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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along

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Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day

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Speaker 1: for insight from the best and economics, geopolitics, finance and investment.

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Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and

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Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com,

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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. Right now,

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Speaker 1: we're going to begin here benis Grant and Lisa Bramitz

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Speaker 1: and Tom kan with our definitive call in the day

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Speaker 1: on global fixed income. Way lead as global chief investment

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Speaker 1: strategists at Blackrock, prodigious in mathematics and joins us here

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Speaker 1: on our fears of price down and yield up. Walley,

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Speaker 1: thank you so much for finding the time. Where is

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Speaker 1: the bid on bonds? To me, the bid is walked away?

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Speaker 1: Is that true? Is there just a dearth of bid

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Speaker 1: across all of fixed income?

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Speaker 2: There are lots of moving parts right now. Good morning everyone.

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Speaker 2: In terms of our review on long bonds long duration,

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Speaker 2: we have been underweight US long duration for three years now.

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Speaker 2: Since late twenty twenty one, ten year yields was below

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Speaker 2: one percent, and last week we closed the underweight to

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Speaker 2: get to neutral. There are a couple of moving parts

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Speaker 2: in terms of why rates have reprised so very meaningfully.

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Speaker 2: The first piece is policy path repricing, and a second

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Speaker 2: piece is term premier repricing, and within that, inflation premier

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Speaker 2: is part of tim premier. So where we are now

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Speaker 2: with ten year yields testing five percent in our assessment,

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Speaker 2: policy path is not that different from where we think

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Speaker 2: it should be. But term premier, depending on which measure

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Speaker 2: you use, we're looking at somewhere between twenty based point

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Speaker 2: forty basis in different methodology actually could push even higher

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Speaker 2: over the strategic horizon. So we're talking about term premier

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Speaker 2: over the strategic horizon at one hundred basis point, not

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Speaker 2: out of this world because of fiscal imbalance, because of

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Speaker 2: insurance dynamics, because of higher rate environment, rate volatility, as

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Speaker 2: well as because of higher inflationary environment. So when you

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Speaker 2: bring all of that together, strategically we're still underweight, but

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Speaker 2: technically we're not neutral because risks have now become more balanced.

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Speaker 2: And when we think about kind of the reader cross

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Speaker 2: of weight repricing to risk assets, actually policy path repricing

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Speaker 2: can be negative for equities because it impacts the discount

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Speaker 2: rates directly, but time premier repricing doesn't have to be

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Speaker 2: negative for equities because it's more an assessment of the

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Speaker 2: relative appeal of duration in portfolios.

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Speaker 3: Do you think way, I know that you've been leaning

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Speaker 3: into the whole AI discussion and the whole AI thesis,

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Speaker 3: and that's been driving some of your equity bets. Do

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Speaker 3: you think that that area is completely immune to term

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Speaker 3: premium in these discussions of yields, given the cash cows

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Speaker 3: that they've become.

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Speaker 2: Well, what has been very interesting with regards to this

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Speaker 2: mega tech and AI theme is that on the one hand,

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Speaker 2: they benefit from the growth upgrade earnings upgrates that we're

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Speaker 2: seeing coming through. So, for example, next year ten percent

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Speaker 2: EPs podcasts for S and B five hundred, half of

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Speaker 2: that is driven by mega tech names, right, five percent

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Speaker 2: is coming from the tech names. So they're definitely benefiting

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Speaker 2: from earning's upgrades, which we appay a lot of attention to.

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Speaker 2: But at the same time, they are more long duration

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Speaker 2: compared with the broader equity market, so when the rate reprices,

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Speaker 2: it pressures down on long duration a little bit more.

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Speaker 2: Everything else be equal. But when you bring the two

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Speaker 2: factors together, actually the growth prospect and the AI theme

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Speaker 2: gathering momentum and the earnings upgrades actually trunk the duration sensitivity,

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Speaker 2: as we have seen so far earlier in the year,

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Speaker 2: but also in recent periods of reprising. Actually the AI

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Speaker 2: theme the nastac have been holding up better than you

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Speaker 2: would have accepted given the rate folatility.

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Speaker 1: Well, good morning.

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Speaker 4: Just to carry on from that, this week they're going

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Speaker 4: to see sixteen trillion dollars worth of equity reports and

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Speaker 4: the magnificent part of the magnificent seven of tech are

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Speaker 4: going to be in there. What Tom, Lisa and myself

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Speaker 4: what we're talking about was the balance sheets, the cash

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Speaker 4: on the balance sheets, the cash on Apples balance sheet,

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Speaker 4: the cash on the other big tech. Is that another

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Speaker 4: defensive hallmark and a reason to endure and stay long

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Speaker 4: big tech.

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Speaker 2: That is why we are still overweight to the big

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Speaker 2: tech and AI theme, because when we think about kind

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Speaker 2: of quality characteristics as growth slows down reacts to the

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Speaker 2: tightening environment that we're all experiencing, actually having cash on

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Speaker 2: your balance sheet and not being as geared up in

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Speaker 2: this environment is a definite is a definite plus and

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Speaker 2: more broadly, we're talking about kind of the impression of

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Speaker 2: the earning season. The feeling is that it's holding up better,

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Speaker 2: but actually not forget the broader backdrop, which is the earnings.

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Speaker 2: Actually the three quarters have been stagnating, and we're just

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Speaker 2: talking about incremental rebound from the stagnating maddrob So that's

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Speaker 2: the big picture here.

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Speaker 1: Well, Lawrence from New York emails in and says, ask

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Speaker 1: way Lee, if an institutional for marks to market and

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Speaker 1: everything else is on the balance sheet, and the rationalization

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Speaker 1: is I can own it forever and I'll get paid

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Speaker 1: back eventually. Blowny, how do you do the math and

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Speaker 1: the midpoint of where the stuff you hold on the

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Speaker 1: balance sheet gets a valuation. If I've got eight years

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Speaker 1: of maturity, how close is it to where you get

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Speaker 1: a tipping point where you've got to confront what's on

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Speaker 1: the balance sheet.

