WEBVTT - Week of Whiplash in Treasuries Is Closing With Traders on Pause 0:00:00.040 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.800 --> 0:00:17.880 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:21.960 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.320 --> 0:00:25.640 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.040 us live on YouTube. 0:00:27.960 --> 0:00:31.600 Kevin Gordon, who's been on board this bullmarket, joins US now. 0:00:32.000 --> 0:00:36.400 Had a macro research strategy at Schwab Center for Financial Research. 0:00:36.479 --> 0:00:39.960 They have Isabelle, they have in their offices actual like vinyl. 0:00:40.640 --> 0:00:42.880 Really he cues up the led Zeppelin. 0:00:43.000 --> 0:00:43.840 You have to have a field. 0:00:43.840 --> 0:00:47.440 Treon Saunders, I love buried down here. If you're talking 0:00:47.440 --> 0:00:50.680 to Michael Dharta yesterday you say the most important data 0:00:50.720 --> 0:00:54.480 point is six and a half percent nominal GDP discuss 0:00:54.520 --> 0:00:55.840 this boom economy. 0:00:56.240 --> 0:00:58.120 I think it is the most important because it's very 0:00:58.200 --> 0:01:00.440 much at the center of the discussion around what's going 0:01:00.440 --> 0:01:02.720 on in the treasury market this week, and when you 0:01:02.760 --> 0:01:06.360 think about the underlying fundamentals of the economy, you know, 0:01:06.400 --> 0:01:08.160 six and a half percent you over your growth and 0:01:08.240 --> 0:01:12.600 nominal GDP is you know, I think a very sort 0:01:12.640 --> 0:01:14.360 of very indicative, of course of what we're seeing in 0:01:14.480 --> 0:01:16.679 terms of the AI boom. But I think also in 0:01:16.720 --> 0:01:19.600 the context of inflation as well. You know, you can't 0:01:19.640 --> 0:01:22.840 really get inflation down to two percent unless you see 0:01:22.880 --> 0:01:25.280 sort of the greatest productivity boom. Ever, so it's not 0:01:25.319 --> 0:01:26.840 a bad thing. I don't mean that in a bad way, 0:01:26.880 --> 0:01:28.920 but I think that to the content, you know, to 0:01:28.959 --> 0:01:31.240 the point of this sort of booming economy and the 0:01:31.280 --> 0:01:33.960 resilience that we see in the US, we have sort 0:01:33.959 --> 0:01:36.600 of entered this new normal where it's now more normal 0:01:36.680 --> 0:01:39.120 to see nominal growth of that kind versus what we 0:01:39.160 --> 0:01:41.520 saw pre pandemic, which was much slower than six and 0:01:41.560 --> 0:01:42.199 a half percent. 0:01:43.160 --> 0:01:45.080 I want to talk about the bond market because Tom 0:01:45.120 --> 0:01:46.840 and I earlier Indushow, we said that is the big 0:01:46.840 --> 0:01:49.200 story of this week. What did the market learn from 0:01:49.240 --> 0:01:51.880 the bond moves and the best input, so to speak, 0:01:52.040 --> 0:01:55.960 and it's rapid reversal. Is it that skeptical about this move? 0:01:55.960 --> 0:01:58.000 I mean many people have called it the band just 0:01:58.040 --> 0:01:59.200 a band aid, really. 0:01:58.960 --> 0:02:00.920 But no, I mean I think that's probably the right 0:02:00.920 --> 0:02:02.520 way to think about it. You know, the sort of 0:02:02.560 --> 0:02:05.320 duct tape on a leaky pipe situation where they can 0:02:05.400 --> 0:02:07.520 only you know, that can only last for so long, 0:02:07.600 --> 0:02:10.040 and in terms of stemming some of the you know, 0:02:10.080 --> 0:02:12.840 some of the drippage there. But I think that the 0:02:13.240 --> 0:02:16.920 whole discussion around you know, higher deficits and the fact 0:02:16.960 --> 0:02:18.880 that you know, no one's really doing anything about it 0:02:19.160 --> 0:02:21.600 on either side of the aisle. That's been a theme, 0:02:21.760 --> 0:02:24.280 you know, and a feature of the US for so long. 0:02:25.200 --> 0:02:30.240 But that in combination with this structurally higher growth backdrop 0:02:30.280 --> 0:02:32.160 that we've been in, plus the fact that you have 0:02:32.200 --> 0:02:36.160 STICKI your inflation, all of these elements fuse together and 0:02:36.440 --> 0:02:38.400 you get a higher for longer interest rate world and 0:02:38.400 --> 0:02:41.280 it's very, very hard to pull down yields in that environment, 0:02:41.400 --> 0:02:44.239 especially of course at the long end. You also introduce, 0:02:44.320 --> 0:02:47.400 I think another interesting dynamic, which I mean to be 0:02:47.440 --> 0:02:49.160 a fly on the wall right now for for any 0:02:49.200 --> 0:02:51.720 of the FED meetings and discussions, it would be so 0:02:51.880 --> 0:02:54.239 fascinating because you do have a little bit of this 0:02:54.600 --> 0:02:56.720 you know, visious circle dynamic at play. We're on the 0:02:56.720 --> 0:02:59.240 one hand, someone is sort of actively trying to you know, 0:02:59.240 --> 0:03:01.200 pull down yields or do what they can to stem 0:03:01.280 --> 0:03:03.600 the rise. But on the other hand, you did have 0:03:03.919 --> 0:03:06.200 FED Chack Kevin Warsh sort of take some comfort in 0:03:06.240 --> 0:03:08.160 the fact that the long end had risen and it 0:03:08.200 --> 0:03:09.920 was sort of quote doing the Fed's job for it, 0:03:10.000 --> 0:03:12.800 so that dynamic. I think it'll be interesting to see 0:03:12.880 --> 0:03:15.080 if he addresses it at all in Jackson Hole. But 0:03:15.720 --> 0:03:17.800 I think in over the medium term, to see how 0:03:17.800 --> 0:03:21.079 those kind of combat each other, that'll be interesting to me. 0:03:21.560 --> 0:03:23.760 I would love to go to Jackson Hole and where 0:03:24.400 --> 0:03:27.920 jackson Hole's outfit. I love having you because then you 0:03:27.960 --> 0:03:30.640 can talk all asset process. Why did in stocks respond 0:03:30.680 --> 0:03:34.440 more to Washington signaling that it wants easier financial conditions? 0:03:34.560 --> 0:03:36.800 Well, you know, I think, you know, in terms as 0:03:36.840 --> 0:03:39.160 powerful as signaling might be, and we've learned that, you know, 0:03:39.240 --> 0:03:41.720 over the past couple of days, it isn't as powerful 0:03:41.840 --> 0:03:44.640 because of the reversal that we saw in yields. You know, 0:03:44.680 --> 0:03:47.600 we've been in this environment and we're we're we don't 0:03:47.640 --> 0:03:50.400 have too much high conviction these days because it's really 0:03:50.480 --> 0:03:52.640 hard to do so. But what where we do have 0:03:52.720 --> 0:03:55.880 higher conviction is the fact that or the feeling that 0:03:55.920 --> 0:03:59.040 we have sort of exited definitively this Great Moderation era 0:03:59.120 --> 0:04:02.240 where you had this harmonious relationship between the stock market 0:04:02.280 --> 0:04:04.440 and the bond market, where when yields were going up, 0:04:04.440 --> 0:04:07.160 they were responding to positive growth impulses, stocks were also 0:04:07.280 --> 0:04:11.240 rising posts pandemic for most of that time. Most of 0:04:11.280 --> 0:04:14.680 this cycle, that relationship has slipped into negative territory. So 0:04:14.720 --> 0:04:16.800 that means that alose equl, which is of course never 0:04:16.839 --> 0:04:19.960 the case. But when yields are rising, that's putting downward 0:04:20.000 --> 0:04:22.080 pressure in equities and then vice versa. And you've seen 0:04:22.080 --> 0:04:25.200 that play out this week almost it's happening again today. 0:04:25.240 --> 0:04:27.200 You know, if fields are upstocks are down, vice versa. 0:04:27.320 --> 0:04:29.719 So that's not to say that if fields continue to 0:04:29.720 --> 0:04:31.360 go higher a year from now that the market will 0:04:31.400 --> 0:04:33.839 be the stock market will be lower. That's certainly not 0:04:33.920 --> 0:04:36.400 the case. If anything, when you get these more aggressive 0:04:36.400 --> 0:04:38.240 moves in the yields, that's when you sort of have 0:04:38.440 --> 0:04:40.679 that reset period for stocks across America. 