1 00:00:02,520 --> 00:00:13,760 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 2 00:00:13,840 --> 00:00:17,920 Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern 3 00:00:18,200 --> 00:00:22,000 Speaker 1: on Apple CarPlay or Android Auto with the Bloomberg Business app. 4 00:00:22,360 --> 00:00:25,680 Speaker 1: Listen on demand wherever you get your podcasts, or watch 5 00:00:25,760 --> 00:00:27,160 Speaker 1: us live on YouTube. 6 00:00:27,280 --> 00:00:30,159 Speaker 2: There was this. There was that. I sat in her 7 00:00:30,240 --> 00:00:32,840 Speaker 2: room with Meredith Whitney. She was like eighteen years old 8 00:00:33,080 --> 00:00:37,279 Speaker 2: out of Lawrenceville PG Brown University, and Meredith goes time, 9 00:00:37,400 --> 00:00:40,479 Speaker 2: shut up, invite visa, go back and look, folks. It's 10 00:00:40,479 --> 00:00:44,000 Speaker 2: one of the great calls of the last twenty years. 11 00:00:44,120 --> 00:00:48,000 Speaker 2: Joining us this morning. Meredith Whitney. Meredith, why are you 12 00:00:48,080 --> 00:00:49,200 Speaker 2: getting back in the game. 13 00:00:50,360 --> 00:00:52,840 Speaker 3: Well, I got back in the games a two year anniversary. 14 00:00:54,080 --> 00:00:56,560 Speaker 3: I missed it. There was so much that wasn't going 15 00:00:56,600 --> 00:01:01,160 Speaker 3: on in banking and financial services when I stepped away, 16 00:01:02,200 --> 00:01:04,840 Speaker 3: and uh, so much has gone on and there's such 17 00:01:04,840 --> 00:01:08,520 Speaker 3: an opportunity. There's such a vacuum. I thought in research 18 00:01:09,440 --> 00:01:12,039 Speaker 3: that and I missed it. I mean, this really is 19 00:01:12,040 --> 00:01:14,760 Speaker 3: my wheelhouse. So I love it. I you know, I 20 00:01:14,800 --> 00:01:16,280 Speaker 3: haven't been this happy in a long time. 21 00:01:16,400 --> 00:01:18,319 Speaker 2: So you're founding the banks of financials. 22 00:01:18,360 --> 00:01:22,680 Speaker 3: Still I follow everything so basically I cover whatever I 23 00:01:22,720 --> 00:01:26,160 Speaker 3: want to. So one interesting thing, you know, piece I 24 00:01:26,200 --> 00:01:31,160 Speaker 3: wrote last week was on employment and on inflation that 25 00:01:31,200 --> 00:01:32,760 Speaker 3: I see. You know a lot of people talked about 26 00:01:33,400 --> 00:01:35,959 Speaker 3: inflation around Terrace. I think there's going to be major 27 00:01:36,360 --> 00:01:40,480 Speaker 3: wage inflation. So what is under discussed is the ICE 28 00:01:40,600 --> 00:01:46,480 Speaker 3: raids and immigration UH policies by this administration that's putting 29 00:01:46,520 --> 00:01:51,080 Speaker 3: real pressure on labor and areas management and alternative manage 30 00:01:51,440 --> 00:01:55,120 Speaker 3: manage or said two weeks ago, what they see cracks 31 00:01:55,120 --> 00:02:00,560 Speaker 3: in the economy because workers at low end rust restaurants 32 00:02:00,680 --> 00:02:03,880 Speaker 3: are not showing up to work for fear of ice 33 00:02:03,960 --> 00:02:08,280 Speaker 3: rates and small and media sized businesses are losing revenues 34 00:02:08,320 --> 00:02:12,480 Speaker 3: because of it. And by our estimates, one in four 35 00:02:12,760 --> 00:02:16,920 Speaker 3: workers in the US are Latino and Hispanic, and the 36 00:02:16,960 --> 00:02:24,320 Speaker 3: BLS counts non documented and documented work in its thirty 37 00:02:24,320 --> 00:02:27,480 Speaker 3: two million employees that are Hispanic and Latino, and the 38 00:02:27,520 --> 00:02:33,119 Speaker 3: Pew Center estimates that another eight million workers are undocumented 39 00:02:33,240 --> 00:02:36,680 Speaker 3: and the bulk of those are from Mexico and Latin 40 00:02:36,720 --> 00:02:39,680 Speaker 3: American companies. So that is going to be a real 41 00:02:39,760 --> 00:02:42,760 Speaker 3: pressure on rates because it's clearly inflationary. 42 00:02:43,840 --> 00:02:46,080 Speaker 4: Meredith, just can you as you step back here, with 43 00:02:46,120 --> 00:02:49,960 Speaker 4: your wide lens here, what's your view of this tariff 44 00:02:49,960 --> 00:02:52,800 Speaker 4: policy that we've been seeing from the Trump administration. Here, 45 00:02:53,000 --> 00:02:54,799 Speaker 4: we're not really sure. I guess where it's going to 46 00:02:54,880 --> 00:02:57,960 Speaker 4: shake out, but there's a lot to take in. 47 00:02:58,000 --> 00:03:00,239 Speaker 5: I guess there's a lot to in. 48 00:03:01,120 --> 00:03:05,360 Speaker 3: You know, my impressions when this administration came into office 49 00:03:05,360 --> 00:03:07,280 Speaker 3: in January was that they were going to focus on 50 00:03:07,320 --> 00:03:12,400 Speaker 3: deregulation and that would mean bank consolidation and be very 51 00:03:12,440 --> 00:03:16,760 Speaker 3: pro growth. And they've gone terrorist tariff's terrafs and you know, 52 00:03:16,919 --> 00:03:20,640 Speaker 3: I was confused by the methodology of it on Liberation Day. 53 00:03:21,000 --> 00:03:24,160 Speaker 3: The math didn't make sense to me. And I think 54 00:03:24,240 --> 00:03:28,880 Speaker 3: that it creates a lot of unintended consequences. So the 55 00:03:29,600 --> 00:03:34,679 Speaker 3: you know, obviously unintended consequences are uncertainty. But also I 56 00:03:35,240 --> 00:03:38,240 Speaker 3: think you're going to start to see insurance rates go 57 00:03:38,360 --> 00:03:42,440 Speaker 3: up because the anticipation of inflation. Sorry, replacement costs are 58 00:03:42,440 --> 00:03:44,840 Speaker 3: going to go up, and that's been one of the 59 00:03:44,880 --> 00:03:48,840 Speaker 3: most stifling costs for homeowners and for the low end. 60 00:03:49,560 --> 00:03:52,840 Speaker 3: So you know, when you move fast and break things, 61 00:03:53,040 --> 00:03:56,080 Speaker 3: you have a lot of unintended consequences. I'm not one 62 00:03:56,280 --> 00:03:59,240 Speaker 3: that can figure out the methodology or the reasons behind it. 63 00:04:00,080 --> 00:04:03,400 Speaker 3: I have more concerns over it than you know than 64 00:04:03,440 --> 00:04:07,280 Speaker 3: I do a real understanding of them, of uh that 65 00:04:08,280 --> 00:04:09,880 Speaker 3: you know the sense behind it. 66 00:04:10,200 --> 00:04:12,480 Speaker 4: So where do we go here for this economy? A 67 00:04:12,520 --> 00:04:15,600 Speaker 4: lot of folks are talking about recession. As you look 68 00:04:15,600 --> 00:04:18,320 Speaker 4: at you know, the broad swath of your coverage, including 69 00:04:18,320 --> 00:04:21,400 Speaker 4: the big financial services companies, do you see recession kind 70 00:04:21,400 --> 00:04:23,200 Speaker 4: of in the near drunk for this economy. 71 00:04:23,839 --> 00:04:27,280 Speaker 3: So all of the technical data shows no evidence of 72 00:04:27,320 --> 00:04:32,480 Speaker 3: a recession, but a lot of the underlying data shows 73 00:04:32,760 --> 00:04:35,200 Speaker 3: shows hints of it. And I think it's more of 74 00:04:35,200 --> 00:04:38,960 Speaker 3: a stagflation recession. And I very much see a recession, 75 00:04:39,640 --> 00:04:44,119 Speaker 3: a second recession for the low end in the last 76 00:04:44,120 --> 00:04:47,280 Speaker 3: three years. So the low middle class and low end 77 00:04:47,320 --> 00:04:50,680 Speaker 3: fifty two percent of households that live paycheck to paycheck, 78 00:04:51,720 --> 00:04:55,159 Speaker 3: you know, we're sick of inflation. Voted I think main 79 00:04:55,200 --> 00:04:59,720 Speaker 3: Street voted Trump into office because they'd been through a 80 00:04:59,760 --> 00:05:04,400 Speaker 3: res Their recession occurred when the stimulus money ran out, 81 00:05:04,480 --> 00:05:08,760 Speaker 3: so after tax revenues went down by eighteen percent, and 82 00:05:08,760 --> 00:05:11,880 Speaker 3: they're going to go through another recession because I think 83 00:05:12,120 --> 00:05:15,920 Speaker 3: employment is going to be a problem in the employment 84 00:05:15,920 --> 00:05:18,000 Speaker 3: at the low end and then pressure is because there's 85 00:05:18,040 --> 00:05:21,680 Speaker 3: no wiggle room from income levels accrastination. 86 00:05:21,800 --> 00:05:24,680 Speaker 2: Good morning on your commute, Good morning across America and 87 00:05:24,720 --> 00:05:28,640 Speaker 2: around the world. On YouTube, Subscribe to Bloomberg Podcast. That's 88 00:05:28,680 --> 00:05:32,760 Speaker 2: the way Meredith Whitney listens to us each morning. Thrilled 89 00:05:32,800 --> 00:05:36,040 Speaker 2: to have an extended conversation here with Meredith. Meredith, let 90 00:05:36,040 --> 00:05:39,560 Speaker 2: me go to the wheelhouse. And you know, I'm very upset, 91 00:05:39,600 --> 00:05:43,480 Speaker 2: Meredith about the way the street quotes yield. I believe 92 00:05:43,520 --> 00:05:47,640 Speaker 2: it's price lower. Are the major banks and particularly in 93 00:05:47,680 --> 00:05:51,600 Speaker 2: the zeitgeist over the weekend Bank of America, are they 94 00:05:51,680 --> 00:05:55,039 Speaker 2: at risk not so much of gloom, but just a 95 00:05:55,160 --> 00:05:59,000 Speaker 2: repricing of their balance sheet because a price down and 96 00:05:59,080 --> 00:06:01,920 Speaker 2: builds no in bonds. 97 00:06:02,360 --> 00:06:04,600 Speaker 3: I think the banks are in a really good place. 