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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business app. Ben Godige and Vesco

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Speaker 2: remaining bullish on equities, writing, we're seeing resilient growth, moderating inflation,

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Speaker 2: and more accommodative monetary policy. Despite challenges, this is generally

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Speaker 2: a supportive mix for equities. Ben joins us. Now, Ben,

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Speaker 2: let's talk about one of those challenges, the election. How

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Speaker 2: do you expect us to trade over the next few

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Speaker 2: weeks into that one?

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Speaker 3: Well, look, I mean there are multiple outcomes, both of

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Speaker 3: different color and different mix, and one would expect the

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Speaker 3: market to can so easily have a tantrum to one outcome,

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Speaker 3: could so easily fly on another. But we would say

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Speaker 3: over the fullness of time, markets tend to sort of

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Speaker 3: fade extreme reactions I would say, such as the dynamism

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Speaker 3: of the US economy and quality of management and innovation

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Speaker 3: within businesses that despite hedge funds, you know, whacking on

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Speaker 3: and taking off trades, you know, from one day to

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Speaker 3: the next, in and around the event, you know stop,

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Speaker 3: markets can get through this in a positive would get

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Speaker 3: through this in a positive fashion.

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Speaker 2: Ben, how much of a constraint is the bond market

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Speaker 2: right now? We're tends back up to four twenty two

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Speaker 2: and a two year with a four handle.

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Speaker 3: It's not a constraint just yet, just yet. I think

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Speaker 3: whilst the Fed and the market still believes we're in

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Speaker 3: a cutting cycle and that growth can remain resilient to that.

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Speaker 3: Alongside that, then markets can continue to perform. I think

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Speaker 3: quite as expected, markets will sort of check themselves and

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Speaker 3: a showcase volatility as the pace of cuts slows, and

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Speaker 3: there are some question marks about where the hikes come

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Speaker 3: back to the table, But the trend remains a disinflationary

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Speaker 3: one and therefore supports a cutting cycle, and therefore I

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Speaker 3: think markets can deal with yields at this level.

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Speaker 4: Let's define markets, Ben, when we talk about markets being

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Speaker 4: able to deal with rates where they are even as

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Speaker 4: they climb a bit. And I say this because we

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Speaker 4: have seen a challenge to the rotation trade. We've seen

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Speaker 4: a challenge to this idea that small caps and the

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Speaker 4: rest of the four hundred and ninety three in the

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Speaker 4: S and P can perform and outperform. We've seen a

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Speaker 4: challenge to that as yields go higher. Do you think

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Speaker 4: that that sticks?

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Speaker 3: Yeah, I mean it looks to us as though there

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Speaker 3: isn't sort of an imminent catalyst for for a yield reversion.

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Speaker 3: You know, of course a growth looks better, so a

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Speaker 3: reappraisal of how davish the federal reserve might be certainly

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Speaker 3: a focus on supply of bonds given the sort of

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Speaker 3: political agenda really of both parties, and better better growth.

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Speaker 5: So you know, it does look as though yields will

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Speaker 5: be well supported.

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Speaker 3: At this level. That supports we would say, you know,

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Speaker 3: higher quality. The funding challenges that high yields bring suggests

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Speaker 3: that higher quality businesses might continue to shine in this environment.

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Speaker 3: But I think ultimately we return to a disinflation narrative

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Speaker 3: and that the sort of softer, softer landing, resilient growth

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Speaker 3: becomes the focus once again, So in time, I think

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Speaker 3: there is a sort of a catch up trade from

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Speaker 3: the sort of small midcaps, but perhaps that's not the

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Speaker 3: immediate position to take today given the we are we

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Speaker 3: are there is some nervousness about this sort of h

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Speaker 3: yield environment.

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Speaker 4: Then we're talking about the higher yield environment in the US.

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Speaker 4: But as Joma's mentioning, it's global and we've seen yields

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Speaker 4: really tick up around the world, even when the data

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Speaker 4: might not be as obviously supportive as in the US.

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Speaker 4: How much is the US setting the tone and the

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Speaker 4: rest of the world gets subjected to it, and that's it?

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Speaker 3: Well, I mean I think, I mean, I think that's

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Speaker 3: that is that is the case. I mean, it's I'm

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Speaker 3: sure it's not quite such a surprise for everyone that

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Speaker 3: that is the case.

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Speaker 5: I mean, it's interesting at this moment.

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Speaker 3: I think, as you sort of said, is that Europe's

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Speaker 3: going through quite an appreciable sort of growth wobble at

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Speaker 3: the moment. Certainly some you know, the manufacturing weakness weighing

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Speaker 3: heavy on the European economy, and yet bond yields moving higher,

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Speaker 3: sort of dragged higher by what's happening.