0:04:40.680 --> 0:04:43.359 And is Friday, Kevin Gordon, with his years with Charles 0:04:43.400 --> 0:04:44.600 Schwab Yeoman's. 0:04:44.279 --> 0:04:49.640 Duty reappearing today. He's taking this Sikorski reappearing twelve noon 0:04:49.680 --> 0:04:54.400 bloomberd Really I got it, folks, I got ducky bumps over. 0:04:54.480 --> 0:04:56.240 It's sleepy August. No, it's not. 0:04:56.880 --> 0:05:00.320 Rebecca Patterson into Kevin Gordon. 0:05:00.440 --> 0:05:02.760 Big Names, Kenny joining books on. 0:05:02.839 --> 0:05:07.039 Paris, because everyone's there except me in Scarlett. For me, yeah, 0:05:07.040 --> 0:05:08.960 we're not in Paris. We should be in Paris. We 0:05:08.960 --> 0:05:11.360 should be in Passions Levin, I want to remind ourselves 0:05:11.360 --> 0:05:14.720 in Emily Rowling. Coming on, folks, it's a Friday. We're 0:05:14.760 --> 0:05:17.279 going to brief you on the madness at hand. 0:05:17.600 --> 0:05:22.320 Can we recall the broad come has free cash flow 0:05:22.440 --> 0:05:28.080 growth coming out of the COVID sixteen seventeen, nineteen, twenty six, 0:05:28.560 --> 0:05:33.120 thirty two and an anticipated fifty billion. 0:05:32.760 --> 0:05:36.560 Dollars of free canculo. The heart of the matter is 0:05:36.600 --> 0:05:41.560 we forget these are profitable juggernauts we're whining about. Yeah, 0:05:41.560 --> 0:05:41.719 I know. 0:05:41.800 --> 0:05:44.159 The profitability aspect I think is huge and it is 0:05:44.200 --> 0:05:46.800 one of the biggest things we point to, you know, 0:05:46.880 --> 0:05:48.640 especially when we get questions, because we still get a 0:05:48.680 --> 0:05:50.800 lot of client questions around this. I think rightly so 0:05:51.480 --> 0:05:53.680 is this a repeat of what we saw in the nineties? 0:05:53.720 --> 0:05:55.200 And I know this has sort of been you know, 0:05:55.240 --> 0:05:58.200 beaten a lot, but I think it's important because when 0:05:58.200 --> 0:06:00.640 you do look at the factor in the equity market 0:06:00.640 --> 0:06:03.640 that was most correlated with strong performance in late nineties 0:06:03.680 --> 0:06:06.279 into the peak, it was negative earnings. That is not 0:06:06.360 --> 0:06:09.120 the case today. So I think that's a really important differential. 0:06:09.200 --> 0:06:11.159 Not to say that you can't have disruptions and you 0:06:11.200 --> 0:06:13.720 can't go through these you know, sort of momentum implosions 0:06:13.760 --> 0:06:15.960 like we did recently, but that I think for the 0:06:15.960 --> 0:06:18.440 broader structure of the equity market is much more important, 0:06:18.520 --> 0:06:20.560 especially in a context of an S and P five 0:06:20.640 --> 0:06:23.040 hundred that has more than seventy percent of its members 0:06:23.040 --> 0:06:24.080 above their two hundre day moving. 0:06:24.200 --> 0:06:26.240 You get on a Schwab golf stream, you go down 0:06:26.279 --> 0:06:29.120 to Louisville, You're in some hotel room with four hundred 0:06:29.320 --> 0:06:33.360 major shrub hitters in the fifteenth row. Someone raises their 0:06:33.400 --> 0:06:36.240 hand and goes, what do we do with cash? It 0:06:37.000 --> 0:06:40.720 vibrates across America right now, Yes, what to do with cash? 0:06:40.800 --> 0:06:43.000 Well, full disclosure, there's no golf stream in my life 0:06:43.800 --> 0:06:46.599 very much. In the commercial worlds, I want to say those. 