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Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jailey.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Let's

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Speaker 1: go back to the tenure of a shorter duration than

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Speaker 1: benchmark two nine, So that's now eleven basis points from

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Speaker 1: three percent. George Borie with US with Wells Fargo. If

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Speaker 1: I used the benchmark, George, where do I sweat? Where

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Speaker 1: do we really click in with some bond damage? What yield?

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Speaker 1: Thank you? Good morning Tom. Uh. Well, I think three

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Speaker 1: on the ten yere yield is it's a it's somewhat

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Speaker 1: of a magic number. Um. If you look back over time,

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Speaker 1: there's some critical support levels where bonds you know, should

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Speaker 1: be trading within certain ranges, and once you breach uh

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Speaker 1: kind of call it three to three point oh five

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Speaker 1: per cent on the US tenure, you start sort of

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Speaker 1: entering into what I would call the danger zone. You

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Speaker 1: lose a lot of technical support. You know, those folks

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Speaker 1: that look at historical trends and trade based on momentum

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Speaker 1: will start to lose faith uh in the ability of

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Speaker 1: bond prices to go up. So you know, the expectation

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Speaker 1: would be that yields go higher. And then I think

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Speaker 1: also importantly as you point as you point out, you

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Speaker 1: know that would be about a sixty basis point increase

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Speaker 1: in yields, and so mark to market negative returns across

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Speaker 1: investor portfolios become a lot more real, uh and they

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Speaker 1: certainly become a lot more meaningful. And so those bond

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Speaker 1: investors who open up their statements at the end of

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Speaker 1: the month are going to be in for a little

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Speaker 1: bit of a surprise. Well, that classic looks league, so

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Speaker 1: I father this year, doesn't it. And I just wonder

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Speaker 1: what that means for investor rebalancing in a common months Gewards.

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Speaker 1: So I think there's a there's a major shift going on.

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Speaker 1: You know, for the last ten years, the FED and

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Speaker 1: other central banks have told you to effectively sell your

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Speaker 1: cash and buy something else. And now, you know, a

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Speaker 1: few a few years ago, but with increasing intensity, you know,

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Speaker 1: the FED is starting to raise rates. And what I

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Speaker 1: like to say is it's it's the long march back

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Speaker 1: to cash. They're starting to encourage people to pull money

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Speaker 1: back into cash. And as you know, it takes a

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Speaker 1: while for markets to pick up on a particular trend

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Speaker 1: or a particular theme, and then there's this sort of

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Speaker 1: one instantaneous moment where everyone has the ah ha moment

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Speaker 1: and and money starts to rush in a particular direction.

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Speaker 1: And I think after literally ten years of of moving

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Speaker 1: away from cash, you know, there's a little bit of

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Speaker 1: money starting to move back, you know, towards towards cash,

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Speaker 1: and and I think that is a is a very

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Speaker 1: very significant shift. What's the dynamic right now of clipping

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Speaker 1: a coupon versus total return? So what you know, the

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Speaker 1: way I think about coupons, they do a couple of things.

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Speaker 1: If you're if you're a retired investor, or if you're

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Speaker 1: living on your capital, that's your income stream. If you're

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Speaker 1: a if you're a long term investor though, or or

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Speaker 1: an investor that has is not using that money today,

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Speaker 1: you know, it's your ability to compound. Uh, it's your

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Speaker 1: ability to reinvest at whatever rate happens to be available

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Speaker 1: at that particular time. And so you know, bonds that

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Speaker 1: have been issued over the last couple of years have

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Speaker 1: very very thin coupons, so you don't have the opportunity

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Speaker 1: to reinvest all that much. It's not zero. Some instances

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Speaker 1: at zero, like in Europe, it's very very low. Here

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Speaker 1: in the U S it's a little bit higher. But

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Speaker 1: those coupons become very powerful to a portfolio. And so

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Speaker 1: when you look across different parts of the market right now,

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Speaker 1: that high income generation or that high coupon can be

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Speaker 1: a very powerful tool to help you offset some of

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Speaker 1: those capital losses, the mark to market capital losses and

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Speaker 1: earn back some of that lost money due to interest

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Speaker 1: rate volatility. A month ago with Tom and asked that question,

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Speaker 1: what was the prospect for total return saying high yield

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Speaker 1: in ten, most investors would have said, it's not that great.

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Speaker 1: It's a year for coupon clipping. You're not going to

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Speaker 1: get the capital returns out of high yield this year.

