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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg

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Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern

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Speaker 2: Michael Purvos of decades of experience and tall back and

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Speaker 2: then particularly with a wonderful agent perspective, let me cut

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Speaker 2: to the chase. Is Japan idiosyncratic?

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Speaker 3: Well, you know, I think what's really idiosynocratic with Japan

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Speaker 3: right now with the fact that they're thirty year bond

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Speaker 3: is this you know, that yield is a surgeon, right.

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Speaker 3: And it's an interesting contrast because in the United States,

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Speaker 3: for all the time we talk about the Fed and

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Speaker 3: the Chair and inflation and all this interest rate stuff,

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Speaker 3: the reality is that rate volatility in the US has

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Speaker 3: been extraord nearly low, perhaps until last night there, and

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Speaker 3: great volatility overseas is right doing in Japan particularly is

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Speaker 3: doing very interesting things.

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Speaker 2: I think.

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Speaker 3: So what's happening is that we're kind of importing a

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Speaker 3: little bit of rate volatility from China right now.

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Speaker 2: Oh, I got to impress purpose here, yes, and I

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Speaker 2: got absolutarly to be with this. So I took the

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Speaker 2: forty year piece in Japan quoted in yield, I figured

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Speaker 2: it out in price, and I looked at a standard

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Speaker 2: deviation study, and you and I know that four standard

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Speaker 2: deviations is where things get exciting. The price has gone

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Speaker 2: on ninety something to eighty three, and four standard deviations

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Speaker 2: is only one point more from eighty three to eighty two.

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Speaker 2: Really begins to show the stress. Does that matter to

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Speaker 2: the global bond market that we're coming up on a

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Speaker 2: four standard deviation move and some of this stuff.

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Speaker 3: Well, I think you're seeing a little bit of it.

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Speaker 3: It matters a little bit right now to the global

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Speaker 3: bond market. It you know, it's it's funny if you

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Speaker 3: look at calculations of the term premium right for for

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Speaker 3: several years that was that term premium for the US

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Speaker 3: treasuries was extraordinarily low. At the same time the Japanese

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Speaker 3: and European yields were in negative territory. Now this now

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Speaker 3: there's no more negative yielding debt. That's been the condition

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Speaker 3: for a while now, and our term premium has been

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Speaker 3: a hot, much higher elevated level. So we do have

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Speaker 3: to you know, sort of you know, contextualize our treasury

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Speaker 3: yields in a global and in a global construct, we

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Speaker 3: import an export interest.

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Speaker 4: Rates just like other countries do. It is a one

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Speaker 4: big global bond market.

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Speaker 3: But to get back to Tom's question, the question is

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Speaker 3: is how much does it really matter here? Right And

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Speaker 3: I think right now Japan is clearly very important. You know,

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Speaker 3: is it going to yank our ten year up to

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Speaker 3: four point seventy five percent? I doubt it, but it's

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Speaker 3: sort of a subtle underlying pressure there that will sort

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Speaker 3: of ultimately you know, reinforce valuations for treasuries, you know,

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Speaker 3: on our side.

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Speaker 5: Well, boy, I mean again, I've been sitting on a

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Speaker 5: beach for a week. I come back the ten year

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Speaker 5: US treasury four spots.

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Speaker 2: What did you see? The thirty year bond?

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Speaker 4: Yeah, I know, the thirty point nineteen.

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Speaker 2: We're on the five percent.

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Speaker 5: We are it's a crisis, I mean, and look at

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Speaker 5: the you know, there's the big steepening year or what

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Speaker 5: do you make at the longer end of the US

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Speaker 5: curve here?

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Speaker 3: Well, look, I think there's been this tension for some time,

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Speaker 3: really over the last year or so that that actually

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Speaker 3: really started in September twenty four with our cutting cycle

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Speaker 3: where you know, we cut fifty basis points in September

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Speaker 3: twenty four and that marked the low in interest rates

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Speaker 3: for that but you know, part of the curve, and

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Speaker 3: so you know, normally and when you start a cutting cycle,

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Speaker 3: all interest rates tend to go lower, right, And in

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Speaker 3: this case, it's sort of been the opposite.

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Speaker 4: And I think there's this thing about you know, the

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Speaker 4: term premium or.

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Speaker 3: You know, the steepener if you will, Yeah, you know,

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Speaker 3: being sort of sticky higher longer.

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Speaker 4: Why is that the case.

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Speaker 3: Part of it is because you know, we've been cutting

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Speaker 3: into generally pretty good growth and pretty low unemployment and

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Speaker 3: pretty resilient inflation.

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Speaker 4: And I think part of it is back to.

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Speaker 3: Our earlier discussion that we're importing some of this from

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Speaker 3: other countries, for example Japan. Right, So so the global

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Speaker 3: bond market is kind of lifting our back end as well.

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Speaker 4: I think that it does create a challenge.

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Speaker 3: I do want to talk about rate volatility a little

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Speaker 3: bit more though, because I think it's important.

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Speaker 6: The interview problem Michael This across the Nation right now

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Speaker 6: a clinic and rate volatility Poe on YouTube. Subscribe to

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Speaker 6: Bloomberg Podcast for our rate volatility interview.

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Speaker 3: Go, Look, it's a subtle thing, but the moving deck

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Speaker 3: is extraordinarily low right now, right, And and if you

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Speaker 3: look at the range of the ten year treasury yield

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Speaker 3: over the last couple of months, that range is about

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Speaker 3: twenty basis points. You take the highest point to the

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Speaker 3: lowest point, you go back to nineteen eighty. That's the

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Speaker 3: tightest range in the forty plus years, right, So why

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Speaker 3: is that the case when we have all this drama

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Speaker 3: about who's going to run the feder and all that

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Speaker 3: kind of stuff. I think part of this goes back

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Speaker 3: to the fact that if let's say we get a

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Speaker 3: super dove in as a very doublish set of policies

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Speaker 3: coming out of the Fed perspectively, well, that is offset

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Speaker 3: by higher term premium, and it kind of tends to

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Speaker 3: dull the overall volatility picture. Cermainly if we were getting

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Speaker 3: more hawkers unexpected FED in the coming months, you know,

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Speaker 3: that would reduce the term premium there given this sort

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Speaker 3: of backdrop of sticky higher inflation north of two and

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Speaker 3: a half percent and an economy that still stole pretty good,

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Speaker 3: and these foreign bond yields, right, so it's keeping it

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Speaker 3: in a very tight range and usually tight range. It

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Speaker 3: is breaking out really literally just as we talk to

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Speaker 3: higher levels how much it breaks out?

