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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
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Speaker 1: Keep more of City Group.
Speaker 3: Writing this, we view the market as exhibiting the relief
Speaker 3: due to the recent terff roadblogs. However, uncertainty remains in
Speaker 3: corporate management. Teams will resist large capex and hiring plans
Speaker 3: until further clarity on trade rules. Kate joins us now
Speaker 3: with a dose of cold water on the Goldilocks.
Speaker 1: Sorry it is so good. Sorry the borage is too cold.
Speaker 3: Apparently this morning wondering you know what do you make
Speaker 3: of all this Goldilocks talk.
Speaker 1: I mean, not all this Goldilocks talks so.
Speaker 3: Vi the Supermannia which is talking about that, but this
Speaker 3: feeling companies will adapt it to just and get it through,
Speaker 3: and that's what we have continued to say.
Speaker 4: Yeah, look, I have all of the faith in large
Speaker 4: cap companies being able to adopt, but we don't know
Speaker 4: what they're adopting too. And this is the big question mark.
Speaker 4: Everyone says, Okay, we're going to get past tariffs, or
Speaker 4: we're going to get past the worst in terms of
Speaker 4: tariff news, but we know that all of these sectoral
Speaker 4: tariffs can have much greater to pardon me, impact than
Speaker 4: some of the reciprocal tariffs. And if I was a
Speaker 4: company making investment decisions, is what I was writing in
Speaker 4: that note, I would say, like, I can wait it
Speaker 4: out for another couple months or another quarter or two
Speaker 4: before I make decisions, because I want more clarity into
Speaker 4: what my margin story is going to look like.
Speaker 1: And I think that's a prudent thing to do.
Speaker 4: And it is the behavior that these large cap companies
Speaker 4: have exhibited through many years, over a decade at this point,
Speaker 4: and really managed their bottom line. It's one of the
Speaker 4: reasons why we love them and one of the reasons
Speaker 4: why we want to continue to.
Speaker 3: Own There's this larger question, and we were talking about
Speaker 3: it at the open this idea of how long can
Speaker 3: this sort of feeling of adapting, adjusting continue without recognizing
Speaker 3: the structural framework that could be shifting. We just got
Speaker 3: news that the European Commission is recommending that Bulgaria joins
Speaker 3: the Euro next year. There is this question about whether
Speaker 3: the Euro is getting fortified as a viable alternative to
Speaker 3: the dollar at a time where we have seen the
Speaker 3: dollar really lose steam. How much do you give credence
Speaker 3: to that the idea that outside of the US you
Speaker 3: can rely more considerably at the adapting and the adjusting
Speaker 3: and the framework remaining the same.
Speaker 4: I think it's too soon for us to call the
Speaker 4: end of dollar dominance, not just because of trade, but
Speaker 4: because there is to this point not a viable alternative.
Speaker 4: But I think all these moves on the margins are
Speaker 4: very much worth watching. Like if we see different governments,
Speaker 4: if we see different policy makers, if we see different
Speaker 4: investment communities start to take a good look at other
Speaker 4: currency alternatives and just incrementally shift their own positioning, and
Speaker 4: many of them do it at the same time or
Speaker 4: over a number of years, that can really start to
Speaker 4: move the needle. I think most currency strategist would agree
Speaker 4: the dollar was a little overvalued even before all of
Speaker 4: this stuff, and so kind of we're getting back to
Speaker 4: a more normal valuation for the dollar. But this idea
Speaker 4: that we're going to have a massive and consistent decline
Speaker 4: and they're going to be these fiable alternatives by the
Speaker 4: end of twenty five, I think is probably too far gone.
