WEBVTT - Bloomberg Surveillance TV: January 2, 2025

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio news.

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

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<v Speaker 2>with Lisa Bromwitz and Amrie Hordern. Join us each day

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<v Speaker 2>for insight from the best in markets, economics, and geopolitics

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<v Speaker 2>from our global headquarters in New York City. We are

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<v Speaker 2>live on Bloomberg Television weekday mornings from six to nine

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<v Speaker 2>am Eastern. Subscribe to the podcast on Apple, Spotify or

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<v Speaker 2>anywhere else you listen, and as always on the Bloomberg

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<v Speaker 2>Terminal and the Bloomberg Business app trailers. Watching of the

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<v Speaker 2>Green Bank can sustain its momentum this year after its

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<v Speaker 2>strongest yearly advance in nearly a decade. Kid Jukes of

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<v Speaker 2>self gen Rights. Given the recent economic and political trends,

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<v Speaker 2>Dollar bears should hibernate over the winter. Springshoots of life

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<v Speaker 2>in the European economy, signs of fatigue in this incredible

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<v Speaker 2>US cycle, and clarity on the policies of President Trump

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<v Speaker 2>may all help by summer time. Patience is required through

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<v Speaker 2>the winter and spring. Kit joined us now to kick

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<v Speaker 2>off twenty five in the FX market. Happy in New

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<v Speaker 2>Year and welcome to the programs. Sir, let's start with

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<v Speaker 2>US exceptionalism. What is it built on and how sustainable

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<v Speaker 2>are those pillars?

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<v Speaker 3>Some of it's sustainable, I mean the technological gains you've

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<v Speaker 3>just been talking about them, that they're a huge part

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<v Speaker 3>of it. If we believe in the AI Revolution, and

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<v Speaker 3>we believe in mag seven, then everything that's happening, then

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<v Speaker 3>you know, the US has cornered that. So let's not

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<v Speaker 3>knock that. I wouldn't necessarily knock the fact that the

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<v Speaker 3>US has run a significantly more accommodative fiscal policy since

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<v Speaker 3>twenty twenty. Really, you know, everybody in Europe's been struggling

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<v Speaker 3>to try to get their budget balances back under control.

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<v Speaker 3>The US has kept them a combodative policy and has

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<v Speaker 3>had more growth than that helps keep the deficit a

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<v Speaker 3>little bit more under control than elsewhere. So there's more

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<v Speaker 3>than one piece to this.

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<v Speaker 4>It's been there.

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<v Speaker 3>But if the US does have to type in fiscal

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<v Speaker 3>policy at some point, that may slow things down. We'll

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<v Speaker 3>see how big the AI Revolution really is in the

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<v Speaker 3>next ten years or so. I am not clever enough

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<v Speaker 3>to judge quite how much continued growth that can give,

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<v Speaker 3>and we will see whether the US can cope with

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<v Speaker 3>the demands on the labor force, because the economy is

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<v Speaker 3>running at this point on wealth gains from asset price increases,

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<v Speaker 3>a tight labor market, a fairly divided economy in terms

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<v Speaker 3>of winners and losers, and it doesn't look to me

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<v Speaker 3>as if it's got much potential to accelerate in growth

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<v Speaker 3>or indeed to continue at recent growth rates for that

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<v Speaker 3>long unless we can get a productivity miracle from someone.

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<v Speaker 5>Kay, what do you think is going to drive further

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<v Speaker 5>dollar strength if we get an or perhaps euro strength.

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<v Speaker 5>Will it be European disappointments, European surprises to the upside,

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<v Speaker 5>Will it be great differentials or will it be ultimately

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<v Speaker 5>just a real question of what the neutral rate is

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<v Speaker 5>in the United States.

