WEBVTT - Bloomberg Surveillance TV: December 5th, 2025 0:00:02.360 --> 0:00:06.720 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hortern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.840 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify, or 0:00:31.280 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:35.840 Terminal and the Bloomberg Business App. 0:00:36.600 --> 0:00:39.120 US Interior Secretary Doug Burghram joins us. 0:00:39.120 --> 0:00:39.360 Now. 0:00:39.840 --> 0:00:42.080 Secretary Burghram, thank you so much for being with us. 0:00:42.159 --> 0:00:44.199 I want to start with just how important it is 0:00:44.320 --> 0:00:47.639 right now for the United States to increase energy supplies 0:00:47.680 --> 0:00:50.519 across the board, not just with drilling, but across the 0:00:50.520 --> 0:00:53.440 board the face of the demand coming from AI. 0:00:54.760 --> 0:00:57.280 Well, good morning, Lid. You say, yes, it's absolutely essential, 0:00:57.320 --> 0:00:57.760 and this is. 0:00:57.800 --> 0:01:02.320 Part of the just a noun to National Security Plan 0:01:02.400 --> 0:01:06.800 that the White House has released. That Security plan mentions 0:01:06.880 --> 0:01:11.039 energy twenty three times. There's an entire section about energy dominance, 0:01:11.080 --> 0:01:14.440 and folks should think about energy dominance as the ability 0:01:14.480 --> 0:01:16.560 for the US to sell energy to our friends and 0:01:16.600 --> 0:01:18.920 allies so they don't have to buy it from adversaries, 0:01:18.959 --> 0:01:22.640 particularly those adversaries that are either funding terrorism or are 0:01:23.319 --> 0:01:28.600 funding wars, actively funding war machines, and so it's core 0:01:28.640 --> 0:01:30.840 to the strategy right now. But it's also, as you've 0:01:30.840 --> 0:01:33.040 talked about on the show, is about with AI because 0:01:33.480 --> 0:01:35.399 never before in a history have we been able to 0:01:35.440 --> 0:01:38.039 convert a kill, a lot of electricity into intelligence. 0:01:38.080 --> 0:01:41.000 The demand for that, regardless. 0:01:40.400 --> 0:01:44.039 Of stock prices or stock movements, the demand for AI 0:01:44.240 --> 0:01:47.480 for intelligence applied to every job, every company, every industry 0:01:47.560 --> 0:01:49.640 is going to continue to increase the demand. 0:01:49.360 --> 0:01:51.320 For electricity around the world. 0:01:51.680 --> 0:01:55.360 The US as an energy dominant country, now the largest 0:01:55.400 --> 0:01:58.880 oil producer in the world, largest LG exporter in the world, 0:01:59.440 --> 0:02:02.840 and growing quickly with that strategy, it bodes well for 0:02:02.960 --> 0:02:05.640 the future of the US, both in terms. 0:02:05.400 --> 0:02:08.000 Of peace and in terms of prosperity. Secretary, I'm sure. 0:02:07.840 --> 0:02:10.720 You're aware WTI is under sixty dollars a barrel. What's 0:02:10.760 --> 0:02:13.200 the impetus for the oil and gas companies in the 0:02:13.280 --> 0:02:16.400 United States to continue drilling wells at this price level, 0:02:16.400 --> 0:02:18.480 which potentially could be a loss for them. 0:02:19.000 --> 0:02:21.240 Well, I think one thing that we know that in 0:02:21.280 --> 0:02:25.120 Trump administration we're cutting red tape so rapidly. We think 0:02:26.040 --> 0:02:29.200 that one of the early targets we had was cut 0:02:29.240 --> 0:02:32.240 ten percent of the cost away from those producers just 0:02:32.280 --> 0:02:36.280 by cutting red tape. So if you think about sixty 0:02:36.280 --> 0:02:38.400 bucks to day, it might be what sixty seven bucks 0:02:38.520 --> 0:02:43.480 was a year ago because of our ability to take 0:02:43.560 --> 0:02:46.679 cost out for those producers. And there's example after example, 0:02:47.400 --> 0:02:50.120 whether it's from the EPA, the Department of Energy, Department 0:02:50.160 --> 0:02:51.520 of Interior, where we've been able. 0:02:51.360 --> 0:02:52.720 To help reduce costs. 