WEBVTT - Uncertainty Surrounds Jay Powell & US Trade 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.120 us live on YouTube. 0:00:27.280 --> 0:00:29.840 This is a really exquisite hour for Global Wall Street 0:00:29.840 --> 0:00:33.520 on Monday. Dive into some conversations. Matt Hornbach from Morgan 0:00:33.600 --> 0:00:37.640 Stanley will be listen critically as tenure in Japan for 0:00:37.800 --> 0:00:42.199 Morgan Stanley years ago. Helene ray you may not know 0:00:42.280 --> 0:00:50.960 the name. Helene ray Ry is exquisite on European macro economics, 0:00:51.000 --> 0:00:53.680 and again we'll look at the transatlantic picture there. But 0:00:53.760 --> 0:00:55.680 what Paul and I wanted to do was give you 0:00:56.360 --> 0:00:59.560 just a tone of the equity market. There's no one 0:00:59.560 --> 0:01:02.480 better to do that. With a lengthy conversation with Lori 0:01:02.600 --> 0:01:06.600 Kelvisena of RBC Capital Markets, Laurie I said this at 0:01:06.600 --> 0:01:10.320 seven o one this morning. I was thunderstruck by the 0:01:10.440 --> 0:01:19.640 repetitive not gloom, but timidity, intentiveness, tentativeness this weekend in 0:01:19.800 --> 0:01:26.000 equity pundits. I mean, everybody's rationalizing a nervous market. All 0:01:26.040 --> 0:01:29.480 this history, this history that are you that nervous? 0:01:31.280 --> 0:01:33.600 Hi? So thanks for having me Tom. Look, I would 0:01:33.640 --> 0:01:36.200 say that I feel pretty neutral on the back half 0:01:36.240 --> 0:01:38.240 of the year. And I know that everybody hates it 0:01:38.280 --> 0:01:41.160 when equity strategists are neutral, because we're supposed to have 0:01:41.240 --> 0:01:43.479 high conviction and come in and pound tables and those 0:01:43.520 --> 0:01:47.120 sorts of things. But I do have some things that 0:01:47.200 --> 0:01:50.560 are concerning me. I sat down with myself, you know, 0:01:50.600 --> 0:01:52.440 sort of around the July fourth holiday when we were 0:01:52.440 --> 0:01:54.640 sort of resetting the second half outlook, and said, you know, 0:01:54.680 --> 0:01:57.120 how much downside do I think those things are worth 0:01:57.160 --> 0:01:59.480 to me? And to be honest, I didn't feel like 0:01:59.520 --> 0:02:01.800 we were doing for another growth scare or retest of 0:02:01.800 --> 0:02:03.920 the April lows that you know, I do see some 0:02:04.000 --> 0:02:05.760 things that I think can challenge us a little bit 0:02:05.760 --> 0:02:07.200 in the short term, but they feel to me like 0:02:07.240 --> 0:02:09.480 garden variety type pullbacks, which are in the five to 0:02:09.480 --> 0:02:12.520 ten percent range and never fun, but something that you 0:02:12.560 --> 0:02:13.480 can recover from. 0:02:13.560 --> 0:02:16.960 Well, but that's normal. We've forgotten. Paul helped me sure 0:02:17.160 --> 0:02:19.640 corrections are normal. Yes, am I right? 0:02:19.840 --> 0:02:22.440 Absolutely, and I balloom this. 0:02:22.480 --> 0:02:26.640 Weekend was comical. We're in this, I mean, come on, Paul, 0:02:26.680 --> 0:02:30.160 we're up annualize it. We're fourteen percent on a twelve 0:02:30.160 --> 0:02:31.640 months solbrid basis. 0:02:31.760 --> 0:02:31.959 Yep. 0:02:31.960 --> 0:02:33.920 And look where we came from from Off that line. 0:02:33.639 --> 0:02:34.960 I just said, I'm lost. 0:02:35.080 --> 0:02:37.320 So, Laurie, I guess maybe one of the key issues 0:02:37.320 --> 0:02:40.200 for investors these days over the next coming weeks will 0:02:40.200 --> 0:02:43.000 be earnings. And we're very, very early into this earning cycle. 0:02:43.040 --> 0:02:45.480 Is there any takeaways plus or minus or are we 0:02:45.520 --> 0:02:46.679 just kind of plugging along here? 0:02:47.560 --> 0:02:49.800 Yeah? And look, I think it kind of circles back to, 0:02:50.000 --> 0:02:52.320 you know, some of the comments Tom just made. Right, 0:02:52.760 --> 0:02:54.920 So we've come off week one. There was sort of 0:02:54.919 --> 0:02:57.520 a drizzle of early reporters that came in prior to 0:02:57.600 --> 0:03:00.760 last week, and I think, you know, maybe this contributed 0:03:00.800 --> 0:03:03.360 to some of that timidity or a little bit of caution. 