0:06:49.160 --> 0:06:51.560 You know, the cash question we get so much. 0:06:52.800 --> 0:06:55.320 I think more in the context and I know you've 0:06:55.360 --> 0:06:58.800 covered this recently in conversations with Bizan, but the cash 0:06:58.839 --> 0:07:01.000 question we get is sort of what is the potential 0:07:01.040 --> 0:07:04.040 for that firepower for the market. And I mean, we've 0:07:04.040 --> 0:07:05.640 looked at this so many ways, but when you do 0:07:05.720 --> 0:07:08.279 look at it relative to market cap, the total cash 0:07:08.320 --> 0:07:12.119 position today is quite small relative to history in terms 0:07:12.120 --> 0:07:14.440 of allocating that cash and where to put it. I mean, 0:07:14.640 --> 0:07:16.800 we can't answer that question in a broad sense because 0:07:16.800 --> 0:07:19.520 we have tens of millions of clients. But if you're 0:07:19.560 --> 0:07:23.040 thinking about, you know, the sort of how the market 0:07:23.040 --> 0:07:24.800 has looked this year, and the fact that it is 0:07:24.840 --> 0:07:28.000 not just the megacap ai trade that is that is outperforming. 0:07:28.280 --> 0:07:30.480 There are other parts of the market that are participating, 0:07:30.720 --> 0:07:32.880 some of which had been sort of a sleep for years. 0:07:33.000 --> 0:07:35.600 I point to small caps as an example, not to 0:07:35.600 --> 0:07:37.120 say that you should just back up the truck and 0:07:37.160 --> 0:07:39.600 load everything into small caps, but that is an example 0:07:39.640 --> 0:07:42.120 I think of how you don't necessarily need to be 0:07:42.280 --> 0:07:45.400 so singular focused in terms of, oh, it's only the 0:07:45.400 --> 0:07:47.560 megacaps that really isn't the case hasn't been the case 0:07:47.560 --> 0:07:50.160 for a couple of years actually, in terms of out performance. 0:07:50.160 --> 0:07:51.800 There have been other parts of the market that are 0:07:51.880 --> 0:07:52.520 performed well. 0:07:53.280 --> 0:07:54.600 I want to go to the economy. 0:07:54.640 --> 0:07:57.440 You argue that the July jobs and retail sales numbers 0:07:57.480 --> 0:08:00.920 are false positives. What's one data point you're watching that 0:08:01.320 --> 0:08:03.280 you saying may prove you wrong. 0:08:04.040 --> 0:08:07.840 Well, I do think that if you well, I think 0:08:07.840 --> 0:08:10.400 that for labor, I'll start with that there's not a 0:08:10.400 --> 0:08:13.400 whole lot I think that is pointing to and is 0:08:13.440 --> 0:08:16.600 supporting this kind of outright weakness that you saw in July. 0:08:16.800 --> 0:08:19.080 And I do think that in an environment where we 0:08:19.120 --> 0:08:22.680 have constrained immigration flow and an aging workforce, it makes 0:08:22.680 --> 0:08:24.640 the labor dynamics a little bit harder to see and 0:08:24.680 --> 0:08:27.160 harder to read in a standard you know, non farm 0:08:27.160 --> 0:08:30.520 payrolls report, meaning you know, last year, last fall into 0:08:30.520 --> 0:08:33.040 the winter, when you did go through that significant slowdown 0:08:33.040 --> 0:08:35.320 in payroll growth, when everybody was sort of starting to 0:08:35.360 --> 0:08:37.960 raise those yellow flags around recession risk because that's typically 0:08:38.000 --> 0:08:41.160 what you see going into recession. If you were looking 0:08:41.160 --> 0:08:43.760 at the layoff data, that's actually what was the more 0:08:43.800 --> 0:08:47.640 important signal. So to me, Java's claims have been the 0:08:47.640 --> 0:08:50.440 best labor indicator in this post pandemic cycle, because even 0:08:50.440 --> 0:08:53.680 though we've gone through this low hiring cycle, hiring rate plunged, 0:08:53.800 --> 0:08:56.360 came down to you know, more than a decade low. 0:08:57.160 --> 0:09:00.280 You didn't have the response that you would tip we 0:09:00.360 --> 0:09:02.720 see on the layoff side. So to me, that's why 0:09:02.920 --> 0:09:05.280 the labor stuff at least from a non farm payroll 0:09:05.320 --> 0:09:07.480 sense has been a little bit of that false positive 0:09:07.480 --> 0:09:09.480 because if you do strip out you know what happened 0:09:09.480 --> 0:09:11.319 with local government, if you strip out what happened with 0:09:11.360 --> 0:09:13.920 the World Cup kind of hangover effect, you were still 0:09:13.960 --> 0:09:16.920 not positive on payrolls in July. It wasn't great. We 0:09:16.960 --> 0:09:19.160 also probably have a lower break even rate at this point. 