Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amerie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: your DNNY research selling a year round SMP target of
Speaker 2: seventy seven hundred and a decade end target of ten k.
Speaker 2: He writes this, this ballmarket could be one of the
Speaker 2: longer ones. Joined us now for more ed Good morning,
Speaker 2: Good morning. Let's just start with the longevity of this thing.
Speaker 2: Already several years Indio, why do you think this can
Speaker 2: take another leg and another lequa after that?
Speaker 3: Well, I think the economy is demonstrated its resilience or
Speaker 3: with the past few years, I mean all the shocks
Speaker 3: that have hit it, starting with the pandemic and then
Speaker 3: the tariffs most recently and yet real GDP is at
Speaker 3: an all time record high, and so I'm just extrapolating
Speaker 3: that that continues, that the economy will continue to grow
Speaker 3: through the end of the decade, and that by the
Speaker 3: end of the decade we could very well see the
Speaker 3: market anticipating something like five one hundred dollars a share
Speaker 3: for the S and P five hundred, but a twenty
Speaker 3: multiple on it and you get ten thousand.
Speaker 2: Certain things happened last year that people thought would be
Speaker 2: relevant and turned out to be irrelevant. I'm thinking of
Speaker 2: the tariffs of April of last year, irrelevant to the
Speaker 2: headline a's acre of five hundred index at least, and
Speaker 2: then later on and through the year, the fact that
Speaker 2: unemployment carried on climbing and it didn't seem to disrupt
Speaker 2: this secuity market. It's not going to be the story
Speaker 2: for twenty six as well. Yeah.
Speaker 3: Absolutely, And I think twenty twenty five demonstrated that the
Speaker 3: economy could grow even when we have a labor market
Speaker 3: that's not growing much at all, and that can only
Speaker 3: happen if productivity is booming. Productivity growth during the first
Speaker 3: half of the decade kind of recovered. It was really
Speaker 3: quite depressed at the beginning of the decade, it's recovered
Speaker 3: to kind of this annual average of about two percent.
Speaker 3: I think we're heading to three percent and going from
Speaker 3: two to three percent, it doesn't seem like a lot,
Speaker 3: but it is a lot when it comes to real
Speaker 3: GDP and keeping a lot on inflation.
Speaker 2: As you know better than most, what often happens coming
Speaker 2: into the new year. People look for the other thing,
Speaker 2: not the thing that's been working for years, but they
Speaker 2: look for the other things that they sa time to
Speaker 2: move away from.
Speaker 4: If you get to the other thing.
Speaker 3: Well I'm in that camp. I'm in the notion that
Speaker 3: it's time to rebalance them. I mean, when you've got
Speaker 3: information technology and communication services accounting for forty five percent
Speaker 3: of the market cap of the S and P five hundred,
Speaker 3: maybe it's time to rebalance a bit. And I've been
Speaker 3: recommending also overweighting financials and industrials, and I would continue
Speaker 3: to overweight them and put some money also on an
Speaker 3: overweight basis into healthcare. I think every company is basically
Speaker 3: turning about to be a technology company. Either make it
Speaker 3: or you use it, and so I am kind of
Speaker 3: key on the impressive four ninety three everybody's focusing on
Speaker 3: the Magnificent seven. But I don't know about you. I'm
Speaker 3: getting AI fatigue. I'm a little tired of the whole
Speaker 3: thesis here, and I think the market's starting to show
Speaker 3: that as well, and the four ninety three are looking
Speaker 3: more interesting because there would be the ones that are
Speaker 3: using the technology to reach productivity. At earnings.
Speaker 5: Last year, there was a big overhang on questions of
Speaker 5: how tariffs would impact companies in thus their share price.
Speaker 5: What do you think is going to be the big
Speaker 5: policy question mark of this year?
Speaker 3: Well, I think everybody's focusing on the fiscal stimulus that's
Speaker 3: kind of locked into the system with the One Big
Speaker 3: Beautiful Bill Act that was passed last July, but it
Speaker 3: was retroactive to the beginning of last year, and so
Speaker 3: according to Secretary of Treasury Avestent, a lot of a
Speaker 3: lot of households are going to get an extra one
Speaker 3: thousand to two thousand dollars in refine, more than would
Speaker 3: otherwise have been the case, and that could be very stimulative.