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Speaker 1: Spread to just two tight already. We've had some widening

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Speaker 1: over the last couple of weeks. Has that changed your

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Speaker 1: view on the trajectory of high yield this year? It

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Speaker 1: has not. Uh, you know, are when we started the year,

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Speaker 1: we were expecting or we still are expecting about a

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Speaker 1: five to maybe as high as six. But let's call

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Speaker 1: it a five percent total return for the year. Uh,

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Speaker 1: and we still feel pretty good about that. We had

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Speaker 1: a very good start to the year and then obviously

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Speaker 1: we've given a fair bit of that back. But what's

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Speaker 1: redeeming about high yield is that it sort of throws

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Speaker 1: off a higher coupon. So you know, it currently has

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Speaker 1: a coupon like level of of about x to six

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Speaker 1: and a quarter, which it's still early in the year,

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Speaker 1: so you can sort of reinvest that money as you

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Speaker 1: move through time. So a five percent type return is

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Speaker 1: we still think is is still pretty realistic for this year.

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Speaker 1: The prospects for this asset class determined by what's gonna

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Speaker 1: happen with CREWED still just on an index level, because

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Speaker 1: at the back end of last week, CREWD really broke

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Speaker 1: down w t I back south of a sixty dollars,

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Speaker 1: and I think that's when we really started to see

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Speaker 1: how your credits start to bleed, George. So I'm just

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Speaker 1: wondering to those two things start to move in tandem

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Speaker 1: again and whether they haven't in previous months. So UM

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Speaker 1: high yield is an asset class does have relatively high

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Speaker 1: UM contribution from from energy related companies. So I think

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Speaker 1: it's roughly about twelve percent of the high old market

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Speaker 1: is somehow is basically energy links. So we do have

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Speaker 1: a fair bit of sensitivity to oil prices um and

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Speaker 1: and with oil prices coming down, that did put a

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Speaker 1: little bit of pressure. But I think the important thing

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Speaker 1: is keep in mind a lot of those companies that

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Speaker 1: had meaningful problems, they sort of restructured a couple of

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Speaker 1: years ago. Today's sort of stock of companies, if you will,

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Speaker 1: are in pretty good shape and uh AND should be

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Speaker 1: able to weather the recent volatility and oil prices from

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Speaker 1: the Lehman Low's I'm looking at the Bloomberg Barkley's uh

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Speaker 1: US Total Aggregate Index. I'm gonna get it out on

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Speaker 1: Twitter for all of Bloomberg Radio and maybe the worst

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Speaker 1: since two thousand and eight is two thousand and twelve thirteen,

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Speaker 1: where we went down four point six percent on the

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Speaker 1: index roughly seven point three percent and them. So that's

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Speaker 1: roughly one third of a bear market. That's a pullback.

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Speaker 1: And the way I look at that, George, is that's

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Speaker 1: a year and a half for two years of coupon.

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Speaker 1: I mean, that's really in terms of risk taken. Your

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Speaker 1: risk is to give up two years of coupon and

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Speaker 1: a pullback, right, you know, I think that's exactly right.

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Speaker 1: And I think as you talk, you know, sort of

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Speaker 1: the aggregate bond market has you know, a relatively long duration,

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Speaker 1: and and just simply thinking about duration is kind of

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Speaker 1: that you know, that break even if you will, relative

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Speaker 1: to um uh to sensitivity to changes in interest rates.

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Speaker 1: So as prices go down, a small coupon, you know,

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Speaker 1: requires a lot longer period of time to earn back

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Speaker 1: that kind of that kind of loss. And and so

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Speaker 1: one of the strategies we've been advocating is is actually

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Speaker 1: staying closer to higher coupon UH like entities. And and

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Speaker 1: we just kind of remind people the economy is doing

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Speaker 1: pretty well. Companies are actually earning a tremendous amount of

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Speaker 1: money and that's going up, so their ability to pay

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Speaker 1: is getting better and should enable those high coupon companies

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Speaker 1: to continue paying you those coupons. I mean, I mean,

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Speaker 1: johnn I just think it's fabist. Doug cass uh sends

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Speaker 1: in a nice messagers just saying, look good hot heels

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Speaker 1: versus treasures and historically tight they are your folts on that,

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Speaker 1: Joch Well, I mean, spreads are still you know, they're

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Speaker 1: relatively tight um. But but as as yields go up

