WEBVTT - Bloomberg Surveillance TV: August 21st, 2026 0:00:02.360 --> 0:00:06.720 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordert. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.840 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.000 Terminal and the Bloomberg Business app. We begin the South 0:00:37.040 --> 0:00:39.960 with stocks and bonds holding steady. Patrick Armstrong of Plurimi 0:00:40.000 --> 0:00:43.120 Wealth Writing, I expect thirty year bond yards to continue 0:00:43.120 --> 0:00:46.160 to move higher on terrible debt dynamics until it forces 0:00:46.440 --> 0:00:50.000 more prudent government spending. Patrick joins us now for more. Patrick, 0:00:50.000 --> 0:00:52.080 good morning, good to see you. Are you not buying 0:00:52.520 --> 0:00:54.520 the stability of the last twenty four hours. 0:00:55.160 --> 0:00:57.960 No. I think Beside actually had a bit of a 0:00:58.000 --> 0:01:01.920 knee jerk reaction, and the correct call would have been 0:01:02.040 --> 0:01:05.600 something more prudent about where the government was going to 0:01:05.600 --> 0:01:09.600 get with fiscal sustainability, rather than trying to manipulate yields, 0:01:09.640 --> 0:01:12.880 which is a very short term measure, and it's something 0:01:12.880 --> 0:01:16.679 he can't follow through on. Unfortunately, it's something that the 0:01:16.720 --> 0:01:18.960 Fed could do, but the Treasury won't have enough power 0:01:18.959 --> 0:01:22.479 to control the thirty year yield. Treasury Secretary should say 0:01:22.480 --> 0:01:25.479 market forces drive thirty year. He controls the two year. 0:01:25.520 --> 0:01:28.080 Patrick So that point, what do you think has spooked 0:01:28.080 --> 0:01:31.320 the Treasury secretary? He's got more experience in financial markets 0:01:31.360 --> 0:01:34.200 than many of us. He understands these dynamics. He also 0:01:34.280 --> 0:01:36.640 understands that relatively speaking, the thirty year piece of the 0:01:36.720 --> 0:01:40.320 yield CUB is not as important either to the Treasury 0:01:40.880 --> 0:01:43.120 or to the economy. What do you think has prompted 0:01:43.120 --> 0:01:43.559 this move? 0:01:44.760 --> 0:01:48.000 It's hard to understand it, actually, just because it is 0:01:48.040 --> 0:01:50.920 a very knee jerk reaction for someone who's supposed to 0:01:50.960 --> 0:01:56.440 be the steady hand, thoughtful secretary, and it is surprising. 0:01:56.440 --> 0:01:59.280 I think it's probably backfired. It's probably going to push 0:01:59.360 --> 0:02:03.240 him to do more to follow through. And anytime you 0:02:03.360 --> 0:02:06.120 try to control thirty year yield, it's always going to 0:02:06.160 --> 0:02:08.160 be the market that wins. Unless you're the FED that 0:02:08.240 --> 0:02:11.480 has the unlimited balance sheet, you can't do that as 0:02:11.520 --> 0:02:13.360 the Treasury secretary. 0:02:13.000 --> 0:02:16.080 Well, this also isn't just a US issue, Patrick, And 0:02:16.160 --> 0:02:18.720 I'm curious, how much do you think that the US 0:02:18.800 --> 0:02:21.840 has control at a time where long term yields around 0:02:21.880 --> 0:02:24.320 the world are rising to multi decade highs. 0:02:25.720 --> 0:02:29.600 I think it's the market forces acknowledging but still not enough. 0:02:29.960 --> 0:02:35.680 The populist policies, the protectionist policies, nationalistic policies, trade wars, wars, 0:02:36.080 --> 0:02:41.200 environmental volatility creating supply shocks. All that's unequivocally inflation area, 0:02:41.200 --> 0:02:44.480 and the market's still far too complacent. Over the next 0:02:45.000 --> 0:02:48.000 ten years, two point two percent inflation is the break even. 0:02:48.040 --> 0:02:50.000 Over the next thirty years, you've got two point three 0:02:50.040 --> 0:02:54.000 percent break even. And there's so many forces that governments. 