WEBVTT - Treasures Rise after US Credit Downgrade 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business app. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.160 us live on YouTube. 0:00:27.280 --> 0:00:30.159 There was this. There was that. I sat in her 0:00:30.240 --> 0:00:32.840 room with Meredith Whitney. She was like eighteen years old 0:00:33.080 --> 0:00:37.279 out of Lawrenceville PG Brown University, and Meredith goes time, 0:00:37.400 --> 0:00:40.479 shut up, invite visa, go back and look, folks. It's 0:00:40.479 --> 0:00:44.000 one of the great calls of the last twenty years. 0:00:44.120 --> 0:00:48.000 Joining us this morning. Meredith Whitney. Meredith, why are you 0:00:48.080 --> 0:00:49.200 getting back in the game. 0:00:50.360 --> 0:00:52.840 Well, I got back in the games a two year anniversary. 0:00:54.080 --> 0:00:56.560 I missed it. There was so much that wasn't going 0:00:56.600 --> 0:01:01.160 on in banking and financial services when I stepped away, 0:01:02.200 --> 0:01:04.840 and uh, so much has gone on and there's such 0:01:04.840 --> 0:01:08.520 an opportunity. There's such a vacuum. I thought in research 0:01:09.440 --> 0:01:12.039 that and I missed it. I mean, this really is 0:01:12.040 --> 0:01:14.760 my wheelhouse. So I love it. I you know, I 0:01:14.800 --> 0:01:16.280 haven't been this happy in a long time. 0:01:16.400 --> 0:01:18.319 So you're founding the banks of financials. 0:01:18.360 --> 0:01:22.680 Still I follow everything so basically I cover whatever I 0:01:22.720 --> 0:01:26.160 want to. So one interesting thing, you know, piece I 0:01:26.200 --> 0:01:31.160 wrote last week was on employment and on inflation that 0:01:31.200 --> 0:01:32.760 I see. You know a lot of people talked about 0:01:33.400 --> 0:01:35.959 inflation around Terrace. I think there's going to be major 0:01:36.360 --> 0:01:40.480 wage inflation. So what is under discussed is the ICE 0:01:40.600 --> 0:01:46.480 raids and immigration UH policies by this administration that's putting 0:01:46.520 --> 0:01:51.080 real pressure on labor and areas management and alternative manage 0:01:51.440 --> 0:01:55.120 manage or said two weeks ago, what they see cracks 0:01:55.120 --> 0:02:00.560 in the economy because workers at low end rust restaurants 0:02:00.680 --> 0:02:03.880 are not showing up to work for fear of ice 0:02:03.960 --> 0:02:08.280 rates and small and media sized businesses are losing revenues 0:02:08.320 --> 0:02:12.480 because of it. And by our estimates, one in four 0:02:12.760 --> 0:02:16.920 workers in the US are Latino and Hispanic, and the 0:02:16.960 --> 0:02:24.320 BLS counts non documented and documented work in its thirty 0:02:24.320 --> 0:02:27.480 two million employees that are Hispanic and Latino, and the 0:02:27.520 --> 0:02:33.119 Pew Center estimates that another eight million workers are undocumented 0:02:33.240 --> 0:02:36.680 and the bulk of those are from Mexico and Latin 0:02:36.720 --> 0:02:39.680 American companies. So that is going to be a real 0:02:39.760 --> 0:02:42.760 pressure on rates because it's clearly inflationary. 0:02:43.840 --> 0:02:46.080 Meredith, just can you as you step back here, with 0:02:46.120 --> 0:02:49.960 your wide lens here, what's your view of this tariff 0:02:49.960 --> 0:02:52.800 policy that we've been seeing from the Trump administration. Here, 0:02:53.000 --> 0:02:54.799 we're not really sure. I guess where it's going to 0:02:54.880 --> 0:02:57.960 shake out, but there's a lot to take in. 0:02:58.000 --> 0:03:00.239 I guess there's a lot to in. 0:03:01.120 --> 0:03:05.360 You know, my impressions when this administration came into office 0:03:05.360 --> 0:03:07.280 in January was that they were going to focus on 0:03:07.320 --> 0:03:12.400 deregulation and that would mean bank consolidation and be very 0:03:12.440 --> 0:03:16.760 pro growth. And they've gone terrorist tariff's terrafs and you know, 0:03:16.919 --> 0:03:20.640 I was confused by the methodology