1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,680 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amrie Hordernt. Join us each day 4 00:00:18,760 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,960 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,319 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:37,320 Speaker 2: Terminal and the Bloomberg Business app in Lincoln of bemo 10 00:00:37,440 --> 00:00:39,640 Speaker 2: Right in the following, we're encouraged by the modest bid 11 00:00:39,680 --> 00:00:42,919 Speaker 2: for treasuries. This does trigger our concern that investors are 12 00:00:42,960 --> 00:00:45,800 Speaker 2: looking for a more dubvish CUD than Powell is going 13 00:00:45,840 --> 00:00:48,320 Speaker 2: to deliver. On Wednesday, he joins us now for more 14 00:00:48,400 --> 00:00:50,879 Speaker 2: in good morning morning, Happy to be here, Great to 15 00:00:50,920 --> 00:00:52,360 Speaker 2: catch up with you. Let's talk about the bond market 16 00:00:52,400 --> 00:00:55,360 Speaker 2: running so far this year, our performing the bond market 17 00:00:55,360 --> 00:00:58,360 Speaker 2: bid has returned to treasuries. Let's start with why. What's 18 00:00:58,440 --> 00:01:00,080 Speaker 2: driving that move for you? So? 19 00:01:00,120 --> 00:01:02,880 Speaker 3: I think there are two main factors. The first is 20 00:01:03,240 --> 00:01:06,039 Speaker 3: we got through the period of being concerned about a 21 00:01:06,080 --> 00:01:08,520 Speaker 3: buyer strike in treasuries. Now we know that there's the 22 00:01:08,600 --> 00:01:10,320 Speaker 3: man at the auction. Now we know there's plenty of 23 00:01:10,319 --> 00:01:13,760 Speaker 3: demand in the secondary market. The second major issue is 24 00:01:13,800 --> 00:01:17,759 Speaker 3: that the period for caref passed through to really move 25 00:01:17,800 --> 00:01:21,479 Speaker 3: the inflation complex has largely passed. Now. That doesn't mean 26 00:01:21,520 --> 00:01:24,560 Speaker 3: that there won't be upward pressure on goods inflation as 27 00:01:24,600 --> 00:01:27,440 Speaker 3: a result of the trade war, but because it wasn't 28 00:01:27,520 --> 00:01:30,160 Speaker 3: condensed into a three month period and is going to 29 00:01:30,200 --> 00:01:33,800 Speaker 3: be spread out over twelve months maybe longer, that means 30 00:01:33,800 --> 00:01:36,280 Speaker 3: that the market can move on to trading. What's next, 31 00:01:36,280 --> 00:01:38,440 Speaker 3: and what's next is the resumption of normalization. 32 00:01:38,840 --> 00:01:41,120 Speaker 1: Do you think that it's a paradox to see both 33 00:01:41,120 --> 00:01:43,160 Speaker 1: a rally and the bond market and a rally in 34 00:01:43,280 --> 00:01:46,760 Speaker 1: risk assets that seem to be really hedged on this 35 00:01:46,840 --> 00:01:48,440 Speaker 1: idea of a reacceleration and growth. 36 00:01:49,040 --> 00:01:51,360 Speaker 3: So I have been very surprised by the resilience of 37 00:01:51,400 --> 00:01:53,480 Speaker 3: the equity market and the fact that we continue to 38 00:01:53,520 --> 00:01:57,400 Speaker 3: move higher and higher and set new records every day. However, 39 00:01:57,640 --> 00:02:00,560 Speaker 3: if we put it in the context of a monetary 40 00:02:00,600 --> 00:02:04,320 Speaker 3: policy adjustment lower that is still holding out hopes for 41 00:02:04,360 --> 00:02:08,120 Speaker 3: a soft landing I think that higher equity evaluations make 42 00:02:08,240 --> 00:02:10,880 Speaker 3: sense in that context. It's not until we get a 43 00:02:11,120 --> 00:02:13,760 Speaker 3: bigger spike in the unemployment rate or a slowdown on 44 00:02:13,800 --> 00:02:16,720 Speaker 3: the consumption side that we would really start a conversation 45 00:02:16,760 --> 00:02:19,440 Speaker 3: about a recession. And barring that, as long as the 46 00:02:19,480 --> 00:02:21,840 Speaker 3: FED is in motion towards lower rates, I don't think 47 00:02:21,880 --> 00:02:22,679 Speaker 3: there's a reason to sell. 48 00:02:22,840 --> 00:02:25,040 Speaker 1: Is there a trigger point in terms of ten year 49 00:02:25,160 --> 00:02:28,320 Speaker 1: yields that signals to you that we really are seeing weakness? 50 00:02:28,360 --> 00:02:31,560 Speaker 1: Bad news is bad news versus just simply people getting 51 00:02:31,600 --> 00:02:34,800 Speaker 1: stomped out of their short not long term treasury positions 52 00:02:34,840 --> 00:02:36,280 Speaker 1: and being forced to buy. 53 00:02:37,080 --> 00:02:40,320 Speaker 3: I think that at this stage, given how positive term 54 00:02:40,360 --> 00:02:43,880 Speaker 3: premium is, particularly further out the curve, that we would 55 00:02:44,000 --> 00:02:47,080 Speaker 3: need to see ten year yields below three seventy five 56 00:02:47,240 --> 00:02:50,560 Speaker 3: or even three sixty five before I would characterize that 57 00:02:50,720 --> 00:02:54,119 Speaker 3: as anything more than just going back to the prior range. 58 00:02:54,240 --> 00:02:56,560 Speaker 3: So we could drift lower in rates just through the 59 00:02:56,560 --> 00:02:58,040 Speaker 3: process of normalization. 60 00:02:58,320 --> 00:02:59,840 Speaker 2: When we quite to you, we toallked about the risk 61 00:03:00,280 --> 00:03:02,720 Speaker 2: into Wednesday, just a lamporight on that what is the 62 00:03:02,840 --> 00:03:04,960 Speaker 2: risk coming into tomorrow's decision? 63 00:03:05,560 --> 00:03:08,840 Speaker 3: So the market is poised for a very douvish takeaway 64 00:03:08,880 --> 00:03:12,480 Speaker 3: from Powell. But the reality is if he goes twenty five, 65 00:03:12,919 --> 00:03:16,560 Speaker 3: that means that we're still restrictive, we're slightly less restrictive 66 00:03:16,560 --> 00:03:20,120 Speaker 3: than we have been, and he will justify continuing to 67 00:03:20,200 --> 00:03:23,600 Speaker 3: remain somewhat restrictive in all the uncertainties. And so if 68 00:03:23,639 --> 00:03:27,240 Speaker 3: the takeaway is that we're not starting twenty five bases 69 00:03:27,240 --> 00:03:30,240 Speaker 3: points per meeting and instead it will be meeting by meeting, 70 00:03:30,400 --> 00:03:31,600 Speaker 3: I think the market sells off. 71 00:03:31,720 --> 00:03:32,040 Speaker 2: How much? 72 00:03:32,040 --> 00:03:34,680 Speaker 3: Why will you put on the debt plot? The market 73 00:03:34,720 --> 00:03:36,960 Speaker 3: loves to trade it and it gets revised all the time. 74 00:03:37,120 --> 00:03:40,120 Speaker 3: So I'm cautious about assuming that that gets realized. 