480 Speaker 6: is still up on the air as US high Yield. 271 00:12:01,520 --> 00:12:03,720 Speaker 6: I'm curious to hear your thoughts on that, what's keeping 272 00:12:03,720 --> 00:12:06,480 Speaker 6: it up and whether or not to consistain its current performance. 273 00:12:08,160 --> 00:12:09,680 Speaker 3: So that's that's a great point. 274 00:12:09,679 --> 00:12:11,840 Speaker 5: I mean, I think US Highield has been pretty remarkable 275 00:12:11,840 --> 00:12:13,880 Speaker 5: in terms of how well it's hold up on a 276 00:12:13,920 --> 00:12:16,120 Speaker 5: relative and absolute basis anything. 277 00:12:16,200 --> 00:12:16,559 Speaker 3: I think with. 278 00:12:16,559 --> 00:12:19,240 Speaker 5: Hindsight, it's been helped by the fact that yield's been rising, 279 00:12:19,280 --> 00:12:21,800 Speaker 5: and generally investors, you know, look to high yield is 280 00:12:21,800 --> 00:12:25,080 Speaker 5: actually a better performing historical sector and in rising yields 281 00:12:25,120 --> 00:12:26,200 Speaker 5: at somewhat shorter duration. 282 00:12:26,720 --> 00:12:28,479 Speaker 3: And then you've seen relatively little. 283 00:12:28,240 --> 00:12:31,360 Speaker 5: Supply out of that market, especially because it's been so 284 00:12:31,480 --> 00:12:34,800 Speaker 5: expensive for these more levered issuers, and so that's also 285 00:12:34,840 --> 00:12:37,640 Speaker 5: helped technicals. But you know, going forward, and I think 286 00:12:37,640 --> 00:12:39,880 Speaker 5: this has been a really key part you mentioned earlier 287 00:12:39,920 --> 00:12:42,160 Speaker 5: on the show. You know, you look at what's happening 288 00:12:42,160 --> 00:12:44,520 Speaker 5: at breadth in the equity market, you look at the 289 00:12:44,640 --> 00:12:47,520 Speaker 5: underperformance of small caps relative to large caps, and I 290 00:12:47,559 --> 00:12:51,040 Speaker 5: think that's still actually a relatively troubling signal for the 291 00:12:51,080 --> 00:12:53,920 Speaker 5: future performance of high yield. I think if the equity 292 00:12:53,920 --> 00:12:57,120 Speaker 5: market is saying, look, we're we're getting incrementally more cautious 293 00:12:57,200 --> 00:13:00,760 Speaker 5: on smaller, more levered, more cyclical stocks, as long as 294 00:13:00,760 --> 00:13:03,160 Speaker 5: that's happening, I think it's much it's hard to see 295 00:13:03,200 --> 00:13:08,560 Speaker 5: the catalyst to drive further compression or more compression on spreads. 296 00:13:08,600 --> 00:13:10,640 Speaker 3: So we think spreads decompressed from here. 297 00:13:10,880 --> 00:13:12,480 Speaker 5: We think that there's already a lot in the price 298 00:13:12,480 --> 00:13:15,560 Speaker 5: of high yields relative performance, even if we avoid a 299 00:13:15,559 --> 00:13:17,479 Speaker 5: recession in the US, which remains. 300 00:13:17,240 --> 00:13:17,800 Speaker 3: Our base case. 301 00:13:18,040 --> 00:13:20,480 Speaker 1: Just quickly, Andrew, how concerned are you the Japanese buyers, 302 00:13:20,480 --> 00:13:23,360 Speaker 1: in particular big corporate debt buyers in the US are 303 00:13:23,360 --> 00:13:25,640 Speaker 1: going to pull back, especially with some of the adjustments 304 00:13:25,679 --> 00:13:27,040 Speaker 1: we're expecting from the Bank of Japan. 305 00:13:28,440 --> 00:13:30,520 Speaker 3: So we think that risk so far is moderate, but 306 00:13:30,559 --> 00:13:31,600 Speaker 3: we do have to watch it. 307 00:13:31,640 --> 00:13:34,079 Speaker 5: Again that the return on a hedged basis for a 308 00:13:34,160 --> 00:13:37,040 Speaker 5: Japanese investor in the US corporate credit is not good, 309 00:13:37,120 --> 00:13:38,960 Speaker 5: so we do need to watch that. We do need 310 00:13:39,000 --> 00:13:42,600 Speaker 5: to see still if the flows on an unheedged basis continue. 311 00:13:43,040 --> 00:13:45,480 Speaker 5: Our base cases that they do, but I think that's 312 00:13:45,520 --> 00:13:47,240 Speaker 5: something subject to what we might see this week. 313 00:13:47,360 --> 00:14:01,199 Speaker 1: Andrew Sheets of Morgan Stanley, thank you. There hasn't necessarily 314 00:14:01,240 --> 00:14:05,120 Speaker 1: been the hardline escalation that some people were expecting with 315 00:14:05,200 --> 00:14:07,719 Speaker 1: the ground invasion. Joining us to understand all of this 316 00:14:07,800 --> 00:14:10,160 Speaker 1: is Elliot Akerman, someone with on the ground moots on 317 00:14:10,200 --> 00:14:13,720 Speaker 1: the ground experience in Fallujah, US Marine Corps veteran, former 318 00:14:13,760 --> 00:14:16,120 Speaker 1: White House fellow and co author of the twenty thirty 319 00:14:16,160 --> 00:14:19,400 Speaker 1: four a novel of the Next World War. I hope 320 00:14:19,400 --> 00:14:22,360 Speaker 1: we are not entering into another World War, Elliott Akerman. 321 00:14:22,400 --> 00:14:24,360 Speaker 1: I want to get your sense of what you make 322 00:14:24,440 --> 00:14:26,480 Speaker 1: around the fact that we have not seen a greater 323 00:14:26,640 --> 00:14:29,560 Speaker 1: escalation and what the chances are for that at this 324 00:14:29,680 --> 00:14:31,160 Speaker 1: point based on the measures taken. 