WEBVTT - Tariff Delay Leads to Market Reprieve 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business app. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.120 us live on YouTube. 0:00:27.200 --> 0:00:30.960 We have right now the perfect guests, given the uncertainties 0:00:31.040 --> 0:00:35.519 out there, the unknown unknowns and selected and movable know knowns. 0:00:35.640 --> 0:00:38.680 Edward your Denny joins us after decades of work with 0:00:38.720 --> 0:00:42.239 c J. Lawrence partran out of Yale University and his 0:00:42.280 --> 0:00:46.080 own yard Denny Research, and he's been absolutely brilliant. Kudos 0:00:46.120 --> 0:00:49.320 as well to Ralph and Kompora for calling the October 0:00:49.360 --> 0:00:52.560 low and I think it was twenty twenty four. Edgar Denny, 0:00:52.560 --> 0:00:56.240 thank you so much for joining Bloomberg. Thank you this morning. 0:00:56.760 --> 0:00:57.160 Ed at the. 0:00:57.120 --> 0:01:01.160 Bottom you go contrarian of your note yesterday, and I 0:01:01.200 --> 0:01:04.640 want to paint this. I said that one of the interns, 0:01:04.640 --> 0:01:09.119 excuse me, they're junior analysts. They're not interns anymore. Year 0:01:09.200 --> 0:01:13.640 Denny doesn't call him interns, the junior analysts, and ed 0:01:13.680 --> 0:01:15.640 I talked to a junior analysts and I tried to 0:01:15.680 --> 0:01:22.080 explain how odd this uncertainty is around presidential whim. How 0:01:22.080 --> 0:01:25.080 do you invest for the long term given in the 0:01:25.120 --> 0:01:27.319 buffeting of Trump tweets. 0:01:27.959 --> 0:01:30.360 Well, I think you have to tune it out. It's 0:01:30.440 --> 0:01:35.120 become more noise than signal. You know, the news changes 0:01:35.560 --> 0:01:37.800 on a daily basis, and I think the market is 0:01:37.880 --> 0:01:41.040 figured that out. You know, we had Liberation Day on 0:01:41.360 --> 0:01:47.200 April second. It was postponed on April ninth until July ninth, 0:01:47.240 --> 0:01:50.960 and now that's been postponed until August first. And the 0:01:51.200 --> 0:01:55.400 market reacted badly to that news yesterday, but not that 0:01:55.560 --> 0:01:59.480 badly all things considered. And it's not down much today 0:02:00.040 --> 0:02:03.880 because everybody's talking about this is the art of the deal, 0:02:03.920 --> 0:02:08.359 this is the way negotiations go when Trump is in charge. 0:02:08.680 --> 0:02:11.800 I will not mince words, folks. A subscription to your 0:02:11.840 --> 0:02:15.240 Denny Research is worth its weight in gold, not because 0:02:15.280 --> 0:02:17.359 of what he tells you to do, but what he 0:02:17.440 --> 0:02:19.880 tells you not to do, which just to go to 0:02:19.960 --> 0:02:24.359 cash in market time. Here's the final paragraph written yesterday. 0:02:24.639 --> 0:02:27.800 We are going to stick with our contrying position and 0:02:27.840 --> 0:02:30.400 bet that the dollar will rebound. I just have to 0:02:30.440 --> 0:02:33.880 stop it there. Talk about contrarian ed yard. Denny. You 0:02:33.880 --> 0:02:36.040 look at a dollar rebound, and do you look for 0:02:36.080 --> 0:02:37.560 a healthy earning season. 0:02:39.040 --> 0:02:43.120 Well, I'm not sure I know of anybody who's bullish 0:02:43.200 --> 0:02:46.800 on the dollar. I think everybody's not just neutral, but 0:02:46.880 --> 0:02:50.440 just outright bearish. It's as though the dollar is about 0:02:50.480 --> 0:02:54.400 to be replaced as a reserve currency by the euro 0:02:54.600 --> 0:02:57.920 and the yu one and the yen, and I just 0:02:57.960 --> 0:03:02.200 don't buy any of that. I think that there's been 0:03:02.240 --> 0:03:08.760 a kind of a reaction to Trump's haranguing of the Fed, 0:03:08.880 --> 0:03:12.160 particularly Fed charge your own Powell. I mean, that's clearly 0:03:12.200 --> 0:03:17.799 weight on the dollar, as has the trade turmoil. But 0:03:18.720 --> 0:03:25.799 as we've seen in recent months, Trump