WEBVTT - Surveillance: Peter Tchir's Favorite Hedge 0:00:05.120 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrell and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.880 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:30.880 the Bloomberg Terminal and the Bloomberg Business app. A hugely 0:00:31.200 --> 0:00:33.800 popular guests, and I don't mean popular in terms of 0:00:33.840 --> 0:00:36.600 fun and games, I mean insight and intellect. Peter Cher 0:00:36.720 --> 0:00:41.960 joins now at a macro strategy at Academy Securities. Peter, 0:00:42.120 --> 0:00:45.080 you were on fire last time. It was just really 0:00:45.120 --> 0:00:49.120 brilliant about the dovetail of all these narratives. How is 0:00:49.200 --> 0:00:52.080 your narrative changed, say, in ten days. 0:00:53.159 --> 0:00:55.400 Well, we're all having to process what's going on with 0:00:55.560 --> 0:00:57.840 Israel Hamas in the Middle East. So that's probably been 0:00:57.880 --> 0:01:01.320 the biggest change. It's been clearly of very sensitive issue. 0:01:01.880 --> 0:01:04.720 We think it's playing out right now kind of as 0:01:04.760 --> 0:01:08.679 it should. That Israel will eventually, you know, secure their borders. 0:01:08.720 --> 0:01:11.120 They will make sure that it is safe for their citizens, 0:01:11.319 --> 0:01:13.160 but they'll do it in such a way that it 0:01:13.200 --> 0:01:17.319 doesn't escalate this conflict beyond relatively small borders. 0:01:17.880 --> 0:01:19.959 Localized p is that the word that comes up with 0:01:20.040 --> 0:01:22.399 clients a again and again. Is there a belief that 0:01:22.440 --> 0:01:24.120 this can remain localized? 0:01:25.240 --> 0:01:26.959 Yeah, I think that is the belief, and I think 0:01:26.959 --> 0:01:28.760 that's what the market is pricing in right now, and 0:01:28.800 --> 0:01:32.600 it's rightfully so. Israel certainly has the capacity to eliminate 0:01:32.600 --> 0:01:34.760 the threat. They said they will eliminate the threat, but 0:01:34.840 --> 0:01:36.720 I think it's very positive that they are doing this 0:01:36.840 --> 0:01:41.200 carefully and cautiously to minimize civilian casualties. The two risks 0:01:41.520 --> 0:01:44.200 kind of that aren't priced in as an escalation with Iran. 0:01:44.280 --> 0:01:46.480 It seems like we're trying to take some backdoor channels 0:01:46.560 --> 0:01:51.520 to keep that threat low, or that something spurs the 0:01:51.680 --> 0:01:54.040 change in sentiment in Saudi Arabia. Saudi Arabia has been 0:01:54.040 --> 0:01:56.520 making a ton of progress in terms of westernizing their 0:01:56.520 --> 0:01:59.559 economy in terms of the Abraham Accords, so we're watching 0:01:59.560 --> 0:02:02.080 that very carefully and that's probably the main reason Israel 0:02:02.120 --> 0:02:03.320 is being very cautious as well. 0:02:03.360 --> 0:02:05.880 I think, do you believe America has the capacity to 0:02:05.960 --> 0:02:08.680 support two military conflicts simultaneously. 0:02:10.480 --> 0:02:11.880 We do, But. 0:02:12.120 --> 0:02:14.560 As some of our General, General Taptool has been very 0:02:14.639 --> 0:02:16.040 on top of this for a while. We have been 0:02:16.120 --> 0:02:18.359 underfunding parts of the military, so we're going to be 0:02:18.400 --> 0:02:20.600 a little bit stretched two fronts. I think is fine. 0:02:20.840 --> 0:02:23.000 It does leave us a little bit vulnerable. We are 0:02:23.040 --> 0:02:25.240 going to have to see a massive replenishment of our 0:02:25.280 --> 0:02:28.880 weapon systems as we've been providing weapons to Ukraine. It 0:02:28.880 --> 0:02:31.360 looks like we're going to help Israel in terms of 0:02:31.720 --> 0:02:34.880 refilling the Iron Dome weapons. So there's going to be 0:02:34.880 --> 0:02:36.360 a lot going on on the defense side for the 0:02:36.360 --> 0:02:37.520 next years to come. 0:02:37.560 --> 