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Speaker 4: I think, well, you know, we'll have to.

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Speaker 3: See, because I think you have to get back to

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Speaker 3: us fundamentals too, Michael.

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Speaker 4: What are clients doing these days?

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Speaker 5: I mean, we have the market future down one and

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Speaker 5: a half percent, Europe treading off over one percent here today,

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Speaker 5: geopolitical risk right back on the front burner. I guess

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Speaker 5: are they buying risk? Are they buying protection?

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Speaker 4: What are your clients?

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Speaker 3: They're buying risk, but they're very much if you're an

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Speaker 3: equity a fund, long short or long only you are.

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Speaker 4: You are a stock.

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Speaker 3: Picker right now more than ever right implied correlations across

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Speaker 3: the stock market, or record lows, you know, they're spiking

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Speaker 3: right now, but but off record lows there, and I

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Speaker 3: think they're they're they're really being very sort of careful.

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Speaker 3: I think the protection, you know, in terms of hedging

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Speaker 3: market risk. Yeah, there's a lot of anxiety because we've

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Speaker 3: had you know, three amazing years. Maybe we'll have another

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Speaker 3: good year, but people want to, you know, protect gains.

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Speaker 3: You know, after such a great run. It's hard I

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Speaker 3: think with you know, buying VIX calls or s and

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Speaker 3: P puts simply because the correlations across stocks are so low,

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Speaker 3: and that tends to surpass movements and the and the

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Speaker 3: surges in the vics when you have we step back,

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Speaker 3: we have monetary some level of monetary easing on top

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Speaker 3: of fiscal easing. We're going to get stimulus just just

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Speaker 3: clocking in soon, on top of a pretty good economy

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Speaker 3: right with this massive fixed asset boom there, and that's

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Speaker 3: driving correlations low. So the violence within the market is

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Speaker 3: within the market. It's it's rotation and.

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Speaker 4: All that there.

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Speaker 3: So when you see when you wake up on a

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Speaker 3: Saturday morning and there's a Venezuela headline like we had

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Speaker 3: a couple of weeks ago or whatnot, what I've been saying,

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Speaker 3: if you want to hedge those kinds of risk, don't

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Speaker 3: do it with vixed calls or SR puts.

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Speaker 4: Do it with you know, long gold or long gold

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Speaker 4: in some form.

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Speaker 2: Michael Purvis with the source who welcome you on the

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Speaker 2: Eastern Seashore, Nathan Hager Radio nine to ninety one FM,

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Speaker 2: Washington ninety two nine FM and a Patriot Line Bluebrig

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Speaker 2: eleven three zero here in York.

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Speaker 4: Good morning.

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Speaker 2: The way you listen to a serious exem Channel one

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Speaker 2: twenty one, particularly across Canada. Stay warm out there. The

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Speaker 2: cold coming for the next fifteen days. We're referting Rob

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Speaker 2: Carolyn give his historic perspective, Paul, Like in ten days,

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Speaker 2: it's like the coldest I've ever seen in New York.

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Speaker 4: Yeah, it's it's right there.

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Speaker 2: Yeah.

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Speaker 4: And in the Midwest right now, they're getting hammered.

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Speaker 2: So are you surfing?

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Speaker 4: Yeah, exactly, No, stay close to home.

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Speaker 2: Michael Purvis here and let's talk, folks, basic equity market.

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Speaker 2: I'm going to be filtering in folks. I worked all weekend.

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Speaker 2: A zeitgeist was just absolutely unreal. And just now, as

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Speaker 2: an example, Adam Posen Peterson Institute, justin Lamond. I haven't

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Speaker 2: read it yet. I'll not read it in French. Michael,

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Speaker 2: excuse me, but doctor Posen, Europe has crossed a rubicon. Good.

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Speaker 2: Here is a guideline for what to do. Now. I'll

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Speaker 2: report on that in a moment. What it comes down

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Speaker 2: to is what do I do with my four oh

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Speaker 2: one k given a cacophony of newsflow? How do you

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Speaker 2: distill President trump zeitgeist? If you will to an investment portfolio.

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Speaker 3: Well, I think it really this is sort of a

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Speaker 3: tired cliche, but I think it does speak to diversification. Right,

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Speaker 3: If you diversified into European equities a year ago, right,

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Speaker 3: you vasively have performed pretty much any part of the

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Speaker 3: US equity complex there, probably not only in local terms,

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Speaker 3: but but particularly.

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Speaker 4: So in in dollar terms there.

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Speaker 3: And I think that's part of where, you know, like

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Speaker 3: there's so many unknown unknowns with respect to how all

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Speaker 3: these this geopolitical.

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Speaker 4: Realignments are going to shake out.

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Speaker 3: But if you step back, look, it's not just the

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Speaker 3: US economy that's doing pretty well. It's most economies in

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Speaker 3: the world are doing remarkably.

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Speaker 4: Well.

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Speaker 3: I was talking to a friend of mine just yesterday

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Speaker 3: about European experts and he was like, you know, European

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Speaker 3: exports of the US represent less than three percent of.

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Speaker 4: European I'm sorry of German GDP there.

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Speaker 3: And so I think there's a lot of there's a

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Speaker 3: lot of you know, important things that are happening outside

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Speaker 3: of the US that where there's really great opportunities.

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Speaker 4: And particularly you know, if.

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Speaker 3: If Europe really goes from you know, a narrative to

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Speaker 3: actual action with respect to the some of the stimulus

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Speaker 3: in reaction to the steopolitical alignment that's going to be

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Speaker 3: there's gonna be a lot of great earnings Ruth there,

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Speaker 3: and probably a strong sequel to last year's performance.

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Speaker 5: Torsten Slock, our good friend at Apollo is out with

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Speaker 5: a note this morning thing companies with negative earnings continue

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Speaker 5: to outperform companies with positive earnings. And now this is

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Speaker 5: since Liberation Day. What does that tell you?