is negotiating, there's 0:03:25.800 --> 0:03:29.360 a bluster and bullying going on there. That's the nature 0:03:29.440 --> 0:03:34.680 of deal making, particularly in New York City real estate negotiations, 0:03:35.040 --> 0:03:38.600 which is where his background is. So I think the 0:03:38.640 --> 0:03:40.960 market's kind of getting used to it, and I think 0:03:41.840 --> 0:03:45.240 that people are going to realize that there's not that 0:03:45.360 --> 0:03:48.480 much positive things going on in Europe other than maybe 0:03:48.880 --> 0:03:53.480 more defense spending, and the Japanese economy doesn't look all 0:03:53.520 --> 0:03:57.480 that wonderful. Meanwhile, the US economy is resilient, We've got 0:03:57.480 --> 0:04:00.680 a huge capital market. So i'd be bullish on the 0:04:00.720 --> 0:04:04.000 dollar here and on earnings, I think it's a layup. 0:04:05.120 --> 0:04:08.480 The estimates for the second quarter have been revised down 0:04:08.520 --> 0:04:11.080 to such an extent, I think they're only expecting a 0:04:11.120 --> 0:04:13.880 three percent increase in just like the first quarter. I 0:04:13.920 --> 0:04:15.720 think we're going to get a big upside surprise. 0:04:16.800 --> 0:04:19.039 I see you've got your research assistant in the background, 0:04:19.040 --> 0:04:20.880 their ed coming into the picture. 0:04:20.880 --> 0:04:22.479 We appreciate that. 0:04:22.480 --> 0:04:25.920 That gives us confidence. Hey, I mean, Bloomberg Economics is 0:04:25.960 --> 0:04:29.919 out with some some research today saying they think, you know, 0:04:30.080 --> 0:04:32.760 at the end of the day, tariffs are going to 0:04:32.800 --> 0:04:35.760 probably level out somewhere around fifteen fifteen and a half percent, 0:04:36.680 --> 0:04:39.919 up from about two percent two point three percent today. 0:04:40.680 --> 0:04:43.320 That's got to have a negative impact on global economies. 0:04:43.640 --> 0:04:44.600 How do you price that in? 0:04:46.160 --> 0:04:51.320 Well, it's it's interesting. Global stock markets are basically around 0:04:51.360 --> 0:04:54.080 the world at an all time record high. The MSCI 0:04:54.279 --> 0:04:56.880 for the world is at an all time record high. 0:04:56.960 --> 0:05:03.440 It's pretty impressive, and stock investors obviously believe that this 0:05:03.839 --> 0:05:07.200 tariff war isn't going to last very long. I don't 0:05:07.240 --> 0:05:11.039 think it will last very long because the administration has 0:05:11.080 --> 0:05:14.800 to recognize they do recognize that the midterm elections are 0:05:14.839 --> 0:05:17.159 coming up now it seems like, well that's November of 0:05:17.240 --> 0:05:21.840 next year. But the administration can't afford to have this 0:05:21.880 --> 0:05:26.680 trade war cause a recession in coming months because that 0:05:26.760 --> 0:05:31.560 will obviously hurt them in the midterm elections, and they've 0:05:31.560 --> 0:05:34.640 got a very few majority and the House and the Senate. 0:05:34.839 --> 0:05:37.920 Edgar Denny with us. We continue with Edge your Denny 0:05:38.080 --> 0:05:40.920 for a lengthy conversation in this hour. Welcome all of 0:05:40.960 --> 0:05:44.800 you in your commute. Good morning on Serious XM Channel one, one, 0:05:44.839 --> 0:05:48.240 Apple Car Play, Android Auto. I'm seeing the dashboards of 0:05:48.279 --> 0:05:51.599 the new cars, Paul, you know, like the beast you 0:05:51.720 --> 0:05:54.320 have it. It's like it looks like a spaceship. It 0:05:54.360 --> 0:05:57.320 is all and you gus the radio. You get fourteen flavors, 0:05:57.320 --> 0:06:00.200 and thank you for picking your flavor to listen and 0:06:00.240 --> 0:06:02.080 do us. Why don't you continue with that here. 0:06:02.080 --> 0:06:04.480 Ed, given kind of what we know about, maybe we're 0:06:04.520 --> 0:06:08.080 trade tariffs and so on, and policy may kind of 0:06:08.120 --> 0:06:10.160 flow here. It's going to be a little bit more restrictive. 