325 00:14:33,400 --> 00:14:37,840 Speaker 9: Well, I think what we've seen is very deliberate military 326 00:14:37,920 --> 00:14:41,040 Speaker 9: movements on the part of the Israelis. I mean, pretty soon, 327 00:14:41,040 --> 00:14:43,160 Speaker 9: we're going to be a month since the October seventh 328 00:14:43,200 --> 00:14:47,240 Speaker 9: attacks and we haven't seen them rush headlong into Gaza. 329 00:14:47,320 --> 00:14:50,840 Speaker 9: And then we've also seen the United States take measures 330 00:14:50,840 --> 00:14:53,400 Speaker 9: by moving two carrier battle groups and other forces into 331 00:14:53,440 --> 00:14:57,880 Speaker 9: the Mediterranean to dissuade the Iranians or Hezbolah from coming 332 00:14:57,920 --> 00:15:02,120 Speaker 9: in from Lebanon and to the north of Israel. So 333 00:15:02,200 --> 00:15:09,480 Speaker 9: this counter offensive is playing out in a really deliberative manner, 334 00:15:09,840 --> 00:15:12,440 Speaker 9: and I think that so far we're seeing that that 335 00:15:12,600 --> 00:15:15,400 Speaker 9: is stopping this war from turning into a regional contagion. 336 00:15:16,360 --> 00:15:19,000 Speaker 4: Yet it does seem that most of the rhetoric or 337 00:15:19,200 --> 00:15:21,800 Speaker 4: statements coming out of the region, Elliott, are about the 338 00:15:21,840 --> 00:15:25,760 Speaker 4: war really continuing or at least get getting started. The 339 00:15:25,880 --> 00:15:30,480 Speaker 4: ground troops really getting busy now, which would suggest that 340 00:15:30,520 --> 00:15:33,960 Speaker 4: there's not a lot of endgame in sight. It seems 341 00:15:33,960 --> 00:15:36,200 Speaker 4: that we're getting going and the assumption is that this 342 00:15:36,240 --> 00:15:39,120 Speaker 4: is going to take some time to play out. Is 343 00:15:39,160 --> 00:15:42,960 Speaker 4: there any resolution in your mind in the near term 344 00:15:43,120 --> 00:15:45,400 Speaker 4: or is this another war that we're going to contend 345 00:15:45,440 --> 00:15:47,920 Speaker 4: with for an extended period of time and very similar 346 00:15:47,920 --> 00:15:50,560 Speaker 4: fashion to what's going on in the Ukraine. 347 00:15:52,200 --> 00:15:54,680 Speaker 9: I think there's a tendency when we look at wars 348 00:15:55,000 --> 00:15:58,360 Speaker 9: is we focus a lot on the movements of ground 349 00:15:58,400 --> 00:16:01,480 Speaker 9: troops in the real specific and that that's important, of course, 350 00:16:01,560 --> 00:16:03,840 Speaker 9: but it's also important to hold in your mind at 351 00:16:03,880 --> 00:16:05,560 Speaker 9: the same time, you know, the idea that. 352 00:16:05,520 --> 00:16:07,000 Speaker 3: War is politics. 353 00:16:07,000 --> 00:16:09,640 Speaker 9: It's politics by other means, What are the politic politics 354 00:16:09,640 --> 00:16:13,640 Speaker 9: of this situation? And this attack on October seventh was, 355 00:16:13,840 --> 00:16:16,360 Speaker 9: you know, by all accounts, launched as a counter to 356 00:16:16,880 --> 00:16:20,640 Speaker 9: the Saudis and the Israelis signing a peace deal, a 357 00:16:20,680 --> 00:16:24,600 Speaker 9: peace deal that would disempower Hamas and put Aroan in 358 00:16:24,640 --> 00:16:28,120 Speaker 9: a very difficult position in the region, and so by 359 00:16:29,120 --> 00:16:32,720 Speaker 9: basically forcing an atrocity on the Israelis, Hamas forces an 360 00:16:32,840 --> 00:16:37,000 Speaker 9: Israeli response that causes that peace deal to collapse. So 361 00:16:37,040 --> 00:16:39,800 Speaker 9: that's what we're seeing right now. So this kind of 362 00:16:40,080 --> 00:16:42,920 Speaker 9: poses an obvious question, which is who is the party 363 00:16:42,960 --> 00:16:44,960 Speaker 9: that actually has the leverage at this point. You know, 364 00:16:45,120 --> 00:16:46,800 Speaker 9: Israel doesn't have a ton of leverage because they have 365 00:16:46,840 --> 00:16:49,920 Speaker 9: to respond Hamas is waiting for that response. I would 366 00:16:49,920 --> 00:16:52,480 Speaker 9: say the people who have the most leverage right now 367 00:16:52,640 --> 00:16:55,240 Speaker 9: are the Saudis. You know, if the Saudis were to 368 00:16:55,280 --> 00:16:59,640 Speaker 9: turn around and start renegotiating this peace deal at any point, 369 00:17:00,120 --> 00:17:02,200 Speaker 9: it takes away all of the leverage that Hamas and 370 00:17:02,200 --> 00:17:04,359 Speaker 9: Iran have created. And I think we have to as 371 00:17:04,400 --> 00:17:06,639 Speaker 9: much as where you know, there's a lot of discussion 372 00:17:07,000 --> 00:17:10,480 Speaker 9: about the fatigue that the world is going to have 373 00:17:10,600 --> 00:17:13,919 Speaker 9: when we start seeing the Israeli military operating in Gaza 374 00:17:13,960 --> 00:17:16,679 Speaker 9: and the civilian death toll. I think there's also some 375 00:17:16,800 --> 00:17:20,200 Speaker 9: fatigue that the Arab world probably has with the Palestinian question, 376 00:17:20,400 --> 00:17:23,400 Speaker 9: particularly in the context in which Hamas is inflaming tensions 377 00:17:23,560 --> 00:17:28,280 Speaker 9: and could we see possibly a peace resumed out of 378 00:17:28,320 --> 00:17:30,240 Speaker 9: the Arab world on this question. 379 00:17:30,480 --> 00:17:33,679 Speaker 6: Elliott, your former marine five tours of duty in Iraq 380 00:17:33,720 --> 00:17:36,040 Speaker 6: and Afghanistan. The one question I have for you is 381 00:17:36,520 --> 00:17:40,640 Speaker 6: these tunnels underneath Gaza. How do you infiltrate these tunnels? 