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Speaker 2: There was this. There was that. I sat in her
Speaker 2: room with Meredith Whitney. She was like eighteen years old
Speaker 2: out of Lawrenceville PG Brown University, and Meredith goes time,
Speaker 2: shut up, invite visa, go back and look, folks. It's
Speaker 2: one of the great calls of the last twenty years.
Speaker 2: Joining us this morning. Meredith Whitney. Meredith, why are you
Speaker 2: getting back in the game.
Speaker 3: Well, I got back in the games a two year anniversary.
Speaker 3: I missed it. There was so much that wasn't going
Speaker 3: on in banking and financial services when I stepped away,
Speaker 3: and uh, so much has gone on and there's such
Speaker 3: an opportunity. There's such a vacuum. I thought in research
Speaker 3: that and I missed it. I mean, this really is
Speaker 3: my wheelhouse. So I love it. I you know, I
Speaker 3: haven't been this happy in a long time.
Speaker 2: So you're founding the banks of financials.
Speaker 3: Still I follow everything so basically I cover whatever I
Speaker 3: want to. So one interesting thing, you know, piece I
Speaker 3: wrote last week was on employment and on inflation that
Speaker 3: I see. You know a lot of people talked about
Speaker 3: inflation around Terrace. I think there's going to be major
Speaker 3: wage inflation. So what is under discussed is the ICE
Speaker 3: raids and immigration UH policies by this administration that's putting
Speaker 3: real pressure on labor and areas management and alternative manage
Speaker 3: manage or said two weeks ago, what they see cracks
Speaker 3: in the economy because workers at low end rust restaurants
Speaker 3: are not showing up to work for fear of ice
Speaker 3: rates and small and media sized businesses are losing revenues
Speaker 3: because of it. And by our estimates, one in four
Speaker 3: workers in the US are Latino and Hispanic, and the
Speaker 3: BLS counts non documented and documented work in its thirty
Speaker 3: two million employees that are Hispanic and Latino, and the
Speaker 3: Pew Center estimates that another eight million workers are undocumented
Speaker 3: and the bulk of those are from Mexico and Latin
Speaker 3: American companies. So that is going to be a real
Speaker 3: pressure on rates because it's clearly inflationary.
Speaker 4: Meredith, just can you as you step back here, with
Speaker 4: your wide lens here, what's your view of this tariff
Speaker 4: policy that we've been seeing from the Trump administration. Here,
Speaker 4: we're not really sure. I guess where it's going to
Speaker 4: shake out, but there's a lot to take in.
Speaker 5: I guess there's a lot to in.
Speaker 3: You know, my impressions when this administration came into office
Speaker 3: in January was that they were going to focus on
Speaker 3: deregulation and that would mean bank consolidation and be very
Speaker 3: pro growth. And they've gone terrorist tariff's terrafs and you know,
Speaker 3: I was confused by the methodology of it on Liberation Day.
Speaker 3: The math didn't make sense to me. And I think
Speaker 3: that it creates a lot of unintended consequences. So the
Speaker 3: you know, obviously unintended consequences are uncertainty. But also I
Speaker 3: think you're going to start to see insurance rates go
Speaker 3: up because the anticipation of inflation. Sorry, replacement costs are
Speaker 3: going to go up, and that's been one of the
Speaker 3: most stifling costs for homeowners and for the low end.
Speaker 3: So you know, when you move fast and break things,
Speaker 3: you have a lot of unintended consequences. I'm not one
Speaker 3: that can figure out the methodology or the reasons behind it.
Speaker 3: I have more concerns over it than you know than
Speaker 3: I do a real understanding of them, of uh that
Speaker 3: you know the sense behind it.
Speaker 4: So where do we go here for this economy? A
Speaker 4: lot of folks are talking about recession. As you look
Speaker 4: at you know, the broad swath of your coverage, including
Speaker 4: the big financial services companies, do you see recession kind
Speaker 4: of in the near drunk for this economy.
Speaker 3: So all of the technical data shows no evidence of
Speaker 3: a recession, but a lot of the underlying data shows
Speaker 3: shows hints of it. And I think it's more of
Speaker 3: a stagflation recession. And I very much see a recession,
Speaker 3: a second recession for the low end in the last
Speaker 3: three years. So the low middle class and low end
Speaker 3: fifty two percent of households that live paycheck to paycheck,
Speaker 3: you know, we're sick of inflation. Voted I think main
Speaker 3: Street voted Trump into office because they'd been through a
Speaker 3: res Their recession occurred when the stimulus money ran out,
Speaker 3: so after tax revenues went down by eighteen percent, and
Speaker 3: they're going to go through another recession because I think
Speaker 3: employment is going to be a problem in the employment
Speaker 3: at the low end and then pressure is because there's
Speaker 3: no wiggle room from income levels accrastination.
Speaker 2: Good morning on your commute, Good morning across America and
Speaker 2: around the world. On YouTube, Subscribe to Bloomberg Podcast. That's
Speaker 2: the way Meredith Whitney listens to us each morning. Thrilled
Speaker 2: to have an extended conversation here with Meredith. Meredith, let
Speaker 2: me go to the wheelhouse. And you know, I'm very upset,
Speaker 2: Meredith about the way the street quotes yield. I believe
Speaker 2: it's price lower. Are the major banks and particularly in
Speaker 2: the zeitgeist over the weekend Bank of America, are they
Speaker 2: at risk not so much of gloom, but just a
Speaker 2: repricing of their balance sheet because a price down and
Speaker 2: builds no in bonds.
Speaker 3: I think the banks are in a really good place.
Speaker 3: They're very conservatively accounted for, so where I expect unemployment
Speaker 3: to go to six percent, they're all their assumptions are
Speaker 3: north of seven percent. So I feel I think the
Speaker 3: banks are in really, really good shape. I think that
Speaker 3: one of the things I'm working on right now is
Speaker 3: the FED doesn't necessarily think that banks are in very
Speaker 3: good shape. And two thirds of the of the large banks,
Speaker 3: the twenty nine banks that are over one hundred billion
Speaker 3: dollars are deemed unsatisfactory in terms of rating, and that's
Speaker 3: going to make M and A very difficult.
