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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along

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Speaker 1: with Jonathan Farrell and Lisa A. Bramowitz. Join us each

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Speaker 1: day for insight from the best and economics, geopolitics, finance

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Speaker 1: and investment. Subscribe to Bloomberg Surveillance on demand on Apple,

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Speaker 1: Spotify and anywhere you get your podcasts, and always I'm

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Speaker 1: Bloomberg dot Com, the Bloomberg Terminal and the Bloomberg Business App.

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Speaker 1: Dony Constant joint us now head of Mac Price Strategy

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Speaker 1: and Massoo. How America's dumb is this? Heke today the

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Speaker 1: penultimate hike of this cycle? Uh, it work could be.

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Speaker 1: I mean we're very close, I think to the Fed. Uh,

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Speaker 1: I'm finishing. UM. I think the key message though, is

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Speaker 1: they can't kind of tell you they're about to finish.

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Speaker 1: They're going to obviously give a hawks hawkish message around that. Uh.

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Speaker 1: And they could either sort of, you know, in the

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Speaker 1: second quarter to you declare an outright course like the

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Speaker 1: Bank of Canada, or they could keep it more uncertain

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Speaker 1: in a way that almost say that, you know, we

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Speaker 1: might be done, but we'll see how it goes in

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Speaker 1: the end. I think they're going to be done, though, Uh,

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Speaker 1: you know, around five percent, so this could be the

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Speaker 1: penultimate hike. On the back of that two ideas here

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Speaker 1: you made national world nation worldwide headlines, I should say,

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Speaker 1: was super restrictive the last time you were on is

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Speaker 1: this a fat nearing or in a super restrictive phase? Yeah,

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Speaker 1: I mean they are super restrictive. I mean it kind

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Speaker 1: of depends on how you look at inflation. And we

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Speaker 1: we were we look at it very carefully in in

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Speaker 1: a in a lot of different ways in terms of

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Speaker 1: the impacts of inflation expectations, wage price spirals you mentioned earlier,

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Speaker 1: and dissecting it in terms of demand drivers and supply drivers,

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Speaker 1: and when you sort of dig really deep, uh, and

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Speaker 1: I would argue the inflation story is looking very good.

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Speaker 1: It is basically normalizing. We're putting to bed the fears

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Speaker 1: that inflation was in a whole new regime. And when

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Speaker 1: you look at that, then essentially, when you measure uh

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Speaker 1: monthly policy in terms of restrictiveness, both in terms of

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Speaker 1: real interest rates and financial conditions, there's only one conclusion,

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Speaker 1: and that it is super restrictive. And you mentioned NASTAC

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Speaker 1: doing well, etcetera. But of overall, financial conditions are still

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Speaker 1: very restrictive, and there is a danger that as you

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Speaker 1: squeeze out the excess demand and profit margins, you're in

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Speaker 1: a hard landing before you know it. And that's why

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Speaker 1: the FED has to be quite careful and not pushing

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Speaker 1: rates too high. Dominic, we're gonna talk to Richard Claire,

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Speaker 1: the founder of DSGE or to talk about the time

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Speaker 1: continuum on the X access the way I see it,

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Speaker 1: and you mentioned this is an extended period of rates

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Speaker 1: here or a little bit above versus pushing rates up

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Speaker 1: up up to a higher rate level can extend it,

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Speaker 1: and can an extended FED substitute for the migration to

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Speaker 1: a higher higher rate absolutely uh, And I think the

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Speaker 1: point is that, um, the idea of the soft landing

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Speaker 1: versus high hard landing is like a sequencing. You can

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Speaker 1: basically do the soft landing, keep rates uh an extended

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Speaker 1: period elevated, but in order to avoid the hard landing,

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Speaker 1: you need to scurry very fast to get back to neutral,

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Speaker 1: which we think and the FEDS certainly still thinks is

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Speaker 1: around two and a half percent. And that's the story.