Speaker 5: It doesn't need to be a viable alternative. I mean,
Speaker 5: there's been a lot of talk about this is just
Speaker 5: kind of kind of rebalancing that equilibrium. And when you
Speaker 5: look at the currencies that have performed so well over
Speaker 5: the past few months, you look at the Swiss franc,
Speaker 5: you look at some of the other European or even
Speaker 5: the euro which that probably won't last. But I mean,
Speaker 5: let's take the Swiss frank for example, because I think
Speaker 5: a lot of people have talked about how a lot
Speaker 5: of asset managers have shifted some allocations over to the
Speaker 5: franc as a way to hedge against what's going on
Speaker 5: here in the US. Maybe that's not a structural change,
Speaker 5: but over time that can wottle awagh at the value.
Speaker 6: Of the dollar.
Speaker 4: What I will say is a lot of our clients,
Speaker 4: particularly some very large clients, and I'm going to highlight,
Speaker 4: clients in age specifically have been asking about ways to
Speaker 4: hedge their dollar exposure. They just want to kind of
Speaker 4: neutralize that in portfolios, and that makes a ton of sense.
Speaker 4: So we're seeing this across all segments, but particularly the
Speaker 4: larger clients who have this outsized dollar position, or if
Speaker 4: it's we've seen that kind of drift in the dollar
Speaker 4: position over the last couple of years. Looking right now
Speaker 4: now that there's relative stability as an opportunity for making that.
Speaker 5: Move, is there though a long term case to be
Speaker 5: made for a certain level of instability, a certain lack
Speaker 5: of trust in the US system that had bolstered the
Speaker 5: dollar for basically the last fifty six years.
Speaker 4: I think it's a fair question, honestly, And I think
Speaker 4: as we go through the discussions around tax and as
Speaker 4: we watch what happens to the deficit, and we understand
Speaker 4: that there are going to be some significant challenges to
Speaker 4: the bond market over the next year or two unless
Speaker 4: we have a significant reverse. Of course, it's fair for
Speaker 4: global investors to revisit their portfolios and say, hey, we
Speaker 4: may have the best companies the world in the US,
Speaker 4: the most innovative, the best free cash generators, but we're
Speaker 4: not as confident that we should have this much of
Speaker 4: our fixed income allocation in US bonds. And again this
Speaker 4: is on the margin. We're not talking about a wholesale reversal.
Speaker 4: But you know, when this happens over a period of
Speaker 4: quarters or period of years, it can have a really
Speaker 4: significant impact.
Speaker 5: But Lisa was showing the thirty year yield at four
Speaker 5: to nine, and I look at four to nine and
Speaker 5: change over there. Let's just round it up the five. Yeah,
Speaker 5: that's not attractive. With a ten year at four or five,
Speaker 5: it's not attractive. If I look at the contours of
Speaker 5: this tax bill, great, I love the tax cuts. I'm
Speaker 5: not so great about the fact that they're not making
Speaker 5: that up in any way, shape or form. So if
Speaker 5: you're a long term investor, why would you go longer
Speaker 5: out on the curve right now?
Speaker 4: I mean, we certainly aren't like a lot of acid allocators.
Speaker 4: We've been hiding in the short end, maybe a little
Speaker 4: bit to the belly, but really being very concentrated there.
Speaker 4: And we keep on having this debate within the team
Speaker 4: and across all of the city. You know, at what
Speaker 4: point do we want to buy duration? And it's not
Speaker 4: just the level. It's how do you get to that
Speaker 4: level with the drivers of the of the that move
Speaker 4: to that level, and whether or not we feel it
Speaker 4: adequately compensates us, compensates us for the risk on the
Speaker 4: fiscal side, on the risk on the tax side. And
Speaker 4: you know, the truth is that growth is okay right now.
Speaker 4: It's not phenomenal, and we're not looking for kind of
Speaker 4: a three to four percent GDP world or for the
Speaker 4: US in the next couple of years, so it's pretty tough.
Speaker 3: It also raises questions about what drives that kind of
Speaker 3: desire to own long duration assets. Is it a good thing,
Speaker 3: the idea of fiscal responsibility or some sort of sense
Speaker 3: that maybe you can get compensated with this kind of yield,
Speaker 3: or is it the idea that we're really going to
Speaker 3: hit some sort of slow patch. And this is something
Speaker 3: that was introduced by Savida. At what point are we
Speaker 3: looking at bond yields going up as a positive thing,
Speaker 3: as a sign of risk on elsewhere because it's coming
Speaker 3: with growth.