Speaker 2: You know.
Speaker 3: From my perspective, the banks look very well positioned, you know,
Speaker 3: and they are very well hedged. So Bank America does
Speaker 3: an incredible job hedging job. And I think the big
Speaker 3: banks that have hundreds of people hedging their portfolio are
Speaker 3: in better positions than some of the regional banks that
Speaker 3: have smaller staffs. So I don't think that's that's a
Speaker 3: concern for the banks.
Speaker 4: I want to go to the regional banks, Meredith, because
Speaker 4: a lot of folks felt that, you know, we had
Speaker 4: some some of the smaller banks over the last several
Speaker 4: years run into some problems SVB and so on, and
Speaker 4: maybe people said, maybe there should be some consolidation of
Speaker 4: the regional banking business in the United States. Do we
Speaker 4: really need five thousand regional banks? How do you view
Speaker 4: that part of the financial system.
Speaker 3: I think there should definitely be consolidation, and I think
Speaker 3: there should be consolidation. And some of the twenty nine
Speaker 3: banks that are you know, twenty nine of which are
Speaker 3: in the penalty box that are not allowed to do
Speaker 3: M and A should be also allowed to do M
Speaker 3: and A. You know, they're not above the ten percent
Speaker 3: deposit threshold. They're well below the ten percent deposit threshold.
Speaker 3: So you need healthy banks. And yeah, I mean this
Speaker 3: has been something that I've been working on since twenty
Speaker 3: ten when the big banks, when the regulators wanted the
Speaker 3: big banks to get smaller the small banks to get bigger,
Speaker 3: and that just hasn't happened. And so it's like waiting
Speaker 3: for good too, for bank consolidation.
Speaker 2: I mean, to put things in perspective, folks. And Meredith
Speaker 2: knows that she lived in I mean, she's big, you know.
Speaker 2: Forget about all the uproar and bonds and that in
Speaker 2: Meredith Whitney, Notoriety, Visa the symbols v. Paul in case
Speaker 2: I didn't know that, Meredith Whitney on fifty seventh Street
Speaker 2: with me with a beverage of our choice and Meredith
Speaker 2: goes time, shut up and buy Visa. It's up one thousand,
Speaker 2: eight hundred percent, twenty three percent per year. Meredith, does
Speaker 2: your vision for the next fifteen years? The next fourteen
Speaker 2: years give you the same uplift in American financial capitalism?
Speaker 3: Yeah, I think there's a lot of really interesting things
Speaker 3: going on in financial services, some scary, some really good.
Speaker 3: A lot of it's going on in the private market.
Speaker 3: I think the Klarna deal will be a really interesting
Speaker 3: IPO to watch. I'm pretty in all of that company.
Speaker 3: I think a firm's been a great a great company.
Speaker 3: There's a there's a lot of innovation in financial services
Speaker 3: in the in the US, and the banks are incredibly
Speaker 3: well positioned, I'd say also, but you know, in fairness,
Speaker 3: like the European banks look pretty good too. They're incredibly
Speaker 3: well capitalized. So the banking system at large, I think
Speaker 3: looks so much better than it did, you know, fifteen
Speaker 3: years ago.
Speaker 2: In fifteen years ago, Paul, we didn't have private equity
Speaker 2: or private capital.
Speaker 5: Well, that's where I want to go, Tom, I mean
Speaker 5: a Meredith.
Speaker 4: How do you kind of think about this private credit business,
Speaker 4: which has really grown so dramatically over the last you know,
Speaker 4: ten years, roughly as an alternative source of capital.
Speaker 5: How do you view private credit?
Speaker 3: Well, I view it uniquely because over the summer or
Speaker 3: since September, forty billion of private credit has been focused
Speaker 3: on consumer lending, and so this has been like a
Speaker 3: fire of credit within the industry, and a lot of
Speaker 3: it is private equity backed companies that are getting for
Speaker 3: purchase agreements with private credit, but also public companies. You know,
Speaker 3: so far has over twelve billion dollars for purchase agreements
Speaker 3: from private credit. What that means then is they basically
Speaker 3: get on a treadmill of gain on sale accounting. So
Speaker 3: they're out aggressively originating personal loans and home equity loans.
Speaker 3: And originally I would have thought that that would have
Speaker 3: pumped in a ton of liquidity for the lower end
Speaker 3: and sustained the lower end. But I think you see
Speaker 3: fractures within the lower end. That is a that is
Speaker 3: a potential benefit that could come in and provide liquidity relief.
Speaker 3: But private credit is interestingly never before so interested in
Speaker 3: consumer finance, and I think that's a real game changer.
Speaker 2: Single best party right now, Meredith Money for old Time,
Speaker 2: let's your single best buy right now.
Speaker 3: I love Rocket Mortgage. It's counterintuitive because of rates, but
Speaker 3: they are the largest home equity closed down home equity originator.
Speaker 3: And interestingly, so I watch, you know, I download the
Speaker 3: fed's home equity data every Saturday morning, and what you see,
Speaker 3: I know, I love it. So what you see is
Speaker 3: in the summer, home equity went from helocks went from
Speaker 3: seventeen years of decline to expanding and helocks now have
Speaker 3: accelerated every week since the summer. And what's important about
Speaker 3: that is that the bulk of heelocks are being taken
Speaker 3: out by seniors. So seniors. This is the FED data
Speaker 3: the month May Month, May Fed data, New York Fed data.
Speaker 3: Forty percent of home equity products are seniors, which is
Speaker 3: counterintuitive because two thousand and four it was nineteen percent.
Speaker 3: So more seniors are stretched and they're turning to products
Speaker 3: that come equity, and Rocket's going to be you know,
Speaker 3: the one stop shopping.
Speaker 2: It's too much. Meredith Whitney, thank you so much for
Speaker 2: joining us this one. She was a nerd when she
Speaker 2: was Big Red at Lawrenceville.
Speaker 5: Sure make a complete nerd, absolutely, Meredith Whitney.
Speaker 2: She once she reads Saturday morning. I don't know the
Speaker 2: FEDS some morning.
Speaker 5: Yeah, she probably.
Speaker 2: Reads the minutes of the FED. Meredith Whitney, thank you
Speaker 2: so much for being with us today.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
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Speaker 2: This is the interview of the day, folks, for those
Speaker 2: of you looking at price down. George Bury joins US
Speaker 2: chief investment strategists all Spring Global Investments. I'm going mental
Speaker 2: the acclaim Liz Goldenberg, who sold thousands of Bloomberg terminals
Speaker 2: with the YA function. The media does yield yield yield
Speaker 2: yield yield yield yield and what Liz Goldenberg would say,
Speaker 2: shut up, Tom, it's about price. I read a point now, George,
Speaker 2: where there's a price decline enough out in the year
Speaker 2: where it's really starting to hurt people in institutions.
Speaker 6: Yeah, price has become very volatile over the last couple
Speaker 6: of years. And as you point out, you know those
Speaker 6: bonds that were issued you know five ten years ago
Speaker 6: went down quite a bit in price. And when yield
Speaker 6: is low, you have a lot of sensitivity to changes
Speaker 6: in price. That's the bad news. The good news is
Speaker 6: yields or high and that is the good news. And
Speaker 6: so when we have days like today, when we have
Speaker 6: more volatility in the market because Moody's downgrades the US
Speaker 6: not new news, but of a reminder, yields go up
Speaker 6: and income is your friend.
Speaker 2: So for I get what you just said, but for
Speaker 2: our audience out there, they are like me, less sophisticated.
Speaker 2: Are there going to be losses in fixed income or
Speaker 2: do you downplay that versus the yield opportunity?
Speaker 6: The gield dominates in this environment. And even if bond yields,
Speaker 6: so if the thirty year were to go up to
Speaker 6: say five and a half percent, which is not out
Speaker 6: of the realm of possibility, you're still looking at positive
Speaker 6: returns in bonds. And that's why year to date bonds
Speaker 6: have done exactly what they're supposed to do. That income
Speaker 6: is carrying the day. Your sort of average bond performance
Speaker 6: is up about two percent year to date, not wildly exciting,
Speaker 6: but enough to beat cash and certainly enough to beat
Speaker 6: equities in a market where the market's trying to figure
Speaker 6: out what the growth trajectory is going to be on
Speaker 6: the back of tariffs. So what I tell investors, I
Speaker 6: tell our investors is two things. One, income is your friend.
Speaker 6: Number two, diversify that duration, and then let the bonds
Speaker 6: do their job. They're doing exactly what they're supposed to do.
Speaker 6: Income coupon compound through time. If I can compound my
Speaker 6: portfolio today at say five to eight percent, depending on
Speaker 6: what kind of bond I buy, But if it's five
Speaker 6: and a half to six, I'm doing just fine and
Speaker 6: just sort of You can't ignore price changes in bonds.
Speaker 6: The price change only matters if you decide to sell it.
Speaker 6: If you hold onto the bond and you continue to
Speaker 6: compound your performance and the return improves as you move
Speaker 6: through time. And that's the very powerful message in bonds.
Speaker 2: Sounds like religious experience.
Speaker 4: It is, I mean, this is these guys actually now
Speaker 4: people want to talk to them a COPTA parties because
Speaker 4: they actually have yields and returns before they're ignored for
Speaker 4: so long thirty year US Treasury.
Speaker 5: North of five percent. What does that tell you?
Speaker 6: Yeah, it tells you a couple things. It tells you
Speaker 6: that you know the market's clearly you know it clearly
Speaker 6: sort of pricing in more term premium. You know on
Speaker 6: the notion that inflation is uncertain, as you guys have
Speaker 6: discussed with many guests earlier today, that the fiscal position
Speaker 6: of the federal government is still sort of stretched and
Speaker 6: getting stretched even thinner, and that there will be a
Speaker 6: tremendous amount of government supply over the coming weeks, months,
Speaker 6: and years, and so as a bond investor, I want
Speaker 6: extra premium to be able to protect against that. In
Speaker 6: the extreme, you know, you could sort of talk about vigilanteism.
Speaker 6: I don't think we're quite at that point yet, but
Speaker 6: but bond investors are voting with their feet and they're saying,
Speaker 6: I need more premium to lend long and I think
Speaker 6: that makes a lot of sense given the quality of
Speaker 6: the lender.
Speaker 2: But as you get up.
Speaker 6: Into that, say five five and a half, maybe as
Speaker 6: high as six, we don't think that's likely in the
Speaker 6: near term. But five five and a half percent with
Speaker 6: a two year pegged YEP at about four does actually
Speaker 6: make a lot of sense in a very steep yield curve,
Speaker 6: you know, gives both the economy and opportunity to sort
Speaker 6: of continue to migrate through tariffs and for investors to
Speaker 6: make money.
Speaker 2: Sweeny's been a lecturing on as folks, you don't see this,
Speaker 2: we're on commercial break. Sweeney gets out for BOSI and
Speaker 2: lectures mate. We're in a two ten spread for Global
Speaker 2: Wall Street of fifty two beeps. What's normal? One hundred? Normal?
Speaker 6: Is one hundred, Yes, and we could get there if
Speaker 6: you look at the you with two tens fives thirties,
Speaker 6: you know, fives thirties is at like ninety, and we
Speaker 6: think you could get up to one hundred and fifty.
Speaker 6: So one hundred to two tens one fifty fives thirties
Speaker 6: not unreasonable. And I and we think that as we
Speaker 6: sort of migrate, as the FED stays kind of stuck
Speaker 6: in neutral, the weight and see uh sort of mantra
Speaker 6: is going to hold for the foreseeable future and the end,
Speaker 6: the long end is pricing in both the supply story,
Speaker 6: inflation uncertainty. And at the end of the day, we're
Speaker 6: not the US is not the only country out there
Speaker 6: sort of borrowing lots of money. We know that the
Speaker 6: Europeans are going to be borrowing more money, the Japanese
Speaker 6: already borrow lots of money. And so as a lender,
Speaker 6: we're in a good spot. I want to lend at
Speaker 6: higher yields. These yields are now attractive. The real yield,
Speaker 6: as we've talked about many times before, is strongly positive.
Speaker 6: And again another central message to bond investors is that
Speaker 6: your objective as a bond investor is to beat inflation
Speaker 6: over time, and you have two tools to do that.
Speaker 6: One is income and then other is duration. The price
Speaker 6: change on the bonds. Right now, price change is kind
Speaker 6: of working against you, but income, income, and yield is
Speaker 6: working for you. And so again another sign, another message
Speaker 6: is that you buy fixed income for the income and
Speaker 6: that's what works.
Speaker 5: Are you telling your clients to take credit risk.
Speaker 6: We are taking some credit risk. You know, credit quality
Speaker 6: is pretty good, particularly in the world of investment cread.
Speaker 6: We want to manage that duration pretty cautiously. So lower quality,
Speaker 6: much shorter in duration, closer to the front end of
Speaker 6: the curve. Longer duration and higher quality investment create When
Speaker 6: you divide the corporate market like that, you have very
Speaker 6: generous income at the front end and a nice diversified
Speaker 6: pool of duration at the long end. And when you
Speaker 6: diversify that duration both domestically in the US as well
Speaker 6: as internationally by pulling some German bonds, some UK bonds,
Speaker 6: some guilts, and I attach that to some corporate bonds,
Speaker 6: that de emphasizes the need to hold lots and lots
Speaker 6: of treasuries, and as we know, the Treasury's got a
Speaker 6: lot of pressure on it so there's a lot to
Speaker 6: do in bonds.
Speaker 2: Absolute Clinic George Bory, thank you so much, Chief investment
Speaker 2: strategists all Spring Global Investments on their fixed income pat chain.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2: Dean Current joins US MACROSK Advisors MRA. Dean, I'm just
Speaker 2: going to cut to it with a bomb turmoil that
Speaker 2: we see. You have a beautiful, really interesting sentence where
Speaker 2: the market creates the risk for the system. The internal
Speaker 2: dynamics that you look at MRA every day. Do you
Speaker 2: see that internal system? Is it fragile? Yeah?
Speaker 7: I think you know, Scott Bessen recently called the US
Speaker 7: markets antifragile, and I would really disagree with that. You know,
Speaker 7: there's two certainties in life, death and taxes, but I
Speaker 7: think we have to add a third, which is just
Speaker 7: ongoing and extremely large auctions of US treasuries.
Speaker 2: The world is a wash of.
Speaker 7: Them, and there's no obvious solution at hand, and I
Speaker 7: do think tom market prices are kind of blaring here
Speaker 7: and telling us something. And you know, the thing about
Speaker 7: market prices is there both a response, they react to
Speaker 7: what investors do, but they also create risk. And I
Speaker 7: think with respect to the back end of the bond market,
Speaker 7: you know this now we're above five percent on the
Speaker 7: thirty year. You know, we're doing this amidst a lot
Speaker 7: of discussion about a FED easing cycle. Right Treasury bond
Speaker 7: yields were rising in twenty twenty two, but that was
Speaker 7: a tightening cycle. The FED was well behind the curve,
Speaker 7: and you knew the short rate was going up quite
Speaker 7: a bit and long end followed. Here you have you know,
Speaker 7: if you look at the Bloomberg WRP page, you'll see
Speaker 7: the market's handicapping easing. But the back end is its
Speaker 7: own thing. Right now, there's a risk premium there and
Speaker 7: I think we're coming out of this tariff uncertainty. The
Speaker 7: downgrade doesn't feel good, and so I think that, to
Speaker 7: me becomes one of the bigger risks for the stock
Speaker 7: market is frankly the bond market itself.
Speaker 4: So talk to us about the the state of the
Speaker 4: bond market, because we saw it kind of freeze up
Speaker 4: in April when we got some of that around Liberation Day.
Speaker 4: Really unusual trading there that you don't normally associate with
Speaker 4: the US treasury market.
Speaker 5: What does that tell you?
Speaker 7: Right, So, if we look at that chaos from April second,
Speaker 7: Liberation Day to April ninth, which is the never mind
Speaker 7: day where Trump basically undid those you know, five days
Speaker 7: of big risk off you had a rising vix into
Speaker 7: the fifties, got US high as almost sixty intra day,
Speaker 7: and rising treasure yields. That's not a combination you see
Speaker 7: very often. And you know, I think over time, as
Speaker 7: John was referencing, this gigantic supply of treasuries has sort
Speaker 7: of reduced the risk offness, meaning the ability for the
Speaker 7: treasury market to serve as a flight to safety asset.
Speaker 7: It's no longer doing that. So I think that's what
Speaker 7: we have to appreciate.
Speaker 2: Let's go off of last week's single sentence Kenneth Rogoff
Speaker 2: from my book of the summer, you're our dollar year problem.
Speaker 2: Fabulous foreign exchange linking it into you know, this time
Speaker 2: is different in the system. The fact is, Professor Rogoff
Speaker 2: modeled out a five and a half to six percent
Speaker 2: ten year yield. Is that even in the Dean current
Speaker 2: frame of reference?
Speaker 7: Yeah, I think so. So Ken reached out to me
Speaker 7: on this book as well. I had him speak post
Speaker 7: the twenty eleven Eurozone crisis at a couple of events
Speaker 7: I hosted, you know, our dollar year problem, our debt
Speaker 7: our problem, and I think so that's a little bit
Speaker 7: of a different take on it. I would say, you know,
Speaker 7: up at five and a half six percent, the math
Speaker 7: of running the interest costs through that debt structure is
Speaker 7: just remarkably different. You know, there's really no resemblance to
Speaker 7: the current structure of US interest rates relative to when
Speaker 7: we took on all the debt in twenty twenty, which
Speaker 7: look was an emergency we were trying to push back
Speaker 7: against COVID. But I think the tenuere traded as low
Speaker 7: as fifty five basis points into twenty twenty one. The
Speaker 7: ten yere yield was one point two percent at the lows,
Speaker 7: and so this there's no resemblance to that, and these
Speaker 7: interest costs are punishing. You know, Tom, you have me
Speaker 7: on here to talk about the VIX and you know,
Speaker 7: whenever we talk about volatility, we talk about things like nonlinearity,
Speaker 7: and with regard to treasuries, I think that's a facet
Speaker 7: of the market that we typically wouldn't characterize as having
Speaker 7: a risk of. But you know, things gradually then suddenly,
Speaker 7: as as.
Speaker 2: Paul wants to jump in, I'm sorry, I got to interrupt.
Speaker 2: This is really important. Where's the suddenly click it? Give
Speaker 2: me a ten year level.
Speaker 7: Well I wouldn't. I would just say not to hundreds
Speaker 7: of exactly, let me give it to you within three
Speaker 7: basis points.
Speaker 5: Well, here's what I would say.
Speaker 7: We should be watching certain markers. I think you can
Speaker 7: learn a lot from correlations. And I think when we
Speaker 7: observe a daylight today, which is a stocks down, rates
Speaker 7: up day, and that's not amidst a FED tightening cycle.
Speaker 7: So twenty twenty two we had plenty of those days,
Speaker 7: stocks down, rates up. The tight cycle was unwelcome. The
Speaker 7: dollar was tightening. Today we have a very different mix.
Speaker 7: We have a weaker dollar, we have higher rates, higher
Speaker 7: vix and lower stock prices.
Speaker 2: So that combination is new.
Speaker 7: I think it's a little dangerous, and so Tom not
Speaker 7: to you know, duck the question. I think it's a
Speaker 7: difficult one, but I think we can learn a lot
Speaker 7: about the reaction of the stock market and stock market volatility,
Speaker 7: things like the VIX to higher yield. So let's watch correlations.
Speaker 7: Let's look for days like today when rates are going
Speaker 7: up and the VIX is rising as well.
Speaker 5: What do you make of the US dollar.
Speaker 4: We've seen stocks and other risk assets kind of rebound
Speaker 4: to a certain degree, but we have not seen the
Speaker 4: dollar really a rally.
Speaker 5: Here. What's that tell you here?
Speaker 7: And that's again that's that goes back to what's different.
Speaker 7: You know, in the rates going up period of twenty
Speaker 7: twenty two, rates and the dollar we're traveling together higher,
Speaker 7: and that posed a certain risk. You know, this this
Speaker 7: last round of dollar weakness, especially the one that occurred
Speaker 7: in that again chaotic period between April second and ninth,
Speaker 7: it kind of tells us something. There's a lot of
Speaker 7: discussion about, you know, a negative branding exercise for the dollar.
Speaker 7: It's probably too much, too soon. I think the reserve
Speaker 7: currency is not going away. You know, I read with
Speaker 7: great interest the Moody's downgrade. You know, they talk a
Speaker 7: lot about the debt stack and the you know, unsustainability
Speaker 7: of it, but they also do mention that the US
Speaker 7: is an economic superpower with with the reserve currency, So
Speaker 7: I don't know that that's going away anything.
Speaker 2: Do you see a legislative path like it came up
Speaker 2: but not once, maybe twice this weekend, a social security reform?
Speaker 2: Can there be some drama of debt and deficit maturity?
Speaker 2: I don't mean duration maturity, I mean behavioral maturity, Like
Speaker 2: can we find a debt and deficit adult out there?
Speaker 2: I don't think there's much evidence we can, right.
Speaker 7: I mean one we can find is Michael Bloomberg himself,
Speaker 7: who posted that I thought very well crafted up ed
Speaker 7: on the terminal yesterday, and I think you know, the
Speaker 7: commentary there is that the deck shares, the deck chairs
Speaker 7: are being shuffled, but really ineffectively. The horse trading around,
Speaker 7: you know, salt versus medicaid, work requirements and EV credits.
Speaker 7: It's just moving things around a little bit. But there's
Speaker 7: not a lot of impact, you know. I just think
Speaker 7: these things are intractable problems, and there are other intractable
Speaker 7: problems out there as well, things like climate change. You
Speaker 7: have a lot of agency cost with this, and what
Speaker 7: I mean by that is there's a short term pain
Speaker 7: for a potential longer term gain, and it's difficult to
Speaker 7: convince people to take that on. So from a from
Speaker 7: a hedging standpoint, from a defensive standpoint, you know, I
Speaker 7: think you have to keep your eye on assets like gold.
Speaker 7: Bitcoin is a lot of things. It's obviously very speculative.
Speaker 7: I think it has to have a little bit of
Speaker 7: a place in the portfolio to hedge against this. And
Speaker 7: then we got to really think about things like volatility,
Speaker 7: which to me is the only antifragile asset. It benefits
Speaker 7: from uncertainty in shocks.
Speaker 2: Is a stock market about being careful of acquiring certain companies?
Speaker 2: Do you just avoid the stock market given the bond turmoil?
Speaker 7: Well, I think, Listen, there's very few benchmarks as amazing
Speaker 7: as the S and P five hundred. This index delivers
Speaker 7: the goods year after year, and so I think it's
Speaker 7: very difficult not to continue to be invested. I do think,
Speaker 7: you know, having a little bit more cash on hand
Speaker 7: makes more sense. Having these other alternative assets like bitcoin
Speaker 7: and gold, I think makes sense. And then again I'm
Speaker 7: speaking my own book here because I specialize in hedging
Speaker 7: and volatility. But investors have got to understand how to
Speaker 7: use things like options, because when you have the potential
Speaker 7: for the bond market to misbehave as it appears to
Speaker 7: be doing, that could spell this eruption for the stock market.