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Speaker 1: So the danger is of of not doing extended but

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Speaker 1: just for for example, to keep on raising rates means

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Speaker 1: you just got much more scurrying to do at the

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Speaker 1: end of the day, and with with more risk. I

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Speaker 1: would argue of making a mistake that you can't move

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Speaker 1: fast enough if you're already you know, at say six

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Speaker 1: percent funds, So basically staying around five getting to two

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Speaker 1: and a half, that's doable. You do a bunch of

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Speaker 1: fifty based point cuts in it's quite aggressive, but they

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Speaker 1: can do that, and that way they avoid the hard landing.

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Speaker 1: This isn't a choice of soft versus hard landing. It's

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Speaker 1: a soft landing until it becomes a hard landing. And

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Speaker 1: that's why the FED needs to be very alert and

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Speaker 1: that reversal and policy which we would expect in four

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Speaker 1: not the year domin I can feel like a little

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Speaker 1: bit philosophical as we talk about FED communication and the

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Speaker 1: market's response. If the FED speaks and markets don't respond,

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Speaker 1: did the FED make noise? Right? I mean basically, if

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Speaker 1: the FED tries to give guidance laughing me, tries to

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Speaker 1: give guidance but the market doesn't sell off, is that

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Speaker 1: actually effective in getting the Feds up? Who's laughing at me?

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Speaker 1: In getting the FEDS message across? Yeah? I mean I

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Speaker 1: don't think the FED needs to get the bond markets

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Speaker 1: selling off. I mean, the bond market obviously is looking

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Speaker 1: through all of this and discounting a pretty restrictive policy

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Speaker 1: stance in terms of rates. Obviously, it's the financial condition

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Speaker 1: side of it. It's basically the dollar and credit spreads

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Speaker 1: and equities. So I think if there's too much of

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Speaker 1: a relief rally in these things, and they can definitely

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Speaker 1: push back, and they can definitely sort of trying jaw

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Speaker 1: bone financial conditions tighter by introducing this uncertainty around maybe

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Speaker 1: the peak and the funds rate, the uncertainty about how

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Speaker 1: how committed they are to actually a pause, and that's

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Speaker 1: very that's very likely they'll do that. I'm not sure

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Speaker 1: they'll do that today. They could hint at that, but

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Speaker 1: it's certainly very likely in Q two or maybe in

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Speaker 1: the March meeting when to do that. And I think

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Speaker 1: Larry Summers, you know, I mean, he said something sensible

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Speaker 1: over the weekend and maybe the faith maybe the FED

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Speaker 1: shouldn't I said that very carefully. Maybe the Fed shouldn't,

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Speaker 1: you know, shouldn't recommit pre commit to tow hikes, and

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Speaker 1: and that's really you know, it would be an interesting

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Speaker 1: thing of the FED could perhaps have a bit more

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Speaker 1: uncertainty around, you know, their policy going forward, even if

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Speaker 1: they are effectively pausing with the benefit of hindsight. That's

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Speaker 1: the line in the morning, dumb run I've got nothing left,

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Speaker 1: nothing left for today. If we put it up there,

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Speaker 1: come on, Amy, give me that Summers something says the morning,

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Speaker 1: Professor Summers, and we look for the panel in London,

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Speaker 1: Lawrence Summers and dominate Custom. That'll be a graced in

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Speaker 1: a don't worry about it. He's not working up yet,

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Speaker 1: Donnie Custom of Mr America's don't thank you now joining

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Speaker 1: us Jerome Schneider, who's better than good in the short

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Speaker 1: term space with Pimco as well. No, Jerome, I'm not

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Speaker 1: gonna ask you about Tom Brady, but I am going

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Speaker 1: to ask you what we've observed through the morning. What

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Speaker 1: a January bounce? I guess you could take four or

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Speaker 1: five six percent? And I know, Jerome, you're sitting with

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Speaker 1: your Bloomberg and your Monroe Trader annualizing that out as well.

