Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jailey.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
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Speaker 1: go back to the tenure of a shorter duration than
Speaker 1: benchmark two nine, So that's now eleven basis points from
Speaker 1: three percent. George Borie with US with Wells Fargo. If
Speaker 1: I used the benchmark, George, where do I sweat? Where
Speaker 1: do we really click in with some bond damage? What yield?
Speaker 1: Thank you? Good morning Tom. Uh. Well, I think three
Speaker 1: on the ten yere yield is it's a it's somewhat
Speaker 1: of a magic number. Um. If you look back over time,
Speaker 1: there's some critical support levels where bonds you know, should
Speaker 1: be trading within certain ranges, and once you breach uh
Speaker 1: kind of call it three to three point oh five
Speaker 1: per cent on the US tenure, you start sort of
Speaker 1: entering into what I would call the danger zone. You
Speaker 1: lose a lot of technical support. You know, those folks
Speaker 1: that look at historical trends and trade based on momentum
Speaker 1: will start to lose faith uh in the ability of
Speaker 1: bond prices to go up. So you know, the expectation
Speaker 1: would be that yields go higher. And then I think
Speaker 1: also importantly as you point as you point out, you
Speaker 1: know that would be about a sixty basis point increase
Speaker 1: in yields, and so mark to market negative returns across
Speaker 1: investor portfolios become a lot more real, uh and they
Speaker 1: certainly become a lot more meaningful. And so those bond
Speaker 1: investors who open up their statements at the end of
Speaker 1: the month are going to be in for a little
Speaker 1: bit of a surprise. Well, that classic looks league, so
Speaker 1: I father this year, doesn't it. And I just wonder
Speaker 1: what that means for investor rebalancing in a common months Gewards.
Speaker 1: So I think there's a there's a major shift going on.
Speaker 1: You know, for the last ten years, the FED and
Speaker 1: other central banks have told you to effectively sell your
Speaker 1: cash and buy something else. And now, you know, a
Speaker 1: few a few years ago, but with increasing intensity, you know,
Speaker 1: the FED is starting to raise rates. And what I
Speaker 1: like to say is it's it's the long march back
Speaker 1: to cash. They're starting to encourage people to pull money
Speaker 1: back into cash. And as you know, it takes a
Speaker 1: while for markets to pick up on a particular trend
Speaker 1: or a particular theme, and then there's this sort of
Speaker 1: one instantaneous moment where everyone has the ah ha moment
Speaker 1: and and money starts to rush in a particular direction.
Speaker 1: And I think after literally ten years of of moving
Speaker 1: away from cash, you know, there's a little bit of
Speaker 1: money starting to move back, you know, towards towards cash,
Speaker 1: and and I think that is a is a very
Speaker 1: very significant shift. What's the dynamic right now of clipping
Speaker 1: a coupon versus total return? So what you know, the
Speaker 1: way I think about coupons, they do a couple of things.
Speaker 1: If you're if you're a retired investor, or if you're
Speaker 1: living on your capital, that's your income stream. If you're
Speaker 1: a if you're a long term investor though, or or
Speaker 1: an investor that has is not using that money today,
Speaker 1: you know, it's your ability to compound. Uh, it's your
Speaker 1: ability to reinvest at whatever rate happens to be available
Speaker 1: at that particular time. And so you know, bonds that
Speaker 1: have been issued over the last couple of years have
Speaker 1: very very thin coupons, so you don't have the opportunity
Speaker 1: to reinvest all that much. It's not zero. Some instances
Speaker 1: at zero, like in Europe, it's very very low. Here
Speaker 1: in the U S it's a little bit higher. But
Speaker 1: those coupons become very powerful to a portfolio. And so
Speaker 1: when you look across different parts of the market right now,
Speaker 1: that high income generation or that high coupon can be
Speaker 1: a very powerful tool to help you offset some of
Speaker 1: those capital losses, the mark to market capital losses and
Speaker 1: earn back some of that lost money due to interest
Speaker 1: rate volatility. A month ago with Tom and asked that question,
Speaker 1: what was the prospect for total return saying high yield
Speaker 1: in ten, most investors would have said, it's not that great.