Speaker 1: I mean, can you get your hands around that argument?
Speaker 4: You know, I'm not at a place where I think
Speaker 4: bond yields are reflecting better growth in the future right,
Speaker 4: and a lot would need to happen. By the way,
Speaker 4: I thought the economy was slowing even before the introduction
Speaker 4: of these tariffs, which I think are quite growth growth negative,
Speaker 4: Even if, as I was saying before, there reciprocal tariffs
Speaker 4: don't end up coming through and we're just talking about
Speaker 4: the sectoral tariffs.
Speaker 1: This is a headwind. We just need to acknowledge that.
Speaker 4: But the consumer and certain segments of the consumer were
Speaker 4: showing stress at the end of last year in the
Speaker 4: beginning of this year, even if the aggregate data looks
Speaker 4: pretty good, and we were starting to see more cautious
Speaker 4: spending from companies in general after it prolonged economic cycle.
Speaker 4: So all that was in place before this uncertainty. So
Speaker 4: I think it's really too soon for us to say
Speaker 4: we're going to be able to forecast at acceleration in
Speaker 4: the US economy, maybe based on tax cuts or based
Speaker 4: on consumption looking good, when there's so many other challenges.
Speaker 1: Just to sum up, would you sell this rally?
Speaker 4: I would not be adding a lot of equity risk
Speaker 4: to this rally. But again, I think large caps are
Speaker 4: going to be the better place within the US market.
Speaker 1: Wendy Schiller Brown University joins us. Now, Wendy, wonderful to
Speaker 1: see you. Thank you so much for being with us.
Speaker 3: I want to start with the idea of some of
Speaker 3: these trade negotiations as part of the three prong stool
Speaker 3: that President Trump's administration has put out there. What do
Speaker 3: you make of the progress being made both racing ahead
Speaker 3: when it comes to trade deals as well as the
Speaker 3: deficit discussion down in Washington, d C.
Speaker 7: Well, Lisa, I think that they are related in the
Speaker 7: sense that President Trump wants to shore up, particularly in
Speaker 7: the Senate now Republican support for his big, beautiful tax bill,
Speaker 7: and to settle the trade environment and not put inflationary
Speaker 7: pressures on the US economy and also sort of raise
Speaker 7: consumer fears about future price increases.
Speaker 1: That's really important not.
Speaker 7: Only for him, but also for members of Congress that
Speaker 7: have to go back to their town halls and hear
Speaker 7: all about people's concerns.
Speaker 1: First, it was dozed in the budget.
Speaker 7: And now will soon be inflation, deficit, spending, bonds, treasuries,
Speaker 7: all those sorts of indicators of economic health. So it's
Speaker 7: important for the President to inject I think more stability.
Speaker 1: Into his trade negotiation persona.
Speaker 7: Or platform because that will also affect Congresses, particularly the
Speaker 7: Senate's willingness to try to really pass this bill by
Speaker 7: July fourth, which was supposed to get passed as we
Speaker 7: would call bi Memorial Day, and that deadline came and went.
Speaker 8: When the China's lead negotiated with the United States, Hayloftings
Speaker 8: says that the nation is ready to discuss all major
Speaker 8: issues with the US. Does that include Taiwan? I mean,
Speaker 8: what sort of messaging do you take out of.
Speaker 1: That, Damie.
Speaker 7: I think it's a I think a treacherous path for
Speaker 7: the President and his staff to sort of conflate not
Speaker 7: sort of just conflate tariffs and economic policy with our
Speaker 7: military stances. He's got a complicated situation with Ukraine, a
Speaker 7: complicated situation obviously with Israel, Gaza, and the Taiwan issue
Speaker 7: is something that if it's loaded up onto the plate
Speaker 7: without really consistent US foreign policy right now, that will
Speaker 7: complicate as negotiations, not make them simple. And I think
Speaker 7: the President likes to cut deals, and he likes to
Speaker 7: cut relatively clear, straightforward deals where he can claim victory.