of it on Liberation Day. 0:03:21.000 --> 0:03:24.160 The math didn't make sense to me. And I think 0:03:24.240 --> 0:03:28.880 that it creates a lot of unintended consequences. So the 0:03:29.600 --> 0:03:34.679 you know, obviously unintended consequences are uncertainty. But also I 0:03:35.240 --> 0:03:38.240 think you're going to start to see insurance rates go 0:03:38.360 --> 0:03:42.440 up because the anticipation of inflation. Sorry, replacement costs are 0:03:42.440 --> 0:03:44.840 going to go up, and that's been one of the 0:03:44.880 --> 0:03:48.840 most stifling costs for homeowners and for the low end. 0:03:49.560 --> 0:03:52.840 So you know, when you move fast and break things, 0:03:53.040 --> 0:03:56.080 you have a lot of unintended consequences. I'm not one 0:03:56.280 --> 0:03:59.240 that can figure out the methodology or the reasons behind it. 0:04:00.080 --> 0:04:03.400 I have more concerns over it than you know than 0:04:03.440 --> 0:04:07.280 I do a real understanding of them, of uh that 0:04:08.280 --> 0:04:09.880 you know the sense behind it. 0:04:10.200 --> 0:04:12.480 So where do we go here for this economy? A 0:04:12.520 --> 0:04:15.600 lot of folks are talking about recession. As you look 0:04:15.600 --> 0:04:18.320 at you know, the broad swath of your coverage, including 0:04:18.320 --> 0:04:21.400 the big financial services companies, do you see recession kind 0:04:21.400 --> 0:04:23.200 of in the near drunk for this economy. 0:04:23.839 --> 0:04:27.280 So all of the technical data shows no evidence of 0:04:27.320 --> 0:04:32.480 a recession, but a lot of the underlying data shows 0:04:32.760 --> 0:04:35.200 shows hints of it. And I think it's more of 0:04:35.200 --> 0:04:38.960 a stagflation recession. And I very much see a recession, 0:04:39.640 --> 0:04:44.119 a second recession for the low end in the last 0:04:44.120 --> 0:04:47.280 three years. So the low middle class and low end 0:04:47.320 --> 0:04:50.680 fifty two percent of households that live paycheck to paycheck, 0:04:51.720 --> 0:04:55.159 you know, we're sick of inflation. Voted I think main 0:04:55.200 --> 0:04:59.720 Street voted Trump into office because they'd been through a 0:04:59.760 --> 0:05:04.400 res Their recession occurred when the stimulus money ran out, 0:05:04.480 --> 0:05:08.760 so after tax revenues went down by eighteen percent, and 0:05:08.760 --> 0:05:11.880 they're going to go through another recession because I think 0:05:12.120 --> 0:05:15.920 employment is going to be a problem in the employment 0:05:15.920 --> 0:05:18.000 at the low end and then pressure is because there's 0:05:18.040 --> 0:05:21.680 no wiggle room from income levels accrastination. 0:05:21.800 --> 0:05:24.680 Good morning on your commute, Good morning across America and 0:05:24.720 --> 0:05:28.640 around the world. On YouTube, Subscribe to Bloomberg Podcast. That's 0:05:28.680 --> 0:05:32.760 the way Meredith Whitney listens to us each morning. Thrilled 0:05:32.800 --> 0:05:36.040 to have an extended conversation here with Meredith. Meredith, let 0:05:36.040 --> 0:05:39.560 me go to the wheelhouse. And you know, I'm very upset, 0:05:39.600 --> 0:05:43.480 Meredith about the way the street quotes yield. I believe 0:05:43.520 --> 0:05:47.640 it's price lower. Are the major banks and particularly in 0:05:47.680 --> 0:05:51.600 the zeitgeist over the weekend Bank of America, are they 0:05:51.680 --> 0:05:55.039 at risk not so much of gloom, but just a 0:05:55.160 --> 0:05:59.000 repricing of their balance sheet because a price down and 0:05:59.080 --> 0:06:01.920 builds no in bonds. 0:06:02.360 --> 0:06:04.600 I think the banks are in a really good place. 