75 00:03:40,400 --> 00:03:42,320 Speaker 1: Do you think that markets have really grappled with the 76 00:03:42,360 --> 00:03:44,400 Speaker 1: idea of FED independence or have they just shrugged it 77 00:03:44,440 --> 00:03:45,320 Speaker 1: off and say. 78 00:03:45,160 --> 00:03:46,040 Speaker 4: What does that mean? 79 00:03:46,280 --> 00:03:49,200 Speaker 1: How can we really even know? And ultimately, whoever's on 80 00:03:49,240 --> 00:03:51,640 Speaker 1: the FED board, we'll do the right thing for the 81 00:03:51,680 --> 00:03:53,720 Speaker 1: economy at a given time, Right, So what's the sort 82 00:03:53,720 --> 00:03:56,440 Speaker 1: of pendulum there for when that starts to matter again? 83 00:03:57,320 --> 00:04:00,960 Speaker 3: So if the FED didn't have the justify cation of 84 00:04:01,520 --> 00:04:05,120 Speaker 3: slower payrolls growth and the bingchmark revisions lower, I think 85 00:04:05,240 --> 00:04:08,280 Speaker 3: we would still be having a conversation about FED independence. 86 00:04:08,440 --> 00:04:10,560 Speaker 3: But the fact of the matter is the data has 87 00:04:10,800 --> 00:04:14,040 Speaker 3: caught up with the pressure that was coming from the administration, 88 00:04:14,400 --> 00:04:17,920 Speaker 3: and so FED independence can be preserved while still cutting rates. 89 00:04:17,960 --> 00:04:19,960 Speaker 1: So we're about thirty six minutes away from the retail 90 00:04:20,000 --> 00:04:23,120 Speaker 1: sales figure that we get out from the United States 91 00:04:23,200 --> 00:04:24,719 Speaker 1: and a real question of how to read this right? 92 00:04:24,800 --> 00:04:27,160 Speaker 1: What are you looking for to indicate whether this builds 93 00:04:27,240 --> 00:04:30,240 Speaker 1: unsoft payrolls data or whether this kind of flies in 94 00:04:30,279 --> 00:04:31,800 Speaker 1: the face of that and points to a lot of 95 00:04:31,800 --> 00:04:32,919 Speaker 1: confidence by consumers. 96 00:04:33,480 --> 00:04:36,160 Speaker 3: Well, from a GDP perspective, we look at what's called 97 00:04:36,160 --> 00:04:39,520 Speaker 3: the control group, with which I mean which backs out 98 00:04:39,560 --> 00:04:42,480 Speaker 3: all the components that don't flow through to the GDP 99 00:04:43,080 --> 00:04:45,120 Speaker 3: consumption figures, and so that'll be the key. 100 00:04:45,520 --> 00:04:47,120 Speaker 4: And if it is zero. 101 00:04:46,960 --> 00:04:49,479 Speaker 3: Point five point six, I think that that's going to 102 00:04:49,480 --> 00:04:52,560 Speaker 3: be a strong showing for a month in which we 103 00:04:52,640 --> 00:04:54,320 Speaker 3: saw weaker payrolls growth. 104 00:04:54,560 --> 00:04:56,160 Speaker 2: There's another thanks to point and that makes us wow 105 00:04:56,200 --> 00:04:59,360 Speaker 2: this morning that one't get as much attention impul prices. 106 00:05:00,040 --> 00:05:02,520 Speaker 2: Important is that as an input to gauge who's paying 107 00:05:02,520 --> 00:05:04,800 Speaker 2: the tariffs right now and who isn't. 108 00:05:05,160 --> 00:05:08,960 Speaker 3: Well interestingly, import prices at this stage are not going 109 00:05:09,000 --> 00:05:11,599 Speaker 3: to be as relevant to the tariff discussion. There will 110 00:05:11,640 --> 00:05:14,440 Speaker 3: be more relevant to put in the final estimates on 111 00:05:14,520 --> 00:05:17,800 Speaker 3: core PCE for this month or for the month of August. 112 00:05:17,800 --> 00:05:19,520 Speaker 3: And I think that that's going to be important because 113 00:05:19,520 --> 00:05:22,280 Speaker 3: we're tracking at zero point one eight, which means a 114 00:05:22,400 --> 00:05:26,400 Speaker 3: very benign print on the Fed's preferred measure of inflation. 115 00:05:28,279 --> 00:05:31,800 Speaker 2: Stay with us more Bloomberg surveillance coming up after this. 116 00:05:40,920 --> 00:05:43,479 Speaker 2: Let's stand to trade. President Trump and She holding a 117 00:05:43,480 --> 00:05:47,000 Speaker 2: call on Friday after trade talks concluded in Matrid, Spain, 118 00:05:47,120 --> 00:05:49,200 Speaker 2: joining us now to discuss as the former senior White 119 00:05:49,240 --> 00:05:52,280 Speaker 2: House Trade advisor Cally Ane. Sure, Cally Anne, welcome back 120 00:05:52,279 --> 00:05:54,280 Speaker 2: to the program. So we get the phone call on 121 00:05:54,320 --> 00:05:56,880 Speaker 2: Friday between Trump and She. What are you expecting to 122 00:05:56,920 --> 00:05:57,760 Speaker 2: be the outcome of that? 123 00:05:59,200 --> 00:06:02,040 Speaker 5: Good morning, Thanks much for having me back on Well. 124 00:06:02,080 --> 00:06:05,000 Speaker 5: I think what this is is a pretty significant political 125 00:06:05,080 --> 00:06:08,200 Speaker 5: and commercial deal. Now we don't exactly know the terms. 126 00:06:08,360 --> 00:06:11,520 Speaker 5: All we know is that this involves US controlled ownership. 127 00:06:11,800 --> 00:06:14,839 Speaker 5: President Trump teased with reporters yesterday that there may be 128 00:06:14,920 --> 00:06:18,479 Speaker 5: some government ownership, either US or Chinese potentially involved in 129 00:06:18,520 --> 00:06:21,560 Speaker 5: this as well. So we could see some unique deals 130 00:06:21,680 --> 00:06:23,360 Speaker 5: kind of like what we've seen over the last few 131 00:06:23,360 --> 00:06:26,880 Speaker 5: weeks with the Trump administration and exploring US ownership and 132 00:06:27,800 --> 00:06:30,440 Speaker 5: types of investment credits. But we'll have to see what 133 00:06:30,480 --> 00:06:33,800 Speaker 5: this ultimately results in. The readout was pretty good. I'm 134 00:06:33,839 --> 00:06:34,919 Speaker 5: expecting this to move. 135 00:06:34,720 --> 00:06:35,480 Speaker 4: Forward, Kelly. 136 00:06:35,600 --> 00:06:38,240 Speaker 1: And what is a larger significance of this, given the 137 00:06:38,240 --> 00:06:41,400 Speaker 1: fact that expectations were pretty high heading into this meeting 138 00:06:41,480 --> 00:06:45,200 Speaker 1: that it wasn't just about TikTok but the broader dispute 139 00:06:45,240 --> 00:06:46,599 Speaker 1: between the US and China. 