382 00:17:40,680 --> 00:17:42,760 Speaker 6: I mean, what does that look like? I mean, I'm 383 00:17:42,800 --> 00:17:45,119 Speaker 6: just curious, like, is there any precedent for that? 384 00:17:47,840 --> 00:17:50,479 Speaker 9: Well, I mean there is historical precedents for that, But 385 00:17:51,000 --> 00:17:55,199 Speaker 9: I can't emphasize enough just how challenging that operating environment is. 386 00:17:55,760 --> 00:17:58,480 Speaker 9: You know, a major urban center is the worst place 387 00:17:58,520 --> 00:18:02,199 Speaker 9: that you want to be fighting. The closest analogy I 388 00:18:02,200 --> 00:18:05,119 Speaker 9: can come up with based off of my experiences in Fallujahs, 389 00:18:05,359 --> 00:18:07,560 Speaker 9: it's like being in a knife fight in the phone booth. 390 00:18:08,080 --> 00:18:10,960 Speaker 9: Everything happens at very close quarters and very very quickly, 391 00:18:11,400 --> 00:18:14,320 Speaker 9: and many of the high tech weapons systems that armies 392 00:18:14,400 --> 00:18:17,280 Speaker 9: like ours and like the Israelis Army are invested in 393 00:18:17,960 --> 00:18:19,720 Speaker 9: they become much less. 394 00:18:19,560 --> 00:18:21,919 Speaker 3: Effective because of the close quarters natures of the fighting. 395 00:18:22,320 --> 00:18:26,160 Speaker 9: And these tunnels make it extremely complicated for the Israelis 396 00:18:26,160 --> 00:18:28,600 Speaker 9: because they have to go in, they have to map 397 00:18:28,640 --> 00:18:31,120 Speaker 9: out these tunnels, figure out where they are, and you also. 398 00:18:30,920 --> 00:18:32,760 Speaker 3: Have hostages that are being held with these tunnels. 399 00:18:33,000 --> 00:18:35,879 Speaker 9: So at the tactical level, you couldn't have posed a 400 00:18:35,920 --> 00:18:39,040 Speaker 9: more challenging problem to the Israeli military. I don't believe 401 00:18:39,040 --> 00:18:41,640 Speaker 9: it's insurmountable, but it's going to make it very, very 402 00:18:41,680 --> 00:18:45,160 Speaker 9: slow going, and it forces them to act extremely deliberatively, 403 00:18:45,320 --> 00:18:46,760 Speaker 9: which I think we've seen so far. 404 00:18:46,920 --> 00:18:49,320 Speaker 1: Well, you said that it's not insurmountable, and I want 405 00:18:49,320 --> 00:18:51,560 Speaker 1: to really develop that point a little bit because there 406 00:18:51,560 --> 00:18:53,440 Speaker 1: are a lot of people saying, what does it mean 407 00:18:53,480 --> 00:18:56,720 Speaker 1: to beat Hamas ken Israel win this war? What does 408 00:18:56,760 --> 00:18:59,040 Speaker 1: winning look like? From your vantage point? What does winning 409 00:18:59,080 --> 00:18:59,520 Speaker 1: look like? 410 00:19:01,720 --> 00:19:05,399 Speaker 9: Again? I think winning at least is the Israelis have 411 00:19:05,440 --> 00:19:09,720 Speaker 9: defined it is the destruction of Hamas and then some 412 00:19:10,040 --> 00:19:16,040 Speaker 9: normalization or stasis in security in the region so Israelis 413 00:19:16,080 --> 00:19:18,680 Speaker 9: can continue to live in all parts of Israel and 414 00:19:18,800 --> 00:19:22,720 Speaker 9: southern Israel in particular. Now, when it comes to destroying Hamas, 415 00:19:23,040 --> 00:19:24,600 Speaker 9: you know that is you know it's going to take 416 00:19:24,640 --> 00:19:27,359 Speaker 9: some work, but that is tactically viable. I think the 417 00:19:27,480 --> 00:19:30,479 Speaker 9: question is now, what do you do in Gaza? And 418 00:19:30,520 --> 00:19:33,320 Speaker 9: do you face a protracted insurgency in Gaza? And I 419 00:19:33,320 --> 00:19:35,760 Speaker 9: think when it comes to this idea of normalizing relations 420 00:19:35,800 --> 00:19:37,920 Speaker 9: in the region, that's when we start to get into 421 00:19:38,000 --> 00:19:42,520 Speaker 9: questions of diplomacy. You can Israel and can Arab partners 422 00:19:42,600 --> 00:19:46,919 Speaker 9: negotiate with whatever the inheritors are of Hamas. Whatever that 423 00:19:46,960 --> 00:19:51,000 Speaker 9: palaestin and the authority is to create stability in the region. 424 00:19:51,080 --> 00:19:53,840 Speaker 9: We haven't gotten there yet. But again, you know what 425 00:19:53,880 --> 00:19:56,840 Speaker 9: I'm seeing is we shouldn't underestimate the fatigue that also 426 00:19:56,960 --> 00:19:59,520 Speaker 9: exists in the Arab world with this conflict, because it 427 00:19:59,520 --> 00:20:03,080 Speaker 9: seems that the war was predicated on Hamas blowing up 428 00:20:03,160 --> 00:20:05,240 Speaker 9: the best chance for peace that it ever existed. 429 00:20:05,720 --> 00:20:08,240 Speaker 1: You talked about how Saudi Arabia arguably has the most 430 00:20:08,320 --> 00:20:10,600 Speaker 1: leverage in all of this. We do have a Saudi 431 00:20:10,640 --> 00:20:15,240 Speaker 1: official coming to Washington, I believe this week Axios was reporting. 432 00:20:15,359 --> 00:20:18,840 Speaker 1: I'm wondering what the goal is among some of the 433 00:20:18,880 --> 00:20:21,840 Speaker 1: Arab nations that have the leverage, have the power. I'm thinking, yes, 434 00:20:21,880 --> 00:20:24,639 Speaker 1: Saudi Arabia, but also maybe to a lesser extent cutter 435 00:20:24,800 --> 00:20:27,840 Speaker 1: and also the United Arab Emirates. What do they want? 436 00:20:30,280 --> 00:20:33,840 Speaker 9: I think they want to live in a region that 437 00:20:34,080 --> 00:20:38,600 Speaker 9: isn't played by this systemic war in Israel between the 438 00:20:38,680 --> 00:20:44,160 Speaker 9: Israelis and the Palestinians, to allow peace to finally break 439 00:20:44,200 --> 00:20:45,840 Speaker 9: out in the Middle East, and to live in a 440 00:20:45,880 --> 00:20:48,080 Speaker 9: region in the world that isn't When it's spoken the 441 00:20:48,320 --> 00:20:51,800 Speaker 9: Middle East, we don't immediately think conflict war in a 442 00:20:51,800 --> 00:20:54,520 Speaker 9: place where security isn't assured, that maybe the Middle East 443 00:20:54,520 --> 00:20:56,919 Speaker 9: can start to look a little bit more like Western Europe. 