Speaker 1: It's a year for coupon clipping. You're not going to
Speaker 1: get the capital returns out of high yield this year.
Speaker 1: Spread to just two tight already. We've had some widening
Speaker 1: over the last couple of weeks. Has that changed your
Speaker 1: view on the trajectory of high yield this year? It
Speaker 1: has not. Uh, you know, are when we started the year,
Speaker 1: we were expecting or we still are expecting about a
Speaker 1: five to maybe as high as six. But let's call
Speaker 1: it a five percent total return for the year. Uh,
Speaker 1: and we still feel pretty good about that. We had
Speaker 1: a very good start to the year and then obviously
Speaker 1: we've given a fair bit of that back. But what's
Speaker 1: redeeming about high yield is that it sort of throws
Speaker 1: off a higher coupon. So you know, it currently has
Speaker 1: a coupon like level of of about x to six
Speaker 1: and a quarter, which it's still early in the year,
Speaker 1: so you can sort of reinvest that money as you
Speaker 1: move through time. So a five percent type return is
Speaker 1: we still think is is still pretty realistic for this year.
Speaker 1: The prospects for this asset class determined by what's gonna
Speaker 1: happen with CREWED still just on an index level, because
Speaker 1: at the back end of last week, CREWD really broke
Speaker 1: down w t I back south of a sixty dollars,
Speaker 1: and I think that's when we really started to see
Speaker 1: how your credits start to bleed, George. So I'm just
Speaker 1: wondering to those two things start to move in tandem
Speaker 1: again and whether they haven't in previous months. So UM
Speaker 1: high yield is an asset class does have relatively high
Speaker 1: UM contribution from from energy related companies. So I think
Speaker 1: it's roughly about twelve percent of the high old market
Speaker 1: is somehow is basically energy links. So we do have
Speaker 1: a fair bit of sensitivity to oil prices um and
Speaker 1: and with oil prices coming down, that did put a
Speaker 1: little bit of pressure. But I think the important thing
Speaker 1: is keep in mind a lot of those companies that
Speaker 1: had meaningful problems, they sort of restructured a couple of
Speaker 1: years ago. Today's sort of stock of companies, if you will,
Speaker 1: are in pretty good shape and uh AND should be
Speaker 1: able to weather the recent volatility and oil prices from
Speaker 1: the Lehman Low's I'm looking at the Bloomberg Barkley's uh
Speaker 1: US Total Aggregate Index. I'm gonna get it out on
Speaker 1: Twitter for all of Bloomberg Radio and maybe the worst
Speaker 1: since two thousand and eight is two thousand and twelve thirteen,
Speaker 1: where we went down four point six percent on the
Speaker 1: index roughly seven point three percent and them. So that's
Speaker 1: roughly one third of a bear market. That's a pullback.
Speaker 1: And the way I look at that, George, is that's
Speaker 1: a year and a half for two years of coupon.
Speaker 1: I mean, that's really in terms of risk taken. Your
Speaker 1: risk is to give up two years of coupon and
Speaker 1: a pullback, right, you know, I think that's exactly right.
Speaker 1: And I think as you talk, you know, sort of
Speaker 1: the aggregate bond market has you know, a relatively long duration,
Speaker 1: and and just simply thinking about duration is kind of
Speaker 1: that you know, that break even if you will, relative
Speaker 1: to um uh to sensitivity to changes in interest rates.