Speaker 3: We already have very simulative monetary policy. The Fed's cut
Speaker 3: the FED funds rate by one hundred and seventy five
Speaker 3: basis points since twenty twenty three, and so you know,
Speaker 3: I think the policies are kind of locked in, and
Speaker 3: the question is what kind of impact they'll have on
Speaker 3: the economy. Obviously a positive one, but the big question
Speaker 3: is what about inflation.
Speaker 5: Well, given they're locked in, do you think consumers are
Speaker 5: ready preemptively spent those checks they're about to get.
Speaker 3: I don't think so. I think they're going to be
Speaker 3: pleasantly surprised by the refunds. I mean, you know, claiming
Speaker 3: your refunds is not something that's easily to predict, So
Speaker 3: I do think that there's going to be a stimulus
Speaker 3: from it.
Speaker 2: Why do you think this will leave the Federal Reserve
Speaker 2: and policy for the year ahead.
Speaker 3: Well, you know, we've got a lot of known unknowns.
Speaker 3: We'll see who the next FED chair is, but we
Speaker 3: also know that whoever is the FED, it's only really
Speaker 3: one vote on the FMC, so defense are going to
Speaker 3: remain data dependent. And I think that with the economy
Speaker 3: likely to be quite strong, at least in the first
Speaker 3: half of the year, I think the Fed's done at
Speaker 3: least for the next six months.
Speaker 2: One man, one vote is not how we've been thinking
Speaker 2: about the Federal reserve of a previous leaderships and previous administrations.
Speaker 2: Why is it changing.
Speaker 3: Well, the previous FED chairs were consensus builders. That's what
Speaker 3: they spent a lot of time doing, and there was
Speaker 3: very successful at it. Particularly FED Chair Powell was a
Speaker 3: great consensus builder builder. But I think the next FED
Speaker 3: chair is going to be much more aligned with the President,
Speaker 3: with the White House, and I think there could be
Speaker 3: a lot I think there could be a lot more
Speaker 3: independence among the FED committee.
Speaker 2: Is that the unintended consequence of this push five for us?
Speaker 3: Yeah, I mean everybody's been talking about the FED is
Speaker 3: going to be less independent. I think they'll be more independent.
Speaker 3: I think you'll see more dissension.
Speaker 5: You mean they're going to be more independent because it's
Speaker 5: so obvious. Potentially the FED chair is so tethered to
Speaker 5: the president, everyone else will feel like they can be
Speaker 5: honest and speak out.
Speaker 6: Yeah.
Speaker 3: Well, if you've got a FED chair that's Trump dependent,
Speaker 3: everybody else's data dependent. I think you're going to have
Speaker 3: a difference of opinion and it's going to be pretty visible,
Speaker 3: as it has been in the last minutes.
Speaker 5: When you say that they only have one vote. Do
Speaker 5: you think this administration might take a different approach when
Speaker 5: I think about the FED and potentially elevate a governor
Speaker 5: Waller so they get an extra seat because it is
Speaker 5: a deliberative body.
Speaker 3: Well, I think Waller would make the most sense because
Speaker 3: he's got the experience, he knows all the players, and
Speaker 3: he could be more of a consensus builders than somebody
Speaker 3: that's just kind of you figure out the FED. But yeah,
Speaker 3: I think whoever is the next FED chair, they're going
Speaker 3: to realize they have a consensus problem and they have
Speaker 3: to deal with it. And so I think at the
Speaker 3: end of the day, the FED it isn't going to
Speaker 3: be much different than what it is right now. Even
Speaker 3: if the President continues to demand that the FED funds
Speaker 3: will be brought down to one percent, it's just not
Speaker 3: going to happen if the economy is doing well and
Speaker 3: if inflation is still kind of stuck around three percent
Speaker 3: rather than down to two.
Speaker 2: Stay with us more Bloomberg surveillance coming up after this.
Speaker 2: Former City and US Intelligence official Norman Rule rights in
Speaker 2: the following. In addition to ensuring US influence out of
Speaker 2: Venezuela's all reserves, the administration will seek to reduce China's
Speaker 2: political influence over a region normal. Jounderstaw for more normally
Speaker 2: and welcome. We talked about how impressively clean this operation
Speaker 2: was over the weekend. Given your experience, given historic examples
Speaker 2: of similar events, what was your reaction to what took place?