0:03:04.040 --> 0:03:06.679 But what I heard last week from the financial companies 0:03:06.720 --> 0:03:09.880 in particular, was everything is fine, the consumer is resilient, 0:03:10.000 --> 0:03:12.480 we're managing through we're talking to all our customers. This 0:03:12.520 --> 0:03:14.680 is what we're hearing. But at the same time, I 0:03:14.720 --> 0:03:17.160 was seeing words like guarded and there was definitely some 0:03:17.240 --> 0:03:20.360 conservatism that was still going into the outlooks. And remember, 0:03:20.440 --> 0:03:22.600 these companies are not on the forefront of tariffs for 0:03:22.639 --> 0:03:24.440 the most part that we heard last week, but they 0:03:24.440 --> 0:03:27.200 were still referring a lot to the uncertainty and the 0:03:27.240 --> 0:03:30.480 policy backdropped there. So was there maybe a little bit 0:03:30.480 --> 0:03:32.920 of scarring that's keeping them a little bit you know, 0:03:33.040 --> 0:03:36.920 vigilant and on guard going forward. Absolutely, And that to 0:03:37.040 --> 0:03:39.760 me was the biggest takeaway dumb question. 0:03:40.480 --> 0:03:43.400 Are FED rate cuts good for the stock market? 0:03:45.320 --> 0:03:48.040 I think that the market had gotten maybe a little 0:03:48.040 --> 0:03:51.000 too optimistic in the short term about thinking the rate 0:03:51.080 --> 0:03:54.200 cuts were coming soon. If you look at our rate 0:03:54.280 --> 0:03:57.440 strategy team, Blake Gwenn actually pushed his call recently from 0:03:57.560 --> 0:04:00.760 September for the first cut back into December. And as 0:04:00.800 --> 0:04:03.520 I was talking to investors back in June time, you know, 0:04:03.560 --> 0:04:06.080 and you know, sort running all around the country and 0:04:06.120 --> 0:04:09.080 talking to people, and part of the bull thesis was 0:04:09.120 --> 0:04:12.080 getting those rate cuts sooner rather than later. So I 0:04:12.080 --> 0:04:14.520 think as we dial down some of the short term 0:04:14.560 --> 0:04:17.560 implications or short term expectations for FED cuts, I think 0:04:17.560 --> 0:04:19.160 that could cause a little bit of angst in the 0:04:19.200 --> 0:04:21.360 market in the short term. But I do think, you know, 0:04:21.400 --> 0:04:23.799 going back to Blake's call, he's pushed those cuts into 0:04:23.839 --> 0:04:25.920 next year. So it does feel like they're coming. I 0:04:25.920 --> 0:04:28.000 think if you were to take them completely off the table, 0:04:28.440 --> 0:04:31.120 that would do you know, some damage. I think that 0:04:31.320 --> 0:04:34.440 pushing back the rate cuts because of a resilient economy 0:04:35.760 --> 0:04:37.800 and to kind of wait and see on inflation, I 0:04:37.800 --> 0:04:40.279 think the market, you know, can absorb that without a 0:04:40.279 --> 0:04:42.120 ton of damage, but it may create some short term 0:04:42.160 --> 0:04:45.159 hiccuffs for a market that's come so far, so fast 0:04:45.160 --> 0:04:46.200 in a short amount of time. 0:04:47.040 --> 0:04:50.400 So, Laurie, what August first is going to be another 0:04:50.480 --> 0:04:52.800 date on this whole tariff discussion. It just feels like 0:04:52.839 --> 0:04:57.120 the market maybe has gotten complacent about tariffs and the 0:04:57.200 --> 0:05:00.599 risk they may present in terms of e narmer growth 0:05:00.680 --> 0:05:03.560 or inflation. Maybe that's we're going to get refocused come 0:05:03.560 --> 0:05:05.800 this August first deadline. How are you thinking about that? 0:05:06.839 --> 0:05:08.520 I think that's a great question. I'll tell you my 0:05:08.560 --> 0:05:10.600 macro colleagues and I at RBC, you know, when we 0:05:10.640 --> 0:05:13.520 compare notes on the tariff discussion, you know, we we're 0:05:13.560 --> 0:05:15.560 sort of like, is anybody bringing up the deadline in 0:05:15.600 --> 0:05:18.600 your meetings? And it's like, basically, no, is what we're 0:05:18.600 --> 0:05:21.440 hearing across different asset classes. And I think there has 0:05:21.520 --> 0:05:24.039 been a view, you know, when I've proactively brought it 0:05:24.120 --> 0:05:27.760 up with investors that you know, we're seeing a lot 0:05:27.800 --> 0:05:29.719 of you know, I don't want to use the word theater, right, 0:05:29.760 --> 0:05:33.240 but I think there is an expectation that there there is, 0:05:33.320 --> 0:05:35.240 you know, sort of an image that's going on, and 0:05:35.279 --> 0:05:37.120 things are going to be pushed back and things are 0:05:37.120 --> 0:05:39.000 not going to end up being that dire. You know, 0:05:39.040 --> 0:05:41.000 where I shake out Paul as I do think that 0:05:41.080 --> 0:05:43.200 we're going to have more tariffs than what we had 0:05:43.200 --> 0:05:44.840 to start of the year, and I think that there 0:05:44.880 --> 0:05:48.719 are inflationary impacts. So where I'm concerned about complacency is 0:05:48.760 --> 0:05:50.960 when I have investors coming into me and saying, hey, 0:05:50.960 --> 0:05:54.400 we got this soft CPI print, see tariffs aren't inflationary, 0:05:54.720 --> 0:05:57.240 and I just don't think that's realistic. I think companies 0:05:57.279 --> 0:05:59.680 have been working through a lot of inventory, and they've 0:05:59.680 --> 0:06:02.440 been put plans into place, and you're starting to see 0:06:02.440 --> 0:06:06.000 those gears of price increases turning. They're just turning very slowly. 0:06:06.080 --> 0:06:07.719 But to be honest, this isn't that different from what 0:06:07.839 --> 0:06:10.200 happened back in twenty eighteen. And if you look at 0:06:10.200 --> 0:06:13.080 twenty nineteen earnings, they were flat with twenty eighteen for 0:06:13.120 --> 0:06:15.640 the S and P so I worry that investors are 0:06:15.920 --> 0:06:17.960 kind of saying, hey, we're not getting anything and we're 0:06:18.000 --> 0:06:19.640 just going to get stuff later, and it's going to 0:06:19.680 --> 0:06:21.880 actually impair the outlook for next year a bit. 0:06:22.440 --> 0:06:23.800 We say good morning to all of you and you 0:06:24.520 --> 0:06:28.000 across America. Good morning on Serious Exem Channel one twenty one, 0:06:28.320 --> 0:06:31.839 ninety nine and one FM. Nathan Ager Radio in Washington 0:06:32.360 --> 0:06:35.800 ninety two nine FM. Huge response for Arnold's out in 0:06:35.839 --> 0:06:39.240 East Orleans today. I just so much. It's a killer. 0:06:39.320 --> 0:06:42.840 It's like it's like my childhood. You know, I'm looking 0:06:42.920 --> 0:06:46.599 Paul August one is like this big date. I'm not 0:06:46.760 --> 0:06:50.760 focused because I'm looking at WWE SummerSlam, the two day 0:06:50.800 --> 0:06:54.799 combo ticket out at MetLife Stadium. The seats I deserve 0:06:55.000 --> 0:06:56.640 are nine hundred and thirty dollars. 0:06:56.720 --> 0:06:58.360 Sure, that's for WLF. 0:06:58.000 --> 0:07:02.920 Summer Slam met Light. And you know, with Lauren Calvasina, 0:07:03.160 --> 0:07:06.719 I'm looking at this fixation here and it's just an 0:07:06.760 --> 0:07:10.040 excuse to get in cash. Is there any value to 0:07:10.120 --> 0:07:13.720 cash right now? Or does Lauren Calvasina say forget about 0:07:13.720 --> 0:07:17.120 the WWE SummerSlam, you got to be in the market. 0:07:18.640 --> 0:07:20.880 Well, look, I'm an equity strategist. Right, So I'm always 0:07:20.880 --> 0:07:23.440 going to want you to be investing in stocks. You know, 0:07:23.480 --> 0:07:25.880 that's just sort of the nature of the beast. And 0:07:25.920 --> 0:07:28.520 we did, you know, sort of take the approach, you know, 0:07:28.560 --> 0:07:30.800 when we've had conversations, especially I would say with newer, 0:07:30.880 --> 0:07:34.400 younger investors this year of it's always impossible, you know, 0:07:34.400 --> 0:07:36.680 just sort of in real time call turns in the market. So, 0:07:37.160 --> 0:07:39.480 you know, I think clients have been sort of doubting 0:07:39.520 --> 0:07:41.680 their own ability to sort of forecast some of the 0:07:42.080 --> 0:07:44.040 noise coming out of DC and some of you know, 0:07:44.080 --> 0:07:46.600 the drama and the headlines and say, you know, I 0:07:46.680 --> 0:07:49.080 have sort of a reasonable expectations of where things are 0:07:49.080 --> 0:07:50.840 going to be next year, let me just kind of 0:07:50.920 --> 0:07:53.920 ignore the short term and position for the long term. 0:07:53.960 --> 0:07:55.760 And I don't you know, I think it is a 0:07:55.800 --> 0:07:58.040 little early to be looking at twenty twenty six. But 0:07:58.080 --> 0:07:59.720 I sympathize with the impulse. 0:08:00.200 --> 0:08:04.880 I do small cap mid cap relative to what I 0:08:04.920 --> 0:08:07.720 think I hear most often, which is large cap growth. 0:08:07.800 --> 0:08:11.120 So how do you think about different market cap plays here? 0:08:11.920 --> 0:08:13.840 So it's a great question. I mean, if you look 0:08:13.880 --> 0:08:16.120 at the hedge funds, they like to place small caps 0:08:16.400 --> 0:08:19.080 on dialing up and dialing down FED expectations, and I 0:08:19.080 --> 0:08:20.920 think we're in the moment of kind of dialing down 0:08:21.040 --> 0:08:23.600 short term FED expectations. And these folks tend to be 0:08:23.640 --> 0:08:25.880 short term in nature. They're not making twenty twenty six 0:08:25.920 --> 0:08:28.640 bets yet, and so if I'm, you know, sort of 0:08:28.640 --> 0:08:31.560 in the process of taking small caps, I think that, 0:08:31.760 --> 0:08:33.640 you know, it's hard for me to see the short 0:08:33.679 --> 0:08:37.040 term out performance pop from that perspective. I also think 0:08:37.080 --> 0:08:40.160 that smaller cap companies have a harder time managing around 0:08:40.200 --> 0:08:43.600 issues like tariffs. I've been reading some nine SMP transcripts 0:08:43.640 --> 0:08:45.520 recently and I've absolutely seen that in some of the 0:08:45.559 --> 0:08:48.000 prints that I've looked at, And I think you want 0:08:48.040 --> 0:08:50.640 economic tailwinds back, and that's like two and a half 0:08:50.679 --> 0:08:54.840 percent GDP and FP ramping ism, manufacturing moving up. I think, 0:08:54.960 --> 0:08:57.199 you know, if I look across the street, the expectations 0:08:57.200 --> 0:09:00.000 are for a sluggish economic growth backdrop for quite some time. 0:09:00.160 --> 0:09:02.560 So people are trying to get bullish on small caps. 0:09:02.880 --> 0:09:05.440 I'm really kind of scratching my head on Laurie. 0:09:05.280 --> 0:09:08.720 Thank you. That was brilliant. And the issue here, Lori Calvicina, 0:09:08.880 --> 0:09:10.920 is we've been trying to get bullish in small caps 0:09:10.920 --> 0:09:16.000 for what ten for fifteen years? I mean, it's ridiculous 0:09:16.040 --> 0:09:19.000 on the large cap question, and you're going to say, well, 0:09:19.040 --> 0:09:20.880 it's not something I really look at, But come on, 0:09:21.280 --> 0:09:27.559 everybody listening is wedded to ten twenty thirty stocks. What's 0:09:27.640 --> 0:09:29.600 that vision out three years? 0:09:30.920 --> 0:09:33.000 So look, and you know we do do work on that, 0:09:33.040 --> 0:09:36.600 you know, we just we put our horizons a bit 0:09:36.640 --> 0:09:38.640 broader as well. And look, I would say, if I'm 0:09:38.679 --> 0:09:42.800 thinking very very short term, we do often see the 0:09:42.800 --> 0:09:46.440 megacap growth stocks sort of seed their earnings leadership and 0:09:46.520 --> 0:09:50.160 seed their performance leadership during reporting season. So what do 0:09:50.280 --> 0:09:52.400 I mean by that, Well, you tend to see outside 0:09:52.400 --> 0:09:54.720 of reporting season, the rate of upward divisions are earning 0:09:54.760 --> 0:09:57.360 sentiment is really really strong for the top ten companies 0:09:57.400 --> 0:09:59.720 relative to the rest of the SMP, and that tends 0:09:59.760 --> 0:10:02.840 to down during reporting season as people actually start to 0:10:02.880 --> 0:10:04.640 think about the other companies and then you see a 0:10:04.640 --> 0:10:07.280 little bit more relative excitement there. So we may be 0:10:07.400 --> 0:10:10.720 heading into something like that. Now, if I'm thinking out 0:10:10.800 --> 0:10:12.680 you know, the next few years, I'll tell you what 0:10:12.720 --> 0:10:15.640 I've been hearing on the road from investors is maybe 0:10:15.679 --> 0:10:19.440 a more rational view of where AI is headed and 0:10:19.480 --> 0:10:22.400 it's you know, kind of moved from instant gratification and 0:10:22.840 --> 0:10:26.640 instant you know, sort of injecting optimism into earnings, at 0:10:26.760 --> 0:10:29.200 least outside of those you know, top megacap names. It's 0:10:29.240 --> 0:10:31.320 not going to be the thing that fixes you know, 0:10:31.360 --> 0:10:34.400 things for everybody right now. But I think companies are 0:10:34.720 --> 0:10:36.880 investors are realizing that companies is just going to take 0:10:36.920 --> 0:10:40.000 them more time to get this technology right and additive 0:10:40.000 --> 0:10:42.920 to earnings. And if you look out longer term earnings 0:10:42.920 --> 0:10:45.080 growth forecasts are still stronger for the mag seven than 0:10:45.120 --> 0:10:46.640 the rest of the market. They're just slowing down. 0:10:46.559 --> 0:10:48.920 A little, kay, But you don't do an individual stock. 0:10:49.000 --> 0:10:52.480 There's a small company Redmond, Washington. We won't mention it, 0:10:52.679 --> 0:10:55.280 and the bottom line is it's got a thirty eight multiple. 0:10:55.800 --> 0:10:59.680 But the answer is out three years a Lori kelvisine 0:10:59.720 --> 0:11:04.440 is showing out three years. You just assume they earn 0:11:04.520 --> 0:11:08.680 their way into a denominator which makes a thirty eight multiple, 0:11:08.760 --> 0:11:09.880 right now? Rational? 0:11:10.040 --> 0:11:12.760 Right, Well, what I'll tell you I'm seeing in my 0:11:12.800 --> 0:11:14.559 Decktom and Tom, you and I have known each other 0:11:14.600 --> 0:11:16.960 a long time. I am sort of like anti theme, 0:11:17.080 --> 0:11:19.760 anti fad, like I am never you know, sort of 0:11:19.800 --> 0:11:22.160 drinking the kool aid on the next hot thing. But 0:11:22.280 --> 0:11:24.720 I've been calmed down a little bit on this AI 0:11:24.760 --> 0:11:27.520 theme because when I look at the top ten megacap 0:11:27.600 --> 0:11:29.160 names in the S and P five hundred, which are 0:11:29.240 --> 0:11:32.320 largely AI plays, and I do a median PE of 0:11:32.360 --> 0:11:35.199 those companies, and I compare it to the long term 0:11:35.200 --> 0:11:38.120 growth expectations, and I take those two things right, and 0:11:38.160 --> 0:11:41.320 I look at MAG seven versus rest of the S 0:11:41.400 --> 0:11:44.560 and P. The relative PE line is the same line 0:11:44.640 --> 0:11:47.160 as the relative long term earnings growth line, so they're 0:11:47.160 --> 0:11:51.120 getting different multiples, but it's based on the differing perceptions 0:11:51.120 --> 0:11:53.720 of what the long term earnings growth rates are. And 0:11:53.760 --> 0:11:55.960 that's been very similar to what we tend to see 0:11:56.000 --> 0:11:57.680 over time. I think there was a breakdown in that 0:11:57.720 --> 0:12:00.839 relationship around the GFC briefly, but this is even how 0:12:00.880 --> 0:12:03.880 stocks behaved back in the nineties and early two thousands. 0:12:04.080 --> 0:12:06.760 So I think you've really got to tackle those long 0:12:06.840 --> 0:12:09.320 term earnings growth expectations. And you've either got to just 0:12:09.400 --> 0:12:12.719 like bang down the MAG seven trade and say their 0:12:12.800 --> 0:12:14.920 numbers are way too optimistic, or you've got to look 0:12:14.920 --> 0:12:16.240 at the rest of the market and say it's way 0:12:16.240 --> 0:12:19.400 too pessimistic and move those up and we're just not 0:12:19.600 --> 0:12:22.079 seeing any change in that relative gap, so they're kind 0:12:22.120 --> 0:12:24.200 of each getting the relative pe they deserve. 0:12:24.600 --> 0:12:27.640 That's the key issue, Paul, is we haven't seen a 0:12:27.760 --> 0:12:31.840 change in the zeitgeist. Everybody's publishing and all that opinions 0:12:31.880 --> 0:12:33.760 in that, but it's still the way it is. Paul, 0:12:33.800 --> 0:12:34.760 get one more in here with. 0:12:34.760 --> 0:12:38.319 LORI evaluation here, Laurie, how do you kind of break 0:12:38.320 --> 0:12:40.319 that down for your clients here? Just of the market 0:12:40.320 --> 0:12:40.760 in general? 0:12:41.600 --> 0:12:44.120 So look small caps, you know, had hit recession lows 0:12:44.120 --> 0:12:46.440 on April eighth, and they're now back to average, so 0:12:46.480 --> 0:12:48.600 they're fine, but they're not super cheap the way they 0:12:48.600 --> 0:12:50.600 were S and P. If I look at a market 0:12:50.600 --> 0:12:53.679 cap weighted multiple, never got cheap, did work its way 0:12:53.720 --> 0:12:55.679 down from peak, and no, it's right back up to peak. 0:12:55.960 --> 0:12:57.520 If I look at rest of S and P and 0:12:57.600 --> 0:13:00.240 just do an equal weighted multiple over there, think we're 0:13:00.240 --> 0:13:03.160 trade around eighteen times. It had been down around sixteen. Again, 0:13:03.240 --> 0:13:05.520 never got to average, but it's not quite back to peak. 0:13:05.760 --> 0:13:07.439 So I feel like in the short term there's a 0:13:07.440 --> 0:13:09.120 little bit of a catch up tray that the rest 0:13:09.120 --> 0:13:11.760 of the market needs to do relative to the mag 0:13:11.880 --> 0:13:15.040 seven you can watch that Russell pe really closely, because 0:13:15.080 --> 0:13:16.920 what it did this past time was peak out around 0:13:16.960 --> 0:13:19.559 the twenty sixteen through twenty eighteen highs. We're way far 0:13:19.640 --> 0:13:21.960 off from that yet, so maybe that's an uber bowl argument. 0:13:22.440 --> 0:13:25.360 But I see different valuations in different parts of the market, 0:13:25.400 --> 0:13:27.520 and the capwaight at SMP is getting worrisome again. 0:13:27.880 --> 0:13:30.640 Laurie, thank you so much. Lori kelviseen a terrific brief there, 0:13:30.800 --> 0:13:33.640 RBC Capital Markets. What we'd like to do on a Monday, 0:13:33.679 --> 0:13:37.040 Folks's iniquities, Bond's currencies and commodities. 0:13:42.520 --> 0:13:46.120 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:13:46.160 --> 0:13:49.320 weekday afternoons from seven to ten am Eastern. Listen on 0:13:49.440 --> 0:13:52.840 Apple Karplay and Android Auto with the Bloomberg Business app, 0:13:53.000 --> 0:13:54.760 or watch us live on YouTube. 0:13:55.120 --> 0:13:56.760 Just one of the things you're doing here mid July 0:13:57.000 --> 0:14:00.640 into a July thirty FED meeting or any is coming 0:14:00.679 --> 0:14:05.079 out stillantis can? I isn't stillantis Chrysler, Yes, but it's 0:14:05.080 --> 0:14:10.280 a combo like yeah, I think Fiat Renault Poojit like 0:14:10.360 --> 0:14:11.400 I don't know what's in there. 0:14:11.520 --> 0:14:12.040 I don't know. 0:14:12.200 --> 0:14:16.200 Bob Michael's looking at me like Tom you're butchering the pronunciations. 0:14:16.600 --> 0:14:19.120 We started with Troy Guyski in Deborah Cunningham and now 0:14:19.160 --> 0:14:23.400 Bob Michael with JP Morgan here, and my great theme 0:14:23.480 --> 0:14:26.680 is over the weekend, just lots of be careful, lot 0:14:26.680 --> 0:14:30.080 of worry and caution and all that. I looked at 0:14:30.080 --> 0:14:34.240 a famous blended bond market fun not JP Morgan, and 0:14:34.320 --> 0:14:36.160 I think year to date, if I make it an 0:14:36.240 --> 0:14:40.440 annualized statistic, is a six and a half percent return 0:14:40.520 --> 0:14:43.480 in the bond market. Things aren't that bad, are they. 0:14:44.240 --> 0:14:44.600 They're not. 0:14:45.040 --> 0:14:49.920 There's a phenomenal resilience to both the US economy and 0:14:50.200 --> 0:14:54.240 US markets or bond markets globally. To be honest, if 0:14:54.240 --> 0:14:56.120 you look at some of the things that have gone 0:14:56.120 --> 0:14:58.560 on this year, none of them are good for the 0:14:58.640 --> 0:15:02.880 bond market. You've got tariffs that means higher prices, higher inflation. 0:15:03.320 --> 0:15:06.720 You've got the one big beautiful Bill Act that means 0:15:06.920 --> 0:15:10.200 a lot more spending, which supports higher prices. Each of 0:15:10.240 --> 0:15:13.720 those two are north of three trillion dollars. Then you 0:15:13.840 --> 0:15:18.520 have the sell American noise out there constantly that should 0:15:18.520 --> 0:15:21.720 be putting pressure on US bonds. And then there's talk 0:15:21.840 --> 0:15:25.200 of global issuance in bonds going through the roof. You're 0:15:25.200 --> 0:15:28.160 seeing some of that that should put pressure on bond 0:15:28.240 --> 0:15:31.720 But through all of that, here we are with the 0:15:31.800 --> 0:15:35.040 ten year treasury flat to the Fed funds rate where 0:15:35.080 --> 0:15:37.880 it's been for most of the year. You're grabbing the coupon, 0:15:38.800 --> 0:15:42.360 you're getting the coupon, and as long as there's no 0:15:42.440 --> 0:15:46.240 recession on the horizon, you're buying credit and picking up 0:15:46.280 --> 0:15:47.360 the incremental yield. 0:15:47.800 --> 0:15:50.840 Where do you see value in credit these days? Because 0:15:50.960 --> 0:15:52.560 again it looks to me, I'm just looking at the 0:15:52.840 --> 0:15:55.280 end go function, the Bloomberg terminal. The best performance has 0:15:55.280 --> 0:15:57.080 been US corporate high yield. 0:15:58.200 --> 0:16:03.400 It has been and we've always said, in any backup 0:16:03.640 --> 0:16:06.840 in high yield, you buy it unless you think you're 0:16:06.880 --> 0:16:10.760 going into recession. Then by definition that's when you worry. 0:16:10.800 --> 0:16:14.160 That's when you get out because there will be de risking, 0:16:14.640 --> 0:16:18.320 that's when corporate profitability drops. And everyone's worried about the 0:16:18.360 --> 0:16:22.280 false rising. But the reality is there's a ton of 0:16:22.320 --> 0:16:25.760 money on the sidelines looking to get into the bond market. 0:16:26.200 --> 0:16:32.160 Both institutional and retail investors feel under allocated to fixed income. 0:16:32.320 --> 0:16:34.640 Can I ask a rude question? First? One a Monday 0:16:34.680 --> 0:16:38.000 Room question at JP market. How much is a ton 0:16:38.040 --> 0:16:41.120 of money? Like if somebody shows up, is it like 0:16:41.160 --> 0:16:45.120 one hundred million? Ah? You know what's the measurement of 0:16:45.160 --> 0:16:46.080 a ton of money? 0:16:46.280 --> 0:16:47.960 Bigger than a couple bushels? 0:16:49.480 --> 0:16:52.480 So why are they underinvested market? Because for the first 0:16:52.520 --> 0:16:56.560 time in fifteen years we can actually get total coupon 0:16:56.680 --> 0:16:57.240 return here. 0:16:57.240 --> 0:16:58.040 Why are they under. 0:16:58.200 --> 0:17:01.440 Yeah, that's as you just said it, the first time 0:17:01.480 --> 0:17:04.720 in fifteen years. It was the fifteen years before that 0:17:05.200 --> 0:17:08.960 the zero and negative interest rate policy. People looked at 0:17:09.000 --> 0:17:11.399 bonds and said, eh, not going to do it, and 0:17:11.440 --> 0:17:14.720 either left money in cash or went into alternatives. Now 0:17:14.720 --> 0:17:18.320 they feel overallocated to alternatives, under allocated to bonds and. 0:17:18.320 --> 0:17:21.320 Our global Wall Street question of the day adding in 0:17:21.440 --> 0:17:24.920 your intern slash junior analysts whatever they're calling them, a 0:17:25.240 --> 0:17:29.520 JP Morgan summer analysts, summer analysts. How many people are 0:17:29.600 --> 0:17:37.000 under Bob Michael just twenty thousand, four hundred, four hundred, 0:17:37.040 --> 0:17:39.760 four hundred is how many of those people have never 0:17:39.800 --> 0:17:42.520 really seen a coupon market? How many of this is 0:17:42.560 --> 0:17:46.920 all new? Out of four hundred? Seriously, is this all new? 0:17:47.240 --> 0:17:51.680 Now? You're you're right, the majority of people in our 0:17:51.760 --> 0:17:57.080 business have been in the industry post Great Financial Crisis, 0:17:57.600 --> 0:18:02.760 so central bank intervention di stortion of bond markets looks normal. 0:18:03.240 --> 0:18:07.240 Whereas we as a franchise the broader JP Morgan Chase Field, 0:18:07.240 --> 0:18:10.080 we are going back to a world that existed pre 0:18:10.200 --> 0:18:12.000 financial crisis. 0:18:11.440 --> 0:18:13.880 When Russia blew up. I went back and read the 0:18:13.920 --> 0:18:17.200 history of JP. Morgan in Russia in nineteen oh seven. 0:18:17.400 --> 0:18:20.040 That's how far back we go, exactly right, what a history? 0:18:21.119 --> 0:18:25.919 So our Federal Reserve? How are you parsing through the 0:18:25.960 --> 0:18:28.480 noise and so on about leadership at the FED as 0:18:28.720 --> 0:18:31.520 and then getting down to where policy may shake out 0:18:31.560 --> 0:18:32.080 for the FED? 0:18:32.600 --> 0:18:39.359 Well, I do believe that the FED members the FOMC 0:18:39.640 --> 0:18:43.600 do come in every day, look at data and try 0:18:43.800 --> 0:18:48.439 to make the best possible decisions. So they understand the 0:18:48.480 --> 0:18:52.479 importance of their role. They understand the judgment that history 0:18:52.520 --> 0:18:56.119 will make. They get all of that. They're in a 0:18:56.119 --> 0:19:00.520 difficult position because they know prices will go up once 0:19:00.760 --> 0:19:04.520 the full strength of tariffs hits, and maybe even this 0:19:04.680 --> 0:19:08.520 quarter there will be more passed through from corporate America. 0:19:08.920 --> 0:19:12.359 They also feel that it could slow down growth, that 0:19:12.880 --> 0:19:16.800 if there are higher prices, businesses and households will probably 0:19:16.880 --> 0:19:20.960 spend a bit less, So why not just hold rates 0:19:21.000 --> 0:19:24.399 where they are for now and see some of these 0:19:24.520 --> 0:19:27.640 impacts in the real data. I think that's the right 0:19:27.720 --> 0:19:30.320 thing to do. And as we start out with, markets 0:19:30.320 --> 0:19:32.639 are doing great, the economy is doing it fine. 0:19:32.440 --> 0:19:35.480 And pomportant to zeitgeist this weekend, mister Bessan, sitting on 0:19:35.560 --> 0:19:38.000 the couch in the Oval office, Yes, suggested to the 0:19:38.000 --> 0:19:39.240 president slow things down. 0:19:39.320 --> 0:19:41.639 Yep, exactly. I'm looking through your notes here, Bob. One 0:19:41.640 --> 0:19:43.199 of the things that jumped out of me is local 0:19:43.320 --> 0:19:44.200 emerging market. 0:19:44.280 --> 0:19:45.399 That tell us about that. 0:19:45.480 --> 0:19:47.160 How do you think about emerging markets today? 0:19:48.560 --> 0:19:48.919 Local? 0:19:49.240 --> 0:19:53.159 Well, Emerging markets in general have been overlooked for the 0:19:53.240 --> 0:19:56.160 last seven or eight years, and when we look at 0:19:56.640 --> 0:20:02.680 flows into different assets classes, they've gone into equity, some 0:20:02.720 --> 0:20:05.600 have trickled into different parts of the bond market, but 0:20:06.000 --> 0:20:11.119 with shocking consistency, there have been outflows from emerging market 0:20:11.160 --> 0:20:14.600 equities and emerging market debts. So they've been orphaned, yet 0:20:14.640 --> 0:20:18.600