Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane
Speaker 1: jay Ley. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
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Speaker 1: We are thrilled this morning to have Davide Sarah with
Speaker 1: Us of Algebrast, truly expert on EU banking. Davida to
Speaker 1: our global Wall Street audience, what is the single statistical
Speaker 1: or ratio observation of EU banking that maybe is not
Speaker 1: in the zeitgeist right now? What's the Sarah ratio that matters? Well?
Speaker 1: I think the nless the probably Matt as the most
Speaker 1: is the number of banking institution. Um, you know, the
Speaker 1: EU has the highest number of banks. We're talking about
Speaker 1: an AMBO which is very twenty eight thousand institution vacompass
Speaker 1: basically three times or size the US basically for the
Speaker 1: same economy. And if you take the top five banks
Speaker 1: in Europe in the US in terms of concentration of
Speaker 1: the posits now have almost fifty in Europe and not
Speaker 1: even fifteen percent. Very we've got too many banks and
Speaker 1: not large enough. Well, very very interesting. Not only do
Speaker 1: you do the financial but you also look at the
Speaker 1: human condition here, and so much of it is set
Speaker 1: up with boards that I would suggest really don't represent shareholders.
Speaker 1: Is that true, the boards really don't Deutsche Bank, Commerce Bank, whatever,
Speaker 1: that they really aren't representing shareholders. Well, yes or no?
Speaker 1: Because the right now more than seventy eight percent of
Speaker 1: large European banks actually held by titition and shoreholders. So
Speaker 1: the reality is thetituitions shoreholders can have a weight that
Speaker 1: the reality is because about thirty percent are passive. No
Speaker 1: one is voting, they don't really care. They're mimicking an index,
Speaker 1: and that has become a problem. And that's why you
Speaker 1: see a few activists stepping up and actually making a point,
Speaker 1: simply because the majority has basically abdicated the role of stewartship.
Speaker 1: We still see in the US. Do you own any
Speaker 1: Deutsche Bank or Commerce Bank? We do not own any
Speaker 1: Dodge bank or merge equity. We do on some of
Speaker 1: the credit if a merge will be very positive of
Speaker 1: their credit status because you'll basically need a recap or
Speaker 1: some sort of the other. So you probably need equity
Speaker 1: at the bottom of the capital structure, so that will
Speaker 1: be positive for credit equity will have to see. I
Speaker 1: know we were talking a little bit about it last week,
Speaker 1: but does it make sense. This is, I guess the
Speaker 1: only way in which you can really cut costs because
Speaker 1: of the unions and because some of the labor laws.
Speaker 1: But then Deutsche Bank is also doing with its U
Speaker 1: S investment arm and I don't know how that fits
Speaker 1: into the conversation. Well, I think there are a free
Speaker 1: issue here. The first one is under German label laws,
Speaker 1: you can't really get a massive redendancy package and five
Speaker 1: lots of people unless you have eneminy activity. Secondly, if
Speaker 1: you look at common Spank and dodge Bank, dodge Bank
Speaker 1: has about ninety people. If you have contractors, you're almost
Speaker 1: under and ten thousand for a revenue base of twenty
Speaker 1: eight billion euro, which is below Goldman, which has a
Speaker 1: third of employees less than thirty. So the issue is
Speaker 1: Dodge Bank is just too many employees for its revenue base. Secondly,
Speaker 1: inside Germany, Common Spank is about fifty thousand employees but
Speaker 1: an asset base which is a quarter of the one
Speaker 1: of Dodgemank. So a merger between the two will strengthen
Speaker 1: and will enable cost cutting. The Germany that will do
Speaker 1: anything to the will do nothing to the international operation
Speaker 1: on the dodgemank. And as a result you probably need
Speaker 1: you know, you're looking at thirty forty employees or the
Speaker 1: combined the cost pays I have to go, it's a
Speaker 1: huge number. What's your favorite European bank right now? On
Speaker 1: a standalone basis, our favorite are in Tessa, UniCredit, Santandre, NBNP.