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Speaker 2: Well, first say hello to Lawrence, and so yes, indeed

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Speaker 2: we have we have to see more repricing of risk

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Speaker 2: assets reflecting the higher rate environment. We look at duration

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Speaker 2: work kind of almost there, which is why tactically we

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Speaker 2: turned neutral. But if you look at equities, it has

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Speaker 2: yet to reflect the higher rate environment. By our bras

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Speaker 2: and for kind of arithmetic, kind of braise and for

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Speaker 2: back of the envelope analysis, you know, like further five

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Speaker 2: percent to ten percent adjustment is not you know, unthinkable.

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Speaker 2: And then you think about private markets, there is also

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Speaker 2: further reprising to go, which is why greater dispersion, greater

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Speaker 2: selectivity is really warranted as we think about kind of

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Speaker 2: deploying your risk budget in this environment, because there is

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Speaker 2: a different rate sensitivity across risk spectrum, which is why

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Speaker 2: we're very selective when it comes to our these we're

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Speaker 2: focusing on sceptor cell growing earnings, but also very selective

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Speaker 2: in terms of the private market. We like private credit,

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Speaker 2: we like infrastructure that all these parts and private markets

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Speaker 2: that benefits sail.

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Speaker 1: Wings on your full faith and credit there way, Lee,

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Speaker 1: thank you so much of black Crack. Tom Stauris is

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Speaker 1: with Strtigas is a bird company. He's had a fixed income,

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Speaker 1: but he's got to bounce off the great Jason Trenner

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Speaker 1: as well. And you floored me. Within an analysis, it's

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Speaker 1: seventy percent of America our voters that are small business

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Speaker 1: and they're in the churn, and they only make up

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Speaker 1: five percent of the GDP has the Fed left them

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Speaker 1: behind in this yield environment.

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Speaker 5: Well, I would very much say so. The Fed, by

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Speaker 5: overly relying on the Fed funds rate to titan, has

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Speaker 5: put so much of that pain on main Street USA.

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Speaker 5: It's almost as if we've decided there's too big defail.

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Speaker 5: The earlier this year we decided there medium is too

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Speaker 5: big to fail. Medium sized businesses still kind of val

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Speaker 5: bank signature bank depositors there. So if that means that

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Speaker 5: if there's large companies are too big to fail, medium

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Speaker 5: sized companies are too big to fail. The only place

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Speaker 5: you can actually tighten in the US economy these days

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Speaker 5: is small businesses and households, and the FED has done

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Speaker 5: exactly that by overly relying on the FED funds rate.

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Speaker 5: With that said, balance sheet reduction is catching up with

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Speaker 5: the bond market. Now we're seeing treasury yields rise in

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Speaker 5: the belly of the curve.

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Speaker 3: Okay, and we'll get there on one sec which is

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Speaker 3: a technical underpinnings of why we're seeing a sell off.

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Speaker 3: But to stick on the point that Tom was talking about,

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Speaker 3: if you have such a swath of the voter base

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Speaker 3: that is feeling this kind of pain, and if you

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Speaker 3: have small businesses that account for a significant proportion of

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Speaker 3: the jobs losing momentum. When does that start to trickle

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Speaker 3: into a higher unemployment rate, When does it start to

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Speaker 3: reinforce and then actually bring rates down because of slower growth.

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Speaker 5: Well, we were already at that point in March of

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Speaker 5: this year. We were forty eight hours from recession, which

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Speaker 5: would have been very deep, and then we had financial

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Speaker 5: stabilization via liquidity injections. So when does it begin to

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Speaker 5: bite again, Probably sometime between Christmas and we'll say Valentine's Day,

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Speaker 5: when the consumer gets those late twenty twenty three credit

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Speaker 5: card bills in January and you start to see a pullback.

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Speaker 5: I don't see any sort of slow down in consumption.

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Speaker 5: We didn't see it in the data last week. So

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Speaker 5: that suggests to us the labor market's going to continue

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Speaker 5: to remain strong, at least until the end of the year.

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Speaker 5: But at some point in time, those higher interest rates

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Speaker 5: are going to bite all corners of the economy, not

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Speaker 5: just small businesses and households.

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Speaker 3: Are yields rising right now because of the perception of

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Speaker 3: strength that is given by some of the bigger businesses

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Speaker 3: that are much stronger, I.

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Speaker 1: Don't think so.

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Speaker 5: I think yields are rising because we're finally seeing supply

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Speaker 5: come in and really scare those bond vigilantes. The bond

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Speaker 5: vigilantes are back, and they're pushing the term premium up

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Speaker 5: on all treasuries, not just the front end of the curve.

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Speaker 4: Now, well, they've been on at leach, not just in

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Speaker 4: the US treasury market, but also in UK gilds and

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Speaker 4: on boons. What goes through my mind is that when

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Speaker 4: you trigger through five percent and you see the curve

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Speaker 4: moving so aggressively, do you think that we hit some

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Speaker 4: kind of a point of where risk powergy trades begin

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Speaker 4: to get smacked, or where var limits at various various

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Speaker 4: trading houses get triggered. Do you think that we're going

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Speaker 4: to go into that next evolution of where we see

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Speaker 4: a real liquidation moment.

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Speaker 5: That's a tough question because I think we've seen now

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Speaker 5: this is really the third substantial rise in ten year

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Speaker 5: treasury as we've seen over the last three years. Each

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Speaker 5: time you've probably seen those var strategies take a turn

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Speaker 5: of leverage off along the way. So the sensitivity today

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Speaker 5: to a five percent is probably less than it was

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Speaker 5: to a three percent two years ago because they've taken.

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Speaker 5: From what we can see, there's been some leverage nets

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Speaker 5: come off. With that said, there's always another break point.

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Speaker 5: I don't know if it's five h two or five seventeen,

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Speaker 5: or we might have already hit it at four ninety,

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Speaker 5: but there's a break point here where you're going to

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Speaker 5: see another round of leverage come off. And that's part

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Speaker 5: of the reason why we're it's probably a multi step process,

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Speaker 5: but that's probably one of the reasons why we're seeing

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Speaker 5: the SMP off again as well, and credit spreads inching

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Speaker 5: higher because I think we're getting close to that point again.

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Speaker 4: So who steps in here? This is the debate that

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Speaker 4: we three of us have had for the past two hours,

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Speaker 4: which is duration heroes aren't to be seen. Yeash, you're

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Speaker 4: trading above five percent. Insurance companies have a different accounting system.

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Speaker 4: They don't need to come in and hedge themselves. Who

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Speaker 4: steps into this bond market to comp yields?

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Speaker 5: Well, there's a good and a bad to this. The

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Speaker 5: good is there's need to mean the good. The good

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Speaker 5: is an enormous amount of plain vanilla core fixed income

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Speaker 5: strategies that will just love to keep buying and buying

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Speaker 5: and buying treasuries. The bad news is those are price

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Speaker 5: sensitive investors. They're not like the leveraged investorship past. So

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Speaker 5: they're going to basically come in after there's a concession,

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Speaker 5: so treasury supply comes in, yields tick a little higher,

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Speaker 5: they come in and buy on the cheap. They're not

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Speaker 5: going to be price and sensitive who will buy on

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Speaker 5: any tip.

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Speaker 1: You are a grizzled veteran of this. I'm going to

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Speaker 1: give you two ideas. One that we talked to way

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Speaker 1: Lee about at black Rock, which is the bid walks

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Speaker 1: away all of a sudden, non priced folks, not yield

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Speaker 1: price of bonds, the bid walks away. And the great

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Speaker 1: Chris Whaling call this the Wayland's silence. You're out there,

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Speaker 1: you're on your phone. This is the old days. Man

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Speaker 1: is you buy tickets here, sell tickets here. You're on

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Speaker 1: your phone and you're going, I got a gazillion dollars

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Speaker 1: of the trender, you know what, And there's just silence.

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Speaker 1: Nobody wants that piece of paper. Are we close to that?

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Speaker 5: Well, some would say we've actually hit that people. There's

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Speaker 5: a lot of fair about thirty year auction. There's a

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Speaker 5: lot of fair about auctions on the front of the

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Speaker 5: curve over the last few weeks, saying they were even

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Speaker 5: having desks.

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Speaker 1: Norway calls up and they go, I gotta sell a

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Speaker 1: zillion years of that cranny of twenty forty two. Is

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Speaker 1: there somebody there to buy this garbage?

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Speaker 5: There is, but you're going to have to put in

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Speaker 5: a price concession. That is, yields are going to have

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Speaker 5: to push higher than what the market is trading at.

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Speaker 5: And the treasury is now no longer immune to this.

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Speaker 1: I said price concession, and the bramokamshook. I mean, at

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Speaker 1: what point the reality.

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Speaker 3: Just real quick here Tom, to sum it all together.

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Speaker 3: Are you getting compensated for the uncertainty right now? Are

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Speaker 3: you buying duration?

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Speaker 1: Yes, we would be.

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Speaker 5: I think you're being fairly compensated. Our own measure of

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Speaker 5: the term premium on the ten year treasury it's above

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Speaker 5: one hundred basis points. That's a very important level, not

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Speaker 5: just symbolically, but what it's telling you is that you're

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Speaker 5: getting normalized cushion for that uncertainty. This is where you

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Speaker 5: normally would be. So we feel you're being compensated. Doesn't

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Speaker 5: mean we can't see yields tick higher here but you're

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Speaker 5: being compensated for the risk going forward. I believe at this.

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Speaker 1: Point Asson from a cigar bar in East Side emails

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Speaker 1: and it says, talk about me. Okay, let's talk about

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Speaker 1: Jason Trunnan. How does this fold in? How does your

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Speaker 1: fixed income analysis fold into Jason Trennan's calling this on

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Speaker 1: the equity markets?

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Speaker 5: Well, it makes us that much more bearish on the

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Speaker 5: economy because we continue to see another source of stress

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Speaker 5: for the consumer and now businesses picking up here. So

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Speaker 5: what we're doing is we've delayed recession and we've said

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Speaker 5: we're going to avoid recession at all costs in twenty

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Speaker 5: twenty three. But that itself, there's cost to that, and

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Speaker 5: the cost is going to be that the breaking point

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Speaker 5: is going to be when yields are higher, which means

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Speaker 5: there's more risk of financial credit events.

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Speaker 1: Have you predicted that?

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Speaker 5: Nothing that we can see right now, But by the

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Speaker 5: nature of those types of events, they are places you

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Speaker 5: can't see them. So at a five ten year treasury

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Speaker 5: it's much more likely than it was when we were

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Speaker 5: at three point fifty. So where it is lurking that

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Speaker 5: leveraged investor who is caught off guard, we don't know.

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Speaker 5: We don't see that happening at this moment, but it's

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Speaker 5: on our horizon.

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Speaker 1: Bottle at tom Soasaurus. There are statigas there and fixed

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Speaker 1: income the effect across all of the American economy. Kathleen

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Speaker 1: Bes johnsik joins us now Chief Economists Nationwide Mutual Insurance. Kathy,

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Speaker 1: once again you have failed and everybody else with a

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Speaker 1: bang up third quarter GDP modeled out at five percent.

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Speaker 1: You're gonna tell me we can't sustain that? All my

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Speaker 1: radars up. Why can't we sustain above average? That's real GDP?

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Speaker 6: Good morning, Tom, Well, it is unsustainable, and the main

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Speaker 6: reason is that we just don't have enough workers. Really,

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Speaker 6: if you break down GDP growth, right, you look at

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Speaker 6: the number of workers and how productive unless we're getting

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Speaker 6: a real boom and productivity growth, really hard to sustain

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Speaker 6: five percent growth. And what it also does in the meantime,

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Speaker 6: as you know, is overheats the economy and makes it

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Speaker 6: more difficult for the Fed Reserve to lower inflation, and

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Speaker 6: that's their primary goal. So I think one way or

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Speaker 6: the other said will lower inflation and continue to lower it.

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Speaker 6: But that may you know, that means that five percent

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Speaker 6: is not very sustainable.

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Speaker 4: Where are you on that good morning, good to see you.

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Speaker 4: Where are you on the outlook for wages is the

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Speaker 4: heat and I suppose the fury of wage negotiation. Is

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Speaker 4: that in the rear view mirror as you look into

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Speaker 4: twenty twenty four?

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Speaker 1: Yeah?

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Speaker 6: Good, good question, manis So we'll keep and I on

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Speaker 6: wage growth. But what we have seen, despite the numerous

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Speaker 6: strikes that have popped up and concerns there, we've actually

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Speaker 6: seen wage growth decelerate. It's come down from six to

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Speaker 6: seven percent. It's still running too high for the FEDS comfort, right,

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Speaker 6: it's running around four percent or so, a little bit

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Speaker 6: above that. They'd really like to see that between three

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Speaker 6: and three and a half, to be consisted with two

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Speaker 6: percent inflation. But you know, going back to labor market

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Speaker 6: is the key right now in terms of wage growth.

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Speaker 6: But also how long this you know, strong growth continues.

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Speaker 6: It's not ultimately sustainable. But do we see some meaningful

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Speaker 6: slowdown in the fourth quarter. That's that's really what's important.

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Speaker 4: Tom chasing me a little bit earlier on. There's a

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Speaker 4: great phrase that I use of its grand. It depends

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Speaker 4: how I say the word grand. Grand can mean many

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Speaker 4: different things. I said, the US consumer is grand, and

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Speaker 4: Tom rightly chasing me, he said, did you look at

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Speaker 4: the delinquencies on subprime in the auto industry? Did you

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Speaker 4: look perhaps the underbelly of what is going on? We're

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Speaker 4: going to get retail sales, you know, they remain grand

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Speaker 4: in inverted commas, but suddenly we're dealing with a shift

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Speaker 4: in rates to above five percent. Would you describe the

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Speaker 4: consumer as grand or high challenge? Does the consumer become

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Speaker 4: in a world of world rates actually tightening tightening, tightening?

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Speaker 1: Yeah?

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Speaker 6: I think the way I would say it is the

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Speaker 6: consumer looks to be grand, but there are a lot

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Speaker 6: of headwinds hitting the consumer now. The tailwind has been

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Speaker 6: the labor market very strong. Right, as long as the

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Speaker 6: labor market is churning out the jobs, you know two

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Speaker 6: hundred thousand, three hundred thousand, right, the consumer is going

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Speaker 6: to keep spending. But you have still elevated inflation. You

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Speaker 6: have a consumer loan payments, you know, kicking in and

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Speaker 6: as you said, certain demographics are really challenged right now,

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Speaker 6: and delinquencies picking up a little bit. So it's not

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Speaker 6: a completely rosy picture here. But I would say say

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Speaker 6: you got to follow the labor market. That is the key.

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Speaker 1: So if I'm the FED, I'm going to follow the

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Speaker 1: labor market. I'm data dependent, But I would suggest November

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Speaker 1: one ish is upon us, and you know we're gonna

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Speaker 1: sort of have a post Halloween party. I guess it's

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Speaker 1: a non meeting December for Kathy bus johnsick. How key

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Speaker 1: is the December meeting?

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Speaker 6: Oh, it's important, you know, I think each meeting is

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Speaker 6: important in the sense not what they do, but it's

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Speaker 6: what Chairman pal guides is right, what do we hear

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Speaker 6: in the press conference? But December, we'll get the revised forecast, right,

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Speaker 6: We'll get the macro forecast and the doc lot estimate,

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Speaker 6: even though those aren't you know, golden rule.

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Speaker 7: Right.

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Speaker 6: It doesn't mean that's exactly what the FED is going

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Speaker 6: to do, right, but it's guidance. And you know, it'd

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Speaker 6: be interesting to see. Our view is growth closed by

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Speaker 6: more than half? Right in the fourth quarter, we see

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Speaker 6: it running a bit above two percent. But I have

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Speaker 6: to say that handoff. You know, men have talked about

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Speaker 6: retail sales. The handoff consumer spending to the fourth quarter

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Speaker 6: was a bit firmer than we thought. We really need

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Speaker 6: to see consumer We need to see growth for the

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Speaker 6: fedly feel comfortable below two percent. I mean Chairman Palell

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Speaker 6: told us he thinks more potential growth is two percent, right,

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Speaker 6: so he wants it on a sub same basis.

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Speaker 1: I mean, Kathy, you're with Nationwide. Do you have tickets

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Speaker 1: to Michigan right around Thanksgiving? I mean it's at Michigan.

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Speaker 1: I get that, But you're Kathy Bus Johnsick. Can you

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Speaker 1: get us into one hundred thousand people at ann Arbor.

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Speaker 6: Only if you're voting for Ohio state? It can only

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Speaker 6: do that very good.

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Speaker 1: We're from Columbus and Nationwide, Kathleen Bus Johnsick. Let's get

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Speaker 1: right too. It's your definitive brief here on this transaction

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Speaker 1: sixty billion of a total enterprise value. Emrita send expert

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Speaker 1: at the micro foundations of the price of oil and

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Speaker 1: also expert out of the geography of oil. Emrita. I

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Speaker 1: was up to speed on this in a fake O way,

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Speaker 1: and I'm getting up to speed quickly. Guyana twenty fifteen.

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Speaker 1: Exxon finds more oil than God in the Gulf of

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Speaker 1: Mexico off of South America. This is hess and this

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Speaker 1: is a Guiana acquisition by mister Worth and Chevron explain

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Speaker 1: to our audience the magnitude of the Guiana oil fields.

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Speaker 7: I think it's a fantastic acquisition if you ask me,

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Speaker 7: given the fact that Guyana is actually going to be

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Speaker 7: the most prolific non OPEC supply growth in the coming years. Exon,

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Speaker 7: like you said, already has footprint and as does hes

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Speaker 7: so Chevron now through Hess gets exposure to that. You know,

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Speaker 7: Guyana's production has been growing by two to three hundred

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Speaker 7: thousand barrels per day. It's got several new fbsos planned

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Speaker 7: in the coming years. We're talking about production reaching and

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Speaker 7: breaching a million barrels for day and continuing to grow.

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Speaker 7: So it is, like I said, the most promising non

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Speaker 7: OPEC supply prospect. You know, we've had Brazil take that

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Speaker 7: position for the last few years and that's now flipped

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Speaker 7: to Guyana. So again, in that sense, a fantastic acquisition.

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Speaker 1: What is the distinction of Guyana? And then I believe

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Speaker 1: it is too. You're going to get my map out, manus,

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Speaker 1: I'm going down in flames here. What is the distinction

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Speaker 1: between Guyana and Venezuela on the southern side of the Caribbean.

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Speaker 7: I mean, of course, there's political stability, for one, and

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Speaker 7: the quality of oil. The quality of oil Guyana producers

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Speaker 7: is actually very good quality. It's sweeter. It's really liked

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Speaker 7: by even European refiners who sometimes struggle to process a

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Speaker 7: lot of the heavier barrels. Venezuela and oil is very

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Speaker 7: very heavy oil. It's like by a lot of refiners

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Speaker 7: who like in the US Golf Coast, that have the

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Speaker 7: capacity to process that. It requires what you call cocas,

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Speaker 7: but not every refiner has that. So Guyana's oil is

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Speaker 7: actually easier to process in that sense, of course, in

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Speaker 7: today's day and age, though, because we have a lot

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Speaker 7: of refineries around the world who need that heavy oil,

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Speaker 7: the lifting of sanctions on Venezuela would actually be welcome,

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Speaker 7: of course, if that is to be sustained and if

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Speaker 7: there are free and fair Eleans. There are lots of

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Speaker 7: question marks around now.

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Speaker 1: I'm reda Surveyllance correction. You're Guiana to the east of

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Speaker 1: Venezuela by six hundred miles between Caracas and Georgetown. Thank you,

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Speaker 1: nail On that. One of our interns just saved me, and.

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Speaker 4: Then I'm going to fly with you.

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Speaker 3: There is a question seeing why are we seeing so

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Speaker 3: many of these acquisitions right now in the oil patch.

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Speaker 7: I mean, you know, this is something our team, our

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Speaker 7: US upstream team has been pointing out since July. We

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Speaker 7: actually identified eighty companies that we thought was up for grabs.

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Speaker 7: I'll happily share that list with you guys, and I

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Speaker 7: think of that about seventeen eighteen have already happened. This

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Speaker 7: is if you think about the shale patch of the

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Speaker 7: last decade, it was fueled by zero interest rates, and

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Speaker 7: it was fueled by focusing on not shareholder a growth

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Speaker 7: or cash flow. But it was all about production growth.

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Speaker 7: So it didn't matter whether you made money or not,

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Speaker 7: just come pump and produce as much oil. That's changed

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Speaker 7: now over the last few years, we've seen actually shareholders

434
00:23:11,040 --> 00:23:13,640
Speaker 7: say no, you actually need to return money to us,

435
00:23:13,920 --> 00:23:15,760
Speaker 7: which means a lot of the acreage and a lot

436
00:23:15,800 --> 00:23:19,320
Speaker 7: of the companies that had poor acreage just produced anyways.

437
00:23:20,240 --> 00:23:23,760
Speaker 7: They have to get basically integrated with bigger companies who

438
00:23:23,760 --> 00:23:26,600
Speaker 7: have economies of scale, because that's the only way you

439
00:23:26,680 --> 00:23:30,200
Speaker 7: can generate cash. So that's the that's the main reason

440
00:23:30,280 --> 00:23:32,640
Speaker 7: why we are seeing this. And then of course as

441
00:23:32,680 --> 00:23:35,720
Speaker 7: interest rates go up, servicing a lot of these debts

442
00:23:35,760 --> 00:23:37,639
Speaker 7: that they have, a lot of the companies have very

443
00:23:37,720 --> 00:23:40,639
Speaker 7: very high debts, just isn't feasible, and that's why you

444
00:23:40,680 --> 00:23:43,520
Speaker 7: will continue to see consolidation. We think this is just

445
00:23:43,560 --> 00:23:45,120
Speaker 7: the start and we're going to see a lot more

446
00:23:45,160 --> 00:23:45,760
Speaker 7: going forward.

447
00:23:45,840 --> 00:23:49,560
Speaker 3: So, Amrita, how much is this also a result of

448
00:23:49,720 --> 00:23:53,320
Speaker 3: maybe anti trust agents in the US looking more favorably

449
00:23:53,359 --> 00:23:55,080
Speaker 3: at some of these tie ups because there is this

450
00:23:55,160 --> 00:23:58,760
Speaker 3: goal to usset some of the supply fluctuations in the

451
00:23:58,800 --> 00:23:59,320
Speaker 3: Middle East.

452
00:24:02,359 --> 00:24:03,120
Speaker 4: I mean, look, I.

453
00:24:03,040 --> 00:24:05,080
Speaker 7: Think that's at the margin, right if you think about

454
00:24:05,080 --> 00:24:07,399
Speaker 7: the kind of deals being done, or look at the

455
00:24:07,440 --> 00:24:12,480
Speaker 7: deals being done. It started with occidental back not this year,

456
00:24:12,520 --> 00:24:16,000
Speaker 7: but previously. It's always about getting the acreage which is

457
00:24:16,080 --> 00:24:19,240
Speaker 7: right next to yours so that you can have economies

458
00:24:19,240 --> 00:24:22,520
Speaker 7: of scale. And I think that's the underlying reason for that.

459
00:24:22,560 --> 00:24:25,920
Speaker 7: And of course even with these acquisitions, it doesn't necessarily

460
00:24:25,960 --> 00:24:28,760
Speaker 7: mean you're going to get more production. More often than not,

461
00:24:28,960 --> 00:24:31,880
Speaker 7: one plus one rigs is making giving us one point

462
00:24:31,920 --> 00:24:34,399
Speaker 7: two rigs, not two, because a lot of the rigs,

463
00:24:34,440 --> 00:24:37,040
Speaker 7: like I was saying earlier, is actually poor quality. So

464
00:24:37,080 --> 00:24:39,800
Speaker 7: that bigger companies simply saying we're not going to produce

465
00:24:39,840 --> 00:24:43,800
Speaker 7: from here, and therefore overall production actually goes down. Exon

466
00:24:43,920 --> 00:24:47,200
Speaker 7: and Pioneer are the exception there. Every other MNA we've

467
00:24:47,240 --> 00:24:50,560
Speaker 7: seen actually is leading to lowering overall guidance of the

468
00:24:50,600 --> 00:24:52,600
Speaker 7: two companies rather than raising it.

469
00:24:53,160 --> 00:24:55,480
Speaker 4: I'm really good to see this morning. Does any of

470
00:24:55,520 --> 00:24:59,760
Speaker 4: this deal making that you see go through reflect anticipation

471
00:24:59,800 --> 00:25:03,399
Speaker 4: of it change or a material change in US energy

472
00:25:03,960 --> 00:25:06,000
Speaker 4: policy we're coming I don't know whether we're coming to

473
00:25:06,040 --> 00:25:07,840
Speaker 4: the end of a Biden administration, but we're going into

474
00:25:07,880 --> 00:25:12,240
Speaker 4: an election year. Policy may change. America oil independence is key.

475
00:25:12,800 --> 00:25:16,520
Speaker 4: Any of the political aspects play into the potential for

476
00:25:16,600 --> 00:25:17,399
Speaker 4: deal making.

477
00:25:19,960 --> 00:25:21,879
Speaker 7: I don't think so in the sense again, these are

478
00:25:21,960 --> 00:25:24,639
Speaker 7: kind of company specific deals that we're talking about. I

479
00:25:24,640 --> 00:25:26,920
Speaker 7: think the bigger challenge, of course, we have is I mean, look,

480
00:25:26,920 --> 00:25:29,159
Speaker 7: the US is producing about thirteen million baros fill in,

481
00:25:29,160 --> 00:25:32,440
Speaker 7: which is a record high anyways, and US production continues

482
00:25:32,480 --> 00:25:35,159
Speaker 7: to grow. The challenge I was saying is that you

483
00:25:35,240 --> 00:25:38,920
Speaker 7: do have sanctions being lifted on Venezuela even though elections

484
00:25:39,000 --> 00:25:41,000
Speaker 7: haven't been held and there are still bands on the

485
00:25:41,000 --> 00:25:45,480
Speaker 7: opposition candidate. That raises more questions around the shale guys

486
00:25:45,520 --> 00:25:48,200
Speaker 7: and saying why are we not being given the opportunity

487
00:25:48,200 --> 00:25:50,840
Speaker 7: to produce even more rather than you going and doing

488
00:25:50,880 --> 00:25:51,600
Speaker 7: deals elsewhere.

489
00:25:51,800 --> 00:25:53,879
Speaker 4: I'm Rida, I'll see you in a month's time. In Vienna.

490
00:25:53,920 --> 00:25:57,000
Speaker 4: There is an official video of I'mrita and I dancing

491
00:25:57,720 --> 00:26:01,520
Speaker 4: in Opec during COVID going toe to toe the line. Yeah,

492
00:26:01,640 --> 00:26:06,359
Speaker 4: we are so living the life in Vienna. Quick question

493
00:26:06,400 --> 00:26:08,159
Speaker 4: on Vienna. As we go to Vienna. The theory is

494
00:26:08,160 --> 00:26:13,520
Speaker 4: this that the US goes to refill the spr over

495
00:26:13,520 --> 00:26:15,879
Speaker 4: the next couple of months, give Saudi and Russia some

496
00:26:16,040 --> 00:26:19,080
Speaker 4: kind of caveat to release some of the unilateral cuts.

497
00:26:19,160 --> 00:26:21,840
Speaker 4: Is that pie in the sky hopeful thinking? What is

498
00:26:21,840 --> 00:26:24,480
Speaker 4: your anticipation as we go to buy that. You don't

499
00:26:24,520 --> 00:26:27,600
Speaker 4: buy that, do not buy that? I don't I do

500
00:26:27,680 --> 00:26:28,040
Speaker 4: not buy that.

501
00:26:28,040 --> 00:26:30,040
Speaker 7: I think Soudi Arabia has been very clear in saying

502
00:26:30,080 --> 00:26:34,400
Speaker 7: they're keeping the cuts in place because of the macroeconomic concerns. Look,

503
00:26:34,480 --> 00:26:36,200
Speaker 7: the US has said this before as well, that we're

504
00:26:36,200 --> 00:26:38,199
Speaker 7: going to buy it when it was kind of you know,

505
00:26:38,320 --> 00:26:40,720
Speaker 7: less than eighty dollars, and they didn't. They've only managed

506
00:26:40,720 --> 00:26:43,159
Speaker 7: to refill four point eight million barrels and they've come

507
00:26:43,200 --> 00:26:44,960
Speaker 7: out and said, oh, we'll buy the oil when it's

508
00:26:45,080 --> 00:26:47,720
Speaker 7: you know, seventy nine. I don't think they're going to

509
00:26:47,720 --> 00:26:48,040
Speaker 7: get there.

510
00:26:48,880 --> 00:26:51,240
Speaker 1: Richison, thank you so much and on behalf of John

511
00:26:51,280 --> 00:26:54,600
Speaker 1: Fair and Lisa team Surveillance. Really looks forward to interviewing

512
00:26:54,600 --> 00:27:08,159
Speaker 1: you and Vienna here at the next cranny. Right now,

513
00:27:08,200 --> 00:27:11,200
Speaker 1: we're going to begin here manus Crany, Lisa Brahminson, Tom

514
00:27:11,320 --> 00:27:13,800
Speaker 1: King with our definitive call on the day on global

515
00:27:13,840 --> 00:27:18,440
Speaker 1: fixed income Way lead as global chief investment strategists of Blackrock,

516
00:27:18,520 --> 00:27:22,560
Speaker 1: prodigious in mathematics and joins us here on our fears

517
00:27:22,880 --> 00:27:27,080
Speaker 1: of price down and yield up. Waly, thank you so

518
00:27:27,200 --> 00:27:32,000
Speaker 1: much for finding the time. Where is the bid on bonds?

519
00:27:32,160 --> 00:27:35,760
Speaker 1: To me? The bid is walked away? Is that true?

520
00:27:36,240 --> 00:27:38,840
Speaker 1: Is there just a dearth of bid across all of

521
00:27:38,920 --> 00:27:39,640
Speaker 1: fixed income?

522
00:27:41,240 --> 00:27:44,840
Speaker 2: There are lots of moving parts right now, Good morning everyone.

523
00:27:45,640 --> 00:27:49,360
Speaker 2: In terms of our review on long bonds long duration,

524
00:27:49,960 --> 00:27:54,680
Speaker 2: we have been underweight US long duration for three years now,

525
00:27:54,720 --> 00:27:58,159
Speaker 2: since late twenty twenty one ten year yields was below

526
00:27:58,240 --> 00:28:02,480
Speaker 2: one percent, and last week we closed the underweight to

527
00:28:02,640 --> 00:28:05,719
Speaker 2: get to neutral. There are a couple of moving parts

528
00:28:05,720 --> 00:28:09,679
Speaker 2: in terms of why rates have reprised, so very meaningfully.

529
00:28:09,800 --> 00:28:13,919
Speaker 2: The first piece is policy path repricing, and a second

530
00:28:13,960 --> 00:28:18,280
Speaker 2: piece is term premier repricing, and within that, inflation premier

531
00:28:18,480 --> 00:28:21,400
Speaker 2: is part of term premier. So where we are now

532
00:28:21,440 --> 00:28:25,679
Speaker 2: with ten year yields testing five percent in our assessment,

533
00:28:25,920 --> 00:28:29,480
Speaker 2: policy path is not that different from where we think

534
00:28:29,680 --> 00:28:33,280
Speaker 2: it should be. But term premier, depending on which measure

535
00:28:33,440 --> 00:28:36,760
Speaker 2: you use, we're looking at somewhere between twenty basis point

536
00:28:36,840 --> 00:28:42,280
Speaker 2: forty basis point. Different methodology actually could push even higher

537
00:28:42,400 --> 00:28:45,680
Speaker 2: over the strategic horizon. So we're talking about term premier

538
00:28:45,720 --> 00:28:49,040
Speaker 2: over the strategic horizon at one hundred basis point, not

539
00:28:49,240 --> 00:28:52,360
Speaker 2: out of this world because of fiscal imbalance, because of

540
00:28:52,480 --> 00:28:57,200
Speaker 2: insurance dynamics, because of higher rate environment, rate volatility, as

541
00:28:57,200 --> 00:29:00,960
Speaker 2: well as because of higher inflationary environment. So when you

542
00:29:01,040 --> 00:29:04,800
Speaker 2: bring all of that together, strategically was still underweight, but

543
00:29:04,880 --> 00:29:10,360
Speaker 2: technically we're not neutral because risks have now become more balanced.

544
00:29:10,520 --> 00:29:12,160
Speaker 2: And when we think about kind of the reader cross

545
00:29:12,160 --> 00:29:17,840
Speaker 2: of weight repricing to risk assets, actually, policy paths repricing

546
00:29:17,880 --> 00:29:21,280
Speaker 2: can be negative for equities because it impacts the discount

547
00:29:21,320 --> 00:29:25,480
Speaker 2: rates directly, but time premier repricing doesn't have to be

548
00:29:25,600 --> 00:29:30,200
Speaker 2: negative for equities because it's more an assessment of the

549
00:29:30,240 --> 00:29:33,640
Speaker 2: relative appeal of duration in portfolios.

550
00:29:33,920 --> 00:29:35,840
Speaker 3: Do you think way, I know that you've been leaning

551
00:29:35,880 --> 00:29:38,880
Speaker 3: into the whole AI discussion and the whole AI thesis,

552
00:29:38,880 --> 00:29:41,440
Speaker 3: and that's been driving some of your equity bets. Do

553
00:29:41,480 --> 00:29:45,360
Speaker 3: you think that that area is completely immune to turn

554
00:29:45,440 --> 00:29:48,640
Speaker 3: premium in these discussions of yields given the cash cows

555
00:29:48,640 --> 00:29:49,320
Speaker 3: that they've become.

556
00:29:50,880 --> 00:29:54,000
Speaker 2: Well, what has been very interesting with regards to this

557
00:29:54,200 --> 00:29:57,160
Speaker 2: mega tech and AI theme is that on the one hand,

558
00:29:57,280 --> 00:30:01,600
Speaker 2: they benefit from the growth grade earnings upgrades that we're

559
00:30:01,640 --> 00:30:04,520
Speaker 2: seeing coming through. So for example, next year, ten percent

560
00:30:04,760 --> 00:30:08,080
Speaker 2: EPs podcasts for S and P five hundred. Half of

561
00:30:08,120 --> 00:30:12,080
Speaker 2: that is driven by mega tech names. Five percent is

562
00:30:12,160 --> 00:30:15,040
Speaker 2: coming from the tech names. So they're definitely benefiting from

563
00:30:15,040 --> 00:30:18,120
Speaker 2: earning's upgrades, which we pay a lot of attention to.

564
00:30:18,400 --> 00:30:21,360
Speaker 2: But at the same time, they are more long douration

565
00:30:21,920 --> 00:30:27,000
Speaker 2: compared with the broader acquity market, So when the rate reprices,

566
00:30:27,320 --> 00:30:30,720
Speaker 2: it pressures down on long duration a little bit more.

567
00:30:30,880 --> 00:30:33,280
Speaker 2: Everything else in equal, But when you bring the two

568
00:30:33,400 --> 00:30:38,240
Speaker 2: factors together, actually the growth prospect and the AIME gathering

569
00:30:38,280 --> 00:30:43,200
Speaker 2: momentum and the earnings upgrades actually trunk the douration sensitivity

570
00:30:43,400 --> 00:30:45,320
Speaker 2: as we have seen so far earlier in the year,

571
00:30:45,360 --> 00:30:49,040
Speaker 2: but also in recent periods of repricing. Actually, the AI theme,

572
00:30:49,080 --> 00:30:51,640
Speaker 2: the nastacs have been holding up better than you would

573
00:30:51,680 --> 00:30:54,360
Speaker 2: have expected given the rate volatility.

574
00:30:55,080 --> 00:30:55,880
Speaker 1: Well, good morning.

575
00:30:56,360 --> 00:30:58,080
Speaker 4: Just to carry on from that, this week they're going

576
00:30:58,120 --> 00:31:00,800
Speaker 4: to see sixteen trillion dollars worth of equity reports and

577
00:31:00,800 --> 00:31:03,080
Speaker 4: the magnificent part of the magnificent seven of tech are

578
00:31:03,120 --> 00:31:06,040
Speaker 4: going to be in there. What Tom, Lisa and myself

579
00:31:06,840 --> 00:31:10,800
Speaker 4: what we're talking about was the balance sheets, the cash

580
00:31:10,800 --> 00:31:13,200
Speaker 4: on the balance sheets, the cash on Apple's balance sheets,

581
00:31:13,200 --> 00:31:15,400
Speaker 4: the cash on the other big tech. Is that another

582
00:31:15,440 --> 00:31:19,240
Speaker 4: defensive hallmark and a reason to endure and stay long

583
00:31:19,320 --> 00:31:19,840
Speaker 4: big tech.

584
00:31:21,560 --> 00:31:24,680
Speaker 2: That is why we are still overweight to the big

585
00:31:24,720 --> 00:31:27,800
Speaker 2: tech and AI theme, because when we think about kind

586
00:31:27,800 --> 00:31:32,640
Speaker 2: of quality characteristics as rows slows down reacts to the

587
00:31:32,680 --> 00:31:36,520
Speaker 2: tightening environment that we're all experiencing, actually having cash on

588
00:31:36,520 --> 00:31:39,719
Speaker 2: your balance sheet and not being as geared up in

589
00:31:39,760 --> 00:31:43,560
Speaker 2: this environment is a definite is a definite plus. And

590
00:31:43,600 --> 00:31:46,680
Speaker 2: more broadly, we're talking about kind of the impression of

591
00:31:46,720 --> 00:31:49,360
Speaker 2: the earning season that the feeling is that it's holding

592
00:31:49,440 --> 00:31:53,240
Speaker 2: up better, but actually not forget the broader backdrop, which

593
00:31:53,280 --> 00:31:56,560
Speaker 2: is the earnings. Actually, the three quarters have been stagnating,

594
00:31:56,800 --> 00:31:59,920
Speaker 2: and we're just talking about incremental rebound from the stagnating.

595
00:32:00,920 --> 00:32:02,000
Speaker 2: That's the big picture here.

596
00:32:02,360 --> 00:32:05,800
Speaker 1: Well, Lawrence from New York emails in and says, ask

597
00:32:05,880 --> 00:32:09,920
Speaker 1: way Lee, if an institutional for marks to market and

598
00:32:09,960 --> 00:32:13,120
Speaker 1: everything else is on the balance sheet, and the rationalization

599
00:32:13,920 --> 00:32:15,920
Speaker 1: is I can own it forever and I'll get paid

600
00:32:15,960 --> 00:32:19,240
Speaker 1: back eventually. Blowning, how do you do the math and

601
00:32:19,320 --> 00:32:22,440
Speaker 1: the midpoint of where the stuff you hold on the

602
00:32:22,480 --> 00:32:25,920
Speaker 1: balance sheet gets a valuation. If I've got eight years

603
00:32:25,960 --> 00:32:29,480
Speaker 1: of maturity, how close is it to where you get

604
00:32:29,520 --> 00:32:32,520
Speaker 1: a tipping point where you've got to confront what's on

605
00:32:32,560 --> 00:32:33,479
Speaker 1: the balance sheet.

606
00:32:35,040 --> 00:32:38,880
Speaker 2: Well, first say hello to Lawrence, and second, yes, indeed

607
00:32:38,960 --> 00:32:44,240
Speaker 2: we haven't. We have to see more repricing of risk

608
00:32:44,360 --> 00:32:48,560
Speaker 2: assets reflecting the higher rate environment. We look at the

609
00:32:48,680 --> 00:32:51,560
Speaker 2: rational work kind of almost there, which is why toxically

610
00:32:51,560 --> 00:32:55,400
Speaker 2: we turned neutral. But if you look at equities, it

611
00:32:55,480 --> 00:32:59,160
Speaker 2: has yet to reflect the higher rate environment. By our

612
00:32:59,480 --> 00:33:03,160
Speaker 2: basin kind of aristhmetic kind of praise and put back

613
00:33:03,200 --> 00:33:07,480
Speaker 2: of the envelope analysis, you know, like a further five

614
00:33:07,480 --> 00:33:12,040
Speaker 2: percent to ten percent adjustment is not, you know, unthinkable,

615
00:33:12,160 --> 00:33:14,160
Speaker 2: And then you think about private markets, there is also

616
00:33:14,200 --> 00:33:18,800
Speaker 2: further reprising to go, which is why greater dispersion, greater

617
00:33:18,880 --> 00:33:21,920
Speaker 2: selectivity is really warranted as we think about kind of

618
00:33:22,000 --> 00:33:27,040
Speaker 2: deploying your risk budget in this environment, because there is

619
00:33:27,520 --> 00:33:31,160
Speaker 2: a different rate sensitivity across risk spectrum, which is why

620
00:33:31,160 --> 00:33:34,200
Speaker 2: we're very selective when it comes to ours. We're focusing

621
00:33:34,240 --> 00:33:38,000
Speaker 2: on sceptor cell growing earnings, but also very selective in

622
00:33:38,080 --> 00:33:40,960
Speaker 2: terms of the private market. We like private credit, we

623
00:33:41,080 --> 00:33:45,080
Speaker 2: like infrastructure that all these parts, and private markets that

624
00:33:45,200 --> 00:33:46,960
Speaker 2: benefits secular sail.

625
00:33:46,720 --> 00:33:49,520
Speaker 1: Wings on your full faith and credit there Wayley, thank

626
00:33:49,520 --> 00:33:53,080
Speaker 1: you so much of black Crack. Subscribe to the Bloomberg

627
00:33:53,160 --> 00:33:57,160
Speaker 1: Surveillance podcast on Apple, Spotify and anywhere else you get

628
00:33:57,200 --> 00:34:02,000
Speaker 1: your podcasts. Listen live every weekday starting at seven am Eastern.

629
00:34:02,440 --> 00:34:06,480
Speaker 1: I'm Bloomberg dot Com, the iHeartRadio app, tune In, and

630
00:34:06,560 --> 00:34:10,080
Speaker 1: the Bloomberg Business App. You can watch us live on

631
00:34:10,160 --> 00:34:14,920
Speaker 1: Bloomberg Television and always I'm the Bloomberg Terminal. Thanks for listening.

632
00:34:15,400 --> 00:34:18,200
Speaker 1: I'm Tom Keen, and this is Bloomberg