98 00:06:04,720 --> 00:06:11,479 Speaker 3: They're very conservatively accounted for, so where I expect unemployment 99 00:06:11,520 --> 00:06:14,160 Speaker 3: to go to six percent, they're all their assumptions are 100 00:06:14,480 --> 00:06:17,359 Speaker 3: north of seven percent. So I feel I think the 101 00:06:17,400 --> 00:06:20,520 Speaker 3: banks are in really, really good shape. I think that 102 00:06:21,320 --> 00:06:24,599 Speaker 3: one of the things I'm working on right now is 103 00:06:24,640 --> 00:06:27,080 Speaker 3: the FED doesn't necessarily think that banks are in very 104 00:06:27,080 --> 00:06:32,960 Speaker 3: good shape. And two thirds of the of the large banks, 105 00:06:32,960 --> 00:06:35,479 Speaker 3: the twenty nine banks that are over one hundred billion 106 00:06:35,520 --> 00:06:41,320 Speaker 3: dollars are deemed unsatisfactory in terms of rating, and that's 107 00:06:41,320 --> 00:06:42,840 Speaker 3: going to make M and A very difficult. 108 00:06:42,920 --> 00:06:43,160 Speaker 2: You know. 109 00:06:43,279 --> 00:06:48,440 Speaker 3: From my perspective, the banks look very well positioned, you know, 110 00:06:48,560 --> 00:06:51,040 Speaker 3: and they are very well hedged. So Bank America does 111 00:06:51,040 --> 00:06:53,760 Speaker 3: an incredible job hedging job. And I think the big 112 00:06:53,800 --> 00:06:58,320 Speaker 3: banks that have hundreds of people hedging their portfolio are 113 00:06:58,320 --> 00:07:00,400 Speaker 3: in better positions than some of the regional banks that 114 00:07:00,480 --> 00:07:03,240 Speaker 3: have smaller staffs. So I don't think that's that's a 115 00:07:03,240 --> 00:07:04,200 Speaker 3: concern for the banks. 116 00:07:04,600 --> 00:07:06,720 Speaker 4: I want to go to the regional banks, Meredith, because 117 00:07:06,720 --> 00:07:08,800 Speaker 4: a lot of folks felt that, you know, we had 118 00:07:08,839 --> 00:07:11,000 Speaker 4: some some of the smaller banks over the last several 119 00:07:11,040 --> 00:07:14,360 Speaker 4: years run into some problems SVB and so on, and 120 00:07:14,400 --> 00:07:17,880 Speaker 4: maybe people said, maybe there should be some consolidation of 121 00:07:17,920 --> 00:07:20,200 Speaker 4: the regional banking business in the United States. Do we 122 00:07:20,280 --> 00:07:23,440 Speaker 4: really need five thousand regional banks? How do you view 123 00:07:23,480 --> 00:07:24,800 Speaker 4: that part of the financial system. 124 00:07:25,480 --> 00:07:29,480 Speaker 3: I think there should definitely be consolidation, and I think 125 00:07:29,480 --> 00:07:32,120 Speaker 3: there should be consolidation. And some of the twenty nine 126 00:07:32,160 --> 00:07:35,280 Speaker 3: banks that are you know, twenty nine of which are 127 00:07:35,320 --> 00:07:37,040 Speaker 3: in the penalty box that are not allowed to do 128 00:07:37,160 --> 00:07:41,280 Speaker 3: M and A should be also allowed to do M 129 00:07:41,320 --> 00:07:43,520 Speaker 3: and A. You know, they're not above the ten percent 130 00:07:43,560 --> 00:07:47,400 Speaker 3: deposit threshold. They're well below the ten percent deposit threshold. 131 00:07:47,480 --> 00:07:51,920 Speaker 3: So you need healthy banks. And yeah, I mean this 132 00:07:51,960 --> 00:07:54,960 Speaker 3: has been something that I've been working on since twenty 133 00:07:55,080 --> 00:07:58,680 Speaker 3: ten when the big banks, when the regulators wanted the 134 00:07:58,680 --> 00:08:01,560 Speaker 3: big banks to get smaller the small banks to get bigger, 135 00:08:01,800 --> 00:08:04,040 Speaker 3: and that just hasn't happened. And so it's like waiting 136 00:08:04,080 --> 00:08:05,880 Speaker 3: for good too, for bank consolidation. 137 00:08:06,000 --> 00:08:08,480 Speaker 2: I mean, to put things in perspective, folks. And Meredith 138 00:08:08,560 --> 00:08:10,840 Speaker 2: knows that she lived in I mean, she's big, you know. 139 00:08:10,920 --> 00:08:13,680 Speaker 2: Forget about all the uproar and bonds and that in 140 00:08:13,720 --> 00:08:18,040 Speaker 2: Meredith Whitney, Notoriety, Visa the symbols v. Paul in case 141 00:08:18,160 --> 00:08:21,720 Speaker 2: I didn't know that, Meredith Whitney on fifty seventh Street 142 00:08:22,040 --> 00:08:24,880 Speaker 2: with me with a beverage of our choice and Meredith 143 00:08:24,920 --> 00:08:28,400 Speaker 2: goes time, shut up and buy Visa. It's up one thousand, 144 00:08:28,640 --> 00:08:33,800 Speaker 2: eight hundred percent, twenty three percent per year. Meredith, does 145 00:08:33,840 --> 00:08:38,360 Speaker 2: your vision for the next fifteen years? The next fourteen 146 00:08:38,440 --> 00:08:45,200 Speaker 2: years give you the same uplift in American financial capitalism? 147 00:08:45,480 --> 00:08:48,000 Speaker 3: Yeah, I think there's a lot of really interesting things 148 00:08:48,040 --> 00:08:52,520 Speaker 3: going on in financial services, some scary, some really good. 149 00:08:52,600 --> 00:08:54,920 Speaker 3: A lot of it's going on in the private market. 150 00:08:54,920 --> 00:08:57,960 Speaker 3: I think the Klarna deal will be a really interesting 151 00:08:58,440 --> 00:09:02,160 Speaker 3: IPO to watch. I'm pretty in all of that company. 152 00:09:03,040 --> 00:09:05,920 Speaker 3: I think a firm's been a great a great company. 153 00:09:05,960 --> 00:09:09,000 Speaker 3: There's a there's a lot of innovation in financial services 154 00:09:09,280 --> 00:09:12,400 Speaker 3: in the in the US, and the banks are incredibly 155 00:09:12,400 --> 00:09:15,319 Speaker 3: well positioned, I'd say also, but you know, in fairness, 156 00:09:15,360 --> 00:09:18,640 Speaker 3: like the European banks look pretty good too. They're incredibly 157 00:09:18,640 --> 00:09:22,160 Speaker 3: well capitalized. So the banking system at large, I think 158 00:09:22,200 --> 00:09:26,000 Speaker 3: looks so much better than it did, you know, fifteen 159 00:09:26,200 --> 00:09:26,720 Speaker 3: years ago. 160 00:09:26,880 --> 00:09:29,800 Speaker 2: In fifteen years ago, Paul, we didn't have private equity 161 00:09:30,320 --> 00:09:31,160 Speaker 2: or private capital. 162 00:09:31,200 --> 00:09:32,800 Speaker 5: Well, that's where I want to go, Tom, I mean 163 00:09:33,280 --> 00:09:33,720 Speaker 5: a Meredith. 164 00:09:33,760 --> 00:09:36,880 Speaker 4: How do you kind of think about this private credit business, 165 00:09:36,880 --> 00:09:39,840 Speaker 4: which has really grown so dramatically over the last you know, 166 00:09:39,960 --> 00:09:44,559 Speaker 4: ten years, roughly as an alternative source of capital. 167 00:09:44,760 --> 00:09:45,960 Speaker 5: How do you view private credit? 168 00:09:47,040 --> 00:09:51,040 Speaker 3: Well, I view it uniquely because over the summer or 169 00:09:51,080 --> 00:09:55,720 Speaker 3: since September, forty billion of private credit has been focused 170 00:09:55,760 --> 00:09:59,360 Speaker 3: on consumer lending, and so this has been like a 171 00:09:59,520 --> 00:10:03,680 Speaker 3: fire of credit within the industry, and a lot of 172 00:10:03,720 --> 00:10:08,400 Speaker 3: it is private equity backed companies that are getting for 173 00:10:08,640 --> 00:10:12,520 Speaker 3: purchase agreements with private credit, but also public companies. You know, 174 00:10:12,640 --> 00:10:17,000 Speaker 3: so far has over twelve billion dollars for purchase agreements 175 00:10:17,000 --> 00:10:20,120 Speaker 3: from private credit. What that means then is they basically 176 00:10:20,120 --> 00:10:23,360 Speaker 3: get on a treadmill of gain on sale accounting. So 177 00:10:23,440 --> 00:10:29,400 Speaker 3: they're out aggressively originating personal loans and home equity loans. 178 00:10:29,640 --> 00:10:31,760 Speaker 3: And originally I would have thought that that would have 179 00:10:31,840 --> 00:10:34,840 Speaker 3: pumped in a ton of liquidity for the lower end 180 00:10:35,600 --> 00:10:38,360 Speaker 3: and sustained the lower end. But I think you see 181 00:10:38,360 --> 00:10:41,800 Speaker 3: fractures within the lower end. That is a that is 182 00:10:41,800 --> 00:10:48,080 Speaker 3: a potential benefit that could come in and provide liquidity relief. 183 00:10:49,040 --> 00:10:54,079 Speaker 3: But private credit is interestingly never before so interested in 184 00:10:54,200 --> 00:10:57,440 Speaker 3: consumer finance, and I think that's a real game changer. 185 00:10:57,559 --> 00:10:59,960 Speaker 2: Single best party right now, Meredith Money for old Time, 186 00:11:00,120 --> 00:11:01,560 Speaker 2: let's your single best buy right now. 187 00:11:02,120 --> 00:11:07,800 Speaker 3: I love Rocket Mortgage. It's counterintuitive because of rates, but 188 00:11:07,880 --> 00:11:13,120 Speaker 3: they are the largest home equity closed down home equity originator. 189 00:11:13,160 --> 00:11:17,480 Speaker 3: And interestingly, so I watch, you know, I download the 190 00:11:17,520 --> 00:11:22,840 Speaker 3: fed's home equity data every Saturday morning, and what you see, 191 00:11:23,080 --> 00:11:26,280 Speaker 3: I know, I love it. So what you see is 192 00:11:26,720 --> 00:11:31,040 Speaker 3: in the summer, home equity went from helocks went from 193 00:11:31,559 --> 00:11:37,080 Speaker 3: seventeen years of decline to expanding and helocks now have 194 00:11:37,360 --> 00:11:41,240 Speaker 3: accelerated every week since the summer. And what's important about 195 00:11:41,280 --> 00:11:44,720 Speaker 3: that is that the bulk of heelocks are being taken 196 00:11:44,720 --> 00:11:48,640 Speaker 3: out by seniors. So seniors. This is the FED data 197 00:11:49,480 --> 00:11:53,520 Speaker 3: the month May Month, May Fed data, New York Fed data. 198 00:11:54,080 --> 00:11:58,400 Speaker 3: Forty percent of home equity products are seniors, which is 199 00:11:58,440 --> 00:12:01,959 Speaker 3: counterintuitive because two thousand and four it was nineteen percent. 200 00:12:02,040 --> 00:12:06,800 Speaker 3: So more seniors are stretched and they're turning to products 201 00:12:06,800 --> 00:12:10,360 Speaker 3: that come equity, and Rocket's going to be you know, 202 00:12:10,400 --> 00:12:12,360 Speaker 3: the one stop shopping. 203 00:12:12,640 --> 00:12:15,360 Speaker 2: It's too much. Meredith Whitney, thank you so much for 204 00:12:15,440 --> 00:12:17,960 Speaker 2: joining us this one. She was a nerd when she 205 00:12:18,040 --> 00:12:19,440 Speaker 2: was Big Red at Lawrenceville. 206 00:12:19,480 --> 00:12:22,120 Speaker 5: Sure make a complete nerd, absolutely, Meredith Whitney. 207 00:12:22,440 --> 00:12:25,040 Speaker 2: She once she reads Saturday morning. I don't know the 208 00:12:25,080 --> 00:12:26,040 Speaker 2: FEDS some morning. 209 00:12:26,360 --> 00:12:27,880 Speaker 5: Yeah, she probably. 210 00:12:27,520 --> 00:12:29,960 Speaker 2: Reads the minutes of the FED. Meredith Whitney, thank you 211 00:12:30,200 --> 00:12:35,880 Speaker 2: so much for being with us today. 212 00:12:38,000 --> 00:12:41,600 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live 213 00:12:41,640 --> 00:12:44,840 Speaker 1: weekday afternoons from seven to ten am Eastern Listen on 214 00:12:44,880 --> 00:12:48,560 Speaker 1: Applecarplay and Android Atto with the Bloomberg Business app, or 215 00:12:48,720 --> 00:12:50,120 Speaker 1: watch US live on YouTube. 216 00:12:50,160 --> 00:12:52,240 Speaker 2: This is the interview of the day, folks, for those 217 00:12:52,240 --> 00:12:55,160 Speaker 2: of you looking at price down. George Bury joins US 218 00:12:55,400 --> 00:12:59,520 Speaker 2: chief investment strategists all Spring Global Investments. I'm going mental 219 00:13:00,280 --> 00:13:04,160 Speaker 2: the acclaim Liz Goldenberg, who sold thousands of Bloomberg terminals 220 00:13:04,200 --> 00:13:07,760 Speaker 2: with the YA function. The media does yield yield yield 221 00:13:07,840 --> 00:13:11,640 Speaker 2: yield yield yield yield and what Liz Goldenberg would say, 222 00:13:11,840 --> 00:13:16,000 Speaker 2: shut up, Tom, it's about price. I read a point now, George, 223 00:13:16,000 --> 00:13:20,000 Speaker 2: where there's a price decline enough out in the year 224 00:13:20,040 --> 00:13:22,600 Speaker 2: where it's really starting to hurt people in institutions. 225 00:13:22,960 --> 00:13:25,640 Speaker 6: Yeah, price has become very volatile over the last couple 226 00:13:25,679 --> 00:13:27,640 Speaker 6: of years. And as you point out, you know those 227 00:13:27,640 --> 00:13:30,360 Speaker 6: bonds that were issued you know five ten years ago 228 00:13:30,640 --> 00:13:33,280 Speaker 6: went down quite a bit in price. And when yield 229 00:13:33,360 --> 00:13:35,960 Speaker 6: is low, you have a lot of sensitivity to changes 230 00:13:36,000 --> 00:13:38,800 Speaker 6: in price. That's the bad news. The good news is 231 00:13:39,360 --> 00:13:42,080 Speaker 6: yields or high and that is the good news. And 232 00:13:42,120 --> 00:13:44,880 Speaker 6: so when we have days like today, when we have 233 00:13:45,040 --> 00:13:49,280 Speaker 6: more volatility in the market because Moody's downgrades the US 234 00:13:49,320 --> 00:13:52,880 Speaker 6: not new news, but of a reminder, yields go up 235 00:13:53,600 --> 00:13:55,360 Speaker 6: and income is your friend. 236 00:13:55,480 --> 00:13:58,400 Speaker 2: So for I get what you just said, but for 237 00:13:58,960 --> 00:14:02,320 Speaker 2: our audience out there, they are like me, less sophisticated. 238 00:14:03,000 --> 00:14:05,840 Speaker 2: Are there going to be losses in fixed income or 239 00:14:05,880 --> 00:14:09,040 Speaker 2: do you downplay that versus the yield opportunity? 240 00:14:09,440 --> 00:14:13,240 Speaker 6: The gield dominates in this environment. And even if bond yields, 241 00:14:13,440 --> 00:14:14,960 Speaker 6: so if the thirty year were to go up to 242 00:14:15,000 --> 00:14:17,400 Speaker 6: say five and a half percent, which is not out 243 00:14:17,440 --> 00:14:21,160 Speaker 6: of the realm of possibility, you're still looking at positive 244 00:14:21,200 --> 00:14:24,280 Speaker 6: returns in bonds. And that's why year to date bonds 245 00:14:24,320 --> 00:14:27,720 Speaker 6: have done exactly what they're supposed to do. That income 246 00:14:28,240 --> 00:14:32,120 Speaker 6: is carrying the day. Your sort of average bond performance 247 00:14:32,200 --> 00:14:36,240 Speaker 6: is up about two percent year to date, not wildly exciting, 248 00:14:36,280 --> 00:14:39,000 Speaker 6: but enough to beat cash and certainly enough to beat 249 00:14:39,360 --> 00:14:42,320 Speaker 6: equities in a market where the market's trying to figure 250 00:14:42,320 --> 00:14:44,280 Speaker 6: out what the growth trajectory is going to be on 251 00:14:44,320 --> 00:14:47,040 Speaker 6: the back of tariffs. So what I tell investors, I 252 00:14:47,080 --> 00:14:50,400 Speaker 6: tell our investors is two things. One, income is your friend. 253 00:14:50,480 --> 00:14:55,120 Speaker 6: Number two, diversify that duration, and then let the bonds 254 00:14:55,360 --> 00:14:58,800 Speaker 6: do their job. They're doing exactly what they're supposed to do. 255 00:14:59,320 --> 00:15:03,800 Speaker 6: Income coupon compound through time. If I can compound my 256 00:15:03,920 --> 00:15:09,280 Speaker 6: portfolio today at say five to eight percent, depending on 257 00:15:09,320 --> 00:15:11,520 Speaker 6: what kind of bond I buy, But if it's five 258 00:15:11,560 --> 00:15:14,680 Speaker 6: and a half to six, I'm doing just fine and 259 00:15:14,800 --> 00:15:17,760 Speaker 6: just sort of You can't ignore price changes in bonds. 260 00:15:18,400 --> 00:15:21,080 Speaker 6: The price change only matters if you decide to sell it. 261 00:15:21,680 --> 00:15:23,760 Speaker 6: If you hold onto the bond and you continue to 262 00:15:23,840 --> 00:15:28,480 Speaker 6: compound your performance and the return improves as you move 263 00:15:28,560 --> 00:15:31,920 Speaker 6: through time. And that's the very powerful message in bonds. 264 00:15:31,960 --> 00:15:33,920 Speaker 2: Sounds like religious experience. 265 00:15:33,960 --> 00:15:36,800 Speaker 4: It is, I mean, this is these guys actually now 266 00:15:36,800 --> 00:15:38,480 Speaker 4: people want to talk to them a COPTA parties because 267 00:15:38,480 --> 00:15:41,160 Speaker 4: they actually have yields and returns before they're ignored for 268 00:15:41,200 --> 00:15:44,480 Speaker 4: so long thirty year US Treasury. 269 00:15:44,560 --> 00:15:46,520 Speaker 5: North of five percent. What does that tell you? 270 00:15:47,080 --> 00:15:49,200 Speaker 6: Yeah, it tells you a couple things. It tells you 271 00:15:49,280 --> 00:15:53,600 Speaker 6: that you know the market's clearly you know it clearly 272 00:15:53,760 --> 00:15:57,120 Speaker 6: sort of pricing in more term premium. You know on 273 00:15:57,160 --> 00:16:00,120 Speaker 6: the notion that inflation is uncertain, as you guys have 274 00:16:00,520 --> 00:16:04,520 Speaker 6: discussed with many guests earlier today, that the fiscal position 275 00:16:05,000 --> 00:16:08,520 Speaker 6: of the federal government is still sort of stretched and 276 00:16:08,600 --> 00:16:11,080 Speaker 6: getting stretched even thinner, and that there will be a 277 00:16:11,080 --> 00:16:15,240 Speaker 6: tremendous amount of government supply over the coming weeks, months, 278 00:16:15,560 --> 00:16:18,240 Speaker 6: and years, and so as a bond investor, I want 279 00:16:18,280 --> 00:16:20,960 Speaker 6: extra premium to be able to protect against that. In 280 00:16:21,040 --> 00:16:25,240 Speaker 6: the extreme, you know, you could sort of talk about vigilanteism. 281 00:16:25,480 --> 00:16:27,440 Speaker 6: I don't think we're quite at that point yet, but 282 00:16:27,680 --> 00:16:30,640 Speaker 6: but bond investors are voting with their feet and they're saying, 283 00:16:30,960 --> 00:16:34,040 Speaker 6: I need more premium to lend long and I think 284 00:16:34,040 --> 00:16:36,440 Speaker 6: that makes a lot of sense given the quality of 285 00:16:36,480 --> 00:16:36,960 Speaker 6: the lender. 286 00:16:37,440 --> 00:16:38,440 Speaker 2: But as you get up. 287 00:16:38,360 --> 00:16:41,320 Speaker 6: Into that, say five five and a half, maybe as 288 00:16:41,360 --> 00:16:44,320 Speaker 6: high as six, we don't think that's likely in the 289 00:16:44,360 --> 00:16:47,160 Speaker 6: near term. But five five and a half percent with 290 00:16:47,280 --> 00:16:52,160 Speaker 6: a two year pegged YEP at about four does actually 291 00:16:52,200 --> 00:16:54,880 Speaker 6: make a lot of sense in a very steep yield curve, 292 00:16:55,280 --> 00:16:58,840 Speaker 6: you know, gives both the economy and opportunity to sort 293 00:16:58,840 --> 00:17:03,240 Speaker 6: of continue to migrate through tariffs and for investors to 294 00:17:03,240 --> 00:17:03,720 Speaker 6: make money. 295 00:17:03,760 --> 00:17:05,760 Speaker 2: Sweeny's been a lecturing on as folks, you don't see this, 296 00:17:06,040 --> 00:17:08,680 Speaker 2: we're on commercial break. Sweeney gets out for BOSI and 297 00:17:08,760 --> 00:17:12,240 Speaker 2: lectures mate. We're in a two ten spread for Global 298 00:17:12,280 --> 00:17:16,439 Speaker 2: Wall Street of fifty two beeps. What's normal? One hundred? Normal? 299 00:17:16,520 --> 00:17:19,280 Speaker 6: Is one hundred, Yes, and we could get there if 300 00:17:19,320 --> 00:17:21,760 Speaker 6: you look at the you with two tens fives thirties, 301 00:17:22,040 --> 00:17:24,600 Speaker 6: you know, fives thirties is at like ninety, and we 302 00:17:24,680 --> 00:17:26,560 Speaker 6: think you could get up to one hundred and fifty. 303 00:17:26,920 --> 00:17:30,400 Speaker 6: So one hundred to two tens one fifty fives thirties 304 00:17:30,760 --> 00:17:34,520 Speaker 6: not unreasonable. And I and we think that as we 305 00:17:34,560 --> 00:17:38,719 Speaker 6: sort of migrate, as the FED stays kind of stuck 306 00:17:38,880 --> 00:17:42,520 Speaker 6: in neutral, the weight and see uh sort of mantra 307 00:17:42,720 --> 00:17:45,680 Speaker 6: is going to hold for the foreseeable future and the end, 308 00:17:45,720 --> 00:17:49,400 Speaker 6: the long end is pricing in both the supply story, 309 00:17:49,840 --> 00:17:53,320 Speaker 6: inflation uncertainty. And at the end of the day, we're 310 00:17:53,359 --> 00:17:56,120 Speaker 6: not the US is not the only country out there 311 00:17:56,160 --> 00:17:58,280 Speaker 6: sort of borrowing lots of money. We know that the 312 00:17:58,320 --> 00:18:01,000 Speaker 6: Europeans are going to be borrowing more money, the Japanese 313 00:18:01,080 --> 00:18:04,920 Speaker 6: already borrow lots of money. And so as a lender, 314 00:18:05,920 --> 00:18:08,560 Speaker 6: we're in a good spot. I want to lend at 315 00:18:08,640 --> 00:18:12,200 Speaker 6: higher yields. These yields are now attractive. The real yield, 316 00:18:12,200 --> 00:18:16,280 Speaker 6: as we've talked about many times before, is strongly positive. 317 00:18:16,320 --> 00:18:19,960 Speaker 6: And again another central message to bond investors is that 318 00:18:20,320 --> 00:18:23,040 Speaker 6: your objective as a bond investor is to beat inflation 319 00:18:23,240 --> 00:18:25,719 Speaker 6: over time, and you have two tools to do that. 320 00:18:25,760 --> 00:18:28,560 Speaker 6: One is income and then other is duration. The price 321 00:18:28,640 --> 00:18:31,479 Speaker 6: change on the bonds. Right now, price change is kind 322 00:18:31,520 --> 00:18:37,879 Speaker 6: of working against you, but income, income, and yield is 323 00:18:37,960 --> 00:18:41,960 Speaker 6: working for you. And so again another sign, another message 324 00:18:42,000 --> 00:18:45,680 Speaker 6: is that you buy fixed income for the income and 325 00:18:45,720 --> 00:18:46,480 Speaker 6: that's what works. 326 00:18:46,520 --> 00:18:48,160 Speaker 5: Are you telling your clients to take credit risk. 327 00:18:48,560 --> 00:18:51,280 Speaker 6: We are taking some credit risk. You know, credit quality 328 00:18:51,359 --> 00:18:54,240 Speaker 6: is pretty good, particularly in the world of investment cread. 329 00:18:54,600 --> 00:18:58,800 Speaker 6: We want to manage that duration pretty cautiously. So lower quality, 330 00:18:59,600 --> 00:19:02,680 Speaker 6: much shorter in duration, closer to the front end of 331 00:19:02,720 --> 00:19:07,160 Speaker 6: the curve. Longer duration and higher quality investment create When 332 00:19:07,200 --> 00:19:10,520 Speaker 6: you divide the corporate market like that, you have very 333 00:19:10,600 --> 00:19:14,240 Speaker 6: generous income at the front end and a nice diversified 334 00:19:14,720 --> 00:19:17,320 Speaker 6: pool of duration at the long end. And when you 335 00:19:17,359 --> 00:19:21,000 Speaker 6: diversify that duration both domestically in the US as well 336 00:19:21,040 --> 00:19:26,320 Speaker 6: as internationally by pulling some German bonds, some UK bonds, 337 00:19:26,359 --> 00:19:30,920 Speaker 6: some guilts, and I attach that to some corporate bonds, 338 00:19:31,480 --> 00:19:34,639 Speaker 6: that de emphasizes the need to hold lots and lots 339 00:19:34,680 --> 00:19:37,919 Speaker 6: of treasuries, and as we know, the Treasury's got a 340 00:19:37,920 --> 00:19:39,679 Speaker 6: lot of pressure on it so there's a lot to 341 00:19:39,680 --> 00:19:40,320 Speaker 6: do in bonds. 342 00:19:40,400 --> 00:19:42,959 Speaker 2: Absolute Clinic George Bory, thank you so much, Chief investment 343 00:19:42,960 --> 00:19:47,880 Speaker 2: strategists all Spring Global Investments on their fixed income pat chain. 344 00:19:48,240 --> 00:19:52,160 Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday 345 00:19:52,200 --> 00:19:55,520 Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto 346 00:19:55,600 --> 00:19:58,560 Speaker 1: with the Bloomberg Business App. You can also listen live 347 00:19:58,640 --> 00:20:02,480 Speaker 1: on Amazon Alexa, our flagship New York station, Just say 348 00:20:02,640 --> 00:20:04,840 Speaker 1: Alexa Play Bloomberg eleven thirty. 349 00:20:05,440 --> 00:20:10,960 Speaker 2: Dean Current joins US MACROSK Advisors MRA. Dean, I'm just 350 00:20:10,960 --> 00:20:12,960 Speaker 2: going to cut to it with a bomb turmoil that 351 00:20:13,000 --> 00:20:17,120 Speaker 2: we see. You have a beautiful, really interesting sentence where 352 00:20:17,119 --> 00:20:21,440 Speaker 2: the market creates the risk for the system. The internal 353 00:20:21,520 --> 00:20:25,119 Speaker 2: dynamics that you look at MRA every day. Do you 354 00:20:25,200 --> 00:20:28,600 Speaker 2: see that internal system? Is it fragile? Yeah? 355 00:20:28,640 --> 00:20:32,119 Speaker 7: I think you know, Scott Bessen recently called the US 356 00:20:32,520 --> 00:20:37,240 Speaker 7: markets antifragile, and I would really disagree with that. You know, 357 00:20:37,280 --> 00:20:40,159 Speaker 7: there's two certainties in life, death and taxes, but I 358 00:20:40,160 --> 00:20:41,879 Speaker 7: think we have to add a third, which is just 359 00:20:42,040 --> 00:20:45,960 Speaker 7: ongoing and extremely large auctions of US treasuries. 360 00:20:46,840 --> 00:20:48,200 Speaker 2: The world is a wash of. 361 00:20:48,160 --> 00:20:52,679 Speaker 7: Them, and there's no obvious solution at hand, and I 362 00:20:52,720 --> 00:20:56,480 Speaker 7: do think tom market prices are kind of blaring here 363 00:20:56,600 --> 00:20:58,760 Speaker 7: and telling us something. And you know, the thing about 364 00:20:58,800 --> 00:21:03,000 Speaker 7: market prices is there both a response, they react to 365 00:21:03,040 --> 00:21:07,359 Speaker 7: what investors do, but they also create risk. And I 366 00:21:07,400 --> 00:21:11,320 Speaker 7: think with respect to the back end of the bond market, 367 00:21:11,400 --> 00:21:13,800 Speaker 7: you know this now we're above five percent on the 368 00:21:13,840 --> 00:21:18,080 Speaker 7: thirty year. You know, we're doing this amidst a lot 369 00:21:18,080 --> 00:21:21,520 Speaker 7: of discussion about a FED easing cycle. Right Treasury bond 370 00:21:21,600 --> 00:21:24,359 Speaker 7: yields were rising in twenty twenty two, but that was 371 00:21:24,400 --> 00:21:26,680 Speaker 7: a tightening cycle. The FED was well behind the curve, 372 00:21:27,080 --> 00:21:28,840 Speaker 7: and you knew the short rate was going up quite 373 00:21:28,840 --> 00:21:32,520 Speaker 7: a bit and long end followed. Here you have you know, 374 00:21:32,520 --> 00:21:36,040 Speaker 7: if you look at the Bloomberg WRP page, you'll see 375 00:21:36,080 --> 00:21:39,159 Speaker 7: the market's handicapping easing. But the back end is its 376 00:21:39,200 --> 00:21:42,040 Speaker 7: own thing. Right now, there's a risk premium there and 377 00:21:42,080 --> 00:21:44,760 Speaker 7: I think we're coming out of this tariff uncertainty. The 378 00:21:44,800 --> 00:21:48,760 Speaker 7: downgrade doesn't feel good, and so I think that, to 379 00:21:48,880 --> 00:21:51,959 Speaker 7: me becomes one of the bigger risks for the stock 380 00:21:52,040 --> 00:21:54,920 Speaker 7: market is frankly the bond market itself. 381 00:21:55,200 --> 00:21:57,879 Speaker 4: So talk to us about the the state of the 382 00:21:57,920 --> 00:22:00,600 Speaker 4: bond market, because we saw it kind of freeze up 383 00:22:00,640 --> 00:22:03,239 Speaker 4: in April when we got some of that around Liberation Day. 384 00:22:03,440 --> 00:22:07,359 Speaker 4: Really unusual trading there that you don't normally associate with 385 00:22:07,400 --> 00:22:09,080 Speaker 4: the US treasury market. 386 00:22:09,080 --> 00:22:09,760 Speaker 5: What does that tell you? 387 00:22:10,080 --> 00:22:13,480 Speaker 7: Right, So, if we look at that chaos from April second, 388 00:22:13,520 --> 00:22:16,840 Speaker 7: Liberation Day to April ninth, which is the never mind 389 00:22:16,960 --> 00:22:20,800 Speaker 7: day where Trump basically undid those you know, five days 390 00:22:21,000 --> 00:22:23,080 Speaker 7: of big risk off you had a rising vix into 391 00:22:23,119 --> 00:22:26,120 Speaker 7: the fifties, got US high as almost sixty intra day, 392 00:22:26,480 --> 00:22:29,879 Speaker 7: and rising treasure yields. That's not a combination you see 393 00:22:29,960 --> 00:22:35,040 Speaker 7: very often. And you know, I think over time, as 394 00:22:35,119 --> 00:22:39,760 Speaker 7: John was referencing, this gigantic supply of treasuries has sort 395 00:22:39,800 --> 00:22:44,080 Speaker 7: of reduced the risk offness, meaning the ability for the 396 00:22:44,160 --> 00:22:47,159 Speaker 7: treasury market to serve as a flight to safety asset. 397 00:22:47,560 --> 00:22:49,480 Speaker 7: It's no longer doing that. So I think that's what 398 00:22:49,560 --> 00:22:50,440 Speaker 7: we have to appreciate. 399 00:22:50,600 --> 00:22:53,640 Speaker 2: Let's go off of last week's single sentence Kenneth Rogoff 400 00:22:53,880 --> 00:22:57,440 Speaker 2: from my book of the summer, you're our dollar year problem. 401 00:22:57,520 --> 00:23:01,040 Speaker 2: Fabulous foreign exchange linking it into you know, this time 402 00:23:01,119 --> 00:23:04,280 Speaker 2: is different in the system. The fact is, Professor Rogoff 403 00:23:04,320 --> 00:23:07,080 Speaker 2: modeled out a five and a half to six percent 404 00:23:07,160 --> 00:23:10,080 Speaker 2: ten year yield. Is that even in the Dean current 405 00:23:10,200 --> 00:23:11,080 Speaker 2: frame of reference? 