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Speaker 6: Here?

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Speaker 4: It seems like investors are rule and to take on

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Speaker 4: even more risk.

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Speaker 3: Yeah, look, look you have I mean, I'm going to

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Speaker 3: get back to this comment that when you have concurrence

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Speaker 3: of monetary stimulus in some form where you are in

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Speaker 3: some form of easing cycle.

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Speaker 4: We don't know how much, but.

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Speaker 3: We are cutting into four point what is it, three

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Speaker 3: percent unemployment and robust GDP and you have that combined

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Speaker 3: with the fiscal side late cycle, and you have an

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Speaker 3: unbelievable fixed asset boom measured in trillions like like four

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Speaker 3: companies are spending more than most federal governments are around

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Speaker 3: the world just on on cap backs. And then you

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Speaker 3: have to regulation, like you kind of have to be

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Speaker 3: risk one. I think you know you're waiting for those

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Speaker 3: negative earnings companies to suddenly get killed, and they probably

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Speaker 3: will at some point, but right now it's it's a

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Speaker 3: reflection of the risk set up twenty seconds.

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Speaker 2: So you're not selling in Vidio today because now it's

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Speaker 2: going on in Europe and in Davos.

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Speaker 4: No, No, I don't think so. I think.

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Speaker 3: You know, there's there's a there's a there's a lot

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Speaker 3: of uh you have to recognize, like you know, there's

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Speaker 3: a we could have a higher, more volatile equity market

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Speaker 3: and still have positive equity performance.

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Speaker 4: Like if you look at the.

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Speaker 3: Nineteen ninety eight nineteen ninety nine two thousand period, you

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Speaker 3: had great equity performance.

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Speaker 4: The Vics never got a low twenty.

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Speaker 2: Thank you, Thank you, Michael Purvis. Just fado, it's very

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Speaker 2: fortunate to da. Stay with us. More from Bloomberg Surveillance

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Speaker 2: coming up after this.

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Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live

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Speaker 1: weekday afternoons from seven to ten am Eastern Listen on Apple,

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Speaker 1: Karplay and Android Otto with the Bloomberg Business app, or

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Speaker 1: watch US live on YouTube.

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Speaker 2: See Labley's with US Global Cohead of ice Shares Fixed

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Speaker 2: Income at Lawrence Finkin company Blackrock, And I just want

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Speaker 2: to say, folks, I've got a nodding acquaintance over the

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Speaker 2: years with Klaus Schwab, And I know there's been a

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Speaker 2: huge amount of controversy about doctor Schwab. Somebody had to

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Speaker 2: come in and pick up the debris. And Larry Fink,

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Speaker 2: the bond trader from UCLA, is the one who said,

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Speaker 2: I got a Rollodex, We're gonna save this thing. And Paul,

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Speaker 2: I don't think enough can be said given the moment

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Speaker 2: of President Trump of what Larry Fink has done. Steve

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Speaker 2: labley willis, what's it like working for Larry Fink? Like

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Speaker 2: if you see him on the elevator, does he talk

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Speaker 2: to you? Oh, he's quite friendly. Actually yes, you bump

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Speaker 2: intohim on the elevator once in a while. But yeah,

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Speaker 2: I mean what he's done in Black Rocks. I mean,

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Speaker 2: how much did you bring in last year the GDP

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Speaker 2: of Greenland.

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Speaker 7: Well, so, I mean the industry had an amazing year.

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Speaker 7: So the industry took in you know, high six hundreds

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Speaker 7: in bond etf flows the United States, we were well

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Speaker 7: over four hundred of that. I shared itself took in

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Speaker 7: around one hundred and eighty billion globally of that in

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Speaker 7: fixed income ETF flows.

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Speaker 2: So yeah, it was.

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Speaker 7: It was a monster year for bond flows in general

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Speaker 7: and for ETF flows in particular. Industry is you know,

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Speaker 7: sitting well above a trillion now one point two.

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Speaker 4: Were you putting all that money?

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Speaker 2: Then?

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Speaker 5: I mean that's going to be the hardest part of job,

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Speaker 5: is where do you put all the money?

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Speaker 7: Well, I think it's we've talked about the sort of

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Speaker 7: I think cautious behavior of investors. A lot of the

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Speaker 7: money went into shortened treasury, so we had close to

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Speaker 7: forty billion in our t BOW fund esk OF, but

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Speaker 7: we also had a fair amount go into go into

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Speaker 7: our active income FUNDRIC readers fund bank.

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Speaker 2: That double us to shareman reader no.

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Speaker 7: Comment on that, but yeah, that fund doubled to around

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Speaker 7: sixteen billion last year. So the flows are pretty well

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Speaker 7: spread out. I mean, I do think investors are highly

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Speaker 7: focused on income. It shows in the flows. You have

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Speaker 7: a lot of flows going into you know, the short

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Speaker 7: end of the treasure, but a lot of income generating

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Speaker 7: assets as well.

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Speaker 5: So you know, twenty twenty five is a really good

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Speaker 5: year for fixed income high single digit ortal returns. Here

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Speaker 5: is twenty twenty six, Am I just clipping coupons?

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Speaker 4: Here? Is that kind how I should approach it?

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Speaker 7: Well, well today today might give people pause, but you know,

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Speaker 7: we've seen this movie a lot. So it's funny because

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Speaker 7: just last week, everybody who was talking about how the

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Speaker 7: ten year hasn't moved in months. I mean, if you

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Speaker 7: look at the averages four to fifteen, now we're four

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Speaker 7: to thirty, right to high four to twenty. So this

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Speaker 7: volatility comes and goes. We've seen the ten year round

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Speaker 7: trip all the way close to five, back down to

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Speaker 7: below four, and you know, here we go again. But

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Speaker 7: I think long term investors are looking through that and

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Speaker 7: just trying to clip coupons.

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Speaker 2: I mean, I mean a Secretary Bessett with the Marie

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Speaker 2: Bartiromo I'm going to hack tomorrow because Maria is wearing

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Speaker 2: like this killer hat and Topos had. Maria's with the

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Speaker 2: secretary and you know he's talking about equivalency to Liberation

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Speaker 2: Day because there the three of us at least that

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Speaker 2: we remember what our two one case did Liberation Day.

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Speaker 2: How do you buy the dip in buns? I mean,

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Speaker 2: I get it out of buy in the equity market,

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Speaker 2: if yield up price down. What's the process to buy

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Speaker 2: the Steve Lakeley dip. Well, let's let's look at it

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Speaker 2: two ways. Right, what's driving today? You have the JGB shock,

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Speaker 2: that's part of it. You have concern in general over

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Speaker 2: us term premium. If you look at term premium, it's

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Speaker 2: it's kind of.

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Speaker 7: Yeah, it's higher, but it's been higher than this, right,

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Speaker 7: so it's been bouncing around a lot. I do think

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Speaker 7: there is something structurally long term. We've been cautious on

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Speaker 7: the long end. What we've been advocating forever is, you know,

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Speaker 7: stay sort of in the belly look at you know,

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Speaker 7: really just trying to generate a come while while mitigating duration.

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Speaker 7: You can't eliminate it, but you have to go out

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Speaker 7: on the curve a little bit. So I think just

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Speaker 7: sort of staying in that intermediate part of the curve. Yeah,

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Speaker 7: it can be a rough ride, you know, for part

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Speaker 7: of it, but overall, if you look at the last year,

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Speaker 7: in the last couple of years, it's been great to

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Speaker 7: sort of just sit through that volatility and earn that income.

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Speaker 5: So talk to us, it's just kind of what you

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Speaker 5: think this FED is going to do this year? I

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Speaker 5: mean it I guess the market is looking for one

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Speaker 5: or two rate cuts. Is that's kind of where you

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Speaker 5: guys are.

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Speaker 7: I mean, we think if you look at how the

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Speaker 7: dynamics of the economy have played out as of late,

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Speaker 7: we think inflation is, you know, yesterday's problem and labor's

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Speaker 7: today's problem. Right, So you've seen, you know, a pretty

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Speaker 7: significant slowdown in the labor growth, and so I think

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Speaker 7: that's that's sort of what the focus should be. So

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Speaker 7: the market is pricing in two cuts, it could be more.

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Speaker 7: You know, I did hear. I was listening to your

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Speaker 7: show the other day and Nana Wong was calling for

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Speaker 7: four you know, yeah.

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Speaker 2: You listen to her. Actually, Lisa, can you be sure

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Speaker 2: he gets merch on the way out? Yes? Right? What

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Speaker 2: did doctor Wong say? She was calling for four?

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Speaker 7: If my ears serving right, So you know, we're kind

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Speaker 7: of the market is pricing in two close to two

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Speaker 7: so well, so we'll see how that plays out. But

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Speaker 7: labor markets certainly is slowed. If you strip out healthcare,

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Speaker 7: it's been negative in the latter part of the year.

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Speaker 5: So fixed income, I mean, you can hold your head

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Speaker 5: high at any cocktail party these days, right, because you

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Speaker 5: guys had great returns, very strong returns in twenty twenty five.

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Speaker 5: Coupons still a nice way to play the game in

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Speaker 5: twenty twenty six. How much risk do you want to take?

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Speaker 5: How much credit is do you want to want to take?

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Speaker 7: I mean, and this is this is the part about

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Speaker 7: being diversified, right, And that sounds like a throwaway answer,

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Speaker 7: it's not because right now, you know, credit spreads are

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Speaker 7: really snug. Now we're going to have a repricing today,

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Speaker 7: but you know they were approaching very very historically tight levels.

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Speaker 7: And so what we've been seeing in best do is

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Speaker 7: by multisector right, so you're you know, the ag yes,

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Speaker 7: but also things like bank things like our new total

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Speaker 7: bond fund be TOAD and also it's something simple like

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Speaker 7: I bonds, right that define maturity concept. People are worried

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Speaker 7: about yields bouncing around. We've seen a lot of wealth

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Speaker 7: investors just by these define maturity products, write them down

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Speaker 7: and let them mature.

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Speaker 2: What does Blackbrok say about international bonds? Damien Sasaar is

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Speaker 2: taking all of January off because you know they did

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Speaker 2: so well as I got the equity market in Japan

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Speaker 2: up sixty five percent in US dollars since the Liberation

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Speaker 2: Day festivities. Do you do back to back in bonds

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Speaker 2: and get that kind of return?

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Speaker 7: So as far as international goes, we like hard currency

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Speaker 7: em relative to local I mean last year local.

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Speaker 2: What does that mean? It's so dollar, dollar.

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Speaker 7: Or euro denominated, right, so you're taking the effect you want.

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Speaker 2: A Malaysia paper that's in euro or dollars.

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Speaker 7: I think it was overall, I mean yeah, local currency

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Speaker 7: returned quite a bit last year, but you know, I

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Speaker 7: think hard currency overall takes out some of that FX

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Speaker 7: volatility in general. Though, are you going to rinse and repeat?

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Speaker 2: I mean, you don't know.

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Speaker 7: But but this is still a very very attractive market

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Speaker 7: for fixed income where yields are sitting now, you're gonna

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Speaker 7: get yields moving around. But it's a great market for

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Speaker 7: fixed income.

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Speaker 5: Global co head of I Shares Fixed Income, it's gotta

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Speaker 5: be the easiest job in the world.

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00:19:20,359 --> 00:19:24,320
Speaker 4: The mice is flowing issues. I me go on, I mean,

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Speaker 4: talk to us about just the ETF.

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Speaker 5: Where do you think we are in that kind of evolution?

404
00:19:29,800 --> 00:19:31,600
Speaker 5: Because Tom and I grew up with a mutual FUNDEH

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Speaker 5: in Boston, going to the Boston four times a year

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Speaker 5: to see our our mutual fund clients.

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Speaker 2: Do you have lunches with ETFs? Do you have lunch

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Speaker 2: meetings like like mutual funds. I mean, yeah, we have

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Speaker 2: lunch meetings. Okay, so's to.

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Speaker 5: Say, but early stages or we come very early.

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Speaker 7: I mean, so we're you know, if you look at

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Speaker 7: the global bomb market, we're less than three percent really right,

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00:19:57,080 --> 00:20:00,119
Speaker 7: so you know we are far behind the curve in

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Speaker 7: terms of equity ets versus equity markets. Bon ETFs still

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Speaker 7: on a long, long runway really, so I think we're

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Speaker 7: just now, you know, we're an early innings. It's a

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Speaker 7: fast river, but it's early innings.