Speaker 4: So how do you think about I mean, again, we've
Speaker 4: got the vics here still below twenty nineteen and change here.
Speaker 5: Is that a.
Speaker 4: Healthy level of volatility in the equity markets? Is that
Speaker 4: something we should be concerned about?
Speaker 7: I think it's that's I think that's right about the
Speaker 7: long term average, it's right around twenty. And of course
Speaker 7: you've had these periods of ten you had an eighty
Speaker 7: in the GFC and eighty in COVID. You know, you're
Speaker 7: coming off something that was very high. And this was
Speaker 7: a very interesting risk event because it was created by
Speaker 7: Trump and then undone by Trump. You know, I think
Speaker 7: the tariffs are a little bit less of a risk now.
Speaker 7: I'm a little more concerned about the bond market, Paul.
Speaker 7: I think the question is is the cost of hedging
Speaker 7: a good deal? And I think it's pretty fair, you know,
Speaker 7: markets to sustain a twenty vix you need the market
Speaker 7: to move around at kind of a percent a day,
Speaker 7: which we got today, And you know that to me,
Speaker 7: that's a couple of small moves and then one big
Speaker 7: move every you know, every two weeks or so.
Speaker 2: David Gura, thanks for listening to the program this morning.
Speaker 2: Mister gur emails in, says, ask Dean about the cost
Speaker 2: of summer camp. Let's get an update right now, we're
Speaker 2: sliding into the beginning of the acquisition of summer camp.
Speaker 2: Merch to take the camp.
Speaker 7: It's out of control, summer camp, summer camp. Thankfully, my
Speaker 7: kids are at a summer camp sum I have a
Speaker 7: summer intern working for me, my son Liam.
Speaker 2: That control whoa more than Pete's.
Speaker 7: I hope he gets free lunch included in his in
Speaker 7: his internship.
Speaker 2: So I got out of a booth school, you know,
Speaker 2: booth school like you did you throw Sheldon Naytenberg with him?
Speaker 2: Is he reading about option and all the Greek letters?
Speaker 7: You know, we're starting with rich Yamarone's book on Economic Indicators.
Speaker 2: Amaron's Giant at Bloomberg. Yes, missed every day. Yes, that's good.
Speaker 2: So you start with Richie Amarone and you got to
Speaker 2: get to the Greek letters. Maybe maybe next summer. Oh,
Speaker 2: come on, toughen up, excuse me. Is the intern doing
Speaker 2: work from home?
Speaker 7: Now he's coming to the office show.
Speaker 5: Yeah, that's how you do it.
Speaker 2: Teene Kernan, thank you so much. Macroworsk Advisors. We protect
Speaker 2: the copyright of all of our guests. His work is
Speaker 2: hugely valued on Wall Street.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple, Corplay and Android
Speaker 1: Auto with the Bloomberg Business app. You can also watch
Speaker 1: us live every weekday on YouTube and always on the
Speaker 1: Bloomberg Terminal.
Speaker 2: Gina Fordham with this Fordham Global Foresight, thrilled as she
Speaker 2: could be with us this morning. Tina, I don't even
Speaker 2: know where to spot start other than in watching the
Speaker 2: incredible emotion at Vadakan city yesterday. The one nation that represented,
Speaker 2: it seemed, was Russia and Putin. How removed is mister
Speaker 2: Putin from the Western dialogue on this Monday morning?
Speaker 8: Well, I mean Putin has created his own reality, hasn't he?
Speaker 8: And I think what we if we look at the
Speaker 8: last week, we can see Putin's sidestepping just about every
Speaker 8: opportunity to do what He's always said he wanted for
Speaker 8: what Russia, which is to restore it to being a
Speaker 8: superpower as it was during during Soviet times and indeed
Speaker 8: during the Russian Empire. But he was absent from Miss
Speaker 8: Dumbull and absent, as you said, at the at the Vatican,
Speaker 8: so he's lying low.
Speaker 2: Where does mister Rubio fit into this? Has that one,
Speaker 2: not two, but three people asked me? This is weekend,
Speaker 2: the President will have a phone call with mister Putin today? Fine, okay,
Speaker 2: But where is the Secretary of State in this debate?
Speaker 2: Or is he just removed aside? And is mister Trump
Speaker 2: his own secretary of state?
Speaker 8: Well, it's it's a very good question that I think
Speaker 8: we can link back to the conversation with your last
Speaker 8: guest as well, that we are trying to read the
Speaker 8: tea leaves and understand who has what brief or is
Speaker 8: President Trump kind of, you know, acting as his own counsel.
Speaker 8: And the meeting with his Special ENVOYE. Steve Whitcoff, the
Speaker 8: subsequent meeting that he was supposed to have at the
Speaker 8: Kremlin was canceled. So I wonder if Trump is going
Speaker 8: to end up being frustrated after this conversation because you know,
Speaker 8: in dating terms, what Putin is doing is called bread crumbing.
Speaker 5: And what does that mean.
Speaker 8: A little trail just enough to keep you going, but
Speaker 8: no lunch.
Speaker 5: So no sandwich exactly.
Speaker 4: So if you're President Trump, how do you approach this here?
Speaker 4: Because you on a campaign trail. Obviously, he was speaking
Speaker 4: very confidently about his ability to end this warning.
Speaker 5: He's kind of maintained that commitment here. Where where does
Speaker 5: he go?
Speaker 8: Well, I mean, I don't know that President Trump feels
Speaker 8: that he does have to maintain the commitment. He's expressed
Speaker 8: frustration with Putin. He had previously, you know, to to
Speaker 8: a great effect, expressed frustration with Ukrainian President Zelenski. Putin
Speaker 8: will be hoping that the United States moves on, loses
Speaker 8: patients and leaves this to Europe. And so I expect that,
Speaker 8: you know, we'll get what diplomats used to call it
Speaker 8: a candid conversation. Putin might agree to something, you know,
Speaker 8: the Istanbul meeting yielded a prisoner exchange, but he just
Speaker 8: needs to keep President and Trump feeling like he's listening.
Speaker 8: And I think his appetite to continue at this stalemate
Speaker 8: level is almost indefinite.
Speaker 4: So again, if you're President Trump, do you have any
Speaker 4: leverage here to kind of move this forward, because again,
Speaker 4: it seems like one of the issues he's certainly campaigned on.
Speaker 8: So yes, I mean President Trump has threatened secondary sanctions
Speaker 8: in a you know, kind of out loud musings, so
Speaker 8: he does have further sticks. I'm not sure that the
Speaker 8: President will want to go that far just yet. And remember,
Speaker 8: of course that President Trump has just come off the
Speaker 8: back of what was a very successful trip to the
Speaker 8: Gulf where he was received with the kind of tribute
Speaker 8: and deal bonanza that he likes to see, so his
Speaker 8: patients might be a bit thin today.
Speaker 9: For this conversation.
Speaker 2: Years ago, Tina four I was sitting in an overpriced
Speaker 2: Mayfair restaurant with Jonathan Farrell, and he from the Midlands
Speaker 2: of England, explained to me that fishing rights between and
Speaker 2: the North Sea is like religion. So I guess we
Speaker 2: had an agreement overnight that nudges back to pre Brexit
Speaker 2: over point oh four percent of the British economy. Explain
Speaker 2: to our American audience the religion of fishing rights between France, Netherlands, Belgium,
Speaker 2: I don't know, Norway, I don't know what in the
Speaker 2: United Kingdom. Explain the importance of that.
Speaker 8: Well, fishing rights and you know, agriculture are so often
Speaker 8: the kind of electrified third rail on these agreements between
Speaker 8: EU member states and now, you know, nine years after Brexit,
Speaker 8: the UK trying to find ways too, frankly make up
Speaker 8: lost ground. The figure that you get about the tiny
Speaker 8: percentage of the of the British economy that's dependent upon
Speaker 8: fishing is accurate, but like farming in the United States,
Speaker 8: is very emotional, and especially for those you know, really
Speaker 8: quite marginalized communities in the Northeast and elsewhere. We're fishing adders.
Speaker 8: But I think we have good news this morning. Generally again,
Speaker 8: the economic toll from Brexit and that attempt to unscramble
Speaker 8: the egg between the UK and its largest trading partner,
Speaker 8: the European Union, has hit this country hard.
Speaker 9: So there's a lot of effort in.
Speaker 8: The media to say this is, you know, kind of
Speaker 8: rejoining by the back door. You know, I think it's
Speaker 8: good news for slow growth Europe. And call me old school,
Speaker 8: but I think more trade is better than less.
Speaker 2: Tina Fordham, thank you and someone Tina's too young to remember.
Speaker 2: Captain's courageous Spencer Tracy nineteen thirty seven. Every kid had
Speaker 2: to watch the movie. Ordered a gunpoint to watch the movie.
Speaker 2: If you don't behave. You're gonna end up on a
Speaker 2: fishing boat off Nova Scotia. Tina Fordum, thank you so much,
Speaker 2: really appreciate it.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto
Speaker 1: with the Bloomberg Business Up. You can also listen live
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Speaker 1: say Alexa Play Bloomberg eleven thirty.
Speaker 2: Joining us right now to get to the market open
Speaker 2: Jenny Patten, Co head of Global Rates TCWS Way, Jamie,
Speaker 2: is it a global lift in longer term yields and
Speaker 2: priced down?
Speaker 9: What we think is really interesting.
Speaker 10: That's obviously what we've seen, especially if you look at
Speaker 10: the change in the market since April second, Liberation Day.
Speaker 9: But what if you came into the market on April
Speaker 9: second and.
Speaker 10: We didn't have all this wild volatility, rates, biking equities
Speaker 10: getting crushed, Trump listing a list of tariffs that was
Speaker 10: out of this world. What if you just came in
Speaker 10: and said, here's the deal, and you and Trump had
Speaker 10: listed the tariffs that we see today. So the average
Speaker 10: effective tariff right is up over ten percent, fourteen to
Speaker 10: eighteen percent. That's up from two point three percent. We
Speaker 10: have this kind of sixty to ninety day rolling volatility.
Speaker 10: Would stocks have rallied and now be less than four
Speaker 10: percent from the all time highs? Would rates have bear
Speaker 10: steepened by twenty to fifty basis points. It's hard to
Speaker 10: imagine that would be the market reaction. Had this just
Speaker 10: been the simple announcement, the average, the average investor prior
Speaker 10: to April second expected tariffs to only go up to
Speaker 10: like ten percent average effective rate. And we're much higher
Speaker 10: than that right now. And this is the this is
Speaker 10: the bottom. We're still dealing with sixty to ninety days
Speaker 10: of uncertainty. So what we think is really interesting about
Speaker 10: this rate move is that it seems like the result
Speaker 10: of wild volatility and sequencing that really matters, rather than
Speaker 10: a reaction to actually what we have in this macro
Speaker 10: environment today.
Speaker 4: So, Jamie, we look today at the thirty year US
Speaker 4: treasury north of five percent.
Speaker 5: Does that mean anything to you guys?
Speaker 4: Do you guys just have internal emails saying, oh my goodness,
Speaker 4: did you see where the thirty years today?
Speaker 9: We certainly talk about it.
Speaker 10: It's we don't see a ton of value in five
Speaker 10: percent thirty years. We see a ton of value in
Speaker 10: the front end of the curve. And that's because in
Speaker 10: this environment with fatter tails, rising volatility, we expect term premium.
Speaker 10: And when I say term premium sounds fancy, all that
Speaker 10: means is how much should you get paid to take
Speaker 10: incremental risk?
Speaker 9: That should be higher. You should get paid a lot.
Speaker 10: More money to take thirty years of US treasury risk
Speaker 10: than you should two years of US Treasury risk. So
Speaker 10: where we see value as the front end of the curve,
Speaker 10: where you're not taking as much risk two to five
Speaker 10: year sector. The fedslong term DOT it implies a neutral
Speaker 10: rate of three percent, and the market doesn't have rates
Speaker 10: getting anywhere near that. Even over a year and a
Speaker 10: half from now, the market has FED rates bottoming more
Speaker 10: like three thirty six.
Speaker 2: So just in twenty seconds there going to get to
Speaker 2: the market open and we'll come back with Jamie Patton.
Speaker 2: Jamie does TCW just say the Fed's going to sit
Speaker 2: in the sidelines.
Speaker 10: We think they will sit on the sidelines, but we
Speaker 10: think that's a mistake. The bar for a FED cut
Speaker 10: feels pretty high right now. They just told us that
Speaker 10: the bar is higher than it wasn't twenty nineteen when
Speaker 10: the inflation was lower. But we're seeing in the hard data,
Speaker 10: just this month's CPI and PPI, we're seeing that inflation
Speaker 10: was coming down towards their target before this teriff related vault.
Speaker 10: Their mandate is twofold inflation and growth. On the inflation side,
Speaker 10: it's coming back down to their mandate, and we're going
Speaker 10: to have this volatility on teriff related On the growth side,
Speaker 10: we know that there's going to be okay.
Speaker 4: So Jamie here talk to us about I don't know,
Speaker 4: it just seems like we've got a lot of volatility
Speaker 4: in the bond market.
Speaker 5: I'm thinking it back to April.
Speaker 4: A lot of people are even suggesting that the bond
Speaker 4: market a little bit broken here in a treasure market,
Speaker 4: how do you think about the volteling the treasury market?
Speaker 4: Is it functioning well at this point?
Speaker 5: For you?
Speaker 10: It's definitely functioning, and it makes a lot of sense.
Speaker 10: A steeper curve, higher term premium. As we discussed prior,
Speaker 10: you should get paid more to take more risk in
Speaker 10: this environment, whether that's credit spreads, whether it's the shape
Speaker 10: of the yield curve. It's definitely functioning, and it's definitely orderly.
Speaker 10: It's definitely liquid, and we don't really see any problems there.
Speaker 10: Even everyone's talking about the US downgrade, that feels like
Speaker 10: old news. We agree with Besson's comments over the weekend
Speaker 10: that it's the third of three rating agencies. It's backwards looking.
Speaker 10: We started talking about this in twenty eleven. I heard
Speaker 10: you guys talking earlier that we've been talking about the
Speaker 10: deficits since what nineteen eighty, probably prior to that.
Speaker 9: There's no real new news here.
Speaker 10: What's new is that investors might be realizing that they
Speaker 10: are globally over allocated to US assets. That's a very
Speaker 10: different story than the US dollar losing its losing its
Speaker 10: exceptional status as the reserve currency. Those are two totally
Speaker 10: different topics. And even what's kind of amazing is that
Speaker 10: it's one of those situations where even if we're we
Speaker 10: have high conviction in this, but even if we're wrong,
Speaker 10: the FED has tools that it can use if the
Speaker 10: bond market ever stops functioning that they're really comfortable with
Speaker 10: after rate cuts. Quantitative easing is a tool that the
Speaker 10: Fed's been most comfortable with and been employing for over
Speaker 10: fifteen years. So we really like trades where we have
Speaker 10: strong conviction and even if we're wrong, someone like the
Speaker 10: FED could come in and fix it. So we're not
Speaker 10: worried about treasuries. We're not worried about bondom market functioning.
Speaker 4: So what is the key issue for you guys here
Speaker 4: going forward in next three to six months?
Speaker 9: The Fed? We see the Fed.
Speaker 10: The FED is in a really precarious position, but they
Speaker 10: have a dual manding on one side of their maindate.
Speaker 9: They can actually impact change.
Speaker 10: So we know from all of the soft data that
Speaker 10: growth is really in trouble uncertainty. If you're sitting here
Speaker 10: with maximum uncertainty and you're leaving a company, you're probably
Speaker 10: not like, let's open four new facilities and increase our
Speaker 10: inventory and come out with these big growth blends. You're
Speaker 10: kind of just frozen waiting to see what happens. On
Speaker 10: the other side, you have inflation. We see inflation coming
Speaker 10: down prior to the teriffs. We know that there's going
Speaker 10: to be a lot of ball and headline and noise
Speaker 10: and all that stuff once the tariff hit the data,
Speaker 10: which is probably this and next month, but the FED.
Speaker 9: Can't really impact that.
Speaker 10: Even if FED rates were at fifteen percent terrafts are
Speaker 10: still going to raise prices.
Speaker 9: So if you have to, if you have a.
Speaker 10: Dual mandate and you can impact one side of it,
Speaker 10: you can't really help the other side. I would probably
Speaker 10: be more tuned to the side that I can actually impact.
Speaker 9: The FED, on the other hand, has.
Speaker 10: Told us very clearly there and holding it. They're waiting
Speaker 10: and seeing what's interesting. Everyone loves flying analogies, but they
Speaker 10: don't really make a ton of sense here. The FED
Speaker 10: is sitting here in very restrictive territory. You are one
Speaker 10: hundred and thirty basis points into restrictive territory according to
Speaker 10: their own forecast, and you're in an airpase and you're
Speaker 10: in a holding pattern. You're not accelerating, you're not decelerating, you're.
Speaker 9: Not coming in for a landing.
Speaker 10: So they have they're decelerating, their speed breaks are on,
Speaker 10: yet they think they're in a holding pattern, James, because
Speaker 10: that's where the potential for a policymaused got und.
Speaker 2: Jimmie Patton, thank you so much for TCW this morning.
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