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Speaker 1: in in an expanding economy or you know, we we

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Speaker 1: will tend to see credit spreads actually tightened. Default rates

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Speaker 1: are coming down at a very sharp rate. Uh, and

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Speaker 1: we expect them to continue to come down over the

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Speaker 1: course of the year. So you can look back and say,

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Speaker 1: historically credit spreads are tight, that's true. But when you

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Speaker 1: have corporate profitability expanding by let's call it ten twelve

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Speaker 1: percent paranum, you know, not a lot of companies are

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Speaker 1: going to be defaulting in that kind of environment. George

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Speaker 1: Bori final word on treasuries big CPI print on Wednesday,

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Speaker 1: is this a market that's primed a whole lot better

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Speaker 1: for an inflation surprise? This weakening United States? I do

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Speaker 1: not think we're primed for an inflation surprise if we

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Speaker 1: break to the upside, if inflation comes out above consensus.

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Speaker 1: So anything above one point seven percent, I think you

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Speaker 1: get to three percent of the treasury and a hurry

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Speaker 1: and probably a bit more. George boris quite a catch

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Speaker 1: to get your thoughts on the fixed income universe from

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Speaker 1: self rings all the way through the credit George Bori.

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Speaker 1: The Wilds Fani Securities, head of Credit Strategy. I would

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Speaker 1: suggest this is the interview of the day. Mr Bernstein

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Speaker 1: was an advisor for Vice President Biden. He is someone

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Speaker 1: with a tilt to the Democrats or left that all

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Speaker 1: conservatives read. Senior fellow the Center on Budget and Policy Priorities,

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Speaker 1: and of course for years of the Economic Policy Institute.

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Speaker 1: Jared honored to have you on after the beginning weekend

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Speaker 1: of literature. I want to cut to the chase, which is,

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Speaker 1: how do you define and what does it mean if

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Speaker 1: we have chronic one trillion dollar deficits. First of all,

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Speaker 1: it's always the best way to start today talking to

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Speaker 1: you too, so thank you. Uh well uh. I like

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Speaker 1: to put these things in the context of g d

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Speaker 1: P uh and we're looking at a deficit to GDP

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Speaker 1: that's between four or five over the next couple of years.

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Speaker 1: That's extremely unusual to have deficits of that magnitude with

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Speaker 1: an unemployment rate this low. In fact, we've almost never

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Speaker 1: done it before. So it means we're stimulating an economy

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Speaker 1: that's closing in on full employment. I totally agree with

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Speaker 1: the point that was just made that the Ken indicator

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Speaker 1: to watch will be inflation, but since we don't really

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Speaker 1: know where we are relative to full employment, it's not

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Speaker 1: necessarily uh an inflationary move. But it's a lot more

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Speaker 1: Kinzie than Kines himself would engage in. Andrew Vandam, among

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Speaker 1: other sources in the Washington Post this weekend did Jared

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Speaker 1: Bernstein treatment on charts ratios of deficit. What is the

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Speaker 1: ratio besides deficit to GDP that Jared Bernstein is watching

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Speaker 1: as we begin our analysis of two thousand twenty. Well,

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Speaker 1: I think I'm I'm looking interestingly. It's called the unemployment rate,

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Speaker 1: the ratio of the unemployed to the labor force, and

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Speaker 1: I think that could get down to three and a

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Speaker 1: half percent by the end really year. That's a number

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Speaker 1: we haven't seen since the nineteen sixties. The question is,

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Speaker 1: will that unweash pressures and inflation and interest rates that

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Speaker 1: will cause to move from tapping the brakes to hitting

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Speaker 1: them much harder. Let's go a little won because here,

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Speaker 1: Jared Bernstein, some would suggest we may get stimulus, tax

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Speaker 1: cut stimulus, budgets, silliness stimulus, two bouts of stimulus, and

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Speaker 1: we get domestic stimulus, but we give it all back

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Speaker 1: over at minus n x where the trade deficit expands,

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Speaker 1: et cetera. Off dollar dynamics. Could we have a two

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Speaker 1: part economy, a boom domestic America and the controrational component

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Speaker 1: it's weak. I'm really glad you brought that up, because

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Speaker 1: I haven't heard it enough. But you guys look at

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Speaker 1: so much data that you're always looking under under rocks

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Speaker 1: that others miss. I've been writing about this myself. I

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Speaker 1: see it differently, though. I do think that the magnitude

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Speaker 1: of the trade deficit is going to be a drag

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Speaker 1: on growth this year, and those who are looking at

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Speaker 1: this stimulus, which by the way, it's not a chance

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Speaker 1: of whether we're going to get it. We are going

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Speaker 1: to get it. We're gonna get more physical stimulus than

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Speaker 1: we've probably ever had at an unemployment rate this low.

