1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,239 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,680 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,280 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:37,920 Speaker 2: Terminal and the Bloomberg Business App. Jim biancov Bianco Research 10 00:00:38,000 --> 00:00:40,120 Speaker 2: joins us now for more. Jim, Welcome to the program Sir. 11 00:00:40,440 --> 00:00:42,680 Speaker 2: I was hoping for a quiet weekend. We're not getting 12 00:00:42,680 --> 00:00:44,280 Speaker 2: one going into this open and bow. We've got a 13 00:00:44,280 --> 00:00:47,400 Speaker 2: thread against Europe, a threat against Apple. Out of the 14 00:00:47,440 --> 00:00:49,240 Speaker 2: two of those, what do you think is more important 15 00:00:49,240 --> 00:00:50,160 Speaker 2: to this market this morning? 16 00:00:50,240 --> 00:00:54,080 Speaker 3: Jim, Oh, I think it's probably Europe because it's a 17 00:00:54,120 --> 00:00:57,520 Speaker 3: bigger market and encompasses more goods. So we're back to 18 00:00:57,600 --> 00:01:00,800 Speaker 3: tariffs on and terrify on. I think is going to 19 00:01:00,800 --> 00:01:02,680 Speaker 3: be an interesting way for the market to. 20 00:01:02,640 --> 00:01:04,400 Speaker 4: Try and navigate this. 21 00:01:05,120 --> 00:01:08,360 Speaker 3: Does that mean that we're going to see weakness because 22 00:01:08,400 --> 00:01:11,199 Speaker 3: we're going to have higher prices, or is it because 23 00:01:11,200 --> 00:01:14,240 Speaker 3: we're going to have higher prices? Which one is going 24 00:01:14,280 --> 00:01:15,760 Speaker 3: to be the dominant factor? 25 00:01:15,840 --> 00:01:16,120 Speaker 4: Now? 26 00:01:16,920 --> 00:01:19,720 Speaker 3: When we turn it to the Federal Reserve, they usually 27 00:01:19,760 --> 00:01:21,680 Speaker 3: are focused, I think on more on prices. 28 00:01:21,720 --> 00:01:23,199 Speaker 4: And I think that's the thing. 29 00:01:23,080 --> 00:01:24,639 Speaker 3: That a lot of people on Wall Street are missing, 30 00:01:24,920 --> 00:01:27,679 Speaker 3: is that all things being equal, if tariffs are coming 31 00:01:27,760 --> 00:01:31,360 Speaker 3: back and prices are going up, and that might be weakness. 32 00:01:31,720 --> 00:01:33,080 Speaker 4: The Fed's not going to cut rates. 33 00:01:33,400 --> 00:01:35,960 Speaker 3: They're not going to cut rates until they see their 34 00:01:36,120 --> 00:01:38,759 Speaker 3: prices have stabilized, and right now we might be looking 35 00:01:38,760 --> 00:01:39,440 Speaker 3: at more inflation. 36 00:01:39,640 --> 00:01:41,600 Speaker 2: So, Jim, that takes important because I want to take 37 00:01:41,600 --> 00:01:43,080 Speaker 2: you over to the move of the bond market off 38 00:01:43,120 --> 00:01:46,520 Speaker 2: the back of this news. Yields are lower across the curve, 39 00:01:46,720 --> 00:01:49,280 Speaker 2: with down eight basis points at the front end three 40 00:01:49,440 --> 00:01:51,360 Speaker 2: ninety one. I know we're not breaking down to the 41 00:01:51,400 --> 00:01:53,560 Speaker 2: new range, the range of the last several months, but 42 00:01:53,600 --> 00:01:56,480 Speaker 2: still yields are falling back the ten years down by 43 00:01:56,480 --> 00:02:00,000 Speaker 2: six basis points full forty seven. What your to respond 44 00:02:00,160 --> 00:02:02,480 Speaker 2: to be to that early move, given that you think 45 00:02:02,480 --> 00:02:04,960 Speaker 2: this ends up with more inflation down the road. 46 00:02:05,880 --> 00:02:08,120 Speaker 3: Well, you know that's a knee jerk response to the 47 00:02:08,120 --> 00:02:09,120 Speaker 3: stock market falling. 48 00:02:09,240 --> 00:02:12,480 Speaker 4: I think what we're seeing right now on this move. 49 00:02:12,560 --> 00:02:14,880 Speaker 3: But if you were to back up and go back 50 00:02:14,919 --> 00:02:18,560 Speaker 3: to you know, when we started talking about tariffs, there's 51 00:02:18,600 --> 00:02:20,600 Speaker 3: been a trend higher in yields, and. 52 00:02:20,600 --> 00:02:22,679 Speaker 4: The trend higher in yields is really. 53 00:02:22,400 --> 00:02:26,600 Speaker 3: About as things settle down, we're looking at higher prices. 54 00:02:27,040 --> 00:02:29,160 Speaker 3: You know, as I'd like to argue, you know, if 55 00:02:29,200 --> 00:02:31,360 Speaker 3: you look at the tariffs that were collected in April, 56 00:02:31,760 --> 00:02:34,800 Speaker 3: that was one in three quarters percent increase on the 57 00:02:34,800 --> 00:02:37,560 Speaker 3: four hundred billion dollars of goods. That's an extra seven 58 00:02:37,560 --> 00:02:39,320 Speaker 3: and a half billion dollars of tariffs in April, one 59 00:02:39,360 --> 00:02:41,400 Speaker 3: and three quarter percent on the fourhundred billion dollars of 60 00:02:41,400 --> 00:02:43,560 Speaker 3: goods that we collect that we imported in April. 61 00:02:43,560 --> 00:02:46,320 Speaker 4: Who's paying that? Somebody's got to be paying that now. 62 00:02:46,320 --> 00:02:48,520 Speaker 3: The President wants us to believe it's going to be 63 00:02:48,560 --> 00:02:51,720 Speaker 3: Walmart and Apple eating those tariffs, and maybe the Chinese. 64 00:02:52,120 --> 00:02:54,240 Speaker 3: But if you look at numbers like true inflation and 65 00:02:54,320 --> 00:02:57,200 Speaker 3: price stats and stuff, which are these millions of prices 66 00:02:57,280 --> 00:02:59,880 Speaker 3: that they check on the internet, prices are going up. 67 00:03:00,120 --> 00:03:02,440 Speaker 3: The prices are going up for the consumer, and I 68 00:03:02,480 --> 00:03:06,400 Speaker 3: think as that continues to happen, that reality is going 69 00:03:06,400 --> 00:03:09,120 Speaker 3: to drive the bond market more than a weakness reality. 70 00:03:09,320 --> 00:03:11,080 Speaker 5: One thing that we've been talking about throughout the morning 71 00:03:11,120 --> 00:03:13,240 Speaker 5: Gym is if this is not isolated to the United 72 00:03:13,240 --> 00:03:14,960 Speaker 5: States when it comes to the yield move and some 73 00:03:15,000 --> 00:03:18,080 Speaker 5: of these inflation concerns, how much is this applicable in 74 00:03:18,200 --> 00:03:21,919 Speaker 5: terms of a broader inflation globally in developed markets? 75 00:03:22,000 --> 00:03:24,280 Speaker 6: That leads bonds globally. 76 00:03:24,160 --> 00:03:26,520 Speaker 5: To be less attractive in the same kind of way 77 00:03:26,840 --> 00:03:30,320 Speaker 5: as they were traditionally for a price action, albeit more 78 00:03:30,320 --> 00:03:31,960 Speaker 5: attractive from a yield perspective. 79 00:03:32,880 --> 00:03:33,920 Speaker 4: Oh, I think you're right. 