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<v Speaker 3>I think the neutral rate is look higher in the

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<v Speaker 3>United States than in Europe, and that's a challenge that

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<v Speaker 3>it don't get written up about enough. Just that if

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<v Speaker 3>my neutral rates higher than your neutral rate, my currency

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<v Speaker 3>ought to be going up forever. I mean, it's not

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<v Speaker 3>a stable equilibrium if we have these big divergences in

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<v Speaker 3>neutral policy rates. So that's a major factor, But I

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<v Speaker 3>think it's largely in the price. What I'm most uncertain

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<v Speaker 3>about is the politics in the sense of have we

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<v Speaker 3>priced in too much of what people expect from President

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<v Speaker 3>elect Trump, or have we not priced it all in

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<v Speaker 3>at all yet? In terms of what that does for

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<v Speaker 3>the dollar, I've read so many pieces talking about the

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<v Speaker 3>possible negative growth effects of his tariff proposals, plans, threats,

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<v Speaker 3>whatever we want to call them. If he wants to

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<v Speaker 3>get a deal that's good for the US, it has

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<v Speaker 3>to be a deal that's good for the world and

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<v Speaker 3>good for global trade. And if he does that, there's

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<v Speaker 3>more upside to growth elsewhere than there is in the

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<v Speaker 3>US from those deals if only everybody can embrace them,

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<v Speaker 3>and that wouldn't be good for the dollars at the margin.

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<v Speaker 3>I think the politics will be more important than the

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<v Speaker 3>kind of straight economics. If all we're doing is trading

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<v Speaker 3>what's happening economically now, I think we're just going to

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<v Speaker 3>have a very strong dollar for as far as the

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<v Speaker 3>eye can see. The debate about whether it can get

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<v Speaker 3>back to parity for you're a dollar or you know,

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<v Speaker 3>a little bit stronger generally than it is now, it's

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<v Speaker 3>a tough debate. It's a really expensive currency that will

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<v Speaker 3>stay expensive as long as the rest of the world

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<v Speaker 3>is shoveling all of its savings into the United States

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<v Speaker 3>to see how much money it can make out of

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<v Speaker 3>the US equity market.

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<v Speaker 1>Just quickly.

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<v Speaker 5>As a spike that we've seen in natural gas prices

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<v Speaker 5>in Europe just noise or is that something you're watching

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<v Speaker 5>that could potentially affect the pair?

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<v Speaker 1>Oh?

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<v Speaker 3>I think we have to watch it pretty closely. I

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<v Speaker 3>mean it's you know, we've known this was coming for

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<v Speaker 3>long enough that you'd have thought some of it would

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<v Speaker 3>be in the price. But with raw materials, nothing ever

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<v Speaker 3>is right. You know, if the pipes golows down and

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<v Speaker 3>it suddenly gets really cold, then you can have a

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<v Speaker 3>short term spike that can have a short term impact

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<v Speaker 3>on growth, that can have our short term impact on

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<v Speaker 3>the currency. That's pretty negative. That the you know, the

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<v Speaker 3>way we got euro dollar two to ninety five back

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<v Speaker 3>in twenty twenty two was a terms of trade shock

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<v Speaker 3>caused by higher gas prices. So we shouldn't we shouldn't

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<v Speaker 3>ignore it.

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<v Speaker 2>From pick Ay, Kit, good to see you as always,

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<v Speaker 2>Kit jukestairs soft Gen.

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<v Speaker 6>Let's turn back to tech.

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<v Speaker 2>Dan Ives of Webbush writing we expect tech stocks to

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<v Speaker 2>be up twenty five percent in twenty twenty five, as

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<v Speaker 2>the street further digests a less regulatory spider web under

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<v Speaker 2>Trump in the White House, with karn't FTC days in

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<v Speaker 2>the rearview mirror, stronger AI initiatives within about weight on

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<v Speaker 2>the Way, and the Goldilocks Foundation for Big Tech and

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<v Speaker 2>Tesla looking into twenty five and beyond. Dan Ice joined

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<v Speaker 2>us now for more Dan come on it the Happy

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<v Speaker 2>New year, So that's good to see you. We can

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<v Speaker 2>talk about some of these big gains through twenty four.

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<v Speaker 2>Palanteer up three hundred and forty percent in video up

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<v Speaker 2>one's seventy one, Tesla up sixty two. Here's another one,

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<v Speaker 2>Vistra by two hundred and fifty eight percent. That was

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<v Speaker 2>the biggest win on the S and P five hundred

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<v Speaker 2>last year. That's a utility company. What is that telling

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<v Speaker 2>you about the state of play in AI.