Speaker 1: Taiwan is going to.
Speaker 7: Be more complicated, and it puts the United States in
Speaker 7: a position that affects its military stances in other conflicts
Speaker 7: around the world.
Speaker 8: Why the Treasury Secretary vessins on the tape discussing global
Speaker 8: imbalances and points to China's inability to shift from an
Speaker 8: export oriented economy to one that's driven by consumption. I mean,
Speaker 8: this flies in the face of decades of conditioning as
Speaker 8: Chinese households propensity to save is grounded in overall lack
Speaker 8: of trust by a beaging themselves. So you know, what
Speaker 8: do we really hope to accomplish here? You know what
Speaker 8: comes next? What is a Treasury Besson really trying to
Speaker 8: accomplish here?
Speaker 7: In my just curious, I mean, I think JERGI Besson
Speaker 7: has seemed to, from what we can tell, exert influence
Speaker 7: on the president, right, stabilizing the president, getting to back
Speaker 7: off really huge tariffs, and trying to add more consistency
Speaker 7: and more justification with the tower policy. So I think
Speaker 7: his public remarks about China and saying, Okay, you've got
Speaker 7: an economy that really depends on the United States consumption tendencies,
Speaker 7: and we want to produce more of our own goods.
Speaker 7: Let's strike a balance so that we can do that.
Speaker 7: And you can still have US markets, but you've got
Speaker 7: to show up your own consumptive markets. I think that's
Speaker 7: a sensible public persona when you're trying to get China
Speaker 7: to come to the table. You know what that actually
Speaker 7: results in in terms of internal economics in China will
Speaker 7: have to see. But on the steel plants, you know,
Speaker 7: we've lost so hundreds of thousands of jobs in steel
Speaker 7: over the last thirty years, and we can't bring steel
Speaker 7: back completely at all. And it was interesting that the
Speaker 7: President's going to take credit for saving existing jobs that
Speaker 7: are in the United States and relatively small compared to
Speaker 7: the rest of the economy. So there are some imbalances
Speaker 7: we will not be able to fix, Wendy.
Speaker 1: You know, I'm curious.
Speaker 9: So we've been in an environment where demand for US assets, bonds,
Speaker 9: equities is sort of imperiled. Do you see Section eight
Speaker 9: ninety nine, which is this remedy against foreign you know,
Speaker 9: unfairness and foreign taxes. Do you see that as a
Speaker 9: big hit to demand for US assets?
Speaker 7: Well, and I think it produces me to it produces instability.
Speaker 1: I mean, as the.
Speaker 7: President could wake up in the morning or in the
Speaker 7: late early hours of the morning and decide Okay, I'm
Speaker 7: going to change the rules of the game today, and
Speaker 7: that just reeks havoc you know on markets, but also
Speaker 7: on small business people.
Speaker 1: And then you know, as they in.
Speaker 7: Their own communities get concerned and get worried and think
Speaker 7: about passing on cost to consumers, then those consumers in
Speaker 7: those communities start to worry about the economy. And we've
Speaker 7: seen some real dips in consumer confidence. So I think
Speaker 7: there are ripple effects to this sort of ping pong
Speaker 7: or yo yonis of the president's trade positions, and certainly
Speaker 7: we rely on the rest of the world and internally
Speaker 7: to buy.
Speaker 1: Our treasuries to float our debt.
Speaker 7: And that's where the really big debt ceiling increase comes in.
Speaker 1: And that's what Run Paul is complaining about. That it's
Speaker 1: not just deficit spending, it's.
Speaker 7: Also creating you know, unsustainable literally unsustainable debt, because sooner
Speaker 7: or later people will stop buying it. And if they
Speaker 7: stop buying it, you know, we have no way of
Speaker 7: floating our expenses.
Speaker 3: Wendy Schiller, Brown University, thank you so much for being
Speaker 3: with us. This is the latest the US thirty year
Speaker 3: underperforming short term debt year to date. As investors continue
Speaker 3: to monitor fiscal risk, leading to speculation the Treasury might
Speaker 3: scale back or even halt auctions of its long bond.
Speaker 3: Molly Brooks of T Security is writing this, rates have
Speaker 3: been very focused over the last weeks with passage of
Speaker 3: one big beautiful bill. However, if we see the macro
Speaker 3: data turning, the markets will react to recession risk. Mollie
Speaker 3: joins us Now for more, it's sort of a question of.
Speaker 1: What would you like to focus on today for every market.
Speaker 3: It seems like, Molly, I want to start with that
Speaker 3: this question of if we get negative economic data, do
Speaker 3: you believe in your core that thirty year yields will
Speaker 3: truly rally substantially and could even potentially outperform.
Speaker 10: I think that they would probably rally, however, not as
Speaker 10: much as the front end. In the last couple of weeks,
Speaker 10: we have seen kind of the correlation between the two
Speaker 10: year and the third year declining. So that's showing that
Speaker 10: the third year isn't being driven right now as much
Speaker 10: by FED cuts and macro risk. It's being driven more
Speaker 10: by deficit concerns and concerns of the quality of the
Speaker 10: long bond.
Speaker 1: So I do think.
Speaker 10: That while it'll rally on FED, you'll probably see the
Speaker 10: front end rally a little bit harder than the long end.
Speaker 5: There is there a risk though, at those two worlds
Speaker 5: kind of converging, meaning the concerns about what's going on
Speaker 5: with the deficit and obviously the macro read through.
Speaker 10: Yeah, I mean, at some point, if thirty year yields
Speaker 10: increase enough and they're high enough, then conditions are going
Speaker 10: to be tight enough that we might see that feed
Speaker 10: through to growth, and then that would therefore be feeding
Speaker 10: through to fed cuts as well. So it's kind of
Speaker 10: circular in that that you could see that the just
Speaker 10: the pure level of the long end bond is impacting
Speaker 10: growth concerns.
Speaker 5: Well, what becomes that light? I mean, because I mean
Speaker 5: we kind of already know what's in the bill. I mean,
Speaker 5: you can model out the increase in debt servicing costs
Speaker 5: based on what we know already. So what becomes that
Speaker 5: light that the market is going to look to as
Speaker 5: sort of okay, now we finally reach that rubicon?
Speaker 6: Is it the labor market? Is it?
Speaker 5: As you said, actual economic recession of some sort.
Speaker 10: What I would say, they don't really need a recession
Speaker 10: in order to begin this rally.
Speaker 1: Investors might need more of.
Speaker 10: A kind of catalyst that is more recessionary for them
Speaker 10: to actually be able to jump in into longs, just
Speaker 10: because we've been burnt a lot in recent weeks of
Speaker 10: just kind of sell offs here. But I do think
Speaker 10: that if we see any type of weakness in the
Speaker 10: labor market specific and on Friday specifically the unemployment rate,
Speaker 10: that's what the FED is going to be looking at.
Speaker 10: So if we're seeing the unemployment rate rising and rising
Speaker 10: quick enough, that's when markets are going to start get
Speaker 10: concerned and that they're going to react to the likelihood
Speaker 10: of FED cuts in the near term.
Speaker 4: Molly, I wanted to ask you because I've seen a
Speaker 4: lot of like ringing of hands and gnashing of teeth
Speaker 4: ahead of all these auctions in recent weeks. People have
Speaker 4: been really stressed about it, and of course they've gone
Speaker 4: really smoothly. You know, if it's not the auctions and
Speaker 4: they continue to get that bid, what should be watching
Speaker 4: to really kind of signal a meaningful change in the
Speaker 4: direction of yields, especially at the long end.
Speaker 10: Yeah, I think right now, I would say stay focused
Speaker 10: on the macro data.
Speaker 1: The FED has continued tables. Do you think or at
Speaker 1: this point.
Speaker 10: Yeah, I would say less of the headline, but we're
Speaker 10: looking more at the unemployment rate just given that it's
Speaker 10: a little bit more of a clear signal there. So
Speaker 10: if we see unemployment rate up to four four four five,
Speaker 10: that's when we think the federal get concerned, and that's
Speaker 10: probably when we'll see most investors more comfortable to step in.
Speaker 1: I'll turn that question back to you.
Speaker 3: I mean, how much do you expect this to really
Speaker 3: turn from supply concerns that have been on the peripheres
Speaker 3: but really aren't center stage. How much will that shift
Speaker 3: immediately the second we get some sort of pessimistic print
Speaker 3: in the data.
Speaker 4: Well, I think we have to be very careful around
Speaker 4: the labor market because this is a place where to
Speaker 4: this point it's been holding strong, and in fact, we've
Speaker 4: seen companies continue to hold onto their workforce to not
Speaker 4: really engage in widespread layoffs.
Speaker 1: But when you peel back the surface.
Speaker 4: Much like if you're peeling back the labor market report,
Speaker 4: you do find that there are pockets of companies that
Speaker 4: have been trimming on the margin or this is something
Speaker 4: else I've been watching really closely, have been have stopped
Speaker 4: filling their open requisitions you know, lots of job openings,
Speaker 4: but whether it's a CEO or the CFO or some
Speaker 4: HR manager saying you're going to hold off there, I
Speaker 4: mean that on balance shakes people's confidence in the labor
Speaker 4: market and their future earnings. And so if that then
Speaker 4: you know, feeds through into consumer spending and these I mean,
Speaker 4: there could be this sort of slow moving domino effect
Speaker 4: impacting growth in the second half of the year.
Speaker 1: And that's kind of what I'm watching and.
Speaker 5: That's just hard to wrap my head around. And I
Speaker 5: assume that has to just make your job, Molly, just
Speaker 5: a lot harder.
Speaker 10: Definitely makes it more interesting seeing how does this pass
Speaker 10: through pass through come through. We saw soft data versus
Speaker 10: hard data, the whole debate on does soft data turn
Speaker 10: into hard data. We're seeing kind of weakening in different
Speaker 10: areas of the labor market to your point, that are
Speaker 10: maybe not the traditional headline payrolls, and so it's when
Speaker 10: does this hit these big numbers that then kind of
Speaker 10: scares the market into rallying a little bit sharper and
Speaker 10: pricing and more fed cuts.
Speaker 3: Mollybrooks of TD Securities, thank you so much for being
Speaker 3: with us. Volliedbrooks down we give this hour with stocks
Speaker 3: hire after posting back to back gains. Jim Karen of
Speaker 3: Morgan Stanley writing this, we have rebalanced by increasing equity exposures,
Speaker 3: not just in the United States, but also Europe. Our
Speaker 3: highest conviction overweight. Jim joins us Now, Jim, thank you
Speaker 3: so much for being here.
Speaker 6: Thank you, and good morning to both of you.
Speaker 3: Morton, Well, it's a real question here going forward about
Speaker 3: how much this long Europe trade was just a trade
Speaker 3: or whether it's something that actually can stick.
Speaker 1: You're making the argument, even.
Speaker 3: With the recent gains in the US, you would still
Speaker 3: be a buyer of Europe over what we've seen.
Speaker 11: Yeah, it's really about balancing. So it's not that we
Speaker 11: don't like the US. We just think that Europe has
Speaker 11: a higher risk adjustice return profile. They've got fiscal stimulus,
Speaker 11: they've got monetary stimulus, they seem to have their inflation
Speaker 11: a bit more under control.
Speaker 6: Plus a lot of.
Speaker 11: The investment and a lot of the money that's being
Speaker 11: put through through whether it's the defense spending or it's
Speaker 11: through infrastructure spending. All of this is actually a positive
Speaker 11: for them. And essentially we also have to recognize that
Speaker 11: their valuations They're a large ca value area for the markets.
Speaker 11: People are trying to diversify their portfolios from large cap
Speaker 11: growth and tech into something like large cap value. Europe
Speaker 11: is actually the poster child for that in our view. Plus,
Speaker 11: you get to invest in an asset whose currency is
Speaker 11: appreciating relatives to the dollar, so you get a tailwind.
Speaker 3: Okay, I want to pick up on that because we've
Speaker 3: been talking to your colleagues over the past couple of days,
Speaker 3: and this is the point that I think is fascinating.
Speaker 3: Morgan Stanley sees everything rallying except for the dollar. This
Speaker 3: idea that you could see rates rally and even in
Speaker 3: the US, you could see equities rally, even in the US,
Speaker 3: but the dollar is going to be the continuing weakest
Speaker 3: person in the boat.
Speaker 1: And I'm just wondering, at what point that.
Speaker 3: Really is the entire trade that you're talking about here.
Speaker 3: It's a currency play more than anything else.
Speaker 11: So I would say it's a rebalancing, it's a global rebalancing.
Speaker 11: So if we look at the Fed's broad nominal trade
Speaker 11: weighted Dollar Index, the dollar has appreciated in value since
Speaker 11: twenty ten to the end of twenty twenty four by
Speaker 11: forty percent four zero percent. So essentially the rest of
Speaker 11: the world became overweight US assets. They had to buy
Speaker 11: US dollars in order to do that. Now you have
Speaker 11: growth coming in other parts of the world. This is
Speaker 11: the rebalancing what that means. And we're doing it too right.
Speaker 11: You know, we are actually overweight European equities, so we
Speaker 11: are seeing other opportunities in other parts of the world.
Speaker 11: The US markets are going to do fine, it's just
Speaker 11: that it's not the only game in town anymore. So ultimately,
Speaker 11: what that means is that if the US has a deficit,
Speaker 11: which it will have a deficit, the dollar needs to
Speaker 11: adjust lower to get foreign capital to come in. So
Speaker 11: all of this is part of a readjustment. It's not
Speaker 11: necessarily a it's not necessarily a bad thing. This is
Speaker 11: a very common, normal readjustment that's taking place, and we
Speaker 11: want to get on this.
Speaker 5: But do you have conviction that it will last?
Speaker 6: I do.
Speaker 11: I think this is a long term thing. I mean, look,
Speaker 11: I mean the dollar rally lasted for about fourteen years
Speaker 11: in the period that I'm talking about, twenty ten to
Speaker 11: twenty four. I think this is a multi year process.
Speaker 11: It's a multi year trade reset, I mean Tarris. We
Speaker 11: all know this is going on too. This is a
Speaker 11: trade rebalance and a trade reset. We get these types
Speaker 11: of cycles every you know, fifteen to twenty years.
Speaker 6: We're just starting one right now.
Speaker 5: But there's a reason why we kind of had that
Speaker 5: advantage here in the US because we were the growth
Speaker 5: story globally. And I get this idea that, Okay, the
Speaker 5: fiscal constraints in Europe are loosening, just a bit of
Speaker 5: China and other parts of the world are going to
Speaker 5: try to sort of fill the void of where the
Speaker 5: US is pulling back. But at the end of the day,
Speaker 5: I'm still not seeing a growth story in Europe, or
Speaker 5: maybe there is one.
Speaker 11: Well I think there is one. I mean, Europe doesn't
Speaker 11: have sectors like large cap tech, right, so you're not
Speaker 11: going to see, you know, a stock go up like
Speaker 11: two hundred percent or something like that like we have
Speaker 11: in our large cap tech spaces. So I think this
Speaker 11: is more of a This is more of like a
Speaker 11: slow grinding move. When I look at pees and I
Speaker 11: look at multiples and valuations, if I look at as
Speaker 11: much as I can and a like for like companies,
Speaker 11: say in the financial industry, a big bank in Europe,
Speaker 11: big bank in the US. The Pe multiple trades at
Speaker 11: about a forty percent discount. And I'm not saying that
Speaker 11: they should be absolutely equal, but what I am saying
Speaker 11: is that that Europe has a lot of catch up.
Speaker 6: It's just going to it's going to be a.
Speaker 11: Slower, stable, lower evall, higher sharp ratio, higher qualitility.
Speaker 5: And it's going to be more than and it's going
Speaker 5: to be more than just defense contractors.
Speaker 11: Yeah, oh yeah, I think so, because what we have
Speaker 11: to understand is that an ecosystem gets created. Once Europe
Speaker 11: decided to spend about close to a trillion euro in stimulus,
Speaker 11: which they did back in February early March. You start
Speaker 11: to develop an ecosystem. You have to develop supply chains,
Speaker 11: you need energy, energy security, you need to reshape your economy,
Speaker 11: you need housing if you're going to build more industry,
Speaker 11: potentially even data centers, so a lot of different There's
Speaker 11: a big ecosystem that's starting, and I think that's underappreciated.
Speaker 6: By the market.
Speaker 3: Let's take a step back, because right now we're talking
Speaker 3: about where is the best place to find value in
Speaker 3: a ship that is undefined, which is the global economy.
Speaker 3: And where we are in terms of the US and
Speaker 3: however we're entering some period of stagflation like behavior, whether
Speaker 3: we're going to have higher inflation and faster growth or
Speaker 3: whether we could see an outright recession, and that really
Speaker 3: matters for all of this in terms of the adjustment
Speaker 3: of portfolio management.
Speaker 1: I just wonder how you're viewing the data.
Speaker 3: We're getting the ADP data just coming up about five
Speaker 3: minutes away, we get the jobs report on Friday. How
Speaker 3: do you view that within this paradigm of understanding? You know, Okay,
Speaker 3: should we shift around a little bit more to duration,
Speaker 3: should we shift a little bit more to risk?
Speaker 11: So, you know, the data has been disappointing to the
Speaker 11: better side of the equation, right, So many people have
Speaker 11: been focusing on We're going to fall off a cliff.
Speaker 6: We're going to fall off a cliff.
Speaker 11: We've been talking about this, the markets have been talking
Speaker 11: about this since twenty twenty three. We're going to have
Speaker 11: a recession. We're going to have a recession. In twenty four,
Speaker 11: We're going to have a recession, and it really hasn't happened.
Speaker 11: So ultimately, what this is really down to is the
Speaker 11: consumer and the jobs report So if you have a
Speaker 11: strong labor market, reason strong, and we saw that from
Speaker 11: the Jold data yesterday, then what you have is a
Speaker 11: consumer that stays relatively robust. You can't really have a
Speaker 11: recession a deprocession in the US unless the consumer rolls over.
Speaker 11: What you end up having is a mid cycle slow down.
Speaker 11: So everything that you're saying matters. There's a lot of uncertainty.
Speaker 11: But look, people were telling me by June we'd have
Speaker 11: empty shelves and stores and things like that.
Speaker 6: It's not here yet. The data.
Speaker 11: I think the jobs data will get a little bit
Speaker 11: worse going forward. That's anticipated. I believe that's going to happen.
Speaker 11: But ultimately, if the confidence in the US in terms
Speaker 11: of the direction that it's going with the economy, I
Speaker 11: think that keeps the confidence alive. And remember, it's deregulation,
Speaker 11: it's tariffs and taxes. We can't focus on any one.
Speaker 11: It's the package that we're focusing on. And right now
Speaker 11: we're hearing the tax component which could be stimulative and
Speaker 11: that could actually be helpful to employment.
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