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Speaker 5: In the US. But you know, such is that the dominance.

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Speaker 3: Of the US economy and such such support avoidance of

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Speaker 3: recession in the US offers the global economy.

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Speaker 5: But that is sort of dominating at the margin on

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Speaker 5: bond yields.

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Speaker 3: But for sure, the growth challenges look a little more

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Speaker 3: precarious in Europe, and therefore the opportunity for duration fine

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Speaker 3: for buying bonds, and the opportunity in neils looks but

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Speaker 3: a little bit more apparent at this moment in Europe.

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Speaker 6: One place in Europe, though you do like, is the

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Speaker 6: United Kingdom. Why do you view that as a hedge.

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Speaker 3: Well, I don't know if you've heard the argument before,

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Speaker 3: but valuation looks interesting. You tend to get a bit

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Speaker 3: of eye rolling at that because it's been sort of

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Speaker 3: trotted out, I don't know, for the last fifteen years

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Speaker 3: or something. But valuations certainly look interesting relative to some

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Speaker 3: global comparators. Certainly, dividends look are always interesting, but I

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Speaker 3: think relatives some very downbeat expectations growth could impress. But look,

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Speaker 3: the hedge reflects, you know, sort of commodity rich components

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Speaker 3: of the UK market, And thinking about a geopolitical hedge

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Speaker 3: in amongst evaluation, hedge makes it a reasonable portfolio compliment

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Speaker 3: to a more substantial position in US equities that we harbor.

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Speaker 2: Hey, Ben, it's going to hear from you. Ben Gunnrich,

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Speaker 2: the investor on the mass more than stanle these Matt

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Speaker 2: Hornback thinks the bond market is less exposed this time around.

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Speaker 2: Writing many investors see the Republican sweep outcome as most

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Speaker 2: bearish for US treasuries. We think any rise in treasury

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Speaker 2: yields would be more contained than in twenty sixteen, based

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Speaker 2: on a comparison between expectations for FED policy today versus then.

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Speaker 2: I'm pleased to say that a good friend of ours,

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Speaker 2: Matt Hornback, joined us. Now, now let's jump into that

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Speaker 2: story together. Give me some more detail on that the

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Speaker 2: bigger difference now between now and twenty sixteen.

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Speaker 7: Yeah, John, will the differences extend well beyond what people

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Speaker 7: expect the FED to deliver over the course of the

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Speaker 7: next couple of years. But certainly the FED is a

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Speaker 7: very big part of the story. In twenty sixteen. We

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Speaker 7: have to remember that, you know, Janet Yellens, FED was

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Speaker 7: about to embark on a rate hiking cycle. It was

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Speaker 7: the second time they were trying to start it up,

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Speaker 7: and investors generally expected the FED to be hiking rates

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Speaker 7: very gradually going into that election. In the wake of

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Speaker 7: that election, of course, investors changed their minds very quickly,

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Speaker 7: and over the course of that next year revised higher

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Speaker 7: their expectations for FED policy to the tune of about

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Speaker 7: one and a quarter percent. Now, one and a quarter

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Speaker 7: percent doesn't sound like that big of a deal today,

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Speaker 7: because we've just lived through five hundred and twenty five

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Speaker 7: basis points worth of rate hikes in twenty twenty two

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Speaker 7: and twenty three. But back then, one hundred and twenty

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Speaker 7: five basis points was quite a big deal. And so

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Speaker 7: if we take that number, John and we apply it

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Speaker 7: to day's environment, that would essentially be the same thing

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Speaker 7: as saying that investors would go from expecting the FED

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Speaker 7: to cut rates modestly to know more rate cuts in

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Speaker 7: this cycle. And that's a leap that I don't think

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Speaker 7: investors are going to make in this particular cycle, which

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Speaker 7: ultimately means that the bond market sellof will be more contained.

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Speaker 4: Matth the's an argument that this time is different because

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Speaker 4: a deficit is different, it's significantly bigger. We just had

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Speaker 4: a cycle where we essentially we got fiscal stimulus into

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Speaker 4: a growing economy, a healthy economy by many measures. Why

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Speaker 4: is a deficit issues not a concern for you? And

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Speaker 4: I'm not talking about the short end or the specific

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Speaker 4: rates tied to Fed policy, but the long term rates

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Speaker 4: that are more hinged to the fiscal outlook.

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Speaker 7: Potentially, Lisa, I'm really glad that you asked me this question.

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Speaker 7: I have a strong view that in the end, what

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Speaker 7: moves the bond market are how investors change their expectations

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Speaker 7: for fiscal policy or or treasury supply. And if you

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Speaker 7: ask every investor in the marketplace today whether we are

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Speaker 7: going to have bigger deficits in the future, irrespective of

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Speaker 7: the election outcome, to a person, you will hear the

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Speaker 7: view that, yes, we will have larger deficits. It's already

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Speaker 7: expected by most investors, and therefore it is already in

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Speaker 7: the price to a certain degree. And the question then

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Speaker 7: is what type of deficits do we get over the

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Speaker 7: next five years relative to what people expect already. That's

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Speaker 7: going to be the most important part of the bond

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Speaker 7: market reaction to this election. And so in the end,

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Speaker 7: it's how people's expectations change visa via the deficit is

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Speaker 7: what ultimately moves bond markets in any given period of time.

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Speaker 4: That said, Matt, given how vers some people are getting

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Speaker 4: on bond deals and the expectation we heard from ti

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Speaker 4: row price, potentially we can get five percent on a

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Speaker 4: ten year yield aggressively. Are you buying longer term bonds

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Speaker 4: right now on some of the backup Yeah?

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Speaker 7: Well, look, I certainly think that there's value and the

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Speaker 7: treasury market, but a lot of that value depends on

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Speaker 7: knowing an outcome that at this point in time is unknowable.

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Speaker 7: So what we've been telling investors is to hug their

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Speaker 7: benchmarks tightly and wait for the opportunity to arise in

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Speaker 7: the wake of the election, an outcome of which is

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Speaker 7: very uncertain. In addition, the timing that we will know

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Speaker 7: that outcome is also somewhat uncertain, and therefore I think

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Speaker 7: investors are best place to hug their benchmarks tightly. And

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Speaker 7: so in terms of the duration exposure, Lisa, really about

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Speaker 7: where you think any additional Treasury supply will come. And

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Speaker 7: in the end, when the Treasury increases coupon issuance, they

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Speaker 7: don't do so just in the thirty year Treasury bond,

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Speaker 7: they increase supply generally across the yield curve, and so

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Speaker 7: for investors out there who are worried about higher deficits,

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Speaker 7: who think that those deficits will be larger than the

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Speaker 7: marketplace is priced for, my recommendation is to be underweight

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Speaker 7: the intermediate sector of the yield curve, not necessarily the

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Speaker 7: long end, because in the end, when the Treasury increases supply,

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Speaker 7: they're going to do it, you know, across the curve,

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Speaker 7: and so the weighted average of that supply is going

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Speaker 7: to hit most strongly in the intermediate sector of the curve,

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Speaker 7: the five to ten year sector.

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Speaker 2: Matt, I've got forty seconds left. I want to squeeze

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Speaker 2: this in dollar stronger against everything in G ten. The

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Speaker 2: inter date chat of Dolly Yen today is just a

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Speaker 2: slow and steady march up into the right one fifty

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Speaker 2: ninety six, about to break through one fifty three. What's

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Speaker 2: the story there?

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Speaker 7: Well, I think the largely of the story is the

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Speaker 7: US economy has once again proven more resilient than fears

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Speaker 7: had suggested, and as a result of the interest rate

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Speaker 7: complex moving higher, taking real returns in the US higher,

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Speaker 7: that's going to attract capital into the into the US.

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Speaker 7: It's gonna it's gonna put upward pressure on the US dollar,

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Speaker 7: of course, just like there's some degree of you know,

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Speaker 7: a pricing of a potential election outcome. Uh, there's probably

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Speaker 7: something going on in the dollar just the past week

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Speaker 7: really that is perhaps putting some higher probabilities on an

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Speaker 7: outcome involving tariffs. And yeah, a lot of investors think

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Speaker 7: that the dollar is going to go up on tariffs.

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Speaker 2: Matt, appreciate it, Matt holmback of moment. Stanley close to

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Speaker 2: Evan roth Smith writing the best testing closing goncuments against Trump,

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Speaker 2: those that emphasize his lack of support from his former

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Speaker 2: cabinet and numerous Republicans sling shots Evan roth Smith, Johns

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Speaker 2: to snaph for Moore, Evan, welcome back. It's good to

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Speaker 2: see it.

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Speaker 1: Thank you.

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Speaker 2: I see commercials like that absolutely everywhere, which makes the question,

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Speaker 2: if that's the best testing case, why is this race

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Speaker 2: still so tight?

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Speaker 1: Well, the race is tight because the electorate is tight.

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Speaker 1: You know, we have a structure in our electorate right

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Speaker 1: now where Democrats need to overperform at the national level

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Speaker 1: to even have a chance in the swing states, and

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Speaker 1: every poll shows this closing up to a very very

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Speaker 1: tight race. This is what every polster has been saying

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Speaker 1: for months, Right, this is going to not just polsters.

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Speaker 1: It's going to be a fifty to fifty race. It's

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Speaker 1: going to be really, really tight. But now we're living

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Speaker 1: that reality because the Poles have gotten there.

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Speaker 6: Evan, you say this is their best test in terms

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Speaker 6: of their messaging to get out and it comes at

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Speaker 6: a time you have John Kelly speaking to the New

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Speaker 6: York Times and he basically says that Trump is the

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Speaker 6: definition of fascism? Is this though diluted in the sense

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Speaker 6: that we have heard this for years for members who

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Speaker 6: were part of Trump one point zero.

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Speaker 1: Well, so this was the best closing argument we had

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Speaker 1: in terms of going after Trump. Right, the kind of

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Speaker 1: language you saw from her around her mission, her go

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Speaker 1: around the economy, around working people and Donald Trump as

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Speaker 1: a patsy of the wealthy and who will cut taxes

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Speaker 1: and who will be fiscally or responsible, as well as

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Speaker 1: sort of the undertone to that is still the best

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Speaker 1: thing for her to say about herself. But yes, many

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Speaker 1: people in the electorate are worried about this, Nicki Haley, voters,

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Speaker 1: people who supported her in the primary, who are Republicans

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Speaker 1: instinctually on policy, are worried about things like a former

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Speaker 1: Trump White House chief of staff coming out and saying,

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Speaker 1: the guys of fascist don't let him back in.

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Speaker 6: They've been doing a lot of campaign events with Liz Cheney.

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Speaker 6: But then you hear from Governor Tim Walls who says, well,

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Speaker 6: we want her to be a part of Kamala Harris's campaign,

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Speaker 6: to talk about the fact to give basically this idea

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Speaker 6: of Republicans It's okay, you can vote for Kamala Harris.

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Speaker 6: At the same time, he said we're not going to

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Speaker 6: take any of their foreign policy advice. So what are

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Speaker 6: you getting if you are saying a Nicki Haley Republican

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Speaker 6: and thinking about voting for Kamala Harris.

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Speaker 1: You're getting some sense of security that the Democrats are

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Speaker 1: not this foreign entity that you can't crossover. That would

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Speaker 1: be verboten for you to cross over to Nicki Hilly

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Speaker 1: voters in our pulling, you know, these people are really Republicans.

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Speaker 1: They are Republicans on economic policy, They're Republicans on immigration policy,

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Speaker 1: the Republicans on just about everything. They love George W. Bush,

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Speaker 1: they love Condolleza Rice. They love that era of Republican politics,

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Speaker 1: and there's a lot of push out of the Republican

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Speaker 1: Party from Donald Trump on them. They do not like

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Speaker 1: Donald Trump, but we need to establish some pull into

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Speaker 1: the Democratic Party if they're ever going to cross over,

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Speaker 1: because they've already voted against Donald Trump once in the primary,

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Speaker 1: and what the Democratic Party needs to do is to

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Speaker 1: get them to vote against him a second time. That's

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Speaker 1: a fairly tall order, but you need to make them

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Speaker 1: comfortable doing something that their entire lives they've rarely done,

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Speaker 1: which is vote for a Democrat for president. And that's

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Speaker 1: what Liz Cheney is there to do.

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Speaker 6: Kamal Harris was asked in The View what separates her

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Speaker 6: from Joe Biden. She said, well, really, nothing really comes

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Speaker 6: to mind. How bad was that for her?

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Speaker 1: That was pretty bad. We tested it out. It was

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Speaker 1: the worst possible thing she could have said in that

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Speaker 1: moment compared to the other things we did.

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Speaker 6: Why wasn't she prepared for that question?

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Speaker 1: I think she was prepared. I just think she she

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Speaker 1: has hang ups, and I don't think they're they're they're

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Speaker 1: you know, ill considered or dismissable around how it's perceived

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Speaker 1: for a vice president to be disloyal to their president. Also,

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Speaker 1: by the way, for the first female vice president to

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Speaker 1: be disloyal to their president, for the first black vice

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Speaker 1: president to be disloyal to their president. You know, sort

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Speaker 1: of a cruel joke of history that to elect the

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Speaker 1: first woman president, she's now been tasked in the final

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Speaker 1: weeks with some supreme act of disloyalty against against Joe Biden. Right,

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Speaker 1: that's that's that's pretty pretty messed up. But she's dialed

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Speaker 1: that answer in, right, we saw yesterday in that in

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Speaker 1: that NBC interview, I believe she gave a much more

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Speaker 1: pointed answer about price gouging and housing prices. So she's

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Speaker 1: gotten there, she's you know, she's gotten more comfortable with it,

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Speaker 1: but she's she's a loyal, dedicated member of this administration.

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Speaker 4: Do you think that it's a good thing for her

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Speaker 4: to go on Joe Rogan Show after Trump?

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Speaker 1: Yeah, I think it's a great idea. I think she

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Speaker 1: should absolutely do it, not just because any time that

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Speaker 1: she goes out and does an interview and talks to people,

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Speaker 1: it works. You know, we test all sorts of clips,

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Speaker 1: even moments we didn't think we're particularly good from those

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Speaker 1: first rounds of things she did with people like Oprah,

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Speaker 1: and sixty percent of anyone who's of voters who saw

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Speaker 1: clips of her doing interviews were like, that was great.

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Speaker 1: Even if those of us in the media and politics

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Speaker 1: would have gone, oh, I coul would have tweaked that

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Speaker 1: this way that way. So when she goes on these

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Speaker 1: media appearances, it works for her.

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Speaker 4: At this point, we are seeing the polls seem to

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Speaker 4: favor Donald Trump. We're seeing that pretty much across the board.

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Speaker 4: You're kind of nodding back and forth. Last time you

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Speaker 4: were on, you said that you think pollsters are so

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Speaker 4: self conscious about getting it wrong in terms of not

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Speaker 4: skewing the data enough to Donald Trump, that they're actually

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Speaker 4: overweighting him. Do you still think.

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Speaker 1: That, I think the odds of an error in this

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Speaker 1: election a polling air likely, or a polling air in

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Speaker 1: favor of Kamala Harrison. There are a couple pieces of

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Speaker 1: evidence that might support that. One is, frankly, the last

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Speaker 1: time we had a black candidate at the top of

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Speaker 1: the ticket, Barack Obama in twenty twelve, polling underestimated him

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Speaker 1: by six points in any given swing state. Because you

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Speaker 1: have polling is good at establishing what a given electorate

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Speaker 1: is going to do. It's not always so good at

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Speaker 1: picking up at changes in the electorate, like the kind

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Speaker 1: of high turnout you get from black voters when there's

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Speaker 1: a black president on offer. And the other thing is

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Speaker 1: the last election we have, the twenty twenty two elections,

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Speaker 1: was a polling miss in favor of Republicans, right that

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Speaker 1: overestimated Republican sports. So people like to talk about the

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Speaker 1: twenty twenty miss, the twenty sixteen miss, but the last

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Speaker 1: national election we had in the twenty twenty two midterms,

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Speaker 1: was a large, multi point miss that overestimated Republican support.

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Speaker 1: So I think there's plenty of reason to believe that

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Speaker 1: if there is a polling error, and by the way,

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Speaker 1: I don't think there necessarily will be a polling air,

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Speaker 1: but if there is one, that Kamala Harris is a

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Speaker 1: likely beneficiary of that error rather than someone who will

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Speaker 1: be punished.

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Speaker 2: By We've got to squeeze this in this weekend. Harris

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Speaker 2: is in Texas, Donald Trump is around the color at

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Speaker 2: Madison Square, gun and here in New York City. What

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Speaker 2: is gvin on that? What do you think that's soil about.

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Speaker 1: It's the attention war. It's the attention warner there. You

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Speaker 1: can go to Wisconsin twenty million times, you can go

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Speaker 1: to North Carolina twenty million times. But these closing weeks

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Speaker 1: of the election, you have to get into people's living rooms,

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Speaker 1: not just the people who come out to a rally

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Speaker 1: to see their favorite candidate. You have to get attention.

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Speaker 1: You have to get cairns. You have to you know,

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Speaker 1: you have to win the news day and doing a

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Speaker 1: big rally at MSG or doing a big appearance potentially

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Speaker 1: with some sort of celebrity, maybe in Houston is a

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Speaker 1: way to do that, in a way to at least

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Speaker 1: you know, these people have jets. They can go back

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Speaker 1: into the swing states the next five minutes. So winning

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Speaker 1: the attention battle with a couple hours of your time

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Speaker 1: and then going back to the campaign trails is not

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Speaker 1: a silly way to spend here.

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Speaker 2: It's getting a lot of attention. That's the sure. Evan,

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Speaker 2: It's good to see you, Thank you sir. This is

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