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Speaker 1: What's the now what for you after a January pop? Yeah?

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Speaker 1: In reality, you know what used to be just a

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Speaker 1: handful of basis points is pretty substantial, and you're right, Tom,

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Speaker 1: the annualized returns you have in a single month now

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Speaker 1: add up to something if for cash, that's something in

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Speaker 1: the realm of you know, four and a half to

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Speaker 1: six percent, depending upon your strategy. That's an important factor

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Speaker 1: to consider when you look at the landscape right now

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Speaker 1: that's punctuated with economic uncertainty, potential for volatility, and we're

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Speaker 1: at a crossroads right now where clearly the market is

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Speaker 1: impass with the Federal Reserve and where they're going, and

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Speaker 1: so that's gonna probably be reconciled over the next couple

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Speaker 1: of weeks months, And as it is, it doesn't necessarily

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Speaker 1: portrayed to be a smooth ride. So we do still

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Speaker 1: find value within that front end of the yield space,

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Speaker 1: within the within the within the global bond world. However,

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Speaker 1: I think it's what it really The question is not

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Speaker 1: necessarily where to be on the yield curve, but more importantly,

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Speaker 1: it's a discussion of how much to allocate the fixed

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Speaker 1: income in general given the recalibrations we've seen. And Jerome

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Speaker 1: was so important. Here is o b E where you're

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Speaker 1: overcome by events and here Jeroma and I'm speaking as

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Speaker 1: a total hack. People in the mid maturity decide they

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Speaker 1: want to enter the Jerome Schneider's space, and you get

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Speaker 1: price up, yield down where it's no fun for you.

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Speaker 1: Are you gonna be overwhelmed by people's running dashing to

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Speaker 1: short term Well, there's actually pretty much a truando supply

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Speaker 1: of that, and I think it's sort of met on

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Speaker 1: two folds. Number one on you have the of course

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Speaker 1: people looking for moving from lower yielding investments now that

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Speaker 1: they're aware that there is attractive options in cash, but

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Speaker 1: there's also significant opportunities that persist, and it's really typically

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Speaker 1: outside the traditional landscape of money market funds and tea bills.

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Speaker 1: It's more in buying short dated asset back securities, high

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Speaker 1: quality commercial paper, things that really have self liquidating features

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Speaker 1: and but yet remain fairly insulated to where we are

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Speaker 1: in the global economic cycle. That's the key. But I

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Speaker 1: do think that there is an overall focus right now

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Speaker 1: where people have shunned for more than the past decade,

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Speaker 1: an overallocation to bonds, and that really cuts to the

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Speaker 1: point right now of instead of a discussion of where

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Speaker 1: on the yield curve to be, despite the discussions of

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Speaker 1: where we are with the ft today, it's more about

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Speaker 1: how do you want to create a more balanced portfolio

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Speaker 1: given the yield enhancement that we can see for portfolio performance.

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Speaker 1: More broadly, the shift in tone drome that you have

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Speaker 1: right now is telling to be because you are one

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Speaker 1: of the most popular people, I'm sure in the investment world.

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Speaker 1: About six months ago and everyone was plotting to cash

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Speaker 1: and it was all about the appeal of cash as

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Speaker 1: an income producing instrument. Now now it's fixed income is

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Speaker 1: an appealing alternative to other assets, perhaps in a way

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Speaker 1: that they haven't been. Does that indicate the people are

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Speaker 1: moving out of cash at a really rapid pace and

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Speaker 1: going into other either denominations of credit or equities. Well,

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Speaker 1: not necessarily, And I think what is still prevalent in

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Speaker 1: people's mind is sort of getting getting a little bit

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Speaker 1: stung by the third rail of volatility within the broader marketplace.