444 00:20:56,960 --> 00:20:59,200 Speaker 9: I think that is probably what they want. I think 445 00:20:59,240 --> 00:21:02,480 Speaker 9: that's what everybody wants. And again, I think we shouldn't 446 00:21:02,520 --> 00:21:05,600 Speaker 9: underestimate the fatigue that exists on all sides of this conflict. 447 00:21:05,800 --> 00:21:08,439 Speaker 1: Just twenty seconds. Do you think that their goal is 448 00:21:08,480 --> 00:21:10,440 Speaker 1: for Israel to survive or not to survive? 449 00:21:12,359 --> 00:21:15,399 Speaker 9: I think their goal is for Israel to survive, Elliott. 450 00:21:15,400 --> 00:21:17,200 Speaker 9: I think it's I think it's difficult for them to 451 00:21:17,240 --> 00:21:18,239 Speaker 9: say that, but yes I do. 452 00:21:18,440 --> 00:21:21,160 Speaker 1: Elliot Ackerman, thank you so much for taking the time 453 00:21:25,840 --> 00:21:28,359 Speaker 1: joining us now. Terry Haynes, founder of Pangea Policy, I 454 00:21:28,359 --> 00:21:31,000 Speaker 1: want to start with Mike Johnson what we heard out 455 00:21:31,040 --> 00:21:33,879 Speaker 1: of him over the weekend. How surprised were you to 456 00:21:33,920 --> 00:21:36,320 Speaker 1: hear some of his points that sound very much like 457 00:21:36,320 --> 00:21:38,240 Speaker 1: a playbook that comes for another time. 458 00:21:39,280 --> 00:21:41,520 Speaker 10: Well, I wasn't a bit surprised. Acshually, I've been writing 459 00:21:41,520 --> 00:21:47,000 Speaker 10: for markets for weeks that the strategy that would get 460 00:21:47,040 --> 00:21:51,399 Speaker 10: pursued is, you know, breaking all these pieces apart instead 461 00:21:51,400 --> 00:21:53,520 Speaker 10: of have you know, instead of Biden's idea that they 462 00:21:53,560 --> 00:21:57,719 Speaker 10: should all be rolled up together. I think what markets 463 00:21:57,720 --> 00:22:00,840 Speaker 10: ought to notice too, though, is what Johnson doesn't say. 464 00:22:01,080 --> 00:22:05,640 Speaker 10: What Johnson doesn't say is he's four square against Ukraine Aid. 465 00:22:05,800 --> 00:22:08,960 Speaker 10: Ukraine Aid shouldn't happen. That it won't happen, none of 466 00:22:09,000 --> 00:22:09,600 Speaker 10: those things. 467 00:22:10,240 --> 00:22:11,520 Speaker 7: You know. What we've got here. 468 00:22:11,680 --> 00:22:14,600 Speaker 10: What I was always fearful about, and I think is 469 00:22:14,640 --> 00:22:17,760 Speaker 10: coming true, is that this is going to become a 470 00:22:17,880 --> 00:22:21,159 Speaker 10: fight about how all these things get done, these things 471 00:22:21,200 --> 00:22:28,000 Speaker 10: being Israeli Ukraine aid, border security enhancements, and that's going 472 00:22:28,040 --> 00:22:29,800 Speaker 10: to take up most of the rest of the year. 473 00:22:29,840 --> 00:22:31,640 Speaker 7: But I do think they all get done in the end. 474 00:22:32,400 --> 00:22:35,160 Speaker 4: So they get done. We continue to fund or support 475 00:22:35,200 --> 00:22:39,800 Speaker 4: these two wars. Where do we cut spending in order 476 00:22:39,800 --> 00:22:41,360 Speaker 4: to accommodate them. 477 00:22:41,800 --> 00:22:46,760 Speaker 7: Well, we don't. Bottom line, we don't. You know. 478 00:22:46,840 --> 00:22:50,879 Speaker 10: The good news and the bad news is really is 479 00:22:50,920 --> 00:22:55,680 Speaker 10: that on book spending has really been consistent for the 480 00:22:55,760 --> 00:22:59,560 Speaker 10: last decade plus, off book spending in our commitments, you know, 481 00:22:59,560 --> 00:23:02,040 Speaker 10: whether it be to housing or to you A variety 482 00:23:02,040 --> 00:23:04,440 Speaker 10: of other things that are kind of under the under 483 00:23:04,640 --> 00:23:08,040 Speaker 10: the line continue to balloon. And that's a big problem. 484 00:23:08,640 --> 00:23:11,880 Speaker 10: Washington has not yet gotten the memo from the markets 485 00:23:11,920 --> 00:23:14,000 Speaker 10: that that that the markets, for the first time in 486 00:23:14,080 --> 00:23:18,080 Speaker 10: forty years, are very concerned about rising debt, rising deficit, 487 00:23:18,440 --> 00:23:21,840 Speaker 10: and rising US fiscal spending. There isn't a politician in 488 00:23:21,920 --> 00:23:26,080 Speaker 10: Washington other than Biden himself that's ever heard markets be 489 00:23:26,160 --> 00:23:28,600 Speaker 10: concerned about that. And you know, Biden's not in a 490 00:23:28,600 --> 00:23:30,720 Speaker 10: position to care or do anything about it because he's 491 00:23:30,720 --> 00:23:33,919 Speaker 10: beholden to his left wing who think that endless spending 492 00:23:33,920 --> 00:23:34,960 Speaker 10: it is the right idea. 493 00:23:35,480 --> 00:23:37,960 Speaker 4: Okay, so we keep spending. What about with China. There's 494 00:23:37,960 --> 00:23:40,280 Speaker 4: a lot happening with China this week, which is interesting 495 00:23:40,359 --> 00:23:43,639 Speaker 4: considering so much happening geopolitically around the world, and yet 496 00:23:44,240 --> 00:23:46,919 Speaker 4: China Taiwan is lingering in the background. Tell us your 497 00:23:47,000 --> 00:23:49,640 Speaker 4: views on what's happening with China? Is their meaning behind 498 00:23:49,720 --> 00:23:51,280 Speaker 4: the meetings this week that we should be. 499 00:23:51,280 --> 00:23:54,080 Speaker 10: Reading into, well, Gina, as you know very well, the 500 00:23:54,560 --> 00:23:57,880 Speaker 10: you know, every time the markets here anything good from 501 00:23:57,880 --> 00:24:01,439 Speaker 10: a US China perspective, and the a one is the 502 00:24:01,440 --> 00:24:05,200 Speaker 10: prospect that Biden and President Ju Chiming might might meet 503 00:24:05,720 --> 00:24:06,120 Speaker 10: on the. 504 00:24:06,000 --> 00:24:08,399 Speaker 7: Sidelines of the APEC meeting next month. 