0:02:54.080 --> 0:02:58.359 Populist governments won't consider austerity, they won't consider tax increases, 0:02:58.680 --> 0:03:01.160 so a debasement strategy becomes the corner solution. 0:03:01.960 --> 0:03:05.360 Why has the why have these fears not undermined some 0:03:05.480 --> 0:03:09.480 of the risk appetite that we've seen so far this year, Well, they. 0:03:09.400 --> 0:03:14.040 Have been relatively contained. The thirty year yields moving higher, 0:03:14.120 --> 0:03:17.280 it's not spiking higher. You still have the FED that 0:03:17.360 --> 0:03:18.960 I think is going to be on hold for this year, 0:03:19.000 --> 0:03:20.840 so you're still getting a lot of liquidity at the 0:03:20.840 --> 0:03:24.960 front end of the curve and speculative activities driven by 0:03:25.040 --> 0:03:29.519 phenomenal earnings growth. Equities are delivering incredible top line growth, 0:03:29.560 --> 0:03:34.440 improving profit margins, and earnings growth continues to be consensus estimates, 0:03:34.520 --> 0:03:38.080 driven primarily by the hyperscaler spend and all the companies 0:03:38.120 --> 0:03:39.800 that are servicing those hyperscalers. 0:03:39.920 --> 0:03:42.840 Patrick, you said the devicement trides back. There's many different flavors. 0:03:42.880 --> 0:03:45.040 You can sell the dollar, you can buy gold, bitcoins 0:03:45.040 --> 0:03:47.840 at a massive week is the equity story. Part of 0:03:47.920 --> 0:03:49.480 the deviasement trade is not a place to be. 0:03:51.080 --> 0:03:54.520 That's a reasonable place. I prefer to bitcoin or to gold. 0:03:54.560 --> 0:03:57.520 I much prefer gold miners to gold itself, because if 0:03:57.560 --> 0:04:00.440 gold spikes higher on debasement, the gold miners are already 0:04:00.480 --> 0:04:04.360 so profitable, and that profitability just spikes higher with gold prices. 0:04:04.720 --> 0:04:07.440 And there's also scenarios where gold does nothing, but the 0:04:07.480 --> 0:04:12.320 gold miners are very profitable. Equities are a nominal earnings 0:04:12.360 --> 0:04:14.800 glows story as well. So if you do get inflation, 0:04:14.880 --> 0:04:17.880 you may have higher yields that discount multiples, but nominal 0:04:17.920 --> 0:04:20.599 earnings equities do give you that as well. So I 0:04:20.600 --> 0:04:23.840 do think equities are a good place to be if 0:04:23.839 --> 0:04:25.240 it is a debasement trade. 0:04:25.279 --> 0:04:28.719 Patrick John was talking about how dramatic this year has felt, 0:04:28.920 --> 0:04:31.880 even though we really haven't seen necessarily the drama come 0:04:31.960 --> 0:04:35.000 through in either volatility metrics or in any kind of 0:04:35.080 --> 0:04:38.400 risk off moment that is significant. Do you expect that 0:04:38.520 --> 0:04:40.840 to change or is this the new normal for you? 0:04:40.960 --> 0:04:44.160 Even with the underlying fears of this debasement, of this 0:04:44.600 --> 0:04:47.400 overhang of fiscal imprudence. 