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Speaker 1: People obviously don't really dismiss what happened in two thousand

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Speaker 1: twenty two so quickly, and more importantly, when they see

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Speaker 1: periods of risk off. There is a mindset now even

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Speaker 1: in the retail investor, to be very focused on how

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Speaker 1: much volatility your portfolio is going to produce during those

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Speaker 1: uncertain times. And so while people right might might seem

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Speaker 1: opportunistic or perhaps see a Salter landing, given the real

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Speaker 1: data we've seen over the real over the recent past,

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Speaker 1: the reality is you're not seeing that risk appetite being

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Speaker 1: as pervasive as it once was, specifically because that inciting

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Speaker 1: action was driven by extremely low yields. That has a

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Speaker 1: factor that's recalibrated people's expectations to create a more balanced

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Speaker 1: approach to how they handle risk and again focusing on

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Speaker 1: the volatility within their portfolios, whether institutional investors or retail

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Speaker 1: investors for that matter. So flows continued that you have

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Speaker 1: observed at least into your funds and into the fixed

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Speaker 1: income space at the same clip that they did, say

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Speaker 1: a month or two months ago. Yeah, No, I think

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Speaker 1: we're seeing a sort of a pause right after the year,

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Speaker 1: and people are really sort of accepting the fact that

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Speaker 1: you know, these higher yields are are are are still

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Speaker 1: here to stay. They're taking that initial step into perhaps

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Speaker 1: money market funds. Some T bill suppli has come and

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Speaker 1: that's sort of being met with some initial demands. But

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Speaker 1: we are seeing people utilize this as a more strategic

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Speaker 1: approach front dated fixed income LOA duration type of strategies.

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Speaker 1: Things really within the zero to five year part of

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Speaker 1: the YOKER are really sort of giving people an opportunity

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Speaker 1: set to create that balance. What I think is important

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Speaker 1: right now is there's a natural tension within the market attention,

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Speaker 1: which is that the market is clearly trying to forecast

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Speaker 1: and get ahead of the perspective fed cuts that might come.

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Speaker 1: From a historical perspective, the market is fixated that that comes.

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Speaker 1: But that's a probability based event, and what I mean

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Speaker 1: by that is that there's an uncertain action that when

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Speaker 1: we look at market pricing says there's a certain probability

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Speaker 1: that will be assigned to it. It It doesn't mean with

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Speaker 1: certainty there's cuts on the way at all. It's just

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Speaker 1: the probability that that would happen. What's more important, though,

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Speaker 1: is that the Federal Reserve is operating from the next

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Speaker 1: chapter of that playbook from a historical perspective, and they're

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Speaker 1: fully in mind that there's lasting damage promotiflation. What it

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Speaker 1: means for the investor is that there is going to

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Speaker 1: be some reconciliation. That reconciliation isn't necessarily as painless as

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Speaker 1: people might portray even if we do get that soft landing.

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Speaker 1: Tom Jr. Own Lisa from Fargo emails in thanks for

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Speaker 1: watching Lisa, and she says, does a guy like Jerome

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Speaker 1: Schneider care about the death ceiling? Do you care? Yeah?

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Speaker 1: Of course we care. Of course we care. But it's

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Speaker 1: a little bit too early. It's the prelude to the

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Speaker 1: actual act, and not that we're forecasting any default situation,

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Speaker 1: although that is a potentially remote uh situation that we

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Speaker 1: have to be prepared for. This is not really a

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Speaker 1: discussion for today or tomorrow or even March April. It's

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Speaker 1: well into the summer, and I think that we have

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Speaker 1: a good playbook on how on how it happens for

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Speaker 1: our point of view, where we say right now is

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Speaker 1: really focused not obviously stay on the Fed today, but

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Speaker 1: more over the past over the next six weeks, where

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Speaker 1: we're going to be getting frankly more important messaging from

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Speaker 1: the Fed in terms of the summary of economic projections

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Speaker 1: in March, and so the March toward March is really

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Speaker 1: where we where we can see a little bit more