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<v Speaker 4>It's about second third derivatives of AI. I mean, I

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<v Speaker 4>think the big thing is it's two trillion of AI

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<v Speaker 4>cap backs next three years, and I think, look, that's

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<v Speaker 4>numbers that are really I believe going to be in stone.

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<v Speaker 4>And there's a multiplier for every dollar spent on a

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<v Speaker 4>video chip, there's an eight to ten dollars multiplier across

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<v Speaker 4>software and across the rest of tech and infrastructure. You

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<v Speaker 4>think about the power, the utilities, nuclear enginy, names like

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<v Speaker 4>Aco and others. I mean, it just speaks to we're

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<v Speaker 4>going into a new age. It's not just about big tech.

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<v Speaker 4>I mean to your point about small caps. I think

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<v Speaker 4>the big sort of proven moment is the multiplier playing out.

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<v Speaker 4>It's the rest of tech, the rest of until is

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<v Speaker 4>the rest of the market participating in this AI trend.

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<v Speaker 4>That's really everything about that party. The only ones let

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<v Speaker 4>in behind the velvet ropes been then Max seven and video.

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<v Speaker 2>Has been sounding the picks and shovels that made a fortune.

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<v Speaker 2>We've seen all the growth. Does Microsoft and Google in

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<v Speaker 2>the like that have been spending all that money need

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<v Speaker 2>to show some gold this year in a big white.

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<v Speaker 4>Yeah, And I think that will start this quarter. I

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<v Speaker 4>think you're gonna see an inflection point in the hyperscalurs

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<v Speaker 4>for Microsoft or Amazon for Google in terms of what

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<v Speaker 4>we see with more and more of those cloud work

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<v Speaker 4>goods now showing up. And I think it's all about

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<v Speaker 4>use cases. That's why you look at the messy of

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<v Speaker 4>AI pound teer. You know, in terms of what the

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<v Speaker 4>have done. That's just the first piece. Salesforce has been

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<v Speaker 4>another software now starts to actually participate in this AI revolution.

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<v Speaker 4>That's gonna be a key theme across twenty twenty five.

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<v Speaker 4>Remember with you know, with con done at the FTC,

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<v Speaker 4>M and A is going to massively accelery and that's

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<v Speaker 4>another theme we're gonna be seeing it across tech.

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<v Speaker 5>What we saw at the end of last year was

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<v Speaker 5>a lot of these other companies sort of the side

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<v Speaker 5>effects of AI.

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<v Speaker 1>Or the actual applications.

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<v Speaker 5>We saw them take a pause in the applications of

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<v Speaker 5>AI and really study exactly the use cases, study the

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<v Speaker 5>most efficient way to do it. They stop deploying as

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<v Speaker 5>much cash. What makes you think that they can apply

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<v Speaker 5>some of the AI technology quickly enough to keep delivering

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<v Speaker 5>the kinds of expansion and gains the hyperscalers to keep

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<v Speaker 5>a twenty twenty five percent return that you're expecting in

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<v Speaker 5>twenty twenty five.

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<v Speaker 6>It's a great point.

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<v Speaker 4>That's all the work we do, I mean, we look

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<v Speaker 4>at when we talk to enterprise around the world and

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<v Speaker 4>all the trial would do in Asia. It's showing that

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<v Speaker 4>these use cases they're exploded for the enterprise. So as

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<v Speaker 4>the ROI starts to continue to increase. That's why you're

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<v Speaker 4>starting to see You saw a palenteer start in salesforce,

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<v Speaker 4>you can see Mango, Snowflake and others. You can see

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<v Speaker 4>it spread across the board on enterprise. But again, like

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<v Speaker 4>the ships left the port. In other words, the AI

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<v Speaker 4>cap BAX is going to be there now. Twenty twenty

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<v Speaker 4>five is going to be about showing it, proving it

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<v Speaker 4>in numbers. And that's why the reason we think stocks

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<v Speaker 4>or tech stocks are going to be up twenty five percent,

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<v Speaker 4>it's not just about big tech. It's about the rest

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<v Speaker 4>of tech participating, software infrastructure, and well guy haters hate

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<v Speaker 4>the last few years, that's sort of been what we've

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<v Speaker 4>seen in tech. They will continue to sort of fire

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<v Speaker 4>in a crowd theater type situations, but I think tech

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<v Speaker 4>continues to move higher.