140 00:06:47,800 --> 00:06:50,440 Speaker 5: Yeah, I think that's a great question. And we certainly 141 00:06:50,440 --> 00:06:52,560 Speaker 5: had a deadline coming up this week in terms of 142 00:06:52,560 --> 00:06:55,120 Speaker 5: by dances need to divest in order to prevent the 143 00:06:55,200 --> 00:06:57,480 Speaker 5: app from being banned in the United States. That's why 144 00:06:57,520 --> 00:07:00,960 Speaker 5: the focus of this meeting was really on TikTok. But 145 00:07:01,000 --> 00:07:03,200 Speaker 5: they met for two days. Clearly they talked about a 146 00:07:03,200 --> 00:07:05,400 Speaker 5: host of other issues. So the question is, well, what 147 00:07:05,440 --> 00:07:08,560 Speaker 5: about the other six hundred and fifty billion dollars worth 148 00:07:08,560 --> 00:07:12,480 Speaker 5: of bilateral investment and trade and economic relations between the 149 00:07:12,560 --> 00:07:14,800 Speaker 5: United States and China. Where do we go from here? 150 00:07:15,200 --> 00:07:17,520 Speaker 5: And we don't know much so far. The talks have 151 00:07:17,560 --> 00:07:21,320 Speaker 5: been relatively narrow in scope. They focused on export controls 152 00:07:21,320 --> 00:07:24,360 Speaker 5: on the Chinese side for rare earth magnets. They focused 153 00:07:24,400 --> 00:07:28,560 Speaker 5: on some US export controls. Potentially we could see some 154 00:07:28,600 --> 00:07:31,360 Speaker 5: purchases announced as part of a leader level summit that 155 00:07:31,360 --> 00:07:34,200 Speaker 5: could come as soon as the APEX summit in October. 156 00:07:34,960 --> 00:07:37,400 Speaker 5: But beyond that, I think there's a lot of work 157 00:07:37,480 --> 00:07:40,160 Speaker 5: left to do in this relationship, and I don't expect 158 00:07:40,160 --> 00:07:43,680 Speaker 5: some grand Phase two style deal to emerge anytime soon. 159 00:07:43,920 --> 00:07:46,000 Speaker 1: So then, is it surprising to you that it's going 160 00:07:46,040 --> 00:07:48,120 Speaker 1: to be capped off on Friday with a phone call 161 00:07:48,160 --> 00:07:51,800 Speaker 1: between Jijinping and Donald Trump given the narrow scope of 162 00:07:51,800 --> 00:07:52,800 Speaker 1: what people are expecting. 163 00:07:53,960 --> 00:07:57,560 Speaker 5: Yeah, well, again, this is a very significant issue for 164 00:07:57,600 --> 00:08:01,440 Speaker 5: the president. He ran on keeping tik Talk alive notwithstanding 165 00:08:01,440 --> 00:08:04,320 Speaker 5: a congressional ban. This is a shit that China has 166 00:08:04,360 --> 00:08:06,520 Speaker 5: been able to hold. It's a piece of leverage that 167 00:08:06,560 --> 00:08:07,920 Speaker 5: they're now giving away. 168 00:08:08,520 --> 00:08:09,640 Speaker 3: So I think this is a. 169 00:08:09,600 --> 00:08:11,720 Speaker 5: Sign that they are saying, Okay, we are gearing up 170 00:08:11,760 --> 00:08:14,040 Speaker 5: for some leader level summit that might have some big 171 00:08:14,080 --> 00:08:17,520 Speaker 5: purchasing commitments. Maybe they'll talk about a fentanyl and some 172 00:08:17,560 --> 00:08:20,160 Speaker 5: sort of off ramp there with steps taken from China 173 00:08:20,160 --> 00:08:23,120 Speaker 5: for confidence building. But again, I don't know that China's 174 00:08:23,160 --> 00:08:26,160 Speaker 5: also interested in a broad based Phase two agreement either. 175 00:08:26,320 --> 00:08:29,560 Speaker 5: I think China's looking to stabilize the relationship, and this 176 00:08:29,680 --> 00:08:32,079 Speaker 5: goes towards that, but it doesn't fix all the things 177 00:08:32,080 --> 00:08:34,040 Speaker 5: that are wrong in the US China relationship. 178 00:08:34,160 --> 00:08:35,800 Speaker 2: And Kenny on something I was wrong about. I thought 179 00:08:35,800 --> 00:08:38,760 Speaker 2: we'd move pretty quickly back to the purchase agreement secured 180 00:08:38,800 --> 00:08:40,360 Speaker 2: in the president's first term. 181 00:08:40,640 --> 00:08:41,719 Speaker 4: What's the hold up on that? 182 00:08:43,120 --> 00:08:45,400 Speaker 5: Well, I think a lot of water has run under 183 00:08:45,400 --> 00:08:48,120 Speaker 5: the bridge between Trump one and Trump two. You had 184 00:08:48,120 --> 00:08:51,640 Speaker 5: the Biden administration who really didn't enforce any of these commitments. 185 00:08:52,080 --> 00:08:54,800 Speaker 5: And now from China's perspective, this is something that they 186 00:08:54,800 --> 00:08:56,959 Speaker 5: can give away. This is a piece of leverage. It's 187 00:08:57,200 --> 00:09:00,000 Speaker 5: that commitments they've already made. They already committed to egg purchase, 188 00:09:00,520 --> 00:09:04,120 Speaker 5: energy purchases, aircraft purchases, but they haven't really followed through 189 00:09:04,240 --> 00:09:06,800 Speaker 5: with that. So again, I'm expecting to see them to 190 00:09:06,800 --> 00:09:09,680 Speaker 5: commit to at least that, if not more, in the 191 00:09:09,720 --> 00:09:12,560 Speaker 5: coming weeks and months. But we'll really have to see 192 00:09:12,600 --> 00:09:15,160 Speaker 5: what else happens here. Again, the world has changed significantly 193 00:09:15,240 --> 00:09:17,480 Speaker 5: in the last five or six years. I just think 194 00:09:17,520 --> 00:09:19,800 Speaker 5: that the chessboard looks different well. 195 00:09:19,760 --> 00:09:22,400 Speaker 2: Let's talk about the rest of the chessboard. USMCIA has 196 00:09:22,400 --> 00:09:25,520 Speaker 2: got to be renegotiated. The Mexicans seem willing to put 197 00:09:25,520 --> 00:09:27,719 Speaker 2: the walls up to the Chinese, something we know is 198 00:09:27,760 --> 00:09:30,600 Speaker 2: going to annoy Beijing. I just wonder how the US 199 00:09:30,640 --> 00:09:32,400 Speaker 2: and China are going to figure that out in the 200 00:09:32,440 --> 00:09:34,520 Speaker 2: next year. And I just wonder if that's a recipe 201 00:09:34,520 --> 00:09:36,440 Speaker 2: already for tention further down the road. 202 00:09:37,559 --> 00:09:40,520 Speaker 5: Yeah, and this was really interesting, and I would actually 203 00:09:40,520 --> 00:09:43,520 Speaker 5: rewind back just a few days to Friday, where the 204 00:09:43,520 --> 00:09:46,760 Speaker 5: Department of Commerce put twenty three Chinese entities on its 205 00:09:46,920 --> 00:09:50,439 Speaker 5: entity list. China of course retaliated with launching its own 206 00:09:50,480 --> 00:09:54,440 Speaker 5: investigations of anti discrimination, anti dumping, and then it's finding 207 00:09:54,480 --> 00:09:57,520 Speaker 5: in the Navidia case. But what we have here is 208 00:09:57,559 --> 00:09:59,760 Speaker 5: a relationship where China and the US can still make 209 00:10:00,000 --> 00:10:03,680 Speaker 5: progress on politically significant issues like TikTok, while at the 210 00:10:03,720 --> 00:10:06,840 Speaker 5: same time defending their own interests on other areas of 211 00:10:06,880 --> 00:10:10,280 Speaker 5: the economic and national security chessboard. So when it comes 212 00:10:10,360 --> 00:10:13,080 Speaker 5: to Mexico and those tariffs that are now going to 213 00:10:13,120 --> 00:10:16,320 Speaker 5: go into effect on Chinese imports, I think we're going 214 00:10:16,360 --> 00:10:18,680 Speaker 5: to see the US asking more and more of that 215 00:10:18,760 --> 00:10:22,400 Speaker 5: of US trading partners. Now Mexico is much more reliant 216 00:10:22,440 --> 00:10:24,920 Speaker 5: on the United States than it is on China. I 217 00:10:24,920 --> 00:10:27,960 Speaker 5: don't think every country is similarly situated in the same way, 218 00:10:28,520 --> 00:10:30,920 Speaker 5: but there is this concept of changes to rules of 219 00:10:30,960 --> 00:10:33,920 Speaker 5: origin that we've talked about and the administration has teased, 220 00:10:34,200 --> 00:10:36,000 Speaker 5: and I think what that means is the US is 221 00:10:36,040 --> 00:10:38,080 Speaker 5: going to be seeking from trading partners that if you 222 00:10:38,080 --> 00:10:40,680 Speaker 5: want access to our market, you've got to limit the 223 00:10:40,760 --> 00:10:43,120 Speaker 5: Chinese content that is in the goods that are coming 224 00:10:43,120 --> 00:10:45,559 Speaker 5: into the United States. And I think to your point, 225 00:10:45,640 --> 00:10:48,280 Speaker 5: that's going to cause more friction between the US and China. 226 00:10:48,440 --> 00:10:51,079 Speaker 1: A lot of companies and economists have talked about how 227 00:10:51,080 --> 00:10:54,120 Speaker 1: peak tariff uncertainty is behind us, and that's unleashing a 228 00:10:54,160 --> 00:10:56,840 Speaker 1: lot of optimism at companies who feel like they at 229 00:10:56,920 --> 00:10:59,600 Speaker 1: least know some of the rules of the road. Do 230 00:10:59,640 --> 00:11:01,920 Speaker 1: you think that's right and that actually there's room to 231 00:11:01,960 --> 00:11:05,160 Speaker 1: de escalate further, to see even a further softening and tone, 232 00:11:05,280 --> 00:11:08,360 Speaker 1: especially ahead of next year's midterm elections. 233 00:11:09,760 --> 00:11:09,960 Speaker 3: Yeah. 234 00:11:10,080 --> 00:11:12,720 Speaker 5: My sense has been that where things are right now 235 00:11:12,760 --> 00:11:15,480 Speaker 5: between the United States and China, with which is something 236 00:11:15,600 --> 00:11:18,400 Speaker 5: like a thirty percent to fifty five percent average terif 237 00:11:18,520 --> 00:11:21,600 Speaker 5: rate depending on the good where we have talks that 238 00:11:21,640 --> 00:11:25,840 Speaker 5: are ongoing, but we're still separately taking national security and 239 00:11:25,880 --> 00:11:29,000 Speaker 5: economic measures that may discriminate against the other. I think 240 00:11:29,040 --> 00:11:31,559 Speaker 5: this is more or less the status quo, and while 241 00:11:31,600 --> 00:11:33,880 Speaker 5: the numbers may shift around one way or the other, 242 00:11:33,960 --> 00:11:37,080 Speaker 5: I think this is as stable as things get. And frankly, 243 00:11:37,559 --> 00:11:39,959 Speaker 5: I think things could go the opposite way. If a 244 00:11:40,080 --> 00:11:42,480 Speaker 5: year from now we still have China buying loads of 245 00:11:42,559 --> 00:11:45,160 Speaker 5: Russian oil, if we still have China looking to be 246 00:11:45,280 --> 00:11:47,839 Speaker 5: slow walking some of these discussions, if they're cutting off 247 00:11:47,880 --> 00:11:51,400 Speaker 5: exports of rare earth magnets, this relationship could actually fall 248 00:11:51,440 --> 00:11:54,000 Speaker 5: off a cliff and get much more unstable. But I 249 00:11:54,000 --> 00:11:56,080 Speaker 5: think sort of the best case scenario from an investor 250 00:11:56,120 --> 00:11:58,880 Speaker 5: perspective is probably the status quo right now. 251 00:12:01,280 --> 00:12:04,760 Speaker 2: Stay with us. More Bloomberg surveillance coming up after this. 252 00:12:13,920 --> 00:12:16,720 Speaker 2: Elliots Galou, the senior investment strategist that Bank of America 253 00:12:16,840 --> 00:12:18,840 Speaker 2: Securities Joint just now for more and it's what an 254 00:12:18,840 --> 00:12:21,120 Speaker 2: interesting moment, and welcome to the program. Picked out two 255 00:12:21,120 --> 00:12:23,760 Speaker 2: bullet points from your survey this morning when it was released. 256 00:12:24,000 --> 00:12:27,840 Speaker 2: We've got this equity allocation that's the highest in several months, 257 00:12:27,920 --> 00:12:31,040 Speaker 2: and at the same time you've got these valuation fees 258 00:12:31,120 --> 00:12:33,360 Speaker 2: dominating to alis. How do you think we're going to 259 00:12:33,360 --> 00:12:35,520 Speaker 2: reconcile those two things. 260 00:12:36,600 --> 00:12:38,120 Speaker 6: John, I think you know it's one of the great 261 00:12:38,120 --> 00:12:40,839 Speaker 6: point from the global fund manager survey. On the one hand, 262 00:12:40,920 --> 00:12:44,920 Speaker 6: investors see global stocks as the most overvalued on record, 263 00:12:44,960 --> 00:12:47,720 Speaker 6: but that was already the case last month when you 264 00:12:47,760 --> 00:12:50,079 Speaker 6: and I when you and I met, and at the 265 00:12:50,120 --> 00:12:53,719 Speaker 6: same time they increase the exposure to your global equities 266 00:12:53,840 --> 00:12:57,360 Speaker 6: through the highest since since February. In fact, you know, 267 00:12:57,480 --> 00:13:00,680 Speaker 6: valuations matter is the one factor that matters most over 268 00:13:00,720 --> 00:13:04,120 Speaker 6: the long term. But in the short term investors focus 269 00:13:04,160 --> 00:13:07,280 Speaker 6: on the cycle, and this is a cycle that's dominated 270 00:13:07,320 --> 00:13:13,240 Speaker 6: by strong macro forces, which are huge monetary easing. There 271 00:13:13,280 --> 00:13:16,160 Speaker 6: have been ninety five rate cuts here to date, and 272 00:13:16,240 --> 00:13:19,040 Speaker 6: from tomorrow the most important central bank in the world 273 00:13:19,040 --> 00:13:23,280 Speaker 6: will join the rate cutting party. And on the other hand, 274 00:13:23,280 --> 00:13:26,800 Speaker 6: there is a micro force like no other. I'm talking 275 00:13:26,840 --> 00:13:30,920 Speaker 6: of course about AI, and investors and FMS investors are 276 00:13:31,040 --> 00:13:34,160 Speaker 6: very bullish about AI. They think this is a deflationary force. 