0:04:48.880 --> 0:04:52.440 It will come to a point if the fiscal situation 0:04:52.760 --> 0:04:58.360 does keep deteriorating and paying back tariff revenues, not increasing 0:04:58.400 --> 0:05:03.160 the tax space really and huge spending on wars, it 0:05:03.240 --> 0:05:06.800 isn't sustainable, and the bond vigilantes get more and more 0:05:06.880 --> 0:05:11.240 powerful every day that the fiscal situation deteriorates, and there 0:05:11.240 --> 0:05:14.480 will come a very important moment where yields do put 0:05:14.560 --> 0:05:18.719 pressure on the whole economy, on the whole equity market 0:05:18.720 --> 0:05:21.560 as well, because multiples come down as yields go higher, 0:05:21.600 --> 0:05:24.600 and there's so much borrowing now. The hyperscalers used to 0:05:24.640 --> 0:05:27.520 produce so much cash, they used to be net cash positive, 0:05:27.560 --> 0:05:30.760 and now they're borrowing issuing equities, So there is a 0:05:30.880 --> 0:05:34.320 huge amount of debt isshuents from companies Corporate America as 0:05:34.320 --> 0:05:37.040 well as the fiscal side of things of the government. 0:05:37.640 --> 0:05:40.919 It's very difficult. It's an elastic on a brick, but 0:05:41.040 --> 0:05:43.200 that elastic keeps getting pulled further every day. 0:05:43.520 --> 0:05:56.640 Stay with us Multilomberg surveillance coming up after this pressure 0:05:56.680 --> 0:05:58.720 building on French share cabin watch as he gives up 0:05:58.760 --> 0:06:01.240 for his debut keynote. Speak to jenckson Hole next week 0:06:01.400 --> 0:06:05.200 with markets seeking policy clarity, Money Brooks of TV Securities writing, 0:06:05.480 --> 0:06:07.920 I don't think a one hundred and eighty shift on 0:06:08.080 --> 0:06:11.560 forward guidance. Some investors maybe expecting a shift due to 0:06:11.640 --> 0:06:15.279 recent messaging, but he could disappoint markets if he doesn't 0:06:15.279 --> 0:06:17.680 tell us enough. Molly joins us now for more money. 0:06:17.720 --> 0:06:19.680 Good morning, it's going to say thanks for thin kit. 0:06:19.800 --> 0:06:21.800 What are the questions that you think this fetchen needs 0:06:21.839 --> 0:06:23.240 to answer a week today. 0:06:24.040 --> 0:06:26.560 I think that the best thing that he can do 0:06:26.839 --> 0:06:30.719 is to give some type of reaction function here. Obviously, 0:06:31.360 --> 0:06:35.080 the I guess likelihood of giving actual forward guidance going 0:06:35.120 --> 0:06:39.000 forward seems unlikely at this point, but giving some type 0:06:39.040 --> 0:06:42.680 of reaction function would be very helpful to markets. I 0:06:42.720 --> 0:06:46.000 think that it would be taken well, But in terms 0:06:46.040 --> 0:06:48.440 of Jackson Hole, we do think that there is somewhat 0:06:48.480 --> 0:06:52.159 of an asymmetric risk. It's most likely going to be 0:06:52.680 --> 0:06:56.159 disappointing to markets if he doesn't come out with enough 0:06:56.160 --> 0:06:59.320 information here, whereas there's not that much to gain in 0:06:59.400 --> 0:07:01.680 terms of if you does give us some clarity on 0:07:01.720 --> 0:07:04.039 a reaction function, just because we don't think he's going 0:07:04.080 --> 0:07:05.760 to give us quite enough there. 0:07:06.320 --> 0:07:08.599 If it's limited in communication, is that a reason to 0:07:08.600 --> 0:07:10.840 sound the long end? That was the story the news 0:07:10.840 --> 0:07:12.880 conference a few wednesdays ago, is that the story for 0:07:12.920 --> 0:07:13.520 next Friday. 0:07:14.320 --> 0:07:16.240 I think that there will be some concerns around the 0:07:16.240 --> 0:07:19.000 long end, but the recent backup in the long end 0:07:19.080 --> 0:07:22.240 over the last month or two was actually driven more 0:07:22.360 --> 0:07:26.600 on term premium and growth expectations rather than the inflation 0:07:26.760 --> 0:07:30.720 credibility that had been driving it posts June, f O, 0:07:30.800 --> 0:07:34.160 and C. So I think that some of the backup 0:07:34.240 --> 0:07:37.200 is not actually due to the FED here. It's actually 0:07:37.280 --> 0:07:41.760 due to external factors such as AI