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Speaker 1: definitive posturing in terms of the broader market impacts. The

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Speaker 1: death ceiling is not something dou jure that we have

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Speaker 1: to worry about perhaps perhaps being drump by the Tom

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Speaker 1: Brady news. Trum Schinder, thank you so much for their

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Speaker 1: coming in. Mr Brady. He is with Pimco joining us now,

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Speaker 1: Christie Llick Klissman, the managing director for Portfolio Strategy over

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Speaker 1: Goverment Sacks, Christie, and a simple one for you. Are

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Speaker 1: you expecting chairman Power to deliver a little bit of

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Speaker 1: pushback later on this afternoon? Yeah, I mean it's a

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Speaker 1: good question. I think you mentioned earlier already. UM, it

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Speaker 1: feels like the data has been quite supportive and and

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Speaker 1: you're making progress. I think the wage inflation is coming in,

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Speaker 1: the services inflation is coming in. I think, um, you

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Speaker 1: are on on track for a soft landing. Certainly markets

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Speaker 1: are shifting in this direction, so it seems to be

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Speaker 1: like everything is on track. UM. So we expect him

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Speaker 1: to reiterate the message he has given. Four. We expect

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Speaker 1: three more twenty five basis point hikes and probably a

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Speaker 1: relatively balanced meeting. You mentioned earlier to me the macro

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Speaker 1: data would be much more important. UM. I think the

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Speaker 1: central banks are probably a bit in state of course mode. Christian.

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Speaker 1: We talked to the head of the Norwegian Serving Wealth

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Speaker 1: Fund yesterday, who's got an immense challenge moving the needle

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Speaker 1: because of his mass, his size. Many of us don't

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Speaker 1: have that problem. Do we want to be index based

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Speaker 1: or more choosy, skew to a lower our squared, more

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Speaker 1: actively managed Listen, I think, as you know, in the

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Speaker 1: last cycle, it was fine to be an indecs. I

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Speaker 1: think the market cap weights when your favor both in

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Speaker 1: global indcs with the US being the largest market and

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Speaker 1: within the US with tech being the largest weight. And

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Speaker 1: what we've been saying for some time is um that

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Speaker 1: in the next few years stock picking will get more important.

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Speaker 1: Not the same sector leadership, not the same style leadership,

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Speaker 1: and not the same regional leadership. So it means you

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Speaker 1: have to be a bit more active Christian looking forward,

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Speaker 1: I know government sex has the view the oil prices

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Speaker 1: are going to go up. What trade does that challenge

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Speaker 1: that we saw really invoked during the month of January. Yeah,

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Speaker 1: I mean like it's it's the big conundrum. Um, everybody

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Speaker 1: is starting to believe the soft landing is happening, and

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Speaker 1: China is reopening, and Europe is avoiding the energy crisis

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Speaker 1: and the recession as a result, But the oil price

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Speaker 1: hasn't moved, and I think it's in my kind of

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Speaker 1: category of good news becomes bad news risks because both

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Speaker 1: rates haven't really followed in the in the optimism and

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Speaker 1: the commodity prices in particular oil. So if they start following,

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Speaker 1: if further cements, that kind of growth is fine narrative,

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Speaker 1: and that eventually means that good news might become bad

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Speaker 1: news because central banks have to react. So I think

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Speaker 1: the reason why oil hasn't reacted as much might be

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Speaker 1: related again to the winter, because of less gas to

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Speaker 1: oil substitution, and because there's probably still a lot of

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Speaker 1: kind of oil floating around um with regards to Russian oil,

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Speaker 1: which is being discounted. But I think net net, it's

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Speaker 1: been a big lag. Christian, would you then lean against

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Speaker 1: this long euro trade that we've seen long European equities

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Speaker 1: trade that is really dominated all of January. I think

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Speaker 1: generally we prefer non US versus US markets for all

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Speaker 1: kinds of reasons. I mean, non US equities are cheaper,