0:02:52.720 --> 0:02:55.400 And of course this industry has been better than almost 0:02:55.440 --> 0:02:59.160 any in terms of gaining productivity. The shale producers now 0:02:59.480 --> 0:03:02.480 drilling three mile laterals instead of two mile laterals, up 0:03:02.520 --> 0:03:06.320 to four mile laterals in many places offshore. We've seen 0:03:06.360 --> 0:03:10.639 examples overseas of people driving building ten mile laterals when 0:03:10.639 --> 0:03:14.040 they're getting after the shale rock, all with the same. 0:03:13.840 --> 0:03:15.360 Small well pad on the surface. 0:03:15.400 --> 0:03:18.680 So, you know, great for great for land management, and 0:03:18.720 --> 0:03:20.000 great for energy production. 0:03:20.120 --> 0:03:21.720 And kudos to this industry. 0:03:22.040 --> 0:03:26.120 This, the entire shale revolution has occurred through innovation, and 0:03:26.160 --> 0:03:29.040 that innovation is going to continue, and with AI applied 0:03:29.040 --> 0:03:30.840 to that, it's going to even get even better. So 0:03:31.280 --> 0:03:34.480 I see the leading companies are getting their costs down 0:03:35.160 --> 0:03:36.560 even as demand is going up. 0:03:36.680 --> 0:03:39.560 But Baker Hughes is talking about drilling reactivity has falling 0:03:39.600 --> 0:03:43.080 sixteen percent since Trump took office this year. The President 0:03:43.160 --> 0:03:46.360 loves to talk about drill, baby, drill. Do you expect 0:03:46.400 --> 0:03:49.080 that to change those numbers to change next year? 0:03:50.080 --> 0:03:52.000 Well, I think again, I have to take a look 0:03:52.040 --> 0:03:54.880 at the at the numbers when we talk about drilling activity. 0:03:54.880 --> 0:03:57.120 In my home state of North Dakota, we had a 0:03:57.800 --> 0:04:00.360 number of the well count was going down, but the 0:04:00.440 --> 0:04:03.400 miles of lateral productive rock could be going up. 0:04:03.680 --> 0:04:05.280 And so you know, analysts have. 0:04:05.240 --> 0:04:07.280 Got to make sure that they're actually keeping up with 0:04:07.320 --> 0:04:11.480 how fast this industry is changing, because we've got again 0:04:11.600 --> 0:04:14.640 record production occurring right now and we expect to see 0:04:14.680 --> 0:04:16.799 records through twenty twenty six. 0:04:17.160 --> 0:04:19.599 One area where you have seen price increases has been 0:04:19.680 --> 0:04:22.279 natural gas. Natural gas prices rising to the highest levels 0:04:22.279 --> 0:04:25.200 in the US going back to twenty twenty two, and 0:04:25.279 --> 0:04:28.080 a real question on how much the US can continue 0:04:28.080 --> 0:04:30.960 to export to places like Europe in the face of 0:04:31.160 --> 0:04:34.080 significantly higher prices here in the United States. How do 0:04:34.120 --> 0:04:36.039 you plan to sort of set policy so that the 0:04:36.120 --> 0:04:38.599 US can be a big exporter to places like Europe 0:04:38.640 --> 0:04:41.880 while not allowing prices to go up so significantly in 0:04:41.880 --> 0:04:42.400 the future. 0:04:43.279 --> 0:04:46.400 Well, again, the key is its supply and its infrastructure. 0:04:47.160 --> 0:04:49.400 We have places in the US right now where again, 0:04:49.440 --> 0:04:51.920 there's not one price for gas in America as you know. 0:04:52.320 --> 0:04:54.200 I mean, even though we've got the markets and we've 0:04:54.240 --> 0:04:59.040 got Henry Hub, but we've got we've got widely raging prices, 0:04:59.080 --> 0:05:01.040 I mean even in the different and a price in 0:05:01.120 --> 0:05:05.360 Pennsylvania versus in New England because the lack of natural 0:05:05.360 --> 0:05:08.240 gas pipelines that have been blocked into places like New England. 0:05:08.560 --> 0:05:10.880 And when we think about we think about markets, you're 0:05:10.920 --> 0:05:13.960 talking about AI and the Capital spen and going against 0:05:13.960 --> 0:05:18.520 AI where we're an AI factory where we're actually creating 0:05:18.600 --> 0:05:22.719 and manufacturing intelligence. Those plants are going to go to 0:05:22.760 --> 0:05:26.360 the places where states have low electricity prices and policies 0:05:26.400 --> 0:05:29.880 are setting price, not just markets. And we've got policies 0:05:30.000 --> 0:05:34.480 in blue states around our country. California. You mentioned California. 0:05:34.560 --> 0:05:38.640 Sixty three percent of California's oil is being imported from 0:05:38.680 --> 0:05:43.000 foreign countries because of blocking of pipelines coming into that state. 0:05:44.120 --> 0:05:47.839 They have a record number of internal combustion cars in California. 0:05:47.880 --> 0:05:50.240 They have more internal combustion cars than any other state 0:05:50.320 --> 0:05:53.680 as cars. And yet two refineries have announced that they're 0:05:53.720 --> 0:05:57.280 shutting down in California because of policies, not because of 0:05:57.360 --> 0:05:59.720 lack of demand, not because of lack of consumers. 0:06:00.480 --> 0:06:02.000 And so what's going to happen. 0:06:02.760 --> 0:06:06.120 You're going to have oil tankers and refined products coming 0:06:06.160 --> 0:06:08.640 into San Francisco Bay and coming into Long Beach and 0:06:08.720 --> 0:06:12.400 record numbers in California. Because of policies, they will have 0:06:12.480 --> 0:06:16.240 higher gas prices than virtually any other state. So again, 0:06:16.640 --> 0:06:19.400 we have a we have a strategy in America to 0:06:19.440 --> 0:06:22.680 help every state. The Trump administration wants to have low 0:06:22.760 --> 0:06:26.159 affordable energy prices for everybody, whether it's heating your home 0:06:26.279 --> 0:06:30.400 or driving your car, or producing electricity for AI. But 0:06:30.480 --> 0:06:34.760 we're going to need the collaboration from states to make sure. 0:06:34.760 --> 0:06:36.120 And if states don't. 0:06:35.960 --> 0:06:37.920 Want to collaborate on that, then you're going to see 0:06:37.960 --> 0:06:42.119 this uh trillion dollars at AI, a historic amount of spend, 0:06:42.200 --> 0:06:46.000 all going towards states that have pro energy policies that 0:06:46.120 --> 0:06:47.320 drive down prices. 0:06:47.520 --> 0:06:51.760 Secretary, We've seen a significant increase in energy costs especially 0:06:51.760 --> 0:06:54.560 for individuals who live near data centers. How is the 0:06:54.680 --> 0:06:57.880 US going to do both at once, both support these 0:06:57.880 --> 0:07:02.360 AI inities but also make sure consumers energy prices remain affordable. 0:07:03.120 --> 0:07:04.640 Well, if you said on the show, I mean these 0:07:04.760 --> 0:07:08.160 prices are in electricity are local, not national. 0:07:08.600 --> 0:07:11.680 And so there are the examples that you think. 0:07:11.800 --> 0:07:14.760 We're driving that analysis right now and we're going to 0:07:14.800 --> 0:07:17.720 be publishing that from the White House to the National 0:07:17.840 --> 0:07:21.400 Energy Dominance Council, the Department of Energy doing great work 0:07:21.400 --> 0:07:23.160 on that. But a lot of the higher prices that 0:07:23.200 --> 0:07:26.440 you're seeing are not related to the AI data centers. 0:07:26.480 --> 0:07:28.160 A lot of the A data centers are going to 0:07:28.200 --> 0:07:31.280 be off the grid, behind the meter and then producing 0:07:31.360 --> 0:07:32.920 adding more energy. 0:07:33.000 --> 0:07:35.000 Then and putting some of that energy onto the grid. 0:07:35.040 --> 0:07:37.080 So we could be actually increasing. 0:07:36.560 --> 0:07:39.200 The supply in some of those areas where we've got 0:07:39.240 --> 0:07:42.040 increased pricing. It's because of the policies they pursued the 0:07:42.080 --> 0:07:48.239 last five years of having unreliable, intermittent and highly subsidized 0:07:49.120 --> 0:07:53.600 and projects, including things like offshore wind where people were 0:07:53.600 --> 0:07:57.040 spending eleven billion dollars to create one gigawatt of intermittent, 0:07:57.280 --> 0:07:59.720 you know, versus spending one or two billion dollars to 0:07:59.760 --> 0:08:03.280 create one gig a lot of assured seven by twenty 0:08:03.320 --> 0:08:06.200 four hour powers. So the policy choices of the last 0:08:06.200 --> 0:08:10.400 five years, driven by sometimes climate extremists, were the ones 0:08:10.440 --> 0:08:13.160 that were that were that are driving up the prices 0:08:13.200 --> 0:08:15.520 you're seeing. I mean, electricity costs three times as much 0:08:15.520 --> 0:08:19.320 in New England as it does in North Dakota. That 0:08:19.440 --> 0:08:21.960 is not that is not because of data centers. That's 0:08:22.000 --> 0:08:22.960 because of policies. 0:08:23.480 --> 0:08:26.880 Stay with us, Mulplinpex Savana's coming up off. 0:08:26.720 --> 0:08:38.600 To this, Kate Moore of City Wealth writing, we remain 0:08:38.640 --> 0:08:41.800 fully invested in equities on this nominal growth backdrop and 0:08:41.840 --> 0:08:44.880 prefer gold over long and duration as a hedge to 0:08:45.000 --> 0:08:46.040 risk given. 0:08:46.080 --> 0:08:47.520 The upward pressure on rates. 0:08:47.720 --> 0:08:50.080 Kate, I am so pleased to say, joins us now 0:08:50.120 --> 0:08:50.520 for more. 0:08:50.600 --> 0:08:52.520 Kate, good morning, Thank you forboding with warning. 0:08:52.840 --> 0:08:54.840 So this has been a market that you've been cautious 0:08:54.840 --> 0:08:56.960 about for a lot of this year. You still see 0:08:57.000 --> 0:08:59.720 reasons that maybe the everything rally can't continue for. 0:08:59.760 --> 0:09:02.320 Hours, but the tone has shifted. Why. 0:09:02.640 --> 0:09:04.920 Okay, So it's not that I've been cautious, it's that 0:09:04.960 --> 0:09:07.719 we didn't aggressively add to risk because we prefer to 0:09:07.720 --> 0:09:10.640 take our exposure in large caps, and I continue to 0:09:10.880 --> 0:09:13.720 even after seeing some of the small cap rally. I 0:09:13.760 --> 0:09:15.560 think most of that and you kind of let into 0:09:15.559 --> 0:09:18.840 this a moment. Ago has been around rate cut expectations, 0:09:19.080 --> 0:09:21.440 and relative to some others, we don't think the FED 0:09:21.480 --> 0:09:23.880 should be cutting of rates at every meeting from now 0:09:23.960 --> 0:09:26.560 until next June. I know some people are hoping for 0:09:26.600 --> 0:09:29.160 that and some pricing that in, and we think small 0:09:29.160 --> 0:09:31.760 companies desperately need that in order to really sustain a 0:09:31.840 --> 0:09:34.600 rally and to have better earnings and fundamentals. So we 0:09:34.720 --> 0:09:37.040 prefer to take our risk in the large caps space. 0:09:37.080 --> 0:09:38.920 We've done quite well there, but it's not that we've 0:09:38.920 --> 0:09:41.120 been out of the equity market or been underweight in 0:09:41.120 --> 0:09:43.480 any way a shape or form. We just want to 0:09:43.520 --> 0:09:45.480 be where their earnings are and where the free cash 0:09:45.559 --> 0:09:46.880 is and where we have visibility. 0:09:47.280 --> 0:09:49.160 And that served us really well this year. 0:09:49.280 --> 0:09:51.360 So what you're saying is it sounds like you don't 0:09:51.400 --> 0:09:54.839 buy that there is this truly durable rotation into small 0:09:54.880 --> 0:09:57.960 caps and to expand out of just where the leadership 0:09:57.960 --> 0:09:58.280 has been. 0:09:58.320 --> 0:09:58.920 Is that correct? 0:09:59.040 --> 0:09:59.199 Yeah? 0:09:59.280 --> 0:09:59.760 I want to. 0:10:00.000 --> 0:10:02.079 You know, so many people have written their year ahead 0:10:02.120 --> 0:10:04.439 report saying once again, same thing they did at this 0:10:04.520 --> 0:10:06.720 time last year. Next year is going to be year 0:10:06.760 --> 0:10:08.600 of broadening. It's going to be your broadening in sectors, 0:10:08.640 --> 0:10:10.560 it's going to be your broadening in terms of regions. 0:10:10.920 --> 0:10:13.440 And I'm not a buyer of that today, this first 0:10:13.440 --> 0:10:16.360 week in December. And let me explain why. Because we 0:10:17.280 --> 0:10:19.480 are kind of later in the cycle. We are at 0:10:19.520 --> 0:10:21.920 a point where you can pick and choose whatever economic 0:10:22.000 --> 0:10:24.000 data you want to fit the narrative you want to 0:10:24.000 --> 0:10:27.280 tell about the overall macro and what policy might do 0:10:27.480 --> 0:10:30.520 to respond to that macro. And I think you have 0:10:30.559 --> 0:10:33.000 to be very anchored to fundamentals and where we have 0:10:33.120 --> 0:10:35.280 visibility into fundamentals. 0:10:34.760 --> 0:10:37.280 Where we can see earnings, where. 0:10:37.040 --> 0:10:39.680 We know that companies have the ability to weather any 0:10:39.760 --> 0:10:43.640 kind of sort of storm in the economy, whether that's 0:10:43.760 --> 0:10:46.559 a bit of inflation spike or a slightly weaker labor 0:10:46.640 --> 0:10:50.120 market or policy headwind. That's where we want to be anchored, 0:10:50.480 --> 0:10:53.120 and I think many investors will as well. You don't 0:10:53.200 --> 0:10:55.720 just rotate for the sake of rotation. You just don't 0:10:55.720 --> 0:10:57.760 buy the laggards for the sake of it. In fact, 0:10:57.880 --> 0:11:00.240 we've done a bunch of quantitative studies to show that 0:11:00.480 --> 0:11:03.640 when you employ that strategy, particularly after a full year 0:11:03.760 --> 0:11:07.240 performance of kind of tech and comms, etc. You don't 0:11:07.280 --> 0:11:09.400 perform as well. Some of these things that are doing 0:11:09.400 --> 0:11:11.640 well deserve it, and we don't rotate for the sake 0:11:11.679 --> 0:11:12.800 of rotating. But isn't the. 0:11:12.720 --> 0:11:16.200 Table set this time around better than it was last 0:11:16.280 --> 0:11:19.080 year in the sense that the FED looks likely remain accommoative. 0:11:19.760 --> 0:11:22.840 You have deregulation push from this administration, and the trade 0:11:22.840 --> 0:11:24.760 policy uncertainty is now behind us. 0:11:24.880 --> 0:11:27.240 Well, so let me say this, We are really constructive 0:11:27.280 --> 0:11:29.520 on the deregulatory side, and it's a reason we've been 0:11:29.559 --> 0:11:31.640 talking about the opportunity in banks. I realize I do 0:11:31.720 --> 0:11:33.520 work in a bank, but I also can be objective 0:11:34.080 --> 0:11:35.880 and my job is to make my clients money in 0:11:35.920 --> 0:11:39.160 all parts of the cycle and in all sectors. So yeah, 0:11:39.160 --> 0:11:43.520 I see the regulatory side is a good tailwind for 0:11:43.679 --> 0:11:46.400 parts of the market and for the economy. On the 0:11:46.440 --> 0:11:50.360 trade side, much of the uncertainty is behind us, but 0:11:50.440 --> 0:11:52.800 not all. And I like to say we were past 0:11:52.840 --> 0:11:55.680 peak tariff shock, but we're still kind of working through 0:11:55.720 --> 0:11:58.160 what's going to happen with the IEPA tariffs, which tariffs 0:11:58.200 --> 0:11:59.040 are going to be enduring. 0:11:59.240 --> 0:12:00.959 What will trade life like look. 0:12:01.040 --> 0:12:03.720 I'll be honest, I'm encouraged when the administration is pulling 0:12:03.760 --> 0:12:06.280 back or rolling back some of the tear of stay employed. 0:12:06.520 --> 0:12:09.520 I think that I'd like to see a more moderate 0:12:09.559 --> 0:12:12.800 inflation environment. But we know that higher prices are still 0:12:12.840 --> 0:12:16.800 filtering into the costs and to the end prices that 0:12:17.120 --> 0:12:20.120 companies are charging consumers. So I don't think we're past 0:12:20.360 --> 0:12:22.960 the concern. I think people are tired of talking about 0:12:23.000 --> 0:12:25.600 it and want it to go away. But inflation, I 0:12:25.600 --> 0:12:28.600 think is spicier than many are pricing in the market. 0:12:28.600 --> 0:12:29.600 That's a core of you of mine. 0:12:29.720 --> 0:12:31.400 Lisa and I've been talking about all week what the 0:12:31.480 --> 0:12:34.920 signal should be from the dollar stores and Walmart. Is 0:12:34.920 --> 0:12:37.080 it a good signal in the economy and the consumer 0:12:37.240 --> 0:12:38.080 or is it actually. 0:12:37.880 --> 0:12:38.840 A negative one. 0:12:39.240 --> 0:12:42.120 I think it is a cautious signal. I think we 0:12:42.160 --> 0:12:45.839 are getting consumers who are continuing to spend. We like this, 0:12:46.040 --> 0:12:48.800 but they're continuing to spend in a way that is 0:12:48.920 --> 0:12:53.200 conscious of you know, brand, it's conscious of value, and it's. 0:12:53.040 --> 0:12:55.320 Conscious of like, you know where the best deals are. 0:12:55.720 --> 0:12:57.800 We all know how this went kind of over Black 0:12:57.800 --> 0:13:01.280 Friday and the following weekend consumers are if they're in 0:13:01.320 --> 0:13:03.800 the big box stores, they're using their phones to price 0:13:03.880 --> 0:13:06.360 check at the same time, and we saw more people 0:13:06.480 --> 0:13:09.439 shopping online than in the stores than we have historically. 0:13:09.640 --> 0:13:11.280 Continued that to see that trend. 0:13:11.080 --> 0:13:15.240 And that's largely because people are comparison pricing on non prices, 0:13:15.480 --> 0:13:17.680 and I think that's a smart thing to do, but 0:13:17.760 --> 0:13:20.240 they are not stopping spending. But we do need to 0:13:20.280 --> 0:13:22.360 be recognized that we are at this later part of 0:13:22.400 --> 0:13:24.840 the cycle that consumers are a bit fatigued. This has 0:13:24.840 --> 0:13:28.199 been a tough year. They don't feel many things are affordable, 0:13:28.240 --> 0:13:31.600 from the regular basket of goods to housing, et cetera. 0:13:31.840 --> 0:13:32.720 And we need to listen to that. 0:13:32.760 --> 0:13:34.520 In the administration needs to listen to that as well. 0:13:34.800 --> 0:13:37.640 So you talk about how you are somewhat looking at 0:13:37.640 --> 0:13:39.920 the large caps to continue to outperform, you're not screamingly 0:13:39.920 --> 0:13:42.640 optimistic about the US economy at the same time not 0:13:42.720 --> 0:13:45.760 seeing long duration as a hedge. I wonder how much 0:13:45.760 --> 0:13:48.200 this has to do with the glut of supply not 0:13:48.240 --> 0:13:50.560 only coming from the treasury market, but also from the 0:13:50.600 --> 0:13:53.400 corporate bond space, as it helps to finance a lot 0:13:53.440 --> 0:13:55.360 of the AI tech boom that we're seeing. 0:13:55.679 --> 0:13:58.640 Yeah, so we've seen some sort of an uptick in 0:13:58.679 --> 0:14:02.520 some of the financing for AI projects and AI adjacent 0:14:02.600 --> 0:14:05.400 projects and infrastructure, but it's not setting off any. 0:14:05.280 --> 0:14:07.400 Alarm bells for US. Frankly. 0:14:07.480 --> 0:14:09.640 On the duration side, the thing that we're most concerned 0:14:09.640 --> 0:14:13.599 about is that we are exhibiting very little fiscal discipline 0:14:13.760 --> 0:14:16.120 in the US government. That is not a political statement, 0:14:16.160 --> 0:14:19.680 that's true across both Republican and democratic administrations, and that 0:14:19.760 --> 0:14:21.200 the rest of the world is kind of waking up 0:14:21.240 --> 0:14:23.160 to this, and that this is not a great picture 0:14:23.240 --> 0:14:26.080 over the medium term. Frankly, if we think inflation is 0:14:26.080 --> 0:14:28.520 going to be a little spicier, and we think that 0:14:28.760 --> 0:14:31.400 they were likely to get no fiscal discipline in twenty 0:14:31.480 --> 0:14:34.080 twenty six, you know, the likelihood that bond yields stay 0:14:34.120 --> 0:14:35.520 where they are and move a little bit higher, that 0:14:35.560 --> 0:14:37.840 we're not going to get a lot of juice, you know, 0:14:37.840 --> 0:14:38.240 I think. 0:14:38.160 --> 0:14:38.920 Is quite high. 0:14:39.040 --> 0:14:42.680 We prefer to hedge our long equity position with more 0:14:42.720 --> 0:14:43.800 gold at this point. 0:14:43.880 --> 0:14:45.640 Well, I wonder where credit fits in with this. 0:14:45.960 --> 0:14:49.000 I'm saying this after Warner Brothers and Netflix their tie 0:14:49.080 --> 0:14:51.920 up has been confirmed this morning. That deal is expected 0:14:51.960 --> 0:14:54.800 to close of twelve to eighteen months. Netflix has been 0:14:54.800 --> 0:14:57.840 talking about using a lot of cash as well as 0:14:58.000 --> 0:15:00.880 buying shares. That is code for deb markets that are 0:15:00.880 --> 0:15:02.760 going to be financing this since they don't have that 0:15:02.800 --> 0:15:05.080 cash on their balance sheets. At what point do you 0:15:05.080 --> 0:15:07.120 think that the credit market is going to experience some 0:15:07.200 --> 0:15:10.160 fatigue with the massive issueance and seeing not only from 0:15:10.200 --> 0:15:12.720 AI but from some of the other eminent activity that's 0:15:12.720 --> 0:15:13.400 come down the pipe. 0:15:13.520 --> 0:15:15.640 Yeah, I mean, this is an excellent question and actually 0:15:15.640 --> 0:15:17.240 something we've been spending a lot of time on our 0:15:17.240 --> 0:15:20.240 research side on this week, because we're asking ourselves, you know, 0:15:20.320 --> 0:15:22.440 how much juice is they're left in the credit market. 0:15:22.520 --> 0:15:24.400 We know spreads on the IG and the high yield 0:15:24.440 --> 0:15:27.920 side are close to the fifteen year tights. It's great 0:15:27.960 --> 0:15:30.560 if you're a company that's issuing, it's not so great 0:15:30.600 --> 0:15:33.080 if you're looking for like a great total return from 0:15:33.080 --> 0:15:35.360 that ass a class and as acid allocators, that's what 0:15:35.360 --> 0:15:38.720 we're really examining. So while I'm not calling for any 0:15:38.720 --> 0:15:42.040 significant spike in defaults, we have to ask ourselves, relative 0:15:42.080 --> 0:15:44.440 to equities, can we get the returns that we need 0:15:44.520 --> 0:15:47.960 on a risk adjusted basis from credit at this point 0:15:48.040 --> 0:15:50.920 and we're less convinced, and we've been a little bit 0:15:51.040 --> 0:15:53.720 underweight relative to our index. So if you're underweight credit, 0:15:53.920 --> 0:15:57.800 but overweight equity, but overweight equities and underweight long duration, 0:15:58.280 --> 0:16:00.960 balancing out with goal balancing out with this is a 0:16:01.040 --> 0:16:04.200 new portfolio allocation. This looks like a different kind of 0:16:04.320 --> 0:16:08.000 model than you know, pre pandemic, the sixty forty type 0:16:08.000 --> 0:16:10.960 of allocation. It absolutely is and a big project we're 0:16:11.000 --> 0:16:13.800 also undergoing is really kind of rethinking how we construct 0:16:13.880 --> 0:16:16.760 portfolios in general for all of our clients. They need 0:16:16.800 --> 0:16:19.520 to be outcomes based and not just static based on 0:16:19.520 --> 0:16:22.040 a sixty forty benchmark. You know what part of the 0:16:22.080 --> 0:16:25.960 portfolio needs to be generating growth, income and uncorrelated returns, 0:16:26.240 --> 0:16:28.520 and then where do the traditional asset classes and factor 0:16:28.560 --> 0:16:31.600 exposures fit into that. So this is a huge project 0:16:31.640 --> 0:16:33.880 for us and we are really really excited about. 0:16:33.640 --> 0:16:34.280 What will take it. 0:16:34.360 --> 0:16:37.240 Stay with us. Multilemberg Savannah's coming up. 0:16:37.320 --> 0:16:37.880 Off to this. 0:16:46.800 --> 0:16:50.320 Cossa's Hunter of Economist Intelligence saying a hasset led FED 0:16:50.360 --> 0:16:53.600 could go in multiple directions, writing if the hase To 0:16:53.680 --> 0:16:56.600 who wrote about the deleterious effects of inflation shows up 0:16:56.640 --> 0:16:59.280 at the FED, the markets should feel relieved. If his 0:16:59.480 --> 0:17:03.119 loyalty to the president shows up, markets may show concerns. 0:17:03.440 --> 0:17:05.399 Constance joins us. Now, Constant is great to see you. 0:17:05.400 --> 0:17:07.159 Thank you so much for being here. I want to 0:17:07.160 --> 0:17:09.280 start with why we haven't seen more concerned markets yet, 0:17:09.320 --> 0:17:12.000 because ultimately, if you're looking to the market as a 0:17:12.040 --> 0:17:15.480 barometer of fear, you're not saying any huge red flags. 0:17:15.560 --> 0:17:16.920 So you're seeing zero fear. 0:17:17.960 --> 0:17:21.440 And part of that could be that markets are looking 0:17:21.520 --> 0:17:23.560 sort of short term, right they know that there's going 0:17:23.600 --> 0:17:25.440 to be another or think that there's going to be 0:17:25.440 --> 0:17:29.040 another FED rate cut in December. Also, it's the makeup 0:17:29.080 --> 0:17:31.400 of the FED, right, the FED was designed as an 0:17:31.440 --> 0:17:34.840 institution to be immune. 0:17:34.560 --> 0:17:36.080 From political pressure. 0:17:36.160 --> 0:17:38.760 So whether you're talking about the terms of the governors, 0:17:38.800 --> 0:17:41.919 whether you're talking about the way the regional presidents are 0:17:41.920 --> 0:17:44.560 set up, so all of this is a very intricate 0:17:44.680 --> 0:17:47.560 timing game. I think the markets are betting on the 0:17:47.560 --> 0:17:50.960 fact that the Supreme Court will punt the decision to 0:17:51.400 --> 0:17:57.240 after February and so therefore Lisa Cook will remain in place. Right, 0:17:57.280 --> 0:18:01.040 that's really critical because if you have a threshold of 0:18:01.080 --> 0:18:06.719 five or four governors, they can overrule of the president's terms. 0:18:06.800 --> 0:18:09.160 So there's a lot going on in terms of timing, 0:18:09.200 --> 0:18:11.600 and I think the market is betting on a few 0:18:11.920 --> 0:18:15.879 things that will keep that independence in place regardless of 0:18:15.920 --> 0:18:18.119 who is fed share. But also, if you look at 0:18:18.160 --> 0:18:23.120 Kevin Hasset's work from before he joined the first Trump administration, 0:18:23.640 --> 0:18:26.880 it really centers on the importance of keeping inflation low 0:18:27.240 --> 0:18:31.639 because the tax code is geared towards benefiting low firms 0:18:31.800 --> 0:18:34.960 during periods of low inflation. Right, So it depends on 0:18:35.000 --> 0:18:36.159 which Kevin Hassett shows up. 0:18:36.240 --> 0:18:38.359 Yeah, it depends on which economy shows up too, right, 0:18:38.359 --> 0:18:41.080 because ultimately you're at the behest of the market and 0:18:41.119 --> 0:18:42.960 of the economy. Right now, we're kind of flying in 0:18:42.960 --> 0:18:44.600 the dark because we aren't getting a lot of real 0:18:44.640 --> 0:18:45.040 time data. 0:18:45.040 --> 0:18:47.520 We should have just gotten the Non Bails report. 0:18:47.680 --> 0:18:50.800 Sorry, newsflash, we're not getting it until December sixteenth. But 0:18:50.880 --> 0:18:54.639 right now we are looking to September PCE report coming 0:18:54.720 --> 0:18:56.560 up in about ninety minutes time. 0:18:56.640 --> 0:18:58.320 I mean, what do they do with this? 0:18:58.440 --> 0:19:00.880 How do we understand whether inflation is the bigger problem 0:19:00.960 --> 0:19:02.119 or whether it's the labor market. 0:19:02.200 --> 0:19:04.720