505 00:24:08,720 --> 00:24:09,000 Speaker 4: Uh. 506 00:24:09,280 --> 00:24:11,360 Speaker 10: You know, the markets think this is a good thing, 507 00:24:11,760 --> 00:24:16,080 Speaker 10: you know, but in reality, what they've been very China 508 00:24:16,080 --> 00:24:20,280 Speaker 10: has been very blunt about is really through the National 509 00:24:20,320 --> 00:24:23,919 Speaker 10: Security Law, through kicking a lot of Western accountants out, UH, 510 00:24:24,119 --> 00:24:27,960 Speaker 10: now through UH providing through a conference this week more 511 00:24:28,280 --> 00:24:31,720 Speaker 10: evidence of state control in a variety of areas in 512 00:24:31,840 --> 00:24:36,080 Speaker 10: financial services. UH is a world that you know, as 513 00:24:36,160 --> 00:24:37,960 Speaker 10: you all talked about in the last hour or so, 514 00:24:38,760 --> 00:24:43,360 Speaker 10: where China looks increasingly uninvestable, and so I think the UH, 515 00:24:44,119 --> 00:24:45,840 Speaker 10: you know, they've kind of the cats out of the 516 00:24:45,880 --> 00:24:48,000 Speaker 10: bag on China, and even markets are starting to figure 517 00:24:48,040 --> 00:24:51,120 Speaker 10: out that that there's not going to be any kind 518 00:24:51,119 --> 00:24:54,879 Speaker 10: of long term rapprochmont between the US and China. The 519 00:24:54,920 --> 00:24:58,640 Speaker 10: best we're going to get is a situation where the 520 00:24:58,720 --> 00:25:02,440 Speaker 10: where the competitor and the clashers understand each other well 521 00:25:02,560 --> 00:25:07,200 Speaker 10: enough not to take the next step into a rising 522 00:25:07,280 --> 00:25:09,120 Speaker 10: yet again geopolitical risk. 523 00:25:09,800 --> 00:25:13,240 Speaker 6: Terry former Vice President Penance pulled out of the twenty 524 00:25:13,280 --> 00:25:16,560 Speaker 6: twenty four election this past weekend. You know, Trump leads 525 00:25:16,680 --> 00:25:18,639 Speaker 6: the polling in some of these early states. I mean, 526 00:25:18,640 --> 00:25:21,000 Speaker 6: it's still early days, obviously, but I mean I'm curious, 527 00:25:21,160 --> 00:25:23,720 Speaker 6: do you believe we're past peak Trump? Is there anyone 528 00:25:23,800 --> 00:25:25,880 Speaker 6: else in the GOP who can even make a run 529 00:25:25,920 --> 00:25:26,240 Speaker 6: at him. 530 00:25:27,200 --> 00:25:30,400 Speaker 10: Well, you know, I'll stick to my earlier views that 531 00:25:30,680 --> 00:25:32,880 Speaker 10: I think we're a little past peakd Trump. What you've 532 00:25:32,920 --> 00:25:35,720 Speaker 10: got in the early primary states, Damien, is a situation 533 00:25:35,800 --> 00:25:39,000 Speaker 10: where you know, the polls right now are basically fifty 534 00:25:39,040 --> 00:25:41,560 Speaker 10: percent or in favor of Trump, which means fifty percenter 535 00:25:41,600 --> 00:25:45,320 Speaker 10: against him. You probe into the Trump support a little 536 00:25:45,359 --> 00:25:47,679 Speaker 10: bit more, and you've got another quarter to a half 537 00:25:47,880 --> 00:25:50,480 Speaker 10: who can be convinced otherwise. And as you point out, 538 00:25:50,480 --> 00:25:53,080 Speaker 10: it is very early days. We've got, you know, basically 539 00:25:53,119 --> 00:25:55,280 Speaker 10: two and a half months before the first almost a 540 00:25:55,359 --> 00:25:58,879 Speaker 10: quarter of a year before the first primary season. So 541 00:25:59,119 --> 00:26:02,720 Speaker 10: you know, my advice to markets is really twofold one, 542 00:26:05,240 --> 00:26:07,159 Speaker 10: stay cool on this till after the first of the 543 00:26:07,200 --> 00:26:09,159 Speaker 10: year when you have some idea of what's going on. 544 00:26:09,320 --> 00:26:11,800 Speaker 10: Number one, number two. I think what you do see 545 00:26:11,800 --> 00:26:16,639 Speaker 10: as a continued winnowing down of the competitors. We're already 546 00:26:16,640 --> 00:26:19,679 Speaker 10: basically down to three. We're down to Hayley, DeSantis and 547 00:26:19,720 --> 00:26:23,520 Speaker 10: Tim Scott as the leading challengers. Pence understood he wasn't 548 00:26:23,560 --> 00:26:28,080 Speaker 10: part of that, so he's very honorably bowing out early. 549 00:26:28,760 --> 00:26:30,239 Speaker 10: But what you're going to get, I think is a 550 00:26:30,240 --> 00:26:34,520 Speaker 10: consolidation that happens earlier and provides a much more unexpected 551 00:26:34,560 --> 00:26:38,560 Speaker 10: from markets perspective challenge to Trump than is now thought. 552 00:26:39,000 --> 00:26:40,960 Speaker 6: Terry Mike Johnson is Speaker of the House, but is 553 00:26:41,000 --> 00:26:43,760 Speaker 6: he the leading voice for House Republicans? And you know 554 00:26:43,880 --> 00:26:45,479 Speaker 6: where I'm going with this, right, I mean, you've got 555 00:26:45,480 --> 00:26:48,240 Speaker 6: Scalise emor Jordan. I mean, what happens to these to 556 00:26:48,320 --> 00:26:51,600 Speaker 6: these gentlemen after their unsuccessful runs for Speaker of the House. 557 00:26:52,480 --> 00:26:56,280 Speaker 10: You know, people people tend to view position new people 558 00:26:56,280 --> 00:26:58,639 Speaker 10: in positions based on the people that were already there, 559 00:26:58,720 --> 00:27:02,480 Speaker 10: So Mark, they're very used to that this strong speaker model, 560 00:27:02,560 --> 00:27:05,719 Speaker 10: this kind of super majority leader position, whether it be 561 00:27:06,080 --> 00:27:09,280 Speaker 10: Nancy Pelosi or McCarthy or you know, John Bayne or 562 00:27:09,280 --> 00:27:12,800 Speaker 10: somebody else. In reality, what you've got with Johnson as 563 00:27:12,840 --> 00:27:20,560 Speaker 10: a situation where the party regulars Scalise Emmer Jordan are 564 00:27:20,600 --> 00:27:23,480 Speaker 10: more empowered now than they were before and they're really 565 00:27:23,520 --> 00:27:26,280 Speaker 10: going to be leading the party much more than Johnson. 566 00:27:26,720 --> 00:27:30,160 Speaker 10: That said, you know, one of the things Johnson also 567 00:27:30,240 --> 00:27:34,240 Speaker 10: said on the Sunday shows, which bears underscoring, is that 568 00:27:34,600 --> 00:27:37,600 Speaker 10: you know, they're looking much more seriously at extending government 569 00:27:37,600 --> 00:27:40,360 Speaker 10: funding beyond November seventeenth than they would have been, say 570 00:27:40,359 --> 00:27:43,680 Speaker 10: a month ago. So you know, so I have accordingly 571 00:27:44,119 --> 00:27:47,040 Speaker 10: put my own odds back down to about forty percent. 572 00:27:47,080 --> 00:27:49,520 Speaker 10: But I think the political situation's volt and I'll be 573 00:27:49,560 --> 00:27:52,560 Speaker 10: ready to put him back up again, you know, if 574 00:27:52,600 --> 00:27:55,160 Speaker 10: and when the Republicans fall apart. 575 00:27:55,040 --> 00:27:57,320 Speaker 1: Just quickly. Here we're talking about the Republican side and 576 00:27:57,760 --> 00:28:01,240 Speaker 1: the nominees for the election. Why was Gavin Newsom in. 577 00:28:01,280 --> 00:28:10,680 Speaker 10: China ostensibly to talk about economic ties and all the rest. 578 00:28:10,800 --> 00:28:12,520 Speaker 10: Really what he's doing is trying to do what he 579 00:28:12,560 --> 00:28:15,879 Speaker 10: can to burnish his foreign policy chops. You know, there's 580 00:28:15,920 --> 00:28:19,359 Speaker 10: a lot of sharks in the water now, and wouldn't 581 00:28:19,359 --> 00:28:21,639 Speaker 10: surprise me if Biden's feeling like a ramorra a little 582 00:28:21,640 --> 00:28:26,240 Speaker 10: bit and should they falter. And you saw evidence of 583 00:28:26,280 --> 00:28:30,600 Speaker 10: that even with Vice President Harris' sixty minutes interview last night. 584 00:28:31,400 --> 00:28:33,600 Speaker 10: But you know, Newsom wants to put him out out 585 00:28:33,600 --> 00:28:36,240 Speaker 10: there as the alternative, himself out there was the alternative. 586 00:28:36,320 --> 00:28:38,720 Speaker 10: Republicans would love that, because Newsom wouldn't get a vote 587 00:28:38,720 --> 00:28:40,480 Speaker 10: outside the solidly blue states. 588 00:28:40,760 --> 00:28:54,000 Speaker 1: Terry Haynes and PANGEA Policy, thank you so much. Joining 589 00:28:54,080 --> 00:28:57,000 Speaker 1: us now is Tiffany Wilding, economist and managing director at PIMCO. 590 00:28:57,160 --> 00:28:59,280 Speaker 1: So glad to have you on the show. We were 591 00:28:59,320 --> 00:29:02,040 Speaker 1: talking earlier and Gina made this great point about how 592 00:29:02,040 --> 00:29:04,400 Speaker 1: she thinks the pain trade is actually to the upside 593 00:29:04,560 --> 00:29:07,600 Speaker 1: in equity markets. Things go better than expected, earning's coming 594 00:29:07,640 --> 00:29:11,720 Speaker 1: stronger than expected. Is it the same with economic projections 595 00:29:11,800 --> 00:29:14,880 Speaker 1: that the economy, if it reaccelerates, that's almost the pain 596 00:29:14,960 --> 00:29:17,640 Speaker 1: trade right now, given more people are situated. 597 00:29:19,280 --> 00:29:21,479 Speaker 8: Yeah, I mean, I think some of that has been 598 00:29:21,520 --> 00:29:25,080 Speaker 8: quote priced into the economics, communities forecasts. I mean, you 599 00:29:25,120 --> 00:29:29,640 Speaker 8: saw many economists that were penciling in a recession earlier 600 00:29:29,720 --> 00:29:31,800 Speaker 8: in the year, you know, and obviously if you look 601 00:29:31,800 --> 00:29:34,000 Speaker 8: at the consensus numbers, those have come up. I mean, 602 00:29:34,040 --> 00:29:37,040 Speaker 8: certainly that can continue. And it's definitely been a risk 603 00:29:37,120 --> 00:29:39,600 Speaker 8: that we've been highlighting as well, you know, in particular 604 00:29:39,680 --> 00:29:43,280 Speaker 8: the consumer. You know, it's certainly possible the consumer remains strong. 