Speaker 7: Ordinary display of the skill of US military and untelgence
Speaker 7: officials working together for many months and then putting an
Speaker 7: amazing array of US military intelligence operatives together on the ground.
Speaker 7: But it also showed the extraordinary nature of US technology.
Speaker 7: The Venezuelans talked about having air defenses that could spot
Speaker 7: stealth fighters, and the United States managed to put not
Speaker 7: only dozens of aircraft but helicopters throughout Venezuela's skies, and
Speaker 7: Venezuela's air defense was not able to pick it up. Now,
Speaker 7: put that in context of the US military technology being
Speaker 7: used by Israel and the United States in Iran just
Speaker 7: a few months ago against Russian and Iranian technology in Iran,
Speaker 7: and you really get a picture of the extraordinary capacity
Speaker 7: for US military technology, personnel, and intelligence capability with our
Speaker 7: partners worldwide. It's quite a picture for our ad series
Speaker 7: and partners.
Speaker 5: Iran was the big focus in June. Obviously, Venezuela is
Speaker 5: the big focus now norm what country could be next
Speaker 5: where the US has a more aggressive foreign policy.
Speaker 7: I think it's important to take a real hard look
Speaker 7: at the December National Security Strategy, because the National Security
Speaker 7: Strategy makes clear that the United States will be inclined
Speaker 7: to be non interventionist, but use robust military and economic force,
Speaker 7: most likely in the Western hemisphere, and then otherwise use
Speaker 7: economic and military tools only when needed outside of that
Speaker 7: environment for limited purposes, not state building, not to put
Speaker 7: new governments in place. And I think that template has
Speaker 7: been consistent for the administration throughout the previous year, and
Speaker 7: I think in twenty twenty six as well, So I
Speaker 7: think the Western hemisphere is likely to remain the administration's focus,
Speaker 7: but the Iranians have been put on notice. Has been
Speaker 7: some additional social media activity by the administration, but if activity,
Speaker 7: military activity work undertaken by the administration, it would likely
Speaker 7: be limited.
Speaker 4: This is not an.
Speaker 7: Administration looking to involve the US in a conventional conflict.
Speaker 5: When it comes to Venezuela and now, the acting President
Speaker 5: of Rodriguez, given the fact that she was the number
Speaker 5: two her brother runs the National Assembly, she was by
Speaker 5: the Panamanian leader said this in thedorism without Maduro. Is
Speaker 5: this regime containment instead of change.
Speaker 7: Well, I think you've got a couple of different issues here.
Speaker 7: So the US posture again is being clarified as interest
Speaker 7: driven state craft. We're interested in stopping drugs, migration, adversary,
Speaker 7: exclusion from oil, democracy restoration is being positioned as.
Speaker 4: A downstream objective.
Speaker 7: Now, let's put this in the contact as the Venezuelans,
Speaker 7: they've just seen an extraordinary display of US power. They
Speaker 7: cannot compete with us. They have no allies of any consequence.
Speaker 7: So they're going to try to do several things. First,
Speaker 7: they need to buy time, They need to sustain internal cohesion,
Speaker 7: they need to deal legitimize any potential successor, and they
Speaker 7: need to then think about how do they manage this
Speaker 7: environment while Congress the rest of the world puts themselves
Speaker 7: together against the Trump administration, and then seek out maybe
Speaker 7: overtures for a negotiated coexistence with the Trump administration, if
Speaker 7: only to prevent follow on strikes, and then maximize their
Speaker 7: influence in any possible ongoing transition.
Speaker 2: Norman, we're tracking live pitches of the form of Venezweman
Speaker 2: leader heading to a court here in New York City,
Speaker 2: which is stunning in and of itself. In an ideal
Speaker 2: world norm this is what people would like to see.
Speaker 2: They would have liked to send this guy step down
Speaker 2: a long time ago. And then the nobel prize is
Speaker 2: when it walks into Caracas the following day to streets
Speaker 2: celebrating her arrival and she takes over in democracy rates.
Speaker 4: No, and that's not the real world.
Speaker 2: Could you share with us the cold hard reality of
Speaker 2: the real world and how difficult it will be between
Speaker 2: age the resistance that hasn't yet shown itself yet in Venezuela,
Speaker 2: but could manifest materialize in a months to count.