Speaker 1: So as prices go down, a small coupon, you know,
Speaker 1: requires a lot longer period of time to earn back
Speaker 1: that kind of that kind of loss. And and so
Speaker 1: one of the strategies we've been advocating is is actually
Speaker 1: staying closer to higher coupon UH like entities. And and
Speaker 1: we just kind of remind people the economy is doing
Speaker 1: pretty well. Companies are actually earning a tremendous amount of
Speaker 1: money and that's going up, so their ability to pay
Speaker 1: is getting better and should enable those high coupon companies
Speaker 1: to continue paying you those coupons. I mean, I mean,
Speaker 1: johnn I just think it's fabist. Doug cass uh sends
Speaker 1: in a nice messagers just saying, look good hot heels
Speaker 1: versus treasures and historically tight they are your folts on that,
Speaker 1: Joch Well, I mean, spreads are still you know, they're
Speaker 1: relatively tight um. But but as as yields go up
Speaker 1: in in an expanding economy or you know, we we
Speaker 1: will tend to see credit spreads actually tightened. Default rates
Speaker 1: are coming down at a very sharp rate. Uh, and
Speaker 1: we expect them to continue to come down over the
Speaker 1: course of the year. So you can look back and say,
Speaker 1: historically credit spreads are tight, that's true. But when you
Speaker 1: have corporate profitability expanding by let's call it ten twelve
Speaker 1: percent paranum, you know, not a lot of companies are
Speaker 1: going to be defaulting in that kind of environment. George
Speaker 1: Bori final word on treasuries big CPI print on Wednesday,
Speaker 1: is this a market that's primed a whole lot better
Speaker 1: for an inflation surprise? This weakening United States? I do
Speaker 1: not think we're primed for an inflation surprise if we
Speaker 1: break to the upside, if inflation comes out above consensus.
Speaker 1: So anything above one point seven percent, I think you
Speaker 1: get to three percent of the treasury and a hurry
Speaker 1: and probably a bit more. George boris quite a catch
Speaker 1: to get your thoughts on the fixed income universe from
Speaker 1: self rings all the way through the credit George Bori.
Speaker 1: The Wilds Fani Securities, head of Credit Strategy. I would
Speaker 1: suggest this is the interview of the day. Mr Bernstein
Speaker 1: was an advisor for Vice President Biden. He is someone
Speaker 1: with a tilt to the Democrats or left that all
Speaker 1: conservatives read. Senior fellow the Center on Budget and Policy Priorities,
Speaker 1: and of course for years of the Economic Policy Institute.
Speaker 1: Jared honored to have you on after the beginning weekend
Speaker 1: of literature. I want to cut to the chase, which is,
Speaker 1: how do you define and what does it mean if
Speaker 1: we have chronic one trillion dollar deficits. First of all,
Speaker 1: it's always the best way to start today talking to
Speaker 1: you too, so thank you. Uh well uh. I like
Speaker 1: to put these things in the context of g d
Speaker 1: P uh and we're looking at a deficit to GDP
Speaker 1: that's between four or five over the next couple of years.
Speaker 1: That's extremely unusual to have deficits of that magnitude with
Speaker 1: an unemployment rate this low. In fact, we've almost never
Speaker 1: done it before. So it means we're stimulating an economy
Speaker 1: that's closing in on full employment. I totally agree with
Speaker 1: the point that was just made that the Ken indicator
Speaker 1: to watch will be inflation, but since we don't really
Speaker 1: know where we are relative to full employment, it's not
Speaker 1: necessarily uh an inflationary move. But it's a lot more
Speaker 1: Kinzie than Kines himself would engage in. Andrew Vandam, among
Speaker 1: other sources in the Washington Post this weekend did Jared
Speaker 1: Bernstein treatment on charts ratios of deficit. What is the
Speaker 1: ratio besides deficit to GDP that Jared Bernstein is watching
Speaker 1: as we begin our analysis of two thousand twenty. Well,
Speaker 1: I think I'm I'm looking interestingly. It's called the unemployment rate,
Speaker 1: the ratio of the unemployed to the labor force, and
Speaker 1: I think that could get down to three and a
Speaker 1: half percent by the end really year. That's a number
Speaker 1: we haven't seen since the nineteen sixties. The question is,
Speaker 1: will that unweash pressures and inflation and interest rates that
Speaker 1: will cause to move from tapping the brakes to hitting
Speaker 1: them much harder. Let's go a little won because here,
Speaker 1: Jared Bernstein, some would suggest we may get stimulus, tax
Speaker 1: cut stimulus, budgets, silliness stimulus, two bouts of stimulus, and
Speaker 1: we get domestic stimulus, but we give it all back
Speaker 1: over at minus n x where the trade deficit expands,
Speaker 1: et cetera. Off dollar dynamics. Could we have a two
Speaker 1: part economy, a boom domestic America and the controrational component
Speaker 1: it's weak. I'm really glad you brought that up, because
Speaker 1: I haven't heard it enough. But you guys look at
Speaker 1: so much data that you're always looking under under rocks
Speaker 1: that others miss. I've been writing about this myself. I
Speaker 1: see it differently, though. I do think that the magnitude
Speaker 1: of the trade deficit is going to be a drag
Speaker 1: on growth this year, and those who are looking at
Speaker 1: this stimulus, which by the way, it's not a chance
Speaker 1: of whether we're going to get it. We are going
Speaker 1: to get it. We're gonna get more physical stimulus than
Speaker 1: we've probably ever had at an unemployment rate this low.