0:09:19.400 --> 0:09:21.760 Fishures up twenty four right now, down fishers up two 0:09:21.800 --> 0:09:24.680 hundred nanasec lifts six cents of a percent of vis 0:09:25.040 --> 0:09:27.760 up to sixteen, comes back down mid range for the 0:09:27.760 --> 0:09:31.000 week fifteen zero point sixty seven the best and yield. 0:09:31.040 --> 0:09:33.520 I'm starting to call it that five point two five 0:09:33.559 --> 0:09:37.480 percent fractally elevated. Still some real stressor in a thirty 0:09:37.520 --> 0:09:40.439 year on five point twenty five percent. We're gonna rip 0:09:40.520 --> 0:09:42.800 up script right now. We do that with Isabelle Lem's 0:09:42.840 --> 0:09:47.760 studio with Kevin Gordon. In Denmark, a gallon in US 0:09:47.800 --> 0:09:53.240 dollars of diesel and Copenhagen approaches ten dollars, a galau 0:09:53.840 --> 0:09:58.719 in Berlin at eight dollars, Madrid eight dollars. In the Philippines, 0:10:00.040 --> 0:10:05.040 ninety eight percent of their petroleums imported there, and they're poppin' 0:10:05.440 --> 0:10:08.880 nothing like ten dollars a gallon US dollars. 0:10:08.679 --> 0:10:11.720 And the minimum wage back home is ten dollars a day. 0:10:12.000 --> 0:10:12.840 Okay, that's why I. 0:10:12.720 --> 0:10:17.400 Ask, perfectly said, But Kevin, talk about the Brent crew 0:10:17.480 --> 0:10:20.000 to the gallon, I guess here ninety four dollars seven 0:10:20.040 --> 0:10:24.040 cents on Brent to the third world to the parcific rim. 0:10:24.400 --> 0:10:27.040 The distillate effect here is just immense. 0:10:27.240 --> 0:10:29.360 I know, I think when you're talking about the Philippines 0:10:29.640 --> 0:10:31.720 Asbille and I talk about sort of our home countries 0:10:31.760 --> 0:10:33.880 a lot, I think about Korea being having that import 0:10:33.880 --> 0:10:37.960 bias too. I mean, is it is amazing. I think 0:10:38.000 --> 0:10:40.560 the sort of the disconnect in terms of what we 0:10:40.600 --> 0:10:42.960 feel here in the West, especially being in a country 0:10:43.000 --> 0:10:44.920 where you know, we're a lot more insulated in terms 0:10:44.960 --> 0:10:48.440 of oil production versus having that depended. So it the 0:10:48.480 --> 0:10:52.080 longer this conflict persists, you do raise that question again 0:10:52.360 --> 0:10:55.640 of the difference between price increases being your biggest problem, 0:10:55.679 --> 0:10:57.760 which is clearly the case in a country like the 0:10:57.840 --> 0:11:02.120 US versus actual oil uh and and energy sort of 0:11:02.120 --> 0:11:04.839 physical you know, shortages. That's that's the difference that you're 0:11:04.840 --> 0:11:07.400 sort of dealing with. But even in the US. You know, 0:11:07.440 --> 0:11:09.400 you sort of have to put a chart out on 0:11:09.600 --> 0:11:12.960 Twitter yesterday where you know, the rolling correlation between yields 0:11:13.000 --> 0:11:15.880 and oil prices has approached almost an all time high. 0:11:16.080 --> 0:11:19.080 And the longer that you see gasoline prices sort of 0:11:19.160 --> 0:11:23.319 rise and stay higher, that acts as ultimately the consumer 0:11:23.360 --> 0:11:24.600 will start to treat that as a pet. 0:11:24.600 --> 0:11:27.520 I mean, I get the price five dollars cents of 0:11:27.520 --> 0:11:30.920 Manila outside of Makati. They don't sell diesel in Maccati, 0:11:31.280 --> 0:11:35.160 and is so Korea is five dollars thirty cents? Is well, 0:11:35.240 --> 0:11:37.880 I mean those are low numbers, but as you say, Isabelle, 0:11:38.200 --> 0:11:40.520 these are nations with a complete reset. And what the 0:11:40.559 --> 0:11:43.000 wages the wages you said, ten dollars a day. 0:11:43.160 --> 0:11:46.160 It's really honestly very hard. In the Philippines, they've imposed 0:11:46.200 --> 0:11:48.520 a lot of work from home because people just can't 0:11:48.520 --> 0:11:49.560 afford to go to work. 0:11:49.559 --> 0:11:51.760 They literally can't afford the guests to go to work. 0:11:52.240 --> 0:11:54.640 U slash Internet there is so slow it'll take you 0:11:54.679 --> 0:11:55.240 a whole day. 0:11:55.720 --> 0:12:02.199 The highway there's called the edsa am I right days right. 