0:06:04.720 --> 0:06:11.479 They're very conservatively accounted for, so where I expect unemployment 0:06:11.520 --> 0:06:14.160 to go to six percent, they're all their assumptions are 0:06:14.480 --> 0:06:17.359 north of seven percent. So I feel I think the 0:06:17.400 --> 0:06:20.520 banks are in really, really good shape. I think that 0:06:21.320 --> 0:06:24.599 one of the things I'm working on right now is 0:06:24.640 --> 0:06:27.080 the FED doesn't necessarily think that banks are in very 0:06:27.080 --> 0:06:32.960 good shape. And two thirds of the of the large banks, 0:06:32.960 --> 0:06:35.479 the twenty nine banks that are over one hundred billion 0:06:35.520 --> 0:06:41.320 dollars are deemed unsatisfactory in terms of rating, and that's 0:06:41.320 --> 0:06:42.840 going to make M and A very difficult. 0:06:42.920 --> 0:06:43.160 You know. 0:06:43.279 --> 0:06:48.440 From my perspective, the banks look very well positioned, you know, 0:06:48.560 --> 0:06:51.040 and they are very well hedged. So Bank America does 0:06:51.040 --> 0:06:53.760 an incredible job hedging job. And I think the big 0:06:53.800 --> 0:06:58.320 banks that have hundreds of people hedging their portfolio are 0:06:58.320 --> 0:07:00.400 in better positions than some of the regional banks that 0:07:00.480 --> 0:07:03.240 have smaller staffs. So I don't think that's that's a 0:07:03.240 --> 0:07:04.200 concern for the banks. 0:07:04.600 --> 0:07:06.720 I want to go to the regional banks, Meredith, because 0:07:06.720 --> 0:07:08.800 a lot of folks felt that, you know, we had 0:07:08.839 --> 0:07:11.000 some some of the smaller banks over the last several 0:07:11.040 --> 0:07:14.360 years run into some problems SVB and so on, and 0:07:14.400 --> 0:07:17.880 maybe people said, maybe there should be some consolidation of 0:07:17.920 --> 0:07:20.200 the regional banking business in the United States. Do we 0:07:20.280 --> 0:07:23.440 really need five thousand regional banks? How do you view 0:07:23.480 --> 0:07:24.800 that part of the financial system. 0:07:25.480 --> 0:07:29.480 I think there should definitely be consolidation, and I think 0:07:29.480 --> 0:07:32.120 there should be consolidation. And some of the twenty nine 0:07:32.160 --> 0:07:35.280 banks that are you know, twenty nine of which are 0:07:35.320 --> 0:07:37.040 in the penalty box that are not allowed to do 0:07:37.160 --> 0:07:41.280 M and A should be also allowed to do M 0:07:41.320 --> 0:07:43.520 and A. You know, they're not above the ten percent 0:07:43.560 --> 0:07:47.400 deposit threshold. They're well below the ten percent deposit threshold. 0:07:47.480 --> 0:07:51.920 So you need healthy banks. And yeah, I mean this 0:07:51.960 --> 0:07:54.960 has been something that I've been working on since twenty 0:07:55.080 --> 0:07:58.680 ten when the big banks, when the regulators wanted the 0:07:58.680 --> 0:08:01.560 big banks to get smaller the small banks to get bigger, 0:08:01.800 --> 0:08:04.040 and that just hasn't happened. And so it's like waiting 0:08:04.080 --> 0:08:05.880 for good too, for bank consolidation. 0:08:06.000 --> 0:08:08.480 I mean, to put things in perspective, folks. And Meredith 0:08:08.560 --> 0:08:10.840 knows that she lived in I mean, she's big, you know. 0:08:10.920 --> 0:08:13.680 Forget about all the uproar and bonds and that in 0:08:13.720 --> 0:08:18.040 Meredith Whitney, Notoriety, Visa the symbols v. Paul in case 0:08:18.160 --> 0:08:21.720 I didn't know that, Meredith Whitney on fifty seventh Street 0:08:22.040 --> 0:08:24.880 with me with a beverage of our choice and Meredith 0:08:24.920 --> 0:08:28.400 goes time, shut up and buy Visa. It's up one thousand, 0:08:28.640 --> 0:08:33.800 eight hundred percent, twenty three percent per year. Meredith, does 0:08:33.840 --> 0:08:38.360 your vision for the next fifteen years? The next fourteen 0:08:38.440 --> 0:08:45.200 years give you the same uplift in American financial capitalism? 0:08:45.480 --> 0:08:48.000 Yeah, I think there's a lot of really interesting things 0:08:48.040 --> 0:08:52.520 going on in financial services, some scary, some really good. 0:08:52.600 --> 0:08:54.920 A lot of it's going on in the private market. 0:08:54.920 --> 0:08:57.960 I think the Klarna deal will be a really interesting 0:08:58.440 --> 0:09:02.160 IPO to watch. I'm pretty in all of that company. 0:09:03.040 --> 0:09:05.920 I think a firm's been a great a great company. 0:09:05.960 --> 0:09:09.000 There's a there's a lot of innovation in financial services 0:09:09.280 --> 0:09:12.400 in the in the US, and the banks are incredibly 0:09:12.400 --> 0:09:15.319 well positioned, I'd say also, but you know, in fairness, 0:09:15.360 --> 0:09:18.640 like the European banks look pretty good too. They're incredibly 0:09:18.640 --> 0:09:22.160 well capitalized. So the banking system at large, I think 0:09:22.200 --> 0:09:26.000 looks so much better than it did, you know, fifteen 0:09:26.200 --> 0:09:26.720 years ago. 0:09:26.880 --> 0:09:29.800 In fifteen years ago, Paul, we didn't have private equity 0:09:30.320 --> 0:09:31.160 or private capital. 0:09:31.200 --> 0:09:32.800 Well, that's where I want to go, Tom, I mean 0:09:33.280 --> 0:09:33.720 a Meredith. 0:09:33.760 --> 0:09:36.880 How do you kind of think about this private credit business, 0:09:36.880 --> 0:09:39.840 which has really grown so dramatically over the last you know, 0:09:39.960 --> 0:09:44.559 ten years, roughly as an alternative source of capital. 0:09:44.760 --> 0:09:45.960 How do you view private credit? 0:09:47.040 --> 0:09:51.040 Well, I view it uniquely because over the summer or 0:09:51.080 --> 0:09:55.720 since September, forty billion of private credit has been focused 0:09:55.760 --> 0:09:59.360 on consumer lending, and so this has been like a 0:09:59.520 --> 0:10:03.680 fire of credit within the industry, and a lot of 0:10:03.720 --> 0:10:08.400 it is private equity backed companies that are getting for 0:10:08.640 --> 0:10:12.520 purchase agreements with private credit, but also public companies. You know, 0:10:12.640 --> 0:10:17.000 so far has over twelve billion dollars for purchase agreements 0:10:17.000 --> 0:10:20.120 from private credit. What that means then is they basically 0:10:20.120 --> 0:10:23.360 get on a treadmill of gain on sale accounting. So 0:10:23.440 --> 0:10:29.400 they're out aggressively originating personal loans and home equity loans. 0:10:29.640 --> 0:10:31.760 And originally I would have thought that that would have 0:10:31.840 --> 0:10:34.840 pumped in a ton of liquidity for the lower end 0:10:35.600 --> 0:10:38.360 and sustained the lower end. But I think you see 0:10:38.360 --> 0:10:41.800 fractures within the lower end. That is a that is 0:10:41.800 --> 0:10:48.080 a potential benefit that could come in and provide liquidity relief. 0:10:49.040 --> 0:10:54.079 But private credit is interestingly never before so interested in 0:10:54.200 --> 0:10:57.440 consumer finance, and I think that's a real game changer. 0:10:57.559 --> 0:10:59.960 Single best party right now, Meredith Money for old Time, 0:11:00.120 --> 0:11:01.560 let's your single best buy right now. 0:11:02.120 --> 0:11:07.800 I love Rocket Mortgage. It's counterintuitive because of rates, but 0:11:07.880 --> 0:11:13.120 they are the largest home equity closed down home equity originator. 0:11:13.160 --> 0:11:17.480 And interestingly, so I watch, you know, I download the 0:11:17.520 --> 0:11:22.840 fed's home equity data every Saturday morning, and what you see, 0:11:23.080 --> 0:11:26.280 I know, I love it. So what you see is 0:11:26.720 --> 0:11:31.040 in the summer, home equity went from helocks went from 0:11:31.559 --> 0:11:37.080 seventeen years of decline to expanding and helocks now have 0:11:37.360 --> 0:11:41.240 accelerated every week since the summer. And what's important about 0:11:41.280 --> 0:11:44.720 that is that the bulk of heelocks are being taken 0:11:44.720 --> 0:11:48.640 out by seniors. So seniors. This is the FED data 0:11:49.480 --> 0:11:53.520 the month May Month, May Fed data, New York Fed data. 0:11:54.080 --> 0:11:58.400 Forty percent of home equity products are seniors, which is 0:11:58.440 --> 0:12:01.959 counterintuitive because two thousand and four it was nineteen percent. 