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Speaker 1: there's more runway economically, there's more slack um, so you

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Speaker 1: have like a European manufacturing slowdown, you have exposure to

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Speaker 1: China UM. So I think generally it feels like Europe

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Speaker 1: had a bit of a better asymmetry, both from a

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Speaker 1: valuation point of view and where you are in terms

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Speaker 1: of growth. There's more more roomed improve. The challenge you

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Speaker 1: have now is the repricing has been incredibly fast. So

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Speaker 1: if you look at risk premier credit um like European

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Speaker 1: credit versus US credit, sickly kids versus defensives in Europe

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Speaker 1: compared to the rest of the world, and and also

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Speaker 1: the equity risk premium, you've taken out a lot of

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Speaker 1: that discount in a short period of time. I think

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Speaker 1: momentum can continue to be positive and risk premier are

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Speaker 1: seldom a good market timing tool. Like short term you

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Speaker 1: always want to follow momentum um and in the more

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Speaker 1: medium term valuations and asymmetry matter more so in the

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Speaker 1: near term, where we were reasonably constructive on Europe. Just quickly, Christian,

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Speaker 1: how far do you think this a CP takes interest? Right?

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Speaker 1: So we have to terminal rate at three point to

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Speaker 1: five UM, and that's two more fifty bibs and then

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Speaker 1: another twenty five bibs Hyde And I mean it's already

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Speaker 1: quite amazing where we have gotten to considering from negative rates. UM.

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Speaker 1: But I think the fact what we're learning here everywhere

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Speaker 1: in the world is that we are not as addicted

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Speaker 1: to to to low rates as we thought. UM. There's

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Speaker 1: a certain ability to deal with higher rates, and we

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Speaker 1: know that in Europe that historically has always been a

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Speaker 1: bigger question mark because of sovereign debt concerns UM. And

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Speaker 1: we'll have to see how how that kind of comes back.

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Speaker 1: But as of now, Italian BTP spreads have come in UM,

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Speaker 1: and you are in this positive growth momentum phase. So

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Speaker 1: I think three point two five is the base case

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Speaker 1: and depending on inflation normalization of course, UM, there's there's

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Speaker 1: kind of risks to to both sides and they deposit

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Speaker 1: right right now two maybe a hundred and twenty five

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Speaker 1: basis points still at Christian Thank you, Christie mcclishman. They

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Speaker 1: have gone with sex. One of the great fears of

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Speaker 1: academics on the island of Manhattan this year has been

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Speaker 1: to audit Professor Cohen that Colombia Business School joining us

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Speaker 1: now is she rockets out of a term into tests

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Speaker 1: and grading Abbey Joseph co And of course I'm not

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Speaker 1: in acquaintance with Goldman Saxon, Professor, Columbia Business School. Are

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Speaker 1: you enjoying it? Abby? I mean, is this like a

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Speaker 1: whole new life for you where you're gonna you're gonna

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Speaker 1: be there? Tell your emeritus? I mean, is that where

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Speaker 1: we're heading. Good morning, Tom and good morning Lisa. Um.

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Speaker 1: I'm having a great time at Columbia. The students who

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Speaker 1: are absolutely wonderful. About half of them are from outside

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Speaker 1: the United States, and they're all extraordinarily well prepared. Most

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Speaker 1: of them have worked before they've come to business school,

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Speaker 1: and so these are people who are really committed and

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Speaker 1: focused on what they're doing. Let us talk about a

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Speaker 1: paper you did. I don't know if you dragged it

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Speaker 1: out for your students and punish them c FA Institute

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Speaker 1: where you brought some Greek philosophy to Columbia Business School.