605 00:29:43,320 --> 00:29:47,640 Speaker 8: The consumer did basically re accelerate their you know, their 606 00:29:47,920 --> 00:29:50,200 Speaker 8: consumption and their purchases into the back half of this year. 607 00:29:50,560 --> 00:29:52,920 Speaker 8: You know, it's a question of how interest rate sensitive 608 00:29:52,920 --> 00:29:55,200 Speaker 8: the consumer is, and it's proving to be not that 609 00:29:55,360 --> 00:29:57,080 Speaker 8: interest rate sensitive right now. 610 00:29:57,200 --> 00:29:59,840 Speaker 1: Which raises a question also, Tiffany, what's the connection between 611 00:30:00,000 --> 00:30:04,120 Speaker 1: growth and inflation. Is there a sense that if growth accelerates, 612 00:30:04,160 --> 00:30:06,320 Speaker 1: you can still see the disinflation continue that we've seen 613 00:30:06,360 --> 00:30:07,040 Speaker 1: so far this year. 614 00:30:08,560 --> 00:30:10,120 Speaker 8: Yeah, I mean, so this has been a point that 615 00:30:10,160 --> 00:30:13,360 Speaker 8: we've been trying to really hammer home, which is that 616 00:30:13,960 --> 00:30:17,840 Speaker 8: it really, you know, there'll be some continued disinflation as 617 00:30:17,880 --> 00:30:20,200 Speaker 8: a result of you know, the fact that you're still 618 00:30:20,240 --> 00:30:22,720 Speaker 8: getting you know, the product market side of the economy, 619 00:30:22,760 --> 00:30:25,200 Speaker 8: so the side of the economy that was impacted by 620 00:30:25,200 --> 00:30:27,320 Speaker 8: some of these supply chain snags. You're still getting some 621 00:30:27,360 --> 00:30:31,400 Speaker 8: normalization there, but labor markets are incredibly tight, and you 622 00:30:31,480 --> 00:30:35,240 Speaker 8: are still seeing a pretty decent amount of nominal income 623 00:30:35,280 --> 00:30:38,480 Speaker 8: growth as a result of that labor market improvement. And so, 624 00:30:38,800 --> 00:30:41,280 Speaker 8: you know, we think you probably still need some labor 625 00:30:41,320 --> 00:30:43,800 Speaker 8: market softening in order to just get inflation, you know, 626 00:30:43,880 --> 00:30:45,520 Speaker 8: kind of more truly back down to target. 627 00:30:45,760 --> 00:30:46,000 Speaker 3: Yeah. 628 00:30:46,040 --> 00:30:48,120 Speaker 8: So if you have an economy that's reaccelerating in a 629 00:30:48,200 --> 00:30:52,320 Speaker 8: labor market that's strong, you know you should this services 630 00:30:52,800 --> 00:30:55,600 Speaker 8: X shelter kinds of metrics that the FED is looking at, 631 00:30:55,840 --> 00:30:57,880 Speaker 8: those probably will start to re accelerate. 632 00:30:58,480 --> 00:31:01,640 Speaker 4: Tiffany, what is the most important economic indicator you're watching 633 00:31:01,680 --> 00:31:02,080 Speaker 4: this week. 634 00:31:04,840 --> 00:31:07,400 Speaker 8: You know, obviously the jobs number, you know, is going 635 00:31:07,400 --> 00:31:09,240 Speaker 8: to be incredibly important. You know. Now there's going to 636 00:31:09,240 --> 00:31:11,760 Speaker 8: be some noise around that because there is some strike activity. 637 00:31:12,400 --> 00:31:14,480 Speaker 8: But I think you know, everybody's trying to figure out 638 00:31:14,560 --> 00:31:17,520 Speaker 8: what the underlying trend in the labor market is. You know, 639 00:31:17,560 --> 00:31:19,720 Speaker 8: and as I mentioned, you know, if growth, so the 640 00:31:19,720 --> 00:31:23,120 Speaker 8: FED or Reserve needs to target growth that's under potential. 641 00:31:23,480 --> 00:31:25,520 Speaker 8: So that call it like around one percent is what 642 00:31:25,520 --> 00:31:27,640 Speaker 8: the FED is opening to target in order to cool 643 00:31:27,680 --> 00:31:30,480 Speaker 8: the labor market off. You know, growth right now looks 644 00:31:30,480 --> 00:31:31,960 Speaker 8: like it's running at two and a half three, so 645 00:31:32,000 --> 00:31:34,880 Speaker 8: it is well above that, which suggests the labor market 646 00:31:34,920 --> 00:31:37,480 Speaker 8: is going to remain strong, you know, so well, you know, 647 00:31:37,520 --> 00:31:40,520 Speaker 8: obviously we'll be looking at that. The wage number within 648 00:31:40,560 --> 00:31:42,719 Speaker 8: the labor market report is obviously going to be very 649 00:31:42,760 --> 00:31:45,440 Speaker 8: important as well. But overall, you know, we've said, if 650 00:31:45,440 --> 00:31:48,280 Speaker 8: the data flow continues to be as strong as it 651 00:31:48,360 --> 00:31:52,080 Speaker 8: was in September, you know, certainly the FED is probably 652 00:31:52,120 --> 00:31:55,640 Speaker 8: going to want to keep its options open to hike more. 653 00:31:55,920 --> 00:31:58,400 Speaker 8: We think the SEP could maybe even take out cuts 654 00:31:58,920 --> 00:32:01,400 Speaker 8: for twenty twenty four just to try to keep those 655 00:32:01,440 --> 00:32:02,520 Speaker 8: financial conditions tight. 656 00:32:03,280 --> 00:32:05,200 Speaker 4: And where do you think this? What is the impact 657 00:32:05,240 --> 00:32:08,320 Speaker 4: on financial prices? Then, so you've got the Fed likely 658 00:32:08,440 --> 00:32:12,360 Speaker 4: to pause, You've got data still coming in reasonably strong. 659 00:32:12,480 --> 00:32:14,720 Speaker 4: What are financial markets to do with this kind of data? 660 00:32:16,600 --> 00:32:19,120 Speaker 8: Well, you know, I think, you know, obviously, kind of 661 00:32:19,200 --> 00:32:21,480 Speaker 8: good news should be bad news in some sense, right, 662 00:32:21,520 --> 00:32:24,280 Speaker 8: because the Federal Reserve is trying to cool off the economy, 663 00:32:24,760 --> 00:32:26,960 Speaker 8: and ultimately the way they do that is through tighter 664 00:32:27,000 --> 00:32:30,360 Speaker 8: financial conditions, and whether that's you know, higher interest rates 665 00:32:30,440 --> 00:32:33,200 Speaker 8: or you know, a decline in equities, you know, maybe 666 00:32:33,200 --> 00:32:36,600 Speaker 8: wider credit spreads, all of those things. You know, that's 667 00:32:36,600 --> 00:32:38,280 Speaker 8: how you cool off the economy. And so if the 668 00:32:38,280 --> 00:32:41,040 Speaker 8: economy remains strong, you know, then that's what we need 669 00:32:41,080 --> 00:32:43,640 Speaker 8: more pricing like that in order to cool things off. 670 00:32:44,160 --> 00:32:45,920 Speaker 6: Tiffany, there's been a lot of focus on the quarterly 671 00:32:45,960 --> 00:32:49,280 Speaker 6: refinancing announcement. You know, my question for you is a 672 00:32:49,280 --> 00:32:52,640 Speaker 6: simple one. Is the supply story in US treasuries already 673 00:32:52,640 --> 00:32:53,600 Speaker 6: reflected in the price? 