277 00:13:34,400 --> 00:13:36,720 Speaker 6: They think this is a force that is already lifting 278 00:13:36,800 --> 00:13:40,360 Speaker 6: productivity growth, and that is why they continue to buy 279 00:13:40,520 --> 00:13:43,160 Speaker 6: the stock market and to buy the very expensive tech 280 00:13:43,440 --> 00:13:46,199 Speaker 6: sector despite sky high evaluations. 281 00:13:46,240 --> 00:13:49,200 Speaker 2: Alias they are bullish on AI, bullish on the equity market, 282 00:13:49,440 --> 00:13:52,400 Speaker 2: how bullish are they on growth? I understand that everyone's 283 00:13:52,480 --> 00:13:54,560 Speaker 2: long rate cuts at the moment, but is that leading 284 00:13:54,559 --> 00:13:55,800 Speaker 2: to an improvement in the outlook? 285 00:13:57,520 --> 00:14:01,680 Speaker 6: Look? Amongst the huge convictions from FMS investors, the one 286 00:14:02,080 --> 00:14:05,040 Speaker 6: that the Fed will be cutting in global central banks 287 00:14:05,080 --> 00:14:08,520 Speaker 6: will deliver further rate cuts is maybe the most conspicuous, right, 288 00:14:08,520 --> 00:14:11,160 Speaker 6: and we have a share that is greater than eighty 289 00:14:11,160 --> 00:14:15,000 Speaker 6: percent of FMS investors who expect short term rates to 290 00:14:15,040 --> 00:14:19,280 Speaker 6: be lower. You mentioned the dichotomy between sky high valuation 291 00:14:19,400 --> 00:14:22,920 Speaker 6: on one hand and an increase in equity exposure. The other 292 00:14:22,960 --> 00:14:25,600 Speaker 6: dichotomy in the FMS is the fact that everyone expects 293 00:14:25,800 --> 00:14:29,200 Speaker 6: rate cuts. A net majority see at least four rate 294 00:14:29,280 --> 00:14:31,320 Speaker 6: cuts from the FED in the next twelve months. And 295 00:14:31,360 --> 00:14:34,640 Speaker 6: on the other hand, investors are actually very highly concerned 296 00:14:34,640 --> 00:14:40,000 Speaker 6: about inflation, you know, and consequently, the expectations that bond 297 00:14:40,080 --> 00:14:42,120 Speaker 6: deals will rise in the next twelve months is the 298 00:14:42,200 --> 00:14:45,560 Speaker 6: high since August twenty twenty two, when inflation was a 299 00:14:45,600 --> 00:14:49,200 Speaker 6: few points higher. So I do believe that this view 300 00:14:49,240 --> 00:14:52,920 Speaker 6: that the global economy is heading into a global soft 301 00:14:53,000 --> 00:14:57,560 Speaker 6: lending is at the heart of global investors stock optimism. 302 00:14:57,640 --> 00:15:02,120 Speaker 6: But ultimately they think the globally economy will weaken, but 303 00:15:02,520 --> 00:15:07,200 Speaker 6: inflation as well is going to stay elevated. Altogether, the 304 00:15:07,240 --> 00:15:11,359 Speaker 6: soft lending conviction is the one that explains why investors 305 00:15:11,800 --> 00:15:13,800 Speaker 6: optimism in terms of stock exposure is. 306 00:15:13,720 --> 00:15:16,040 Speaker 1: Wisic ellies, I want to stay on that for a minute. 307 00:15:16,080 --> 00:15:18,320 Speaker 1: You said that the number one tail risk right now 308 00:15:18,400 --> 00:15:21,160 Speaker 1: is inflation exactly because of what you just put out there. 309 00:15:21,360 --> 00:15:24,480 Speaker 1: We're seeing inflation above two percent, We're seeing inflation above 310 00:15:24,520 --> 00:15:26,960 Speaker 1: two and a half percent. What will it take for 311 00:15:27,200 --> 00:15:31,360 Speaker 1: this to manifest itself in the psychees of investors? 312 00:15:33,520 --> 00:15:36,800 Speaker 6: Okay, I do believe that the conviction that yes, inflation 313 00:15:37,240 --> 00:15:40,320 Speaker 6: is here to stay above target, but AI, which is 314 00:15:40,360 --> 00:15:44,600 Speaker 6: again dominant micro force that is driving investors bullishness, will 315 00:15:44,640 --> 00:15:47,720 Speaker 6: be able to lift productivity growth over the long term, 316 00:15:48,000 --> 00:15:52,720 Speaker 6: help put profits growth and health margin. Is what is 317 00:15:52,760 --> 00:15:57,680 Speaker 6: also holding investors optimism in an environment where inflation is 318 00:15:58,240 --> 00:16:02,720 Speaker 6: above target is the fact that the hyper scalers able 319 00:16:02,800 --> 00:16:06,840 Speaker 6: to increase capex right an environment where inflation is high, 320 00:16:07,160 --> 00:16:10,160 Speaker 6: usually investors would be a little bit worried about corporates 321 00:16:10,400 --> 00:16:14,360 Speaker 6: increasing capex at the extent Hyperscaler are doing. And yet 322 00:16:14,560 --> 00:16:18,800 Speaker 6: in this survey we find out that the CIOs, the 323 00:16:19,080 --> 00:16:24,400 Speaker 6: typical fund managers participant, is asking CFOs to focus on 324 00:16:24,480 --> 00:16:26,000 Speaker 6: capex more than anything else. 325 00:16:27,080 --> 00:16:27,400 Speaker 4: AI. 326 00:16:27,520 --> 00:16:30,520 Speaker 6: The conviction that AI is the dominant macro force is 327 00:16:30,600 --> 00:16:33,600 Speaker 6: why at the end of the day, investors are bullish 328 00:16:33,880 --> 00:16:37,360 Speaker 6: and they think inflation is Yes, it is a concern, 329 00:16:37,400 --> 00:16:39,960 Speaker 6: but is not detrimental to stocks. 330 00:16:40,000 --> 00:16:42,120 Speaker 1: And it fits this puzzle, this idea of how you 331 00:16:42,160 --> 00:16:45,720 Speaker 1: can have ongoing growth without commensurate inflation and maybe a 332 00:16:45,760 --> 00:16:48,560 Speaker 1: pretty chepid rate of hiring. I am curious about your 333 00:16:48,640 --> 00:16:50,280 Speaker 1: view on the dollars. We've been talking a lot about 334 00:16:50,280 --> 00:16:53,560 Speaker 1: the weakening trend that we've seen over the past number 335 00:16:53,560 --> 00:16:55,920 Speaker 1: of months. You said that the fourth quarter pain trade 336 00:16:56,200 --> 00:16:59,280 Speaker 1: seems to be a stronger dollar. Just how overweight our 337 00:16:59,320 --> 00:17:01,880 Speaker 1: investors this idea of a weekening dollar right now. 338 00:17:03,440 --> 00:17:06,440 Speaker 6: Look, if you look at the fund manager survey in itself, 339 00:17:06,560 --> 00:17:09,920 Speaker 6: investors say that they are underway the dollar. We hit 340 00:17:10,040 --> 00:17:14,479 Speaker 6: peak dollar bearishness in June. Since then it stabilized around 341 00:17:14,520 --> 00:17:17,600 Speaker 6: that level. But when you look also at the hard 342 00:17:17,680 --> 00:17:21,040 Speaker 6: positioning data, the flows data. To US, it feels that 343 00:17:21,119 --> 00:17:25,120 Speaker 6: investors are emotionally burished on the dollar rather than physically verish. 344 00:17:25,160 --> 00:17:27,080 Speaker 6: If you look at the flows data, the picture that 345 00:17:27,160 --> 00:17:30,840 Speaker 6: we solver the summer is quite mesmerizing because with in fact, 346 00:17:30,880 --> 00:17:34,560 Speaker 6: we didn't see any net new inflows to US equity funds, 347 00:17:34,640 --> 00:17:37,360 Speaker 6: but at the same time in August we actually saw 348 00:17:37,440 --> 00:17:41,480 Speaker 6: the biggest monthly inflow to US bond funds, driven by 349 00:17:41,640 --> 00:17:44,640 Speaker 6: near record pace of inflows into US IG funds. 350 00:17:44,760 --> 00:17:47,720 Speaker 4: So if investors were truly perish. 351 00:17:47,359 --> 00:17:50,159 Speaker 6: Physically berish on the dollar, they would they would not 352 00:17:50,240 --> 00:17:53,840 Speaker 6: be buying US bonds at a record pace. So we 353 00:17:53,880 --> 00:17:56,520 Speaker 6: think it's really a matter of hedging. Investors want to 354 00:17:56,600 --> 00:17:59,520 Speaker 6: hedge against a weeker dollar, but they are not ready 355 00:17:59,560 --> 00:18:04,600 Speaker 6: to sell the beloved US assets. And we think that 356 00:18:04,880 --> 00:18:08,640 Speaker 6: US dollar bear market or the debasement of the US 357 00:18:08,760 --> 00:18:12,680 Speaker 6: dollar is to us the cleanest investment theme into twenty 358 00:18:12,760 --> 00:18:16,399 Speaker 6: twenty six. The price of gold, the price of crypto's 359 00:18:17,000 --> 00:18:19,240 Speaker 6: signal that the dollar will weaken further. 360 00:18:19,359 --> 00:18:21,199 Speaker 2: Allies, before you go and just want to sweaze this in. 361 00:18:21,240 --> 00:18:22,920 Speaker 2: You're sitting in London. The present is going to join 362 00:18:22,960 --> 00:18:25,000 Speaker 2: you in the next twenty four hours or so he'll 363 00:18:25,040 --> 00:18:27,960 Speaker 2: arrive in the UK as well. You've got these contrarian 364 00:18:28,040 --> 00:18:31,320 Speaker 2: long trades in here, bonds being one the other UK 365 00:18:31,440 --> 00:18:34,399 Speaker 2: equities elis, why does that jump on the page to you? 366 00:18:36,480 --> 00:18:38,480 Speaker 6: Look, this is why I'm in London today, you know, 367 00:18:38,600 --> 00:18:41,320 Speaker 6: just to be an advocate of UK equalities. You know, 368 00:18:41,640 --> 00:18:45,399 Speaker 6: a very unloved asset. You know what struck me in 369 00:18:45,480 --> 00:18:50,360 Speaker 6: the fund manager service that investors will already underweight UK stocks, 370 00:18:50,520 --> 00:18:53,399 Speaker 6: but what happened in September is that they decrease their 371 00:18:53,400 --> 00:18:57,639 Speaker 6: allocation to UK equities by the most since two thousand 372 00:18:57,640 --> 00:18:59,920 Speaker 6: and four, matching the biggest drop on record. 373 00:19:00,080 --> 00:19:01,760 Speaker 4: So if investors truly. 374 00:19:01,520 --> 00:19:04,479 Speaker 6: Believe that the economy will be heading into a soft lending, 375 00:19:04,840 --> 00:19:08,080 Speaker 6: that bond yields will remain anchor and we won't see 376 00:19:08,080 --> 00:19:11,920 Speaker 6: a big breakout of global government bond yields. I think 377 00:19:11,920 --> 00:19:14,920 Speaker 6: there is one asset that is very cheap, very much 378 00:19:14,960 --> 00:19:17,240 Speaker 6: and their own, and in which you can get to 379 00:19:17,600 --> 00:19:18,760 Speaker 6: a big bank for your buck. 380 00:19:19,040 --> 00:19:19,960 Speaker 4: It's UK Greece. 381 00:19:20,520 --> 00:19:24,000 Speaker 2: Stay with us. More Bloomberg surveillance coming up after this. 382 00:19:33,240 --> 00:19:36,400 Speaker 2: The latest in this market an upside surprise on US 383 00:19:36,520 --> 00:19:40,119 Speaker 2: retail sales. The control group positive zero point seven percent. 384 00:19:40,400 --> 00:19:42,719 Speaker 2: The estimate and our survey we were looking for zero 385 00:19:42,760 --> 00:19:45,760 Speaker 2: point four with us around the table. Steve Rashutto of 386 00:19:45,960 --> 00:19:48,200 Speaker 2: zero Steve Goomonik, good morning. It's going to see you, sir, 387 00:19:48,560 --> 00:19:51,200 Speaker 2: at the epicenter of your research. I think you're cool 388 00:19:51,480 --> 00:19:53,920 Speaker 2: at the moment. You ask the right question, just how 389 00:19:53,960 --> 00:19:57,760 Speaker 2: restrictive is monetary policy? Clearly the Federal Reserve's got one 390 00:19:57,800 --> 00:19:59,280 Speaker 2: opinion on that. What's yours. 391 00:19:59,760 --> 00:20:03,000 Speaker 7: Well, the Federal Reserve opinion is three percent is neutral. 392 00:20:03,840 --> 00:20:06,639 Speaker 7: My view is four percent is neutral. So we're a 393 00:20:06,680 --> 00:20:09,760 Speaker 7: heck of a lot closer to neutral than the Federal 394 00:20:09,800 --> 00:20:12,800 Speaker 7: Reserve would be. Assuming the difference between us is what 395 00:20:12,880 --> 00:20:17,960 Speaker 7: you assume for the real underlying rate of interest that's 396 00:20:18,000 --> 00:20:21,920 Speaker 7: required in the economy to achieve the Fed's balanced trajectory 397 00:20:22,320 --> 00:20:26,080 Speaker 7: of a long term maximum sustainable employment and low inflation. 398 00:20:26,560 --> 00:20:29,000 Speaker 4: The FED thinks it's one percent. We think it's two percent. 399 00:20:29,040 --> 00:20:31,359 Speaker 7: So if the Fed's credible at a two percent inflation rate, 400 00:20:31,400 --> 00:20:34,000 Speaker 7: which is largely be questionable as well, then you're at 401 00:20:34,000 --> 00:20:35,919 Speaker 7: three percent or you're at four percent. 402 00:20:36,480 --> 00:20:38,280 Speaker 4: I'm trying to understand this market move. I can't. 403 00:20:38,280 --> 00:20:40,600 Speaker 1: Can you explain this to me, why is the bond 404 00:20:40,640 --> 00:20:43,520 Speaker 1: market just not doing anything on the idea that we 405 00:20:43,600 --> 00:20:46,160 Speaker 1: got retail sales that were hotter than expected across the board, 406 00:20:46,160 --> 00:20:48,639 Speaker 1: and it seems like the US economy is doing just 407 00:20:48,760 --> 00:20:51,560 Speaker 1: fine at a time when, yeah, the headline payrolls number 408 00:20:51,560 --> 00:20:53,119 Speaker 1: has come in, but a lot of people are saying 409 00:20:53,359 --> 00:20:55,680 Speaker 1: that's appropriate given some of the demographics. 410 00:20:55,880 --> 00:20:57,760 Speaker 7: You know, you're asking the question is where have all 411 00:20:57,800 --> 00:21:01,880 Speaker 7: the bond vigilanties gone. The answer really is they're all 412 00:21:01,920 --> 00:21:03,760 Speaker 7: either indexers or closet indexers. 413 00:21:03,880 --> 00:21:06,480 Speaker 4: So all they carry about is the performance. It's number one. 414 00:21:06,680 --> 00:21:09,159 Speaker 7: Number two, there is a global deflationary force out there. 415 00:21:09,440 --> 00:21:11,240 Speaker 7: Number three, it's hard to short a market in front 416 00:21:11,240 --> 00:21:12,640 Speaker 7: of the Federal Reserve cutting. 417 00:21:12,359 --> 00:21:14,280 Speaker 4: Interest rates, which they're going to do. 418 00:21:15,280 --> 00:21:17,840 Speaker 7: And then there's a fourth consideration, which is for a 419 00:21:17,880 --> 00:21:20,600 Speaker 7: lot of people in the marketplace, these levels of yields 420 00:21:20,600 --> 00:21:24,480 Speaker 7: are attractive because they really have never witnessed substantially higher 421 00:21:24,560 --> 00:21:26,560 Speaker 7: levels of yield and every time there's been a backup, 422 00:21:26,760 --> 00:21:29,600 Speaker 7: they've done well by buying it. So you're in an 423 00:21:29,680 --> 00:21:32,600 Speaker 7: environment where you're expecting the Fed to cut not only once, 424 00:21:32,680 --> 00:21:35,800 Speaker 7: but potentially three times before the end of the year. 425 00:21:36,320 --> 00:21:38,399 Speaker 7: They're not going to do a jumbo rate cut, although 426 00:21:38,400 --> 00:21:40,639 Speaker 7: there will be voices around the table for a jumbo 427 00:21:40,720 --> 00:21:43,600 Speaker 7: rate cut. So in that environment, it kind of makes 428 00:21:43,600 --> 00:21:46,479 Speaker 7: sense for people just won't short this market, and if 429 00:21:46,520 --> 00:21:49,480 Speaker 7: you won't short it, it's hard to make it go down. 430 00:21:49,680 --> 00:21:51,439 Speaker 1: In christ you said something in there that there's a 431 00:21:51,440 --> 00:21:53,000 Speaker 1: global deflationary force. 432 00:21:53,040 --> 00:21:54,240 Speaker 4: Correct. If that's the case, why. 433 00:21:54,080 --> 00:21:56,040 Speaker 1: Don't we all buy bonds because ultimately then we're not 434 00:21:56,080 --> 00:21:58,480 Speaker 1: worried about inflation anymore and we're getting something real for 435 00:21:58,480 --> 00:21:58,960 Speaker 1: our money. 436 00:21:59,080 --> 00:22:02,399 Speaker 7: Well, that's exactly part of the problem is you have 437 00:22:02,520 --> 00:22:05,160 Speaker 7: this global deflationary force. And the question is you saw 438 00:22:05,160 --> 00:22:08,200 Speaker 7: the import price numbers going up, they're still relatively tame. 439 00:22:08,400 --> 00:22:09,960 Speaker 1: What is this deflationary force? 440 00:22:09,960 --> 00:22:11,080 Speaker 4: What are you talking It's China. 441 00:22:11,320 --> 00:22:14,560 Speaker 7: China is the global deflationary force. It's replaced Japan as 442 00:22:14,600 --> 00:22:16,000 Speaker 7: the global deflationary force. 443 00:22:16,200 --> 00:22:18,600 Speaker 4: It has to dump product around the world. And that's 444 00:22:18,600 --> 00:22:18,840 Speaker 4: one of. 445 00:22:18,840 --> 00:22:20,960 Speaker 7: The reasons why I don't think you're seeing the amount 446 00:22:21,040 --> 00:22:24,119 Speaker 7: of impact from the Trump tariffs, because I think you know, 447 00:22:24,160 --> 00:22:26,320 Speaker 7: even though import prices are going up, when you look 448 00:22:26,320 --> 00:22:28,240 Speaker 7: against the tariffs, they're not going up as much. So 449 00:22:28,920 --> 00:22:33,000 Speaker 7: I do agree that I think the importers are dealing 450 00:22:33,080 --> 00:22:34,639 Speaker 7: with some of the terriffs. But I also think that 451 00:22:34,680 --> 00:22:37,080 Speaker 7: people are exporting or dealing with some of the tariffs 452 00:22:37,200 --> 00:22:39,800 Speaker 7: and it's getting absorbed that way. And I think there's 453 00:22:39,800 --> 00:22:42,399 Speaker 7: an additional factor that people are fearful of in here, 454 00:22:42,440 --> 00:22:45,680 Speaker 7: and that is whether or not this administration is going 455 00:22:45,720 --> 00:22:48,960 Speaker 7: to attempt to do something like yield curve control by 456 00:22:49,000 --> 00:22:52,320 Speaker 7: adjusting the long term supply of treasury debt. So when 457 00:22:52,359 --> 00:22:54,960 Speaker 7: you roll all those factors we talk to together, you 458 00:22:55,000 --> 00:22:56,800 Speaker 7: can see why it's hard to get the market to 459 00:22:56,920 --> 00:22:58,600 Speaker 7: short in this environment. 460 00:22:58,720 --> 00:23:00,640 Speaker 2: Is that what you're spank thinking, I'm kind of yield 461 00:23:00,640 --> 00:23:01,199 Speaker 2: ca control. 462 00:23:01,600 --> 00:23:02,520 Speaker 4: Well, that's the fear. 463 00:23:02,760 --> 00:23:06,040 Speaker 7: I don't think Scott Bessint has moved towards it, but 464 00:23:06,119 --> 00:23:09,520 Speaker 7: everyone is convinced he's going to if push comes to show, 465 00:23:09,640 --> 00:23:12,920 Speaker 7: because Donald Trump wants lower interest rates and he has 466 00:23:13,040 --> 00:23:15,840 Speaker 7: more room to go in terms of raising money in bills. 467 00:23:16,040 --> 00:23:16,200 Speaker 4: Now. 468 00:23:16,240 --> 00:23:19,080 Speaker 7: It's also interesting, despite all the money they're raising in 469 00:23:19,119 --> 00:23:21,639 Speaker 7: the tariffs, you know, you are seeing the budget deficit 470 00:23:21,760 --> 00:23:25,040 Speaker 7: still deteriorate fairly rapidly, So there is going to be 471 00:23:25,080 --> 00:23:27,920 Speaker 7: more supply coming down the pipeline, but they may wind 472 00:23:28,000 --> 00:23:29,320 Speaker 7: up just doing it all in bills. 473 00:23:29,400 --> 00:23:31,960 Speaker 2: It's funny that when you talk about yieldca control, I 474 00:23:31,960 --> 00:23:34,520 Speaker 2: think about monetary policy, and you think about it coming 475 00:23:34,520 --> 00:23:36,800 Speaker 2: down to the treasury. How important it's that distinction. 476 00:23:37,160 --> 00:23:40,200 Speaker 7: Well, there is a big distinction between the two of them, 477 00:23:40,560 --> 00:23:43,640 Speaker 7: because one is a function of a central banker making 478 00:23:43,680 --> 00:23:46,680 Speaker 7: a decision based on a hard and fast policy rule, 479 00:23:46,720 --> 00:23:49,719 Speaker 7: and the other is based on a political decision. And 480 00:23:49,760 --> 00:23:53,000 Speaker 7: it's that politicizing of this. It's the interest rate environment 481 00:23:53,240 --> 00:23:55,480 Speaker 7: that I think is a big, big, big part of 482 00:23:55,480 --> 00:23:57,200 Speaker 7: the fact of why yields can't go down. 483 00:23:57,560 --> 00:23:59,800 Speaker 1: How long can bonds and stocks keep rallying together? At 484 00:23:59,800 --> 00:24:01,639 Speaker 1: the point, given everything you said. 485 00:24:01,760 --> 00:24:03,800 Speaker 7: Well, I mean, the equity market looks pretty good. Look, 486 00:24:03,800 --> 00:24:06,679 Speaker 7: my forward earnings numbers are very good. My earnings revision 487 00:24:06,760 --> 00:24:10,040 Speaker 7: factors are very very good. We having pushed multiples to 488 00:24:10,080 --> 00:24:13,080 Speaker 7: any significant level. I think to get back to the 489 00:24:13,160 --> 00:24:15,879 Speaker 7: question you asked earlier, which was why is the dollar 490 00:24:16,040 --> 00:24:16,920 Speaker 7: not doing well? 491 00:24:17,200 --> 00:24:18,840 Speaker 4: Why did the dollars sell off? A little bit? 492 00:24:18,840 --> 00:24:21,320 Speaker 7: On this, I should say improve a little bit on this, 493 00:24:21,600 --> 00:24:24,840 Speaker 7: and that is because people had been expecting three rate cuts. 494 00:24:25,080 --> 00:24:27,200 Speaker 7: That was the potential. And I myself, when I moved 495 00:24:27,200 --> 00:24:29,720 Speaker 7: from nothing I said, might as well just throw in three. 496 00:24:29,960 --> 00:24:32,720 Speaker 7: You know, now you're in a back drop. Now you're 497 00:24:32,720 --> 00:24:34,840 Speaker 7: in a backdrop where you know, are you really just 498 00:24:34,880 --> 00:24:35,560 Speaker 7: looking at two? 499 00:24:36,760 --> 00:24:38,560 Speaker 1: So that's the reason why maybe the dollar is going 500 00:24:38,600 --> 00:24:41,399 Speaker 1: to strengthen a little bit. Just going back to this, 501 00:24:42,040 --> 00:24:46,000 Speaker 1: do you think that bond market investors, bond market traders 502 00:24:46,040 --> 00:24:48,240 Speaker 1: are whistling past the graveyard just a little bit? Or 503 00:24:48,240 --> 00:24:50,680 Speaker 1: do you think that they are right to focus on 504 00:24:50,800 --> 00:24:54,840 Speaker 1: the overcapacity of China, the right to focus on the 505 00:24:54,880 --> 00:24:58,320 Speaker 1: ability of companies to adapt and adjust and say, ultimately 506 00:24:58,520 --> 00:24:59,840 Speaker 1: this will be a soft lending. 507 00:25:00,560 --> 00:25:04,080 Speaker 7: If yields were higher, I'd be more convinced in answering 508 00:25:04,080 --> 00:25:06,960 Speaker 7: that question. Yes, if we were in that four point 509 00:25:07,000 --> 00:25:10,480 Speaker 7: fifty area, I think then you could sit there and say, 510 00:25:10,520 --> 00:25:13,120 Speaker 7: maybe the bond market is correct, and we'll hold in 511 00:25:13,480 --> 00:25:16,360 Speaker 7: because at least I'm being rewarded somewhat for the risk 512 00:25:16,440 --> 00:25:18,760 Speaker 7: I'm taking. Because I've already got an inflation rate running 513 00:25:18,760 --> 00:25:22,359 Speaker 7: at three right now, I'm getting no protection from that 514 00:25:22,400 --> 00:25:26,280 Speaker 7: inflation rate. I'm missing one hundred basis points. That bothers 515 00:25:26,320 --> 00:25:28,879 Speaker 7: me and it should be bothering the investors. But again, 516 00:25:29,000 --> 00:25:31,360 Speaker 7: how can you short it against all those factors. 517 00:25:31,080 --> 00:25:32,920 Speaker 2: So they've gone into the fence tomorrow. Just a final 518 00:25:33,000 --> 00:25:35,560 Speaker 2: thought what I've already sent from you. From speaking to you, 519 00:25:36,520 --> 00:25:38,760 Speaker 2: it sounds like you believe it's quite a mistake to 520 00:25:38,840 --> 00:25:40,760 Speaker 2: anchor the view of the labor market just a round, 521 00:25:40,760 --> 00:25:43,000 Speaker 2: a step down and payrolls growth. It's that a fat 522 00:25:43,000 --> 00:25:44,160 Speaker 2: description of where you're at. 523 00:25:44,359 --> 00:25:47,439 Speaker 7: I'm disappointed by the labor force growth numbers. I think 524 00:25:47,480 --> 00:25:50,720 Speaker 7: I understand what's happening. Companies that have seen their margins 525 00:25:51,359 --> 00:25:55,520 Speaker 7: being impacted, or afraid their margins would be impactive, opted for. 526 00:25:55,480 --> 00:25:56,760 Speaker 4: A more cautious route. 527 00:25:56,920 --> 00:25:59,360 Speaker 7: But they're having to pay their employees more, and they're 528 00:25:59,359 --> 00:26:01,600 Speaker 7: having to work your existing employees more, and. 529 00:26:01,560 --> 00:26:03,160 Speaker 4: They're still generating the income. 530 00:26:03,400 --> 00:26:05,960 Speaker 7: I mean, is it a mistake to cut RGE twenty 531 00:26:06,000 --> 00:26:07,040 Speaker 7: five basis points? 532 00:26:07,320 --> 00:26:09,919 Speaker 4: Is it a mistake to get back to four percent 533 00:26:09,960 --> 00:26:11,600 Speaker 4: on the Fed funds rate, which is where I think 534 00:26:11,680 --> 00:26:14,760 Speaker 4: is neutral. No, you can live through that. 535 00:26:15,320 --> 00:26:18,840 Speaker 7: Getting and saying we're going to get to three is 536 00:26:18,880 --> 00:26:20,800 Speaker 7: where I have trouble with this market. 537 00:26:21,600 --> 00:26:25,160 Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best 538 00:26:25,160 --> 00:26:28,720 Speaker 2: in markets, economics, angiopolitics. You can watch the show live 539 00:26:28,800 --> 00:26:31,800 Speaker 2: on Bloomberg TV. Weekday mornings from six am to nine 540 00:26:31,880 --> 00:26:35,600 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify, or 541 00:26:35,640 --> 00:26:38,240 Speaker 2: anywhere else you listen, and as always, on the Bloomberg 542 00:26:38,320 --> 00:26:40,160 Speaker 2: Terminal and the Bloomberg Business app.