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Speaker 2: Steve la thanks so much for Blackrock saying wow, seriously,

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Speaker 2: thank you for the comments on leader Fink. As they

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Speaker 2: would say in China, Steve lape is with Blackrock, Oh

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Speaker 2: it was just wasn't the same with a Lexus. I mean,

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Speaker 2: I'm sorry. Eighty to fifty Duke Stanford, seventy one to

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Speaker 2: fifty six, Duke California SMU was close, eighty two to

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Speaker 2: seventy five, and now Wake Forest and you know, I mean,

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Speaker 2: is it like the best season ever for the Dukes?

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Speaker 5: Yeah, until we get to the March, and then you

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Speaker 5: need experience and we don't have experience because we have.

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Speaker 2: Everybody's seventeen. It's like seventeen.

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Speaker 5: So it happens every single year. We win the we

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Speaker 5: win the recruiting wars, we win the regular season. When

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Speaker 5: it comes to March, it's a tough time. So maybe

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Speaker 5: we'll see all these guys play out.

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Speaker 2: I feel the same way about the Montreal Canadian.

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Speaker 5: Yes, No Wagen, Madison Square Garden Yesterday phenomenal.

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Speaker 2: Oh listen, Lisa, can we get Sweety's life? Stay with us.

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Speaker 2: More from Bloomberg Surveillance coming up after this.

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Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us Live

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00:21:25,680 --> 00:21:28,840
Speaker 1: weekday afternoons from seven to ten am Eastern. Listen on

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00:21:28,920 --> 00:21:32,600
Speaker 1: Applecarplay and Android Otto with the Bloomberg Business app, or

440
00:21:32,760 --> 00:21:34,240
Speaker 1: watch us live on YouTube.

441
00:21:34,440 --> 00:21:39,160
Speaker 2: Michael Darta he's just outsider. I can't say enough about

442
00:21:39,160 --> 00:21:44,600
Speaker 2: his use of economics folded into market analysis. He's managing director,

443
00:21:44,640 --> 00:21:47,280
Speaker 2: Chief Economist Roth and we're thrilled he can join us

444
00:21:47,960 --> 00:21:51,359
Speaker 2: this morning. Michael, you and I go way way back,

445
00:21:51,880 --> 00:21:55,480
Speaker 2: and I would suggest this geopolitics has a different color

446
00:21:55,560 --> 00:21:58,879
Speaker 2: to it. The tone of mister McCraw at the meetings

447
00:21:58,920 --> 00:22:03,359
Speaker 2: of the World Economic or the tone of stub of Finland.

448
00:22:03,560 --> 00:22:08,280
Speaker 2: How do you synthesize that in your economic and market analysis?

449
00:22:09,720 --> 00:22:12,640
Speaker 8: Well, Tom, I mean it's really difficult to look at

450
00:22:12,840 --> 00:22:18,520
Speaker 8: geopolitical risks and translate them directly into earning trajectories or

451
00:22:18,560 --> 00:22:22,200
Speaker 8: even you know what happens to financial markets. But it's

452
00:22:22,200 --> 00:22:25,800
Speaker 8: certainly a unique time in history, in a little bit

453
00:22:25,840 --> 00:22:29,399
Speaker 8: of a nervous time because equity market valuations in the

454
00:22:29,520 --> 00:22:33,040
Speaker 8: United States are quite high, just above a twenty two

455
00:22:33,520 --> 00:22:37,679
Speaker 8: forward multiple. That's or we started twenty twenty five and

456
00:22:37,800 --> 00:22:40,400
Speaker 8: ended twenty twenty five with quite a bit of volatility

457
00:22:40,440 --> 00:22:43,840
Speaker 8: in the spring of last year. So that's really the question.

458
00:22:43,920 --> 00:22:47,399
Speaker 8: I mean, all of these moving parts, whether you're domestic

459
00:22:47,480 --> 00:22:52,879
Speaker 8: disturbances or international ones with high expectations, how does this

460
00:22:52,960 --> 00:22:55,919
Speaker 8: all come together? As twenty twenty six unfolds.

461
00:22:56,000 --> 00:22:59,840
Speaker 2: I essentially worked all weekend folks. A major shout out

462
00:23:00,000 --> 00:23:04,800
Speaker 2: William Rhodes in Project Syndicate writing a blistering essay on

463
00:23:04,840 --> 00:23:07,920
Speaker 2: the moment at hand. Paul, he's ninety one years old.

464
00:23:08,000 --> 00:23:12,399
Speaker 2: Now we saycod Marty Brown, Universities, Bill Rhodes, Michael Darta,

465
00:23:12,480 --> 00:23:15,960
Speaker 2: you got the single sentence of the weekend No. Seven

466
00:23:16,000 --> 00:23:19,760
Speaker 2: to eight percent nominal GDP growth is not a good

467
00:23:19,800 --> 00:23:22,520
Speaker 2: idea for the next FED chair. Why does the next

468
00:23:22,560 --> 00:23:25,680
Speaker 2: FED chair not want China GDP?

469
00:23:27,520 --> 00:23:31,439
Speaker 8: Well, Tom, you know, straightforwardly, because we don't have a

470
00:23:31,480 --> 00:23:35,080
Speaker 8: supply side of the US economy that can grow five

471
00:23:35,400 --> 00:23:39,159
Speaker 8: or six percent. And so if you have total aggregate demand,

472
00:23:39,200 --> 00:23:43,600
Speaker 8: which is what NGDP is, total nominal spending growing at

473
00:23:43,880 --> 00:23:47,280
Speaker 8: nearly double digit rates, you're going to have very high inflation.

474
00:23:47,520 --> 00:23:49,360
Speaker 8: And we just went through that in you know, two

475
00:23:49,400 --> 00:23:54,240
Speaker 8: thousand and twenty one, twenty two, and the American people

476
00:23:54,720 --> 00:23:58,000
Speaker 8: hated it. So I'm not sure if that was a

477
00:23:58,040 --> 00:24:00,960
Speaker 8: you know, a bit of a misqueue or misstatement on

478
00:24:01,000 --> 00:24:04,520
Speaker 8: the part of the Treasury secretary. But those kinds of

479
00:24:04,600 --> 00:24:08,439
Speaker 8: numbers would be highly inflationary in my opinion. Even if

480
00:24:08,440 --> 00:24:12,479
Speaker 8: you're optimistic on AI and productivity. You know, we are

481
00:24:12,480 --> 00:24:15,719
Speaker 8: getting a little bit better productivity growth in this cycle

482
00:24:15,800 --> 00:24:18,640
Speaker 8: versus the last just over two percent versus a one

483
00:24:18,640 --> 00:24:22,840
Speaker 8: point six percent average in the last business cycle, but

484
00:24:23,280 --> 00:24:26,720
Speaker 8: you know, a seven to eight percent nominal growth handle

485
00:24:26,840 --> 00:24:29,680
Speaker 8: on top of that, you know, take two percentage points

486
00:24:29,720 --> 00:24:32,480
Speaker 8: away from seven to eight and that's your trend inflation rate.

487
00:24:32,560 --> 00:24:35,840
Speaker 8: That's way way, way too high. It's just preposterous.

488
00:24:35,880 --> 00:24:39,440
Speaker 5: Frankly, Hey, Michael, we're once again here today dealing with

489
00:24:39,920 --> 00:24:43,800
Speaker 5: a frequent discussion point, which is tariffs, this time maybe

490
00:24:43,800 --> 00:24:46,040
Speaker 5: with our friends over there in Europe here. How do

491
00:24:46,080 --> 00:24:48,359
Speaker 5: you kind of frame out some of that given our

492
00:24:48,440 --> 00:24:50,160
Speaker 5: experiences from April last year.

493
00:24:52,280 --> 00:24:55,680
Speaker 8: You know, it's unfortunate because this has been so chaotic

494
00:24:55,760 --> 00:24:58,600
Speaker 8: and it's creating a lot of business uncertainty. I mean,

495
00:24:58,640 --> 00:25:03,399
Speaker 8: the US economy absorbed a one hundred year tariff storm

496
00:25:03,520 --> 00:25:07,320
Speaker 8: last year brilliantly, largely because of the actions of the

497
00:25:07,320 --> 00:25:11,159
Speaker 8: Federal Reserve. They kept nominal growth almost perfectly stable, just

498
00:25:11,200 --> 00:25:14,200
Speaker 8: above five percent, So the slowdown in the real economy

499
00:25:15,240 --> 00:25:18,000
Speaker 8: was minor, but there was a fairly significant cooling in

500
00:25:18,040 --> 00:25:22,159
Speaker 8: the labor market, where private sector job growth actually was

501
00:25:22,240 --> 00:25:25,960
Speaker 8: cut in half last year. And we think that owes

502
00:25:26,080 --> 00:25:31,600
Speaker 8: largely to the uncertainty spike last spring. And you know, tariffs,

503
00:25:31,640 --> 00:25:35,080
Speaker 8: if they're chaotically applied and you have all this uncertainty,

504
00:25:35,200 --> 00:25:39,520
Speaker 8: and they're legal questions about this as well.

505
00:25:39,720 --> 00:25:41,359
Speaker 2: Just not helpful.

506
00:25:41,600 --> 00:25:44,480
Speaker 8: I mean, the US economy has really been brilliant in

507
00:25:44,520 --> 00:25:49,440
Speaker 8: coming through these shocks. Fed chair poll after obviously stumbling

508
00:25:49,720 --> 00:25:52,679
Speaker 8: in twenty twenty one and twenty two with n GDP

509
00:25:52,880 --> 00:25:54,879
Speaker 8: that was way too fast. I mean, he's had a

510
00:25:55,160 --> 00:26:00,440
Speaker 8: brilliant save here and has guided this soft landing incredibly. Really,

511
00:26:00,440 --> 00:26:04,399
Speaker 8: it's a historic situation we've never seen before. Maybe you know,

512
00:26:04,440 --> 00:26:07,040
Speaker 8: the closest parallel would be the Treasury Fed a court

513
00:26:07,080 --> 00:26:11,000
Speaker 8: of the early fifties where we came off of high inflation,

514
00:26:11,160 --> 00:26:14,240
Speaker 8: high nominal growth and into a period of stability. But

515
00:26:14,440 --> 00:26:18,120
Speaker 8: that happened under quite different circumstances. So the Fed has

516
00:26:18,240 --> 00:26:22,280
Speaker 8: been brilliant here with a lot of shocks and perturbations

517
00:26:22,280 --> 00:26:25,320
Speaker 8: and the supply side of the economy in particular. And

518
00:26:25,440 --> 00:26:30,440
Speaker 8: what thanks does he get? Justice Department Criminal investigation? I

519
00:26:30,520 --> 00:26:31,680
Speaker 8: mean it's shameful.

520
00:26:32,880 --> 00:26:35,720
Speaker 4: So where do we go here, Michael?

521
00:26:35,760 --> 00:26:37,639
Speaker 5: I mean, if you're the Fed here, I mean the data,

522
00:26:37,920 --> 00:26:39,720
Speaker 5: you can make an argument that they should just sit

523
00:26:39,800 --> 00:26:42,679
Speaker 5: pad here. But the market's pricing in maybe two rate

524
00:26:42,720 --> 00:26:43,320
Speaker 5: cuts this year.

525
00:26:44,680 --> 00:26:47,480
Speaker 8: Yeah, Paul, great point. I do think the Fed is

526
00:26:47,720 --> 00:26:50,920
Speaker 8: on hold here until further Notice what does that mean?

527
00:26:51,480 --> 00:26:53,560
Speaker 2: If we look at when the Fed.

528
00:26:53,400 --> 00:26:56,200
Speaker 8: Was cutting rates in twenty twenty four and twenty twenty five,

529
00:26:56,320 --> 00:27:00,600
Speaker 8: those cuts happened after the unemployment rate started to move

530
00:27:01,040 --> 00:27:05,280
Speaker 8: upward in a persistent way. And you know, just recently

531
00:27:05,320 --> 00:27:08,120
Speaker 8: we had some more stable numbers for the unemployment rate.

532
00:27:08,160 --> 00:27:12,560
Speaker 8: It did rise modestly last year, and so I think

533
00:27:12,560 --> 00:27:15,480
Speaker 8: they're going to be looking really closely at labor market.

534
00:27:15,640 --> 00:27:18,560
Speaker 8: Slack is a proxy for whether the economies are growing

535
00:27:18,560 --> 00:27:21,040
Speaker 8: above or below trend. So if we if we kind

536
00:27:21,040 --> 00:27:23,800
Speaker 8: of just flatline here with the unemployment rate, they're going

537
00:27:23,840 --> 00:27:25,040
Speaker 8: to be on hold.

538
00:27:25,440 --> 00:27:28,120
Speaker 2: Margaret, doctor bro, thank you so much. Stay with us.

539
00:27:28,359 --> 00:27:31,560
Speaker 2: More from Bloomberg Surveillance coming up after this.

540
00:27:38,840 --> 00:27:42,400
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live

541
00:27:42,480 --> 00:27:45,639
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on

542
00:27:45,720 --> 00:27:49,399
Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or

543
00:27:49,520 --> 00:27:50,919
Speaker 1: watch us live on YouTube.

544
00:27:51,080 --> 00:27:53,240
Speaker 2: Lisa, you know Paul was sitting there at the bunker.

545
00:27:53,240 --> 00:27:56,200
Speaker 2: He's got the rum punch rocket at ten am and

546
00:27:56,359 --> 00:27:58,480
Speaker 2: he's going, is there a time change with a ruba

547
00:27:58,680 --> 00:28:03,000
Speaker 2: it's aw ahead an hour ahead? Yes, how confusing? Exactly,

548
00:28:03,040 --> 00:28:05,280
Speaker 2: And you know he's like, I miss newspapers.

549
00:28:05,480 --> 00:28:07,240
Speaker 4: Yes, what happened?

550
00:28:07,280 --> 00:28:10,800
Speaker 2: Please say the newspapers? You got it? Okay, So here

551
00:28:10,800 --> 00:28:11,040
Speaker 2: you go.

552
00:28:11,160 --> 00:28:13,000
Speaker 9: Your daily does So this is a look into the

553
00:28:13,080 --> 00:28:15,680
Speaker 9: labor market for top business school grads.

554
00:28:15,680 --> 00:28:16,760
Speaker 4: This is in the Wall Street.

555
00:28:16,560 --> 00:28:19,800
Speaker 9: Journal, and they say they're having a tough time landing jobs,

556
00:28:19,960 --> 00:28:23,840
Speaker 9: even considering taking pay cuts. They're saying it's taking the

557
00:28:23,960 --> 00:28:27,679
Speaker 9: months to land except offers. There were some rebounds for

558
00:28:27,720 --> 00:28:29,960
Speaker 9: some of them elite programs like Harvard and Columbia, but

559
00:28:30,080 --> 00:28:32,119
Speaker 9: hiring it a lot of still those top tier business

560
00:28:32,119 --> 00:28:36,200
Speaker 9: schools still below pre pandemic levels. They gave an example

561
00:28:36,240 --> 00:28:39,000
Speaker 9: like Georgetown University School of Business. Some of them still

562
00:28:39,000 --> 00:28:42,280
Speaker 9: looking for work three months after graduation. It was up

563
00:28:42,280 --> 00:28:44,880
Speaker 9: about sixteen percent from the year before, So more of

564
00:28:44,920 --> 00:28:49,280
Speaker 9: them having a tough time finding a job. The reason why, well,

565
00:28:49,840 --> 00:28:52,680
Speaker 9: Georgetown is saying basically more than half of their graduates

566
00:28:52,720 --> 00:28:56,120
Speaker 9: were international students. So visa's can be an issue. But

567
00:28:56,160 --> 00:28:58,440
Speaker 9: the Washington DC labor market it was flooded. You had

568
00:28:58,480 --> 00:29:00,600
Speaker 9: a lot of federal cuts. So they're having tough time

569
00:29:00,680 --> 00:29:03,240
Speaker 9: finding jobs because so many more people looking for jobs.

570
00:29:03,360 --> 00:29:07,000
Speaker 9: AI also an issue. They're competing against candidates who were

571
00:29:07,040 --> 00:29:09,880
Speaker 9: laid off, like from that exact position. And yeah, there's

572
00:29:09,880 --> 00:29:11,040
Speaker 9: summer changing career paths.

573
00:29:11,040 --> 00:29:13,800
Speaker 5: They're looking for pay cuts, you know, I.

574
00:29:13,760 --> 00:29:16,560
Speaker 2: Look at this and I guess it's cyclical, like there's

575
00:29:16,600 --> 00:29:19,520
Speaker 2: just times where it ebbs. But you wonder, Paul, is

576
00:29:19,560 --> 00:29:20,400
Speaker 2: this time different?

577
00:29:20,800 --> 00:29:23,760
Speaker 5: Is this like just what's happened in Having sat on

578
00:29:23,280 --> 00:29:25,840
Speaker 5: the board of the Duke Business School for twelve years,

579
00:29:26,000 --> 00:29:28,320
Speaker 5: the business school is changing big time. If you're not

580
00:29:28,360 --> 00:29:31,479
Speaker 5: a top top program, you're really struggling. So a lot

581
00:29:31,520 --> 00:29:34,120
Speaker 5: of school's major schools like Wake Forest have shut down

582
00:29:34,160 --> 00:29:37,440
Speaker 5: their daytime programs in general here, and there's lots of

583
00:29:38,240 --> 00:29:41,880
Speaker 5: one year programs that are supplanting the NBA. So it's

584
00:29:41,960 --> 00:29:44,480
Speaker 5: tough out there because again, the economy has generally been

585
00:29:44,600 --> 00:29:46,840
Speaker 5: pretty strong and people have jobs and they don't want

586
00:29:46,840 --> 00:29:47,120
Speaker 5: to stand.

587
00:29:47,200 --> 00:29:49,360
Speaker 9: Yeah, they're saying they're trying like they're trying to increase

588
00:29:49,440 --> 00:29:52,200
Speaker 9: networking efforts, but also train them in AI too, yep,

589
00:29:52,280 --> 00:29:53,200
Speaker 9: before they graduate.

590
00:29:53,640 --> 00:29:53,960
Speaker 2: Next.