674 00:32:55,200 --> 00:32:57,000 Speaker 8: Yeah? I mean I think this is a key question, 675 00:32:57,080 --> 00:32:59,320 Speaker 8: you know. Now, I think it's actually broader than the refunding. 676 00:32:59,360 --> 00:33:02,400 Speaker 8: I mean, clearly Treasury has had a big refunding need. 677 00:33:02,680 --> 00:33:05,560 Speaker 8: You know, they've been trying to increase coupons, you know, 678 00:33:05,600 --> 00:33:07,520 Speaker 8: as a result of the fact that you know, they 679 00:33:07,560 --> 00:33:09,840 Speaker 8: have this bigger need and they were really ramping up bills. 680 00:33:09,840 --> 00:33:12,440 Speaker 8: Now they're moving into coupons. I think the bigger issue 681 00:33:12,480 --> 00:33:16,680 Speaker 8: here is that good growth, better growth expectations, is actually 682 00:33:16,840 --> 00:33:21,000 Speaker 8: increasing people's expectations for supply. And that's that's not that's 683 00:33:21,040 --> 00:33:24,480 Speaker 8: counterintuitive relative to usual experience because usually you have higher 684 00:33:24,520 --> 00:33:28,720 Speaker 8: tax revenues and you know that reduces financing need. But 685 00:33:28,840 --> 00:33:31,040 Speaker 8: right now with you have central banks that can just 686 00:33:31,080 --> 00:33:33,920 Speaker 8: continue to you know, reduce their balance sheet for longer, 687 00:33:34,400 --> 00:33:37,080 Speaker 8: or you know, the Bank of Japan, which you know 688 00:33:37,160 --> 00:33:41,960 Speaker 8: really pulls away from you know, from buying jgbs. That 689 00:33:42,200 --> 00:33:46,040 Speaker 8: results in more expectations for supply globally, and that's increasing 690 00:33:46,120 --> 00:33:48,360 Speaker 8: term premium. Yeah, you know, so I think that is 691 00:33:48,400 --> 00:33:50,080 Speaker 8: going to continue with the refunding. 692 00:33:50,240 --> 00:33:51,959 Speaker 6: I mean, Tiffany or you're right in the wheelhouse here 693 00:33:52,000 --> 00:33:54,360 Speaker 6: talking about the crowding out effect from Japan to the US, 694 00:33:54,400 --> 00:33:56,680 Speaker 6: I mean foreign buying of treasuries. Where does the demand 695 00:33:56,680 --> 00:33:59,120 Speaker 6: come from the Feds no longer backstopping things, you know, 696 00:33:59,440 --> 00:34:02,719 Speaker 6: talk to about demand for US treasuries on a forward basis, 697 00:34:02,760 --> 00:34:04,640 Speaker 6: you know, who is that marginal buyer, who's that marginal 698 00:34:04,720 --> 00:34:05,240 Speaker 6: risk taker? 699 00:34:07,000 --> 00:34:09,719 Speaker 8: Yeah, I mean that's that's what everybody's trying to figure out, 700 00:34:09,800 --> 00:34:12,279 Speaker 8: right And the problem, I think, well, one of the 701 00:34:12,360 --> 00:34:14,480 Speaker 8: issues is is that, you know, you kind of go 702 00:34:14,520 --> 00:34:16,960 Speaker 8: back to twenty fourteen, twenty fifteen, twenty sixteen, where you 703 00:34:17,000 --> 00:34:20,560 Speaker 8: had a good amount of bond yields that were negative 704 00:34:21,000 --> 00:34:23,799 Speaker 8: and really the US was the only game in town. Well, 705 00:34:23,800 --> 00:34:26,400 Speaker 8: now with interest rates just across the world much higher, 706 00:34:27,000 --> 00:34:29,840 Speaker 8: it's possible to you know, to get you know, positive 707 00:34:29,920 --> 00:34:32,440 Speaker 8: yielding assets outside of the United States right now. You know, 708 00:34:32,480 --> 00:34:36,279 Speaker 8: some diversification of portfolios as a result of that is 709 00:34:36,600 --> 00:34:39,719 Speaker 8: probably reasonable, you know. So I think it is the 710 00:34:39,800 --> 00:34:41,799 Speaker 8: question of who's the marginal buyer, But not only who's 711 00:34:41,800 --> 00:34:43,719 Speaker 8: the marginal buyer, but what price are they willing to 712 00:34:43,760 --> 00:34:46,000 Speaker 8: pay and what yield do they need to get in 713 00:34:46,080 --> 00:34:47,480 Speaker 8: order to come back into the bond market. 714 00:34:47,600 --> 00:34:50,000 Speaker 1: Tiffany Wilding of PIMCO, thank you so much for being 715 00:34:50,040 --> 00:34:54,000 Speaker 1: with us. Subscribe the Bloomberg Surveillance podcast on Apple, Spotify 716 00:34:54,080 --> 00:34:57,200 Speaker 1: and anywhere else you get your podcasts. Listen live every 717 00:34:57,200 --> 00:35:00,000 Speaker 1: weekday starting at seven am Eastern on Blueberk dot com, 718 00:35:00,160 --> 00:35:03,680 Speaker 1: the iHeartRadio app tune In, and the Bloomberg Business app. 719 00:35:03,960 --> 00:35:07,240 Speaker 1: You can watch us live on Bloomberg Television and always 720 00:35:07,320 --> 00:35:10,759 Speaker 1: on the Bloomberg Terminal. Thanks for listening. I'm Lisa Abramowitz, 721 00:35:10,800 --> 00:35:11,840 Speaker 1: and this is Bloomberg