Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordernt. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
Speaker 2: live on Bloomberg Television weekday mornings from six to nine
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or
Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business app in Lincoln of bemo
Speaker 2: Right in the following, we're encouraged by the modest bid
Speaker 2: for treasuries. This does trigger our concern that investors are
Speaker 2: looking for a more dubvish CUD than Powell is going
Speaker 2: to deliver. On Wednesday, he joins us now for more
Speaker 2: in good morning morning, Happy to be here, Great to
Speaker 2: catch up with you. Let's talk about the bond market
Speaker 2: running so far this year, our performing the bond market
Speaker 2: bid has returned to treasuries. Let's start with why. What's
Speaker 2: driving that move for you? So?
Speaker 3: I think there are two main factors. The first is
Speaker 3: we got through the period of being concerned about a
Speaker 3: buyer strike in treasuries. Now we know that there's the
Speaker 3: man at the auction. Now we know there's plenty of
Speaker 3: demand in the secondary market. The second major issue is
Speaker 3: that the period for caref passed through to really move
Speaker 3: the inflation complex has largely passed. Now. That doesn't mean
Speaker 3: that there won't be upward pressure on goods inflation as
Speaker 3: a result of the trade war, but because it wasn't
Speaker 3: condensed into a three month period and is going to
Speaker 3: be spread out over twelve months maybe longer, that means
Speaker 3: that the market can move on to trading. What's next,
Speaker 3: and what's next is the resumption of normalization.
Speaker 1: Do you think that it's a paradox to see both
Speaker 1: a rally and the bond market and a rally in
Speaker 1: risk assets that seem to be really hedged on this
Speaker 1: idea of a reacceleration and growth.
Speaker 3: So I have been very surprised by the resilience of
Speaker 3: the equity market and the fact that we continue to
Speaker 3: move higher and higher and set new records every day. However,
Speaker 3: if we put it in the context of a monetary
Speaker 3: policy adjustment lower that is still holding out hopes for
Speaker 3: a soft landing I think that higher equity evaluations make
Speaker 3: sense in that context. It's not until we get a
Speaker 3: bigger spike in the unemployment rate or a slowdown on
Speaker 3: the consumption side that we would really start a conversation
Speaker 3: about a recession. And barring that, as long as the
Speaker 3: FED is in motion towards lower rates, I don't think
Speaker 3: there's a reason to sell.
Speaker 1: Is there a trigger point in terms of ten year
Speaker 1: yields that signals to you that we really are seeing weakness?
Speaker 1: Bad news is bad news versus just simply people getting
Speaker 1: stomped out of their short not long term treasury positions
Speaker 1: and being forced to buy.
Speaker 3: I think that at this stage, given how positive term
Speaker 3: premium is, particularly further out the curve, that we would
Speaker 3: need to see ten year yields below three seventy five
Speaker 3: or even three sixty five before I would characterize that
Speaker 3: as anything more than just going back to the prior range.
Speaker 3: So we could drift lower in rates just through the
Speaker 3: process of normalization.
Speaker 2: When we quite to you, we toallked about the risk
Speaker 2: into Wednesday, just a lamporight on that what is the
Speaker 2: risk coming into tomorrow's decision?
Speaker 3: So the market is poised for a very douvish takeaway
Speaker 3: from Powell. But the reality is if he goes twenty five,
Speaker 3: that means that we're still restrictive, we're slightly less restrictive
Speaker 3: than we have been, and he will justify continuing to
Speaker 3: remain somewhat restrictive in all the uncertainties. And so if
Speaker 3: the takeaway is that we're not starting twenty five bases
Speaker 3: points per meeting and instead it will be meeting by meeting,
Speaker 3: I think the market sells off.
Speaker 2: How much?
Speaker 3: Why will you put on the debt plot? The market
Speaker 3: loves to trade it and it gets revised all the time.
Speaker 3: So I'm cautious about assuming that that gets realized.
Speaker 1: Do you think that markets have really grappled with the
Speaker 1: idea of FED independence or have they just shrugged it
Speaker 1: off and say.
Speaker 4: What does that mean?
Speaker 1: How can we really even know? And ultimately, whoever's on
Speaker 1: the FED board, we'll do the right thing for the
Speaker 1: economy at a given time, Right, So what's the sort
Speaker 1: of pendulum there for when that starts to matter again?
Speaker 3: So if the FED didn't have the justify cation of
Speaker 3: slower payrolls growth and the bingchmark revisions lower, I think
Speaker 3: we would still be having a conversation about FED independence.
Speaker 3: But the fact of the matter is the data has
Speaker 3: caught up with the pressure that was coming from the administration,
Speaker 3: and so FED independence can be preserved while still cutting rates.
Speaker 1: So we're about thirty six minutes away from the retail
Speaker 1: sales figure that we get out from the United States
Speaker 1: and a real question of how to read this right?
Speaker 1: What are you looking for to indicate whether this builds
Speaker 1: unsoft payrolls data or whether this kind of flies in
Speaker 1: the face of that and points to a lot of
Speaker 1: confidence by consumers.
Speaker 3: Well, from a GDP perspective, we look at what's called
Speaker 3: the control group, with which I mean which backs out
Speaker 3: all the components that don't flow through to the GDP
Speaker 3: consumption figures, and so that'll be the key.
Speaker 4: And if it is zero.
Speaker 3: Point five point six, I think that that's going to
Speaker 3: be a strong showing for a month in which we
Speaker 3: saw weaker payrolls growth.
Speaker 2: There's another thanks to point and that makes us wow
Speaker 2: this morning that one't get as much attention impul prices.
Speaker 2: Important is that as an input to gauge who's paying
Speaker 2: the tariffs right now and who isn't.
Speaker 3: Well interestingly, import prices at this stage are not going
Speaker 3: to be as relevant to the tariff discussion. There will
Speaker 3: be more relevant to put in the final estimates on
Speaker 3: core PCE for this month or for the month of August.
Speaker 3: And I think that that's going to be important because
Speaker 3: we're tracking at zero point one eight, which means a
Speaker 3: very benign print on the Fed's preferred measure of inflation.
Speaker 2: Stay with us more Bloomberg surveillance coming up after this.
Speaker 2: Let's stand to trade. President Trump and She holding a
Speaker 2: call on Friday after trade talks concluded in Matrid, Spain,
Speaker 2: joining us now to discuss as the former senior White
Speaker 2: House Trade advisor Cally Ane. Sure, Cally Anne, welcome back
Speaker 2: to the program. So we get the phone call on
Speaker 2: Friday between Trump and She. What are you expecting to
Speaker 2: be the outcome of that?
Speaker 5: Good morning, Thanks much for having me back on Well.
Speaker 5: I think what this is is a pretty significant political
Speaker 5: and commercial deal. Now we don't exactly know the terms.
Speaker 5: All we know is that this involves US controlled ownership.
Speaker 5: President Trump teased with reporters yesterday that there may be
Speaker 5: some government ownership, either US or Chinese potentially involved in
Speaker 5: this as well. So we could see some unique deals
Speaker 5: kind of like what we've seen over the last few
Speaker 5: weeks with the Trump administration and exploring US ownership and
Speaker 5: types of investment credits. But we'll have to see what
Speaker 5: this ultimately results in. The readout was pretty good. I'm
Speaker 5: expecting this to move.
Speaker 4: Forward, Kelly.
Speaker 1: And what is a larger significance of this, given the
Speaker 1: fact that expectations were pretty high heading into this meeting
Speaker 1: that it wasn't just about TikTok but the broader dispute
Speaker 1: between the US and China.
Speaker 5: Yeah, I think that's a great question. And we certainly
Speaker 5: had a deadline coming up this week in terms of
Speaker 5: by dances need to divest in order to prevent the
Speaker 5: app from being banned in the United States. That's why
Speaker 5: the focus of this meeting was really on TikTok. But
Speaker 5: they met for two days. Clearly they talked about a
Speaker 5: host of other issues. So the question is, well, what
Speaker 5: about the other six hundred and fifty billion dollars worth
Speaker 5: of bilateral investment and trade and economic relations between the
Speaker 5: United States and China. Where do we go from here?
Speaker 5: And we don't know much so far. The talks have
Speaker 5: been relatively narrow in scope. They focused on export controls
Speaker 5: on the Chinese side for rare earth magnets. They focused
Speaker 5: on some US export controls. Potentially we could see some
Speaker 5: purchases announced as part of a leader level summit that
Speaker 5: could come as soon as the APEX summit in October.
Speaker 5: But beyond that, I think there's a lot of work
Speaker 5: left to do in this relationship, and I don't expect
Speaker 5: some grand Phase two style deal to emerge anytime soon.
Speaker 1: So then, is it surprising to you that it's going
Speaker 1: to be capped off on Friday with a phone call
Speaker 1: between Jijinping and Donald Trump given the narrow scope of
Speaker 1: what people are expecting.
Speaker 5: Yeah, well, again, this is a very significant issue for
Speaker 5: the president. He ran on keeping tik Talk alive notwithstanding
Speaker 5: a congressional ban. This is a shit that China has
Speaker 5: been able to hold. It's a piece of leverage that
Speaker 5: they're now giving away.
Speaker 3: So I think this is a.
Speaker 5: Sign that they are saying, Okay, we are gearing up
Speaker 5: for some leader level summit that might have some big
Speaker 5: purchasing commitments. Maybe they'll talk about a fentanyl and some
Speaker 5: sort of off ramp there with steps taken from China
Speaker 5: for confidence building. But again, I don't know that China's
Speaker 5: also interested in a broad based Phase two agreement either.
Speaker 5: I think China's looking to stabilize the relationship, and this
Speaker 5: goes towards that, but it doesn't fix all the things
Speaker 5: that are wrong in the US China relationship.
Speaker 2: And Kenny on something I was wrong about. I thought
Speaker 2: we'd move pretty quickly back to the purchase agreement secured
Speaker 2: in the president's first term.
Speaker 4: What's the hold up on that?
Speaker 5: Well, I think a lot of water has run under
Speaker 5: the bridge between Trump one and Trump two. You had
Speaker 5: the Biden administration who really didn't enforce any of these commitments.
Speaker 5: And now from China's perspective, this is something that they
Speaker 5: can give away. This is a piece of leverage. It's
Speaker 5: that commitments they've already made. They already committed to egg purchase,
Speaker 5: energy purchases, aircraft purchases, but they haven't really followed through
Speaker 5: with that. So again, I'm expecting to see them to
Speaker 5: commit to at least that, if not more, in the
Speaker 5: coming weeks and months. But we'll really have to see
Speaker 5: what else happens here. Again, the world has changed significantly
Speaker 5: in the last five or six years. I just think
Speaker 5: that the chessboard looks different well.
Speaker 2: Let's talk about the rest of the chessboard. USMCIA has
Speaker 2: got to be renegotiated. The Mexicans seem willing to put
Speaker 2: the walls up to the Chinese, something we know is
Speaker 2: going to annoy Beijing. I just wonder how the US
Speaker 2: and China are going to figure that out in the
Speaker 2: next year. And I just wonder if that's a recipe
Speaker 2: already for tention further down the road.
Speaker 5: Yeah, and this was really interesting, and I would actually
Speaker 5: rewind back just a few days to Friday, where the
Speaker 5: Department of Commerce put twenty three Chinese entities on its
Speaker 5: entity list. China of course retaliated with launching its own
Speaker 5: investigations of anti discrimination, anti dumping, and then it's finding
Speaker 5: in the Navidia case. But what we have here is
Speaker 5: a relationship where China and the US can still make
Speaker 5: progress on politically significant issues like TikTok, while at the
Speaker 5: same time defending their own interests on other areas of
Speaker 5: the economic and national security chessboard. So when it comes
Speaker 5: to Mexico and those tariffs that are now going to
Speaker 5: go into effect on Chinese imports, I think we're going
Speaker 5: to see the US asking more and more of that
Speaker 5: of US trading partners. Now Mexico is much more reliant
Speaker 5: on the United States than it is on China. I
Speaker 5: don't think every country is similarly situated in the same way,
Speaker 5: but there is this concept of changes to rules of
Speaker 5: origin that we've talked about and the administration has teased,
Speaker 5: and I think what that means is the US is
Speaker 5: going to be seeking from trading partners that if you
Speaker 5: want access to our market, you've got to limit the
Speaker 5: Chinese content that is in the goods that are coming
Speaker 5: into the United States. And I think to your point,
Speaker 5: that's going to cause more friction between the US and China.
Speaker 1: A lot of companies and economists have talked about how
Speaker 1: peak tariff uncertainty is behind us, and that's unleashing a
Speaker 1: lot of optimism at companies who feel like they at
Speaker 1: least know some of the rules of the road. Do
Speaker 1: you think that's right and that actually there's room to
Speaker 1: de escalate further, to see even a further softening and tone,
Speaker 1: especially ahead of next year's midterm elections.
Speaker 3: Yeah.
Speaker 5: My sense has been that where things are right now
Speaker 5: between the United States and China, with which is something
Speaker 5: like a thirty percent to fifty five percent average terif
Speaker 5: rate depending on the good where we have talks that
Speaker 5: are ongoing, but we're still separately taking national security and
Speaker 5: economic measures that may discriminate against the other. I think
Speaker 5: this is more or less the status quo, and while
Speaker 5: the numbers may shift around one way or the other,
Speaker 5: I think this is as stable as things get. And frankly,
Speaker 5: I think things could go the opposite way. If a
Speaker 5: year from now we still have China buying loads of
Speaker 5: Russian oil, if we still have China looking to be
Speaker 5: slow walking some of these discussions, if they're cutting off
Speaker 5: exports of rare earth magnets, this relationship could actually fall
Speaker 5: off a cliff and get much more unstable. But I
Speaker 5: think sort of the best case scenario from an investor
Speaker 5: perspective is probably the status quo right now.
Speaker 2: Stay with us. More Bloomberg surveillance coming up after this.
Speaker 2: Elliots Galou, the senior investment strategist that Bank of America
Speaker 2: Securities Joint just now for more and it's what an
Speaker 2: interesting moment, and welcome to the program. Picked out two
Speaker 2: bullet points from your survey this morning when it was released.
Speaker 2: We've got this equity allocation that's the highest in several months,
Speaker 2: and at the same time you've got these valuation fees
Speaker 2: dominating to alis. How do you think we're going to
Speaker 2: reconcile those two things.
Speaker 6: John, I think you know it's one of the great
Speaker 6: point from the global fund manager survey. On the one hand,
Speaker 6: investors see global stocks as the most overvalued on record,
Speaker 6: but that was already the case last month when you
Speaker 6: and I when you and I met, and at the
Speaker 6: same time they increase the exposure to your global equities
Speaker 6: through the highest since since February. In fact, you know,
Speaker 6: valuations matter is the one factor that matters most over
Speaker 6: the long term. But in the short term investors focus
Speaker 6: on the cycle, and this is a cycle that's dominated
Speaker 6: by strong macro forces, which are huge monetary easing. There
Speaker 6: have been ninety five rate cuts here to date, and
Speaker 6: from tomorrow the most important central bank in the world
Speaker 6: will join the rate cutting party. And on the other hand,
Speaker 6: there is a micro force like no other. I'm talking
Speaker 6: of course about AI, and investors and FMS investors are
Speaker 6: very bullish about AI. They think this is a deflationary force.
Speaker 6: They think this is a force that is already lifting
Speaker 6: productivity growth, and that is why they continue to buy
Speaker 6: the stock market and to buy the very expensive tech
Speaker 6: sector despite sky high evaluations.
Speaker 2: Alias they are bullish on AI, bullish on the equity market,
Speaker 2: how bullish are they on growth? I understand that everyone's
Speaker 2: long rate cuts at the moment, but is that leading
Speaker 2: to an improvement in the outlook?
Speaker 6: Look? Amongst the huge convictions from FMS investors, the one
Speaker 6: that the Fed will be cutting in global central banks
Speaker 6: will deliver further rate cuts is maybe the most conspicuous, right,
Speaker 6: and we have a share that is greater than eighty
Speaker 6: percent of FMS investors who expect short term rates to
Speaker 6: be lower. You mentioned the dichotomy between sky high valuation
Speaker 6: on one hand and an increase in equity exposure. The other
Speaker 6: dichotomy in the FMS is the fact that everyone expects
Speaker 6: rate cuts. A net majority see at least four rate
Speaker 6: cuts from the FED in the next twelve months. And
Speaker 6: on the other hand, investors are actually very highly concerned
Speaker 6: about inflation, you know, and consequently, the expectations that bond
Speaker 6: deals will rise in the next twelve months is the
Speaker 6: high since August twenty twenty two, when inflation was a
Speaker 6: few points higher. So I do believe that this view
Speaker 6: that the global economy is heading into a global soft
Speaker 6: lending is at the heart of global investors stock optimism.
Speaker 6: But ultimately they think the globally economy will weaken, but
Speaker 6: inflation as well is going to stay elevated. Altogether, the
Speaker 6: soft lending conviction is the one that explains why investors
Speaker 6: optimism in terms of stock exposure is.
Speaker 1: Wisic ellies, I want to stay on that for a minute.
Speaker 1: You said that the number one tail risk right now
Speaker 1: is inflation exactly because of what you just put out there.
Speaker 1: We're seeing inflation above two percent, We're seeing inflation above
Speaker 1: two and a half percent. What will it take for
Speaker 1: this to manifest itself in the psychees of investors?
Speaker 6: Okay, I do believe that the conviction that yes, inflation
Speaker 6: is here to stay above target, but AI, which is
Speaker 6: again dominant micro force that is driving investors bullishness, will
Speaker 6: be able to lift productivity growth over the long term,
Speaker 6: help put profits growth and health margin. Is what is
Speaker 6: also holding investors optimism in an environment where inflation is
Speaker 6: above target is the fact that the hyper scalers able
Speaker 6: to increase capex right an environment where inflation is high,
Speaker 6: usually investors would be a little bit worried about corporates
Speaker 6: increasing capex at the extent Hyperscaler are doing. And yet
Speaker 6: in this survey we find out that the CIOs, the
Speaker 6: typical fund managers participant, is asking CFOs to focus on
Speaker 6: capex more than anything else.
Speaker 4: AI.
Speaker 6: The conviction that AI is the dominant macro force is
Speaker 6: why at the end of the day, investors are bullish
Speaker 6: and they think inflation is Yes, it is a concern,
Speaker 6: but is not detrimental to stocks.
Speaker 1: And it fits this puzzle, this idea of how you
Speaker 1: can have ongoing growth without commensurate inflation and maybe a
Speaker 1: pretty chepid rate of hiring. I am curious about your
Speaker 1: view on the dollars. We've been talking a lot about
Speaker 1: the weakening trend that we've seen over the past number
Speaker 1: of months. You said that the fourth quarter pain trade
Speaker 1: seems to be a stronger dollar. Just how overweight our
Speaker 1: investors this idea of a weekening dollar right now.
Speaker 6: Look, if you look at the fund manager survey in itself,
Speaker 6: investors say that they are underway the dollar. We hit
Speaker 6: peak dollar bearishness in June. Since then it stabilized around
Speaker 6: that level. But when you look also at the hard
Speaker 6: positioning data, the flows data. To US, it feels that
Speaker 6: investors are emotionally burished on the dollar rather than physically verish.
Speaker 6: If you look at the flows data, the picture that
Speaker 6: we solver the summer is quite mesmerizing because with in fact,
Speaker 6: we didn't see any net new inflows to US equity funds,
Speaker 6: but at the same time in August we actually saw
Speaker 6: the biggest monthly inflow to US bond funds, driven by
Speaker 6: near record pace of inflows into US IG funds.
Speaker 4: So if investors were truly perish.
Speaker 6: Physically berish on the dollar, they would they would not
Speaker 6: be buying US bonds at a record pace. So we
Speaker 6: think it's really a matter of hedging. Investors want to
Speaker 6: hedge against a weeker dollar, but they are not ready
Speaker 6: to sell the beloved US assets. And we think that
Speaker 6: US dollar bear market or the debasement of the US
Speaker 6: dollar is to us the cleanest investment theme into twenty
Speaker 6: twenty six. The price of gold, the price of crypto's
Speaker 6: signal that the dollar will weaken further.
Speaker 2: Allies, before you go and just want to sweaze this in.
Speaker 2: You're sitting in London. The present is going to join
Speaker 2: you in the next twenty four hours or so he'll
Speaker 2: arrive in the UK as well. You've got these contrarian
Speaker 2: long trades in here, bonds being one the other UK
Speaker 2: equities elis, why does that jump on the page to you?
Speaker 6: Look, this is why I'm in London today, you know,
Speaker 6: just to be an advocate of UK equalities. You know,
Speaker 6: a very unloved asset. You know what struck me in
Speaker 6: the fund manager service that investors will already underweight UK stocks,
Speaker 6: but what happened in September is that they decrease their
Speaker 6: allocation to UK equities by the most since two thousand
Speaker 6: and four, matching the biggest drop on record.
Speaker 4: So if investors truly.
Speaker 6: Believe that the economy will be heading into a soft lending,
Speaker 6: that bond yields will remain anchor and we won't see
Speaker 6: a big breakout of global government bond yields. I think
Speaker 6: there is one asset that is very cheap, very much
Speaker 6: and their own, and in which you can get to
Speaker 6: a big bank for your buck.
Speaker 4: It's UK Greece.
Speaker 2: Stay with us. More Bloomberg surveillance coming up after this.
Speaker 2: The latest in this market an upside surprise on US
Speaker 2: retail sales. The control group positive zero point seven percent.
Speaker 2: The estimate and our survey we were looking for zero
Speaker 2: point four with us around the table. Steve Rashutto of
Speaker 2: zero Steve Goomonik, good morning. It's going to see you, sir,
Speaker 2: at the epicenter of your research. I think you're cool
Speaker 2: at the moment. You ask the right question, just how
Speaker 2: restrictive is monetary policy? Clearly the Federal Reserve's got one
Speaker 2: opinion on that. What's yours.
Speaker 7: Well, the Federal Reserve opinion is three percent is neutral.
Speaker 7: My view is four percent is neutral. So we're a
Speaker 7: heck of a lot closer to neutral than the Federal
Speaker 7: Reserve would be. Assuming the difference between us is what
Speaker 7: you assume for the real underlying rate of interest that's
Speaker 7: required in the economy to achieve the Fed's balanced trajectory
Speaker 7: of a long term maximum sustainable employment and low inflation.
Speaker 4: The FED thinks it's one percent. We think it's two percent.
Speaker 7: So if the Fed's credible at a two percent inflation rate,
Speaker 7: which is largely be questionable as well, then you're at
Speaker 7: three percent or you're at four percent.
Speaker 4: I'm trying to understand this market move. I can't.
Speaker 1: Can you explain this to me, why is the bond
Speaker 1: market just not doing anything on the idea that we
Speaker 1: got retail sales that were hotter than expected across the board,
Speaker 1: and it seems like the US economy is doing just
Speaker 1: fine at a time when, yeah, the headline payrolls number
Speaker 1: has come in, but a lot of people are saying
Speaker 1: that's appropriate given some of the demographics.
Speaker 7: You know, you're asking the question is where have all
Speaker 7: the bond vigilanties gone. The answer really is they're all
Speaker 7: either indexers or closet indexers.
Speaker 4: So all they carry about is the performance. It's number one.
Speaker 7: Number two, there is a global deflationary force out there.
Speaker 7: Number three, it's hard to short a market in front
Speaker 7: of the Federal Reserve cutting.
Speaker 4: Interest rates, which they're going to do.
Speaker 7: And then there's a fourth consideration, which is for a
Speaker 7: lot of people in the marketplace, these levels of yields
Speaker 7: are attractive because they really have never witnessed substantially higher
Speaker 7: levels of yield and every time there's been a backup,
Speaker 7: they've done well by buying it. So you're in an
Speaker 7: environment where you're expecting the Fed to cut not only once,
Speaker 7: but potentially three times before the end of the year.
Speaker 7: They're not going to do a jumbo rate cut, although
Speaker 7: there will be voices around the table for a jumbo
Speaker 7: rate cut. So in that environment, it kind of makes
Speaker 7: sense for people just won't short this market, and if
Speaker 7: you won't short it, it's hard to make it go down.
Speaker 1: In christ you said something in there that there's a
Speaker 1: global deflationary force.
Speaker 4: Correct. If that's the case, why.
Speaker 1: Don't we all buy bonds because ultimately then we're not
Speaker 1: worried about inflation anymore and we're getting something real for
Speaker 1: our money.
Speaker 7: Well, that's exactly part of the problem is you have
Speaker 7: this global deflationary force. And the question is you saw
Speaker 7: the import price numbers going up, they're still relatively tame.
Speaker 1: What is this deflationary force?
Speaker 4: What are you talking It's China.
Speaker 7: China is the global deflationary force. It's replaced Japan as
Speaker 7: the global deflationary force.
Speaker 4: It has to dump product around the world. And that's
Speaker 4: one of.
Speaker 7: The reasons why I don't think you're seeing the amount
Speaker 7: of impact from the Trump tariffs, because I think you know,
Speaker 7: even though import prices are going up, when you look
Speaker 7: against the tariffs, they're not going up as much. So
Speaker 7: I do agree that I think the importers are dealing
Speaker 7: with some of the terriffs. But I also think that
Speaker 7: people are exporting or dealing with some of the tariffs
Speaker 7: and it's getting absorbed that way. And I think there's
Speaker 7: an additional factor that people are fearful of in here,
Speaker 7: and that is whether or not this administration is going
Speaker 7: to attempt to do something like yield curve control by
Speaker 7: adjusting the long term supply of treasury debt. So when
Speaker 7: you roll all those factors we talk to together, you
Speaker 7: can see why it's hard to get the market to
Speaker 7: short in this environment.
Speaker 2: Is that what you're spank thinking, I'm kind of yield
Speaker 2: ca control.
Speaker 4: Well, that's the fear.
Speaker 7: I don't think Scott Bessint has moved towards it, but
Speaker 7: everyone is convinced he's going to if push comes to show,
Speaker 7: because Donald Trump wants lower interest rates and he has
Speaker 7: more room to go in terms of raising money in bills.
Speaker 4: Now.
Speaker 7: It's also interesting, despite all the money they're raising in
Speaker 7: the tariffs, you know, you are seeing the budget deficit
Speaker 7: still deteriorate fairly rapidly, So there is going to be
Speaker 7: more supply coming down the pipeline, but they may wind
Speaker 7: up just doing it all in bills.
Speaker 2: It's funny that when you talk about yieldca control, I
Speaker 2: think about monetary policy, and you think about it coming
Speaker 2: down to the treasury. How important it's that distinction.
Speaker 7: Well, there is a big distinction between the two of them,
Speaker 7: because one is a function of a central banker making
Speaker 7: a decision based on a hard and fast policy rule,
Speaker 7: and the other is based on a political decision. And
Speaker 7: it's that politicizing of this. It's the interest rate environment
Speaker 7: that I think is a big, big, big part of
Speaker 7: the fact of why yields can't go down.
Speaker 1: How long can bonds and stocks keep rallying together? At
Speaker 1: the point, given everything you said.
Speaker 7: Well, I mean, the equity market looks pretty good. Look,
Speaker 7: my forward earnings numbers are very good. My earnings revision
Speaker 7: factors are very very good. We having pushed multiples to
Speaker 7: any significant level. I think to get back to the
Speaker 7: question you asked earlier, which was why is the dollar
Speaker 7: not doing well?
Speaker 4: Why did the dollars sell off? A little bit?
Speaker 7: On this, I should say improve a little bit on this,
Speaker 7: and that is because people had been expecting three rate cuts.
Speaker 7: That was the potential. And I myself, when I moved
Speaker 7: from nothing I said, might as well just throw in three.
Speaker 7: You know, now you're in a back drop. Now you're
Speaker 7: in a backdrop where you know, are you really just
Speaker 7: looking at two?
Speaker 1: So that's the reason why maybe the dollar is going
Speaker 1: to strengthen a little bit. Just going back to this,
Speaker 1: do you think that bond market investors, bond market traders
Speaker 1: are whistling past the graveyard just a little bit? Or
Speaker 1: do you think that they are right to focus on
Speaker 1: the overcapacity of China, the right to focus on the
Speaker 1: ability of companies to adapt and adjust and say, ultimately
Speaker 1: this will be a soft lending.
Speaker 7: If yields were higher, I'd be more convinced in answering
Speaker 7: that question. Yes, if we were in that four point
Speaker 7: fifty area, I think then you could sit there and say,
Speaker 7: maybe the bond market is correct, and we'll hold in
Speaker 7: because at least I'm being rewarded somewhat for the risk
Speaker 7: I'm taking. Because I've already got an inflation rate running
Speaker 7: at three right now, I'm getting no protection from that
Speaker 7: inflation rate. I'm missing one hundred basis points. That bothers
Speaker 7: me and it should be bothering the investors. But again,
Speaker 7: how can you short it against all those factors.
Speaker 2: So they've gone into the fence tomorrow. Just a final
Speaker 2: thought what I've already sent from you. From speaking to you,
Speaker 2: it sounds like you believe it's quite a mistake to
Speaker 2: anchor the view of the labor market just a round,
Speaker 2: a step down and payrolls growth. It's that a fat
Speaker 2: description of where you're at.
Speaker 7: I'm disappointed by the labor force growth numbers. I think
Speaker 7: I understand what's happening. Companies that have seen their margins
Speaker 7: being impacted, or afraid their margins would be impactive, opted for.
Speaker 4: A more cautious route.
Speaker 7: But they're having to pay their employees more, and they're
Speaker 7: having to work your existing employees more, and.
Speaker 4: They're still generating the income.
Speaker 7: I mean, is it a mistake to cut RGE twenty
Speaker 7: five basis points?
Speaker 4: Is it a mistake to get back to four percent
Speaker 4: on the Fed funds rate, which is where I think
Speaker 4: is neutral. No, you can live through that.
Speaker 7: Getting and saying we're going to get to three is
Speaker 7: where I have trouble with this market.
Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best
Speaker 2: in markets, economics, angiopolitics. You can watch the show live
Speaker 2: on Bloomberg TV. Weekday mornings from six am to nine
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify, or
Speaker 2: anywhere else you listen, and as always, on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business app.