issuance. But montary 0:07:41.760 --> 0:07:45.320 policy uncertainty certainly feeds into higher term premium, so it's 0:07:45.320 --> 0:07:48.920 certainly not helping. But I don't think the entire story 0:07:48.960 --> 0:07:50.680 here is the FED for the long end. 0:07:51.000 --> 0:07:52.560 John asked the question earlier, and I think it's a 0:07:52.560 --> 0:07:55.200 really important question. What did Scott vest and see that 0:07:55.320 --> 0:07:58.320 made him want to take action now this week when 0:07:58.360 --> 0:07:59.600 it came to thirty year yields. 0:08:00.080 --> 0:08:03.200 Yeah, that was very unusual just in terms of it being, 0:08:03.240 --> 0:08:05.280 you know, two weeks after the refunding, we got the 0:08:05.440 --> 0:08:09.120 tentative buyback schedule two weeks ago, and then two weeks later, 0:08:10.080 --> 0:08:12.400 we're not that much higher in the thirty year and 0:08:12.560 --> 0:08:15.520 we decide to, you know, surprise markets in terms of 0:08:15.560 --> 0:08:18.920 issuing this spyback. It might just be a bit of 0:08:18.960 --> 0:08:22.560 a kind of way to surprise markets and to kind 0:08:22.560 --> 0:08:26.120 of send that message out there. In the refunding, they 0:08:26.160 --> 0:08:29.679 did change the language in terms of instead of increasing 0:08:29.720 --> 0:08:33.079 auction sizes, are increasing the treasury composition. They did change 0:08:33.080 --> 0:08:35.160 it to changes. So that did signal that they are 0:08:35.160 --> 0:08:39.079 maybe willing to cut long and supply. But this kind 0:08:39.120 --> 0:08:41.160 of sends more of a signal to markets, I think, 0:08:41.240 --> 0:08:42.840 and that's why we see that reaction. 0:08:43.320 --> 0:08:47.000 How difficult is it to have a rates forecast when 0:08:47.240 --> 0:08:49.319 there are a lot of different actors that have a 0:08:49.320 --> 0:08:51.160 lot of different desires and a lot of different tools 0:08:51.160 --> 0:08:55.959 that they're using to try to maybe target specific levels 0:08:56.040 --> 0:08:59.360 or specific paces of a sell off for some sort 0:08:59.360 --> 0:08:59.840 of rally. 0:09:00.520 --> 0:09:02.600 Yeah, there's definitely a lot of different factors at this 0:09:02.679 --> 0:09:06.479 point that we're that we're looking at. In terms of uncertainty, 0:09:06.520 --> 0:09:10.040 it's definitely increasing. We do see as monetary policy and 0:09:10.120 --> 0:09:15.319 certainty and market uncertainty increases, we see increasing volatility in markets. 0:09:15.360 --> 0:09:17.880 And because of that, it also makes it more and 0:09:18.000 --> 0:09:20.840 less likely to be you know, having these large moves. 0:09:20.880 --> 0:09:23.480 So even if you have a forecast it's you know, 0:09:23.600 --> 0:09:26.120 maybe twenty thirty basis points from where we are today. 0:09:26.160 --> 0:09:29.400 I don't think anyone really thinks that's that out of 0:09:30.320 --> 0:09:32.320 touch at this point, just given that we can move 0:09:32.360 --> 0:09:34.360 you know, ten basis points on the long end of 0:09:34.360 --> 0:09:34.880 the day. 0:09:35.040 --> 0:09:38.480 Stay with us mult Bloomberg surveillance coming up off to this. 0:09:47.760 --> 0:09:50.760 Judy bial of Cain Andison Roundnick writes in the match 0:09:50.800 --> 0:09:53.080 up in interest rates is a headwind to the economy, 0:09:53.120 --> 0:09:57.360 particularly an economy building gowns some critical infrastructure. Judy joined 0:09:57.400 --> 0:09:59.920 just now for more Judy framing ready matches and welcome 0:09:59.920 --> 0:10:02.480 to the program. You could easily frame this as a 0:10:02.520 --> 0:10:06.080 reflection of strength