0:12:02.040 --> 0:12:06.800 So more seniors are stretched and they're turning to products 0:12:06.800 --> 0:12:10.360 that come equity, and Rocket's going to be you know, 0:12:10.400 --> 0:12:12.360 the one stop shopping. 0:12:12.640 --> 0:12:15.360 It's too much. Meredith Whitney, thank you so much for 0:12:15.440 --> 0:12:17.960 joining us this one. She was a nerd when she 0:12:18.040 --> 0:12:19.440 was Big Red at Lawrenceville. 0:12:19.480 --> 0:12:22.120 Sure make a complete nerd, absolutely, Meredith Whitney. 0:12:22.440 --> 0:12:25.040 She once she reads Saturday morning. I don't know the 0:12:25.080 --> 0:12:26.040 FEDS some morning. 0:12:26.360 --> 0:12:27.880 Yeah, she probably. 0:12:27.520 --> 0:12:29.960 Reads the minutes of the FED. Meredith Whitney, thank you 0:12:30.200 --> 0:12:35.880 so much for being with us today. 0:12:38.000 --> 0:12:41.600 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:12:41.640 --> 0:12:44.840 weekday afternoons from seven to ten am Eastern Listen on 0:12:44.880 --> 0:12:48.560 Applecarplay and Android Atto with the Bloomberg Business app, or 0:12:48.720 --> 0:12:50.120 watch US live on YouTube. 0:12:50.160 --> 0:12:52.240 This is the interview of the day, folks, for those 0:12:52.240 --> 0:12:55.160 of you looking at price down. George Bury joins US 0:12:55.400 --> 0:12:59.520 chief investment strategists all Spring Global Investments. I'm going mental 0:13:00.280 --> 0:13:04.160 the acclaim Liz Goldenberg, who sold thousands of Bloomberg terminals 0:13:04.200 --> 0:13:07.760 with the YA function. The media does yield yield yield 0:13:07.840 --> 0:13:11.640 yield yield yield yield and what Liz Goldenberg would say, 0:13:11.840 --> 0:13:16.000 shut up, Tom, it's about price. I read a point now, George, 0:13:16.000 --> 0:13:20.000 where there's a price decline enough out in the year 0:13:20.040 --> 0:13:22.600 where it's really starting to hurt people in institutions. 0:13:22.960 --> 0:13:25.640 Yeah, price has become very volatile over the last couple 0:13:25.679 --> 0:13:27.640 of years. And as you point out, you know those 0:13:27.640 --> 0:13:30.360 bonds that were issued you know five ten years ago 0:13:30.640 --> 0:13:33.280 went down quite a bit in price. And when yield 0:13:33.360 --> 0:13:35.960 is low, you have a lot of sensitivity to changes 0:13:36.000 --> 0:13:38.800 in price. That's the bad news. The good news is 0:13:39.360 --> 0:13:42.080 yields or high and that is the good news. And 0:13:42.120 --> 0:13:44.880 so when we have days like today, when we have 0:13:45.040 --> 0:13:49.280 more volatility in the market because Moody's downgrades the US 0:13:49.320 --> 0:13:52.880 not new news, but of a reminder, yields go up 0:13:53.600 --> 0:13:55.360 and income is your friend. 0:13:55.480 --> 0:13:58.400 So for I get what you just said, but for 0:13:58.960 --> 0:14:02.320 our audience out there, they are like me, less sophisticated. 0:14:03.000 --> 0:14:05.840 Are there going to be losses in fixed income or 0:14:05.880 --> 0:14:09.040 do you downplay that versus the yield opportunity? 0:14:09.440 --> 0:14:13.240 The gield dominates in this environment. And even if bond yields, 0:14:13.440 --> 0:14:14.960 so if the thirty year were to go up to 0:14:15.000 --> 0:14:17.400 say five and a half percent, which is not out 0:14:17.440 --> 0:14:21.160 of the realm of possibility, you're still looking at positive 0:14:21.200 --> 0:14:24.280 returns in bonds. And that's why year to date bonds 0:14:24.320 --> 0:14:27.720 have done exactly what they're supposed to do. That income 0:14:28.240 --> 0:14:32.120 is carrying the day. Your sort of average bond performance 0:14:32.200 --> 0:14:36.240 is up about two percent year to date, not wildly exciting, 0:14:36.280 --> 0:14:39.000 but enough to beat cash and certainly enough to beat 0:14:39.360 --> 0:14:42.320 equities in a market where the market's trying to figure 0:14:42.320 --> 0:14:44.280 out what the growth trajectory is going to be on 0:14:44.320 --> 0:14:47.040 the back of tariffs. So what I tell investors, I 0:14:47.080 --> 0:14:50.400 tell our investors is two things. One, income is your friend. 0:14:50.480 --> 0:14:55.120 Number two, diversify that duration, and then let the bonds 0:14:55.360 --> 0:14:58.800 do their job. They're doing exactly what they're supposed to do. 0:14:59.320 --> 0:15:03.800 Income coupon compound through time. If I can compound my 0:15:03.920 --> 0:15:09.280 portfolio today at say five to eight percent, depending on 0:15:09.320 --> 0:15:11.520 what kind of bond I buy, But if it's five 0:15:11.560 --> 0:15:14.680 and a half to six, I'm doing just fine and 0:15:14.800 --> 0:15:17.760 just sort of You can't ignore price changes in bonds. 0:15:18.400 --> 0:15:21.080 The price change only matters if you decide to sell it. 0:15:21.680 --> 0:15:23.760 If you hold onto the bond and you continue to 0:15:23.840 --> 0:15:28.480 compound your performance and the return improves as you move 0:15:28.560 --> 0:15:31.920 through time. And that's the very powerful message in bonds. 0:15:31.960 --> 0:15:33.920 Sounds like religious experience. 0:15:33.960 --> 0:15:36.800 It is, I mean, this is these guys actually now 0:15:36.800 --> 0:15:38.480 people want to talk to them a COPTA parties because 0:15:38.480 --> 0:15:41.160 they actually have yields and returns before they're ignored for 0:15:41.200 --> 0:15:44.480 so long thirty year US Treasury. 0:15:44.560 --> 0:15:46.520 North of five percent. What does that tell you? 0:15:47.080 --> 0:15:49.200 Yeah, it tells you a couple things. It tells you 0:15:49.280 --> 0:15:53.600 that you know the market's clearly you know it clearly 0:15:53.760 --> 0:15:57.120 sort of pricing in more term premium. You know on 0:15:57.160 --> 0:16:00.120 the notion that inflation is uncertain, as you guys have 0:16:00.520 --> 0:16:04.520 discussed with many guests earlier today, that the fiscal position 0:16:05.000 --> 0:16:08.520 of the federal government is still sort of stretched and 0:16:08.600 --> 0:16:11.080 getting stretched even thinner, and that there will be a 0:16:11.080 --> 0:16:15.240 tremendous amount of government supply over the coming weeks, months, 0:16:15.560 --> 0:16:18.240 and years, and so as a bond investor, I want 0:16:18.280 --> 0:16:20.960 extra premium to be able to protect against that. In 0:16:21.040 --> 0:16:25.240 the extreme, you know, you could sort of talk about vigilanteism. 0:16:25.480 --> 0:16:27.440 I don't think we're quite at that point yet, but 0:16:27.680 --> 0:16:30.640 but bond investors are voting with their feet and they're saying, 0:16:30.960 --> 0:16:34.040 I need more premium to lend long and I think 0:16:34.040 --> 0:16:36.440 that makes a lot of sense given the quality of 0:16:36.480 --> 0:16:36.960 the lender. 0:16:37.440 --> 0:16:38.440 But as you get up. 0:16:38.360 --> 0:16:41.320 Into that, say five five and a half, maybe as 0:16:41.360 --> 0:16:44.320 high as six, we don't think that's likely in the 0:16:44.360 --> 0:16:47.160 near term. But five five and a half percent with 0:16:47.280 --> 0:16:52.160 a two year pegged YEP at about four does actually 0:16:52.200 --> 0:16:54.880 make a lot of sense in a very steep yield curve, 0:16:55.280 --> 0:16:58.840 you know, gives both the economy and opportunity to sort 0:16:58.840 --> 0:17:03.240 of continue to migrate through tariffs and for investors to 0:17:03.240 --> 0:17:03.720 make money. 0:17:03.760 --> 0:17:05.760 Sweeny's been a lecturing on as folks, you don't see this, 0:17:06.040 --> 0:17:08.680 we're on commercial break. Sweeney gets out for BOSI and 0:17:08.760 --> 0:17:12.240 lectures mate. We're in a two ten spread for Global 0:17:12.280 --> 0:17:16.439 Wall Street of fifty two beeps. What's normal? One hundred? Normal? 0:17:16.520 --> 0:17:19.280 Is one hundred, Yes, and we could get there if 0:17:19.320 --> 0:17:21.760 you look at the you with two tens fives thirties, 0:17:22.040 --> 0:17:24.600 you know, fives thirties is at like ninety, and we 0:17:24.680 --> 0:17:26.560 think you could get up to one hundred and fifty. 0:17:26.920 --> 0:17:30.400 So one hundred to two tens one fifty fives thirties 0:17:30.760 --> 0:17:34.520 not unreasonable. And I and we think that as we 0:17:34.560 --> 0:17:38.719 sort of migrate, as the FED stays kind of stuck 0:17:38.880 --> 0:17:42.520 in neutral, the weight and see uh sort of mantra 0:17:42.720 --> 0:17:45.680 is going to hold for the foreseeable future and the end, 0:17:45.720 --> 0:17:49.400 the long end is pricing in both the supply story, 0:17:49.840 --> 0:17:53.320 inflation uncertainty. And at the end of the day, we're 0:17:53.359 --> 0:17:56.120 not the US is not the only country out there 0:17:56.160 --> 0:17:58.280 sort of borrowing lots of money. We know that the 0:17:58.320 --> 0:18:01.000 Europeans are going to be borrowing more money, the Japanese 0:18:01.080 --> 0:18:04.920 already borrow lots of money. And so as a lender, 0:18:05.920 --> 0:18:08.560 we're in a good spot. I want to lend at 0:18:08.640 --> 0:18:12.200 higher yields. These yields are now attractive. The real yield, 0:18:12.200 --> 0:18:16.280 as we've talked about many times before, is strongly positive. 0:18:16.320 --> 0:18:19.960 And again another central message to bond investors is that 0:18:20.320 --> 0:18:23.040 your objective as a bond investor is to beat inflation 0:18:23.240 --> 0:18:25.719 over time, and you have two tools to do that. 0:18:25.760 --> 0:18:28.560 One is income and then other is duration. The price 0:18:28.640 --> 0:18:31.479 change on the bonds. Right now, price change is kind 0:18:31.520 --> 0:18:37.879 of working against you, but income, income, and yield is 0:18:37.960 --> 0:18:41.960 working for you. And so again another sign, another message 0:18:42.000 --> 0:18:45.680 is that you buy fixed income for the income and 0:18:45.720 --> 0:18:46.480 that's what works. 0:18:46.520 --> 0:18:48.160 Are you telling your clients to take credit risk. 0:18:48.560 --> 0:18:51.280 We are taking some credit risk. You know, credit quality 0:18:51.359 --> 0:18:54.240 is pretty good, particularly in the world of investment cread. 0:18:54.600 --> 0:18:58.800 We want to manage that duration pretty cautiously. So lower quality, 0:18:59.600 --> 0:19:02.680 much shorter in duration, closer to the front end of 0:19:02.720 --> 0:19:07.160 the curve. Longer duration and higher quality investment create When 0:19:07.200 --> 0:19:10.520 you divide the corporate market like that, you have very 0:19:10.600 --> 0:19:14.240 generous income at the front end and a nice diversified 0:19:14.720 --> 0:19:17.320 pool of duration at the long end. And when you 0:19:17.359 --> 0:19:21.000 diversify that duration both domestically in the US as well 0:19:21.040 --> 0:19:26.320 as internationally by pulling some German bonds, some UK bonds, 0:19:26.359 --> 0:19:30.920 some guilts, and I attach that to some corporate bonds, 0:19:31.480 --> 0:19:34.639 that de emphasizes the need to hold lots and lots 0:19:34.680 --> 0:19:37.919 of treasuries, and as we know, the Treasury's got a 0:19:37.920 --> 0:19:39.679 lot of pressure on it so there's a lot to 0:19:39.680 --> 0:19:40.320 do in bonds. 0:19:40.400 --> 0:19:42.959 Absolute Clinic George Bory, thank you so much, Chief investment 0:19:42.960 --> 0:19:47.880 strategists all Spring Global Investments on their fixed income pat chain. 0:19:48.240 --> 0:19:52.160 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:19:52.200 --> 0:19:55.520 starting at seven am Eastern on Applecarplay and Android Auto 0:19:55.600 --> 0:19:58.560 with the Bloomberg Business App. You can also listen live 0:19:58.640 --> 0:20:02.480 on Amazon Alexa, our flagship New York station, Just say 0:20:02.640 --> 0:20:04.840 Alexa Play Bloomberg eleven thirty. 0:20:05.440 --> 0:20:10.960 Dean Current joins US MACROSK Advisors MRA. Dean, I'm just 0:20:10.960 --> 0:20:12.960 going to cut to it with a bomb turmoil that 0:20:13.000 --> 0:20:17.120 we see. You have a beautiful, really interesting sentence where 0:20:17.119 --> 0:20:21.440 the market creates the risk for the system. The internal 0:20:21.520 --> 0:20:25.119 dynamics that you look at MRA every day. Do you 0:20:25.200 --> 0:20:28.600 see that internal system? Is it fragile? Yeah? 0:20:28.640 --> 0:20:32.119 I think you know, Scott Bessen recently called the US 0:20:32.520 --> 0:20:37.240 markets antifragile, and I would really disagree with that. You know, 0:20:37.280 --> 0:20:40.159 there's two certainties in life, death and taxes, but I 0:20:40.160 --> 0:20:41.879 think we have to add a third, which is just 0:20:42.040 --> 0:20:45.960 ongoing and extremely large auctions of US treasuries. 0:20:46.840 --> 0:20:48.200 The world is a wash of. 0:20:48.160 --> 0:20:52.679 Them, and there's no obvious solution at hand, and I 0:20:52.720 --> 0:20:56.480 do think tom market prices are kind of blaring here 0:20:56.600 --> 0:20:58.760 and telling us something. And you know, the thing about 0:20:58.800 --> 0:21:03.000 market prices is there both a response, they react to 0:21:03.040 --> 0:21:07.359 what investors do, but they also create risk. And I 0:21:07.400 --> 0:21:11.320 think with respect to the back end of the bond market, 0:21:11.400 --> 0:21:13.800 you know this now we're above five percent on the 0:21:13.840 --> 0:21:18.080 thirty year. You know, we're doing this amidst a lot 0:21:18.080 --> 0:21:21.520 of discussion about a FED easing cycle. Right Treasury bond 0:21:21.600 --> 0:21:24.359 yields were rising in twenty twenty two, but that was 0:21:24.400 --> 0:21:26.680 a tightening cycle. The FED was well behind the curve, 0:21:27.080 --> 0:21:28.840 and you knew the short rate was going up quite 0:21:28.840 --> 0:21:32.520 a bit and long end followed. Here you have you know, 0:21:32.520 --> 0:21:36.040 if you look at the Bloomberg WRP page, you'll see 0:21:36.080 --> 0:21:39.159 the market's handicapping easing. But the back end is its 0:21:39.200 --> 0:21:42.040 own thing. Right now, there's a risk premium there and 0:21:42.080 --> 0:21:44.760 I think we're coming out of this tariff uncertainty. The 0:21:44.800 --> 0:21:48.760 downgrade doesn't feel good, and so I think that, to 0:21:48.880 --> 0:21:51.959 me becomes one of the bigger risks for the stock 0:21:52.040 --> 0:21:54.920 market is frankly the bond market itself. 0:21:55.200 --> 0:21:57.879 So talk to us about the the state of the 0:21:57.920 --> 0:22:00.600 bond market, because we saw it kind of freeze up 0:22:00.640 --> 0:22:03.239 in April when we got some of that around Liberation Day. 0:22:03.440 --> 0:22:07.359 Really unusual trading there that you don't normally associate with 0:22:07.400 --> 0:22:09.080 the US treasury market. 0:22:09.080 --> 0:22:09.760 What does that tell you? 0:22:10.080 --> 0:22:13.480 Right, So, if we look at that chaos from April second, 0:22:13.520 --> 0:22:16.840 Liberation Day to April ninth, which is the never mind 0:22:16.960 --> 0:22:20.800 day where Trump basically undid those you know, five days 0:22:21.000 --> 0:22:23.080 of big risk off you had a rising vix into 0:22:23.119 --> 0:22:26.120 the fifties, got US high as almost sixty intra day, 0:22:26.480 --> 0:22:29.879 and rising treasure yields. That's not a combination you see 0:22:29.960 --> 0:22:35.040 very often. And you know, I think over time, as 0:22:35.119 --> 0:22:39.760 John was referencing, this gigantic supply of treasuries has sort 0:22:39.800 --> 0:22:44.080 of reduced the risk offness, meaning the ability for the 0:22:44.160 --> 0:22:47.159 treasury market to serve as a flight to safety asset. 0:22:47.560 --> 0:22:49.480 It's no longer doing that. So I think that's what 0:22:49.560 --> 0:22:50.440 we have to appreciate. 0:22:50.600 --> 0:22:53.640 Let's go off of last week's single sentence Kenneth Rogoff 0:22:53.880 --> 0:22:57.440 from my book of the summer, you're our dollar year problem. 0:22:57.520 --> 0:23:01.040