Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bramwitz and Amrie Hordern. Join us each day
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Speaker 2: Terminal and the Bloomberg Business App. Joining us now to
Speaker 2: discuss is Mohammad al Arian of Queen's College, Cambridge. Mohammed,
Speaker 2: welcome to the program, Sir. I'm going to start yesterday.
Speaker 2: I'm going to go back to yesterday morning, a thirty
Speaker 2: easton time CPI drops. We were looking for you and
Speaker 2: you weren't here. You're with us. Now, what's your response
Speaker 2: to that day? To Muhammad? Because at the moment, the
Speaker 2: market is slowly gravitating to paying more attention to levels.
Speaker 2: The federal Reserve at the moment seems to be more
Speaker 2: i would say, gripped by the current trend down in
Speaker 2: curry by it. What are you focused on.
Speaker 1: So, John, sorry, I wasn't with you yesterday. I was
Speaker 1: on the road.
Speaker 3: What I'm focused on is actually summarized really well by
Speaker 3: John Authors of Bloomberg Opinion. I'm a big fan of
Speaker 3: his daily Note, and today is a very thoughtful note,
Speaker 3: and he basically leaves you with three messages.
Speaker 1: One is the fall in inflation is stalling.
Speaker 3: Two, if you look at the components, they suggest that
Speaker 3: it will continue to stall.
Speaker 1: And three is that if you.
Speaker 3: Look at the work that's being done in the different
Speaker 3: groups of economists within the FED, they also confirm that
Speaker 3: we've got a three percent inflation weight. Now, as you know,
Speaker 3: I think the equilibrium inflation weight for these countries between
Speaker 3: two and a half and three. If you continue to
Speaker 3: target two percent, then you're going to have some really
Speaker 3: difficult choices, and I think that is what's facing the
Speaker 3: FED right now.
Speaker 2: Do you think they're also slightly realizing Muhammad without in
Speaker 2: mind that they're not actually as restrictive as they think,
Speaker 2: And are you seeing evidence of that start to creep
Speaker 2: into some of the speeches you're hearing from FED officials.
Speaker 3: Yeah, I think that backing away from the view that
Speaker 3: they expressed in their last meeting, and I think that
Speaker 3: what we're getting is, you know what, maybe I can
Speaker 3: live with two percent plus for a while, because otherwise
Speaker 3: they are.
Speaker 1: In a really difficult situation.
Speaker 3: Look, the market was relieved because the market didn't look
Speaker 3: at the fact that core inflation is stuck at point
Speaker 3: three monthly for the third straight months. The market was
Speaker 3: worried that the numbers would be higher than the consensus forecasts,
Speaker 3: and that didn't happen.
Speaker 4: In the components though the BLS reported that over half
Speaker 4: of the inflation we saw, Mohammad came from shelter prices
Speaker 4: raising Claudia Sam said, we don't have an inflation problem. Now,
Speaker 4: we have a housing problem. And that's been true for
Speaker 4: over a year. We've seen the FED cut rates and
Speaker 4: mortgages move higher. Muhammad, How do you solve an inflation
Speaker 4: problem if it's underpinned by a fickle housing market.
Speaker 3: So I don't think that's the only issue, Danny, but
Speaker 3: it's an important issue.
Speaker 1: And again I'll point you to john Author's note.
Speaker 5: You can tell I really like it because you've got
Speaker 5: such a good detailed work. We love Johnson where he
Speaker 5: looks at trim the measures, where he looks at all that.
Speaker 5: The problem is services, and within services is wages.
Speaker 3: It's a good thing for the average American that real
Speaker 3: wages are growing by more than one percent. Now, that's
Speaker 3: a good thing. But it's feeding into services and that's
Speaker 3: the big issue. And it's happening at the time when
Speaker 3: grocery inflation has come down a lot, where there are
Speaker 3: negative price increases for certain food items. And the concern
Speaker 3: is that services aren't going to come down fast enough
Speaker 3: inflation wise, before good services goods inflation starts.
Speaker 4: Going up, Mohammed, If we're going to be an environment
Speaker 4: where aid potentially is the priority of this White House,
Speaker 4: tariffs are put on and American companies are broad or
Speaker 4: forced to come back and they're forced to pay American workers,
Speaker 4: is this problem not going to get a whole lot worse.
Speaker 3: So I'm in the UK here, Danny, where everybody the
Speaker 3: companies have found it totally normal to say the minute
Speaker 3: might cost go up, I'm going to pass it on.
Speaker 3: And you hear that over and over again from companies
Speaker 3: in reaction to the budget. So there is this mentality
Speaker 3: right now in the corporate world that forget about your profits,
Speaker 3: forget about all the dividends and all the share buybacks
Speaker 3: you do. If your costs go up, then you should
Speaker 3: pass it on to the consumers.
Speaker 1: So there is that risk.
Speaker 3: But I want to stress that it's really hard to
Speaker 3: model what the president elects economic promises. First you have
Speaker 3: to decide how many are going to be implemented, and
Speaker 3: then you have to decide the two counter forces. Yes,
Speaker 3: arosty inflationary, Yes, higher budget deficit will tend to put pressure.
Speaker 3: But on the other side you have a major deregulation
Speaker 3: and on the other side you have a major promise
Speaker 3: to act on the expenditure side of the budget. So
Speaker 3: when you look at these two things, the first even
Speaker 3: when you try to net it out, it is not clear.
Speaker 3: And then the second round effects get really complicated. And
Speaker 3: I tell people, regardless of what happens, we now have
Speaker 3: an inflation that's not going to go to two percent. Now,
Speaker 3: before you jump immediately to what's going to happen next,
Speaker 3: understand that you got to wait because it's really complicated
Speaker 3: economics sorting all this out.
Speaker 6: Muhammad, you have a new piece out today and you say,
Speaker 6: once again it was the economy stupid, im project syndicate,
Speaker 6: And I think, and you can tell us here. Are
Speaker 6: you trying to answer a question that our own colleague,
Speaker 6: Craig Tours asked J. Powell in the press conference, which was,
Speaker 6: did you learn anything about Americans think about the economy
Speaker 6: from the election results?
Speaker 1: Yeah?
Speaker 3: And Marie, it's fascinating because there were two economic messages
Speaker 3: sent and they're both correct.
Speaker 1: There was the.
Speaker 3: One that the Republicans pounced on, repeating the nineteen eighty
Speaker 3: Reagan question are you better off? And they were talking
Speaker 3: about the price level and people really still have sticker
Speaker 3: shock when they go to the grocery store, so that
Speaker 3: is what the average person focused on.
Speaker 6: Well, you asked a question as well in your piece,
Speaker 6: will the Democrats and establishment in quotes you put experts
Speaker 6: get the message?
Speaker 7: Will they?
Speaker 3: Well, they haven't so far because they're focused on the
Speaker 3: economic exceptionalism, which is also true, but in a ca
Speaker 3: shaped economy that doesn't trickle down as much as you'd
Speaker 3: like it to. So the Democrats stuck with the economic exceptionalism.
Speaker 3: They didn't understand that that message wasn't getting through for
Speaker 3: good reason, because people were concerned about the price level.
Speaker 3: And you know, and Marie that the more you tell
Speaker 3: some a message that doesn't speak to their reality. The
Speaker 3: more they questioned you, the more they lose trust in you.
Speaker 3: And the economists did a terrible job. The mainstream economists
Speaker 3: did a terrible job of trying to reconcile the two views,
Speaker 3: which are moreconcilable. But unfortunately the reality is that people
Speaker 3: will continue to focus on the prist level because it
Speaker 3: has been such a large shock. We're not used to
Speaker 3: seeing inflation at nine percent, which is where it was
Speaker 3: in June twenty twenty two, and that impact hasn't gone away.
Speaker 2: Mohammed, What did your thoughts on the price action? Let's
Speaker 2: talk about that. A little bit ahead of the election,
Speaker 2: you were looking at what was happening in the bond market,
Speaker 2: in the high yields, and this line came up in
Speaker 2: your Bloomberg opinion column. Well, most analysts agree on the
Speaker 2: list of potential contributors to this unusual development. FET's cutting
Speaker 2: interest rates, yields a rising there is little consensus on
Speaker 2: their relative importance. You went on to say that over
Speaker 2: the next week we should get some clarity on that.
Speaker 2: Do you have clarity now on what is driving long rates?
Speaker 3: I have more clarity on what's driving long rates, and
Speaker 3: it's exactly what you have been talking about the market
Speaker 3: is front running economic announcements, including who's.
Speaker 1: Going to be in Treasury and that's going to be
Speaker 1: really important. And I agree with and earlier today saying
Speaker 1: that that really matters.
Speaker 3: You see that the economy has continued to surprise on
Speaker 3: the upside and that has an impact. Meanwhile in Europe,
Speaker 3: and I'm glad you've been focusing on the effects situation.
Speaker 3: Things have gone in the opposite direction, John. The yield
Speaker 3: differential between tenure treasuries and tenure German government bonds, the
Speaker 3: boons are back over two hundred basis points. That's been
Speaker 3: a massive move, and it just the market has understood
Speaker 3: that divergence is a major story going forward.
Speaker 2: Now, Hammd, how much more divergent things possibly get? We've
Speaker 2: already seen aggressive widening over the past week. I was
Speaker 2: mentioning in a conversation earlier this morning at the front end,
Speaker 2: if you compare the German two year to the US
Speaker 2: two year only back in September that was treading around
Speaker 2: one thirty now is something like two twenty, so almost
Speaker 2: the one hundred basis point move on that spread. Mhammed,
Speaker 2: how much wider can things get?
Speaker 3: I think they can get wider, John, I think you know,
Speaker 3: if you look at the good, the bad, and the
Speaker 3: ugly of the global economy, Unfortunately Europe is in the ugly.
Speaker 3: Cyclically that challenged, secularly that challenged.
Speaker 1: There is no.
Speaker 3: Definitive political leadership in the two countries where you need
Speaker 3: it most, Germany and France. There's a roadmap the DRUGA report,
Speaker 3: but they're nowhere near even talking about implementation, let alone implementation.
Speaker 3: And these dynamics today mean that if you're lagging, you
Speaker 3: are likely to lag even more so, John, it wouldn't
Speaker 3: surprise me if you see that differential go higher.
Speaker 1: It wouldn't surprise me if you see the year orgo weaker.
Speaker 2: So that makes it easier, relatively speaking, to call the
Speaker 2: ECP for twenty twenty five, they're going to cut interest rates, Muhammad.
Speaker 2: There is overwhelming consensus the FED reduces rates again in December.
Speaker 2: I would love your base case for twenty twenty five.
Speaker 2: Before we get to the end of the year. You're
Speaker 2: thinking about how much work this FED can actually do
Speaker 2: and whether you think ultimately just in terms of how
Speaker 2: the communication has evolved over the past few days, we're
Speaker 2: setting ourselves out for a pause into twenty five.
Speaker 3: So first I agree with you that we are likely
Speaker 3: to see another twenty five basis points cut in December,
Speaker 3: and we should see another basis point twenty five basis.
Speaker 1: Point cut longer term.
Speaker 3: You know the range if you look at the dots
Speaker 3: of what where is the terminal weight where from about
Speaker 3: three and a half to just over sorry, from two
Speaker 3: and a quarter to just over three and three quarters,
Speaker 3: And I've argued it's towards the upper end.
Speaker 1: I suspect that that now is about four percent. That
Speaker 1: is the terminal weight for where we're going. So we
Speaker 1: will have a couple more cuts, and then it gets really.
Speaker 3: Hard to cut more unless you're willing to have the
Speaker 3: difficult discussions. And this is this is not a FED
Speaker 3: that's willing to have a difficult discussion. This is a
Speaker 3: FED that will continue to stand behind this notion of
Speaker 3: data dependency. And this is a fact that may be
Speaker 3: built out on inflation by what's happening away from it,
Speaker 3: and build out in the wrong way, meaning that inflation
Speaker 3: doesn't go to two percent, and they'll just say it's
Speaker 3: not our fault.
Speaker 2: Muhamma, and I had taught you all day, we all
Speaker 2: could what do you mean by the difficult discussion. What
Speaker 2: is the discussion that you'd like the Federal Reserved to
Speaker 2: have as soon as today? What would you like to
Speaker 2: hear from Chairman Pow at three pm Eastern time that
Speaker 2: you're not expecting to hear.
Speaker 3: So I'm definitely not expecting to hear the question. Is
Speaker 3: two percent still the right inflation target? He's not going
Speaker 3: to touch this? Hopefully behind closed door they are, because
Speaker 3: even if you don't want to change your inflation target
Speaker 3: and they won't change the inflation target.
Speaker 1: The path to that really matters.
Speaker 3: So I'm hoping that they're having a discussion what is
Speaker 3: the white neutral weight in this economy right now?
Speaker 1: What is the white inflation target?
Speaker 3: That discussion, if you had it without the historical context
Speaker 3: and without the legacy of having missed so badly on
Speaker 3: your inflation target since twenty twenty one, would be it's
Speaker 3: more between two and a half and three and that's
Speaker 3: probably the range it should be. But that's not a
Speaker 3: discussion that he will ever have publicly, not.
Speaker 2: This fat Mohammed. It's good to hear from you, sir.
Speaker 2: I appreciate your time. Mohammed al Erindav of Queen's College Cambridge.
Speaker 2: Thank you, sir, President ELK. Donald Trump's priorities coming into
Speaker 2: sharper focus. Rob Casey of Signum Global Advisors saying, we
Speaker 2: believe President elect Trump and trade advisor Robert Leiheiser are
Speaker 2: committed to implementing an aggressive terariff agenda, likely beginning with
Speaker 2: Europe and ending with China. Rob joins us Now for
Speaker 2: more Rob, Good morning John.
Speaker 1: The sequence.
Speaker 2: It's a big focus for financial market participants worldwide. You
Speaker 2: think that it's going to start with trade and it
Speaker 2: will start with Europe.
Speaker 8: Why, yeah, Well, first and foremost, it's not to say
Speaker 8: that we don't think that they're not going to wait
Speaker 8: on China for very long, but we do think that
Speaker 8: Europe is the day one priority mostly, you know, speaking
Speaker 8: very bluntly because we don't think Trump likes you up
Speaker 8: a whole lot. And you know, essentially we're dealing with
Speaker 8: a what is not a net neutral landscape but a
Speaker 8: net negative landscape. Seabam, deforestation, steel, airbus. They are all
Speaker 8: of these trip wires that you know, the pro EU
Speaker 8: presidency of Joe Biden was not able to deal with,
Speaker 8: was not able to handle. We think Trump comes into
Speaker 8: office essentially with all those tripwires laid out, not really
Speaker 8: looking to avoid them.
Speaker 6: Ron Desandis the governor of Florida is in Italy right
Speaker 6: now on a trade mission. Who do you think Trump
Speaker 6: views as someone he could work with in Europe?
Speaker 8: Well, I think it's it's Orbon first, and then when
Speaker 8: Trump realized that Auburn actually doesn't have a whole lot
Speaker 8: of power in the EU, it will be Maloney second.
Speaker 6: So when it comes to the tariffs, and if you
Speaker 6: think they're going to be enacted, first, personnel's policy, as
Speaker 6: you know in Washington, d C. Where does he put Lightheiser?
Speaker 8: We think Lightheyser could be at USTR.
Speaker 7: He could go back to us.
Speaker 8: You are, but you know, if I'm Robert Leitheiser, honestly,
Speaker 8: I'm looking for a slightly larger portfolio, a little bit
Speaker 8: of a you know, a bigger role, and that could be.
Speaker 2: A commerce that's terriffs, let's tell it taxes. Let's talk
Speaker 2: about what can actually get through Congress, and you'll view
Speaker 2: and what took place in the Senate in the last
Speaker 2: twenty four hours. How constrained will this presidency be by
Speaker 2: a Senate that for some people stand down the President
Speaker 2: elect and made its own decision a backg a different way.
Speaker 8: Yeah, well, I think we can all be sort of
Speaker 8: relieved and happy that it's going to be John Thune,
Speaker 8: who is to his core an institutionalist, so to the
Speaker 8: extent that it's not Rick Scott. John Thune presents a
Speaker 8: little bit more of a constraint, but I mean he's
Speaker 8: got fifty three votes in the Senate, so I don't
Speaker 8: think it's going to be a huge constraint moving forward.
Speaker 6: But tendor Thoon has said he will not get rid
Speaker 6: of the filibuster. So basically the only thing that can
Speaker 6: the Senate can do with that kind of majority at
Speaker 6: fifty three is tax and budget correct, Yeah, totally.
Speaker 8: We think it'll be a very big budget reconciliation package.
Speaker 8: You know, they're talking about getting it done in the
Speaker 8: first one hundred days of the term. I think that
Speaker 8: will be exceedingly difficult. We also have to realize, frankly,
Speaker 8: that we're running up to a budget cliff in December
Speaker 8: as well, so they're going to have to pass a
Speaker 8: cr in the short.
Speaker 7: Term with the current Congress.
Speaker 8: If they pass it out to January February, they're going
Speaker 8: to have to deal with that first. A larger reconciliation
Speaker 8: package after that. But there's now talk about extending the
Speaker 8: CR to September October November to give them kind of
Speaker 8: that first one hundred days latitude to get the budget
Speaker 8: or conciliation deal done.
Speaker 6: So with soon at the helm, What do you make
Speaker 6: of how the confirmation hearings are going to go.
Speaker 8: I think we can safely say, or at least I
Speaker 8: will predict that mat Gates does not get confirmed as
Speaker 8: Attorney General, so he may wind up being sort of
Speaker 8: the sacrificial lamb of the cabinet picks. I think everybody
Speaker 8: else probably gets through. Again, Trump can lose one or
Speaker 8: two Republicans in any confirmation vote and still still passes nominees.
Speaker 8: So you know, Hagseth probably going to be a longer,
Speaker 8: more difficult process. Just give them that he's not really
Speaker 8: on the books of regarding policy at all. I think
Speaker 8: mac Gates is probably the one who's struck down, and
Speaker 8: everybody else probably.
Speaker 1: Gets through Seth.
Speaker 4: Gates, though, showed us that Trump is willing to nominate
Speaker 4: people who hadn't been on anyone's list. I don't think
Speaker 4: anyone expected either of them to be put up for
Speaker 4: these jobs.
Speaker 1: Does that show us.
Speaker 4: That maybe we're too sanguine that when it comes to
Speaker 4: Treasury secretary will get kind of a classic pick, a
Speaker 4: market friendly.
Speaker 7: Pick on Treasury.
Speaker 8: I mean, I think it's going to be Best in
Speaker 8: Our or Lutnik. Frankly so to the extent that that
Speaker 8: sort of hams us in. I think that's good news.
Speaker 8: But we have to be honest and saying that Trump
Speaker 8: received a whether or not it was landslide I think
Speaker 8: is up for debate, but a national mandate, right, and
Speaker 8: he's going to put people into these jobs that a
Speaker 8: he likes and B we're very loyal to him, and
Speaker 8: he's not really going to apologize for it. He doesn't
Speaker 8: have to apologize for it. He won the national popular vote.
Speaker 8: He's got to send up majority. And so do I
Speaker 8: think we could get more surprises from here, or at
Speaker 8: least really more trump accolytes from here. Whether or not
Speaker 8: that's a surprise, yeah, I think we could.
Speaker 2: But does soons.
Speaker 4: Lifting up as leader or not show us that there
Speaker 4: is some resistance to some of Trump's ideas and who
Speaker 4: he wants.
Speaker 8: There's some I would say there is some resistance, or
Speaker 8: at least it's clear that the Senate isn't going to
Speaker 8: just roll over for Trump every single time, right, And
Speaker 8: I think John Thune will be He'll be a very
Speaker 8: good majority leader. He'll be a strong majority leader. And
Speaker 8: to the extent that he wants or has to stand
Speaker 8: up to Trump, I think he will be able to.
Speaker 1: That.
Speaker 8: Being said, though, on policy right on tax policy, on tariffs,
Speaker 8: et cetera, I think most of the Republican majorities in
Speaker 8: Congress are in line with Trump. So Tune is not
Speaker 8: going to stand up on policy. He may stand up
Speaker 8: on some of these personnel decisions.
Speaker 4: When Trump went to the House the other day, when
Speaker 4: he also had the meeting with Biden, he brought Musk
Speaker 4: alongside him. I just wonder what the presence of Musk,
Speaker 4: who has become this huge donor for the Republican class,
Speaker 4: does to affect sentiment in Capitol Hill. Is there almost
Speaker 4: an element where they need to follow the money and
Speaker 4: that Musk represents a greater threat to them and maybe
Speaker 4: even funding challengers to those who don't support Trump.
Speaker 1: Yeah.
Speaker 8: Well, I think one of the biggest stories over the
Speaker 8: next two years may wind up being Trump and Musk
Speaker 8: falling out, just because two very talented political individuals, two
Speaker 8: very big egos in the same room together. That that
Speaker 8: only works for so long, right, So, I mean it's
Speaker 8: jams as though Musk is attached to Donald Trump's hip
Speaker 8: at this point, you know he's running this government if
Speaker 8: he has this government efficiency mandate.
Speaker 1: Now, we'll see how that goes.
Speaker 8: Do Republicans want to keep him on side at least
Speaker 8: until the midterms? Definitely? Will Trump be able to We'll
Speaker 8: keep him on side and keep it friendly. I honestly
Speaker 8: think it's easier said than them.
Speaker 2: Do you think Democrats could have avoided this if they'd
Speaker 2: shown as much love to Elon Musk as they had
Speaker 2: shown to Mary Barrat of GM, Could this school have
Speaker 2: been avoided?
Speaker 8: I mean yes, But I also think that in terms
Speaker 8: of Trump's not cabinet but kind of broader universe, it
Speaker 8: was there for the taking from Musk, it was there
Speaker 8: for the purchasing, and to the extent that Democrats were
Speaker 8: nice or not to Trump to Musk, I think less
Speaker 8: important because Trump was able to give Musk really what
Speaker 8: he wanted it and that.
Speaker 1: Is power Trump.
Speaker 6: John brought up the Democrats yesterday. There was a report
Speaker 6: that the reason why Kama Harris didn't said down with
Speaker 6: Joe Rogan and tap his fifteen million subscribers is because
Speaker 6: they were worried about the progressive pushback. How does the
Speaker 6: Democratic Party pick up the pieces.
Speaker 8: Well, there's going to have to be a reckoning for sure. Obviously,
Speaker 8: in this global landscape, it's hard for any incumbent administration
Speaker 8: to get re elected.
Speaker 1: Right.
Speaker 8: We haven't seen that happen across the board this year,
Speaker 8: So I certainly think Kamala Harris was running from behind
Speaker 8: almost from the get go. That being said, Democrats have
Speaker 8: sort of installed this message that is incredibly left on
Speaker 8: social issues and actually pretty moderate on economic issues. And frankly,
Speaker 8: I think most voters want the opposite right. They want
Speaker 8: a populist economic policy, they want an economic policy that's
Speaker 8: going to lift up manufacturing, lift up the working class,
Speaker 8: and they want to hear less and less about some
Speaker 8: of these social issues.
Speaker 7: And so I think.
Speaker 8: Democrats essentially have to have to inverse the messages.
Speaker 2: The midterms are in two years.
Speaker 6: How do they prepare for that?
Speaker 8: In these two years? I think it's going to be
Speaker 8: very hard to turn the party around one hundred and
Speaker 8: eighty degrees right. It's hard to steer a really, really,
Speaker 8: really big vote with a really, really really big bureaucracy.
Speaker 8: That being said, I think for the next two years,
Speaker 8: essentially they are going to to tit for tat against Trump.
Speaker 8: They're going to be able to run against Trump in
Speaker 8: the midterms. Most of the time, an incumbent party does
Speaker 8: not do very well in the mid terms, as you
Speaker 8: all know. I think for Democrats, the bigger issue, the
Speaker 8: bigger challenge is just what is the proactive, sort of
Speaker 8: positive message for their Democratic nominee.
Speaker 7: And it's going to be a major fight.
Speaker 8: We're going to see ten to twenty folks in that
Speaker 8: nominee race, and so the question is what is the
Speaker 8: message from the primary that emerges.
Speaker 7: It's four years from now. We just started.
Speaker 1: We just stopped talking about this this week. I's going
Speaker 1: to watch you.
Speaker 2: If you've got a name to watch, Have you got
Speaker 2: a name in mind?
Speaker 8: I think Pritzker from Illinois is sort of my dark
Speaker 8: horse candidate. Not not a DC figure, but he can be,
Speaker 8: you know, democrats billionaire in relation to Trump. He's tough talking,
Speaker 8: he's come out post twenty twenty four, you know, strongly
Speaker 8: in favor of many Democratic messages and strongly posted to Trump.
Speaker 8: And I think it's a strong figure that's going to
Speaker 8: have to be at the top of the ticket for
Speaker 8: Democrats to compete in twenty twenty eight.
Speaker 1: I appreciate it.
Speaker 2: It's good to say six thank you. Roke their signal
Speaker 2: Brian weistin' wealk and standing with us around a table. Brian,
Speaker 2: welcome to the program. If we get a cut in December,
Speaker 2: is that the last one?
Speaker 7: It's the last one for a while. It could be
Speaker 7: the last one.
Speaker 9: I think they take the first quarter off at least,
Speaker 9: you know, the first two meetings. There's a lot of
Speaker 9: things that they have to sort through. I think this
Speaker 9: one hundred we had god here was automatic.
Speaker 1: Right.
Speaker 9: We can all talk about the data and every data
Speaker 9: point reacting to it, but we didn't react to it.
Speaker 9: The data was stronger and we used one hundred basis
Speaker 9: plot was the reaction was five point fifty was probably
Speaker 9: too high.
Speaker 7: Four point fifty sounds more normal? Is it?
Speaker 9: We'll find out. So I think that's where we are.
Speaker 9: But I think it's time to watch and let the
Speaker 9: policy take effect and see what happened.
Speaker 2: What concerns you is it the current level of things
Speaker 2: that you look in less of the trend and more
Speaker 2: about the levels and getting concern that maybe we get
Speaker 2: stuck around these kind of levels.
Speaker 7: I think we get stuck for a little bit.
Speaker 9: And listen, our investors speaking with their wallets are buying
Speaker 9: fixing right. We see it everywhere. The money's coming in,
Speaker 9: you're getting a decent coupon. It should be a head
Speaker 9: for equities. It hasn't been a great although now at
Speaker 9: the back of the hives and yield the correlations breaking
Speaker 9: down a bit right, Equities are doing okay. So my
Speaker 9: instinct tells me the trade for next year is that
Speaker 9: we're going to seek out the higher end of this range.
Speaker 9: So you know, call it, you know, four percent to
Speaker 9: five and a half maybe for next year. I don't
Speaker 9: think we get there quickly. If we do, it's a problem,
Speaker 9: it'll hurt risk. But if we get there kind of
Speaker 9: hang out of four and a half start to move higher,
Speaker 9: I think the market will be okay as long as
Speaker 9: it's a growth story. We have all the dead stories
Speaker 9: of inflation. But I think at the end of the day,
Speaker 9: the growth story is actually the important one.
Speaker 4: In the meantime, Blan, can you touch duration at all?
Speaker 4: There are just so many unknowns for twenty twenty five
Speaker 4: and it's playing out on the long.
Speaker 7: End of the curve.
Speaker 9: Yeah, listen, when I look at the yeld curve, I
Speaker 9: say history is a great guide, right, two's tens In
Speaker 9: a normal cycle, she get to one hundred and fifty
Speaker 9: two hundred basis points tens bonds. Let's forget the deficit
Speaker 9: for a second, just normal times, she get eighty to
Speaker 9: one hundred basis points. I look at the ield curve
Speaker 9: and go, wow, if twos are going to be stuck
Speaker 9: in more and a half and you make a big gulp, right,
Speaker 9: if you had two hundred, you get some big numbers there, right,
Speaker 9: If that's where we're going. So yeah, I think duration
Speaker 9: has a place no portfolio. It always does. And I
Speaker 9: could be wrong and fields could follw hundred basis points.
Speaker 9: So I don't hate it as yields go up, but again,
Speaker 9: I don't see a reason to rush into it if
Speaker 9: you believe we're going to go back to normal looking
Speaker 9: yield curves, and you don't think fed fund is going
Speaker 9: to go back to three, right, So there's a lot
Speaker 9: of variables around it.
Speaker 7: That's how I look at it.
Speaker 4: But that's still not kind of the most comforting for
Speaker 4: as you say, something that's usually behn usually something that's
Speaker 4: uncorrelated with equities.
Speaker 2: What becomes down.
Speaker 9: The portable I think on the on the front end
Speaker 9: of the eield curve, you still get you can get
Speaker 9: good income without the duration. We've seen big flows into
Speaker 9: floating rate alone, short duration municipals, income funds and fixed
Speaker 9: income that have less.
Speaker 7: Duration and more coupon.
Speaker 9: So I think you can get coupon without taking max
Speaker 9: duration risk is how I would look at it. And
Speaker 9: again that's what investors have been buying.
Speaker 2: I was saying, you were coming on the program about
Speaker 2: an hour ago, and I teed up the credit conversation.
Speaker 2: So let's do it. The spread right now for investment
Speaker 2: great credit. It's like this big seventy six basis points.
Speaker 2: It's as tight as it ever has been for the
Speaker 2: whole of this century. I want to understand from you
Speaker 2: why you think it can get a whole lot tighter
Speaker 2: from here.
Speaker 9: I think it gets tighter from here. I think there
Speaker 9: are two major reasons. One is the buying dynamic, right,
Speaker 9: so listen, if I'm right and you'lds drift higher.
Speaker 7: There's a lot of government debt.
Speaker 9: We've covered that, there's less corporate debt relative, so people
Speaker 9: will continue to buy corporate debt if the growth story
Speaker 9: is good, equities do fine, and so credit gets tighter.
Speaker 9: The second piece I think people don't truly focus on,
Speaker 9: which is the market structure has changed that in one
Speaker 9: hundred years.
Speaker 7: How hard was it to trade corporate.
Speaker 9: Bonds when I started in this business in the early
Speaker 9: two thousands. Now you have ETFs, right, you have baskets
Speaker 9: of bonds trading.
Speaker 7: Credit is much much more liquid.
Speaker 9: So if there's less to fault risk currently too much
Speaker 9: government debt and it's easy to buy, I would say again,
Speaker 9: I would think there's a mathematical limit somewhere around fifty
Speaker 9: basis points a little bit less. You know, maybe that's
Speaker 9: a pretty aggressive call. So I don't want to be
Speaker 9: I don't think we have to get there, but I
Speaker 9: do think in an orderly sell off, credit will continue
Speaker 9: to frustrate people and continue to tea.
Speaker 2: Yeah, but you're cold. Is much more aggressive than that,
Speaker 2: and you're burying the lead. There's the spread. You think
Speaker 2: this can happen. The treasury yields could go above what
Speaker 2: we could see in corporate America, maybe not across the
Speaker 2: whole index, but perhaps possibly on a few credits.
Speaker 7: Well, there's so few.
Speaker 9: High rated credits right the other century changes that the
Speaker 9: triple B part of the index is so much larger.
Speaker 9: So I don't think you have triple b's trading through
Speaker 9: government bonds. But for those few companies that can trade
Speaker 9: with A A, I do think there'll be a select few.
Speaker 9: Some of them are really close right now to go
Speaker 9: through government bonds. Do I think it's logical? No, the
Speaker 9: government can print currency, right, it's a better credit. But
Speaker 9: I think it's a supplied demand dynamic. And listen, you
Speaker 9: can make an argument that if you have fiscal irresponsibility
Speaker 9: that maybe I'm wrong, maybe they should trade through So
Speaker 9: I think they will in certain credits. And I do
Speaker 9: think credit tights or not, we have not seen them yet.
Speaker 4: Well, corporate credit is one of those markets that people
Speaker 4: look to you to get a signal for overall health
Speaker 4: that Okay, if spread starts to blow out, then I
Speaker 4: need to get worried. You mentioned the ETFs, but I
Speaker 4: also just wonder how much of this is just a
Speaker 4: really distorted risk premium. Not even with ETFs, but all
Speaker 4: the risks stuff is starting to go to private credit. Now,
Speaker 4: can we really use corporate credit as a signal anymore
Speaker 4: as in the way it once was.
Speaker 9: A fair question. Listen, you're right a lot of the
Speaker 9: risk has moved to private balance sheets, doesn't get marked
Speaker 9: to market. Does that leave higher quality or lower quality
Speaker 9: stuff for the public markets? We can debate. I think
Speaker 9: the investment grade credit market is a little less affected
Speaker 9: by it, So I do think it's a kind of
Speaker 9: chicken and egg question.
Speaker 1: Right.
Speaker 9: If the equity market goes down to twenty percent, are
Speaker 9: there's credit going to be wider? Of course, will be
Speaker 9: caused by the credit market. I don't know this time around. Again,
Speaker 9: I think investors are happy to buy the extra spread
Speaker 9: and the yield you get from treasuries plus corporates, and
Speaker 9: I think there's some logic to be said. I don't
Speaker 9: need to own treasuries. There's not a lot of upside
Speaker 9: to doing so.
Speaker 7: Your duration question earlier, So again, we're tight. Credit fits
Speaker 7: are tight. I think they'll get tighter.
Speaker 9: Listen, if it gets disorderly, if ten year lues or five
Speaker 9: and a half percent in six weeks, it will be
Speaker 9: a different story. But if it moves in an orderly fashion,
Speaker 9: I think that's where we're going.
Speaker 6: Brian we're going to be from J Powell today, and
Speaker 6: you started the conversating conversation saying that December might be
Speaker 6: the last cut and maybe no cuts next year.
Speaker 7: Could we see hikes next year? Listening, it's so fun
Speaker 7: to talk about.
Speaker 9: I don't have a great I don't think I could
Speaker 9: sit here on layer for you exactly how we get there.
Speaker 9: In other words, if you know, if inflations runs, you know,
Speaker 9: point two to point three instead of you know, going
Speaker 9: back to two, is if they're going to go right
Speaker 9: back to hiking. I don't think so. So I think
Speaker 9: it's possible. I think it's more likely that they just
Speaker 9: want to sit here and let government do the work
Speaker 9: that they can say this maybe we'll say four and
Speaker 9: a half percent looks more like neutral than we thought, right,
Speaker 9: Could it be four?
Speaker 7: Sure? I still don't think it's five.
Speaker 9: So hikes would require all these things to happen, you know,
Speaker 9: tiff speed superinflationary but still pro growth, and aquity's making
Speaker 9: new highs again.
Speaker 7: It would be it would be.
Speaker 9: I can tell you this story, but I don't sit
Speaker 9: here thinking about, you know, rate. I don't want to
Speaker 9: bet on a rate hike in September.
Speaker 7: And as my base case.
Speaker 2: You don't want that to be the headline, Bron, Don't worry.
Speaker 1: It won't be.
Speaker 2: It'll be something else. On credit from Wiston there of
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