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Speaker 1: And what Aristotle suggested in your iconic paper is get

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Speaker 1: off the wagon of believing every day to point tell

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Speaker 1: us what suspect right now? What's the humility we in

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Speaker 1: the chairman have to bring to scanning every tea leaf? Um,

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Speaker 1: fabulous question in a very timely one, tom Um. Right now,

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Speaker 1: I think there's so much focus on us data among

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Speaker 1: us investors. We have to recognize that the FED is

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Speaker 1: also looking internationally UM, and they're looking at the trends

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Speaker 1: they're both with regard to economic growth and inflation UM.

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Speaker 1: And then of course there are the concerns about what

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Speaker 1: happens to the data in China. Uh. People don't quite

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Speaker 1: trust those data UM. And so when we turn our

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Speaker 1: attention back to the US, you know, it's our employment data.

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Speaker 1: But today alone we're going to be getting the Jolts data,

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Speaker 1: which will be a very important element of what we

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Speaker 1: look at, and of course the employment cost Index information,

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Speaker 1: which is critical. UM. When I think about what I

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Speaker 1: worry about most right now in terms of too much

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Speaker 1: instant analysis, it would be the company reports. We're in

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Speaker 1: the middle of earnings reporting season, and what we know

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Speaker 1: from history is that in periods when the market has

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Speaker 1: been down, companies will take a look at those fourth

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Speaker 1: quarter results and say, you know what, let's take some reserves,

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Speaker 1: let's throw in the kitchen sink. It clears the slate

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Speaker 1: and gives them a lower base from which to work

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Speaker 1: for the subsequent year. So I wouldn't read too much

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Speaker 1: into the fourth quarter results, particularly when they seem to

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Speaker 1: be you know, throwing in all kinds of disappointments that

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Speaker 1: they knew about for a long time. Um and and

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Speaker 1: I'm much more focused on economic activity going forward. Have

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Speaker 1: we priced out free money from equity valuations abby UH

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Speaker 1: to a very large extent? You know, we saw that

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Speaker 1: happening during the course of LISA when we saw pees

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Speaker 1: in general going down, but the segments of the market,

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Speaker 1: not just in the United States but outside as well.

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Speaker 1: We're basically the high beta, fast growing areas that really

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Speaker 1: depended on low interest rates for the low discount rate

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Speaker 1: and gave the valuation. So now we saw it here

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Speaker 1: in technology stocks other growth areas, but we also saw

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Speaker 1: it in emerging markets, particularly in the first half of

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Speaker 1: last year, and by the time we got to the

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Speaker 1: third quarter, I think that investors were looking at this revaluation,

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Speaker 1: let's call it the devaluation of some of these growth

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Speaker 1: areas and saying there may be some opportunities there. It's

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Speaker 1: one of the reasons we have seen some of these

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Speaker 1: non US markets outperforming the US market, even though our

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Speaker 1: market has been doing quite well. And of course we've

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Speaker 1: now seen some movement back in to the fast growing

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Speaker 1: companies here in the US. When we teach this segment.

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Speaker 1: When you teach the segment in history talking about zero rates,

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Speaker 1: even negative rates for more than a decade at least

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Speaker 1: in Europe and the unwinding of it ending with a whimper,

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Speaker 1: can you write the book that it was successful that

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Speaker 1: this economy extricated itself from these low rate policies without

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Speaker 1: a financial collapse. Um. We don't know yet, but clearly

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Speaker 1: it looks like we are moving in that direction. But

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Speaker 1: we're not finished. And it's not just looking at the economy,

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Speaker 1: it's also looking at financial products. UM. And here I

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Speaker 1: do have concerns because we don't yet know what the

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Speaker 1: results were in two for lots of the very leveraged products,

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Speaker 1: including private equity. We don't quite know what the impact

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Speaker 1: will be on the economy of the reduction in capital

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Speaker 1: available to venture investments and so on. And I also

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Speaker 1: think that some active managers who were okay but not great,

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Speaker 1: who levered up their results so they turned a dime

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Speaker 1: into a quarter as they reported to to their their clients.

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Speaker 1: We don't yet know what the full extent of the damages.

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Speaker 1: I mean, what I think is so important here and

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Speaker 1: it goes to the body of your work. We just

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Speaker 1: all enjoyed the carnage of two in twenty two, whether

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Speaker 1: it was sixty forty or spacks, you name it, all

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Speaker 1: the stuff that was invented to Columbia Business School. I mean,

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Speaker 1: we've all got to regroup. And the hallmark of Joseph

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Speaker 1: Cohen analysis is you've got to be in the game.

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Speaker 1: I want you to talk now to the people that

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Speaker 1: are all cash or near all cash, or even in

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Speaker 1: bonds away from the equity markets. Speak to them right now. Well,

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Speaker 1: many of the individual investors, of course, have to consider

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Speaker 1: other things like their tax situation, their risk tolerance, and

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Speaker 1: so on. All of my work, Thomas, you know, has

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Speaker 1: been focused in on institutional investors. UM, and I think

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Speaker 1: that we have seen this revaluation of assets in two

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Speaker 1: that makes me far more comfortable than I was, say

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Speaker 1: nine or ten months ago. Um, we're you know, the

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Speaker 1: bonds fifteen to eighteen months ago when I thought bonds

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Speaker 1: were incredible overpriced, that is, yields were too low, and

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Speaker 1: we've now seen a very significant change. The FED like

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Speaker 1: everyone else, I assume we'll be doing a small increase

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Speaker 1: this year, but most of what they're going to be

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Speaker 1: doing I think has now occurred. They might do a

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Speaker 1: little bit more, but after we've already seen six extremely

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Speaker 1: large rate increases, most of the damage has occurred to bonds.

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Speaker 1: So that looks like the opportunities of time. The revaluation

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Speaker 1: and equities makes them more appealing than they were a year.

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Speaker 1: I gotta squeeze us in abbey. It's so important. The

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Speaker 1: risk free rate is back. Tobb says, we've got gravity

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Speaker 1: back in the system. How do the zombie companies that

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Speaker 1: never been profitable companies, week free cash flow companies, how

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Speaker 1: do they work out in two thousand twenty three. UM.

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Speaker 1: I think there will be failures. I also think that

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Speaker 1: good private equity investors may see opportunities. But I also

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Speaker 1: think that M and A activity strategic m and A

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Speaker 1: from successful companies will be making a look at some

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Speaker 1: of these operating assets and figure out ways that they

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Speaker 1: can acquire and improve the underlying margins. What I worry

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Speaker 1: about in terms of going through the year really is

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Speaker 1: the potential um for the debt crisis, the debt sealing

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Speaker 1: crisis to become real. Um and And the reason I'm

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Speaker 1: worried about it is I take a look at some

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Speaker 1: of the people UH and the Republican Party who publicly

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Speaker 1: stated they think it's okay if the US goes into default. Um,

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Speaker 1: that to me suggests a big problem and meeting I'll

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Speaker 1: be watching today. In addition to the f O m

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Speaker 1: C is the meeting at the White House between President

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Speaker 1: Biden and Speaker McCarthy Abby. Thank you so much, Professor

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Speaker 1: Joseph Cohen at the Columbia Business School. Subscribe to the

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Speaker 1: Bloomberg Surveillance podcast on Apple, Spotify, and anywhere else you

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00:25:52,400 --> 00:25:56,679
Speaker 1: get your podcasts. Listen live every weekday starting at seven

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00:25:56,680 --> 00:26:00,639
Speaker 1: am Easter. I'm Bloomberg dot Com, the I Heart Radio app,

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00:26:01,000 --> 00:26:04,560
Speaker 1: tune In, and the Bloomberg Business app. You can watch

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00:26:04,760 --> 00:26:09,000
Speaker 1: us live. I'm Bloomberg Television and always I'm the Bloomberg Terminal.

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00:26:09,440 --> 00:26:13,639
Speaker 1: Thanks for listening. I'm Tom Keane, and this is Bloomberg