0:12:02.080 --> 0:12:04.480 Plus they do they do more rolling blackouts there too, 0:12:04.559 --> 0:12:06.360 so there's a lot more energy disruption. 0:12:06.960 --> 0:12:09.120 Well, if you should come with me. I'm going in 0:12:09.240 --> 0:12:12.240 up to Let's go. Let's go Tom, but Tom all 0:12:12.240 --> 0:12:13.800 the travels first class. I'm sorry. 0:12:14.400 --> 0:12:19.480 We could remote from the peninsula, right, you know, we 0:12:19.559 --> 0:12:22.800 could do a thing for the beautiful hotel right by 0:12:22.840 --> 0:12:26.000 the Ile triangle. Is that what it's called? Very good? 0:12:26.200 --> 0:12:27.600 Yes, you definitely did. 0:12:27.559 --> 0:12:29.320 Bring Schwab along with us as well. 0:12:29.559 --> 0:12:30.600 Yes, conduct the fields. 0:12:31.120 --> 0:12:33.400 So I think this is really really important and that 0:12:34.480 --> 0:12:37.320 and that there's there's more going on here than just 0:12:37.360 --> 0:12:41.280 what a gallon of gases the wall still, it's the refineries. 0:12:41.840 --> 0:12:42.920 It's a huge impact. 0:12:42.960 --> 0:12:43.880 It is a huge impact. 0:12:43.920 --> 0:12:44.280 I think that. 0:12:44.400 --> 0:12:46.400 And and you know clearly the big wild cart and 0:12:46.480 --> 0:12:48.800 all this has been China over the past several months. 0:12:48.840 --> 0:12:51.079 I mean the import activity and sort of the collapse 0:12:51.120 --> 0:12:53.560 that you've seen and the plunge and import activities. So 0:12:53.600 --> 0:12:56.000 all it really takes is, you know, China sort of 0:12:56.000 --> 0:12:58.840 flip that back on and to see what they do 0:12:58.880 --> 0:13:01.160 with that. I think will be crucial in terms of 0:13:01.200 --> 0:13:03.520 the oil market for the rest of the year because 0:13:03.720 --> 0:13:05.720 that does have a potential to sort of be this 0:13:05.840 --> 0:13:07.800 really big swing factor when it comes to prices. 0:13:07.840 --> 0:13:10.960 Again, thank you so much for coming in. Thanks listening 0:13:10.960 --> 0:13:15.080 son is Kevin Gordon with stay with Us more from 0:13:15.120 --> 0:13:17.800 Bloomberg Surveillance coming up after this. 0:13:25.040 --> 0:13:28.600 You're listening to the Bloomberg Surveillance podcast. Catch US Live 0:13:28.679 --> 0:13:31.840 weekday afternoons from seven to ten am Eastern Listen on 0:13:31.920 --> 0:13:35.600 Applecarplay and Android Auto with the Bloomberg Business app, or 0:13:35.720 --> 0:13:37.439 watch US Live on YouTube. 0:13:37.840 --> 0:13:41.439 Joining US now from Boston, Emily Rowland with John Hancock 0:13:41.800 --> 0:13:45.360 and Manual Life. Greatly appreciate her here and she has 0:13:45.400 --> 0:13:49.440 been on board as a bull for quite quite some time. 0:13:49.880 --> 0:13:53.080 The market agrees with you. On a lazy Friday morning 0:13:53.880 --> 0:13:59.360 in August, Emily, what is the distinctive, distinctive argument to 0:13:59.520 --> 0:14:02.400 stand vested given the stresses of the week. 0:14:03.480 --> 0:14:06.240 Well, there's certainly a lot that's been said about earnings 0:14:06.280 --> 0:14:09.760 when we know how explosive this earning season was. But 0:14:10.120 --> 0:14:12.160 I think the other thing that's not being talked about 0:14:12.200 --> 0:14:16.160 as much is the currency market. So everybody's looking at 0:14:16.160 --> 0:14:19.160 the treasury market as a catalyst for what could cause 0:14:19.200 --> 0:14:22.880 downside volatility in stocks. But our argument would be as 0:14:22.920 --> 0:14:26.560 long as a US dollars weaker, which was significantly weaker, 0:14:27.480 --> 0:14:30.760 you know, since this announcement earlier in the week, that 0:14:30.920 --> 0:14:33.040 is a risk on catalyst. It's hard to see a 0:14:33.040 --> 0:14:36.760 lot of downside for markets here based on these currency trends, 0:14:36.800 --> 0:14:38.160 So that's what we would be watching. 