Speaker 1: That will help to offset the drag on GDP growth
Speaker 1: from the growing trade deficits. So I don't know that
Speaker 1: that's such a downside Jared. Typically it's emerging markets, the
Speaker 1: fear twin deficits. Why should the United States for America
Speaker 1: fear twin deficits. I don't think they should, for precisely
Speaker 1: the reason I just said. I mean, if you have
Speaker 1: the h If you have the trade deficit as a
Speaker 1: drag on GDP road, which is definitional, then having the
Speaker 1: government step in and offset that, you know you you
Speaker 1: either have to offset your trade deficit with consumption investment
Speaker 1: or government spending. Again, a lot of this depends on
Speaker 1: whether we're closing it on full employment, because then the
Speaker 1: extra spending just shows up as inflation and higher interest rates.
Speaker 1: But if there's still some room to run, and I
Speaker 1: think there's there is uh, then that offset is actually
Speaker 1: a useful one. So jared market participants won't fear twin deficits.
Speaker 1: They probably won't fear one trillion dollar budget deficit either.
Speaker 1: Five percent of GDP, well, they will be concerned about
Speaker 1: is the trajectory where we're going the destinations. Just several
Speaker 1: years ago, the UK had a budget deficit of five
Speaker 1: percent of GDP, but it was closing and that was
Speaker 1: the important factor. This one's getting wider and wider. How
Speaker 1: much Why do you think that can get? Could we
Speaker 1: approach say almost ten percent of GDP before the next
Speaker 1: down term, which would be absolutely no, we can And
Speaker 1: that that's exactly the way to look at this. I
Speaker 1: I distinguished between the near term and the long term.
Speaker 1: In the near term, I hear a lot of people, UH,
Speaker 1: creating a lot of anxiety that I don't share. In
Speaker 1: the long term, I'm right with them. And it's precisely
Speaker 1: for the reason you suggest, at some point after a
Speaker 1: few years, you have to start squaring your outlays with
Speaker 1: your receipts. That's not a sustainable pattern. And and there's
Speaker 1: no way, uh, And I should say there's no way.
Speaker 1: I would be very surprised if larger budget deficits are
Speaker 1: the ones we currently have a few years from now
Speaker 1: are not problematic, in no small part from the reason
Speaker 1: you suggested, we're going to lack fiscal space or at
Speaker 1: least when we hit the next down front. I've never
Speaker 1: asked this question. Are Patrick Ley of Vermont in Richard
Speaker 1: Shelby of the South? Are they on the same page
Speaker 1: on this budget? Between them, they have seventy five years
Speaker 1: of senatorial experience. Are Lady and Shelby on the same
Speaker 1: page on this booming budget deficit? I don't think that
Speaker 1: they've been I think that the politicians just haven't been
Speaker 1: able to resist the spending, and at least for Democrats,
Speaker 1: so I can speak to most authoritatively they'd actually have
Speaker 1: a have a good rationale. I mean, the share of
Speaker 1: the budget that we're devoting to domestic priorities is it
Speaker 1: an all time low. Let's come back Jared Burnstein with
Speaker 1: a smart discussion on the deficit, whatever your politics. We
Speaker 1: like that of course with the Center on Budget and
Speaker 1: Policy Priorities. And you know they and many other think
Speaker 1: tanks are going to provide wisdom in the coming weeks.