Speaker 1: That's sort of a retail skew there as well. You
Speaker 1: mentioned fifteent, which I think for all Americans dobbyde is
Speaker 1: basically unimaginable. Who controls the politics of Germany, the politics
Speaker 1: of Austria, the politics of Italy is that the small
Speaker 1: banking lobby? Is it the mid bank lobby or is
Speaker 1: there a conduit from say unit credit right to the
Speaker 1: Italian political leaders who olds who holds that power right now? Well,
Speaker 1: first of all, in Europe, if you say banking, it's
Speaker 1: bad simply because the populish rhetoric, it's centered around banks
Speaker 1: of money. They're only given to us and as a
Speaker 1: result of bad guys. This is across Europe. It's as
Speaker 1: simple as that. Secondly, in Germany, though, because seventy cent
Speaker 1: of the banking market is actually state owned, whether it
Speaker 1: is SPA, Cassen or Lander's Banking, they hold the true
Speaker 1: power and hence the strongest lobby group of the spark
Speaker 1: Assen and the caster Path and in France the combination
Speaker 1: of the two are the one which can basically make laws.
Speaker 1: The larger banks forget it, they're basically in the dark house.
Speaker 1: So one word echoed around trading flaws following the latest
Speaker 1: jobs report goldilocks, goldilocks. Goldilocks investors taking some comfort that
Speaker 1: the jobs market was running neither too hot or too cold,
Speaker 1: and fueling the view that the rallying risk assets has
Speaker 1: a little further to go. Here in the studio to
Speaker 1: discuss this, Ibrahim Rock Barry City, Global head of FX Analysis. Ibrahim,
Speaker 1: let's just begin with that word, goldilocks. I heard it
Speaker 1: so much Friday through the weekended into Monday morning. Your
Speaker 1: view on whether that accurately describes the U S economy
Speaker 1: right now? I think it probably does. I think we're
Speaker 1: in a world that's ultimately very supportive for for sid
Speaker 1: markets and for risk appetite, and and the main the
Speaker 1: main pillars of that are that growth indeed is is
Speaker 1: good enough. It's neither too hot nor too cold, and
Speaker 1: inflation will will be subdued, and all of that is
Speaker 1: being being underwritten by a very dovish central bank. So
Speaker 1: I don't think it's misleading. So I caught up with
Speaker 1: the administration, and the administration wants a rate cut, and
Speaker 1: I'm trying to understand the justification for a rate cut
Speaker 1: at this point. Are you part of that group of
Speaker 1: individuals that thinks we could get a right cut sometimes
Speaker 1: soon from the Fed? Yes? Absolutely, I think that we
Speaker 1: are dealing with a very very dovish central bank and
Speaker 1: and ultimately with the combination of two forces that are
Speaker 1: pushing pushing them in that direction. One is real politic,
Speaker 1: if you like, we haven't. We have a big election
Speaker 1: coming up next year, and of course part of the
Speaker 1: rhetoric is to both make it more likely that the
Speaker 1: economy stay stay strong and to position this administryation as
Speaker 1: a pro growth administration. But the other and maybe intellectually
Speaker 1: more interesting question, and ultimately economically one is how do
Speaker 1: you how do you formulate policy to avoid a major slowdown?
Speaker 1: Is there a way to beat the cycle if you like,
Speaker 1: because that's I think precisely what the FED is trying
Speaker 1: to do. Well. These kind of conversations worry may they
Speaker 1: worry others as well. They preham the idea that you
Speaker 1: can beat the cycle. Does that make sense to you
Speaker 1: that kind of language. Well, I think it makes sense
Speaker 1: for me to try. I think in the end you
Speaker 1: will you will fail. But I think there's something to
Speaker 1: the idea that perhaps historically central banks or policy makers
Speaker 1: more generally have at times been slow to react to
Speaker 1: a changing picture. I think this FED in particular has
Speaker 1: been obsessed for some time with not repeating the mistakes
Speaker 1: of the past. So I'm sympathetic to the view that
Speaker 1: if you if you see a slow downcoming, try and come,
Speaker 1: try and come into the act early. The front page
Speaker 1: of Barons over the weaekend is the bull market unstoppable,
Speaker 1: and then the lead quote was as follows the bull
Speaker 1: market recently it's tent birthday. Can it rally for another ten?
Speaker 1: We've heard it many times before, but it's worth repealing.
Speaker 1: Bull markets do not die of old age. You have
Speaker 1: to say that a lot of criticism about the front
Speaker 1: out page being a contrayer and indicator, it was a
Speaker 1: very balanced piece. Once you read through it. But Abraham,
Speaker 1: that's kind of the position we're in right now. I
Speaker 1: think there's a little bit of complacency creeping through. And
Speaker 1: it's the idea that central banks can beat the cycle,
Speaker 1: they can carry on pushing this out, and the view
Speaker 1: of Federal Reserve Chairman Jpal himself that his old own
Speaker 1: objective now is to extend the cycle. We're putting a
Speaker 1: little bit too much faith in central bankers and their
Speaker 1: ability to do that. Yes, absolutely, you know, and it
Speaker 1: shouldn't be clear that one. I think if we look
Speaker 1: at the most recent market developments, they clearly suggests that
Speaker 1: some some some markets are being overboard. Whenever melt up
Speaker 1: enters the financial vocabulary, you have to be you have
Speaker 1: to be cautious. And the other is that clearly can't
Speaker 1: just be sent show banks that safeguard this sort of
Speaker 1: goldilocks environment. And I put much more weight on the
Speaker 1: combination of stabilization and Chinese growth, including the policy similars
Speaker 1: that they have had a peak in trade tensions, and
Speaker 1: then the FED as a supportive act the march and
Speaker 1: does currency dynamics right now, and particularly dollar dynamics, does
Speaker 1: it help us multinationals? I think broadly speaking, yes, I
Speaker 1: think we're because we are effectively an arrangement scenario. Of course,
Speaker 1: the dollar is is still strong and relatively highly valued,
Speaker 1: but the fact that it's not getting aggressively stronger is
Speaker 1: I think a world that these multination. Part of the
Speaker 1: enthusiasm John's mentioning on the cover of barons U is
Speaker 1: the idea that multinationals can keep delivering down the income statement. Right. Yeah,
Speaker 1: her world doesn't get in the way right now. So
Speaker 1: I think that the dollar is not helping. But but
Speaker 1: all I'm arguing is it's not it's not hurting too much.
Speaker 1: And I think that their concerns probably more recently have
Speaker 1: been centered around trade as opposed to as opposed to
Speaker 1: perhaps the dollar. So again I don't think the dollar
Speaker 1: is helping, but it's probably not top of their stuff concerns.
Speaker 1: The cheap guide just looking back, I'll put my hat
Speaker 1: on as the c i O of the of Hindsight
Speaker 1: Capital just for a moment, if that's okay. But the
Speaker 1: cheap guide for the EFEX market over the last couple
Speaker 1: of years, Abraham, is when global risk appetite is good,
Speaker 1: the dollar is weaker, and when global risk appetite is bad,
Speaker 1: the dollar is stronger. I mean, that's pretty consistent. That's
Speaker 1: maybe the one consistent framework that you can apply to
Speaker 1: the effects market over the last couple of years. If
Speaker 1: you're forecasting better risk appetite, a more stable Chinese economy, equally,
Speaker 1: I imagine your forecasting a weaker dollar around you eventually. Yes,
Speaker 1: But I think there's the devil is a bid in
Speaker 1: the detail because two factors come into play here. One
Speaker 1: is carry matters. So we are in a in a
Speaker 1: search for yield environment, and the dollar is uncharacteristically now
Speaker 1: a high yielder in in G ten exactly, it's it's
Speaker 1: it's expensive to funding dollars. We're looking for alternative funding
Speaker 1: currencies across the range. And the other is that we
Speaker 1: we don't think that that improvement in risk appetite and
Speaker 1: the improvement in the economic trajectory will be will be
Speaker 1: a monitor monotonic dynamic. We think in particular that Europe
Speaker 1: for now lacks some of the global improvement for European reasons,
Speaker 1: if you like, so, particularly within G ten. I think
Speaker 1: we're moving in that direction over the course of this year,
Speaker 1: but I don't think right now this is a dollar
Speaker 1: cell environment. Is you're at the trouble spot for you
Speaker 1: at the moment. Sorry, I didn't it's Europe the trouble
Speaker 1: spot for you at the moment. Certainly a laggard. I
Speaker 1: think it's they're clearly a number of of of economies
Speaker 1: in the world that are struggling even more. But I
Speaker 1: think the level of disappointment in Europe is right up there.
Speaker 1: Abraham right to catch out with the Abraham wrap. Bowery
Speaker 1: City's global head of Effects Analysis, John Pharaoh is Brexit
Speaker 1: worn out. And I got a little more interest in John,
Speaker 1: but everybody, as we know it is Brexit worn out.
Speaker 1: She was on with us ten days ago or so
Speaker 1: and we got huge response from Catherine Barnard, who is
Speaker 1: like actually an adult on the legal minutia, the paragraphs,
Speaker 1: the sentences of all this Brexit EU trade stuff. She
Speaker 1: is of course at Cambridge and is definitive on this.
Speaker 1: I love this the UK and a changing Europe. Senior fellow,
Speaker 1: I have no idea what that means, professor, Thank you
Speaker 1: so much for joining us again. Where are the red
Speaker 1: lines right now? Where are the red lines? Well, we
Speaker 1: don't know if you're on the answer. They're looking a
Speaker 1: bit pink. I a bit fuzzy around the edge. The
Speaker 1: one red line that seems to still be there is
Speaker 1: Theresa May wants to stop free movement of persons. That's
Speaker 1: where individuals can go from France to Germany and live
Speaker 1: there pretty much with that restriction. He wants to stop
Speaker 1: that for UK citizens going abroad and for Polish and
Speaker 1: Hungarian citizens coming to the UK. Okay, fine, but I
Speaker 1: did some careful analysis ready for publication at a Cambridge
Speaker 1: University standing in line at Heathrow, what's the what's the soul?
Speaker 1: What if people have to go movement through a different
Speaker 1: line at Heathrow or wherever it's It's not so much
Speaker 1: the sort of temporary movement for tourism purposes. It's for
Speaker 1: people who want to come to work. And at the
Speaker 1: moment they can work in the UK pretty much without restrictions. Crucially,
Speaker 1: they don't need a visa um if they come to
Speaker 1: the UK. So an American or a or a Pakistani
Speaker 1: national comes to the UK to work on a long
Speaker 1: term basis, they need a visa, probably into visa and
Speaker 1: those are really bureaucratic to get and they're also very
Speaker 1: very Okay, the UK has got a visa rating probably
Speaker 1: the most expensive world. Well well explained. Tell me what
Speaker 1: Boris Jansen and other Brexiteers will do today. It's been
Speaker 1: very centric and Tory labor that you know, no compromise thought.
Speaker 1: And then of course Prime Minister May shooting a high
Speaker 1: quality video Spielberg like and then and then of course
Speaker 1: she's going to trot off and see macraw and get
Speaker 1: her frequent flyer miles up. What are the other guys doing?