0:02:39.920 At this point, when it comes to refilling all of 0:02:39.919 --> 0:02:41.880 these supplies, it does take money. And something we've been 0:02:41.919 --> 0:02:45.440 talking about is there an appetite to expand defense spending 0:02:45.480 --> 0:02:47.520 at a time where borrowing has gone up and interest 0:02:47.560 --> 0:02:50.320 payments are going up as well. How does that factor 0:02:50.440 --> 0:02:52.519 into your calculus at a time where a lot of 0:02:52.560 --> 0:02:56.280 people are not fully understanding some of the gyrations, the 0:02:56.320 --> 0:02:57.639 long end of the yield curve. 0:02:58.400 --> 0:02:58.560 You know. 0:02:58.600 --> 0:03:00.840 The one thing. So we've got the at retire General's 0:03:00.840 --> 0:03:03.160 admirals and two astronauts to get to work with. The 0:03:03.400 --> 0:03:06.359 unified message we get is that in terms of national 0:03:06.440 --> 0:03:10.440 security issues, DC is actually very bipartisan, very smart. Right, 0:03:10.480 --> 0:03:12.560 You do not get to sit on these high level 0:03:12.639 --> 0:03:19.000 national security committees unless you've demonstrated intelligence bipartisanship. So I'm 0:03:19.000 --> 0:03:22.000 actually very comfortable that when we have these real threats, 0:03:22.080 --> 0:03:23.920 we will put together and do the right thing. So 0:03:23.960 --> 0:03:26.560 there will be spending, it will be well done, and 0:03:26.600 --> 0:03:29.240 it's necessary, and we have to kind of reinstate our 0:03:29.800 --> 0:03:31.480 influence in the globe which has been waiting. 0:03:32.160 --> 0:03:34.280 One thing that you do really well is you game 0:03:34.360 --> 0:03:36.840 out what is priced in and what isn't priced in. 0:03:36.920 --> 0:03:40.880 You said earlier that some sort of escalation with Iran 0:03:41.120 --> 0:03:43.880 is not being priced into the market. How would it 0:03:44.000 --> 0:03:46.760 be priced How do you see it percolating out in 0:03:46.840 --> 0:03:49.760 the market. Should there be some sort of expansion in 0:03:49.760 --> 0:03:53.640 the region with either RAN's, some of its proxy fighters, 0:03:53.760 --> 0:03:55.560 or just the nation itself. 0:03:56.080 --> 0:03:58.440 I think then you definitely see oil hit above one hundred, 0:03:58.520 --> 0:04:00.800 and they're more importantly, it wouldn't just be a short 0:04:00.840 --> 0:04:03.240 term spike. I think you'd start seeing futures build out 0:04:03.240 --> 0:04:05.240 that a much higher price for a year or two years. 0:04:05.960 --> 0:04:07.360 And that had given us some comfort on some of 0:04:07.360 --> 0:04:10.040 these recent spikes. It was much more consolidating the front 0:04:10.120 --> 0:04:12.200 end of the futures contract, not some of the longer 0:04:12.280 --> 0:04:15.880 data contracts. But if we really are going to impose 0:04:15.920 --> 0:04:18.960 sanctions on Iran, if they are going to potentially disrupt 0:04:19.240 --> 0:04:22.800 oil flow in the Middle East, that would have a 0:04:22.920 --> 0:04:25.520 much more serious impact. And I think the bond markets 0:04:25.520 --> 0:04:27.720 can kind of shake off what's currently going on, but 0:04:27.839 --> 0:04:29.919 that would probably push yields higher as we would be 0:04:29.960 --> 0:04:32.599 facing much higher oil prices for much longer. 