80 00:03:33,960 --> 00:03:38,160 Speaker 3: It does affect the all bonds worldwide, especially developed markets, 81 00:03:38,200 --> 00:03:41,640 Speaker 3: because the tariffs are pushing all these markets to do 82 00:03:41,720 --> 00:03:44,840 Speaker 3: trade deals. You have done a trade deal as well, 83 00:03:45,200 --> 00:03:48,280 Speaker 3: and so what we're seeing is the opposite of globalization, 84 00:03:48,600 --> 00:03:51,360 Speaker 3: which I've become aware is now the word is segmentation. 85 00:03:51,840 --> 00:03:55,440 Speaker 3: So we've got a segmentation coming in global trade, and 86 00:03:55,480 --> 00:03:57,840 Speaker 3: that's going to just add frictions and add more costs, 87 00:03:57,920 --> 00:04:00,480 Speaker 3: and those costs are going to show up as elevated 88 00:04:00,560 --> 00:04:02,920 Speaker 3: or sticky inflation, and that's going to start to impact 89 00:04:03,000 --> 00:04:05,840 Speaker 3: all bond markets, and it has been because if you 90 00:04:05,880 --> 00:04:08,440 Speaker 3: look over the last month or so, develop world bond 91 00:04:08,480 --> 00:04:12,480 Speaker 3: markets have been going higher. The one exception has been China, 92 00:04:12,560 --> 00:04:15,400 Speaker 3: where their interest rates have been moving lower. But their 93 00:04:15,440 --> 00:04:20,080 Speaker 3: economy is in such an alarming shape right now that 94 00:04:20,160 --> 00:04:23,600 Speaker 3: you can almost argue that even with these higher inflationary 95 00:04:23,680 --> 00:04:26,640 Speaker 3: numbers that we have, their economy is more being driven 96 00:04:26,720 --> 00:04:28,839 Speaker 3: by growth than it is being driven by prices. 97 00:04:29,040 --> 00:04:31,080 Speaker 5: I'm struck by the fact that the bond yield move 98 00:04:31,400 --> 00:04:34,279 Speaker 5: is not special to the United States. It is something 99 00:04:34,279 --> 00:04:36,919 Speaker 5: that is global and developed markets. The move, though, in 100 00:04:36,960 --> 00:04:39,640 Speaker 5: the dollar is distinct, and it is raising a lot 101 00:04:39,640 --> 00:04:42,000 Speaker 5: of concern that this could be the biggest casualty of 102 00:04:42,040 --> 00:04:44,640 Speaker 5: some of the trade disagreements. We are seeing a bit 103 00:04:44,680 --> 00:04:47,480 Speaker 5: of a strengthening in the dollar off the heels of 104 00:04:47,520 --> 00:04:50,680 Speaker 5: this news with respect to potentially higher tariffs on Europe. 105 00:04:51,000 --> 00:04:54,000 Speaker 5: I just wonder whether you think that this weaker dollar 106 00:04:54,080 --> 00:04:56,840 Speaker 5: theme is going to persist even if you do get 107 00:04:57,160 --> 00:05:00,600 Speaker 5: some serious, significant increases to tariffs some of the trading 108 00:05:00,640 --> 00:05:02,919 Speaker 5: partners in the US at a time when a lot 109 00:05:02,960 --> 00:05:05,799 Speaker 5: of people have shrugged off some of what these proposals 110 00:05:05,839 --> 00:05:06,160 Speaker 5: could do. 111 00:05:07,279 --> 00:05:09,000 Speaker 3: Well, yeah, I do I do think that the weaker 112 00:05:09,080 --> 00:05:11,080 Speaker 3: dollar would persist for a couple of reasons. One, I 113 00:05:11,080 --> 00:05:14,040 Speaker 3: think it's what the administration wants it doesn't or it's 114 00:05:14,080 --> 00:05:16,360 Speaker 3: the least. It's not going to complain about a weeker dollar. 115 00:05:16,440 --> 00:05:20,080 Speaker 3: And the weeker dollar isn't really bringing around talk about 116 00:05:20,080 --> 00:05:22,279 Speaker 3: the end of dollar dominance or the reserve currency. It 117 00:05:22,279 --> 00:05:25,360 Speaker 3: shouldn't because there isn't a alternative to it. 118 00:05:25,640 --> 00:05:27,160 Speaker 4: So they want it. 119 00:05:27,240 --> 00:05:30,040 Speaker 3: And the second thing is, if you've watched the currency 120 00:05:30,040 --> 00:05:33,880 Speaker 3: markets long enough, you'll realize that when these things trend, 121 00:05:34,000 --> 00:05:37,520 Speaker 3: they trend much further and much longer than everybody thinks. 122 00:05:37,520 --> 00:05:40,640 Speaker 3: Whenever you think the dollar is overbought or over sold, 123 00:05:41,000 --> 00:05:42,839 Speaker 3: the joke is way. Do you see how or overbought 124 00:05:42,880 --> 00:05:45,599 Speaker 3: or oversold it's about to get? And right now it 125 00:05:45,680 --> 00:05:48,159 Speaker 3: is trending lower. And I suspect that over the next 126 00:05:48,200 --> 00:05:50,880 Speaker 3: several weeks or a few months that that's going to continue, 127 00:05:50,880 --> 00:05:53,320 Speaker 3: even if we get higher rates, even if we get 128 00:05:53,360 --> 00:05:57,279 Speaker 3: a widening of spreads to say Europe or something like that. 129 00:05:56,600 --> 00:05:58,919 Speaker 4: It's that hasn't been working right. 130 00:05:58,760 --> 00:05:59,599 Speaker 6: Now, Jim. 131 00:05:59,640 --> 00:06:01,719 Speaker 2: I just want to finish on the equity coll the 132 00:06:01,720 --> 00:06:04,520 Speaker 2: equity market. There is a plainbook here, the president comes 133 00:06:04,520 --> 00:06:08,640 Speaker 2: out and tries to anchor negotiations with extremes. Come out 134 00:06:08,640 --> 00:06:10,760 Speaker 2: and say you're going to face a fifty percent tariff 135 00:06:11,080 --> 00:06:13,320 Speaker 2: on June one. You've not been great to deal with. 136 00:06:13,920 --> 00:06:16,880 Speaker 2: Just the same playbook that applied to China applied to Europe. 137 00:06:17,240 --> 00:06:19,240 Speaker 7: Is this different? Have we exhausted that? 138 00:06:19,320 --> 00:06:21,720 Speaker 2: Because there will be a lot of people out there thinking, okay, 139 00:06:21,839 --> 00:06:23,880 Speaker 2: equity features of Gambler, I'm going to buy that. 140 00:06:23,920 --> 00:06:26,039 Speaker 7: I've seen this movie before. Is this different? 141 00:06:27,279 --> 00:06:28,120 Speaker 4: I mean it could be. 142 00:06:28,279 --> 00:06:30,400 Speaker 3: I mean, you know, the biggest issue I think that 143 00:06:30,560 --> 00:06:34,400 Speaker 3: Wall Street's been struggling with is our tariff's leverage to 144 00:06:34,440 --> 00:06:37,400 Speaker 3: get a deal or our tariff's revenue. If they're leveraged, 145 00:06:37,440 --> 00:06:39,520 Speaker 3: I think most people on Wall Street be fine with 146 00:06:39,600 --> 00:06:41,880 Speaker 3: that to get a deal, you know, to use them 147 00:06:42,000 --> 00:06:45,240 Speaker 3: as leverage to lower tariffs, open up trade. But are 148 00:06:45,240 --> 00:06:48,880 Speaker 3: they a form of attacks on foreigners to try and 149 00:06:48,960 --> 00:06:52,159 Speaker 3: raise revenue. That has been the bigger issue that we've 150 00:06:52,160 --> 00:06:54,960 Speaker 3: been trying to struggle with. When it comes to Europe, 151 00:06:55,839 --> 00:06:58,880 Speaker 3: I think most people think it's more in the leverage camp, 152 00:06:59,320 --> 00:07:02,800 Speaker 3: and therefore this is just a negotiating play. When it 153 00:07:02,800 --> 00:07:05,359 Speaker 3: comes to China, I think more people are worried that 154 00:07:05,440 --> 00:07:08,039 Speaker 3: it's in the revenue camp and it's more than just 155 00:07:08,080 --> 00:07:10,280 Speaker 3: a leverage play. So that's why I think that when 156 00:07:10,320 --> 00:07:12,600 Speaker 3: it comes to Europe, it's going to probably be viewed 157 00:07:12,640 --> 00:07:15,320 Speaker 3: as a leverage play to try to get a deal 158 00:07:15,400 --> 00:07:16,720 Speaker 3: done sooner rather than later. 159 00:07:17,000 --> 00:07:19,320 Speaker 2: Jim, I appreciate your time, sir as always is going 160 00:07:19,360 --> 00:07:32,440 Speaker 2: to say a Jimpianco, the of Bianco Research, Nati level 161 00:07:32,440 --> 00:07:35,280 Speaker 2: of ups down grunting US anquities to neutral, writing we 162 00:07:35,360 --> 00:07:39,360 Speaker 2: see limited upside near term and expend continued volatility as 163 00:07:39,400 --> 00:07:42,480 Speaker 2: trade in the US fiscal uncertainty remain high. Nadia joins 164 00:07:42,520 --> 00:07:44,560 Speaker 2: us now for more, Natia, good morning, Good morning. How 165 00:07:44,560 --> 00:07:46,440 Speaker 2: good does it feel not to defend an overweight gun 166 00:07:46,440 --> 00:07:47,120 Speaker 2: into the weekend? 167 00:07:47,680 --> 00:07:48,920 Speaker 6: You know, it never. 168 00:07:48,760 --> 00:07:51,400 Speaker 8: Feels good when markets are down, but you know, this 169 00:07:51,600 --> 00:07:54,000 Speaker 8: is some of the issues that we were struggling with 170 00:07:54,080 --> 00:07:56,440 Speaker 8: last week and we were concerned about. As Lisa said, 171 00:07:56,480 --> 00:07:59,400 Speaker 8: we'll past peak on certainty, but there was still uncertainty 172 00:07:59,520 --> 00:08:04,560 Speaker 8: still high, and that's why we downgraded US equities last week. Now, 173 00:08:04,600 --> 00:08:07,760 Speaker 8: we had been attractive view on US equities in April. 174 00:08:07,840 --> 00:08:11,920 Speaker 8: We took that opportunity right after the ninety day pause, 175 00:08:12,240 --> 00:08:14,960 Speaker 8: but after being up thirteen percent in a month, we 176 00:08:15,120 --> 00:08:18,040 Speaker 8: just thought that the versual war was balanced. And yes, 177 00:08:18,240 --> 00:08:20,360 Speaker 8: you know, the effective tower for it has come down 178 00:08:20,360 --> 00:08:22,960 Speaker 8: from twenty five percent to fifteen percent, but it feels 179 00:08:22,960 --> 00:08:25,160 Speaker 8: like a lot of the good news is already praised 180 00:08:25,160 --> 00:08:27,080 Speaker 8: it and this risk for it to go higher than 181 00:08:27,080 --> 00:08:28,480 Speaker 8: the fifteen percent it is currently. 182 00:08:28,560 --> 00:08:31,960 Speaker 2: Obviously, price action, as you know, can condition behavior. I 183 00:08:32,000 --> 00:08:34,040 Speaker 2: just wonder how many investors have been conditioned by the 184 00:08:34,080 --> 00:08:38,840 Speaker 2: experience of April big dislocation. Then things suffer and markets 185 00:08:38,920 --> 00:08:41,880 Speaker 2: rip and you can miss out really quickly, and we 186 00:08:41,920 --> 00:08:43,840 Speaker 2: saw that early this week we had this small dip 187 00:08:43,840 --> 00:08:45,560 Speaker 2: of the back of a down grade. Dip gets bought, 188 00:08:45,920 --> 00:08:48,240 Speaker 2: and I just wondered, from your perspective, whether this dip 189 00:08:48,640 --> 00:08:50,160 Speaker 2: is going to be brought too. Because people have got 190 00:08:50,160 --> 00:08:52,280 Speaker 2: the plane book from April, maybe they're comfortable with it. 191 00:08:52,559 --> 00:08:55,320 Speaker 2: We know that the president likes to wank negotiations to 192 00:08:55,360 --> 00:08:58,040 Speaker 2: the extreme, comes out and says to Europe, make a move, 193 00:08:58,080 --> 00:09:00,320 Speaker 2: otherwise you're going to get a fifty percent tariff equity 194 00:09:00,320 --> 00:09:03,240 Speaker 2: markets post back. Would you suggest people be more careful 195 00:09:03,400 --> 00:09:05,480 Speaker 2: this time around or do the same rule still apply? 196 00:09:06,200 --> 00:09:09,160 Speaker 8: Yeah, we are looking for our opportunities to buy dip. 197 00:09:09,240 --> 00:09:11,480 Speaker 8: You know, one percent two percent down is not much 198 00:09:11,520 --> 00:09:12,920 Speaker 8: of a dip for us. If we see a five 199 00:09:12,960 --> 00:09:16,160 Speaker 8: percent down, that's a different conversation. At the same time, 200 00:09:16,160 --> 00:09:18,360 Speaker 8: we also have equity valuations that have recovered. 201 00:09:18,400 --> 00:09:20,239 Speaker 6: We're at twenty one times forward. 202 00:09:20,080 --> 00:09:22,960 Speaker 8: Pe, you know, above the five year average, so there's 203 00:09:23,080 --> 00:09:25,480 Speaker 8: very little room here. And at the end of the day, 204 00:09:25,559 --> 00:09:27,760 Speaker 8: we know that it's earnings over the longer term that 205 00:09:27,800 --> 00:09:30,440 Speaker 8: would drive markets, and we think that the consensus earning 206 00:09:30,559 --> 00:09:33,520 Speaker 8: is still too hot nine percent from consensus this year. 207 00:09:33,559 --> 00:09:36,040 Speaker 8: We think it needs to come down closer to four percent. 208 00:09:36,240 --> 00:09:38,839 Speaker 8: So we're also waiting for just more clarity around what 209 00:09:38,880 --> 00:09:41,520 Speaker 8: the tariff policies will eventually look like. You know, we 210 00:09:41,559 --> 00:09:44,319 Speaker 8: thought that ninety day pause will take us to July obviously, 211 00:09:44,640 --> 00:09:48,000 Speaker 8: now it's you know, potentially June first. And remember we 212 00:09:48,120 --> 00:09:51,640 Speaker 8: still have the sectorial tariffs to come on the five 213 00:09:51,720 --> 00:09:57,000 Speaker 8: critical sectors, you know, farmer, semis, lumber, copper, and critical minerals, 214 00:09:57,240 --> 00:09:59,480 Speaker 8: and we're not sure what those exactly a gonna look like. 215 00:09:59,600 --> 00:10:01,480 Speaker 8: Is a twenty five percent of is it something higher? 216 00:10:02,200 --> 00:10:04,400 Speaker 5: I'm looking at your base case, it's six thousand in 217 00:10:04,480 --> 00:10:06,920 Speaker 5: terms of year end for SP five hundred, the bull 218 00:10:06,960 --> 00:10:10,760 Speaker 5: case is sixty seven hundred, the barecase is forty five hundred. 219 00:10:11,200 --> 00:10:12,280 Speaker 7: What could get you. 220 00:10:12,400 --> 00:10:15,040 Speaker 5: To feel like one or the other is the more 221 00:10:15,200 --> 00:10:16,120 Speaker 5: likely tail risk? 222 00:10:16,640 --> 00:10:19,640 Speaker 8: It depends on what happens, you know, after this ninety 223 00:10:19,720 --> 00:10:22,680 Speaker 8: day pause or something even children and not obviously now 224 00:10:22,720 --> 00:10:25,920 Speaker 8: if we see you know, a re escalation and those 225 00:10:25,920 --> 00:10:29,000 Speaker 8: reciprocal tires get put on even at a higher rate, 226 00:10:29,280 --> 00:10:31,000 Speaker 8: you know, that is going to have a huge drag 227 00:10:31,040 --> 00:10:33,079 Speaker 8: on the economy, and that puts us closer to a 228 00:10:33,200 --> 00:10:36,360 Speaker 8: recessionary scenario that would get us to that forty five hundred. 229 00:10:36,520 --> 00:10:38,880 Speaker 8: What could get us up to that sixty seven hundred? 230 00:10:39,040 --> 00:10:41,240 Speaker 8: Right now? There are legal challenges we know, you know, 231 00:10:41,400 --> 00:10:44,880 Speaker 8: you have Oregon versus Trump, you have you know, Vos 232 00:10:45,520 --> 00:10:48,040 Speaker 8: versus Trump, And there could be a decision in the 233 00:10:48,120 --> 00:10:52,040 Speaker 8: next couple of weeks, potentially an injunction that will challenge, 234 00:10:52,080 --> 00:10:54,320 Speaker 8: you know, do use of IEPA for these broad based 235 00:10:54,360 --> 00:10:56,480 Speaker 8: tires and the market isn't price for that, So you 236 00:10:56,480 --> 00:10:58,160 Speaker 8: could see some of that. But that's not to say 237 00:10:58,200 --> 00:10:59,960 Speaker 8: that that's going to be the end of story, because 238 00:11:00,040 --> 00:11:02,120 Speaker 8: there's always a Supreme Court, and that could be taken 239 00:11:02,120 --> 00:11:04,720 Speaker 8: to the Supreme Court and be reversed. But that's what 240 00:11:04,760 --> 00:11:07,680 Speaker 8: could get us to that sixty six sixty seven hundred 241 00:11:07,960 --> 00:11:11,840 Speaker 8: if we get any sort of rollback, even the baseline. 242 00:11:11,440 --> 00:11:13,680 Speaker 5: Towers who is trading every day, And I asked this 243 00:11:13,760 --> 00:11:15,360 Speaker 5: because there are so many people who come out with 244 00:11:15,360 --> 00:11:18,040 Speaker 5: these conspiracy theories. It's the retail trader on the margin 245 00:11:18,160 --> 00:11:20,679 Speaker 5: that's creating the buy the dip mentality, and everybody else 246 00:11:20,760 --> 00:11:22,600 Speaker 5: is just following them. It's the hedge funds that are 247 00:11:22,640 --> 00:11:25,640 Speaker 5: causing the volatility in the bond market. I mean, is 248 00:11:25,679 --> 00:11:28,400 Speaker 5: there truth to that that there are these technical underpinnings 249 00:11:28,440 --> 00:11:30,600 Speaker 5: that are just whipsawing everything and that we're the ones 250 00:11:30,600 --> 00:11:32,040 Speaker 5: here trying to make a narrative. 251 00:11:31,720 --> 00:11:32,240 Speaker 6: Out of it. 252 00:11:32,360 --> 00:11:33,880 Speaker 8: There is a little bit of that, and there's also 253 00:11:33,880 --> 00:11:36,240 Speaker 8: systematics as well that are in the market, you know, 254 00:11:36,360 --> 00:11:39,319 Speaker 8: and you know when you see spiking volatilities, those funds 255 00:11:39,320 --> 00:11:41,480 Speaker 8: have to also respond to us. So there's some of that. 256 00:11:41,720 --> 00:11:43,720 Speaker 8: You know, the retail investors have been in and out 257 00:11:43,720 --> 00:11:45,959 Speaker 8: of the market. I think the retail investors right now 258 00:11:46,000 --> 00:11:47,600 Speaker 8: is a little bit more hesitant to sort of by 259 00:11:47,679 --> 00:11:51,000 Speaker 8: the dip, and so that's what that's that's at the 260 00:11:51,080 --> 00:11:52,560 Speaker 8: end of the day, it's the flows that are driving 261 00:11:52,600 --> 00:11:54,800 Speaker 8: the near term volatility in the market. But I think 262 00:11:54,840 --> 00:11:57,679 Speaker 8: the real money is still trying to assess, you know, 263 00:11:57,760 --> 00:11:59,559 Speaker 8: what economic growth is going to look like. 264 00:11:59,600 --> 00:12:00,480 Speaker 4: In a second and half. 265 00:12:00,720 --> 00:12:02,840 Speaker 8: We think that you will see the economy slow close 266 00:12:02,880 --> 00:12:05,640 Speaker 8: to a one and a half percent, so again not recessionary. 267 00:12:06,040 --> 00:12:10,120 Speaker 8: But again, although the range of outcome have narrowed, you know, 268 00:12:10,160 --> 00:12:12,079 Speaker 8: it still can end up to be flat growth or 269 00:12:12,120 --> 00:12:14,320 Speaker 8: it could be one and a half percent, depending on 270 00:12:14,400 --> 00:12:18,520 Speaker 8: trade policies and the president's tweets. 271 00:12:18,760 --> 00:12:22,119 Speaker 2: Nadia, Just finally, just before you go within that defensive 272 00:12:22,160 --> 00:12:24,520 Speaker 2: posture you have relative to where you were before, what 273 00:12:24,559 --> 00:12:27,360 Speaker 2: do you like inequities? What's the favorite sector at the moment? 274 00:12:27,400 --> 00:12:30,000 Speaker 8: Look, we still continue to like tech. We've seen a rebound, 275 00:12:30,080 --> 00:12:33,520 Speaker 8: but I would say tech excluding Apple is in a 276 00:12:33,040 --> 00:12:35,920 Speaker 8: better place than it was back in February when it 277 00:12:36,000 --> 00:12:36,720 Speaker 8: was at its high. 278 00:12:36,800 --> 00:12:37,000 Speaker 4: Why. 279 00:12:37,120 --> 00:12:40,360 Speaker 8: We've seen, you know, the pause on the China Yours tariff. 280 00:12:40,400 --> 00:12:46,480 Speaker 8: We've seen a rollback of the AI diffusion rule that 281 00:12:46,520 --> 00:12:50,080 Speaker 8: was supposed to going to affect last week, and so 282 00:12:50,200 --> 00:12:51,079 Speaker 8: we also see. 283 00:12:50,880 --> 00:12:52,280 Speaker 1: A pickup in capex spending. 284 00:12:52,320 --> 00:12:54,120 Speaker 8: Look at all the deals that have been announced, you know, 285 00:12:54,160 --> 00:12:57,640 Speaker 8: around Sovereign's KAPEC spend spending an AI. So we think 286 00:12:57,679 --> 00:13:00,319 Speaker 8: that the outlook for tech has actually improved than it 287 00:13:00,520 --> 00:13:01,800 Speaker 8: was just a few weeks ago. 288 00:13:01,920 --> 00:13:03,640 Speaker 2: Now, dear, I appreciate your time. You knew what the 289 00:13:03,640 --> 00:13:16,079 Speaker 2: follow up would be, then't you. Apple Souse the advisory 290 00:13:16,120 --> 00:13:19,280 Speaker 2: Group down grounding Deck is outdoor to market perform, noting 291 00:13:19,320 --> 00:13:22,720 Speaker 2: the company's lack of visibility around tariffs A stick with 292 00:13:22,760 --> 00:13:25,840 Speaker 2: retail Dania TOUSEI wank In on the mixed earning season, writing, 293 00:13:25,880 --> 00:13:29,360 Speaker 2: a consistent narrative across retailers and brands is that higher 294 00:13:29,400 --> 00:13:32,600 Speaker 2: costs will be passed on to consumers. Dania joins us 295 00:13:32,600 --> 00:13:34,200 Speaker 2: now for more. Donnicot Sea, good morning. 296 00:13:34,080 --> 00:13:35,320 Speaker 1: Nice to see you, Thank you for having me. 297 00:13:35,360 --> 00:13:37,440 Speaker 2: Do you seeing that across the industry? Are there any 298 00:13:37,480 --> 00:13:40,000 Speaker 2: bright spots where they're able to withstand this shock? 299 00:13:40,440 --> 00:13:43,040 Speaker 1: You've seen some companies being able to withstand the shock, 300 00:13:43,280 --> 00:13:46,679 Speaker 1: whether it's Ralph Lauren and a tapestry. Brand leaders are 301 00:13:46,679 --> 00:13:50,240 Speaker 1: making the difference with product innovation, but most others the 302 00:13:50,280 --> 00:13:53,280 Speaker 1: impact of tariffs is uncertain in terms of the magnitude 303 00:13:53,559 --> 00:13:57,560 Speaker 1: and also the acceptance of price increases. By consumers, because 304 00:13:57,600 --> 00:13:59,400 Speaker 1: at the end of the day, retail is are going 305 00:13:59,440 --> 00:14:01,680 Speaker 1: to have to raise prices with these types of teriffs. 306 00:14:01,800 --> 00:14:04,640 Speaker 5: We were talking after Walmart or released to earnings and 307 00:14:04,679 --> 00:14:06,760 Speaker 5: came out saying that because of tariffs they might have 308 00:14:06,800 --> 00:14:09,680 Speaker 5: to increase prices, and said maybe this gives actually a 309 00:14:09,720 --> 00:14:12,560 Speaker 5: cart blaunche to other companies to say, we too are 310 00:14:12,640 --> 00:14:15,240 Speaker 5: getting affected by tariffs, are going to have to raise prices. 311 00:14:15,679 --> 00:14:18,800 Speaker 5: Are you surprised we haven't seen that more or that 312 00:14:18,960 --> 00:14:22,200 Speaker 5: companies have been sort of chastened, in your view by 313 00:14:22,240 --> 00:14:25,320 Speaker 5: what happened subsequently with respect to a response from the president. 314 00:14:25,840 --> 00:14:29,000 Speaker 1: I think no company has the scale or the attention 315 00:14:29,120 --> 00:14:32,240 Speaker 1: of the president like Walmart does. It's the biggest one 316 00:14:32,240 --> 00:14:35,560 Speaker 1: out there. Most of the other companies are now saying 317 00:14:35,920 --> 00:14:39,240 Speaker 1: what the impact of tariffs could be or the magnitude 318 00:14:39,320 --> 00:14:42,040 Speaker 1: of what the cost will be. They're not saying what 319 00:14:42,080 --> 00:14:44,480 Speaker 1: the price increase will be and how much it will be. 320 00:14:44,720 --> 00:14:46,640 Speaker 1: But what they are saying is that the second half 321 00:14:46,680 --> 00:14:49,040 Speaker 1: of the year, we don't know how our customer is 322 00:14:49,080 --> 00:14:51,760 Speaker 1: going to react to price increases. For the most part, 323 00:14:51,840 --> 00:14:54,800 Speaker 1: retailer is going to raise prices, not on every good, 324 00:14:54,840 --> 00:14:57,360 Speaker 1: but on a select amount of goods, and that is 325 00:14:57,480 --> 00:15:00,960 Speaker 1: drawing concern about a slowdown in in terms of consumer 326 00:15:01,000 --> 00:15:04,040 Speaker 1: spending in the back half because will consumers pay or 327 00:15:04,040 --> 00:15:04,800 Speaker 1: will they not pay? 328 00:15:05,040 --> 00:15:08,360 Speaker 2: Companies are spending so much time thinking about how to communicate. 329 00:15:08,680 --> 00:15:11,400 Speaker 2: They're going into NX season almost unbothered by what the 330 00:15:11,480 --> 00:15:13,120 Speaker 2: numbers look like in the quarter and trying to work 331 00:15:13,160 --> 00:15:15,240 Speaker 2: out how to communicate what the next quarter might look like, 332 00:15:15,440 --> 00:15:18,880 Speaker 2: the year ahead. Dual guidance, Cut the guidance, pull the guidance, 333 00:15:18,960 --> 00:15:22,360 Speaker 2: keep the guidance. Who's approached this in the optimal way? 334 00:15:22,360 --> 00:15:24,880 Speaker 2: From your standpoint, who would you like to celebrate? Who 335 00:15:24,880 --> 00:15:26,840 Speaker 2: do you think has done the better job this quarter? 336 00:15:26,920 --> 00:15:29,520 Speaker 1: Well, like I said, I mean Ralph Lauren and Tapestry 337 00:15:29,560 --> 00:15:31,840 Speaker 1: both have done a very good job given they were 338 00:15:31,880 --> 00:15:34,920 Speaker 1: able to talk about what's happening with their pricing now, 339 00:15:35,240 --> 00:15:38,240 Speaker 1: what the consumer acceptance is. When you think who else 340 00:15:38,560 --> 00:15:42,080 Speaker 1: TJX has done a very good job. Also, most companies 341 00:15:42,120 --> 00:15:45,360 Speaker 1: are talking about how sales are here and now, not 342 00:15:45,480 --> 00:15:48,480 Speaker 1: just the first quarter, because to your point, it's almost 343 00:15:48,520 --> 00:15:52,680 Speaker 1: like revenues and business in the first quarter is divorced 344 00:15:52,720 --> 00:15:55,400 Speaker 1: from what's happening now. It's like you said, it's a 345 00:15:55,440 --> 00:15:59,120 Speaker 1: week by week basis in terms of what's changing more 346 00:15:59,120 --> 00:16:02,160 Speaker 1: to come next week, gap Alta, there's a lot more 347 00:16:02,200 --> 00:16:04,000 Speaker 1: to cut Macy's in terms of what we'll. 348 00:16:03,880 --> 00:16:06,840 Speaker 2: See consumers, so they feel terrible, What are they doing? 349 00:16:07,400 --> 00:16:09,680 Speaker 1: I think consumers for the most part, depending upon their 350 00:16:09,680 --> 00:16:13,120 Speaker 1: income level, they're pulling back. They're more discerning on their spend. 351 00:16:13,400 --> 00:16:15,080 Speaker 1: You're seeing it in terms of some of the data 352 00:16:15,120 --> 00:16:17,600 Speaker 1: of travel and what they're not looking to do or 353 00:16:17,600 --> 00:16:20,360 Speaker 1: how they're pulling back. Take a look at luxury brands. 354 00:16:20,600 --> 00:16:23,480 Speaker 1: Luxury brands, except for those at the super high end, 355 00:16:23,800 --> 00:16:26,800 Speaker 1: we've seen a slowdown and luxury brands spend too, so 356 00:16:26,840 --> 00:16:28,560 Speaker 1: they are pulling back on their spending. 357 00:16:28,880 --> 00:16:29,800 Speaker 4: Also at restaurants. 358 00:16:29,920 --> 00:16:32,880 Speaker 2: You say, depending on their income, what is the big 359 00:16:32,880 --> 00:16:35,880 Speaker 2: difference right now between low income and high income earners 360 00:16:35,920 --> 00:16:37,960 Speaker 2: and their spend? And I think what we've been tracking 361 00:16:37,960 --> 00:16:40,840 Speaker 2: around this table now for years is that high income 362 00:16:40,880 --> 00:16:43,360 Speaker 2: spenders consumers in this country of how do well. We're 363 00:16:43,360 --> 00:16:45,600 Speaker 2: trying to work out whether the stress is migrating up. 364 00:16:45,920 --> 00:16:48,560 Speaker 2: You mentioned some pressure and luxury. Are you seeing signs 365 00:16:48,560 --> 00:16:48,760 Speaker 2: of that? 366 00:16:49,200 --> 00:16:51,480 Speaker 1: Well, we've seen signs of pressure and luxury because of 367 00:16:51,520 --> 00:16:54,800 Speaker 1: the slowdown in sales. Look at LVMH's sales which are 368 00:16:54,840 --> 00:16:57,800 Speaker 1: down low single digits. It's different than what you've seen 369 00:16:57,840 --> 00:17:02,200 Speaker 1: from LVMH in the past. We've seen, for example, look 370 00:17:02,240 --> 00:17:05,280 Speaker 1: at traffic to some of the different types of centers. 371 00:17:05,520 --> 00:17:09,280 Speaker 1: We've seen that slow down. We've seen on grocery purchases, 372 00:17:09,560 --> 00:17:11,800 Speaker 1: more of an increase in some of the private label 373 00:17:12,160 --> 00:17:14,359 Speaker 1: So I've seen that change. I'll tell you I was 374 00:17:14,359 --> 00:17:16,879 Speaker 1: at a real estate conference earlier this week, and the 375 00:17:16,920 --> 00:17:20,720 Speaker 1: mood is everything's good, but the butt meaning that when 376 00:17:20,800 --> 00:17:23,600 Speaker 1: is the greatest slow down going to occur? And the 377 00:17:23,640 --> 00:17:27,160 Speaker 1: bulk of what price? When price increases could start sometime 378 00:17:27,280 --> 00:17:28,359 Speaker 1: during the early summer. 379 00:17:28,720 --> 00:17:31,600 Speaker 5: Anyone moving production back to the US very hard. 380 00:17:31,640 --> 00:17:34,760 Speaker 1: Can't move production back to the US too costly to make. 381 00:17:35,000 --> 00:17:37,240 Speaker 1: Who has some of the greatest production in the US 382 00:17:37,600 --> 00:17:40,280 Speaker 1: Back and Body Works around eighty percent of their goods 383 00:17:40,280 --> 00:17:41,080 Speaker 1: are made in the US. 384 00:17:41,240 --> 00:17:41,960 Speaker 7: Did not know that? 385 00:17:42,280 --> 00:17:44,280 Speaker 2: Yes, Dinah, thank you, thanks you for the start. 386 00:17:44,359 --> 00:17:56,199 Speaker 7: Donna T. Townsei, the Townsea Advice recruit, on. 387 00:17:56,280 --> 00:17:58,200 Speaker 2: The Trice situation and what it all means for market 388 00:17:58,280 --> 00:18:00,399 Speaker 2: someplace to say that Russell Brown Pack have crock Is 389 00:18:00,440 --> 00:18:01,120 Speaker 2: with us around a table. 390 00:18:01,160 --> 00:18:01,879 Speaker 7: Russ a good morning. 391 00:18:02,040 --> 00:18:04,600 Speaker 2: Thanks for having me give us the constructive view for 392 00:18:04,680 --> 00:18:05,879 Speaker 2: the US economy this morning. 393 00:18:05,920 --> 00:18:10,280 Speaker 9: Okay, so we have another dose of uncertainty this morning, 394 00:18:11,119 --> 00:18:13,760 Speaker 9: but it's no different really from the last three years, 395 00:18:13,760 --> 00:18:16,840 Speaker 9: where we had a historic FED tightening cycle, we had 396 00:18:17,280 --> 00:18:19,880 Speaker 9: a regional banking crisis that felt scary in the moment. 397 00:18:20,000 --> 00:18:22,879 Speaker 9: Last year, we had a very acrimonious election, and you 398 00:18:22,920 --> 00:18:26,159 Speaker 9: had these structural underpinnings in the US economy where in 399 00:18:26,200 --> 00:18:30,000 Speaker 9: both twenty twenty three and twenty four the economy accelerated 400 00:18:30,040 --> 00:18:32,880 Speaker 9: into the fourth quarter. Now, listen, we've got some real 401 00:18:32,920 --> 00:18:37,320 Speaker 9: sort of fundamental headwinds, some stagflationary kind of evolutions that 402 00:18:37,600 --> 00:18:40,880 Speaker 9: at the margin will reduce growth and maybe tick inflation 403 00:18:41,000 --> 00:18:43,639 Speaker 9: up a little bit, but it's far from a recession. 404 00:18:44,640 --> 00:18:48,399 Speaker 9: From our call, and again to underestimate these points of 405 00:18:48,440 --> 00:18:50,440 Speaker 9: resiliency at your own risk. 406 00:18:50,480 --> 00:18:51,240 Speaker 7: Well, this is your point. 407 00:18:51,280 --> 00:18:55,040 Speaker 2: It's really important you believe that we are underestimating America's 408 00:18:55,080 --> 00:18:59,160 Speaker 2: ability to absorb shocks. I just wonder how you're expressing 409 00:18:59,200 --> 00:19:00,879 Speaker 2: that in financial markets of the moment. 410 00:19:00,920 --> 00:19:03,480 Speaker 9: What are you doing so in our multisector fixed income 411 00:19:03,520 --> 00:19:06,360 Speaker 9: portfolio is actually you've probably heard Rick creaders say this 412 00:19:06,440 --> 00:19:07,920 Speaker 9: is the golden age of fixed income. 413 00:19:07,920 --> 00:19:09,359 Speaker 6: Actually it's the golden age of income. 414 00:19:09,640 --> 00:19:12,880 Speaker 9: And when you have a yield curve that's elevated and 415 00:19:13,040 --> 00:19:16,320 Speaker 9: flatter than it's been historically, that front to the belly 416 00:19:16,320 --> 00:19:18,840 Speaker 9: of the curve is this incredible opportunity. And then you 417 00:19:18,880 --> 00:19:22,639 Speaker 9: can take what is really robust credit quality, put corporate credit, 418 00:19:22,720 --> 00:19:27,480 Speaker 9: securitize assets together and create a high quality portfolio that 419 00:19:27,520 --> 00:19:30,280 Speaker 9: yields six and a half to seven percent. Because of 420 00:19:30,320 --> 00:19:32,720 Speaker 9: where you own your duration, you don't have all that 421 00:19:32,800 --> 00:19:34,440 Speaker 9: volatility at the back end of the curve. So it's 422 00:19:34,440 --> 00:19:36,440 Speaker 9: a super high sharp ratio portfolio. 423 00:19:36,680 --> 00:19:39,160 Speaker 5: Who is it income for? And I ask this at 424 00:19:39,160 --> 00:19:41,639 Speaker 5: a time when a lot of people are wondering exactly 425 00:19:41,680 --> 00:19:43,399 Speaker 5: who the buyer base is going to be for this 426 00:19:43,440 --> 00:19:49,360 Speaker 5: fixed income given some of the international version to US assets. 427 00:19:49,359 --> 00:19:51,159 Speaker 9: So listen, I think the reality is we live in 428 00:19:51,200 --> 00:19:52,879 Speaker 9: a world where there's too much money and not enough 429 00:19:52,920 --> 00:19:56,720 Speaker 9: yielding assets. So there's twenty five trillion dollars of cash 430 00:19:56,760 --> 00:19:58,960 Speaker 9: on the balance sheet of the private sector. That's more 431 00:19:59,000 --> 00:20:01,920 Speaker 9: than all marketable treasury debt. There's two hundred and twenty 432 00:20:02,080 --> 00:20:05,360 Speaker 9: trillion dollars of private sector networth, so when you think 433 00:20:05,400 --> 00:20:05,920 Speaker 9: about the. 434 00:20:05,840 --> 00:20:08,000 Speaker 6: Size of the global or the US. 435 00:20:07,760 --> 00:20:11,280 Speaker 9: Aggurate index at about fifty trillion, there's a reason credit 436 00:20:11,359 --> 00:20:13,400 Speaker 9: spreads are as tight as they are. There's a wall 437 00:20:13,440 --> 00:20:15,399 Speaker 9: of money that needs yield today, and when you think 438 00:20:15,440 --> 00:20:18,399 Speaker 9: about the demographic trends and the increase in savers, you know, 439 00:20:18,440 --> 00:20:20,480 Speaker 9: this narrative that we're on the brink of not having 440 00:20:20,600 --> 00:20:25,000 Speaker 9: enough wherewithal to finance our debt is far from reality. 441 00:20:25,040 --> 00:20:27,480 Speaker 5: Okay, But given that, where is this wall of money 442 00:20:27,520 --> 00:20:30,600 Speaker 5: going at times when you've got bond yields rising, you've 443 00:20:30,600 --> 00:20:32,880 Speaker 5: got stock selling off, and you've got the dollar weakening. 444 00:20:33,200 --> 00:20:37,640 Speaker 9: Okay, So seventy percent of marketable treasury debt comes due 445 00:20:37,640 --> 00:20:40,160 Speaker 9: in the next five years every point on the yield 446 00:20:40,160 --> 00:20:43,639 Speaker 9: curve five years, and in trades that negative carry to 447 00:20:44,359 --> 00:20:45,240 Speaker 9: cash to. 448 00:20:45,160 --> 00:20:45,960 Speaker 6: The overnight rate. 449 00:20:46,040 --> 00:20:49,560 Speaker 9: So where's the outrage? You know, honestly, that's a picture 450 00:20:49,600 --> 00:20:52,480 Speaker 9: of more money than there are investable assets today. 451 00:20:52,560 --> 00:20:55,199 Speaker 5: So this raises a question going forward, is this a 452 00:20:55,240 --> 00:20:58,000 Speaker 5: bet that can get carried over its duration? You said 453 00:20:58,040 --> 00:21:00,560 Speaker 5: that this was something that you were avoiding it basically 454 00:21:00,640 --> 00:21:03,359 Speaker 5: that you see that as the riskiest pot period right now. 455 00:21:03,480 --> 00:21:07,119 Speaker 5: The idea of that thirty year or twenty year treasury. 456 00:21:07,480 --> 00:21:11,560 Speaker 6: That isn't very predictable. It's really a matter of valuation. 457 00:21:11,800 --> 00:21:14,080 Speaker 9: So you know, actually at the long end of the curve, 458 00:21:14,080 --> 00:21:15,959 Speaker 9: when you've got the long bond at five percent and 459 00:21:16,040 --> 00:21:18,280 Speaker 9: corporate bonds high called it corporate bonds at six percent, 460 00:21:18,480 --> 00:21:20,879 Speaker 9: that's a really nice environment. If you're a long duration 461 00:21:21,000 --> 00:21:24,520 Speaker 9: buyer like an insurance company or a pension fund for US, 462 00:21:24,640 --> 00:21:27,639 Speaker 9: you don't really get compensated for the implied volatility of 463 00:21:27,680 --> 00:21:29,919 Speaker 9: being out the curve. So the sweet spot is to 464 00:21:29,920 --> 00:21:31,480 Speaker 9: be in the front of the belly where you get 465 00:21:31,520 --> 00:21:34,639 Speaker 9: almost all of that yield without all that implied volatility. 466 00:21:35,160 --> 00:21:37,719 Speaker 9: For a sixty to forty portfolio, you pit for the 467 00:21:37,760 --> 00:21:40,840 Speaker 9: forty for your fixed income part. You use that optimized 468 00:21:41,200 --> 00:21:43,679 Speaker 9: expression that I just described, and then you marry it 469 00:21:43,680 --> 00:21:44,359 Speaker 9: with equities. 470 00:21:44,520 --> 00:21:46,520 Speaker 2: Well, so, looking at this sponge right now between the 471 00:21:46,560 --> 00:21:49,320 Speaker 2: supposed risk free asset and credit at the moment, it's 472 00:21:49,359 --> 00:21:51,920 Speaker 2: really tight. We were talking about Michael Haunt at Bank 473 00:21:51,920 --> 00:21:54,520 Speaker 2: of America this morning about how tight Microsoft was treading 474 00:21:55,000 --> 00:21:57,920 Speaker 2: to the government bond to treasuries, and in some mature 475 00:21:57,920 --> 00:22:00,199 Speaker 2: it he's thriving through it at the very front end 476 00:22:00,200 --> 00:22:02,200 Speaker 2: to the curve. Typically, we'd say that was a lot 477 00:22:02,240 --> 00:22:04,359 Speaker 2: of confidence about corporate America, that's why it spreads it 478 00:22:04,440 --> 00:22:06,120 Speaker 2: so time. But this time around, people are saying it's 479 00:22:06,119 --> 00:22:09,760 Speaker 2: the opposite. They're saying there's a lot of fear about treasury, 480 00:22:10,080 --> 00:22:13,280 Speaker 2: about treasuries and whether the US government is trading as 481 00:22:13,280 --> 00:22:16,000 Speaker 2: a credit. You push back a little bit against that. 482 00:22:16,040 --> 00:22:17,879 Speaker 2: Could you explain that a little bit more about what 483 00:22:17,920 --> 00:22:18,920 Speaker 2: people are getting so wrong? 484 00:22:19,119 --> 00:22:19,320 Speaker 4: Yep. 485 00:22:19,359 --> 00:22:21,520 Speaker 9: So I think the risk free curve is in equiliveryment. 486 00:22:21,520 --> 00:22:23,680 Speaker 9: It's twist deepened since the election. I don't have my 487 00:22:23,800 --> 00:22:25,400 Speaker 9: terminal in front of me today, but we were four 488 00:22:25,480 --> 00:22:26,479 Speaker 9: forty four on election day. 489 00:22:26,520 --> 00:22:28,119 Speaker 6: I'm guessing we're right about there now. 490 00:22:28,240 --> 00:22:31,000 Speaker 9: Front ends, lower back ends, higher curves evolved in a 491 00:22:31,040 --> 00:22:32,960 Speaker 9: stagflationary outcome. 492 00:22:33,240 --> 00:22:34,000 Speaker 6: That makes sense to me. 493 00:22:34,040 --> 00:22:36,159 Speaker 7: That's what you think. This is a stagflationary shotgun for 494 00:22:36,200 --> 00:22:36,720 Speaker 7: the yield curve. 495 00:22:36,800 --> 00:22:39,840 Speaker 9: Yeah, a modest one, and that's what's reflected since election day. 496 00:22:40,440 --> 00:22:43,200 Speaker 9: But as it pertains to spreads, So, yeah, credit spreads 497 00:22:43,240 --> 00:22:45,480 Speaker 9: are tight. I get asked that in every client meeting 498 00:22:45,480 --> 00:22:48,720 Speaker 9: I go into today. But there's three reasons. One, credit 499 00:22:48,760 --> 00:22:52,639 Speaker 9: qualities pristine across investment grade and certainly in the higher 500 00:22:52,640 --> 00:22:55,719 Speaker 9: part of the high yield market. Second, people don't buy spreads, 501 00:22:55,760 --> 00:22:58,320 Speaker 9: they buy all in yields. And third you think about 502 00:22:58,359 --> 00:23:01,440 Speaker 9: the technical So there's some amazing statistics. So twenty years ago, 503 00:23:01,720 --> 00:23:04,320 Speaker 9: the investment grade Index and the Treasury Index were the 504 00:23:04,320 --> 00:23:07,280 Speaker 9: same market cap. Today the investment grade Index is about 505 00:23:07,320 --> 00:23:09,760 Speaker 9: half the size because the treasury market is growing more 506 00:23:09,840 --> 00:23:13,320 Speaker 9: quickly and the high yield market one point four trillion 507 00:23:13,359 --> 00:23:16,080 Speaker 9: in total market cap. The treasury market grows by that 508 00:23:16,119 --> 00:23:19,359 Speaker 9: size every nine months. So there's a relative scarcity of 509 00:23:19,400 --> 00:23:21,760 Speaker 9: these credit assets today, and that's why spreads are tight 510 00:23:21,800 --> 00:23:22,680 Speaker 9: and will probably remain. 511 00:23:22,760 --> 00:23:25,240 Speaker 5: So do you expect spreads to tighten even more as 512 00:23:25,280 --> 00:23:28,560 Speaker 5: companies refrain from issuing more debt at a time when 513 00:23:28,640 --> 00:23:30,919 Speaker 5: yields are this high, given the fact that there is 514 00:23:31,000 --> 00:23:34,440 Speaker 5: uncertainty and some of the capex ex capex plans might 515 00:23:34,440 --> 00:23:36,080 Speaker 5: be put on hold or M and A and other 516 00:23:36,119 --> 00:23:37,760 Speaker 5: things that would require them to raise money. 517 00:23:37,840 --> 00:23:41,560 Speaker 9: We've seen pretty normal issuance patterns so far this year, 518 00:23:41,800 --> 00:23:45,399 Speaker 9: and you definitely see a pullback when rates back up, 519 00:23:45,440 --> 00:23:47,920 Speaker 9: and then they sort of reaccelerate when rates drop. So 520 00:23:47,960 --> 00:23:50,200 Speaker 9: I see very normal behavior from issuers today. 521 00:23:50,280 --> 00:23:52,480 Speaker 5: You said something before that I thought was really interesting 522 00:23:52,520 --> 00:23:55,400 Speaker 5: that if you wanted to buy long duration bonds, you'd 523 00:23:55,440 --> 00:23:58,080 Speaker 5: barbel it with stocks. You'd have this sort of barbell 524 00:23:58,160 --> 00:24:01,679 Speaker 5: approach at a time when both are considered risky for 525 00:24:01,680 --> 00:24:05,159 Speaker 5: different reasons. Are you believing that in some sort of 526 00:24:05,200 --> 00:24:09,080 Speaker 5: downturn that US treasurers will ultimately, to John's point, have 527 00:24:09,160 --> 00:24:12,280 Speaker 5: the same function that they always have in terms of 528 00:24:12,520 --> 00:24:14,600 Speaker 5: rallying and providing that ballast. 529 00:24:14,280 --> 00:24:15,359 Speaker 6: Absolutely one hundred percent. 530 00:24:15,440 --> 00:24:18,000 Speaker 9: I mean, when you think about perhaps at this moment, 531 00:24:18,200 --> 00:24:20,680 Speaker 9: I think the worry is around deficits, which are clearly 532 00:24:20,680 --> 00:24:23,800 Speaker 9: on an unsustainable path. What is the next move that 533 00:24:23,880 --> 00:24:26,480 Speaker 9: there were a shock, heaven forbid another pandemic where you 534 00:24:26,560 --> 00:24:27,920 Speaker 9: needed a multi trillion. 535 00:24:27,640 --> 00:24:29,040 Speaker 6: Dollar fiscal package. 536 00:24:29,600 --> 00:24:32,760 Speaker 9: The good news is, in this instance, there's hundreds of 537 00:24:32,800 --> 00:24:36,720 Speaker 9: basis points for the FED to cut and they could start. 538 00:24:36,600 --> 00:24:37,520 Speaker 6: QE if they needed to. 539 00:24:37,640 --> 00:24:39,680 Speaker 9: So there's lots of ammunition and the front end of 540 00:24:39,720 --> 00:24:44,120 Speaker 9: the curve would absolutely respond to that easing of policy. 541 00:24:44,119 --> 00:24:45,880 Speaker 9: And again, if you hone your duration in the front 542 00:24:45,920 --> 00:24:47,840 Speaker 9: of the belly, the curve's going to steepen and that's 543 00:24:47,840 --> 00:24:48,439 Speaker 9: going to work for you. 544 00:24:48,520 --> 00:24:51,560 Speaker 2: Final question, the point of asset scacety, which runs right 545 00:24:51,600 --> 00:24:54,520 Speaker 2: the way through this conversation. Does China and Germany have 546 00:24:54,560 --> 00:24:57,000 Speaker 2: something to say about that? Or Japan and Germany rather 547 00:24:57,240 --> 00:24:58,359 Speaker 2: have some that to say about that? 548 00:24:58,720 --> 00:25:02,280 Speaker 9: Well, I think this no of US exceptionalism being over 549 00:25:02,440 --> 00:25:03,920 Speaker 9: is a narrative. 550 00:25:04,200 --> 00:25:04,960 Speaker 6: I don't buy it. 551 00:25:05,080 --> 00:25:07,359 Speaker 9: I mean, I think if you want real equity returns, 552 00:25:07,359 --> 00:25:08,679 Speaker 9: look at the s and P five hundred has an 553 00:25:08,760 --> 00:25:12,080 Speaker 9: average return on equity about eighteen percent, even the equal 554 00:25:12,080 --> 00:25:15,119 Speaker 9: weight to SMP about twelve percent. So even for the 555 00:25:15,160 --> 00:25:17,359 Speaker 9: equal weight to SMP, you can double your book value 556 00:25:17,359 --> 00:25:19,640 Speaker 9: over six years. The returns are exceptional. 557 00:25:19,760 --> 00:25:20,720 Speaker 7: That's the equity story. 558 00:25:20,720 --> 00:25:22,600 Speaker 2: But you were talking about the bond market with regards 559 00:25:22,600 --> 00:25:26,000 Speaker 2: to our sets scarcity supporting fixed income, and what we 560 00:25:26,080 --> 00:25:29,080 Speaker 2: see taking place in Japan might uppends some of that. 561 00:25:29,280 --> 00:25:32,080 Speaker 2: Taking place in Germany years to come might upends some 562 00:25:32,119 --> 00:25:32,320 Speaker 2: of that. 563 00:25:32,359 --> 00:25:34,600 Speaker 7: How is that factor in to your thesis? 564 00:25:34,640 --> 00:25:34,760 Speaker 4: So? 565 00:25:35,000 --> 00:25:40,080 Speaker 9: I think the ubiquity of US debt and the size 566 00:25:40,160 --> 00:25:42,960 Speaker 9: and depth and liquidity of US markets are really unparallel. 567 00:25:43,000 --> 00:25:44,000 Speaker 6: There is no substitute. 568 00:25:44,040 --> 00:25:47,000 Speaker 9: So the US municipal bond market in terms of its 569 00:25:47,040 --> 00:25:50,199 Speaker 9: capitalization is bigger than the German bond market. I mean 570 00:25:50,240 --> 00:25:53,000 Speaker 9: there's just not really a whole lot of alternative Russell. 571 00:25:53,040 --> 00:25:53,600 Speaker 6: This was great. 572 00:25:53,920 --> 00:25:55,320 Speaker 2: I could tell to you all day about this Rick 573 00:25:55,400 --> 00:25:57,000 Speaker 2: Is band, from this show. From now away, I just 574 00:25:57,000 --> 00:25:59,200 Speaker 2: want to speak of Russell Brown back at Blackross, No way. 575 00:25:59,119 --> 00:26:01,919 Speaker 5: Here right to create the set back in the rags 576 00:26:01,920 --> 00:26:02,439 Speaker 5: of Black Right. 577 00:26:03,280 --> 00:26:03,879 Speaker 7: Don't worry. 578 00:26:04,040 --> 00:26:05,440 Speaker 6: I learned everything I know from Rick. 579 00:26:05,680 --> 00:26:06,200 Speaker 7: What's the best? 580 00:26:06,240 --> 00:26:08,360 Speaker 2: I love Rick too. It just doesn't wake up early 581 00:26:08,440 --> 00:26:10,919 Speaker 2: enough to come on this program anymore. 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