591
00:29:54,160 --> 00:29:55,719
Speaker 9: Okay, this is interesting.

592
00:29:55,760 --> 00:29:56,000
Speaker 5: Okay.

593
00:29:56,040 --> 00:29:59,000
Speaker 9: So there's an Italian bank bank that is breaking the mold.

594
00:29:59,040 --> 00:30:02,440
Speaker 9: It's called Bank up Almost. It's located near the Naples waterfront.

595
00:30:02,880 --> 00:30:06,240
Speaker 9: It makes about three million years a year from training trading.

596
00:30:06,280 --> 00:30:08,040
Speaker 9: It's just a little fraction of the billions that the

597
00:30:08,040 --> 00:30:11,360
Speaker 9: big you know, trading houses earn, but it's eight traders.

598
00:30:11,640 --> 00:30:14,240
Speaker 9: They match buyers and sellers in fifty countries. The biggest

599
00:30:14,240 --> 00:30:17,760
Speaker 9: difference is that all of them are women. Yes, it

600
00:30:17,880 --> 00:30:20,800
Speaker 9: is a rarety in the business. Okay, the bank says

601
00:30:20,840 --> 00:30:23,320
Speaker 9: it's a coincidence. It has a large air.

602
00:30:23,560 --> 00:30:28,400
Speaker 2: Eight women, a coincidence, it's not so. The CEO is

603
00:30:28,440 --> 00:30:28,840
Speaker 2: a woman.

604
00:30:29,280 --> 00:30:32,120
Speaker 9: Nineteen of the bank's thirty employees are women. To on

605
00:30:32,160 --> 00:30:34,320
Speaker 9: top of it, and the traders say they created a

606
00:30:34,320 --> 00:30:37,080
Speaker 9: culture that is less combative and more supportive.

607
00:30:37,320 --> 00:30:41,640
Speaker 2: Here we go, Sure you're back, so great? Yeah, well, Alexis,

608
00:30:42,080 --> 00:30:45,080
Speaker 2: there's a point, Paul, when you weren't here, Alexis, I

609
00:30:45,120 --> 00:30:47,200
Speaker 2: had to shut down the show because the girl talked.

610
00:30:47,840 --> 00:30:50,640
Speaker 4: I mean, Alexis, God out, there's too much.

611
00:30:51,680 --> 00:30:55,320
Speaker 2: So what's your observation that these eight traders are just

612
00:30:55,520 --> 00:30:56,080
Speaker 2: killing it?

613
00:30:56,200 --> 00:30:58,719
Speaker 9: They are killing it and their hope. I mean maybe

614
00:30:58,760 --> 00:31:00,720
Speaker 9: that will kind of set a precedent, who knows. But

615
00:31:00,800 --> 00:31:03,600
Speaker 9: it's just something that's different out there that that you're

616
00:31:03,640 --> 00:31:07,760
Speaker 9: not seeing. So we'll see what for this Okay in Naples? Okay,

617
00:31:07,800 --> 00:31:10,080
Speaker 9: this one? You know the sphere in Las Vegas, right, Yes,

618
00:31:10,080 --> 00:31:11,920
Speaker 9: everybody loves it. I don't know if you've bet you've been.

619
00:31:12,760 --> 00:31:16,160
Speaker 5: I think the ticket ticket ended up being fraudulent, as

620
00:31:16,360 --> 00:31:17,600
Speaker 5: the whole bad.

621
00:31:17,360 --> 00:31:19,000
Speaker 4: Story, bad story.

622
00:31:19,120 --> 00:31:22,080
Speaker 9: There's like a minisephere, so there might be a minisphere

623
00:31:22,120 --> 00:31:25,400
Speaker 9: by the National Harbor in Maryland. Okay, so it's many

624
00:31:25,520 --> 00:31:28,840
Speaker 9: because about six thousand seats compared with the sphere that's

625
00:31:28,920 --> 00:31:31,880
Speaker 9: eighteen thousand, six hundred. But it's going to have you know,

626
00:31:31,920 --> 00:31:35,400
Speaker 9: the LED displays, the special effects, and it's jobs. It's

627
00:31:35,440 --> 00:31:38,120
Speaker 9: going to create about twenty five hundred jobs or in construction.

628
00:31:38,160 --> 00:31:41,600
Speaker 9: That's according to Governor Wes Moore, four seven hundred and

629
00:31:41,600 --> 00:31:45,400
Speaker 9: fifty jobs once it starts, millions in additional revenue in

630
00:31:45,440 --> 00:31:46,360
Speaker 9: the county and the state.

631
00:31:46,680 --> 00:31:48,360
Speaker 4: This is going to be right where we go all

632
00:31:48,400 --> 00:31:51,000
Speaker 4: the time, the National Harbor. Yes, yes, Yes, that's where.

633
00:31:50,880 --> 00:31:53,000
Speaker 5: We went for our various conferences down there.

634
00:31:53,120 --> 00:31:53,360
Speaker 4: Yeah.

635
00:31:53,400 --> 00:31:54,960
Speaker 9: And it's a big, you know, a big place. There's

636
00:31:54,960 --> 00:31:57,520
Speaker 9: a lot of entertainment, you know, places and restaurants that

637
00:31:57,640 --> 00:32:00,400
Speaker 9: you know, it's jam packed over there. But you know,

638
00:32:00,480 --> 00:32:02,880
Speaker 9: we'll see I mean there's some you know, people are saying, oh,

639
00:32:02,880 --> 00:32:04,640
Speaker 9: we don't need it in the area because you know,

640
00:32:04,720 --> 00:32:07,080
Speaker 9: it generates all these lights and traffic and all that.

641
00:32:07,120 --> 00:32:09,520
Speaker 2: But it could be a boost.

642
00:32:11,040 --> 00:32:15,840
Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify,

643
00:32:15,960 --> 00:32:20,240
Speaker 1: and anywhere else you get your podcasts. Listen live each weekday,

644
00:32:20,400 --> 00:32:23,840
Speaker 1: seven to ten am Eastern on Bloomberg dot com, the

645
00:32:23,920 --> 00:32:27,960
Speaker 1: iHeartRadio app tune In, and the Bloomberg Business app. You

646
00:32:28,000 --> 00:32:31,360
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647
00:32:31,560 --> 00:32:33,280
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