406 00:23:11,520 --> 00:23:13,199 Speaker 7: Yeah, I think so. So Ken reached out to me 407 00:23:13,240 --> 00:23:15,560 Speaker 7: on this book as well. I had him speak post 408 00:23:16,280 --> 00:23:18,840 Speaker 7: the twenty eleven Eurozone crisis at a couple of events 409 00:23:18,920 --> 00:23:22,760 Speaker 7: I hosted, you know, our dollar year problem, our debt 410 00:23:22,800 --> 00:23:25,719 Speaker 7: our problem, and I think so that's a little bit 411 00:23:25,720 --> 00:23:27,879 Speaker 7: of a different take on it. I would say, you know, 412 00:23:28,160 --> 00:23:31,119 Speaker 7: up at five and a half six percent, the math 413 00:23:31,280 --> 00:23:36,320 Speaker 7: of running the interest costs through that debt structure is 414 00:23:36,400 --> 00:23:39,679 Speaker 7: just remarkably different. You know, there's really no resemblance to 415 00:23:39,800 --> 00:23:44,080 Speaker 7: the current structure of US interest rates relative to when 416 00:23:44,119 --> 00:23:47,119 Speaker 7: we took on all the debt in twenty twenty, which 417 00:23:47,160 --> 00:23:49,480 Speaker 7: look was an emergency we were trying to push back 418 00:23:49,520 --> 00:23:52,800 Speaker 7: against COVID. But I think the tenuere traded as low 419 00:23:52,840 --> 00:23:55,720 Speaker 7: as fifty five basis points into twenty twenty one. The 420 00:23:55,720 --> 00:23:58,719 Speaker 7: ten yere yield was one point two percent at the lows, 421 00:23:58,840 --> 00:24:01,760 Speaker 7: and so this there's no resemblance to that, and these 422 00:24:01,760 --> 00:24:06,000 Speaker 7: interest costs are punishing. You know, Tom, you have me 423 00:24:06,040 --> 00:24:07,520 Speaker 7: on here to talk about the VIX and you know, 424 00:24:07,560 --> 00:24:11,160 Speaker 7: whenever we talk about volatility, we talk about things like nonlinearity, 425 00:24:11,720 --> 00:24:17,080 Speaker 7: and with regard to treasuries, I think that's a facet 426 00:24:17,119 --> 00:24:21,200 Speaker 7: of the market that we typically wouldn't characterize as having 427 00:24:21,280 --> 00:24:24,960 Speaker 7: a risk of. But you know, things gradually then suddenly, 428 00:24:25,040 --> 00:24:27,159 Speaker 7: as as. 429 00:24:27,119 --> 00:24:29,120 Speaker 2: Paul wants to jump in, I'm sorry, I got to interrupt. 430 00:24:29,240 --> 00:24:32,760 Speaker 2: This is really important. Where's the suddenly click it? Give 431 00:24:32,760 --> 00:24:33,800 Speaker 2: me a ten year level. 432 00:24:34,320 --> 00:24:37,399 Speaker 7: Well I wouldn't. I would just say not to hundreds 433 00:24:37,400 --> 00:24:40,120 Speaker 7: of exactly, let me give it to you within three 434 00:24:40,119 --> 00:24:40,800 Speaker 7: basis points. 435 00:24:41,000 --> 00:24:42,160 Speaker 5: Well, here's what I would say. 436 00:24:42,320 --> 00:24:45,040 Speaker 7: We should be watching certain markers. I think you can 437 00:24:45,200 --> 00:24:47,960 Speaker 7: learn a lot from correlations. And I think when we 438 00:24:48,040 --> 00:24:51,880 Speaker 7: observe a daylight today, which is a stocks down, rates 439 00:24:51,960 --> 00:24:55,520 Speaker 7: up day, and that's not amidst a FED tightening cycle. 440 00:24:55,560 --> 00:24:57,600 Speaker 7: So twenty twenty two we had plenty of those days, 441 00:24:57,920 --> 00:25:01,359 Speaker 7: stocks down, rates up. The tight cycle was unwelcome. The 442 00:25:01,400 --> 00:25:03,960 Speaker 7: dollar was tightening. Today we have a very different mix. 443 00:25:04,000 --> 00:25:07,080 Speaker 7: We have a weaker dollar, we have higher rates, higher 444 00:25:07,160 --> 00:25:08,399 Speaker 7: vix and lower stock prices. 445 00:25:08,400 --> 00:25:10,800 Speaker 2: So that combination is new. 446 00:25:11,000 --> 00:25:13,639 Speaker 7: I think it's a little dangerous, and so Tom not 447 00:25:13,800 --> 00:25:16,720 Speaker 7: to you know, duck the question. I think it's a 448 00:25:16,760 --> 00:25:18,960 Speaker 7: difficult one, but I think we can learn a lot 449 00:25:19,040 --> 00:25:23,960 Speaker 7: about the reaction of the stock market and stock market volatility, 450 00:25:24,000 --> 00:25:28,000 Speaker 7: things like the VIX to higher yield. So let's watch correlations. 451 00:25:28,080 --> 00:25:30,440 Speaker 7: Let's look for days like today when rates are going 452 00:25:30,520 --> 00:25:32,440 Speaker 7: up and the VIX is rising as well. 453 00:25:32,800 --> 00:25:34,040 Speaker 5: What do you make of the US dollar. 454 00:25:34,080 --> 00:25:37,160 Speaker 4: We've seen stocks and other risk assets kind of rebound 455 00:25:37,240 --> 00:25:39,320 Speaker 4: to a certain degree, but we have not seen the 456 00:25:39,400 --> 00:25:41,760 Speaker 4: dollar really a rally. 457 00:25:41,840 --> 00:25:42,920 Speaker 5: Here. What's that tell you here? 458 00:25:43,119 --> 00:25:45,880 Speaker 7: And that's again that's that goes back to what's different. 459 00:25:46,560 --> 00:25:49,639 Speaker 7: You know, in the rates going up period of twenty 460 00:25:49,680 --> 00:25:53,320 Speaker 7: twenty two, rates and the dollar we're traveling together higher, 461 00:25:53,359 --> 00:25:56,399 Speaker 7: and that posed a certain risk. You know, this this 462 00:25:56,520 --> 00:25:59,640 Speaker 7: last round of dollar weakness, especially the one that occurred 463 00:26:00,160 --> 00:26:03,280 Speaker 7: in that again chaotic period between April second and ninth, 464 00:26:03,840 --> 00:26:06,159 Speaker 7: it kind of tells us something. There's a lot of 465 00:26:06,200 --> 00:26:10,919 Speaker 7: discussion about, you know, a negative branding exercise for the dollar. 466 00:26:11,640 --> 00:26:13,959 Speaker 7: It's probably too much, too soon. I think the reserve 467 00:26:14,000 --> 00:26:17,040 Speaker 7: currency is not going away. You know, I read with 468 00:26:17,160 --> 00:26:20,199 Speaker 7: great interest the Moody's downgrade. You know, they talk a 469 00:26:20,200 --> 00:26:24,480 Speaker 7: lot about the debt stack and the you know, unsustainability 470 00:26:24,520 --> 00:26:27,359 Speaker 7: of it, but they also do mention that the US 471 00:26:27,480 --> 00:26:31,000 Speaker 7: is an economic superpower with with the reserve currency, So 472 00:26:31,040 --> 00:26:32,639 Speaker 7: I don't know that that's going away anything. 473 00:26:32,680 --> 00:26:34,800 Speaker 2: Do you see a legislative path like it came up 474 00:26:34,800 --> 00:26:39,480 Speaker 2: but not once, maybe twice this weekend, a social security reform? 475 00:26:39,560 --> 00:26:43,560 Speaker 2: Can there be some drama of debt and deficit maturity? 476 00:26:44,440 --> 00:26:48,439 Speaker 2: I don't mean duration maturity, I mean behavioral maturity, Like 477 00:26:48,520 --> 00:26:51,280 Speaker 2: can we find a debt and deficit adult out there? 478 00:26:51,560 --> 00:26:53,800 Speaker 2: I don't think there's much evidence we can, right. 479 00:26:54,040 --> 00:26:56,639 Speaker 7: I mean one we can find is Michael Bloomberg himself, 480 00:26:56,640 --> 00:27:00,840 Speaker 7: who posted that I thought very well crafted up ed 481 00:27:00,920 --> 00:27:03,520 Speaker 7: on the terminal yesterday, and I think you know, the 482 00:27:03,560 --> 00:27:07,040 Speaker 7: commentary there is that the deck shares, the deck chairs 483 00:27:07,080 --> 00:27:10,960 Speaker 7: are being shuffled, but really ineffectively. The horse trading around, 484 00:27:11,520 --> 00:27:16,080 Speaker 7: you know, salt versus medicaid, work requirements and EV credits. 485 00:27:16,480 --> 00:27:18,960 Speaker 7: It's just moving things around a little bit. But there's 486 00:27:19,000 --> 00:27:23,040 Speaker 7: not a lot of impact, you know. I just think 487 00:27:23,080 --> 00:27:27,280 Speaker 7: these things are intractable problems, and there are other intractable 488 00:27:27,280 --> 00:27:31,000 Speaker 7: problems out there as well, things like climate change. You 489 00:27:31,080 --> 00:27:33,199 Speaker 7: have a lot of agency cost with this, and what 490 00:27:33,240 --> 00:27:35,600 Speaker 7: I mean by that is there's a short term pain 491 00:27:36,160 --> 00:27:40,439 Speaker 7: for a potential longer term gain, and it's difficult to 492 00:27:40,640 --> 00:27:44,000 Speaker 7: convince people to take that on. So from a from 493 00:27:44,040 --> 00:27:47,320 Speaker 7: a hedging standpoint, from a defensive standpoint, you know, I 494 00:27:47,359 --> 00:27:50,080 Speaker 7: think you have to keep your eye on assets like gold. 495 00:27:51,080 --> 00:27:53,840 Speaker 7: Bitcoin is a lot of things. It's obviously very speculative. 496 00:27:54,280 --> 00:27:56,119 Speaker 7: I think it has to have a little bit of 497 00:27:56,200 --> 00:27:59,320 Speaker 7: a place in the portfolio to hedge against this. And 498 00:27:59,359 --> 00:28:02,600 Speaker 7: then we got to really think about things like volatility, 499 00:28:02,640 --> 00:28:06,240 Speaker 7: which to me is the only antifragile asset. It benefits 500 00:28:06,240 --> 00:28:07,600 Speaker 7: from uncertainty in shocks. 501 00:28:07,760 --> 00:28:12,560 Speaker 2: Is a stock market about being careful of acquiring certain companies? 502 00:28:13,119 --> 00:28:16,200 Speaker 2: Do you just avoid the stock market given the bond turmoil? 