0:04:33.200 --> 0:04:38.039 Peter with an economics, finance and investment, you are a 0:04:38.120 --> 0:04:43.080 student of history. Amid war is a general rule. What 0:04:43.160 --> 0:04:44.080 do stocks do? 0:04:46.040 --> 0:04:49.159 You know? I think they get volatile and they are 0:04:49.279 --> 0:04:52.719 fluctuating when there's a lot of uncertainty. But once it 0:04:52.760 --> 0:04:54.640 looks like the path has come through, we generally tend 0:04:54.680 --> 0:04:56.560 to rally. I think we had that just recently with 0:04:56.600 --> 0:04:59.760 Russian Ukraine. There's that initial fear factor and then as 0:04:59.760 --> 0:05:01.680 people say, Okay, this is what it looks like, this 0:05:01.760 --> 0:05:03.840 is how it's controlled, this is what we do about it, 0:05:03.960 --> 0:05:06.440 we can rally. And again, the position was fairly light 0:05:06.480 --> 0:05:08.520 I think coming into this, so I'm not surprised that 0:05:08.560 --> 0:05:11.000 we can get a nice rally if we maintain the 0:05:11.040 --> 0:05:14.200 status quo and Saudi keeps making the right signals and 0:05:14.279 --> 0:05:15.400 Iran doesn't escalate this. 0:05:15.800 --> 0:05:20.000 Yeah, I look at the catharsis required and I'll let 0:05:20.040 --> 0:05:23.120 somebody else smarter than me determine if we've had bond catharsis. 0:05:23.680 --> 0:05:25.640 But I think we can certainly say we have not 0:05:25.839 --> 0:05:29.160 seen equity catharsis. Is that required? 0:05:30.640 --> 0:05:34.000 You know, we saw so much equity catharsis last time around, 0:05:34.040 --> 0:05:36.440 you know, the last year, So I'm not sure how 0:05:36.480 --> 0:05:38.880 much catharsis there is left to have. So it's hard 0:05:38.960 --> 0:05:41.680 to get super bullish. You know, Forty forty six hundred 0:05:41.800 --> 0:05:44.559 SMP seems tops. Maybe forty two hundred I think seems 0:05:44.560 --> 0:05:46.640 to be a bottom right now, unless something happens in 0:05:46.640 --> 0:05:47.120 the the least. 0:05:47.560 --> 0:05:48.960 What are you hoping to hear from all of the 0:05:48.960 --> 0:05:51.320 FED speakers? Do you think that they are that important 0:05:51.360 --> 0:05:54.400 at this point with such heightened uncertainty as we get 0:05:54.400 --> 0:05:58.000 the last gasp before the quiet period, I. 0:05:57.920 --> 0:05:59.720 Think they're going to make it very clear that the 0:05:59.800 --> 0:06:03.120 day has not been consistently strong enough to hike, that 0:06:03.160 --> 0:06:05.120 they really don't want to hike. I like the fact 0:06:05.160 --> 0:06:07.120 that they're talking about real yields. We've been talking about 0:06:07.160 --> 0:06:08.880 that for a couple of months of how important that is. 0:06:09.120 --> 0:06:11.080 We are starting to see this filter into the economy. 0:06:11.080 --> 0:06:12.840 Were hearing more and more. I don't want to say 0:06:12.839 --> 0:06:15.080 horror stories, but you know stories of companies that we're 0:06:15.120 --> 0:06:17.760 borrowing at seven percent that are now facing fourteen percent 0:06:18.040 --> 0:06:20.240 as their debt matures. So I think they're supposed to 0:06:20.279 --> 0:06:23.000 pause and let this play out, especially now with the 0:06:23.040 --> 0:06:23.880 global uncertainty. 0:06:24.760 --> 0:06:27.640 Now, well, the global uncertainty is there, but then it's 0:06:27.680 --> 0:06:30.520 by straw hats and winter. What are you acquiring today? 0:06:30.520 --> 0:06:33.280 I mean, I'm assuming you're not one hundred percent in cash, 0:06:33.839 --> 0:06:34.680 So what do you buy? 0:06:35.520 --> 0:06:37.240 You know, I like bonds. Again, We've been trying to 0:06:37.560 --> 0:06:39.640 raytrange this. As you know, we got to four eighty, 0:06:39.680 --> 0:06:40.880 you want to buy a lot of tens. As you 0:06:40.920 --> 0:06:43.080 get back to four fifty, you sell some same on 0:06:43.120 --> 0:06:45.120 the stocks. Right, It's kind of that range. As you 0:06:45.200 --> 0:06:47.080 start pushing towards forty five hundred, you want to be 0:06:47.120 --> 0:06:49.080 reducing risk on the S and p. As you get 0:06:49.080 --> 0:06:50.719 below forty three hundred, you want to be adding. So 0:06:50.720 --> 0:06:53.200 I think it's a trader's market, and you do want 0:06:53.240 --> 0:06:55.520 some hedges. My favorite hedges right now, I think are 0:06:55.520 --> 0:06:59.520 buying calls on treasuries because if we get this geopolitical escalation, 0:07:00.440 --> 0:07:02.120 although oil is going to go high on fed Canton 0:07:02.160 --> 0:07:03.720 Nord at the front end, I think the back end 0:07:03.760 --> 0:07:05.279 is going to start pricing in a true flight to 0:07:05.279 --> 0:07:06.480 safety trade. 0:07:06.480 --> 0:07:08.080 How are you getting a raid on the potential for 0:07:08.160 --> 0:07:11.040 escalation if there's one particular voice you're following at the moment, 0:07:11.080 --> 0:07:11.920 whose voice is it? 0:07:13.120 --> 0:07:15.200 There's not one particular voice. So we're searching around and 0:07:15.240 --> 0:07:18.800 again I've got the luxury that we've got sixteen specifically 0:07:18.840 --> 0:07:21.280 generals and admirals who retired who are talking to people 0:07:21.720 --> 0:07:25.760 across the US, across the world to the IDF. So 0:07:25.760 --> 0:07:28.200 we're trying to distill this information that we get and 0:07:28.240 --> 0:07:30.239 that's what we're trying to look for, these tiny little 0:07:30.240 --> 0:07:32.520 signals that aren't on the radar screen. So it's a 0:07:32.560 --> 0:07:34.520 little bit tricky, but I think we're trying to manage 0:07:34.560 --> 0:07:35.080 it pretty well. 0:07:35.240 --> 0:07:38.080 Pity chaer managing it very well. Thanks for being with 0:07:38.080 --> 0:07:40.760 a acountby Securities. Pete appreciate it as a wiemke. 0:07:44.720 --> 0:07:47.360 What's really great about this is our next guest, Lisa. 0:07:47.800 --> 0:07:49.240 I said to him, Ike said, you know what do 0:07:49.320 --> 0:07:51.160 you think? He says, I'm not coming on again until 0:07:51.200 --> 0:07:53.240 the tots are in first place, so you know, as 0:07:53.240 --> 0:07:54.120 it worked out well. 0:07:54.080 --> 0:07:57.680 Well, fantastic congratulations Steven Major, Global head of Fixed Income 0:07:57.720 --> 0:08:00.600 Research at HSBC, And really I am. I'm so glad 0:08:00.600 --> 0:08:02.600 to speak with you. We're at a time of an 0:08:02.600 --> 0:08:07.040 incredible bond bear market. You've been bullish. How can you 0:08:07.080 --> 0:08:10.960 reconfirm that? Reaffirm that at a time we don't really 0:08:11.040 --> 0:08:13.520 understand why the cell off has been so severe. 0:08:13.880 --> 0:08:17.320 Yeah, there's been a capitulation, so there'll be people like me, 0:08:17.840 --> 0:08:20.080 but people with skin in the game, people who are 0:08:20.120 --> 0:08:23.280 actually long with bonds who have had to cut the position. 0:08:23.600 --> 0:08:27.400 That could be for risk management considerations, it could be 0:08:27.400 --> 0:08:29.720 because clients are taking their money out and they're having 0:08:29.720 --> 0:08:32.240 to respond to that. So I think there's a capitulation. 0:08:32.280 --> 0:08:35.880 There's evidence of capitulation in the way the term premium moved. 0:08:36.280 --> 0:08:39.440 So it's the back end that's where the action is, 0:08:39.840 --> 0:08:42.520 and I think there's a lot more safety in the 0:08:42.559 --> 0:08:43.000 front end. 0:08:43.120 --> 0:08:43.480 Right now. 0:08:43.480 --> 0:08:46.600 You can see twos are behaving differently. Maybe for the 0:08:46.640 --> 0:08:49.559 first time this year, twos have become safe, and I 0:08:49.640 --> 0:08:52.160 think the mantra has been don't touch the twos all 0:08:52.240 --> 0:08:54.160 year because you would have been going against the FED. 0:08:54.520 --> 0:08:57.280 If the Fed's done now more or less, then you're 0:08:57.320 --> 0:09:00.360 fairly safe entering twos. And that's how the bomb market 0:09:00.400 --> 0:09:02.760 can start to perform better. Money will creep up from 0:09:02.800 --> 0:09:05.040 the front. That's why people are leaving the back end 0:09:05.080 --> 0:09:05.880 alone at the moment. 0:09:06.080 --> 0:09:07.920 There's a lot there to unpack. I just want to 0:09:07.960 --> 0:09:10.320 go to the whole capitulation story. You said there are 0:09:10.360 --> 0:09:14.120 signs of capitulation where who is selling so aggressively at 0:09:14.160 --> 0:09:15.320 a time when a lot of people are saying it's 0:09:15.320 --> 0:09:15.880 a buyer strike. 0:09:16.320 --> 0:09:20.120 Yeah, I think it's probably real money. And there's this 0:09:20.240 --> 0:09:23.920 game in fixed income about discussing the marginal buyer and seller. 0:09:24.000 --> 0:09:26.400 The truth is you never know to it afterwards. Right, 0:09:26.760 --> 0:09:30.120 The bomb market is fairly sophisticated, but you don't know 0:09:30.640 --> 0:09:33.160 the buyers until after it happened. You can see the 0:09:33.200 --> 0:09:36.760 supply coming because it's published, but you don't know who 0:09:36.800 --> 0:09:37.319 actually bought. 0:09:37.360 --> 0:09:39.360 There's a lot of gaming of who's going to buy. Right. 0:09:39.920 --> 0:09:42.240 It seems to me the marginal buyer has to be domestic, 0:09:42.480 --> 0:09:44.480 so it has to be here in the US because 0:09:44.520 --> 0:09:47.280 the official sector overseas is not sponsoring the market as 0:09:47.280 --> 0:09:50.079 it was before the private sector isn't picking up enough, 0:09:50.320 --> 0:09:52.520 so it has to be inside here. Now seventy percent 0:09:52.559 --> 0:09:54.920 of treasuries are held in the US. Of course the 0:09:54.960 --> 0:09:57.600 Fed's a big part of that. But the story is 0:09:57.600 --> 0:09:59.720 it has to be here. It's probably not the banks. 0:10:00.480 --> 0:10:04.160 Real money has already taken long positions and maybe adjusting, 0:10:04.240 --> 0:10:06.840 So it has to go into retail. It has to 0:10:06.880 --> 0:10:09.800 go to small investors. It has to go to those 0:10:09.800 --> 0:10:13.120 who are inequities, so big investors on a multi asset basis, 0:10:13.160 --> 0:10:15.719 so people coming out of stocks into bonds, people going 0:10:15.760 --> 0:10:16.959 from cash into bonds. 0:10:17.200 --> 0:10:18.840 That's where the marginal bone is. 0:10:19.360 --> 0:10:22.640 The great furyre Steve Major is what I call the 0:10:22.679 --> 0:10:25.880 Whalen silence. Chris Whalen, with this wonderful one volume of 0:10:25.920 --> 0:10:29.400 America financial history. We're in the buyer amerket. You're trying 0:10:29.440 --> 0:10:31.000 to do something, and all of a sudden, on the 0:10:31.000 --> 0:10:32.719 other end of the phone, whether it's the eighteenth and 0:10:32.760 --> 0:10:36.720 nineteen twentieth century, there's silence. Are we anywhere near that? 0:10:37.000 --> 0:10:37.440 Yeah? 0:10:37.559 --> 0:10:41.280 Well, that's a really good point because it does seem 0:10:41.679 --> 0:10:44.079 that there's been a bit of a buyer strike, and 0:10:44.240 --> 0:10:46.200 so the evidence for that is in the auctions, So 0:10:46.200 --> 0:10:48.240 you look at the cover ratios, so how many people 0:10:48.280 --> 0:10:50.280 showed up to buy the bonds at the auction. There's 0:10:50.360 --> 0:10:52.280 less there, especially in the long end of the ten 0:10:52.320 --> 0:10:55.240 and the thirty year vapor. But it gets to the 0:10:55.280 --> 0:10:59.400 point where the value is just too obvious. You've mentioned 0:10:59.400 --> 0:11:02.160 a real yield several times in the on the show, 0:11:02.800 --> 0:11:06.120 and but when when the But you know, when the 0:11:06.160 --> 0:11:09.960 real yield is comfortably above the trend GDP rate, the 0:11:10.000 --> 0:11:13.840 actual trenched DP and the projected trendy DP, then you're 0:11:13.880 --> 0:11:17.280 pretty covered. So the inflation piece is locked. When the 0:11:17.320 --> 0:11:19.640 real yield is above the trenched DP, you're not going 0:11:19.679 --> 0:11:20.480 to go too far wrong. 0:11:20.559 --> 0:11:20.640 Now. 0:11:20.679 --> 0:11:24.080 I'm not saying that today it's free money. It's just 0:11:24.120 --> 0:11:25.920 that you'll look back in six months time and you 0:11:25.960 --> 0:11:28.280 should be happy with the investment you made today. 0:11:28.520 --> 0:11:31.400 Seven hundred pages at the imfter bluebook, the Green Book, 0:11:31.440 --> 0:11:34.240 the Red Book. Gergiev says she's going to print a 0:11:34.280 --> 0:11:35.960 copy just for me so I can read it. The 0:11:35.960 --> 0:11:42.839 one appendix I read was Tobius Adrian Fiscal Instability, Liquidity 0:11:43.000 --> 0:11:47.640 and Solvency. Does Steve Major have liquidity and solvency issues? 0:11:47.760 --> 0:11:49.640 Is written in his appendix. 0:11:49.200 --> 0:11:53.040 Get the solvency, the US is going to pay its bonds. 0:11:53.080 --> 0:11:56.880 So the the idea that you have a ratings issue, 0:11:56.920 --> 0:11:58.640 and the ratings explain the yould shift. 0:11:58.800 --> 0:12:00.520 So what about liquidity. 0:12:00.800 --> 0:12:03.640 Now, this is the price of getting stuff done in 0:12:03.679 --> 0:12:07.280 plain English, right, that's what liquidity is. So when the 0:12:07.360 --> 0:12:09.920 market is illiquid, it's more difficult to get a big 0:12:09.960 --> 0:12:12.160 trade done, so you have to pay a bigger bid 0:12:12.200 --> 0:12:17.360 office spread. That's my simplistic, plain English explanation. There is 0:12:17.400 --> 0:12:20.560 a liquidity issue right now because the banks aren't prepared 0:12:20.600 --> 0:12:21.800 to hold big inventory. 0:12:21.880 --> 0:12:23.760 The intermediariesm are just not there. 0:12:24.200 --> 0:12:28.080 And liquidity and risk premium tend to move together. So 0:12:28.480 --> 0:12:31.400 if we have an ill liquid market, then the risk 0:12:31.400 --> 0:12:33.760 premium goes up, and that's your term premium and the 0:12:33.840 --> 0:12:34.840 higher yield in the long end. 0:12:34.880 --> 0:12:37.559 That's what's happening right now. I look back at this and. 0:12:37.520 --> 0:12:40.040 I think you've got record moves in the term premium, 0:12:40.080 --> 0:12:42.959 even back to twenty thirteen. And don't forget the context 0:12:43.080 --> 0:12:46.160 is important here, Tom and Lisa. Back in twenty thirteen, 0:12:46.200 --> 0:12:48.679 the taper tantrum was like the main thing that happened. 0:12:49.080 --> 0:12:51.920 Now you've had a two year bear market going into 0:12:51.960 --> 0:12:54.560 a three year bear market, So rates moved up a lot. 0:12:54.840 --> 0:12:57.439 Then the term premium flipped. You didn't have that back 0:12:57.480 --> 0:13:01.240 in twenty thirteen, So you really are entering a good 0:13:01.320 --> 0:13:02.160 level of yield. 0:13:01.960 --> 0:13:02.480 At the moment. 0:13:02.960 --> 0:13:04.800 Given the fact that you think that we're at a 0:13:04.800 --> 0:13:07.560 good level of yield, how do you sort of lean 0:13:07.559 --> 0:13:09.160 into the front end and not the back end? 0:13:09.240 --> 0:13:09.400 Right? 0:13:09.440 --> 0:13:11.360 Why aren't you just going all in on the ten years? 0:13:11.640 --> 0:13:12.920 Let me be absolutely clear. 0:13:13.040 --> 0:13:15.400 I think that investors who want to buy bonds for 0:13:15.480 --> 0:13:19.480 the first time, who rather shy, can creep into the 0:13:19.480 --> 0:13:22.600 two years out of a money market product, and they're 0:13:22.600 --> 0:13:25.040 not going to lose a lot of money. If any, 0:13:25.920 --> 0:13:28.200 you're safe in the two. So if you're shy and 0:13:28.240 --> 0:13:30.959 you're going into bonds for the first time, you're safe 0:13:30.960 --> 0:13:33.440 in twos. Then you creep up to threes. Now, for me, 0:13:33.600 --> 0:13:35.440 if I'm making a call for the next six months, 0:13:35.480 --> 0:13:37.760 of course i'd buy tens or thirties, because I'm going 0:13:37.800 --> 0:13:39.560 to look back in six months time and think that 0:13:39.600 --> 0:13:41.440 the yield's fallen one hundred bases. 0:13:41.520 --> 0:13:43.079 Where's it going though at the end of the year. 0:13:43.320 --> 0:13:45.840 Well, our forecast is three and a half. We're running 0:13:45.840 --> 0:13:49.559 out of weeks and months of course, but three and 0:13:49.600 --> 0:13:52.200 a half could be the right number in six months time. 0:13:52.920 --> 0:13:55.760 So I don't think we've got the directional call wrong here. 0:13:55.800 --> 0:13:58.640 I think yields will be lower. It's just that maybe 0:13:58.679 --> 0:13:59.720 our timing could be off. 0:14:00.840 --> 0:14:02.920 It's the same as I guess in West Ham's going 0:14:02.960 --> 0:14:05.480 to do well. We're running out of time. Steve Major 0:14:05.559 --> 0:14:08.600 One final question, a really just change. JP Morgan on 0:14:08.679 --> 0:14:11.040 stage in Morocco says she's modeling out of two and 0:14:11.080 --> 0:14:14.600 a half percent inflation adjusted yield. That took me back 0:14:14.640 --> 0:14:17.920 that Seeman was elevated. Take your nominal lower yield call 0:14:18.000 --> 0:14:20.560 and squeeze it into a real rate call. 0:14:20.760 --> 0:14:24.120 Yeah, so the two percent inflation is locked. If there's 0:14:24.120 --> 0:14:26.440 one thing that's come through all of this is that 0:14:26.480 --> 0:14:29.880 inflation target targeting is credible. The two percent inflation has 0:14:29.920 --> 0:14:33.040 not been been challenged in the break even forwards. So 0:14:33.160 --> 0:14:35.040 for me, it's all about real yield. Two and a 0:14:35.080 --> 0:14:39.120 half is just way above trend. Therefore we can take 0:14:39.120 --> 0:14:42.000 one hundred basis points off of that. I think that 0:14:42.120 --> 0:14:44.840 a fairer level for the real yield would be one 0:14:44.840 --> 0:14:46.480 and a half, not the two and a half that 0:14:46.520 --> 0:14:48.440 we're trading at at the moment, and by the way, 0:14:48.520 --> 0:14:50.920 that would still be above one hundred over the Fed's 0:14:50.960 --> 0:14:54.240 are star measures. So so you people are saying that 0:14:54.280 --> 0:14:56.920 the real rate needs to be higher, Well, it's priced 0:14:57.040 --> 0:14:57.960 as a lot higher. 0:14:58.080 --> 0:15:00.280 We're going to go Stephen Major, a joint US for 0:15:00.360 --> 0:15:14.520 the Hong Kong Shanghai Banking Corporation. We get expertise now 0:15:14.520 --> 0:15:16.320 as we've done it. Thanks to our team for really 0:15:16.320 --> 0:15:19.000 going internationally to get this done. Julie Norman is at 0:15:19.040 --> 0:15:23.200 the University College London UCL Center on US Politics, but 0:15:23.440 --> 0:15:27.240 also is weaned out of a PhD program and truly 0:15:27.280 --> 0:15:30.240 one of the world's experts on terrorism. Julie, what an 0:15:30.240 --> 0:15:34.240 honor to speak to you this morning. How is this terrorism? 0:15:35.240 --> 0:15:39.840 How is this as the President mentions narrow stridency of Hamas, 0:15:40.280 --> 0:15:41.920 how is it different this time? 0:15:43.680 --> 0:15:46.120 Yeah, Tom, this is a very different tactic than we 0:15:46.120 --> 0:15:49.040 see from Hamas obviously last weekend, and that's why the 0:15:49.080 --> 0:15:52.360 response that's being considered right now I was also expected 0:15:52.400 --> 0:15:55.280 to be very different, very different in scale, very different 0:15:55.320 --> 0:15:59.320 in tactic and operation. And also AUSTI has the end 0:15:59.400 --> 0:16:03.680 goal of quote unquote eliminating Hamas. That's I think going 0:16:03.720 --> 0:16:07.920 to be a difficult endgame that's going to be tactically 0:16:07.920 --> 0:16:12.480 difficult over these upcoming days weeks in Gaza and just 0:16:12.520 --> 0:16:15.200 on a broader level. Also, you know, Hamas has a 0:16:15.200 --> 0:16:19.480 lot of regional dispersal and they represent a certain type 0:16:19.480 --> 0:16:22.360 of resistance and I think a lot of Israel's choices 0:16:22.400 --> 0:16:25.000 in these next few days we have a lot of 0:16:25.040 --> 0:16:29.520 both moral and pragmatic implications in terms of as we 0:16:29.560 --> 0:16:33.120 see civilian casualties rise and whatnot, that will in some 0:16:33.200 --> 0:16:37.040 ways galvanize much of what Hemas's goals have been. And 0:16:37.080 --> 0:16:39.040 I think there are many who will step into their place. 