nousewhere equally as you have done, you 0:10:06.120 --> 0:10:09.320 can frame this as a potential headwind to future growth 0:10:09.440 --> 0:10:12.560 and returns in markets. Are we much closer to one 0:10:12.600 --> 0:10:13.400 ano the other now? 0:10:14.800 --> 0:10:17.319 I do think that for me, you know, the concern 0:10:17.360 --> 0:10:20.320 that a lot of markets have is that we're overbuilding 0:10:20.640 --> 0:10:22.440 and that this is a bubble. And I think that 0:10:22.520 --> 0:10:25.559 what's kind of nice if you have a perverse perspective 0:10:25.640 --> 0:10:28.000 like I do, is that we've created a lot of 0:10:28.040 --> 0:10:30.960 friction that kind of slows the ability for the bubble 0:10:31.000 --> 0:10:33.640 to really get out of control. It still can, there's 0:10:33.800 --> 0:10:36.360 it's got lots of potential given the level of capex, 0:10:36.720 --> 0:10:38.440 but I do think that the level of interest rates 0:10:38.480 --> 0:10:42.440 acts as a moderating force. I think the public protest 0:10:42.520 --> 0:10:45.200 over data centers is also its own kind of form 0:10:45.280 --> 0:10:50.080 of you know, modulator on the expansive growth. But I 0:10:50.080 --> 0:10:53.079 think that the economy, unfortunately on the stock market specifically, 0:10:53.200 --> 0:10:56.480 is quite dependent on further growth from here. And so 0:10:56.880 --> 0:10:59.880 while I think that economically it's probably going to push 0:11:00.320 --> 0:11:03.480 a little bit of the expansive growth, I do worry 0:11:03.520 --> 0:11:05.320 a little bit of what that means for the stock market. 0:11:05.480 --> 0:11:07.640 Jinny, you think it begins to way then on the 0:11:07.679 --> 0:11:09.439 AI trade, that's been building up in a big way 0:11:09.480 --> 0:11:10.760 in what part of the AI trade. 0:11:11.000 --> 0:11:15.600 More specifically, I think that for now people feel really confident. 0:11:15.679 --> 0:11:17.440 I think that in the very near term, when we 0:11:17.480 --> 0:11:20.760 look at the semiconductor earnings reports, they're really quite strong, 0:11:21.080 --> 0:11:23.280 and for the most part, I think people think, Okay, 0:11:23.400 --> 0:11:25.760 for the rest of the year, probably everything is fine, 0:11:25.840 --> 0:11:27.880 everything can kind of get done. I think is in 0:11:27.920 --> 0:11:30.360 twenty twenty seven that people start to have questions, Okay, 0:11:30.559 --> 0:11:32.959 this level of growth that we've had in capex, it's 0:11:33.000 --> 0:11:34.719 really hard to beat it. You know, it's the law 0:11:34.760 --> 0:11:36.760 of large numbers, and that's kind of where we are 0:11:36.800 --> 0:11:39.600 in the Capex cycle. So I think that there's concern 0:11:39.679 --> 0:11:42.319 that the being able to hold that momentum is hard. 0:11:42.720 --> 0:11:45.080 I think for us, when we're thinking about all of 0:11:45.120 --> 0:11:48.160 this AI investment, why not look to the beneficiaries of 0:11:48.200 --> 0:11:51.400 the ones actually using the software, using the technology to 0:11:51.440 --> 0:11:54.200 make their businesses stronger. And the reason why is I 0:11:54.240 --> 0:11:57.120 still worry. I don't think it's totally true, but I 0:11:57.160 --> 0:12:01.040 still worry. What if artificial intelligence is like airlines, where 0:12:01.320 --> 0:12:04.280 we as consumers really benefit from the CAPEX investment, but 0:12:04.360 --> 0:12:07.560 it takes the airlines and the aircraft manufacturers decades to 0:12:07.600 --> 0:12:09.320 really make a great return, Julie. 0:12:09.320 --> 0:12:11.240 In some ways, isn't this what we're seeing with a 0:12:11.320 --> 0:12:14.400 twenty percent return in small caps so far this year 0:12:14.480 --> 0:12:18.040 that investors have been looking to the adopters rather than 0:12:18.120 --> 0:12:21.840 just investing in the hyperscalers and the other tech giants themselves. 0:12:22.720 --> 0:12:24.480 I think when you look at the Russell, for the 0:12:24.520 --> 0:12:26.839 most part, the early gains that we saw were in 0:12:26.880 --> 0:12:29.680 the picks and shovels in terms of the semiconductor companies 0:12:29.920 --> 0:12:33.040 and then the industrials that are anything that touches electrical 0:12:33.200 --> 0:12:35.760 or grid. Those stocks have really rallied. A lot of 0:12:35.760 --> 0:12:38.400 them have just doubled, and they're at multiples they haven't 0:12:38.400 --> 0:12:41.240 seen before. Now those have gotten taken out of the index. 0:12:41.280 --> 0:12:43.240 It makes the index really have to stand on its 0:12:43.280 --> 0:12:46.720 own two feet. But if I think about smaller businesses 0:12:46.800 --> 0:12:49.240 and I think about the Russell versus the SMP, the 0:12:49.320 --> 0:12:52.560 Russell has a much higher labor component than the SMP does, 0:12:52.600 --> 0:12:54.720 and so you would think that there are more businesses 0:12:54.760 --> 0:12:57.880 you can find there where the ability to automate is 0:12:57.880 --> 0:13:00.520 actually going to drive more earning's growth than the potential 0:13:00.520 --> 0:13:02.000 you would see in large cap. 0:13:02.120 --> 0:13:04.920 Julia Ford moving away from some of the really rapid 0:13:05.040 --> 0:13:08.320 growth in tech names. Does it start to make sense 0:13:08.679 --> 0:13:11.079 to invest more in the debt side of things, for 0:13:11.160 --> 0:13:14.520 you're clipping a coupon that's significant at this point, rather 0:13:14.559 --> 0:13:17.920 than the equity that's already levered to pretty fast growth. 0:13:18.720 --> 0:13:18.920 Yeah. 0:13:18.920 --> 0:13:21.000 I mean to me, that starts to make sense, right. 0:13:21.040 --> 0:13:23.400 I think it was so easy being an equity investor 0:13:23.760 --> 0:13:26.040 when interest rates were at zero percent. It's like, wow, 0:13:26.120 --> 0:13:28.360 I can really easily compete with that. It's harder now 0:13:28.400 --> 0:13:31.400 as an equity investor when a lot of these fixed 0:13:31.440 --> 0:13:34.280 income credits, you know some what are you are safer 0:13:34.320 --> 0:13:37.599 than US Treasury, Which that's a much longer discussion I 0:13:37.600 --> 0:13:39.840 don't want to really get into, but I can, you know, 0:13:39.880 --> 0:13:42.160 I can really understand it. It makes a lot of sense. 0:13:42.520 --> 0:13:45.280 I think the question is how crowded does that debt become? 0:13:45.760 --> 0:13:47.960 How easy is it to sell it if there is 0:13:48.040 --> 0:13:50.400 any kind of a hiccup? I think you really want 0:13:50.440 --> 0:13:52.199 to be able to find a certain amount of balance. 0:13:52.240 --> 0:13:54.719 But to me, it does make the equity have to 0:13:54.760 --> 0:13:58.240 work that much harder to compete against what are some 0:13:58.400 --> 0:14:00.839 really juicy yields in in fixed income. 0:14:01.679 --> 0:14:05.200 This is the Bloomberg Surveillance podcast, bringing you the best 0:14:05.280 --> 0:14:08.600 in markets, economics, and geopolitics. You can watch the show 0:14:08.640 --> 0:14:11.600 live on Bloomberg TV weekday mornings from six am to 0:14:11.720 --> 0:14:15.480 nine am Eastern. Subscribe to the podcast on Apple, Spotify, 0:14:15.640 --> 0:14:17.839 or anywhere else you listen, and as always, on the 0:14:17.880 --> 0:14:20.320 Bloomberg Terminal and the Bloomberg Business app.