503 00:28:16,720 --> 00:28:23,160 Speaker 7: Well, I think, Listen, there's very few benchmarks as amazing 504 00:28:23,200 --> 00:28:25,920 Speaker 7: as the S and P five hundred. This index delivers 505 00:28:25,960 --> 00:28:28,640 Speaker 7: the goods year after year, and so I think it's 506 00:28:28,720 --> 00:28:33,560 Speaker 7: very difficult not to continue to be invested. I do think, 507 00:28:33,720 --> 00:28:36,080 Speaker 7: you know, having a little bit more cash on hand 508 00:28:36,440 --> 00:28:40,240 Speaker 7: makes more sense. Having these other alternative assets like bitcoin 509 00:28:40,680 --> 00:28:43,600 Speaker 7: and gold, I think makes sense. And then again I'm 510 00:28:43,640 --> 00:28:46,000 Speaker 7: speaking my own book here because I specialize in hedging 511 00:28:46,000 --> 00:28:49,480 Speaker 7: and volatility. But investors have got to understand how to 512 00:28:49,600 --> 00:28:53,720 Speaker 7: use things like options, because when you have the potential 513 00:28:53,760 --> 00:28:57,160 Speaker 7: for the bond market to misbehave as it appears to 514 00:28:57,200 --> 00:29:01,160 Speaker 7: be doing, that could spell this eruption for the stock market. 515 00:29:01,680 --> 00:29:03,680 Speaker 4: So how do you think about I mean, again, we've 516 00:29:03,680 --> 00:29:07,480 Speaker 4: got the vics here still below twenty nineteen and change here. 517 00:29:08,360 --> 00:29:08,880 Speaker 5: Is that a. 518 00:29:08,800 --> 00:29:11,920 Speaker 4: Healthy level of volatility in the equity markets? Is that 519 00:29:12,040 --> 00:29:13,720 Speaker 4: something we should be concerned about? 520 00:29:14,200 --> 00:29:16,600 Speaker 7: I think it's that's I think that's right about the 521 00:29:16,680 --> 00:29:19,520 Speaker 7: long term average, it's right around twenty. And of course 522 00:29:19,560 --> 00:29:22,120 Speaker 7: you've had these periods of ten you had an eighty 523 00:29:22,280 --> 00:29:26,080 Speaker 7: in the GFC and eighty in COVID. You know, you're 524 00:29:26,120 --> 00:29:29,400 Speaker 7: coming off something that was very high. And this was 525 00:29:29,440 --> 00:29:32,200 Speaker 7: a very interesting risk event because it was created by 526 00:29:32,240 --> 00:29:35,080 Speaker 7: Trump and then undone by Trump. You know, I think 527 00:29:35,120 --> 00:29:37,200 Speaker 7: the tariffs are a little bit less of a risk now. 528 00:29:37,480 --> 00:29:41,360 Speaker 7: I'm a little more concerned about the bond market, Paul. 529 00:29:41,400 --> 00:29:43,520 Speaker 7: I think the question is is the cost of hedging 530 00:29:43,960 --> 00:29:46,760 Speaker 7: a good deal? And I think it's pretty fair, you know, 531 00:29:46,880 --> 00:29:49,840 Speaker 7: markets to sustain a twenty vix you need the market 532 00:29:49,880 --> 00:29:53,640 Speaker 7: to move around at kind of a percent a day, 533 00:29:54,600 --> 00:29:56,760 Speaker 7: which we got today, And you know that to me, 534 00:29:56,880 --> 00:29:59,120 Speaker 7: that's a couple of small moves and then one big 535 00:29:59,160 --> 00:30:00,959 Speaker 7: move every you know, every two weeks or so. 536 00:30:01,200 --> 00:30:03,720 Speaker 2: David Gura, thanks for listening to the program this morning. 537 00:30:03,720 --> 00:30:07,680 Speaker 2: Mister gur emails in, says, ask Dean about the cost 538 00:30:07,760 --> 00:30:11,520 Speaker 2: of summer camp. Let's get an update right now, we're 539 00:30:11,720 --> 00:30:15,720 Speaker 2: sliding into the beginning of the acquisition of summer camp. 540 00:30:15,840 --> 00:30:17,200 Speaker 2: Merch to take the camp. 541 00:30:17,440 --> 00:30:20,720 Speaker 7: It's out of control, summer camp, summer camp. Thankfully, my 542 00:30:20,800 --> 00:30:24,040 Speaker 7: kids are at a summer camp sum I have a 543 00:30:24,080 --> 00:30:26,200 Speaker 7: summer intern working for me, my son Liam. 544 00:30:27,280 --> 00:30:30,120 Speaker 2: That control whoa more than Pete's. 545 00:30:30,160 --> 00:30:33,560 Speaker 7: I hope he gets free lunch included in his in 546 00:30:33,560 --> 00:30:34,280 Speaker 7: his internship. 547 00:30:34,600 --> 00:30:36,600 Speaker 2: So I got out of a booth school, you know, 548 00:30:36,680 --> 00:30:40,360 Speaker 2: booth school like you did you throw Sheldon Naytenberg with him? 549 00:30:40,440 --> 00:30:42,560 Speaker 2: Is he reading about option and all the Greek letters? 550 00:30:42,800 --> 00:30:47,160 Speaker 7: You know, we're starting with rich Yamarone's book on Economic Indicators. 551 00:30:47,320 --> 00:30:51,880 Speaker 2: Amaron's Giant at Bloomberg. Yes, missed every day. Yes, that's good. 552 00:30:51,920 --> 00:30:54,520 Speaker 2: So you start with Richie Amarone and you got to 553 00:30:54,520 --> 00:30:57,479 Speaker 2: get to the Greek letters. Maybe maybe next summer. Oh, 554 00:30:57,600 --> 00:31:01,120 Speaker 2: come on, toughen up, excuse me. Is the intern doing 555 00:31:01,160 --> 00:31:01,800 Speaker 2: work from home? 556 00:31:02,520 --> 00:31:03,880 Speaker 7: Now he's coming to the office show. 557 00:31:03,920 --> 00:31:06,200 Speaker 5: Yeah, that's how you do it. 558 00:31:06,320 --> 00:31:10,040 Speaker 2: Teene Kernan, thank you so much. Macroworsk Advisors. We protect 559 00:31:10,040 --> 00:31:13,520 Speaker 2: the copyright of all of our guests. His work is 560 00:31:13,800 --> 00:31:15,840 Speaker 2: hugely valued on Wall Street. 561 00:31:22,120 --> 00:31:26,040 Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday 562 00:31:26,040 --> 00:31:29,080 Speaker 1: starting at seven am Eastern on Apple, Corplay and Android 563 00:31:29,120 --> 00:31:32,120 Speaker 1: Auto with the Bloomberg Business app. You can also watch 564 00:31:32,160 --> 00:31:35,120 Speaker 1: us live every weekday on YouTube and always on the 565 00:31:35,160 --> 00:31:36,160 Speaker 1: Bloomberg Terminal. 566 00:31:36,240 --> 00:31:40,560 Speaker 2: Gina Fordham with this Fordham Global Foresight, thrilled as she 567 00:31:40,560 --> 00:31:43,440 Speaker 2: could be with us this morning. Tina, I don't even 568 00:31:43,480 --> 00:31:48,160 Speaker 2: know where to spot start other than in watching the 569 00:31:48,240 --> 00:31:55,360 Speaker 2: incredible emotion at Vadakan city yesterday. The one nation that represented, 570 00:31:55,400 --> 00:31:59,920 Speaker 2: it seemed, was Russia and Putin. How removed is mister 571 00:32:00,160 --> 00:32:04,520 Speaker 2: Putin from the Western dialogue on this Monday morning? 572 00:32:06,960 --> 00:32:11,120 Speaker 8: Well, I mean Putin has created his own reality, hasn't he? 573 00:32:11,320 --> 00:32:13,600 Speaker 8: And I think what we if we look at the 574 00:32:13,680 --> 00:32:18,800 Speaker 8: last week, we can see Putin's sidestepping just about every 575 00:32:18,840 --> 00:32:22,840 Speaker 8: opportunity to do what He's always said he wanted for 576 00:32:22,880 --> 00:32:25,840 Speaker 8: what Russia, which is to restore it to being a 577 00:32:25,920 --> 00:32:30,320 Speaker 8: superpower as it was during during Soviet times and indeed 578 00:32:30,400 --> 00:32:34,000 Speaker 8: during the Russian Empire. But he was absent from Miss 579 00:32:34,080 --> 00:32:37,960 Speaker 8: Dumbull and absent, as you said, at the at the Vatican, 580 00:32:38,120 --> 00:32:39,320 Speaker 8: so he's lying low. 581 00:32:40,520 --> 00:32:43,640 Speaker 2: Where does mister Rubio fit into this? Has that one, 582 00:32:43,720 --> 00:32:46,080 Speaker 2: not two, but three people asked me? This is weekend, 583 00:32:46,400 --> 00:32:52,080 Speaker 2: the President will have a phone call with mister Putin today? Fine, okay, 584 00:32:52,440 --> 00:32:55,000 Speaker 2: But where is the Secretary of State in this debate? 585 00:32:55,520 --> 00:32:58,280 Speaker 2: Or is he just removed aside? And is mister Trump 586 00:32:58,360 --> 00:32:59,800 Speaker 2: his own secretary of state? 587 00:33:01,960 --> 00:33:05,000 Speaker 8: Well, it's it's a very good question that I think 588 00:33:05,080 --> 00:33:08,320 Speaker 8: we can link back to the conversation with your last 589 00:33:08,360 --> 00:33:13,400 Speaker 8: guest as well, that we are trying to read the 590 00:33:13,440 --> 00:33:17,760 Speaker 8: tea leaves and understand who has what brief or is 591 00:33:17,920 --> 00:33:23,400 Speaker 8: President Trump kind of, you know, acting as his own counsel. 592 00:33:24,320 --> 00:33:29,000 Speaker 8: And the meeting with his Special ENVOYE. Steve Whitcoff, the 593 00:33:29,680 --> 00:33:31,880 Speaker 8: subsequent meeting that he was supposed to have at the 594 00:33:31,960 --> 00:33:37,280 Speaker 8: Kremlin was canceled. So I wonder if Trump is going 595 00:33:37,320 --> 00:33:42,400 Speaker 8: to end up being frustrated after this conversation because you know, 596 00:33:42,560 --> 00:33:46,400 Speaker 8: in dating terms, what Putin is doing is called bread crumbing. 597 00:33:48,080 --> 00:33:49,040 Speaker 5: And what does that mean. 598 00:33:50,480 --> 00:33:54,920 Speaker 8: A little trail just enough to keep you going, but 599 00:33:55,200 --> 00:33:57,560 Speaker 8: no lunch. 600 00:33:57,040 --> 00:34:00,000 Speaker 5: So no sandwich exactly. 601 00:34:00,440 --> 00:34:03,920 Speaker 4: So if you're President Trump, how do you approach this here? 602 00:34:04,000 --> 00:34:06,440 Speaker 4: Because you on a campaign trail. Obviously, he was speaking 603 00:34:06,560 --> 00:34:10,480 Speaker 4: very confidently about his ability to end this warning. 604 00:34:10,280 --> 00:34:14,680 Speaker 5: He's kind of maintained that commitment here. Where where does 605 00:34:14,680 --> 00:34:14,920 Speaker 5: he go? 606 00:34:15,120 --> 00:34:18,640 Speaker 8: Well, I mean, I don't know that President Trump feels 607 00:34:18,640 --> 00:34:22,279 Speaker 8: that he does have to maintain the commitment. He's expressed 608 00:34:22,440 --> 00:34:27,000 Speaker 8: frustration with Putin. He had previously, you know, to to 609 00:34:27,560 --> 00:34:34,280 Speaker 8: a great effect, expressed frustration with Ukrainian President Zelenski. Putin 610 00:34:34,320 --> 00:34:38,360 Speaker 8: will be hoping that the United States moves on, loses 611 00:34:38,440 --> 00:34:44,440 Speaker 8: patients and leaves this to Europe. And so I expect that, 612 00:34:45,200 --> 00:34:48,279 Speaker 8: you know, we'll get what diplomats used to call it 613 00:34:48,360 --> 00:34:53,400 Speaker 8: a candid conversation. Putin might agree to something, you know, 614 00:34:53,440 --> 00:34:58,759 Speaker 8: the Istanbul meeting yielded a prisoner exchange, but he just 615 00:34:58,880 --> 00:35:03,000 Speaker 8: needs to keep President and Trump feeling like he's listening. 