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Speaker 1: That will help to offset the drag on GDP growth

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Speaker 1: from the growing trade deficits. So I don't know that

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Speaker 1: that's such a downside Jared. Typically it's emerging markets, the

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Speaker 1: fear twin deficits. Why should the United States for America

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Speaker 1: fear twin deficits. I don't think they should, for precisely

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Speaker 1: the reason I just said. I mean, if you have

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Speaker 1: the h If you have the trade deficit as a

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Speaker 1: drag on GDP road, which is definitional, then having the

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Speaker 1: government step in and offset that, you know you you

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Speaker 1: either have to offset your trade deficit with consumption investment

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Speaker 1: or government spending. Again, a lot of this depends on

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Speaker 1: whether we're closing it on full employment, because then the

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Speaker 1: extra spending just shows up as inflation and higher interest rates.

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Speaker 1: But if there's still some room to run, and I

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Speaker 1: think there's there is uh, then that offset is actually

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Speaker 1: a useful one. So jared market participants won't fear twin deficits.

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Speaker 1: They probably won't fear one trillion dollar budget deficit either.

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Speaker 1: Five percent of GDP, well, they will be concerned about

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Speaker 1: is the trajectory where we're going the destinations. Just several

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Speaker 1: years ago, the UK had a budget deficit of five

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Speaker 1: percent of GDP, but it was closing and that was

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Speaker 1: the important factor. This one's getting wider and wider. How

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Speaker 1: much Why do you think that can get? Could we

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Speaker 1: approach say almost ten percent of GDP before the next

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Speaker 1: down term, which would be absolutely no, we can And

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Speaker 1: that that's exactly the way to look at this. I

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Speaker 1: I distinguished between the near term and the long term.

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Speaker 1: In the near term, I hear a lot of people, UH,

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Speaker 1: creating a lot of anxiety that I don't share. In

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Speaker 1: the long term, I'm right with them. And it's precisely

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Speaker 1: for the reason you suggest, at some point after a

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Speaker 1: few years, you have to start squaring your outlays with

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Speaker 1: your receipts. That's not a sustainable pattern. And and there's

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Speaker 1: no way, uh, And I should say there's no way.

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Speaker 1: I would be very surprised if larger budget deficits are

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Speaker 1: the ones we currently have a few years from now

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Speaker 1: are not problematic, in no small part from the reason

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Speaker 1: you suggested, we're going to lack fiscal space or at

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Speaker 1: least when we hit the next down front. I've never

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Speaker 1: asked this question. Are Patrick Ley of Vermont in Richard

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Speaker 1: Shelby of the South? Are they on the same page

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Speaker 1: on this budget? Between them, they have seventy five years

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Speaker 1: of senatorial experience. Are Lady and Shelby on the same

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Speaker 1: page on this booming budget deficit? I don't think that

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Speaker 1: they've been I think that the politicians just haven't been

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Speaker 1: able to resist the spending, and at least for Democrats,

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Speaker 1: so I can speak to most authoritatively they'd actually have

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Speaker 1: a have a good rationale. I mean, the share of

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Speaker 1: the budget that we're devoting to domestic priorities is it

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Speaker 1: an all time low. Let's come back Jared Burnstein with

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Speaker 1: a smart discussion on the deficit, whatever your politics. We

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Speaker 1: like that of course with the Center on Budget and

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Speaker 1: Policy Priorities. And you know they and many other think

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Speaker 1: tanks are going to provide wisdom in the coming weeks.

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Speaker 1: He is uh laurea from Yale on economics. And there

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Speaker 1: are always too many things to talk about with Robert Schiller,

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Speaker 1: so let us focus in on one of the things

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Speaker 1: he's been focusing on, which is the simplicity and failure

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Speaker 1: of the price earnings relationship. And maybe there's a better

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Speaker 1: way to do this, Professor Schiller. Wonderful to have you

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Speaker 1: with us. How do you teach extrapolation at Yale University?