0:14:38.680 --> 0:14:39.200 So emily. 0:14:39.360 --> 0:14:42.200 Is the dollar's biggest advantage right now, it's currency reserves 0:14:42.240 --> 0:14:45.360 data service that simply maybe that US really yields are 0:14:45.400 --> 0:14:46.120 still attractive. 0:14:46.920 --> 0:14:50.080 Yeah, Isabelle, it's really this idea that the dollar is 0:14:50.120 --> 0:14:55.640 this kind of liquidity release valve. It is loosens financial conditions. 0:14:55.680 --> 0:14:59.080 It benefits international equities even more than it does US. 0:14:59.320 --> 0:15:02.720 If you're watching this week, international equities are handily outperforming 0:15:02.760 --> 0:15:05.440 the US. Even though the data haven't really been all 0:15:05.440 --> 0:15:08.720 that great overseas, it doesn't matter. They're benefiting from the 0:15:08.720 --> 0:15:11.360 weaker dollar. This is a risk on market. It's been 0:15:11.400 --> 0:15:15.240 fueled by momentum, by technicals, by algos I think underneath 0:15:15.280 --> 0:15:18.880 the surface here and so again, the weaker dollars really 0:15:18.920 --> 0:15:22.280 that critical picture piece of the macro picture that we 0:15:22.320 --> 0:15:23.720 think bears watching. 0:15:23.920 --> 0:15:26.680 Going quickly into stocks because I did like your note 0:15:26.720 --> 0:15:28.680 you said the bond market is the most hated, but 0:15:28.720 --> 0:15:30.360 that everyone loves the stock market. 0:15:30.600 --> 0:15:31.120 I love that. 0:15:31.440 --> 0:15:34.640 So Magnificent seven, they're down, equal weight stocks are up, 0:15:34.720 --> 0:15:37.280 so that I think up nearly ten percent. In fact, 0:15:37.560 --> 0:15:39.880 is this a healthy rotation in your view or just 0:15:39.920 --> 0:15:42.280 the beginning of the end for megacap dominance. 0:15:43.160 --> 0:15:46.800 This is one of the best signs or best periods 0:15:46.800 --> 0:15:49.960 of diversification that we've ever seen. Like everybody comes on 0:15:50.080 --> 0:15:53.040 and they say it's all about diversification, like it's working. 0:15:53.800 --> 0:15:55.400 This great rotation. 0:15:55.240 --> 0:15:57.160 Is probably one of the biggest themes that we've been 0:15:57.200 --> 0:15:59.760 watching throughout the course of twenty twenty six. And what 0:15:59.760 --> 0:16:02.760 we've been doing is we've still been overweight tech. Tom 0:16:02.840 --> 0:16:06.040 knows that we've been overweight technology stock for over ten years. 0:16:06.720 --> 0:16:09.520 But we've looked at where the cash flows are going. 0:16:10.640 --> 0:16:13.640 There's an old phrase that earnings or opinion and cash 0:16:13.640 --> 0:16:16.040 flows are fact, and so what we've been doing is 0:16:16.040 --> 0:16:19.000 we've been looking at where the big hyperscalers are spending. 0:16:19.280 --> 0:16:20.560 We've been going downstream. 0:16:20.600 --> 0:16:24.040 We've been looking at things like industrials, utilities, really the 0:16:24.320 --> 0:16:26.680 you know again the picks and shovels around the AI 0:16:26.800 --> 0:16:30.080 build out, and looking for places where frankly, the earnings 0:16:30.080 --> 0:16:33.040 bar is easier. Industrials had an earnings bar up the 0:16:33.120 --> 0:16:35.680 high single digits. We want to look for places where 0:16:35.720 --> 0:16:38.080 that bar is more reasonable and where we can see 0:16:38.080 --> 0:16:38.840 the money flowing. 0:16:39.160 --> 0:16:42.080 Emily, you have an advantage. It's an unfair advantage, but 0:16:42.080 --> 0:16:44.560 we're going to take advantage of it. At right now 0:16:44.960 --> 0:16:47.160 you get to work with a guy named Matt Michigan. 