616 00:35:04,120 --> 00:35:07,560 Speaker 8: And I think his appetite to continue at this stalemate 617 00:35:07,680 --> 00:35:10,520 Speaker 8: level is almost indefinite. 618 00:35:10,800 --> 00:35:14,200 Speaker 4: So again, if you're President Trump, do you have any 619 00:35:14,560 --> 00:35:17,319 Speaker 4: leverage here to kind of move this forward, because again, 620 00:35:17,400 --> 00:35:20,040 Speaker 4: it seems like one of the issues he's certainly campaigned on. 621 00:35:21,800 --> 00:35:27,360 Speaker 8: So yes, I mean President Trump has threatened secondary sanctions 622 00:35:27,400 --> 00:35:31,560 Speaker 8: in a you know, kind of out loud musings, so 623 00:35:31,600 --> 00:35:36,799 Speaker 8: he does have further sticks. I'm not sure that the 624 00:35:36,840 --> 00:35:42,120 Speaker 8: President will want to go that far just yet. And remember, 625 00:35:42,120 --> 00:35:44,200 Speaker 8: of course that President Trump has just come off the 626 00:35:44,280 --> 00:35:48,080 Speaker 8: back of what was a very successful trip to the 627 00:35:48,120 --> 00:35:52,520 Speaker 8: Gulf where he was received with the kind of tribute 628 00:35:52,680 --> 00:35:55,719 Speaker 8: and deal bonanza that he likes to see, so his 629 00:35:55,840 --> 00:35:57,640 Speaker 8: patients might be a bit thin today. 630 00:35:57,680 --> 00:35:58,600 Speaker 9: For this conversation. 631 00:35:59,040 --> 00:36:01,759 Speaker 2: Years ago, Tina four I was sitting in an overpriced 632 00:36:01,760 --> 00:36:05,800 Speaker 2: Mayfair restaurant with Jonathan Farrell, and he from the Midlands 633 00:36:05,800 --> 00:36:10,319 Speaker 2: of England, explained to me that fishing rights between and 634 00:36:10,360 --> 00:36:15,000 Speaker 2: the North Sea is like religion. So I guess we 635 00:36:15,040 --> 00:36:18,799 Speaker 2: had an agreement overnight that nudges back to pre Brexit 636 00:36:19,560 --> 00:36:24,360 Speaker 2: over point oh four percent of the British economy. Explain 637 00:36:24,520 --> 00:36:32,600 Speaker 2: to our American audience the religion of fishing rights between France, Netherlands, Belgium, 638 00:36:32,680 --> 00:36:35,000 Speaker 2: I don't know, Norway, I don't know what in the 639 00:36:35,120 --> 00:36:37,520 Speaker 2: United Kingdom. Explain the importance of that. 640 00:36:39,239 --> 00:36:43,760 Speaker 8: Well, fishing rights and you know, agriculture are so often 641 00:36:44,160 --> 00:36:49,200 Speaker 8: the kind of electrified third rail on these agreements between 642 00:36:49,360 --> 00:36:53,360 Speaker 8: EU member states and now, you know, nine years after Brexit, 643 00:36:53,560 --> 00:36:57,319 Speaker 8: the UK trying to find ways too, frankly make up 644 00:36:57,520 --> 00:37:01,360 Speaker 8: lost ground. The figure that you get about the tiny 645 00:37:02,000 --> 00:37:05,080 Speaker 8: percentage of the of the British economy that's dependent upon 646 00:37:05,120 --> 00:37:09,000 Speaker 8: fishing is accurate, but like farming in the United States, 647 00:37:09,320 --> 00:37:12,640 Speaker 8: is very emotional, and especially for those you know, really 648 00:37:12,680 --> 00:37:17,800 Speaker 8: quite marginalized communities in the Northeast and elsewhere. We're fishing adders. 649 00:37:18,120 --> 00:37:22,040 Speaker 8: But I think we have good news this morning. Generally again, 650 00:37:22,080 --> 00:37:26,240 Speaker 8: the economic toll from Brexit and that attempt to unscramble 651 00:37:26,320 --> 00:37:29,720 Speaker 8: the egg between the UK and its largest trading partner, 652 00:37:30,160 --> 00:37:34,240 Speaker 8: the European Union, has hit this country hard. 653 00:37:34,719 --> 00:37:36,160 Speaker 9: So there's a lot of effort in. 654 00:37:36,520 --> 00:37:38,960 Speaker 8: The media to say this is, you know, kind of 655 00:37:39,280 --> 00:37:42,759 Speaker 8: rejoining by the back door. You know, I think it's 656 00:37:42,840 --> 00:37:47,760 Speaker 8: good news for slow growth Europe. And call me old school, 657 00:37:47,840 --> 00:37:50,480 Speaker 8: but I think more trade is better than less. 658 00:37:51,160 --> 00:37:54,280 Speaker 2: Tina Fordham, thank you and someone Tina's too young to remember. 659 00:37:54,400 --> 00:37:58,759 Speaker 2: Captain's courageous Spencer Tracy nineteen thirty seven. Every kid had 660 00:37:58,760 --> 00:38:01,960 Speaker 2: to watch the movie. Ordered a gunpoint to watch the movie. 661 00:38:02,200 --> 00:38:04,040 Speaker 2: If you don't behave. You're gonna end up on a 662 00:38:04,040 --> 00:38:07,799 Speaker 2: fishing boat off Nova Scotia. Tina Fordum, thank you so much, 663 00:38:07,840 --> 00:38:08,600 Speaker 2: really appreciate it. 664 00:38:09,120 --> 00:38:13,040 Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday 665 00:38:13,080 --> 00:38:16,400 Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto 666 00:38:16,480 --> 00:38:19,479 Speaker 1: with the Bloomberg Business Up. You can also listen live 667 00:38:19,520 --> 00:38:23,120 Speaker 1: on Amazon Alexa from our flagship New York station, Just 668 00:38:23,160 --> 00:38:25,720 Speaker 1: say Alexa Play Bloomberg eleven thirty. 669 00:38:26,120 --> 00:38:28,279 Speaker 2: Joining us right now to get to the market open 670 00:38:28,360 --> 00:38:32,800 Speaker 2: Jenny Patten, Co head of Global Rates TCWS Way, Jamie, 671 00:38:32,840 --> 00:38:36,040 Speaker 2: is it a global lift in longer term yields and 672 00:38:36,120 --> 00:38:36,759 Speaker 2: priced down? 673 00:38:37,120 --> 00:38:38,400 Speaker 9: What we think is really interesting. 674 00:38:38,600 --> 00:38:41,120 Speaker 10: That's obviously what we've seen, especially if you look at 675 00:38:41,120 --> 00:38:43,680 Speaker 10: the change in the market since April second, Liberation Day. 676 00:38:44,200 --> 00:38:46,760 Speaker 9: But what if you came into the market on April 677 00:38:46,800 --> 00:38:47,359 Speaker 9: second and. 678 00:38:47,320 --> 00:38:51,240 Speaker 10: We didn't have all this wild volatility, rates, biking equities 679 00:38:51,239 --> 00:38:54,480 Speaker 10: getting crushed, Trump listing a list of tariffs that was 680 00:38:54,600 --> 00:38:56,480 Speaker 10: out of this world. What if you just came in 681 00:38:56,520 --> 00:38:59,719 Speaker 10: and said, here's the deal, and you and Trump had 682 00:38:59,719 --> 00:39:03,440 Speaker 10: listed the tariffs that we see today. So the average 683 00:39:03,440 --> 00:39:06,480 Speaker 10: effective tariff right is up over ten percent, fourteen to 684 00:39:06,520 --> 00:39:09,759 Speaker 10: eighteen percent. That's up from two point three percent. We 685 00:39:09,840 --> 00:39:12,919 Speaker 10: have this kind of sixty to ninety day rolling volatility. 686 00:39:13,640 --> 00:39:17,680 Speaker 10: Would stocks have rallied and now be less than four 687 00:39:17,680 --> 00:39:20,439 Speaker 10: percent from the all time highs? Would rates have bear 688 00:39:20,520 --> 00:39:23,560 Speaker 10: steepened by twenty to fifty basis points. It's hard to 689 00:39:23,600 --> 00:39:26,560 Speaker 10: imagine that would be the market reaction. Had this just 690 00:39:26,640 --> 00:39:30,919 Speaker 10: been the simple announcement, the average, the average investor prior 691 00:39:31,000 --> 00:39:34,000 Speaker 10: to April second expected tariffs to only go up to 692 00:39:34,080 --> 00:39:36,920 Speaker 10: like ten percent average effective rate. And we're much higher 693 00:39:36,920 --> 00:39:39,440 Speaker 10: than that right now. And this is the this is 694 00:39:39,480 --> 00:39:43,000 Speaker 10: the bottom. We're still dealing with sixty to ninety days 695 00:39:43,040 --> 00:39:46,840 Speaker 10: of uncertainty. So what we think is really interesting about 696 00:39:46,840 --> 00:39:49,160 Speaker 10: this rate move is that it seems like the result 697 00:39:49,239 --> 00:39:54,399 Speaker 10: of wild volatility and sequencing that really matters, rather than 698 00:39:54,560 --> 00:39:58,320 Speaker 10: a reaction to actually what we have in this macro 699 00:39:58,480 --> 00:39:59,480 Speaker 10: environment today. 700 00:40:00,600 --> 00:40:04,160 Speaker 4: So, Jamie, we look today at the thirty year US 701 00:40:04,200 --> 00:40:05,760 Speaker 4: treasury north of five percent. 702 00:40:06,400 --> 00:40:07,959 Speaker 5: Does that mean anything to you guys? 703 00:40:08,000 --> 00:40:10,280 Speaker 4: Do you guys just have internal emails saying, oh my goodness, 704 00:40:10,320 --> 00:40:14,080 Speaker 4: did you see where the thirty years today? 705 00:40:14,200 --> 00:40:15,919 Speaker 9: We certainly talk about it. 706 00:40:15,920 --> 00:40:19,839 Speaker 10: It's we don't see a ton of value in five 707 00:40:19,920 --> 00:40:22,200 Speaker 10: percent thirty years. We see a ton of value in 708 00:40:22,239 --> 00:40:25,399 Speaker 10: the front end of the curve. And that's because in 709 00:40:25,440 --> 00:40:30,840 Speaker 10: this environment with fatter tails, rising volatility, we expect term premium. 710 00:40:30,880 --> 00:40:32,840 Speaker 10: And when I say term premium sounds fancy, all that 711 00:40:32,880 --> 00:40:35,239 Speaker 10: means is how much should you get paid to take 712 00:40:35,320 --> 00:40:36,200 Speaker 10: incremental risk? 713 00:40:36,440 --> 00:40:39,560 Speaker 9: That should be higher. You should get paid a lot. 714 00:40:39,360 --> 00:40:42,319 Speaker 10: More money to take thirty years of US treasury risk 715 00:40:42,400 --> 00:40:44,960 Speaker 10: than you should two years of US Treasury risk. So 716 00:40:45,000 --> 00:40:47,360 Speaker 10: where we see value as the front end of the curve, 717 00:40:47,719 --> 00:40:50,080 Speaker 10: where you're not taking as much risk two to five 718 00:40:50,160 --> 00:40:54,680 Speaker 10: year sector. The fedslong term DOT it implies a neutral 719 00:40:54,760 --> 00:40:57,279 Speaker 10: rate of three percent, and the market doesn't have rates 720 00:40:57,360 --> 00:41:00,239 Speaker 10: getting anywhere near that. Even over a year and a 721 00:41:00,239 --> 00:41:03,920 Speaker 10: half from now, the market has FED rates bottoming more 722 00:41:04,000 --> 00:41:05,000 Speaker 10: like three thirty six. 723 00:41:05,280 --> 00:41:06,960 Speaker 2: So just in twenty seconds there going to get to 724 00:41:06,960 --> 00:41:09,120 Speaker 2: the market open and we'll come back with Jamie Patton. 725 00:41:09,600 --> 00:41:12,440 Speaker 2: Jamie does TCW just say the Fed's going to sit 726 00:41:12,480 --> 00:41:13,360 Speaker 2: in the sidelines. 727 00:41:15,239 --> 00:41:17,160 Speaker 10: We think they will sit on the sidelines, but we 728 00:41:17,160 --> 00:41:19,800 Speaker 10: think that's a mistake. The bar for a FED cut 729 00:41:19,880 --> 00:41:23,080 Speaker 10: feels pretty high right now. They just told us that 730 00:41:24,600 --> 00:41:26,560 Speaker 10: the bar is higher than it wasn't twenty nineteen when 731 00:41:26,560 --> 00:41:29,040 Speaker 10: the inflation was lower. But we're seeing in the hard data, 732 00:41:29,520 --> 00:41:32,160 Speaker 10: just this month's CPI and PPI, we're seeing that inflation 733 00:41:32,719 --> 00:41:36,040 Speaker 10: was coming down towards their target before this teriff related vault. 734 00:41:36,960 --> 00:41:40,919 Speaker 10: Their mandate is twofold inflation and growth. On the inflation side, 735 00:41:40,920 --> 00:41:42,600 Speaker 10: it's coming back down to their mandate, and we're going 736 00:41:42,640 --> 00:41:46,200 Speaker 10: to have this volatility on teriff related On the growth side, 737 00:41:46,320 --> 00:41:47,960 Speaker 10: we know that there's going to be okay. 738 00:41:48,320 --> 00:41:52,360 Speaker 4: So Jamie here talk to us about I don't know, 739 00:41:52,400 --> 00:41:54,880 Speaker 4: it just seems like we've got a lot of volatility 740 00:41:54,920 --> 00:41:55,600 Speaker 4: in the bond market. 741 00:41:55,800 --> 00:41:57,120 Speaker 5: I'm thinking it back to April. 742 00:41:57,480 --> 00:41:59,399 Speaker 4: A lot of people are even suggesting that the bond 743 00:41:59,400 --> 00:42:03,000 Speaker 4: market a little bit broken here in a treasure market, 744 00:42:03,360 --> 00:42:05,520 Speaker 4: how do you think about the volteling the treasury market? 745 00:42:05,560 --> 00:42:07,680 Speaker 4: Is it functioning well at this point? 746 00:42:07,680 --> 00:42:07,880 Speaker 5: For you? 747 00:42:09,239 --> 00:42:11,480 Speaker 10: It's definitely functioning, and it makes a lot of sense. 748 00:42:11,760 --> 00:42:14,960 Speaker 10: A steeper curve, higher term premium. As we discussed prior, 749 00:42:15,640 --> 00:42:18,200 Speaker 10: you should get paid more to take more risk in 750 00:42:18,239 --> 00:42:22,320 Speaker 10: this environment, whether that's credit spreads, whether it's the shape 751 00:42:22,320 --> 00:42:26,320 Speaker 10: of the yield curve. It's definitely functioning, and it's definitely orderly. 752 00:42:26,440 --> 00:42:30,640 Speaker 10: It's definitely liquid, and we don't really see any problems there. 753 00:42:30,920 --> 00:42:33,600 Speaker 10: Even everyone's talking about the US downgrade, that feels like 754 00:42:33,680 --> 00:42:36,160 Speaker 10: old news. We agree with Besson's comments over the weekend 755 00:42:36,200 --> 00:42:39,760 Speaker 10: that it's the third of three rating agencies. It's backwards looking. 756 00:42:40,000 --> 00:42:42,560 Speaker 10: We started talking about this in twenty eleven. I heard 757 00:42:42,560 --> 00:42:44,600 Speaker 10: you guys talking earlier that we've been talking about the 758 00:42:44,600 --> 00:42:47,400 Speaker 10: deficits since what nineteen eighty, probably prior to that. 759 00:42:48,040 --> 00:42:49,719 Speaker 9: There's no real new news here. 760 00:42:50,160 --> 00:42:54,000 Speaker 10: What's new is that investors might be realizing that they 761 00:42:54,040 --> 00:43:00,719 Speaker 10: are globally over allocated to US assets. That's a very 762 00:43:00,719 --> 00:43:06,160 Speaker 10: different story than the US dollar losing its losing its 763 00:43:06,200 --> 00:43:09,720 Speaker 10: exceptional status as the reserve currency. Those are two totally 764 00:43:09,760 --> 00:43:13,160 Speaker 10: different topics. And even what's kind of amazing is that 765 00:43:13,320 --> 00:43:15,279 Speaker 10: it's one of those situations where even if we're we 766 00:43:15,320 --> 00:43:17,320 Speaker 10: have high conviction in this, but even if we're wrong, 767 00:43:17,680 --> 00:43:19,759 Speaker 10: the FED has tools that it can use if the 768 00:43:19,760 --> 00:43:23,080 Speaker 10: bond market ever stops functioning that they're really comfortable with 769 00:43:23,320 --> 00:43:26,200 Speaker 10: after rate cuts. Quantitative easing is a tool that the 770 00:43:26,200 --> 00:43:29,600 Speaker 10: Fed's been most comfortable with and been employing for over 771 00:43:29,640 --> 00:43:34,000 Speaker 10: fifteen years. So we really like trades where we have 772 00:43:34,080 --> 00:43:37,400 Speaker 10: strong conviction and even if we're wrong, someone like the 773 00:43:37,440 --> 00:43:39,319 Speaker 10: FED could come in and fix it. So we're not 774 00:43:39,400 --> 00:43:42,360 Speaker 10: worried about treasuries. We're not worried about bondom market functioning. 775 00:43:43,160 --> 00:43:46,240 Speaker 4: So what is the key issue for you guys here 776 00:43:46,280 --> 00:43:47,839 Speaker 4: going forward in next three to six months? 777 00:43:49,080 --> 00:43:51,080 Speaker 9: The Fed? We see the Fed. 778 00:43:52,040 --> 00:43:55,440 Speaker 10: The FED is in a really precarious position, but they 779 00:43:55,440 --> 00:43:57,480 Speaker 10: have a dual manding on one side of their maindate. 780 00:43:57,600 --> 00:43:59,600 Speaker 9: They can actually impact change. 781 00:44:00,000 --> 00:44:02,880 Speaker 10: So we know from all of the soft data that 782 00:44:02,960 --> 00:44:06,399 Speaker 10: growth is really in trouble uncertainty. If you're sitting here 783 00:44:06,400 --> 00:44:08,960 Speaker 10: with maximum uncertainty and you're leaving a company, you're probably 784 00:44:08,960 --> 00:44:11,759 Speaker 10: not like, let's open four new facilities and increase our 785 00:44:12,040 --> 00:44:14,440 Speaker 10: inventory and come out with these big growth blends. You're 786 00:44:14,480 --> 00:44:17,200 Speaker 10: kind of just frozen waiting to see what happens. On 787 00:44:17,239 --> 00:44:19,879 Speaker 10: the other side, you have inflation. We see inflation coming 788 00:44:19,920 --> 00:44:21,839 Speaker 10: down prior to the teriffs. We know that there's going 789 00:44:21,880 --> 00:44:23,760 Speaker 10: to be a lot of ball and headline and noise 790 00:44:23,840 --> 00:44:27,160 Speaker 10: and all that stuff once the tariff hit the data, 791 00:44:27,200 --> 00:44:30,920 Speaker 10: which is probably this and next month, but the FED. 792 00:44:30,719 --> 00:44:31,839 Speaker 9: Can't really impact that. 793 00:44:32,000 --> 00:44:34,880 Speaker 10: Even if FED rates were at fifteen percent terrafts are 794 00:44:34,880 --> 00:44:35,920 Speaker 10: still going to raise prices. 795 00:44:36,239 --> 00:44:37,719 Speaker 9: So if you have to, if you have a. 796 00:44:37,760 --> 00:44:39,920 Speaker 10: Dual mandate and you can impact one side of it, 797 00:44:40,000 --> 00:44:43,160 Speaker 10: you can't really help the other side. I would probably 798 00:44:43,239 --> 00:44:45,960 Speaker 10: be more tuned to the side that I can actually impact. 799 00:44:46,160 --> 00:44:47,800 Speaker 9: The FED, on the other hand, has. 800 00:44:47,680 --> 00:44:51,000 Speaker 10: Told us very clearly there and holding it. They're waiting 801 00:44:51,040 --> 00:44:54,520 Speaker 10: and seeing what's interesting. Everyone loves flying analogies, but they 802 00:44:54,520 --> 00:44:56,439 Speaker 10: don't really make a ton of sense here. The FED 803 00:44:56,520 --> 00:45:00,359 Speaker 10: is sitting here in very restrictive territory. You are one 804 00:45:00,400 --> 00:45:03,200 Speaker 10: hundred and thirty basis points into restrictive territory according to 805 00:45:03,239 --> 00:45:05,680 Speaker 10: their own forecast, and you're in an airpase and you're 806 00:45:05,680 --> 00:45:09,120 Speaker 10: in a holding pattern. You're not accelerating, you're not decelerating, you're. 807 00:45:08,960 --> 00:45:10,120 Speaker 9: Not coming in for a landing. 808 00:45:10,440 --> 00:45:14,920 Speaker 10: So they have they're decelerating, their speed breaks are on, 809 00:45:15,520 --> 00:45:17,560 Speaker 10: yet they think they're in a holding pattern, James, because 810 00:45:17,560 --> 00:45:20,120 Speaker 10: that's where the potential for a policymaused got und. 811 00:45:20,160 --> 00:45:23,240 Speaker 2: Jimmie Patton, thank you so much for TCW this morning. 812 00:45:23,719 --> 00:45:28,560 Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify, 813 00:45:28,680 --> 00:45:32,479 Speaker 1: and anywhere else you get your podcasts. 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