Speaker 1: What does brexiteer doing? Well, what Brexiteurs are doing at
Speaker 1: the moment is maneuvering to be to be the next
Speaker 1: prime minister. The trouble is they don't want to be
Speaker 1: the next prime minister now I this week or next week,
Speaker 1: but they want to be able to do it in
Speaker 1: three or four months time when I think the deal
Speaker 1: is done and so. But what they're really worried about
Speaker 1: is the reason May today is talking to the Labor Party,
Speaker 1: the opposition Labor Party, and they think this is an
Speaker 1: appalling decision. So the Brexiteers, people like Pretty Patel, who
Speaker 1: you might remember from the referendum campaigns. He was part
Speaker 1: of the group with Boris Johnson and others. She was saying,
Speaker 1: you know, it is absolutely unforgivable that Theresa May should
Speaker 1: be talking with the the Labor Party. The EU or the
Speaker 1: EU think she should be talking to the Labor Party
Speaker 1: they used to dealing with grand coalition. Charles Moore, writing
Speaker 1: on the Telegraph, had a bar chart of like who's
Speaker 1: for who's against? Regionally, basically only London's for. It is
Speaker 1: the summary. I actually thought Prime Minister May's address yesterday
Speaker 1: was something she should have said years ago, Catherine. I mean,
Speaker 1: at the end of the day, this wasn't across party lines.
Speaker 1: They should have got together a long long time ago.
Speaker 1: Why did it take so long to get together and
Speaker 1: talk about a compromise. I think there's a couple of reasons.
Speaker 1: Partly to do with Theresa May's personality that she is
Speaker 1: not a particularly collaborative individual. And secondly, in the UK
Speaker 1: politics are very polarized. It's very party politics based, and
Speaker 1: it's also very tribal. People stick with their own tribe
Speaker 1: come what may, and so the idea that you actually
Speaker 1: have some sort of grand coalition, as you might have
Speaker 1: in Germany is totally anathma to our system. On the
Speaker 1: other hand, it would have been strategically clever to have
Speaker 1: actually got chatting to the other side from the summer
Speaker 1: of six because then they would have been forced to
Speaker 1: buy into whatever was produced. It would be very hard
Speaker 1: for them to vote against, so we wouldn't have been
Speaker 1: where we are now. So, Professor, I think one question
Speaker 1: that I've been asked again and again and again over
Speaker 1: here in New York is when is the real deadline?
Speaker 1: When do we have that grease type crisis moments summit
Speaker 1: over in Europe where it hits midnight and I can't
Speaker 1: kick the can down a road any longer? Professor? Is
Speaker 1: it this week? Possibly possibly Wednesday night? Because this is
Speaker 1: the EU emergency EU summit And if they say no
Speaker 1: to us, if remember the mayor or an extension to
Speaker 1: the June. If they say no to us, you can't
Speaker 1: have any more extensions, then there really will be a crime.
Speaker 1: Can you give us? Can you give us like eight
Speaker 1: or ten pm ones night? Yeah? Absolutely, I'll come and
Speaker 1: tell you, but that that really is a country that
Speaker 1: the odd thing is although actually with due to leave
Speaker 1: the EU without a deal on Friday at eleven pm
Speaker 1: on Friday, there's not a sense of crisis at the moment,
Speaker 1: So I think most people think that you will give
Speaker 1: us an extension. The million dollar question is what's the
Speaker 1: data that extension. Will it be only to the twenty
Speaker 1: second of May, Why is that important? That's the day
Speaker 1: of the European poem to elections, which at the moment
Speaker 1: we're not participating in. Or will it be unlikely that's
Speaker 1: what Truason they want unlikely? Or will it be a
Speaker 1: year hence, and that's what Donalds could be present of
Speaker 1: the European Council talking about. Well, I must admit Fox,
Speaker 1: my observation of ten pm at night watching this in
Speaker 1: London is totally different than from the distance of the
Speaker 1: United States of America. There's something about late night parliamentary meetings.
Speaker 1: It's like did you enjoy that? It was like I
Speaker 1: did not enjoy it, but no, it was not like theater.
Speaker 1: It was like exhaustion. I always forget one of one
Speaker 1: issue country the UK has become, and then I go
Speaker 1: back and realize and I'm reminded of it. Catherine, I
Speaker 1: just wonder the Labor Party has actually done quite a
Speaker 1: decent job of trying to make it more than just
Speaker 1: about one issue. In fact, maybe that explains some of
Speaker 1: the success that Jeremy Corbyn had in the previous election.
Speaker 1: If we went to another election, would it be in
Speaker 1: one issue election? Well, that's a million dollar question because
Speaker 1: Jeremy Corbyn has really tried to talk about other things
Speaker 1: apart from Brexit. Brexit has completely convulsed the Conservative Party. UM.
Speaker 1: But if there is a general election, there's not one
Speaker 1: due to two but most people think it's likely to
Speaker 1: occur Before that, the parties will have to write manifestos
Speaker 1: to say what they want. And the manifestos won't just
Speaker 1: have one issue on at Brexit, but it also have
Speaker 1: issues about the health service, education, public spending and so forth. UM.
Speaker 1: But in reality there's a good chance that it will
Speaker 1: be on Brexit because they'll have to write a paragraph
Speaker 1: or two to say what do we want out of
Speaker 1: the future relationship. One final question, Professor, and this goes
Speaker 1: to your expertise. Explain to our audience what European parliamentary
Speaker 1: votes mean. What what are the British people vote? Who's
Speaker 1: voting in Britain for EU parliament votes? Is that the
Speaker 1: nation votes? Yeah, So there's European parlant elections every five
Speaker 1: years when all of the states or of the EU
Speaker 1: twenty seven or EU twenty eight will send m ep
Speaker 1: s members of the European Parliament to sit in Strasbourg
Speaker 1: and the elections take place pretty much on the same
Speaker 1: day sent me around the same weekend across Europe. And
Speaker 1: at the moment, the UK's seventy odd seats in the
Speaker 1: European Parliament have been partially redistributed to the EU seven
Speaker 1: to the remaining member state, but that needs to be unpicked.
Speaker 1: If we have an extension beyond June, we will have
Speaker 1: to participate in European Poems elections and we will steats
Speaker 1: will have to be retained for the UK. And the
Speaker 1: European Poems is actually rather important body now. At the
Speaker 1: beginning when it was set up, it was nearly a
Speaker 1: sort of assembly and a talking shop. Now it's what's
Speaker 1: called a co legislature in most areas, so it's got
Speaker 1: really significant powers in making EU legislation which is binding
Speaker 1: on the most valuable Catherine Bernard, thank you so Cambridge
Speaker 1: University just immensely enjoy speaking to her other real expertise
Speaker 1: versus the country. Try. Okay, here's the ballet fogs. If
Speaker 1: you work for a firm and you're doing a deal,
Speaker 1: it makes complete sense that if you're directly involved with
Speaker 1: that deal, you can't comment on it in the media.
Speaker 1: And then, far more importantly, if you're tangential to a
Speaker 1: transaction under way, it's usually very clear that you cannot
Speaker 1: talk about it in the media. And then there's the
Speaker 1: idea of this is Bloomberg's surveillance, and we spread we
Speaker 1: respect the pressure that our guests under So even if
Speaker 1: he was tangential, and even if he was as brilliant
Speaker 1: as he is, we wouldn't be rude to Bob Michael
Speaker 1: and asked him about the Saudi transaction. We would we
Speaker 1: would not do that as he is with JP Morgan,
Speaker 1: and of course JP Morgan out trying to do the
Speaker 1: book on this uh huge and historic transaction. Bob. What
Speaker 1: I can do is ask you in fixed income about
Speaker 1: globally the insatiable demand for paper Boy does it ring
Speaker 1: of two thousand and six? Is it the same? Good
Speaker 1: Morning Tom? It does? And this is both a good
Speaker 1: time and a challenging time to be a bond investor.
Speaker 1: The good part of it are the central banks tostill
Speaker 1: have taken a lot of pressure off of the market,
Speaker 1: so you don't have to worry about yields continuing to
Speaker 1: go higher and the balance sheet running down. The bad
Speaker 1: is that this is all you're gonna get. You're gonna
Speaker 1: get two and a half percent ten year treasury and
Speaker 1: you're going to get credit spreads. If you look at
Speaker 1: some of these new TRANSACTIONSY referenced in the market at
Speaker 1: a hundred basis points over, but you've got to buy it.
Speaker 1: There's not a lot of inflation out there. There's not
Speaker 1: a lot of inflation, and there's not a lot of substitutes.
Speaker 1: Now I don't mean and again, Mr Michael, seriously, folks
Speaker 1: can't talk about this transaction. But there seems to be
Speaker 1: an idea in fixed income that I need to buy bills,
Speaker 1: notes and paper because I don't trust dividend yield. I mean,
Speaker 1: what's the what's the dialectic if you would almost between
Speaker 1: fixed income people looking at a dividend, is a is
Speaker 1: a yield proxy? Well of course we do, but but
Speaker 1: you've got to look at a company's ability to continue
Speaker 1: to increase its dividend on an annual basis. Because the
Speaker 1: one thing we know about fixed income you have the
Speaker 1: reinvestment and compounding of interest. I think that for us,
Speaker 1: the interesting dynamic and fixed income is so much money
Speaker 1: has gone into cash and short duration over the last
Speaker 1: three years. That's waiting on the sidelines, waiting to come
Speaker 1: into the fixed income markets. And what is so important
Speaker 1: there is a verse short duration, folks. If you buy
Speaker 1: two year maturity, there's this massive desire to go out
Speaker 1: to a five year maturity, five year out the tenure, ETCeteras.
Speaker 1: That's what's going on. I know people want to extend
Speaker 1: maturities even though they can't, they do. Everyone's scrambling for
Speaker 1: ye right now, we'll continue Bob on that idea. I mean,
Speaker 1: scrambling absolutely captures, it doesn't And and so they're they're
Speaker 1: they're going out further on the yield curve. The flatness
Speaker 1: of the yield curve is a bit frustrating. So they're
Speaker 1: going into credit to pick up incremental yield. They're they're
Speaker 1: going down in credit to pick up even more yield,
Speaker 1: and then they're going into the emerging markets. I mean,
Speaker 1: I remember, Bob and in folks. The good news is,
Speaker 1: I forget what the deal was. Was a bond deal
Speaker 1: in like oh, six oh five whatever, where people were
Speaker 1: scrambling for seven basis points seven one hundreds of a
Speaker 1: percent yield and I gotta have that piece of paper.
Speaker 1: Is it that silly right now? It's not that silly
Speaker 1: right now because there has been a lot of corporate
Speaker 1: issuance over the last few years that's still slashing around
Speaker 1: in the market. There's more issuance materializing in the bond
Speaker 1: market right now, so supply is rising to meet demand.
Speaker 1: In here, Bob and in folks with us Robert Michael,
Speaker 1: Bob Michael JP Morgan Asset Management, Chief investment officer and
Speaker 1: a head of global fixed income as well. Buried in
Speaker 1: your lengthy research is a great spreadsheet of expansion and
Speaker 1: contraction as compared to the drivers, the monetary environment and
Speaker 1: the market and positioning. This is a famous Michael billboard.
Speaker 1: Give us the value of that right now. Are we
Speaker 1: in expansion? Are we in a contraction? We're most certainly
Speaker 1: in expansion. If you look at the employment data, it
Speaker 1: continues to reflect that we're pretty much at full employment.
Speaker 1: Wages are going up moderately. But the pleasing thing about
Speaker 1: this expansion is it's it's growing at trend or just
Speaker 1: above trend, so it's not overheating resources and increasing inflation,
Speaker 1: which would get the FED to react negatively by raising
Speaker 1: rates and continuing to run down its balance sheet. And then, okay,
Speaker 1: if that's the case, where do you want a place
Speaker 1: right now? You mentioned going to credit. Do I want
Speaker 1: full face and credit or do I want to buy
Speaker 1: garbage credit to pick up yield until there's a recession
Speaker 1: that's imminent, say within the next six months, you want
Speaker 1: to own credit and you want to go down in
Speaker 1: credit rating because you're getting paid for of that yield.
Speaker 1: Without a recession, company should be able to service their
Speaker 1: dot Bob Michael, thank you so much, with JP Morgan
Speaker 1: greatly greatly appreciated. Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom
Speaker 1: Keane before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio.