Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and am Marie Hordern. Join us each
Speaker 2: day for insight from the best in markets, economics, and
Speaker 2: geopolitics from our global headquarters in New York City. We
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Speaker 2: or anywhere else you listen, and as always on the
Speaker 2: Bloomberg Terminal and the Bloomberg Business App. Here's the take
Speaker 2: on the economy, Nathan sheets of City rising the following.
Speaker 2: We see global growth this year softening to two point
Speaker 2: one percent, down from under three percent last year. Given
Speaker 2: the trajectory of recent developments, the risk to our forecast
Speaker 2: are skewed to the downside. Nathan joins us now for more. Nathan,
Speaker 2: good morning, good to be here. How much has changed
Speaker 2: for you in the team in the last four months?
Speaker 3: Oh, this is this is a completely different world one
Speaker 3: as you read our view as the global growth this
Speaker 3: year and next year are both going to be much weaker,
Speaker 3: but even beyond that, it's deeply structural and I think
Speaker 3: we felt that this week during the Bank Fund meetings.
Speaker 3: The US has been the center of the system for decades,
Speaker 3: and now the US is standing up and rejecting in
Speaker 3: very fundamental ways key features of this system. And I
Speaker 3: think the rest of the world is just kind of
Speaker 3: looking around and saying, what's next.
Speaker 4: They're the near term effects and they're the longer term ramifications.
Speaker 4: In the near term, all of the finance ministers and
Speaker 4: central bankers are saying, we need the dollar to be
Speaker 4: the reserve currency. How much do you expect that, though,
Speaker 4: to change longer term? And are they questioning that in
Speaker 4: private conversations with you.
Speaker 3: I think that's one of the leading questions that I'm
Speaker 3: hearing is what about the dollar's role over the medium
Speaker 3: belong run as reserve currency? But even if we extrapolate
Speaker 3: out five to ten years, it's still not clear that
Speaker 3: there are really any real challengers for the dollar in
Speaker 3: that role. And I think most say, well, you know,
Speaker 3: we're kind of stuck with the dollar. But then the
Speaker 3: question comes at what price? And I think that question
Speaker 3: of risk premium on US assets is one that markets
Speaker 3: are struggling with as we.
Speaker 4: Speak, which goes to the question of weakness, and if
Speaker 4: there is some sort of downturn in the United States,
Speaker 4: what is the fiscal impulse and the ability for the
Speaker 4: United States to borrow into weakness at a time where
Speaker 4: we have near record deficits as a per percentage of
Speaker 4: GDP and you have.
Speaker 3: The structural shift going on if we have a downturn,
Speaker 3: and that is a very reasonable, plausible scenario. Many people
Speaker 3: have that as their baseline forecast. If we have a
Speaker 3: downturn in the United States, the implications for the US
Speaker 3: fiscal deficit or grim. We could be again easily knocking
Speaker 3: on the door of ten percent fiscal deficits. And in
Speaker 3: that environment, do I think the Treasury can issue I do,
Speaker 3: but again at what price? What do those yields look like?
Speaker 3: What are the risk premiums? And I think that's the
Speaker 3: question we're going to be struggling with in the years ahead,
Speaker 3: is where is this first premium going.
Speaker 1: The President this morning speaking to Time magazine saying that
Speaker 1: he didn't get the yips.
Speaker 5: The bond market got.
Speaker 1: The yips, but it wasn't the reason why he came
Speaker 1: out with that pause, even though everyone is saying that
Speaker 1: was the Trump put in action.
Speaker 5: Do you think that it is this bond.
Speaker 1: Market that is putting pressure up against this administration to
Speaker 1: come out and tweak and change policy.
Speaker 3: I think the bond market has been front and center
Speaker 3: in this. I think it's the financial markets more broadly.
Speaker 3: But I also think gets the discussion with CEOs and
Speaker 3: what he's hearing, and I think it's political reality. So
Speaker 3: I think there was a lot of pushback to this
Speaker 3: tarift policy, and I think the upshot of that is
Speaker 3: that we've officially now moved, it seems, from the phase
Speaker 3: of announcing tariffs to the phase of negotiating what these
Speaker 3: tariffs are ultimately going to look like. And maybe that's progress.
Speaker 1: When it comes to China, one hundred and forty five
Speaker 1: percent is unsustainable. Everyone continues to say that, But even
Speaker 1: if we go to sixty percent, which was what the
Speaker 1: President talked about in the campaign trail, is that still
Speaker 1: in essence a trade embargo between Washington and Beijing.
Speaker 3: One hundred and forty five percent tariff is prohibitive. And
Speaker 3: I argue during the election that a sixty percent tariff
Speaker 3: would be prohibitive. It would destroy many supply chains and
Speaker 3: mean a lot of shelves at various stores were empty.
Speaker 3: So absolutely sixty percent. We're going to still see sharp
Speaker 3: declines in imports from China with negative ramifications throughout the economy.
Speaker 2: We've seen some pill forward and Sunday. We've seen that
Speaker 2: in retail sales, and we're probably going to see that
Speaker 2: in invantries too. I want to understand from your perspective
Speaker 2: how much time we actually have here. It takes somewhere
Speaker 2: between twenty to forty days to got a shift from
Speaker 2: China to the United States. Taris went on an April second.
Speaker 2: How close are we?
Speaker 3: This is another issue that we're debating in real time.
Speaker 3: My view is that the second quarter is likely to
Speaker 3: be okay, that we've seen the soft data fall off,
Speaker 3: but the hard data are lagging and they're going to
Speaker 3: continue to lag as people continue to front load inventories
Speaker 3: and probably certain types of consumption. But the third and
Speaker 3: fourth quarter could be pretty ugly. How can that's the
Speaker 3: heart of darkness?
Speaker 2: How convinced are you and the tame that that'd respond quickly?
Speaker 2: The Federal Reserve being thy to any sign of weakness.
Speaker 3: The FAT is in a very tough place here where
Speaker 3: the bond market is equally focused, if not more focused
Speaker 3: on what's going to happen with inflation, and so what
Speaker 3: the FED has got to do is make sure that
Speaker 3: the inflation expectations are well anchored, and once that's achieved,
Speaker 3: then they can pivot to rate cuts. And I do
Speaker 3: expect by the end of the year will be seeing
Speaker 3: ray cuts, but it could take us a few months
Speaker 3: and it may not be a conferred side of weakness.
Speaker 2: And that could mean a lot of hand in this
Speaker 2: market stone account absolutely could nice and it's going to
Speaker 2: say thank you, sir nice and shakes that of sisy.
Speaker 2: Here's a take from a man who's seen it, or
Speaker 2: the former Deputy Treasury Secretary Wally Otama writing, the only
Speaker 2: way we can address the China problem is by working
Speaker 2: with other countries. But for many of them, they're still
Speaker 2: waiting to hear while the US even wants while he
Speaker 2: joins to snaf for more. What a good money. So
Speaker 2: it's good to see you, Good.
Speaker 6: To see you here, Thanks for coming to Washington, DC.
Speaker 2: You've been in the room of the Chinese many times.
Speaker 2: How difficult is it to negotiate with them? Just set
Speaker 2: the scene? What is it like?
Speaker 7: The reality for the Chinese is they are very systematic
Speaker 7: in trying to find your weaknesses by both talking to
Speaker 7: you directly but also talking.
Speaker 6: Around you to other people.
Speaker 7: So when you are negotiating with the Chinese, you have
Speaker 7: to be very clear about what you want. You have
Speaker 7: to repeat it over and over. You need to tell
Speaker 7: your friends and your allies in the hopes that you'll
Speaker 7: get fifty percent of what you want in that conversation.
Speaker 7: And it's always about how do you make progress rather
Speaker 7: perfect than perfection with the Chinese.
Speaker 2: You refer to the China problem. What is the problem
Speaker 2: and what you make of the approach so far?
Speaker 7: The reality is and over the course of this week,
Speaker 7: in addition to getting to see you, I've gotten to
Speaker 7: see a number of my former counterparts. And the thing
Speaker 7: you've heard from our closest allies is just disappointment because
Speaker 7: they all face the same challenge, which is that China
Speaker 7: takes steps to subsidize their industries and export access capacity
Speaker 7: to the world. And the challenge we have in the
Speaker 7: United States is the same challenge they have in Europe,
Speaker 7: the same challenge they have in parts of Southeast Asia,
Speaker 7: And for many of them, they want to work with
Speaker 7: us to address this because if the US blocks Chinese
Speaker 7: goods from coming to America. The people today who are
Speaker 7: afraid those goods are kind of show up on their
Speaker 7: shores are in Southeast Asia and in Europe, and they
Speaker 7: now need to think through what are they going to
Speaker 7: do to deal with China's access capacity is coming in
Speaker 7: their direction.
Speaker 5: Let's look at Europe. Are they speaking with one voice?
Speaker 1: We had the Spanish Finance minister in the room here
Speaker 1: yesterday and John picked up on something he said, he
Speaker 1: called it China an ally and we have seen the
Speaker 1: Prime Minister Pedro Sanchez go to Beijing three times in
Speaker 1: the past two years. It feels like they're playcating to
Speaker 1: China and actually not coming on board with the United States.
Speaker 7: So I think you're right that's part of the challenges
Speaker 7: that Europe doesn't speak with one voice, because today, if
Speaker 7: Europe did speak with one voice, they'd be in a
Speaker 7: better position to negotiate terms. Europe is the third largest
Speaker 7: economy in the world. If they were willing to work
Speaker 7: together to do things like put in place the free
Speaker 7: trade agreement they have with countries like with other countries,
Speaker 7: and to go and work with the TPP countries, they'd
Speaker 7: have the ability to dictate more terms.
Speaker 6: But today, because they're unwilling to.
Speaker 7: They're caught between China and the US, and that's the
Speaker 7: most important thing for the Chinese. They're concerned that if
Speaker 7: they don't find a way to dial back this, they're
Speaker 7: going to end up in a place where countries like Europe,
Speaker 7: or regions like Europe or other countries will choose the
Speaker 7: US over them. But unfortunately the approach the Trump administration
Speaker 7: has taken as instead of bringing Europe closer to US,
Speaker 7: put them in a place where they're up to for debate.
Speaker 7: And you hear things like that from the Spanish in
Speaker 7: terms of are we allies with the US?
Speaker 6: Are we allies with China?
Speaker 1: And then Rachel Reeves in the UK and along the
Speaker 1: sidelines to the IMF is saying things like Trump is right,
Speaker 1: China does need to rebalance their economy. How difficult was
Speaker 1: it for you and Treasure Secretary Jadet Yellen to get
Speaker 1: that message across to China. You have to start rebalancing
Speaker 1: your economy.
Speaker 7: And this is not a new message, Secretary Pulson center
Speaker 7: to the Chinese Secretary Geidner, Secretary Lou Secretary Yellen, and
Speaker 7: I know that the current secretary is sending it as well.
Speaker 7: The truth is that China is only going to respond
Speaker 7: if they feel pressure, and it's not just going to
Speaker 7: be from the United States. They've got to feel it
Speaker 7: from the UK, they have to feel it from Europe.
Speaker 7: And the best way to do that is to work
Speaker 7: together to confront the Chinese. Today, the Chinese feel empowered
Speaker 7: because instead of being confronted by the world who's suffering
Speaker 7: from their access capacity, the United States.
Speaker 6: In lots of ways, has alienated the world.
Speaker 7: The hope over the next few weeks is that a
Speaker 7: Secretary Bessett and the President are going to be able
Speaker 7: to work with our allies and partners to find an
Speaker 7: approach that works, because the people who are going to
Speaker 7: suffer most from this are American consumers.
Speaker 6: You can see their bills go.
Speaker 7: Up by three thousand dollars, and that's not just the statistics.
Speaker 7: You've heard all of the CEOs who've been doing earning
Speaker 7: calls who have said that they're going to have to
Speaker 7: raise prices, and they've all said that they had great
Speaker 7: first quarters because the economy is doing quite well. So
Speaker 7: we're in a place right now where if the United
Speaker 7: States doesn't get into a posture of working with our
Speaker 7: allies and partners and reducing these tariff rates. I can't
Speaker 7: guarantee that we're going to have a recession, but I
Speaker 7: can say that prices are going to go up for
Speaker 7: American consumers.
Speaker 5: Is it too late to.
Speaker 4: Really create that alliance and go after China, as China
Speaker 4: already made inroads in terms of making alliances, whether it's
Speaker 4: with the stains of the world or even in Southeast Asia.
Speaker 7: So the interesting thing I've heard over the course the
Speaker 7: last few days here is that people are equally as
Speaker 7: nervous of American tariffs as they are of Chinese access capacity.
Speaker 7: So the people who live in Southeast Asia, the people
Speaker 7: in Europe are worried that all those goods that were
Speaker 7: headed to the United States, that we're hurting our industrial base,
Speaker 7: are heading to a port near you, and that China's
Speaker 7: access capacity is going to overwhelm them. So I don't
Speaker 7: think it's too late, but our allies and partners are
Speaker 7: going to be more cautious about dealing with us. But
Speaker 7: the reason that countries are coming to the United States
Speaker 7: is because they want to make sure that the industries
Speaker 7: and their countries aren't overwhelmed by Chinese overcapacity either. So
Speaker 7: there is an opportunity here, but it's not one that's
Speaker 7: going to be open forever, and the Chinese are working
Speaker 7: hard to try and counter that. President She's visit was
Speaker 7: all about trying to buttress their ability to have allies
Speaker 7: and partners as the US confronts them. But Vietnam, in
Speaker 7: addition to gaining a great deal of economic value from
Speaker 7: their relationship with China, has to be worried about Chinese
Speaker 7: capacity showing up there as well.
Speaker 4: There was a story in the Financial Times and on
Speaker 4: Bloomberg about how Apple was moving all of its iPhone
Speaker 4: production away from China into India hopefully by the end
Speaker 4: of next year. This hopefully for them. That is the
Speaker 4: projection they put out there is that how this is
Speaker 4: going to work from what you hear that essentially India
Speaker 4: is going to be the big beneficiary from a lot
Speaker 4: of the tariffs, particularly on China.
Speaker 7: That's how it's worked the entire time since basically the
Speaker 7: Obama administration, a number of companies have been moving to
Speaker 7: a China plus one strategy, where they build for China
Speaker 7: in China and they build for everybody else somewhere else.
Speaker 7: That's been Vietnam, Malaysia and India but the problem has
Speaker 7: been Chinese companies have taken a China plus one strategy too.
Speaker 7: They've moved away from the terrorists they put in China
Speaker 7: by setting up shops in Vietnam, Malaysia and probably now
Speaker 7: in India too. That's why we have to work with
Speaker 7: these countries because the Chinese are being very clever about this.
Speaker 7: They see the huge tariffs have been placed on them
Speaker 7: in China, so they're setting up shop. And my understanding
Speaker 7: is that a big part of the negotiations with Mexico
Speaker 7: and Canada is around making sure that Chinese firms can't
Speaker 7: set up plants in Mexico. Ultimately, I think that they
Speaker 7: should be able to get to a deal with Mexico
Speaker 7: and Canada because we're such an integrated economy, but it's
Speaker 7: going to be harder to get to those kind of
Speaker 7: deals with countries that are closer to China.
Speaker 2: Well, I've got thirty seconds left. Is there anything you
Speaker 2: wish you'd done differently with regards to this topic.
Speaker 7: I think the reality is that the thing you always
Speaker 7: hope that you could do is get to a deal
Speaker 7: with your allies and partners that confront the Chinese. But
Speaker 7: the other thing that I think is clear is that
Speaker 7: terrorists work when you use them strategically.
Speaker 6: They don't work when you use them in.
Speaker 7: A broad based way, because what that does is it
Speaker 7: causes more pain for your consumers and your allies.
Speaker 6: And the thing that's worried me a.
Speaker 7: Great deal is talking to asset allocators around the world,
Speaker 7: and for each one of them, they've been overweighted the
Speaker 7: United States for a long time because of the exceptionals
Speaker 7: of our economy. But today each one is talking about
Speaker 7: reallocating their assets. Hard to find other places to do
Speaker 7: that in the short term, but if over the long
Speaker 7: term we don't provide clarity and certainty the things the US,
Speaker 7: the American economy has done over the last decades, I
Speaker 7: do worry about our ability to attract capital into the
Speaker 7: United States.
Speaker 2: Wale, it's going to see us a great to see
Speaker 2: nice bit of this. So let's just talk about particularly
Speaker 2: the deficit. I'm let to talk about that with Wally
Speaker 2: at another time. They FOMA definitely try to resacretrate Wale
Speaker 2: out of YMI. We begin this SA with this week's
Speaker 2: rally on Hold as Chinatown place progress in trit and negustiations.
Speaker 2: Jason Thomas of Carlia, writing, if treasury yields do not
Speaker 2: decline when stocks sell off, investors may discover they've been
Speaker 2: paying for a hedge that no longer works. Jason joined
Speaker 2: a snaff for more. Jason, good morning, good to see it,
Speaker 2: Good to see you.
Speaker 8: Thanks for having me.
Speaker 2: I'm pleased you've picked up on that piece, because I
Speaker 2: want to pick up on it with you as well.
Speaker 2: This em type dynamic that started to take hold of
Speaker 2: US assets dollar denominated assets. What's behind it? One? And
Speaker 2: do you think it's sustainable too?
Speaker 6: Well?
Speaker 9: I think, first of all, we have to remember that
Speaker 9: bonds are volatile in a way that cash is not so.
Speaker 9: At the start of this month, if you had a
Speaker 9: one hundred dollars invested in money markets, it was yielding
Speaker 9: four point three percent the ten year treasury at the
Speaker 9: time four percent. A week later, the cash was still
Speaker 9: at poor as it always is, the bond was down
Speaker 9: at ninety six. And so in the past there's generally been,
Speaker 9: of course, a term premium to compensate for the volatility
Speaker 9: that went away in the decade after the GFC. Why
Speaker 9: because anytime there was a hint of weakness in the economy,
Speaker 9: anytime there was decline in stocks, the FED would launch
Speaker 9: another round of QE, with of course the intention of
Speaker 9: driving down bond yields. So of course there are many
Speaker 9: risk parity strategies. You had investors who are hedging their
Speaker 9: stock market risk through leverage positions and bonds.
Speaker 8: That worked very well.
Speaker 9: Some years, stocks down twelve percent, those leverage bond positions
Speaker 9: up fifteen percent. Now I think we're in a somewhat
Speaker 9: different world. Partly, of course, that's the external sector wondering
Speaker 9: about being over allocated to the US. That's stocks, that's bonds.
Speaker 9: I think, more broadly, the deficit. When you think about
Speaker 9: how large the deficit is this year, treasury net issuance
Speaker 9: is consuming over forty two percent of US private savings
Speaker 9: that is, the savings of the household sector, the free
Speaker 9: cash flow of the corporate sector. So you know, if
Speaker 9: this is not going to be financed in large part
Speaker 9: by external investors, you have to wonder what the market
Speaker 9: clearing interest rate is going to be. So I think
Speaker 9: that what we're seeing is that if there is not
Speaker 9: this hedge, if treasuries do not predictably rise when stocks fall,
Speaker 9: then there has to be a much larger risk premium
Speaker 9: on bonds relative to cash, and if you look historically
Speaker 9: the nineteen eighties nineteen nineties, that was in the range
Speaker 9: of about one hundred and fifty basis points.
Speaker 2: So fill signe that that process is underway. Where can
Speaker 2: our way through it? Without doubt? You can say on
Speaker 2: the screen and the price sanction of the last several weeks,
Speaker 2: I want to want to stand from your perspective, how
Speaker 2: investors should now manage that risk. They've got very used
Speaker 2: to having this ballast in the portfolio. The treasuries typically
Speaker 2: provide where do you go now?
Speaker 9: Well, of course I would recommend that people go to
Speaker 9: private assets, particularly private credit, but I think that the
Speaker 9: general portfolio thoughts have to be re examined. There's talks
Speaker 9: that you know of a fifty to thirty twenty portfolio,
Speaker 9: but in general it's that what has worked, what works
Speaker 9: so well in that decade after the GFC, is not
Speaker 9: going to work today.
Speaker 8: So whatever your.
Speaker 9: Solution is, there needs to be a rethink. And I
Speaker 9: think that again it's been so ingrained that treasuries are
Speaker 9: supposed to rise in value when stocks fall. There's no
Speaker 9: mathematical law that that's supposed to occur. And again, the
Speaker 9: return correlation with stocks and bonds was positive in the
Speaker 9: nineteen eighties and nineteen nineties, so this is not entirely new.
Speaker 5: Yet.
Speaker 4: There is a larger consequence here, though. I'm thinking through
Speaker 4: as you're saying this, and if you're talking about a
Speaker 4: clearing price, it's different for treasuries to account for that
Speaker 4: additional res risk premium.
Speaker 5: We could be talking.
Speaker 4: About five five and a half percent on ten your
Speaker 4: treasury is pretty easily based on your calculations, which would
Speaker 4: have a massive effect on private aid valuations.
Speaker 5: Which would have a massive effect on.
Speaker 4: Stock valuations, which just kind of really speaks to this
Speaker 4: question of whether it's a sell America trade.
Speaker 9: Well, I think that again, it's if I were thinking
Speaker 9: about exposure today, it would be short duration. I see
Speaker 9: a lot of duration risk in the market, and I
Speaker 9: think it's a generally investors have not had to worry
Speaker 9: about duration risk. It's again, and the mindset is, whenever
Speaker 9: we get into trouble, there's going to be another round
Speaker 9: of QE and they're going to drive down longer term yields.
Speaker 9: Now we're in a situation where where those prices could
Speaker 9: move in the opposite direction, and that actually compounds losses.
Speaker 8: I think that the issue right now.
Speaker 9: Also, the Treasury is funding twenty two percent of the
Speaker 9: outstanding stock of debt in the bill market.
Speaker 8: In the money.
Speaker 9: Market, there's of course a desire to turn that out,
Speaker 9: but there's a of course a hesitancy. You want to
Speaker 9: write wait for the right time. I think people were
Speaker 9: hoping that the tenure would fall below four percent, then
Speaker 9: let's turn out some of that debt, and by waiting
Speaker 9: they might be in a situation where they have to
Speaker 9: turn it out at much higher yields.
Speaker 8: So it's certainly a concern.
Speaker 9: And I think you know, as was mentioned earlier, if
Speaker 9: you do have a downturn, if you have a decline
Speaker 9: in tax receipts, if you have an increase in transfer payments,
Speaker 9: that just the scale of debt issuins and now it's
Speaker 9: go from forty percent to fifty or sixty percent of
Speaker 9: private savings being concerned.
Speaker 8: So again, I think it's.
Speaker 9: Taking the short term assets. You know, sometimes the credit
Speaker 9: spread on that is less risky than the duration spread
Speaker 9: of holding longer dated assets.
Speaker 4: As this dynamic removed a lot of the power from
Speaker 4: the Fed Reserve to really address downturns, and I say
Speaker 4: this at a time where potentially if they drop rates
Speaker 4: right now, that will only lead to a furthering of
Speaker 4: this trend of yields in the long end going up.
Speaker 9: It's a great point, but we have to remember the
Speaker 9: FED is an extremely dubbish institution. I mean, you know,
Speaker 9: and of course they say that's because of the dual mandate,
Speaker 9: but I mean, think about nineteen ninety eight, the US
Speaker 9: economy and real terms growing of four percent, employment to
Speaker 9: population ratios at all time highs, the enthusiasm of the
Speaker 9: stock market.
Speaker 8: This is two years removed from.
Speaker 9: Alan Greenspan's irrational exuberance speech, and they cut rates by
Speaker 9: seventy five basis points because the hedge fund failed. When
Speaker 9: you think about twenty twenty, the way they did the
Speaker 9: autopsy the last ten years and the statement for policy
Speaker 9: goals going forward, they said the big mistake in the
Speaker 9: decade of record monetary accommodation was hiking too fast and
Speaker 9: twenty fifteen, So the FED is going to cut this year.
Speaker 9: I mean, it's funny that this is like controversial or oh,
Speaker 9: the Fed's in a box. The FED is going to
Speaker 9: cut and likely by September.
Speaker 1: But how much has the pandemic actually hit them hard
Speaker 1: in terms of wanting to make that mistake again. Governor
Speaker 1: Waller said that to Mike McKee, that idea of being transient.
Speaker 1: He's even nervous to say that word out loud.
Speaker 9: I think that this is what Chair Powell has made clear,
Speaker 9: is they can't do preemptive cuts.
Speaker 8: They have to wait.
Speaker 1: They have to see preemptively cut before the election.
Speaker 9: Well, I think there was certainly a strong case for
Speaker 9: raid cuts in September now whether they needed to cut
Speaker 9: by one hundred basis points in just over three months. Again,
Speaker 9: this is sort of the dubbsh nature of the institution
Speaker 9: coming to the foe. But I think that this is
Speaker 9: a sit situation where if you are cutting as tariffs
Speaker 9: are first taking effect in terms of the increase in
Speaker 9: the price level, you could accommodate a spiral. So they
Speaker 9: have to have to wait. But we're talking about waiting
Speaker 9: a couple of months. This isn't really you know, an
Speaker 9: elongated pause or anything of that sort.
Speaker 2: You said a lot of things that require some real
Speaker 2: date thought, this one thing that scans me typically in
Speaker 2: an economic downtnd bonce rally, and that allows a government
Speaker 2: to act counca cyclically. A developed market government am of course,
Speaker 2: fights a very different dynamic. And you saying that if
Speaker 2: we come into a downs end a long end doesn't rally.
Speaker 8: I think that the rally is going to be muted.
Speaker 9: And so again if we think, I think the fat
Speaker 9: will be more cautious this time, of course, but imagine
Speaker 9: that we have base rates in the three sixty five range.
Speaker 8: Well, well, these yields actually might.
Speaker 9: Be appropriate given the risk premium, the term premium that
Speaker 9: that is required. You know, maybe you get down to
Speaker 9: something closer to four percent. But again, I think the
Speaker 9: important thing as investors think about the next five years
Speaker 9: is that if bonds do not rally in this scenario,
Speaker 9: that on our prospective basis, when the economy recovers that
Speaker 9: they're going to need to target much higher yields that
Speaker 9: compensation for the bond price volatility that doesn't exist in cash.
Speaker 2: Jason, this is an important exercise, and please you drop
Speaker 2: by this morning.
Speaker 8: Thanks so much for.
Speaker 2: Having me, Thanks for being here, Jason Thomas. That of
Speaker 2: call up Nastak hoping to provide stability in this volatile environment,
Speaker 2: and the nast neax see a. Dana Friedman joined us
Speaker 2: now for more day of Good morning, good to see you.
Speaker 5: It's great to see you, great to be here.
Speaker 2: Can you describe the last month for us if you can,
Speaker 2: just how busy have things been, described, the volume, the
Speaker 2: activity coming through your business.
Speaker 5: Well, thanks, thanks for having me.
Speaker 10: First of all, we just announced earnings yesterday, so I
Speaker 10: think that shows a little bit.
Speaker 5: Of what we've been what we've been working with. We
Speaker 5: had twelve and a half percent revenue growth.
Speaker 10: We had double digit growth in each of our three divisions,
Speaker 10: and a couple of highlights. One is within our Capital
Speaker 10: Access Platforms division, our index business screw twenty six percent
Speaker 10: in the first quarter because of inflows. We had twenty
Speaker 10: seven billion dollars of inflows in the quarter, very strong
Speaker 10: futures volumes as well in our nas like one hundred franchise.
Speaker 10: And then we look at our Fintech division that grew
Speaker 10: ten percent, and one of the highlights there is our
Speaker 10: anti financial crime business grew twenty one percent, and that's
Speaker 10: an important key grower for us. And then within our
Speaker 10: Market Services division, which is our trading business, that grew
Speaker 10: nineteen percent in the first quarter because of record volumes
Speaker 10: in the first quarter, and we continue to see those
Speaker 10: volumes persist and actually.
Speaker 5: Grow into April.
Speaker 10: The first ten days of April we had five of
Speaker 10: the top six trading days ever in US equities, four
Speaker 10: of the top six trading days ever in options, and
Speaker 10: in one of the days, like our we also measured
Speaker 10: message traffic because that's how how many messages our systems
Speaker 10: handling during a given day. On the peak day, which
Speaker 10: was April seventh, we had five hundred and fifty billion
Speaker 10: messages flow through our systems on that single day. So
Speaker 10: it has been an incredible period of time from a
Speaker 10: trading perspective.
Speaker 5: And the one thing to note talked about this earlier.
Speaker 10: You know, you don't get necessarily credit for this, but
Speaker 10: the fact is that the plumbing within the markets, all
Speaker 10: of the markets has done really, really well, hyper resilient.
Speaker 10: I think we've all been able to manage this volume
Speaker 10: extraordinarily well. We're very proud of that at NASAC, and
Speaker 10: I can tell you that, you know, our markets have
Speaker 10: done quite well in this period of heightened volatility, and we.
Speaker 2: Don't thank you when it goes right, but we'd be
Speaker 2: very quick to criticize you when it goes wrong. That's
Speaker 2: for sure. You've handled a lot of volume. Volatility good,
Speaker 2: when does holatility become bad?
Speaker 10: Well, I think the one thing to recognize is volatility
Speaker 10: in short term volatility that then can resolve itself. I
Speaker 10: think that's something that we've seen, frankly multiple times over
Speaker 10: the last five years. I think the concern is, of course,
Speaker 10: is if we cannot have some certainty in the markets.
Speaker 10: You know, investors like certainty, and right now it's a
Speaker 10: very uncertain environment, so they tend to take a.
Speaker 5: Risk off and attitude about that.
Speaker 10: And as we know, we are hoping to see more
Speaker 10: companies go public this year. We did have forty five
Speaker 10: IPOs in the first quarter, raising five billion dollars. One
Speaker 10: little side fact also, as we had seven companies switch
Speaker 10: from New York to NASACK in the first quarter, and
Speaker 10: we crossed three trillion dollar threshold of companies that have
Speaker 10: switched to NASSACK since we started our switch program twenty
Speaker 10: years ago. But I also would say, though we have
Speaker 10: a lot of companies that are looking to go public
Speaker 10: this year, we and right now, of course, investors are
Speaker 10: not really in a mode of underwriting a lot of risks,
Speaker 10: so we're seeing them take a wait and see attitude
Speaker 10: in terms of how to tap the public markets and
Speaker 10: when to tap the public markets this year.
Speaker 4: That was a very subtle but well placed shot over.
Speaker 5: At the New York Sack Exchange. I'm sure that they
Speaker 5: will be listening.
Speaker 4: I am curious about what that pipeline looks like now
Speaker 4: and how much smaller it is now in terms of
Speaker 4: IPOs than it was earlier in the year. You know,
Speaker 4: there's this big question how much of deal's been sort
Speaker 4: of put on hold and how much have they just
Speaker 4: been scrapped altogether.
Speaker 5: Do you have a sense of that. I think there
Speaker 5: are more being put on hold.
Speaker 10: I mean, we have not seen companies suddenly decide they're
Speaker 10: not going to go public.
Speaker 5: It's really a matter of they've gotten.
Speaker 10: Themselves ready, They've gotten approval, all the approvals they need.
Speaker 10: It's really now a matter of just having a wait
Speaker 10: and see attitude. And they should be, you know, in
Speaker 10: terms of thinking about how can they maximize value for
Speaker 10: their shareholders, how can they make sure that they're entering
Speaker 10: the markets in an environment that's welcoming and that could
Speaker 10: be you could find windows and pockets of time throughout
Speaker 10: the year to be able to do that, and we did,
Speaker 10: as I said, still have forty five IPOs in the
Speaker 10: first quarter. So it wasn't like the markets are shut.
Speaker 10: It's just a matter of finding those windows of opportunity
Speaker 10: within a more volatile environment.
Speaker 4: Do you see companies trying to decide or having a
Speaker 4: harder time deciding whether to IPO in New York or
Speaker 4: in the United States and the deepest markets of the
Speaker 4: world versus somewhere else base the turmoil that we've.
Speaker 10: Seen, Well, we are really the home to global companies
Speaker 10: as well as American companies. The conversations continue to be
Speaker 10: very constructive, robust. They're they're very interested in coming and
Speaker 10: tapping the American investor and frankly the global investor race.
Speaker 5: I mean the United States. We are the most liquid
Speaker 5: markets in the world.
Speaker 10: We have the most the most variety of investors.
Speaker 5: We have the deepest fools of liquidity.
Speaker 10: I think those things are you know, constant attractions in
Speaker 10: terms of companies who want to go public. Again, it's
Speaker 10: really more a matter of timing than it's more a
Speaker 10: matter of when than if they want to come into
Speaker 10: the public.
Speaker 5: Public markets in the United States.
Speaker 1: I was here during Trump's inauguration while you were speaking
Speaker 1: to John and Lisa over in Davos, and you were
Speaker 1: very constructive on the incoming administration when it came to
Speaker 1: the excitement around IPOs, also deregulation. You're pushing for this
Speaker 1: regulation overhaul. Are you seeing what you were expecting back
Speaker 1: in Davos from mis administration now in their first one
Speaker 1: hundred days.
Speaker 10: From a regulatory perspective, we are very excited about the
Speaker 10: fact that we can work constructively with the regulators that
Speaker 10: are coming into with the positions. With Chair Atkins coming
Speaker 10: into the SEC, he has deep understanding of the markets.
Speaker 10: He has a deep understanding of US capital.
Speaker 5: Markets and also the need for.
Speaker 10: Companies to have a good public company experience and how
Speaker 10: important that is in terms of giving citizens access to
Speaker 10: the growth of our economy. So we are looking forward
Speaker 10: to engaging with him. We just put out a white
Speaker 10: paper on the need for reform in the regulatory landscape
Speaker 10: for public companies have to be able to have a
Speaker 10: life as a public company and not have it be
Speaker 10: oh gosh moment, but more I can't wait moment, And
Speaker 10: so I think that that's something that we're really looking
Speaker 10: forward to engaging Chair Atkins on.
Speaker 1: How big is the tone shift from the Biden administration
Speaker 1: in Gary Gensler to chair Atkins.
Speaker 10: Well, he just came into office, so we are going
Speaker 10: to introduce ourselves to him. We actually do know him
Speaker 10: from when he was a commissioner many years ago, but
Speaker 10: reintroduce ourselves to him and we'll look forward to engaging
Speaker 10: with him as he gets going in his new seat.
Speaker 2: You've been through a lot of different market right, James,
Speaker 2: how would you describe this one? How unique is it?
Speaker 5: Well, you know, it's funny.
Speaker 10: I have actually been part of many, many market events.
Speaker 10: I've been at NASAC started in as like thirty two
Speaker 10: years ago, so I've seen a lot and this is
Speaker 10: every single one of them is different. I have to say,
Speaker 10: there's no two situations where you see a lot of
Speaker 10: relative that are exactly the same.
Speaker 5: In terms of the causes of volatility.
Speaker 10: What we've seen in terms of the reactions from investors
Speaker 10: is pretty consistent. You know, when they know the thing,
Speaker 10: as I mentioned before, is that they the thing that
Speaker 10: they like the least is uncertainty, and in any period
Speaker 10: of time where you suddenly have a big moment of uncertainty,
Speaker 10: they take the same attitude, which is a risk off attitude.
Speaker 10: I'm going to take take someone positions out of the market.
Speaker 10: I'm going to sit and wait and understand what's happening,
Speaker 10: and then I'm going to re engage in a smart way.
Speaker 10: That's a very consistent reaction, but the causes of every
Speaker 10: single period of market relativity have been different.
Speaker 5: Actually, over the last thirty.
Speaker 2: Two years, Sidney Sol's unique this moment, that's for sure. Data,
Speaker 2: thanks for dropping by, Thanks you all the times. Thanks
Speaker 2: for beam with us a Data Fredmen. They're the chair
Speaker 2: and CEO of Nasdaq. This is the Bloomberg Survenance Podcast,
Speaker 2: bringing you the best in markets, economics, and geopolitics. You
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Speaker 4: Mm hmm.