Speaker 1: He is uh laurea from Yale on economics. And there
Speaker 1: are always too many things to talk about with Robert Schiller,
Speaker 1: so let us focus in on one of the things
Speaker 1: he's been focusing on, which is the simplicity and failure
Speaker 1: of the price earnings relationship. And maybe there's a better
Speaker 1: way to do this, Professor Schiller. Wonderful to have you
Speaker 1: with us. How do you teach extrapolation at Yale University?
Speaker 1: The dangers of extrapolation? Uh, the suspect nature of the
Speaker 1: value of extrapolation. When you got a chalk piece in
Speaker 1: your hand and a chalkboard, what do you actually say
Speaker 1: to the cherubs at Yale? Well, I don't think extrapolation
Speaker 1: is mostly mechanical. It's not like people are charting the
Speaker 1: data and drawing lines. It's more intuitive. People like to
Speaker 1: think about investments in satisfying way that sounds common sensical,
Speaker 1: And they just remember recent years and they don't study history, right,
Speaker 1: And if the last ten years has been up, then
Speaker 1: they kind of think that's the way the world works,
Speaker 1: and if it's been down, they think that the world
Speaker 1: is a dangerous place. And if Robert Fogel was so
Speaker 1: good at in Angus Madison of looking back and how
Speaker 1: we try to guess forward, are we any good at
Speaker 1: guessing forward in the markets? Well? And you know, I
Speaker 1: always say that efficient markets is a half truth. To
Speaker 1: some extent. We do, especially individual stocks you know, that
Speaker 1: have promising story. The market gets that somewhat that maybe
Speaker 1: they overreact to the story. But it's you know, we
Speaker 1: do have I am pro market some sense. It's just
Speaker 1: not perfect. Professor Schiller, I wonder if you could speak
Speaker 1: a little bit about the word itself, the word finance,
Speaker 1: and how it is misunderstood and misapplied to the idea
Speaker 1: of wanting to make money. Well, okay, I teach a
Speaker 1: finance course here at Yale and online. By the way,
Speaker 1: it's for free, of course, Sarah, But I emphasize that
Speaker 1: finance isn't really about making money in the sense that
Speaker 1: many people think it's about. It's a technology for allocating resources,
Speaker 1: for incentivizing people to do something for other people according
Speaker 1: to someone that someone else's desires. Uh. And it's a
Speaker 1: it has powerful implications. Risk management is a powerful tool
Speaker 1: to improve human welfare. Having said that, I'm wondering if
Speaker 1: you could then apply that attitude towards the prices that
Speaker 1: are paid for stocks and why you describe some markets
Speaker 1: as so pricey that really the way we mentioned them
Speaker 1: is not really accurate. Well, I don't you know, take
Speaker 1: my course, You don't. You don't need to, Oh, yes,
Speaker 1: I do. Uh. I think that Uh. Finance went through
Speaker 1: a phase. Uh. Theoretical finance went through a phase uh,
Speaker 1: which was you might say a turning point was Eugene
Speaker 1: Fama's Efficient Market series around seventy and then the Random
Speaker 1: Walk down Wall Street with Malkiel. Uh. It was a
Speaker 1: model that it was a little bit too self satisfied, uh,
Speaker 1: too mechanical. And now there's been a behavioral finance revolution,
Speaker 1: which is still going on. Professor Schiller. Everybody's equity focused
Speaker 1: on the exuberance of Robert Schiller, when you see high
Speaker 1: yield bonds b double a industrials, to go back to
Speaker 1: my grandfather, other priced this narrow in tight to full
Speaker 1: faith and credit ten years. Does that Does that define
Speaker 1: for you a bond bubble, that bonds are priced to perfection? Is? Maybe,
Speaker 1: Sir John Templeton would mention it. Well, the bond market
Speaker 1: has had a peculiar tendency to track lagged inflation. So
Speaker 1: there's a I think it's a sevent correlation between bond
Speaker 1: yields and the last ten years of inflation, but not
Speaker 1: much correlation with the next ten years inflation. So the
Speaker 1: bond market is is backward looking, just like the stock
Speaker 1: market is I I look, professor, showed all this. Just
Speaker 1: what were your comments? Quickly here and once again the
Speaker 1: certain thing, the short fixed trade, and then down we
Speaker 1: go with sevent losses. How what was your response when
Speaker 1: you saw those charts eight days ago? Uh, it was
Speaker 1: not surprising to me that volatility would suddenly shoot up
Speaker 1: after a period of historic low volatility. Uh. This is Uh,
Speaker 1: it's kind of what happens in about the same thing
Speaker 1: happened in ninety nine, although volatility wasn't really low in
Speaker 1: the late nineteen twenties. It was not high uh and
Speaker 1: so uh and earnings were growing. I hate to bring nine.