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<v Speaker 5>How predicated is this theory on the idea that there

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<v Speaker 5>can be some sort of expansion of the H one

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<v Speaker 5>B visas that there can be an ongoing increase in

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<v Speaker 5>employees and top talent to the United States.

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<v Speaker 4>For the first time in thirty years, US is ahead

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<v Speaker 4>of China. I mean, in my perspective from when it

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<v Speaker 4>comes to tech, but to fuel that. In terms of

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<v Speaker 4>AI revolution, it's talent, and I think what we've seen,

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<v Speaker 4>we've definitely seen a lack as a supply demand. These

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<v Speaker 4>companies more and more need to continue to fuel this

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<v Speaker 4>with talent. So when you look at what we're seeing

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<v Speaker 4>with H one B and ultimately is that all plays out,

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<v Speaker 4>it will be something very very important that plays out

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<v Speaker 4>in Silicon Valley and cross the tech world in twenty

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<v Speaker 4>twenty five.

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<v Speaker 2>Ala Musk has been at the full front of this debate,

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<v Speaker 2>this argument over the holiday period.

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<v Speaker 6>Let's talk about Tesla.

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<v Speaker 2>Tesla an outlier in a pretty dreadful auto market, particularly

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<v Speaker 2>for the European players.

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<v Speaker 6>I think we stand drunkenmit of the one cent.

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<v Speaker 2>You'd be surprised by how few people understand what makes

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<v Speaker 2>the stock go up or down, what makes Testla go

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<v Speaker 2>up or down, because it shures how it doesn't seem

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<v Speaker 2>to be car sales will be something must make of it.

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<v Speaker 4>But we're gonna have deliveries probably the next few hours.

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<v Speaker 4>Right in terms of Q four, Look, I think this

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<v Speaker 4>is this is an autonomous AI story for the next

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<v Speaker 4>few years. And it goes back to the bet for

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<v Speaker 4>the ages that Musk made on Trump continue. I think

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<v Speaker 4>is going to really play out as the autonomous future.

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<v Speaker 4>That's what you're betting on in Tesla. You don't see

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<v Speaker 4>that in numbers today, but I think ultimately, I think

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<v Speaker 4>that's worth the trillion dollars were in terms of the

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<v Speaker 4>AI timers story. But next few out this week will

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<v Speaker 4>be talking about deliveries and it comes down to China deliveries,

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<v Speaker 4>which were really disaster at points in the last call

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<v Speaker 4>twelve to eighteen months, have now started a rebound for

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<v Speaker 4>Tesla and that's going to be very important.

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<v Speaker 2>What gives you the confidence that that will continue because

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<v Speaker 2>there are some similar questions happening in the luxury space

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<v Speaker 2>with companies like alpam is China actually bottoming out for

0:11:15.040 --> 0:11:16.000
<v Speaker 2>the consumer side of things.

0:11:16.000 --> 0:11:17.720
<v Speaker 6>What gives you that confidence for twenty five.

0:11:17.559 --> 0:11:20.520
<v Speaker 4>It's what we see in terms of demand, in terms

0:11:20.520 --> 0:11:22.880
<v Speaker 4>of what we see in terms of the overall China

0:11:22.960 --> 0:11:25.600
<v Speaker 4>market for evs. I think Tesla, I think a lot

0:11:25.600 --> 0:11:28.240
<v Speaker 4>of those price cuts in the rearview mirror, we're going

0:11:28.320 --> 0:11:31.400
<v Speaker 4>to have white knuckle moments, But ultimately I think China

0:11:31.440 --> 0:11:33.720
<v Speaker 4>is something that could be up twenty percent when it

0:11:33.720 --> 0:11:35.719
<v Speaker 4>comes to delivery for Tesla and That's why I think

0:11:35.800 --> 0:11:39.640
<v Speaker 4>right now it's one where I think where the bears

0:11:39.679 --> 0:11:43.800
<v Speaker 4>have sort of misunderstood Tesla. It's ten to fifteen percent

0:11:43.880 --> 0:11:48.800
<v Speaker 4>of delivery story now it's eighty five ninety percent AI autonomous.

0:11:48.920 --> 0:11:51.200
<v Speaker 4>In terms of the future from Musk and Tesla.

0:11:51.160 --> 0:11:53.080
<v Speaker 5>Sort of when you put together some of the things

0:11:53.120 --> 0:11:55.040
<v Speaker 5>that you're talking about, you think, for the first time

0:11:55.040 --> 0:11:57.239
<v Speaker 5>in thirty years, the US is actually ahead.

0:11:56.960 --> 0:11:58.400
<v Speaker 1>Of China when it comes to development.

0:11:58.440 --> 0:12:01.920
<v Speaker 5>At the same time, Tesla dominance and success has hinged

0:12:02.000 --> 0:12:02.319
<v Speaker 5>on a.

0:12:02.320 --> 0:12:03.920
<v Speaker 1>Success in China.

0:12:04.000 --> 0:12:06.280
<v Speaker 5>So how do you see the evolution in twenty twenty

0:12:06.280 --> 0:12:11.120
<v Speaker 5>five of the increasing divide, the increasing isolation between China's

0:12:11.840 --> 0:12:14.240
<v Speaker 5>sort of tech stack and the United States is tech

0:12:14.280 --> 0:12:18.199
<v Speaker 5>stack and how those sort of both compete but also evolve.

0:12:17.960 --> 0:12:20.000
<v Speaker 4>In parallel YEA and the scheme of high stakes poker,

0:12:20.040 --> 0:12:23.920
<v Speaker 4>because the reality is is that the reason Jensen's godfather

0:12:24.000 --> 0:12:26.280
<v Speaker 4>of AI and what we've seen with Nvidia where the

0:12:26.320 --> 0:12:29.400
<v Speaker 4>chip's coming from coming from China, coming from Asia. So

0:12:29.520 --> 0:12:31.800
<v Speaker 4>that's why we're going to see this all play out

0:12:31.800 --> 0:12:34.360
<v Speaker 4>with the China tariff discussions. I believe Musk is going

0:12:34.400 --> 0:12:38.880
<v Speaker 4>to be heavily involved there. Cook ten percent politician ninety percent. CEO.

0:12:38.960 --> 0:12:42.000
<v Speaker 4>Apple also plays a key role here, but I just

0:12:42.120 --> 0:12:46.720
<v Speaker 4>believe that's something that ultimately it's not going to spoil

0:12:47.040 --> 0:12:49.520
<v Speaker 4>the AI revolution trade. It's not going to spoil the

0:12:49.600 --> 0:12:52.559
<v Speaker 4>chip trade. We will go through white knuckle moments. But

0:12:52.720 --> 0:12:55.160
<v Speaker 4>my view, and it's been the playbook the last few years,

0:12:55.480 --> 0:12:59.559
<v Speaker 4>you buy the winners on those opportunities, and I think

0:12:59.600 --> 0:13:00.839
<v Speaker 4>that's going to me the theme this year.

0:13:00.920 --> 0:13:03.120
<v Speaker 2>Pick the winner of the year, your number one Starle

0:13:03.200 --> 0:13:04.000
<v Speaker 2>pick for twenty five.

0:13:04.080 --> 0:13:06.199
<v Speaker 4>What is it, I think to me? Number one Stark

0:13:06.320 --> 0:13:08.680
<v Speaker 4>pick I think continues to be in video here, and

0:13:08.720 --> 0:13:11.600
<v Speaker 4>the reason is is that there's only one game in

0:13:11.720 --> 0:13:15.600
<v Speaker 4>town when it comes to AI. So Godfather genend starks

0:13:15.600 --> 0:13:17.839
<v Speaker 4>Ovis who sold off I think we see it here

0:13:18.040 --> 0:13:20.240
<v Speaker 4>them along with Apple will be the first ones in

0:13:20.280 --> 0:13:21.959
<v Speaker 4>the exclusive four trillion dollar.

0:13:21.800 --> 0:13:22.679
<v Speaker 6>Marrik cap Well.

0:13:22.800 --> 0:13:24.840
<v Speaker 2>The stock is up again this morning by one point

0:13:24.880 --> 0:13:27.679
<v Speaker 2>six percent. Happy New Year, Happy year, Good to see you, buddy,

0:13:27.679 --> 0:13:28.360
<v Speaker 2>Thanks for being here.

0:13:28.440 --> 0:13:30.080
<v Speaker 6>Dan, it's there a web bush.

0:13:39.679 --> 0:13:42.199
<v Speaker 2>Oh, David and Fimo joined us now for more with

0:13:42.240 --> 0:13:44.600
<v Speaker 2>the year. It's lower on the session by five basis

0:13:44.600 --> 0:13:47.040
<v Speaker 2>points at four fifty one, and first of all, Sir

0:13:47.520 --> 0:13:49.720
<v Speaker 2>Happy New Year and welcome to the program. There's a

0:13:49.720 --> 0:13:51.520
<v Speaker 2>lot to consider for the next twelve months. And there

0:13:51.600 --> 0:13:55.199
<v Speaker 2>was three points that you put down tariffs, increased bon supply,

0:13:55.480 --> 0:13:59.560
<v Speaker 2>and a pal showdown earl of the conversations you've had

0:13:59.559 --> 0:14:01.319
<v Speaker 2>with your clients. Out of those three, what did you

0:14:01.360 --> 0:14:02.400
<v Speaker 2>spend most time on.

0:14:03.960 --> 0:14:06.800
<v Speaker 7>Well, we definitely spend the most time on tariffs right now,

0:14:07.480 --> 0:14:10.040
<v Speaker 7>but it's a big unknown, and we actually tell people

0:14:10.200 --> 0:14:13.760
<v Speaker 7>tarifs right now is providing us with an opportunity to

0:14:13.880 --> 0:14:17.040
<v Speaker 7>go longer fixed income. And the reason why that is

0:14:17.040 --> 0:14:20.160
<v Speaker 7>is all to talk about tariffs and the unknowns have

0:14:20.360 --> 0:14:23.280
<v Speaker 7>increased yields to these levels, to what we would deem

0:14:23.560 --> 0:14:28.520
<v Speaker 7>relatively attractive levels, both on a treasury and a corporate space.

0:14:28.560 --> 0:14:31.480
<v Speaker 7>So we've been using this as an opportunity to add

0:14:31.520 --> 0:14:33.240
<v Speaker 7>to duration and add to credit.

0:14:33.440 --> 0:14:35.120
<v Speaker 2>So, oh, let's start with treasury and then we can

0:14:35.160 --> 0:14:37.320
<v Speaker 2>move to credit. Is there a specific place on the

0:14:37.320 --> 0:14:39.440
<v Speaker 2>treasury curve where you feel more comfortable to in that?

0:14:40.240 --> 0:14:43.760
<v Speaker 7>Yeah, we actually feel ten years you're adequately rewarded at

0:14:43.800 --> 0:14:46.080
<v Speaker 7>around four and a half. This first quarter is going

0:14:46.120 --> 0:14:48.520
<v Speaker 7>to be very telling for treasuries, and the reason why

0:14:48.600 --> 0:14:51.800
<v Speaker 7>it is is typically in the first quarter, what you

0:14:51.840 --> 0:14:54.520
<v Speaker 7>get is real money accounts, and I'm talking about not

0:14:54.720 --> 0:14:58.440
<v Speaker 7>hedge funds. I'm talking about large insurance funds, large pension plans.

0:14:58.800 --> 0:15:03.480
<v Speaker 7>Typically money accounts in the first quarter reallocate their risk

0:15:03.560 --> 0:15:07.880
<v Speaker 7>between fixed income and riskier assets. Given the price action

0:15:07.960 --> 0:15:10.000
<v Speaker 7>that we saw last year, we should be seeing a

0:15:10.040 --> 0:15:14.960
<v Speaker 7>significant rotation into fix income this first quarter. It's an

0:15:15.040 --> 0:15:17.680
<v Speaker 7>known because of the inflation towers, as to whether that

0:15:17.680 --> 0:15:20.240
<v Speaker 7>would happen, but we're putting our chips on the square

0:15:20.360 --> 0:15:23.400
<v Speaker 7>that it will. So what that means is, from these

0:15:23.480 --> 0:15:26.680
<v Speaker 7>levels at four and a half in ten year yields,

0:15:26.720 --> 0:15:28.880
<v Speaker 7>there's a better chance of seeing four and a quarter

0:15:29.240 --> 0:15:31.960
<v Speaker 7>than four seventy five in the first quarter of twenty

0:15:32.000 --> 0:15:32.560
<v Speaker 7>twenty five.

0:15:32.800 --> 0:15:34.920
<v Speaker 1>Roll How much is this driven by international accounts?

0:15:34.920 --> 0:15:37.080
<v Speaker 5>We've been talking all morning about the euro and about

0:15:37.080 --> 0:15:40.320
<v Speaker 5>the divergence between rates and real rates in the US

0:15:40.680 --> 0:15:43.560
<v Speaker 5>versus Europe. How much is that the real money that

0:15:43.640 --> 0:15:45.400
<v Speaker 5>you expect to come back in and say, on a

0:15:45.440 --> 0:15:48.560
<v Speaker 5>relative basis, I'd rather put my money in treasuries.

0:15:49.440 --> 0:15:51.840
<v Speaker 7>The interesting thing is, in the analysis I just gave

0:15:51.880 --> 0:15:53.840
<v Speaker 7>you into the first quarter, I didn't even take into

0:15:53.920 --> 0:15:58.000
<v Speaker 7>account international Now you add in international which does have

0:15:58.040 --> 0:16:01.680
<v Speaker 7>an increasing appetite for US as that bolds well for

0:16:01.880 --> 0:16:05.480
<v Speaker 7>all US assets, including fixed income. So that's that's another

0:16:05.600 --> 0:16:08.240
<v Speaker 7>argument why we believe at least in the first quarter,

0:16:08.280 --> 0:16:10.000
<v Speaker 7>it won't be higher for longer, but we think there's

0:16:10.000 --> 0:16:12.640
<v Speaker 7>a better chance of seeing four in according four seventy five.

0:16:13.040 --> 0:16:15.240
<v Speaker 7>I'll add in one more reason as to why we're

0:16:15.280 --> 0:16:18.760
<v Speaker 7>overweight duration in ten year US treasuries and tips at

0:16:18.800 --> 0:16:21.640
<v Speaker 7>these levels is that we expect tax receipts to be

0:16:22.400 --> 0:16:25.680
<v Speaker 7>pretty good, which means the we're funding announcement or the

0:16:25.720 --> 0:16:29.200
<v Speaker 7>amount of treasuries to be issued in the first quarter

0:16:29.240 --> 0:16:32.280
<v Speaker 7>in first half this year could surprise to the downside.

0:16:32.640 --> 0:16:35.600
<v Speaker 5>Normally, when you have a rally and treasuries, it's negative

0:16:35.720 --> 0:16:38.720
<v Speaker 5>when it comes to risk assets. This time, though, you

0:16:38.760 --> 0:16:41.640
<v Speaker 5>actually see it being positive for credit. And I'm curious

0:16:41.680 --> 0:16:45.240
<v Speaker 5>about why, given the fact that typically when people pile

0:16:45.280 --> 0:16:48.120
<v Speaker 5>into treasuries it's a sign that the economy is slowing.

0:16:49.560 --> 0:16:52.320
<v Speaker 7>Well, you have to break down treasuries into two things.

0:16:52.400 --> 0:16:55.600
<v Speaker 7>One is inflation and inflation expectation, and the other one

0:16:55.640 --> 0:16:59.640
<v Speaker 7>is real rates. Those are the two drivers of treasury yields.

0:17:00.240 --> 0:17:02.480
<v Speaker 7>Why we think this could be good for both risk

0:17:02.520 --> 0:17:05.600
<v Speaker 7>assets and fixed income. The reason why we rally to

0:17:06.119 --> 0:17:08.760
<v Speaker 7>four to twenty five we see that we believe ten

0:17:08.840 --> 0:17:11.520
<v Speaker 7>year tips, which is the real rate, which is approximately

0:17:11.560 --> 0:17:14.879
<v Speaker 7>two twenty now, could easily go down to two percent

0:17:14.920 --> 0:17:17.879
<v Speaker 7>in one ninety. And the reason why we say easily

0:17:18.320 --> 0:17:21.960
<v Speaker 7>is if you're an international investor looking to invest in

0:17:22.000 --> 0:17:24.320
<v Speaker 7>you lass and you know you could get two hundred

0:17:24.320 --> 0:17:27.359
<v Speaker 7>and twenty basis points over inflation for the balance of

0:17:27.400 --> 0:17:31.119
<v Speaker 7>your holdings ten year tips, that's where you go. So

0:17:31.200 --> 0:17:33.280
<v Speaker 7>we think the tip rally is going to be the

0:17:33.359 --> 0:17:37.960
<v Speaker 7>driver of a lower yields, which is also beneficial for

0:17:38.080 --> 0:17:41.600
<v Speaker 7>risk assets because it reduces your discount rate on your

0:17:41.680 --> 0:17:42.360
<v Speaker 7>cash foles.

0:17:42.560 --> 0:17:44.119
<v Speaker 2>Oh, can we just sit on credit just for a

0:17:44.119 --> 0:17:47.200
<v Speaker 2>bit longer? Inequities, we spent a lot of time over

0:17:47.240 --> 0:17:50.440
<v Speaker 2>the last month talking about negative breadth, the underperformance we've

0:17:50.440 --> 0:17:52.800
<v Speaker 2>seen beneath the surface of the market, what we're seeing

0:17:52.840 --> 0:17:55.119
<v Speaker 2>on the small caps. Terrible month in December after a

0:17:55.160 --> 0:17:57.960
<v Speaker 2>great November. Did you see any confirmation of weakness in

0:17:58.040 --> 0:18:00.439
<v Speaker 2>high yield at all? Any reason for concern?

0:18:01.840 --> 0:18:05.760
<v Speaker 7>I wouldn't say confirmation weakness. We have seen high yield

0:18:05.760 --> 0:18:09.199
<v Speaker 7>spreads widen and that just came off of you know,

0:18:09.920 --> 0:18:12.960
<v Speaker 7>let's call it profit taking in December. But we do

0:18:13.040 --> 0:18:16.760
<v Speaker 7>believe the environment, the context in which the economy is

0:18:16.800 --> 0:18:20.520
<v Speaker 7>set up for in twenty twenty five under Trump presidency

0:18:21.000 --> 0:18:24.240
<v Speaker 7>is beneficial for small, medium, and larger sized companies, you know,

0:18:24.320 --> 0:18:27.560
<v Speaker 7>the deregulation. So what that means for us is a

0:18:27.680 --> 0:18:31.960
<v Speaker 7>lower chance of probability of default in twenty twenty five.

0:18:32.400 --> 0:18:34.800
<v Speaker 7>When we see lower chance of probability of default in

0:18:34.840 --> 0:18:38.359
<v Speaker 7>twenty twenty five, that makes high yield more attractive because

0:18:38.359 --> 0:18:40.440
<v Speaker 7>we say we're getting you know, even though it's tight

0:18:40.480 --> 0:18:44.000
<v Speaker 7>credit spreads, we're still getting rewarded, especially on all in yield,

0:18:44.160 --> 0:18:47.040
<v Speaker 7>for the risk that we're taking. So we're actually looking

0:18:47.040 --> 0:18:50.760
<v Speaker 7>for opportunities to increase our high yield exposure selectively with

0:18:50.880 --> 0:18:53.320
<v Speaker 7>selective names. As an active manager does.

0:18:53.640 --> 0:18:55.920
<v Speaker 2>Oh, got to see you as always. Happy New year,

0:18:55.960 --> 0:18:59.680
<v Speaker 2>ol Davis, there a female. This is the Bloomberg Seventans

0:18:59.680 --> 0:19:04.000
<v Speaker 2>podcast asked bringing you the best in markets, economics, and geopolitics.

0:19:04.240 --> 0:19:06.719
<v Speaker 2>You can watch the show live on Bloomberg TV weekday

0:19:06.760 --> 0:19:10.000
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0:19:10.000 --> 0:19:13.600
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0:19:13.640 --> 0:19:16.760
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