0:06:10.320 --> 0:06:12.120 What does the Federal Reserve do here, Ed? 0:06:13.160 --> 0:06:13.520 Nothing? 0:06:14.320 --> 0:06:17.440 That's that's been my view since the beginning of the year. 0:06:17.520 --> 0:06:18.160 None and done. 0:06:19.040 --> 0:06:21.520 When they lowered the interest rates one hundred basis points 0:06:22.279 --> 0:06:25.440 at the end of last year. I thought that made 0:06:25.480 --> 0:06:28.679 no sense. I think they were reacting to some numbers 0:06:28.680 --> 0:06:31.039 that suggested things were getting weaker. But I thought the 0:06:31.080 --> 0:06:34.680 economy was actually going to prove resilient. And I also 0:06:34.720 --> 0:06:37.400 thought that the bondial would actually go up rather than down. 0:06:37.440 --> 0:06:40.239 And that's exactly what happened. Boniill went up one hundred 0:06:40.279 --> 0:06:42.480 basis points as they cut the Fed funds rate by 0:06:42.480 --> 0:06:43.719 one hundred basis points. 0:06:44.480 --> 0:06:46.000 That's the risk they have now if. 0:06:45.920 --> 0:06:52.120 They continue, if they resume easing, And so I endorsed 0:06:52.120 --> 0:06:56.280 their current approach, which is to say that there are 0:06:56.320 --> 0:06:59.560 no rush to lower interest rates. I would actually prefer 0:06:59.560 --> 0:07:01.480 if they said that there are no rush to do anything, 0:07:02.120 --> 0:07:04.400 because by saying they are no rush to lower industrates, 0:07:04.400 --> 0:07:07.320 they are indicating they think interest rates are restrictive when 0:07:07.360 --> 0:07:11.280 it's pretty clear the we're in nirvana right now. Unemployment 0:07:11.360 --> 0:07:14.000 rate is four point one percent, inflation is a little 0:07:14.000 --> 0:07:17.000 above two percent. Why mess with success? 0:07:17.360 --> 0:07:20.680 And you're Denny on the span of your study, I mean, 0:07:20.720 --> 0:07:23.040 I think of you inhibits and his equivalency, you know, 0:07:23.480 --> 0:07:25.600 in terms of the reach back to World War two 0:07:25.640 --> 0:07:31.000 and even back before that. The market treats the focus 0:07:31.240 --> 0:07:37.080 the narrowness of growth is unusual. But is it unusual 0:07:37.160 --> 0:07:40.880 to have so few stocks giving us growthiness and our 0:07:40.960 --> 0:07:44.680 focus into those twenty thirty forty stocks. 0:07:45.800 --> 0:07:47.920 Well, it's really not unusual when you look at it 0:07:47.960 --> 0:07:51.640 on a global basis. In most stock markets, there are 0:07:51.640 --> 0:07:55.920 a handful of big cap stocks that really account for 0:07:56.000 --> 0:07:59.480 most of the market cap of those markets. And I 0:07:59.480 --> 0:08:04.240 think we're in the same same story here. But look, 0:08:04.520 --> 0:08:07.280 I think that the reality is we've had a pretty 0:08:07.320 --> 0:08:10.720 broad bull market. It's just that the Magnificent seven have 0:08:10.840 --> 0:08:14.480 done so extraordinarily well that everything looks kind of punky. 0:08:15.080 --> 0:08:16.679 But that's not the case. 0:08:16.760 --> 0:08:20.280 I mean, we've had, you know, plenty of stocks twenty 0:08:20.360 --> 0:08:25.440 thirty percent, but since we bottomed on October twenty twenty two. 0:08:26.440 --> 0:08:30.760 But you know, the Magnificent Seven obviously have outperformed them all, 0:08:30.840 --> 0:08:34.640 and I have accounted for a lot of the global outperformance. Now, 0:08:34.640 --> 0:08:37.040 they kind of stumbled at the beginning of this year 0:08:37.480 --> 0:08:42.600 and the whole deep seek controversy whether that meant that 0:08:42.640 --> 0:08:47.400 these companies are spending too much on AI infrastructure, and 0:08:47.480 --> 0:08:50.359 they came back in the first quarter and their announcements 0:08:50.360 --> 0:08:53.240 and their earnings announcements and earning's calls and said, no, 0:08:53.320 --> 0:08:55.520 we're we're going to spend this kind of money because 0:08:55.559 --> 0:08:59.000 we think there really is a tremendous business to be 0:08:59.080 --> 0:09:04.079 had with AI. So they're moving forward. 0:09:04.520 --> 0:09:07.240 Do you think the mag seven continue forward here as 0:09:07.280 --> 0:09:13.560 you see US shares gaining overall market share away from Europe? Yeah? 0:09:13.559 --> 0:09:14.320 I do, I do. 0:09:14.400 --> 0:09:21.440 I'm I have been recommending overweighting the US since twenty 0:09:21.679 --> 0:09:25.080 ten and it's worked out extremely well. But I could 0:09:25.400 --> 0:09:30.480 overstay my welcome here. Certainly during the first quarter it 0:09:30.640 --> 0:09:35.959 made more sense to overweight Europe than it made sense 0:09:36.000 --> 0:09:38.840 to overweight the United States. But I kind of view 0:09:38.880 --> 0:09:43.440 that as just a temporary situation. I think the US 0:09:43.480 --> 0:09:49.160 will continue to outperform, though it is. It's that perform 0:09:49.200 --> 0:09:51.720 for so long that it's about seventy five percent of 0:09:51.800 --> 0:09:56.080 the market cap of the global stock market, So I mean, 0:09:56.120 --> 0:09:58.280 there's a limit to how much better it can get. 0:09:58.320 --> 0:10:02.520 I suppose it's been quite a run ed. 0:10:02.559 --> 0:10:04.600 We're going to have earning start next week. Our good 0:10:04.600 --> 0:10:07.160 friends at JP Morgan will kick things off in size here. 0:10:07.520 --> 0:10:09.640 What do you expect to see from this earning cycle? 0:10:09.760 --> 0:10:11.480 What do you expect to hear from companies as a 0:10:12.280 --> 0:10:14.520 talk about the you know, the coming quarters here, because 0:10:14.720 --> 0:10:19.439 last quarter they were arguably and understandably reticent about forecasting 0:10:19.480 --> 0:10:19.920 the future. 0:10:20.120 --> 0:10:20.320 Right. 0:10:21.360 --> 0:10:23.720 Well, you know, first off, the bat will be the 0:10:23.720 --> 0:10:28.720 big banks, and among them will be JP Morgan, and 0:10:29.200 --> 0:10:34.280 undoubtedly Jamie Diamond will be pessimistic as he tends to 0:10:34.320 --> 0:10:37.640 be be nice, and then report amazing results. 0:10:38.920 --> 0:10:42.440 And I got to stop the show. Ed. I looked 0:10:42.440 --> 0:10:46.680 at the Bloomberg FA screen yesterday for JP Morgan. They're 0:10:46.679 --> 0:10:51.120 making so much money huge. They don't want people to 0:10:51.240 --> 0:10:54.200 know how much money they're making. Am I off the 0:10:54.240 --> 0:10:56.920 mark on that? I don't know. 0:10:57.920 --> 0:11:00.800 All I know is that Jamie Diamond and of some 0:11:00.880 --> 0:11:06.120 other vocal billionaires keep telling us how bad things are. Listen, 0:11:06.280 --> 0:11:08.920 and he doesn't have a noisy because, like I mean, 0:11:08.920 --> 0:11:12.000 Michael by Rich they got Michael Barbat is appalling. 0:11:12.360 --> 0:11:15.080 And your Denny doesn't get an invite to the Bezos 0:11:15.120 --> 0:11:19.960 reading in Venice and he's going after billion billionaires to 0:11:20.000 --> 0:11:23.160 close it out. I had to close it out. Torsten Slock, 0:11:23.360 --> 0:11:29.080 brilliant German economist over at poly Global Management, says the 0:11:29.120 --> 0:11:33.240 bond market and the stock market now are inconsistent This 0:11:33.400 --> 0:11:36.800 is not consistent. Either the bond market is wrong in 0:11:36.960 --> 0:11:41.280 rates must move higher due to accelerating growth, or equity 0:11:41.320 --> 0:11:44.840 markets are wrong and stocks have to move lower because 0:11:44.880 --> 0:11:47.720 growth is slowing down. A wise one. 0:11:47.760 --> 0:11:52.080 Brief doctor slock which one is it? I think everything 0:11:52.200 --> 0:11:55.240 is kind of the way it should be. We've got 0:11:55.640 --> 0:12:02.160 the bond market basically has normalized since the abnormality we 0:12:02.280 --> 0:12:06.559 had between the Great Financial Crisis and the Great Virus Crisis. 0:12:06.640 --> 0:12:08.560 I have no problems with the bond market being here 0:12:08.600 --> 0:12:11.480 at four and a half percent plus minus twenty five 0:12:11.480 --> 0:12:14.520 basis points that's been our forecast since the beginning of 0:12:14.559 --> 0:12:18.240 the year, and low and behold, we're still there. And 0:12:18.320 --> 0:12:20.600 I have no problems with the stock market making an 0:12:20.640 --> 0:12:24.839 all time record high because of the resilience of the economy. 0:12:24.960 --> 0:12:29.200 So again, I think we have to pinch ourselves. We're 0:12:29.200 --> 0:12:32.120 in nirvana where the Fed funds rate is where it 0:12:32.160 --> 0:12:34.840 should be, the bondials are where they should be, and 0:12:34.880 --> 0:12:38.000 the stock market's reflecting the optimism about what I call 0:12:38.440 --> 0:12:42.439 the Roaring twenty twenties and the technological revolution we've been 0:12:42.440 --> 0:12:48.480 in since let's say the mid nineteen sixties with IBM 0:12:48.520 --> 0:12:52.360 mainframes leading to this digital revolution. 0:12:52.240 --> 0:12:55.280 For all of you across this nation and worldwide. Paul 0:12:55.320 --> 0:12:59.480 Sweene and I are really committed to reviewing what the 0:12:59.520 --> 0:13:03.840 bulls got right during this time and this turbulence. Names 0:13:03.920 --> 0:13:08.320 like Belski, names like Laidler, names like your Denny that 0:13:08.400 --> 0:13:11.240 had been smart enough to stay on board. Paul, I'd 0:13:11.280 --> 0:13:14.080 include lyz En Saunders. Sure, yeah, not the young guy 0:13:14.120 --> 0:13:17.079 working for him. I mean Kevin, you know I mean suspect. 0:13:17.160 --> 0:13:20.840 But I seriously, folks, this is really really important. If 0:13:20.920 --> 0:13:24.320 you agree or disagree with you your Denny, listen carefully. 0:13:24.360 --> 0:13:28.120 Can't say enough about your Denny at Research Doctor, your Denny, 0:13:28.160 --> 0:13:30.200 Thank you so much for joining us this morning. 0:13:35.520 --> 0:13:39.120 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:13:39.200 --> 0:13:42.360 weekday afternoons from seven to ten am Eastern. Listen on 0:13:42.440 --> 0:13:46.080 Applecarplay and Android Otto with the Bloomberg Business app, or 0:13:46.240 --> 0:13:47.720 watch us live on YouTube. 0:13:47.920 --> 0:13:48.960 So when Kelsey. 0:13:48.640 --> 0:13:51.680 Barrow walks in, you gotta be prepared. I mean, Bob, 0:13:51.720 --> 0:13:54.720 Michael Swanzers and we talked Greek and Latin with Kelsey. 0:13:54.760 --> 0:13:57.719 We gotta do the math. Paul watches the two s 0:13:57.800 --> 0:14:01.480 ten spread the Vanilla's difference. Youel between the ten year 0:14:01.520 --> 0:14:04.360 and the two year, we've had curve steepening where the 0:14:04.400 --> 0:14:07.320 two year was a full percentage point higher than the 0:14:07.360 --> 0:14:10.720 ten year, and we've steadily come up where right now 0:14:10.760 --> 0:14:14.040 the ten years half a percentage point higher than the 0:14:14.120 --> 0:14:18.720 two year. Two standard deviations of this curve steepening is 0:14:18.840 --> 0:14:22.400 sixty five basis points or a little over six tens 0:14:22.400 --> 0:14:25.760 of a percent. What are the ramifications to our listeners 0:14:25.760 --> 0:14:30.160 and viewers if curve steepening gets out there where it 0:14:30.200 --> 0:14:32.840 breaks through two standard deviation steepness. 0:14:33.120 --> 0:14:36.880 Yeah, so the curve has been steepening, it's been steepening 0:14:36.960 --> 0:14:41.000 from inverted levels. But when you look at the twos 0:14:41.040 --> 0:14:45.040 tens curve at fifty basis points versus history, that's still 0:14:45.040 --> 0:14:49.480 not a particularly steep yield curve. And I think that's 0:14:49.560 --> 0:14:54.480 because the FED policy setting at four and three eighths 0:14:54.600 --> 0:14:58.920 is still fairly restrictive. And so you know, we've had 0:14:59.000 --> 0:15:01.800 a modest move lower in the front end of the 0:15:01.880 --> 0:15:05.640 yield curve. We've had a modest move higher in front 0:15:05.760 --> 0:15:10.800 end in longer yields, but that normalization, it's essentially getting 0:15:10.880 --> 0:15:15.560 us back to a normal kind of environment, which now. 0:15:16.080 --> 0:15:18.680 Paul I just kind of tweet a message in here 0:15:18.760 --> 0:15:21.800 down from Washington emails in and says how far out 0:15:21.800 --> 0:15:25.880 the yield curve does the FED have influence directly? 0:15:25.960 --> 0:15:28.880 They only have influence over the very short short end. 0:15:29.920 --> 0:15:33.640 And so I think that is something that we've experienced 0:15:33.720 --> 0:15:36.960 even very recently, with the FED cutting rates at the 0:15:37.120 --> 0:15:40.800 end of twenty twenty four and the tenure yield actually 0:15:41.120 --> 0:15:45.320 moving higher in response to that as a function of 0:15:45.440 --> 0:15:48.320 I think what I would describe as those rate cuts 0:15:48.360 --> 0:15:52.400 were not necessarily cuts into a recession. Those were cuts 0:15:52.480 --> 0:15:56.720 into what I would describe as mid cycle adjustment cuts. 0:15:57.240 --> 0:16:01.880 We've been moving the policy rate towards neutral, and that's 0:16:01.960 --> 0:16:06.320 only further extended the cycle. So I think you know, 0:16:06.400 --> 0:16:09.600 the listener, and thank you for the question. I mean, 0:16:09.840 --> 0:16:15.240 it's a very key observations. It's a very key observation 0:16:15.520 --> 0:16:19.600 that you know there is no direct influence in the 0:16:19.640 --> 0:16:22.800 longer end of the curve. And let's step back and 0:16:22.840 --> 0:16:25.280 think about that structural shift that we've been seeing. There's 0:16:25.280 --> 0:16:27.520 a structural shift we've been seeing in the bond market 0:16:27.680 --> 0:16:33.560 away from the price insensitive holders, which were central banks 0:16:33.960 --> 0:16:38.640 the public sector, to price sensitive holders being the dominant 0:16:38.720 --> 0:16:42.960 driver of the market, that's the retail investor, that's the 0:16:43.080 --> 0:16:47.560 asset manager. They are taking on a larger role in 0:16:47.720 --> 0:16:51.800 the fixed income market, particularly as holders in the treasury market, 0:16:51.880 --> 0:16:55.320 and as a result, you've seen demand for higher term premium. 0:16:55.360 --> 0:16:56.400 Here how much. 0:16:56.320 --> 0:16:59.520 Credit risk does JP Morgan Asset Management want to take 0:16:59.560 --> 0:17:00.000 these days? 0:17:00.640 --> 0:17:04.080 So we're looking at companies and we're still seeing them 0:17:04.280 --> 0:17:07.840 in fairly good shape. So and I don't want to 0:17:07.880 --> 0:17:11.359 take that for granted, but when we press our credit 0:17:11.400 --> 0:17:14.720 analysts across every single sector and we ask them, and 0:17:14.800 --> 0:17:18.439 we've been asking them, what happens if the tarifrate stays 0:17:18.440 --> 0:17:21.320 at ten, what happens actually if the tarifrate goes up 0:17:21.359 --> 0:17:25.680 to twenty percent? How will your companies handle this? And 0:17:25.880 --> 0:17:28.960 what we found when we model out those scenarios is 0:17:28.960 --> 0:17:32.520 that even under a fairly stressed scenario, and I'm talking 0:17:32.520 --> 0:17:36.760 about investment grade companies right now, in a fairly stressed scenario, 0:17:37.000 --> 0:17:41.760 investment grade earnings and revenues will decline but will not 0:17:41.840 --> 0:17:46.399 turn negative under our assumptions, which just is an example 0:17:46.480 --> 0:17:53.240 of how strong the starting point is for companies these days. So, yes, 0:17:53.560 --> 0:17:56.879 I do see a lot of challenges for the economy. 0:17:56.920 --> 0:17:59.520 We're in a subtrend growth environment. I would say that 0:18:00.480 --> 0:18:05.480 with jobs data suggesting that the economy is very narrowly focused, 0:18:05.520 --> 0:18:10.280 it does suggest that there are risks that we are 0:18:10.440 --> 0:18:13.920 more susceptible to those risks. But at the same time, 0:18:14.359 --> 0:18:19.360 companies have been preparing for challenging environments for multiple years now, 0:18:19.400 --> 0:18:20.960 and that set them up to be in a fairly 0:18:21.000 --> 0:18:23.320 good position from a bondholder perspective. 0:18:23.520 --> 0:18:24.000 I look at the. 0:18:24.480 --> 0:18:28.000 End go function on the Bloomberg terminal, the Bloomberg Index browser, 0:18:28.400 --> 0:18:33.200 and fixed income in the US, US corporate high yield 0:18:33.400 --> 0:18:37.520 has been by far the best performer. So it seems 0:18:37.520 --> 0:18:41.280 like the market is still rewarding, you know, even a 0:18:41.320 --> 0:18:42.320 low investment grade. 0:18:42.640 --> 0:18:42.840 Yeah. 0:18:42.880 --> 0:18:46.080 Absolutely, So I would describe this as a carry environment. 0:18:46.320 --> 0:18:46.639 Okay. 0:18:47.160 --> 0:18:50.400 And so if you look at the current index yield 0:18:50.640 --> 0:18:53.719 on the ion screen right so you pull it up 0:18:53.760 --> 0:18:55.959 and you look at the yield to worst right now 0:18:56.080 --> 0:19:00.520 on the US High Eield Index at seven percent, I 0:19:00.560 --> 0:19:01.320 would say it is. 0:19:02.920 --> 0:19:03.560 I'm an equity. 0:19:03.560 --> 0:19:05.119 It's a massive jargon alert. 0:19:05.240 --> 0:19:08.120 Yes, ah, yeah, all right, just just your yield yield. 0:19:07.920 --> 0:19:11.680 To worst yield is afterthought, didn't clean the dishwash? 0:19:12.640 --> 0:19:16.280 What's yield worst regardless of which one of the yields 0:19:16.320 --> 0:19:19.360 you look at, one that adjusts for callable risk, one 0:19:19.400 --> 0:19:22.160 that doesn't. If you look at the yields, seven seven 0:19:22.200 --> 0:19:26.880 percent is essentially where you're at if we just stay here, right, 0:19:27.080 --> 0:19:29.320 spreads don't Why didn't too much? We don't narrow too 0:19:29.400 --> 0:19:33.080 much from your ear here you have treasury yields around 0:19:33.160 --> 0:19:36.600 these levels. You should expect your returns over the next 0:19:36.640 --> 0:19:39.800 twelve months in a high yield index to look similar 0:19:39.920 --> 0:19:42.760 to the to the current yield. And that's essentially where 0:19:42.800 --> 0:19:46.080 we're tracking today. When I look at returns now, there 0:19:46.119 --> 0:19:48.639 is one area where you've you've done actually even better, 0:19:48.760 --> 0:19:51.800 which is just to have an eye towards the global market. 0:19:51.960 --> 0:19:55.960 Is some of these global fixed income indices have done 0:19:55.960 --> 0:19:59.760 even better, and that's been a function of the weaker US. 0:20:00.000 --> 0:20:01.760 We got to get this into the next minute then, 0:20:01.800 --> 0:20:05.400 But then, how does JP Morgan suggest you participate in 0:20:05.400 --> 0:20:09.479 internationally yield given a modeled week dollar. I mean, as 0:20:09.560 --> 0:20:10.960 Casmin looking for. 0:20:10.880 --> 0:20:14.520 A week dollar, we're looking for a week dollar. We've 0:20:14.520 --> 0:20:16.840 been expecting a week dollar. It's been a really good 0:20:16.880 --> 0:20:19.199 call of our currency team at a time where at 0:20:19.200 --> 0:20:20.840 the beginning of the year was actually quite. 0:20:20.720 --> 0:20:22.760 Out of the Ferraris as well. 0:20:22.840 --> 0:20:25.760 They get it, and so you know, I think that 0:20:26.200 --> 0:20:29.560 what we do want to differentiate is the difference between 0:20:29.880 --> 0:20:32.880 sell America and a week dollar. So you can have 0:20:32.920 --> 0:20:34.960 a world and I think we are in a world 0:20:35.040 --> 0:20:38.920 where there is demand for fixed income assets in the US. 0:20:39.000 --> 0:20:41.359 We're seeing it in the strong end user demand for 0:20:41.400 --> 0:20:44.159 treasury auctions, We're seeing it in the strong demand for 0:20:44.280 --> 0:20:48.560 investment grade credit. But you can also have a week dollar. 0:20:48.760 --> 0:20:52.880 And that is a function we've seen of foreign investors 0:20:53.280 --> 0:20:56.800 keeping their US fixed income assets but hedging them back 0:20:56.880 --> 0:20:58.520 to their little currencies. 0:20:58.640 --> 0:21:03.040 Brilliantly explain Kenny's one done bond. I get thirty seconds. 0:21:03.440 --> 0:21:05.880 If Apple came out today with a I'm miss making 0:21:05.920 --> 0:21:09.040 the number of folks, I'm an amateur, a four billion 0:21:09.160 --> 0:21:13.360 dollar bond offering of tranchees or whatever you call it, 0:21:13.800 --> 0:21:16.040 don't they just make one phone call to the fidel, 0:21:16.359 --> 0:21:20.440 to a Fidelity or JP Morgan. I mean, the demand 0:21:20.560 --> 0:21:22.400 for that would be insatiable, right. 0:21:22.960 --> 0:21:26.320 I think we've seen that the demand is very strong 0:21:26.640 --> 0:21:29.960 and typically right when you have periods of volatility like 0:21:29.960 --> 0:21:33.600 we've had so far this year. Cool one, yes, but 0:21:33.920 --> 0:21:36.760 you also see supply step back, you know, come to 0:21:36.800 --> 0:21:38.919 go to the sidelines. We haven't seen that. You know, 0:21:39.000 --> 0:21:42.760 supply has actually continue to chug along. People are out 0:21:42.760 --> 0:21:45.040 there issuing and that's because you know they see the 0:21:45.080 --> 0:21:46.240 demand side. 0:21:46.920 --> 0:21:50.760 Yes, Paul, this is just the strangest s mark. I mean, 0:21:50.920 --> 0:21:54.280 I mean five firms could buy in all of Meg's 0:21:54.320 --> 0:21:58.520 seven debt and like literally not exaggerating one phone call. 0:21:58.720 --> 0:21:58.920 Sorry. 0:21:58.960 --> 0:22:00.080 Rob Shifman has a job. 0:22:01.240 --> 0:22:03.840 It Bloomberg Intelligence Robert Shipping Publishing. 0:22:03.920 --> 0:22:04.080 There. 0:22:04.359 --> 0:22:06.600 I have to look at that. Kelsey Barrow brilliant. That 0:22:06.720 --> 0:22:08.000 was really, really quite good. 0:22:08.200 --> 0:22:09.280 She is with J. B. 0:22:09.440 --> 0:22:12.520 Morgan. She put the flags on the new tower for 0:22:12.600 --> 0:22:13.320 fourth of July. 0:22:13.800 --> 0:22:17.679 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:22:17.720 --> 0:22:20.719 starting at seven am Eastern on Apple Corplay and Android 0:22:20.760 --> 0:22:23.800 Auto with the Bloomberg Business app. You can also listen 0:22:23.880 --> 0:22:27.160 live on Amazon Alexa from our flagship New York station. 0:22:27.680 --> 0:22:30.359 Just say Alexa play Bloomberg eleven thirty. 0:22:30.560 --> 0:22:35.320 The Governor of Connecticut joins us. Right now. Governor is 0:22:35.359 --> 0:22:37.480 so serious, I think I just really want to lean 0:22:37.520 --> 0:22:41.160 on this, which is the future of your Democratic party. 0:22:41.720 --> 0:22:44.360 When you grew up and you grew up advantaged there 0:22:44.440 --> 0:22:47.959 was a Republican Long Island and Republican Connecticut and such. 0:22:48.359 --> 0:22:52.320 Do the Democrats have the gift to give up their 0:22:52.440 --> 0:22:57.080 majority because of a weakness of Democratic Party leadership? Could 0:22:57.119 --> 0:22:57.679 that happen? 0:23:00.280 --> 0:23:04.000 I don't think so. I think there's some seasonality back 0:23:04.040 --> 0:23:07.000 and forth when it comes to a politics. Obviously, Donald 0:23:07.040 --> 0:23:10.280 Trump had a big win and he got his budget 0:23:10.280 --> 0:23:13.159 bill passed. I think within a year you'll see the 0:23:13.200 --> 0:23:16.879 effects of that budget bill, and you'll see a Democrat saying, 0:23:17.520 --> 0:23:20.119 you know, this is really hammering a working families in 0:23:20.160 --> 0:23:23.359 the middle class, and you'll see the political tides twist 0:23:23.400 --> 0:23:23.760 and churn. 0:23:24.440 --> 0:23:27.280