0:16:47.520 --> 0:16:50.920 And I mean the bottom line here is from the 0:16:51.000 --> 0:16:53.800 equity view and all of our listeners and viewers with 0:16:54.000 --> 0:16:57.040 retirement plans, they're inequity. They own too much in Vidia. 0:16:57.160 --> 0:17:01.560 Unlike me et ceter. The answer is an equity animal 0:17:01.680 --> 0:17:05.520 has to study the bond market. When Emily Roland does 0:17:05.560 --> 0:17:08.040 that with Matt Miskin, what do you talk about. 0:17:09.480 --> 0:17:12.040 Well, we just got off the phone for an hour 0:17:12.119 --> 0:17:14.320 this morning, so we talk about everything that you can 0:17:14.359 --> 0:17:14.679 think of. 0:17:14.720 --> 0:17:17.000 And you're right, Matt is the absolute best. 0:17:17.160 --> 0:17:20.280 But really it's this idea lately that we've been talking 0:17:20.320 --> 0:17:23.600 about is sentiment. So everybody's looking to figure out what 0:17:23.800 --> 0:17:26.000 is it that's causing bon yields to go up. The 0:17:26.160 --> 0:17:28.800 argument is about inflation. Well that doesn't make a ton 0:17:28.840 --> 0:17:31.240 of sense to us. Tips break even started the year 0:17:31.280 --> 0:17:33.600 at two twenty five and we're the same at two 0:17:33.640 --> 0:17:34.760 twenty seven right now. 0:17:35.000 --> 0:17:37.160 It's not an upside surprise on growth. 0:17:37.359 --> 0:17:40.640 In fact, the US Economic Surprise Index has rolled over. 0:17:40.760 --> 0:17:43.440 We lost twenty three thousand jobs last month. We had 0:17:43.480 --> 0:17:47.040 soft PPI and CPI, we had softer retail sales. Then 0:17:47.080 --> 0:17:50.439 everybody starts talking about the deficit. Well why now, the 0:17:50.520 --> 0:17:52.720 last time we had a surplus was in two thousand 0:17:52.760 --> 0:17:56.080 and two and bond yields were guess what, five percent? 0:17:56.480 --> 0:17:57.960 So it comes down to sentiment. 0:17:58.240 --> 0:18:02.720 Everybody hates bonds, everybody loves stocks. When we find ourselves 0:18:02.720 --> 0:18:05.640 in this environment and there's a hated asset class, that's 0:18:05.680 --> 0:18:08.679 where our conversation goes. And I'll tell you from our experience, 0:18:09.040 --> 0:18:12.359 everybody hates spawns right before they love them again. 0:18:12.440 --> 0:18:14.240 I mean, folks, you do this every day. We do 0:18:14.280 --> 0:18:17.320 it for Isabelle, who's too busy working on fancy stuff 0:18:17.320 --> 0:18:20.960 over at Bloomberg News. The SPX drawdown now it's cratered. 0:18:21.240 --> 0:18:24.000 It's down two point two three percent. Wow. I mean 0:18:24.000 --> 0:18:28.520 it's absolute massive pullback there twelve months trailing Dow up 0:18:28.560 --> 0:18:32.760 eighteen percent, SPX up twenty percent, all in Nasca cup 0:18:32.760 --> 0:18:35.920 twenty three and a half percent. Isabelle, it's a terrible market. 0:18:36.040 --> 0:18:38.679 It's in terrible market. And you're forgetting bitcoin, Tom, I 0:18:38.760 --> 0:18:40.640 know you omitted bitcoin. 0:18:40.840 --> 0:18:43.560 It's that best week on track for the best week 0:18:43.600 --> 0:18:44.520 in three years. 0:18:44.560 --> 0:18:45.880 So risk appetite is. 0:18:45.800 --> 0:18:48.320 I have no idea what that's signals. See Isabelle Lee 0:18:48.440 --> 0:18:50.480 with Emily Rowland of Manulife and. 0:18:50.560 --> 0:18:53.840 John Ancott Emily So if you'ld say above five percent, 0:18:53.960 --> 0:18:55.440 where does the pressure move next? 0:18:55.440 --> 0:18:56.000 In your view? 0:18:56.080 --> 0:18:58.959 Is there an investment playbook in this policy regime? 0:19:00.080 --> 0:19:02.360 Yeah, I mean it's amazing that some of the stats 0:19:02.440 --> 0:19:06.080 you laid out, and it's like people just cannot get 0:19:06.240 --> 0:19:09.399 enough risk in their portfolio. So like they started with 0:19:09.440 --> 0:19:12.200 small caps and emerging market equities and like now we're 0:19:12.240 --> 0:19:15.760 onto bitcoin. So I think, you know, taking some chips 0:19:15.800 --> 0:19:18.280