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Speaker 1: The dangers of extrapolation? Uh, the suspect nature of the

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Speaker 1: value of extrapolation. When you got a chalk piece in

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Speaker 1: your hand and a chalkboard, what do you actually say

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Speaker 1: to the cherubs at Yale? Well, I don't think extrapolation

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Speaker 1: is mostly mechanical. It's not like people are charting the

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Speaker 1: data and drawing lines. It's more intuitive. People like to

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Speaker 1: think about investments in satisfying way that sounds common sensical,

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Speaker 1: And they just remember recent years and they don't study history, right,

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Speaker 1: And if the last ten years has been up, then

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Speaker 1: they kind of think that's the way the world works,

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Speaker 1: and if it's been down, they think that the world

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Speaker 1: is a dangerous place. And if Robert Fogel was so

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Speaker 1: good at in Angus Madison of looking back and how

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Speaker 1: we try to guess forward, are we any good at

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Speaker 1: guessing forward in the markets? Well? And you know, I

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Speaker 1: always say that efficient markets is a half truth. To

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Speaker 1: some extent. We do, especially individual stocks you know, that

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Speaker 1: have promising story. The market gets that somewhat that maybe

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Speaker 1: they overreact to the story. But it's you know, we

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Speaker 1: do have I am pro market some sense. It's just

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Speaker 1: not perfect. Professor Schiller, I wonder if you could speak

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Speaker 1: a little bit about the word itself, the word finance,

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Speaker 1: and how it is misunderstood and misapplied to the idea

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Speaker 1: of wanting to make money. Well, okay, I teach a

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Speaker 1: finance course here at Yale and online. By the way,

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Speaker 1: it's for free, of course, Sarah, But I emphasize that

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Speaker 1: finance isn't really about making money in the sense that

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Speaker 1: many people think it's about. It's a technology for allocating resources,

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Speaker 1: for incentivizing people to do something for other people according

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Speaker 1: to someone that someone else's desires. Uh. And it's a

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Speaker 1: it has powerful implications. Risk management is a powerful tool

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Speaker 1: to improve human welfare. Having said that, I'm wondering if

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Speaker 1: you could then apply that attitude towards the prices that

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Speaker 1: are paid for stocks and why you describe some markets

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Speaker 1: as so pricey that really the way we mentioned them

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Speaker 1: is not really accurate. Well, I don't you know, take

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Speaker 1: my course, You don't. You don't need to, Oh, yes,

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Speaker 1: I do. Uh. I think that Uh. Finance went through

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Speaker 1: a phase. Uh. Theoretical finance went through a phase uh,

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Speaker 1: which was you might say a turning point was Eugene

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Speaker 1: Fama's Efficient Market series around seventy and then the Random

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Speaker 1: Walk down Wall Street with Malkiel. Uh. It was a

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Speaker 1: model that it was a little bit too self satisfied, uh,

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Speaker 1: too mechanical. And now there's been a behavioral finance revolution,

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Speaker 1: which is still going on. Professor Schiller. Everybody's equity focused

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Speaker 1: on the exuberance of Robert Schiller, when you see high

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Speaker 1: yield bonds b double a industrials, to go back to

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Speaker 1: my grandfather, other priced this narrow in tight to full

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Speaker 1: faith and credit ten years. Does that Does that define

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Speaker 1: for you a bond bubble, that bonds are priced to perfection? Is? Maybe,

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Speaker 1: Sir John Templeton would mention it. Well, the bond market

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Speaker 1: has had a peculiar tendency to track lagged inflation. So

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Speaker 1: there's a I think it's a sevent correlation between bond

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Speaker 1: yields and the last ten years of inflation, but not

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Speaker 1: much correlation with the next ten years inflation. So the

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Speaker 1: bond market is is backward looking, just like the stock

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Speaker 1: market is I I look, professor, showed all this. Just

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Speaker 1: what were your comments? Quickly here and once again the

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Speaker 1: certain thing, the short fixed trade, and then down we

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Speaker 1: go with sevent losses. How what was your response when

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Speaker 1: you saw those charts eight days ago? Uh, it was

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Speaker 1: not surprising to me that volatility would suddenly shoot up

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Speaker 1: after a period of historic low volatility. Uh. This is Uh,

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Speaker 1: it's kind of what happens in about the same thing

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Speaker 1: happened in ninety nine, although volatility wasn't really low in

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Speaker 1: the late nineteen twenties. It was not high uh and

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Speaker 1: so uh and earnings were growing. I hate to bring nine.

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Speaker 1: I love that story. So does everyone else. Took a

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Speaker 1: dramatic story. Everything looked fine, volatility was low, and then

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Speaker 1: suddenly the market dropped. The one thing that was wrong

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Speaker 1: was that people thought the market was overpriced. The same

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Speaker 1: thing happened recently here just now, very good, Robert Shorey,

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Speaker 1: thank you so much, greatly appreciate with Yale University. Just

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Speaker 1: some perspective there from the academic end. And now, really, folks,

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Speaker 1: what we love to do, which give you an important

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Speaker 1: conversation across these markets for a judicious length of time.

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Speaker 1: Yakum fills with this. Pimco. Yakum, you're claimed for the

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Speaker 1: synthesis of the three bees, the three cs. Are you

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Speaker 1: under the three d s? I mean we're going through

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Speaker 1: the alphabet here. How do you write an essay about

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Speaker 1: what we've witnessed in the last ten days? Well, Tom,

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Speaker 1: I think what we're seeing here is that markets have

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Speaker 1: to come to grips with the very tricky transition from

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Speaker 1: the world where monetary policy was the only game in town.

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Speaker 1: Um lifted all asset prices in order to support the

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Speaker 1: real economy. And now we're transitioning from monetary policy to

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Speaker 1: fiscal policy. And you know, ironically, this is what economists

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Speaker 1: and central bankers had been calling for for a long time,

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Speaker 1: that fiscal policy steps into support economy, so monetary policy

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Speaker 1: can step back. But I think what we're learning is

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Speaker 1: and what markets are learning that this is a very

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Speaker 1: tricky transition. The reason is fiscal policy supports the economy directly.

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Speaker 1: It does not work through uh financial markets. It does

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Speaker 1: not work through asset prices, and more fiscal stimulus can

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Speaker 1: actually be bad for asset prices. The reason is that, well,

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Speaker 1: we're seeing rising budget deficits, the treasury has to issue

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Speaker 1: more debt into the market. This could push up the

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Speaker 1: term premium and bond yields, and it could lead to

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Speaker 1: what I would call a reverse portfolio rebalancing effect where

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Speaker 1: markets have to absorb the additional bond supply um and

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Speaker 1: that means investors could move out of risk assets, and

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Speaker 1: you know, this could backfire on the real economy. And

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Speaker 1: I think this is what markets are currently trying to

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Speaker 1: come to grips with. These are the set of expected,

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Speaker 1: unexpected and even true unexpected unexpected it could be out there.

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Speaker 1: So much of this has a background of gurus and

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Speaker 1: pundits yakham fells suggesting that we can do all this smoothly,

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Speaker 1: and that the glide pass of adjustment from QUEI to

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Speaker 1: QT or whatever the theory may be, or the theme

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Speaker 1: may be, that we can all do this smoothly. I

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Speaker 1: see no evidence of that in history. Where did we

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Speaker 1: get this belief in splooth, smooth glide pass to a

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Speaker 1: new regime? Well, I think we've seen it working in Japan, um,

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Speaker 1: So it is possible to do it smoothly. But what

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Speaker 1: it requires is that the central bank, you know, has

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Speaker 1: to get in bed with the government, so there has

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Speaker 1: to be monetary and fiscal coordination. The Bank of Japan

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Speaker 1: did this beautifully by just pegging the ten year BONDI

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Speaker 1: it and inviting the government to do more fiscal expansion. Um.

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Speaker 1: But this is not what we're doing in the US,

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Speaker 1: at least not. But we can't make the comparison to Japan,

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Speaker 1: where they've got such an absolutely original savings culture, can we? Culturally?

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Speaker 1: They're different? Right? Yeah, that's right. And you know they've

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Speaker 1: gone through two decades to lost decades with deflation, so

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Speaker 1: that's also what's different. So I think the transition from

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Speaker 1: monetary to fiscal policy is inevitably more bumpy here in

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Speaker 1: the US, and I think this is what we've been

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Speaker 1: seeing over the last two weeks. Is there anything that

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Speaker 1: you would like to edit or change based on what's

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Speaker 1: happened over the last week or so to your asset

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Speaker 1: allocation outlook for No, not not really so. Um if

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Speaker 1: if we look at the situation, we I mean, we've

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Speaker 1: been gradually becoming more cautious in our in our investments. Um.

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Speaker 1: We At the same time, you know, we do not

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Speaker 1: see a recession around the corner. That so that hasn't changed. Yes,

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Speaker 1: we've had a market correction ten percent or so, but

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Speaker 1: this is not enough to derail this economy. So we

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Speaker 1: think at least over the next six or twelve month

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Speaker 1: the recession risk is very low. Um Uh. What I

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Speaker 1: would emphasize though, is that I think we are close

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Speaker 1: to peak growth for the global economy. That doesn't mean

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Speaker 1: a recession is around the corner, but you know, it

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Speaker 1: will be difficult for the global economy to continue to

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Speaker 1: grow at the same pace it has been growing in

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Speaker 1: two thousand and seventeen and in the early part of

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Speaker 1: this year. The simple reason is that you know, we're

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Speaker 1: running out of slack in the US labor market. China's

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Speaker 1: credit impulse has turned negative, so the Chinese economy is decelerating. UM.

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Speaker 1: And the euro appreciation and the yend appreciation that you

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Speaker 1: know is the flip side of the coin of the

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Speaker 1: week dollar will also take its tall on on growth.

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Speaker 1: So peak growth UM, No recession around the corner, a

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Speaker 1: more cautious stance in our st allocation, UM, but not

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Speaker 1: outright barrish. So more money devoted to commodities, yes, um.

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Speaker 1: And the reason is that we think inflation will probably

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Speaker 1: surprise on the upside over the cyclical horizon. We're now

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Speaker 1: getting the fiscal boost in the US. We are seeing uh,

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Speaker 1: seeing a week dollar, so that spells higher inflation UM.

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Speaker 1: And we think commodities will also benefit from that. Does

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Speaker 1: that include also things like master limited partnerships for those

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Speaker 1: that are not satisfied with a two point eight or

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00:26:43,880 --> 00:26:47,840
Speaker 1: two point nine percent ten your treasury. Yes, that's right, UM.

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Speaker 1: So the energy sector, we are quite upbeat on the

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Speaker 1: energy sector here in the US. You know, the pipeline's

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Speaker 1: shale production is being rammed up given what's happened to

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Speaker 1: the oil price, so that also should support MLPs in

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Speaker 1: the energy sect. But your compim nails something there which

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00:27:07,280 --> 00:27:11,320
Speaker 1: is still we need to find enhanced yield. How do

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00:27:11,400 --> 00:27:15,240
Speaker 1: we find an enhanced yield? You know, I hate to

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00:27:15,320 --> 00:27:17,000
Speaker 1: use this word, but the word of the vogue and

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Speaker 1: of the moment. How do we find enhanced yield? And

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00:27:20,720 --> 00:27:24,280
Speaker 1: what is the risk in searching for that? Given regime change?

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00:27:24,520 --> 00:27:27,439
Speaker 1: And the answers is no free lunch, is there? Yeah,

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00:27:27,480 --> 00:27:30,080
Speaker 1: there's there's never a free lunch tom um. But how

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00:27:30,080 --> 00:27:32,919
Speaker 1: do you find enhanced yield? Well, first of all, it

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00:27:33,040 --> 00:27:36,280
Speaker 1: requires hard work. It requires a lot of you know,

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Speaker 1: bottom up work to look at individual companies, to look

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Speaker 1: at sectors um so a lot of bottom up analysis

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00:27:45,280 --> 00:27:47,840
Speaker 1: from a top down perspective, from a macro perspective, it

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00:27:47,960 --> 00:27:51,399
Speaker 1: is difficult, you know, to find yield. You have to

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Speaker 1: go global. We think there are still opportunities in emerging markets.

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Speaker 1: We still like a basket of high yielding currencies um

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Speaker 1: in emerging markets. So it is possible to find the

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00:28:04,160 --> 00:28:07,480
Speaker 1: enhanced field. But um, you know, you have to look

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Speaker 1: very very hard. I just think it seems to be

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00:28:10,960 --> 00:28:12,720
Speaker 1: too good to be true. Yea. Can we have to

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Speaker 1: leave it there? Ya can fails. Thank you so much,

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Speaker 1: just never enough time. He is with PIMCO. Thanks for

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00:28:18,960 --> 00:28:23,359
Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to

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00:28:23,520 --> 00:28:29,280
Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.

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00:28:29,800 --> 00:28:33,159
Speaker 1: I'm on Twitter at Tom Keane before the podcast. You

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Speaker 1: can always catch us worldwide. I'm Bloomberg Radio