Speaker 7: Well. To be clear, I'm not of Venezuelan in domestic
Speaker 7: political expert, but for the Venezuelan opposition to take charge,
Speaker 7: they're going to have to overcome the architecture of the military,
Speaker 7: the security forces, the Cuban security forces who are ingrained
Speaker 7: within the architecture of the Venezuelan government, the entire political
Speaker 7: system of Venezuela, which will be among the first to
Speaker 7: be put on trial. I mean, the Venezuelan Interior Minister
Speaker 7: and the acting the new president will be among the
Speaker 7: first to be put on trial for corruption and human rights.
Speaker 7: So they're going to need a safe haven, a amnesty.
Speaker 7: This is an awful lot to ask for. So the
Speaker 7: President was not out of his lane to say that
Speaker 7: it's going to be a tough road to hope for
Speaker 7: the incoming president to just to just step in. And
Speaker 7: I think for this reason, the Secretary of State was
Speaker 7: also accurate to describe this as a as a process.
Speaker 8: But in any case, this is a situation in motion.
Speaker 2: Stay with US mult Bloomberg surveillance coming up after this.
Speaker 2: Let's stick with the energy market. The US of course
Speaker 2: ready to use the commodity for leverage in Venezuela.
Speaker 1: There's a quarantine right now in which sanctioned oil shipments.
Speaker 1: There's a boat and that boat is under US sanctions.
Speaker 1: We go get a quarter or or we will seize it.
Speaker 1: That remains in place, and that's a tremendous amount of
Speaker 1: leverage that will continue to be in place until we
Speaker 1: see changes not just further the national interests of the
Speaker 1: United States, which is number one, but also that lead
Speaker 1: to a better future for the people of Venezuela.
Speaker 2: Bob mcdaney, the founder and president of Rapidant Energy Group,
Speaker 2: joined US now for more Bob, as you and I
Speaker 2: start this conversation with tracking live pictures of the former
Speaker 2: Venaswevan leader making this way to court here in New York.
Speaker 2: This is an individual whoever saw the biggest energy reserves
Speaker 2: on the planet, and this was a sector an industry
Speaker 2: in that country plagued by under investment. Can you frame
Speaker 2: for us, Bob, how long it would take to really
Speaker 2: scale up production in that country now that individual is
Speaker 2: out of the country.
Speaker 9: Hi, Jonathan, Sure, it's a matter of many years to
Speaker 9: decades and tens of billions of dollars. The good news is,
Speaker 9: especially US companies, they know how to do it. They
Speaker 9: have the engineering, logistical, technical expertise. But it's going to
Speaker 9: take boatloads of money and we won't be seeing real
Speaker 9: oil until after the end of the second Trump term.
Speaker 4: We just need to be realistic about that.
Speaker 5: But Bob, is the will there given the fact that
Speaker 5: these are companies that had to flee Venezuela in two
Speaker 5: thousand and seven.
Speaker 9: Absolutely, you know they're tantalized, but they are cautiously tantalized.
Speaker 9: I was in the White House twenty three years ago
Speaker 9: after we were chased out by Hugo Chavez. No fun
Speaker 9: at all, and they will be very cautious in going
Speaker 9: back in. But it also gets to this transition will
Speaker 9: what kind of government are we going to have there,
Speaker 9: what kind of contract terms, what kind of physical security
Speaker 9: there are There's a wide and deep set of big
Speaker 9: questions that these oil companies and their boards are going
Speaker 9: to consider before they rush in. I think it's right
Speaker 9: that they're up in inequity pricing.
Speaker 4: It's an arc. It's got this right.
Speaker 9: It's a nothing burger for short term crude futures. It's
Speaker 9: another tailwind for US oil companies majors coming after this
Speaker 9: sort of walk back from this peak demand narrative. You
Speaker 9: think about it, US oil majors have just had a
Speaker 9: great extended holiday season. Peak demand is fading in twenty thirty.
Speaker 9: That's good for them, and now the world's largest oil
Speaker 9: reserves may be available to them when it really counts
Speaker 9: after twenty thirty.
Speaker 5: Well, you also got it right. I actually thought of
Speaker 5: you in the morning after this all took place, because
Speaker 5: before the Christmas holidays you said there was a seventy
Speaker 5: percent chance that Madua would be out. Did you think
Speaker 5: it was going to happen this quickly?
Speaker 4: Yeah, yes, we did.
Speaker 9: I think the market has gotten you mentioned June in
Speaker 9: the Iran war.
Speaker 4: The market doesn't understand Trump.
Speaker 9: It was surprised when he attacked Iran, It was surprised
Speaker 9: when he puts sanctions on Rosneft and Luke Oil in October,
Speaker 9: and it was surprised when he attacked when he removed Maduro.
Speaker 9: I think what the market doesn't understand is the President's
Speaker 9: willingness to take risk when it comes to confronting adversaries
Speaker 9: on top tier foreign policy challenges, even if energy is
Speaker 9: at stake. And the reason why Emmerie and you just
Speaker 9: mentioned it. The President the White House believes, and I
Speaker 9: happen to agree, we're heading into oversupply. He can lean
Speaker 9: into this softening crude market and take risk even with
Speaker 9: Iran and Russia, which are really more important near term
Speaker 9: than Venezuela.
Speaker 5: So what are you telling clients is the next potential
Speaker 5: risk taking this administration is going to go for?
Speaker 9: Iran and Russia are up next. Look at the presidents
Speaker 9: talking about Israel is not kidding about preventing Iran from
Speaker 9: reconstituting its its missile and nuclear programs, and with the
Speaker 9: unrest for seeing there maybe stirring the pot. So the
Speaker 9: President's been talking very forcefully. Look what he said with
Speaker 9: Prime Minister net Yahoo willingness to intervene if the regime
Speaker 9: shoots protesters. I think when the market sort of lifts
Speaker 9: its gaze from this fascination with Venezuela and realize this
Speaker 9: is not a real issue with a short term, it's
Speaker 9: going to say, wait a minute, how credible is President
Speaker 9: Trump when it comes to Russia and Iran.
Speaker 4: With Russia, Putin's not going to agree to armistice.
Speaker 9: And while President Trump often has a friendly demeanor towards Putin,
Speaker 9: says nice things, he also tightened sanctions and I think
Speaker 9: he's willing to do so even more into next year.
Speaker 9: So let's look to Iran and Russia for real potential
Speaker 9: supply disruptions, not Venezuela.
Speaker 2: When you say that up next, well, can you just
Speaker 2: give a staytown on what you mean by that? Because
Speaker 2: up next, after what we saw I have had, awakens
Speaker 2: a very different scenario for Iran and for Russia. What
Speaker 2: do you mean by their up next?
Speaker 9: Well, I think if Iran doesn't agree to halt its
Speaker 9: missile capabilities, its reconstitution, it's nuclear capabilities, and as if
Speaker 9: we even see this continued unrest. I think there will be,
Speaker 9: and we told clients seventy percent probability of another wave
Speaker 9: of at least Israelia strikes on Iran, perhaps supported or
Speaker 9: joined by the United States. We're at a solid seventy
Speaker 9: percent on that also sanctions, tighter sanctions we've let Iran off.
Speaker 9: Trump could go to China and say cut it out,
Speaker 9: We're serious, do business with Iran or do business in the
Speaker 9: United States.
Speaker 4: So really cutting.
Speaker 9: Into their oil exports at least and military action at
Speaker 9: best seventy percent probability in the coming let's say months.
Speaker 9: Putin Russia same thing so far. They just wanted to
Speaker 9: widen the Eural's discount to Brent. They just wanted to,
Speaker 9: you know, hurt Putin's revenue, not cut into production. If
Speaker 9: oil prices keep falling, it's a big condition. If oil
Speaker 9: prices keep softening, I think he'll be willing to be
Speaker 9: tougher on in India, China and other customers of Russians
Speaker 9: Russia's crude.
Speaker 2: How consistent is that with the national security strategy that
Speaker 2: they put out at the end of last year.
Speaker 4: You know, it is consistent, But the subtle you got
Speaker 4: to read into it.
Speaker 9: Trump didn't say, Look, we're going back to the Western hemisphere,
Speaker 9: and we're all about not only the Monroe doctrine, but
Speaker 9: the Trump correlated which means we won't even let our
Speaker 9: adversaries have economic stakes in our region. That's what the
Speaker 9: focus was. But he didn't say we're completely pulling up
Speaker 9: stakes in Europe, the Middle East and Asia.
Speaker 4: Didn't say that not acting that way.
Speaker 9: We don't think China has a free hand in Taiwan,
Speaker 9: we don't think Putin has a free hand in Putin
Speaker 9: in Ukraine, and in the Middle East, we're going nowhere.
Speaker 4: So we're kind of having it both ways. I think we're.
Speaker 9: Having our internationalism, our global alliances and the Eurasian land
Speaker 9: mass on the one hand, but telling the world, yeah,
Speaker 9: we're really going to be busy in the Western Hemisphere.
Speaker 2: I'm ready. That was certainly part of the conversation over
Speaker 2: the weekend. Does this speed to the idea that maybe
Speaker 2: they're going to refocus everything on the so called Western hemisphere,
Speaker 2: ultimately Latin American, and take their off the ball in
Speaker 2: places the Middle East and Europe.
Speaker 5: Well, one thing is for sure is that they definitely
Speaker 5: are monitoring the price of oil and to Bob's point,
Speaker 5: does that give them a lot more leverage around the world?
Speaker 5: Only there Arepasca actually came out with a telegram over
Speaker 5: the weekend and was talking about how if the US
Speaker 5: is able to hold prices near fifty dollars a barrel,
Speaker 5: that puts serious pressure on Russia's state capitalist economic model.
Speaker 5: So already this is going to put pressure on all
Speaker 5: these other countries, even if the administration decides they're just
Speaker 5: focusing on the Western hemisphere.
Speaker 2: Well, just before you go, I wanted to combat some
Speaker 2: time and talk about a much longer term issue, the
Speaker 2: life Spanish shale. How are you considering the life Spanish
Speaker 2: shale with the developments that we saw took place over
Speaker 2: the weekend.
Speaker 9: Well, we think shale is going to be around forever,
Speaker 9: and there are other deposits around the world. Look at
Speaker 9: what Argentina is doing, so other shale deposits open up.
Speaker 9: We could see new, strongly emerging shale plays. In the US,
Speaker 9: we think it's a mature sector. We don't see a
Speaker 9: lot of net growth, but you know what, look at AI,
Speaker 9: look at technology gains. Real big mistake to bet against,
Speaker 9: especially US engineers, US oil geologists, et cetera. And I
Speaker 9: can see us getting those recovery reserves up from ten percent,
Speaker 9: we get that up five ten percent more. I think
Speaker 9: we can see surprises and our ability to produce oil.
Speaker 9: But look, it's high cost, it's vulnerable to supply price swings,
Speaker 9: it's going to be challenging, it's mature for the time being.
Speaker 4: So shale is sort of in a plateau for the
Speaker 4: time being.
Speaker 9: But if we get a surprise, it's not going to
Speaker 9: be the death of shale.
Speaker 4: It's going to be that Wow, we can recover a
Speaker 4: lot more. We even got more efficient.
Speaker 2: Stay with us mult Bloomberg surveillance coming up after this.
Speaker 4: Well, here's the late system.
Speaker 2: The choice remarket so far this morning yields falling for
Speaker 2: the first time at a week on escalating to your
Speaker 2: political tensions, adding to the games we saw through last year,
Speaker 2: a forty basis point move lower on a ten year
Speaker 2: maturity through the year, this morning we down to four
Speaker 2: sixteen seventy one. To discuss joining us now is Jimpnco
Speaker 2: of Pienco Research. Jim, Welcome to the show. So the
Speaker 2: move of the front end phenomenal, of course, in line
Speaker 2: with the rate reductions at the federal reserve, but it
Speaker 2: was a reserve to the front ended a curve. We
Speaker 2: also thought that rally in the longer end of a
Speaker 2: curve and a ten year mature, it's' bit a leakage
Speaker 2: in a thirty year. We can get to that in
Speaker 2: the moment. Jim, what do you think was behind that
Speaker 2: move given the sal America story that really immerged in
Speaker 2: April then was very quickly ignored in the back half
Speaker 2: of the year.
Speaker 8: Well, I think we need to first put that in
Speaker 8: a little bit of perspective.
Speaker 6: In twenty twenty five, all the ten year yields around
Speaker 6: the developed world were either unchanged or higher. The only
Speaker 6: one that was lower was the US. All the thirty
Speaker 6: year yields not every country has a thirty year were
Speaker 6: unchanged to higher, including the US. So there was only
Speaker 6: one long term yield around the world that went down
Speaker 6: last year, and that was the US ten year yield.
Speaker 6: So something specific to the tenure yield happened last year. Now,
Speaker 6: if I had to guess, it's not the GDP numbers,
Speaker 6: it's not the inflation numbers, because everybody else had very
Speaker 6: similar to about the developed world had very similar type
Speaker 6: of numbers.
Speaker 8: But their yields went up.
Speaker 6: I think the difference might be political, and that is
Speaker 6: the President has tied his success to lower tenyure yields
Speaker 6: and has been demanding that the Federal Reserve cut interest rates,
Speaker 6: and that had had an effect in twenty twenty five.
Speaker 8: Whether it does in twenty twenty six is a different question.
Speaker 4: Jim, you're sug Jansen.
Speaker 2: There was almost an implicit treasury per coming from the
Speaker 2: administration that's making people reluctant to sound that specific maturity.
Speaker 6: Yeah, I am, because that specific maturity was the only
Speaker 6: one that was down. Now, if we had a bunch
Speaker 6: of them down on yield, like the US was down
Speaker 6: forty basis points in the tenure, then I would argue
Speaker 6: to you that, you know, it wasn't but there was
Speaker 6: something specific about that maturity, and I don't think that
Speaker 6: that can last forever.
Speaker 8: It did last for twenty twenty five.
Speaker 6: So really it's going to come down to what is
Speaker 6: the economics of twenty twenty six. Now, if it looks
Speaker 6: like twenty five, we had strong growth, we had a
Speaker 6: four point three percent GDP in the third quarter, the
Speaker 6: last number we had we had inflation, it is still
Speaker 6: in the up or twos. We're almost six years past
Speaker 6: the beginning of COVID and we're still in nowhere near
Speaker 6: two percent that those types of numbers will produce higher
Speaker 6: tenure yields throughout twenty twenty six.
Speaker 2: Jamis, you consider the rest of the world, not just
Speaker 2: the US bond market, but the global bond market. Is
Speaker 2: the center of gravity for US bonds in the US
Speaker 2: or the dynamics that you're speaking to. Actually, I swear
Speaker 2: the in places like Japan.
Speaker 6: Oh, I think you're right that where it's not if
Speaker 6: I could talk about the default is it's not in
Speaker 6: China anymore. China's now fallen to the third largest country
Speaker 6: that owns treasuries behind the UK, and so it has
Speaker 6: definitely moved to somewhat in Japan, and that is probably
Speaker 6: in that negative with their rates going up, the incentive
Speaker 6: to sell US fixed income securities and move.
Speaker 8: Back to China to Japan, excuse me, grows every day.
Speaker 6: So yes, then by default it comes back to the
Speaker 6: US and it comes back to FED policy, and that
Speaker 6: comes back to how the growth is and our mind
Speaker 6: everybody that if you look at the last FED meeting,
Speaker 6: it was a nine to three vote, But if you
Speaker 6: look at the way that everybody was talking, it might
Speaker 6: have been ten to nine among the nineteen members of
Speaker 6: the Fed whether or not they should have cut rates
Speaker 6: at the December meeting. So if we could continue to
Speaker 6: get strong growth like this, we might not see another
Speaker 6: rate cut through twenty twenty six.
Speaker 5: Do you think twenty twenty six will be risks or
Speaker 5: opportunities to marketants participants? Especially given the stunning developments just
Speaker 5: over the weekend when it comes to foreign policy of
Speaker 5: this administration.
Speaker 6: Well, there's always going to be risks, But I guess
Speaker 6: the real question is where do the risks come. Do
Speaker 6: they come in denting growth or slowing down growth, or
Speaker 6: do they come in potentially pushing up inflation? And I
Speaker 6: would you know, I am one that has been and
Speaker 6: continues to be concerned about inflation. What happened in Venezuela
Speaker 6: is a good long term story for crude oil, but
Speaker 6: it might not even be a twenty twenty sixth story
Speaker 6: for crudelf anything.
Speaker 8: It might be somewhat bullish for crude oil over the
Speaker 8: very short.
Speaker 6: Term as they cut off shipment to China that has
Speaker 6: to replace it by buying it from other places and
Speaker 6: pushing it up just over the very short term, but
Speaker 6: longer term it could be. But I think that most
Speaker 6: of the risks that I see are going to lead
Speaker 6: to them to inflation staying in the high twos to
Speaker 6: the low threes, and the market starting to realize that
Speaker 6: a three and a half percent funds rate and a
Speaker 6: four point two percent or so ten yure yield might
Speaker 6: be too low when it.
Speaker 5: Comes to inflation. What makes you the most nervous because
Speaker 5: many people were talking about tariffs last year, but we
Speaker 5: haven't seen a real impact.
Speaker 3: On that.
Speaker 4: Yet.
Speaker 6: And the reason I say yet is that while you
Speaker 6: look at the announced rates that the Trump administration is
Speaker 6: said about tariffs, it averages about seventeen to eighteen percent
Speaker 6: is what the tariff rate was a year ago.
Speaker 8: It was two, so we went from two to seventeen.
Speaker 6: But if you look at the actual tariffs collected, it's
Speaker 6: more around ten percent. And I think that accounts for
Speaker 6: a lot of why you're not seeing the inflation in tariffs,
Speaker 6: because the collect action of those tariffs takes time. But
Speaker 6: the ten percent number has been moving up all year,
Speaker 6: and it's at its highest level in November, the last
Speaker 6: data that we have, and I suspect that number will
Speaker 6: continue to move up into twenty twenty six, and that
Speaker 6: tariff story about inflation might still be ahead of us,
Speaker 6: probably around the middle of next year.
Speaker 2: Jim, let's finish on the unintended consequences of the president's
Speaker 2: push for Laurynteriest rights. We spoke to ed Jhon Danny
Speaker 2: earlier on this morning, and he echoed your argument that
Speaker 2: I want to give you some credit for as well,
Speaker 2: the fact that this has galvanized every voter on the committee,
Speaker 2: and it's a change from what we've seen on the
Speaker 2: previous leadership at the Federal Reserve. Jim, can you just
Speaker 2: spend some time fleshing out what's happening care and why
Speaker 2: it might be consequential for the year ahead.
Speaker 6: For the last forty years, everybody votes with what the
Speaker 6: chairman wants. They talk internally, and then they come to
Speaker 6: an agreement before the meeting, and that's where you get
Speaker 6: these twelve zero, eleven to one votes. But now it
Speaker 6: looks like the Fed is shifting to be more like
Speaker 6: the Bank of England or to make Japan, and that
Speaker 6: is is that each voter is going to vote in
Speaker 6: or think the Supreme Court.
Speaker 8: We saw nine three there was a good argument that
Speaker 8: you could have had a seven to five vote.
Speaker 6: I've advocated that that would actually be a positive for
Speaker 6: the FED, not a negative. Each Each governor, each president
Speaker 6: is supposed to represent the American people and vote the
Speaker 6: way that they think is the best for monetary policy,
Speaker 6: and there should be disagreement in that. And if they
Speaker 6: start to move that way, the biggest thing that could
Speaker 6: happen is President Trump could put somebody in place. That
Speaker 6: person could advocate for what President Trump wants one percent funds, but.
Speaker 8: Does he have seven votes to get it.
Speaker 6: And he might not have seven votes to get it
Speaker 6: in twenty twenty six if the economy stays strong and
Speaker 6: inflation stays sticky, and that could be a big departure
Speaker 6: from what we've seen from the FED in recent decades.
Speaker 2: Jim, It's not one of the main pillars for your
Speaker 2: call for this year that ultimately we don't get much
Speaker 2: action from the Federal Reserve.
Speaker 8: Yeah, I think so.
Speaker 6: I think there's a lot of people that are thinking
Speaker 6: two or three cuts because we're going to get an
Speaker 6: uber Davish FED chairman because Trump is going to replace
Speaker 6: j Poll by May. But again, it really comes down
Speaker 6: to yes in the old way, the chairman would tell
Speaker 6: everybody how to vote, and they would do Chris disagree internally,
Speaker 6: but they would do what he would want. But in
Speaker 6: the new way, they might just say, no, you just
Speaker 6: don't have the votes for it. We're going to vote
Speaker 6: otherwise on this policy.
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