0:16:39.120 --> 0:16:41.880 So it's a very difficult needle to thread right now. 0:16:41.920 --> 0:16:44.000 I think that's part of why we see Biden maybe 0:16:44.040 --> 0:16:47.240 considering a trip there as to seeing how can Israel 0:16:47.240 --> 0:16:50.480 respond to this but also try and avoid just a 0:16:50.560 --> 0:16:53.480 longer term security security risk and to. 0:16:53.400 --> 0:16:55.680 Play off one of your papers from a more peaceful 0:16:55.720 --> 0:16:59.640 time beyond hunger Strikes, a Palestinian prisoner's movement and every 0:16:59.720 --> 0:17:03.840 day resistance. Julie, you're as close to an expert on 0:17:03.880 --> 0:17:06.280 this as we're going to get. How do you perceive 0:17:06.400 --> 0:17:10.760 a military exercise from north to south in Gaza? 0:17:12.280 --> 0:17:15.720 Yeah, so, as it has been noted many times Gaza 0:17:15.880 --> 0:17:19.399 is an extremely difficult place to live but also to 0:17:19.440 --> 0:17:24.000 carry out a military operation. We've obviously seen already the evacuation, 0:17:24.200 --> 0:17:27.520 the movement of up to upwards of one million people 0:17:27.560 --> 0:17:31.000 from the north to the south, but there's really nowhere 0:17:31.040 --> 0:17:34.600 for people to go at this point, and so even 0:17:34.640 --> 0:17:37.360 if the operations stay mostly in the north, we're still 0:17:37.359 --> 0:17:41.359 looking at a very difficult humanitarian situation really throughout the strip, 0:17:41.520 --> 0:17:44.600 as well as just a likely devastation of infrastructure that 0:17:44.920 --> 0:17:47.920 I think makes an endgame very difficult to foresee here. 0:17:48.280 --> 0:17:51.600 We heard Biden speaking yesterday about, you know, trying to 0:17:52.119 --> 0:17:56.080 preclude a possible reoccupation of Gaza. It's very difficult to 0:17:56.119 --> 0:17:58.959 see what what governing or administration look like in Gaza 0:17:59.280 --> 0:18:01.959 after this. And again, most of the civilians where they 0:18:01.960 --> 0:18:04.520 are not going to have anywhere to go, and it's 0:18:04.560 --> 0:18:07.800 going to be very likely a very difficult situation for 0:18:08.280 --> 0:18:09.679 anyone stepping into that space. 0:18:09.840 --> 0:18:12.840 It's been incredibly difficult to understand what's going on, Julie, 0:18:12.840 --> 0:18:14.960 not only because a lot of the conversations are going 0:18:15.040 --> 0:18:18.000 down behind back channel discussions, but also because of a 0:18:18.119 --> 0:18:22.159 vast slew of misinformation intentionally being put out from a 0:18:22.240 --> 0:18:24.879 number of different sides. I'm wondering from your perspective, if 0:18:24.920 --> 0:18:27.560 you have a better sense of where the red lines are. 0:18:27.600 --> 0:18:31.080 We heard conflicting reports of Iran not wanting to get involved, 0:18:31.240 --> 0:18:33.439 then saying as soon as the ground operation starts, so 0:18:33.520 --> 0:18:36.480 ready to go in What have you gleaned over the weekend. 0:18:37.280 --> 0:18:39.640 Yeah, well, you're absolutely right, Lisa, there's been a lot 0:18:39.680 --> 0:18:42.560 of misinformation and I think all of us should be 0:18:42.680 --> 0:18:45.520 kind of careful and double checking many of the sources 0:18:45.560 --> 0:18:48.600 and whatnot. I would say in terms of Iran's movements 0:18:48.720 --> 0:18:52.600 that I think will really be the deciding factor into 0:18:52.920 --> 0:18:56.680 if and when and how this conflx escalates. Iran has 0:18:57.040 --> 0:18:59.720 much closer ties with has the Law in to the 0:18:59.760 --> 0:19:02.800