Speaker 1: I love that story. So does everyone else. Took a
Speaker 1: dramatic story. Everything looked fine, volatility was low, and then
Speaker 1: suddenly the market dropped. The one thing that was wrong
Speaker 1: was that people thought the market was overpriced. The same
Speaker 1: thing happened recently here just now, very good, Robert Shorey,
Speaker 1: thank you so much, greatly appreciate with Yale University. Just
Speaker 1: some perspective there from the academic end. And now, really, folks,
Speaker 1: what we love to do, which give you an important
Speaker 1: conversation across these markets for a judicious length of time.
Speaker 1: Yakum fills with this. Pimco. Yakum, you're claimed for the
Speaker 1: synthesis of the three bees, the three cs. Are you
Speaker 1: under the three d s? I mean we're going through
Speaker 1: the alphabet here. How do you write an essay about
Speaker 1: what we've witnessed in the last ten days? Well, Tom,
Speaker 1: I think what we're seeing here is that markets have
Speaker 1: to come to grips with the very tricky transition from
Speaker 1: the world where monetary policy was the only game in town.
Speaker 1: Um lifted all asset prices in order to support the
Speaker 1: real economy. And now we're transitioning from monetary policy to
Speaker 1: fiscal policy. And you know, ironically, this is what economists
Speaker 1: and central bankers had been calling for for a long time,
Speaker 1: that fiscal policy steps into support economy, so monetary policy
Speaker 1: can step back. But I think what we're learning is
Speaker 1: and what markets are learning that this is a very
Speaker 1: tricky transition. The reason is fiscal policy supports the economy directly.
Speaker 1: It does not work through uh financial markets. It does
Speaker 1: not work through asset prices, and more fiscal stimulus can
Speaker 1: actually be bad for asset prices. The reason is that, well,
Speaker 1: we're seeing rising budget deficits, the treasury has to issue
Speaker 1: more debt into the market. This could push up the
Speaker 1: term premium and bond yields, and it could lead to
Speaker 1: what I would call a reverse portfolio rebalancing effect where
Speaker 1: markets have to absorb the additional bond supply um and
Speaker 1: that means investors could move out of risk assets, and
Speaker 1: you know, this could backfire on the real economy. And
Speaker 1: I think this is what markets are currently trying to
Speaker 1: come to grips with. These are the set of expected,
Speaker 1: unexpected and even true unexpected unexpected it could be out there.
Speaker 1: So much of this has a background of gurus and
Speaker 1: pundits yakham fells suggesting that we can do all this smoothly,
Speaker 1: and that the glide pass of adjustment from QUEI to
Speaker 1: QT or whatever the theory may be, or the theme
Speaker 1: may be, that we can all do this smoothly. I
Speaker 1: see no evidence of that in history. Where did we
Speaker 1: get this belief in splooth, smooth glide pass to a
Speaker 1: new regime? Well, I think we've seen it working in Japan, um,
Speaker 1: So it is possible to do it smoothly. But what
Speaker 1: it requires is that the central bank, you know, has
Speaker 1: to get in bed with the government, so there has
Speaker 1: to be monetary and fiscal coordination. The Bank of Japan
Speaker 1: did this beautifully by just pegging the ten year BONDI
Speaker 1: it and inviting the government to do more fiscal expansion. Um.
Speaker 1: But this is not what we're doing in the US,
Speaker 1: at least not. But we can't make the comparison to Japan,
Speaker 1: where they've got such an absolutely original savings culture, can we? Culturally?
Speaker 1: They're different? Right? Yeah, that's right. And you know they've
Speaker 1: gone through two decades to lost decades with deflation, so
Speaker 1: that's also what's different. So I think the transition from
Speaker 1: monetary to fiscal policy is inevitably more bumpy here in
Speaker 1: the US, and I think this is what we've been
Speaker 1: seeing over the last two weeks. Is there anything that
Speaker 1: you would like to edit or change based on what's
Speaker 1: happened over the last week or so to your asset
Speaker 1: allocation outlook for No, not not really so. Um if
Speaker 1: if we look at the situation, we I mean, we've
Speaker 1: been gradually becoming more cautious in our in our investments. Um.
Speaker 1: We At the same time, you know, we do not
Speaker 1: see a recession around the corner. That so that hasn't changed. Yes,
Speaker 1: we've had a market correction ten percent or so, but
Speaker 1: this is not enough to derail this economy. So we
Speaker 1: think at least over the next six or twelve month
Speaker 1: the recession risk is very low. Um Uh. What I
Speaker 1: would emphasize though, is that I think we are close
Speaker 1: to peak growth for the global economy. That doesn't mean
Speaker 1: a recession is around the corner, but you know, it
Speaker 1: will be difficult for the global economy to continue to
Speaker 1: grow at the same pace it has been growing in
Speaker 1: two thousand and seventeen and in the early part of
Speaker 1: this year. The simple reason is that you know, we're
Speaker 1: running out of slack in the US labor market. China's
Speaker 1: credit impulse has turned negative, so the Chinese economy is decelerating. UM.
Speaker 1: And the euro appreciation and the yend appreciation that you
Speaker 1: know is the flip side of the coin of the
Speaker 1: week dollar will also take its tall on on growth.
Speaker 1: So peak growth UM, No recession around the corner, a
Speaker 1: more cautious stance in our st allocation, UM, but not
Speaker 1: outright barrish. So more money devoted to commodities, yes, um.
Speaker 1: And the reason is that we think inflation will probably
Speaker 1: surprise on the upside over the cyclical horizon. We're now
Speaker 1: getting the fiscal boost in the US. We are seeing uh,
Speaker 1: seeing a week dollar, so that spells higher inflation UM.
Speaker 1: And we think commodities will also benefit from that. Does
Speaker 1: that include also things like master limited partnerships for those
Speaker 1: that are not satisfied with a two point eight or
Speaker 1: two point nine percent ten your treasury. Yes, that's right, UM.
Speaker 1: So the energy sector, we are quite upbeat on the
Speaker 1: energy sector here in the US. You know, the pipeline's
Speaker 1: shale production is being rammed up given what's happened to
Speaker 1: the oil price, so that also should support MLPs in
Speaker 1: the energy sect. But your compim nails something there which
Speaker 1: is still we need to find enhanced yield. How do
Speaker 1: we find an enhanced yield? You know, I hate to
Speaker 1: use this word, but the word of the vogue and
Speaker 1: of the moment. How do we find enhanced yield? And
Speaker 1: what is the risk in searching for that? Given regime change?
Speaker 1: And the answers is no free lunch, is there? Yeah,
Speaker 1: there's there's never a free lunch tom um. But how
Speaker 1: do you find enhanced yield? Well, first of all, it
Speaker 1: requires hard work. It requires a lot of you know,
Speaker 1: bottom up work to look at individual companies, to look
Speaker 1: at sectors um so a lot of bottom up analysis
Speaker 1: from a top down perspective, from a macro perspective, it
Speaker 1: is difficult, you know, to find yield. You have to
Speaker 1: go global. We think there are still opportunities in emerging markets.
Speaker 1: We still like a basket of high yielding currencies um
Speaker 1: in emerging markets. So it is possible to find the
Speaker 1: enhanced field. But um, you know, you have to look
Speaker 1: very very hard. I just think it seems to be
Speaker 1: too good to be true. Yea. Can we have to
Speaker 1: leave it there? Ya can fails. Thank you so much,
Speaker 1: just never enough time. He is with PIMCO. Thanks for
Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to
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Speaker 1: I'm on Twitter at Tom Keane before the podcast. You
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio