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Speaker 2: Dan Kurnet where this is now founder's CEO at Macro
Speaker 2: Risk Advisors. He is the surveillance Greek letter authority. Okay,
Speaker 2: so let's have some can we just some math this
Speaker 2: early in the.
Speaker 3: Morning, Let's give a show.
Speaker 2: Let's go there s equals VOT plus one a f
Speaker 2: GT squared. Okay, this is the way it is, folks.
Speaker 2: It's physics envy. That's all this finance stuff up is
Speaker 2: ding kurrent. The rated change is the delta. The rated
Speaker 2: change of the rated change is the gamma. The gamma
Speaker 2: on the Vicks is off the chart. How do you
Speaker 2: go from thirty one to eighteen in the vix? What
Speaker 2: is that signal?
Speaker 4: Well, you give the President of the United States a
Speaker 4: Twitter account and allow him to escalate and de escalate
Speaker 4: through tweet. Perhaps there's a new Greek called tweet gamma,
Speaker 4: which is you've just got to follow truth. Social you
Speaker 4: have to appreciate the uniqueness of this specific risk event.
Speaker 4: Kevin Wirsch once told me, if you've seen one financial crisis,
Speaker 4: you've seen one financial crisis. There is commonality, but they're
Speaker 4: all unique. A decade ago was Brexit and we were
Speaker 4: following British poundvall. Right, now it's crude and that's the
Speaker 4: epicenter of every single correlation out there. It drives the VIX,
Speaker 4: it drives the move index, the S and P, credit spreads,
Speaker 4: and Trump drives crude.
Speaker 2: Speak to Global Wall Street right now, listening across the nation,
Speaker 2: around the world, Dean current, We've had a short cover,
Speaker 2: we've had an OMG, you were going up cover. What
Speaker 2: is the positioning right now that you see?
Speaker 4: Yeah, it's an incredibly important question, and it's very difficult
Speaker 4: to disentangle what's going on oftentimes, because of course there
Speaker 4: is a ceasefire, there is some kind of green shoots
Speaker 4: of good news. You wouldn't see crude fall by as
Speaker 4: much as it has unless you'd seen that. And yet
Speaker 4: markets have got a lot of mechanical trades that live
Speaker 4: and breathe within them. There's a CTA trading strategy, Commodity
Speaker 4: Trading Advisors, which essentially got very short on the way down,
Speaker 4: and then as the ceasefire prospects emerged, they had to rebuy.
Speaker 4: So that was a lot of fuel adding to the market.
Speaker 4: If you bought hedges a couple of weeks ago, you
Speaker 4: bought them at a very high VIX. They were expensive hedges,
Speaker 4: and they're going to lose value very fast because as
Speaker 4: you reference Tom, the VIX has fallen fast. It's not
Speaker 4: just fallen, it's fallen fast. So if you've along these hedges, you've.
Speaker 2: Got to get out of the way.
Speaker 4: If you want to retain any value for that insurance,
Speaker 4: you got to sell it fast, because the market's going
Speaker 4: up and imply volatilities going down to double whammy against
Speaker 4: you if you want to keep some value. That also
Speaker 4: adds fuel to the fire because when you sell a
Speaker 4: put that you own, someone's got to buy stock. That's
Speaker 4: the hedge. And again, all of these things have happened
Speaker 4: all at once, and so what I would just say
Speaker 4: is I kind of caution the interpretation that, Okay, the
Speaker 4: vis is way back down, and that means that there's
Speaker 4: a lot of optimism on the ceasefire. I think there's some,
Speaker 4: but we've got to respect the positioning that got kind
Speaker 4: of re orchestrated as a result of the ceasefire as well.
Speaker 3: Dean, when you're talking to your clients right now, do
Speaker 3: you feel like they're looking to buy protection or they
Speaker 3: looking to maybe buy some risk.
Speaker 4: Here, Well, I think it's kind of a both, right.
Speaker 4: You can't get away from the SMP as a benchmark.
Speaker 4: We're basically back up. We're really round tripped from seven thousand.
Speaker 3: On the future as well.
Speaker 4: Yeah, we're really exactly where we were on the eve
Speaker 4: of the war. And for folks who are managing capital,
Speaker 4: the risk of falling behind is a real thing, right,
Speaker 4: So the SMP is this benchmark that you really have
Speaker 4: to be careful not to underperform. So, yes, they are
Speaker 4: rewaiting now if they're listening to us, they're also looking
Speaker 4: at the prospects for owning insurance. That's really what the
Speaker 4: VIC is. It's a proxy for the price. Really have
Speaker 4: a five percent one month put on the S and
Speaker 4: P five percent out of the money, and that's going
Speaker 4: to cost just something like fifty five basis points. Right now,
Speaker 4: I think that's a really good deal.
Speaker 3: I was going to say, is that is that expensive
Speaker 3: or not? It seem it's.
Speaker 4: Right back to where we were on February twenty six,
Speaker 4: in fact, the day before the war. This put now
Speaker 4: costs twenty five percent less than it did, ok. I
Speaker 4: find that hard to square. I think that the last
Speaker 4: two months have added to the totality of uncertainty that
Speaker 4: investors are up against.
Speaker 3: Traders want to go into the weekend with risk because,
Speaker 3: as you mentioned, we're just one social media post away
Speaker 3: from armageddon or just one way or the other, positive
Speaker 3: or negative. I'm not sure. So what a trader do
Speaker 3: kind of towards the end of.
Speaker 4: The week, Yeah, I think, well, so there was a
Speaker 4: little bit of a trend where the Thursdays and Fridays
Speaker 4: were bad returns and then Monday, Tuesday, Wednesdays were good returns.
Speaker 4: I think we're a little bit away from that right now.
Speaker 4: And I think what we have to recognize is that
Speaker 4: there does seem to be a motivation for Trump to
Speaker 4: try to, you know, kind of tie things up into
Speaker 4: Clare victory, and that's the strategy. And I think we
Speaker 4: have to, you know, recognize that a real.
Speaker 2: Treat for global Wall Street. Here at the seven o'clock hour,
Speaker 2: we start strong Dean at Current with his founder chief
Speaker 2: executive officer at Macro Risk Advisors. I make jokes about it,
Speaker 2: but it's it's all Greek to say that, let's do
Speaker 2: a book pause here so that I'm here one day
Speaker 2: in the combine. You know. It's sort of like Game
Speaker 2: of Thrones. It's like in season three, that big tall tower.
Speaker 2: That's what Bloomberg's like. Somebody comes up a minion. There's
Speaker 2: someone upstairs to meet you, and he's very strange. I
Speaker 2: go to the escalator and look up, and I'm almost
Speaker 2: in tears. It's Sheldon Leytenberg, who invented the Bible on options.
Speaker 2: I kid you not. He's got the short sleeve white
Speaker 2: astronaut shirt like an Apollo thirteen with the fourteen pencils
Speaker 2: in the plastic container. Explain to the kids right now
Speaker 2: some of them pass CFA or announced two days ago,
Speaker 2: some of them flunked. Explain the value of learning the
Speaker 2: first seven Greek letters in finance.
Speaker 4: Well, I think I'll quote Annie Duke's the famous poker
Speaker 4: player hook book, Thinking in bets. We all think in bets,
Speaker 4: we all think in probabilities. And I think that's if
Speaker 4: you're trained in the options market.
Speaker 2: There's a couple of things.
Speaker 4: One is that there's the physics side, the heat equation
Speaker 4: and all the fancy math and greeks that come out
Speaker 4: of that. That's fun and interesting, and I think it
Speaker 4: provides you with a framework to think about relative prices,
Speaker 4: arbitrage type prices. So that's the first thing. The second
Speaker 4: thing is markets are strange sometimes and they can get
Speaker 4: very far away from the physical sciences. Interpretation of black
Speaker 4: shows you have to be very careful. And you've seen
Speaker 4: a lot of folks, brilliant folks like long term Capital
Speaker 4: blow up with the model being gospel.
Speaker 2: So let's go to chapter fourteen. Nobody reads it theta.
Speaker 2: That's where I live the DX folks in the calculus.
Speaker 2: Theta to me is the most understood thing here. Explain
Speaker 2: if a pro has a bad the vix is moved,
Speaker 2: they have to rehedge, explain how they handle the data,
Speaker 2: which costs money. That's the biggest problem. Nobody ever says
Speaker 2: this in the media. It costs money to hedge.
Speaker 4: Yes, So the first The best feature imbedded in an
Speaker 4: option contract is that it gives you the right to
Speaker 4: change your mind. Wall Street is a you know, it
Speaker 4: doesn't really give out free lunches at all, and so
Speaker 4: it charges you for the right to change your mind.
Speaker 2: That's important.
Speaker 4: And the charge Tom is theta. Meaning if you own
Speaker 4: an option contract and you're all jazzed up about hedging
Speaker 4: and you think the market's going to fall fast and
Speaker 4: nothing happens one day that goes by, is the theta.
Speaker 4: That's the time decay. So all lseqel that option contract
Speaker 4: is going to be less worth less tomorrow than it
Speaker 4: is today. That's the theta. And what you're balancing that
Speaker 4: against is the level of churn, the movement in the market,
Speaker 4: because the movement is what allows you to make money
Speaker 4: on theta's inverse, which is the gamma, right, that's the
Speaker 4: rate of change that you can monetize, and that's what
Speaker 4: you're balancing. It's the time decay versus your ability to
Speaker 4: make money trading when you own options.
Speaker 2: Paul, should we move on? Please?
Speaker 3: Thank you?
Speaker 2: You brought up theta exactly.
Speaker 3: Tom asked word see over the last six seven weeks
Speaker 3: with this war here, how would your characterize the trading
Speaker 3: in the market. It didn't feel panicky to me. Yes,
Speaker 3: we had the vics kind of push out that close
Speaker 3: to thirty, but it didn't feel panick. What did you
Speaker 3: see in the marketplace, Well.
Speaker 4: If you look at the results from the big banks,
Speaker 4: the trading was fast and furious, you know, all things consider,
Speaker 4: this is a fascinating event to study.
Speaker 2: The vics I.
Speaker 4: Think on an intro day basis got as high as
Speaker 4: thirty one tie, but during the tariff tantrum last year
Speaker 4: it got to fifty five, so that was considerably hard
Speaker 4: and the drawdown was considerably greater last year. What you
Speaker 4: do see in these sort of more macro events, where
Speaker 4: again crude is the epicenter and the linkage has become prominent,
Speaker 4: is a move towards index and ETF trading. Right, so
Speaker 4: there was much less discussion around the AI trade over
Speaker 4: the last couple of weeks. That's maybe going to come
Speaker 4: back into you know, into view because earnings are coming.
Speaker 4: But people were very furiously trading macro instruments and that's
Speaker 4: going to lead to options and ATFS.
Speaker 3: We are now getting you right into the teeth of
Speaker 3: the earning season. When you talk to your clients, are
Speaker 3: they pretty constructive on the earnings out look here and
Speaker 3: the ability for earnings to support this market?
Speaker 4: I think that's definitely been the playbook. At every turn,
Speaker 4: we find a way to for the hyperscalers to increase
Speaker 4: their capex and even at a high bar, to report
Speaker 4: incredible earnings.
Speaker 2: Okay, let's do that. Let's get away from derivative madness.
Speaker 2: I keep mentioning this, folks. There are these two guys,
Speaker 2: Merton and Medigliani. They could execute the double play like nobody.
Speaker 2: But the answer is bonds is a substitute for capex.
Speaker 2: Worry if they just issue the bonds five and seven
Speaker 2: times over subscribe their profit making companies. Who cares about
Speaker 2: the capex given the marginal thirty to fifty billion dollar
Speaker 2: bond issuance.
Speaker 4: Yeah, I think I think you're correct. What I would
Speaker 4: just say is that the bar gets so high quarter
Speaker 4: after quarter after quarter. Right, there's no doubt that in
Speaker 4: Nvidia is going to report that they've made a tremendous
Speaker 4: amount of money, as and Meta and Amazon and Microsoft
Speaker 4: are going to say the same. However, and you know,
Speaker 4: we can use Microsoft as an example. It's an interesting
Speaker 4: one to look at because the way the options market
Speaker 4: prices that particular earnings. And you can see this little
Speaker 4: plug here on the E r N page of Bloomberg.
Speaker 4: You could see the one day implied move that the
Speaker 4: market is ascribing to the earning state, and that's about
Speaker 4: six percent. That's really really high for Microsoft, and it
Speaker 4: speaks to the angst around software right the Again, this
Speaker 4: is where the bar gets so high and then you
Speaker 4: start to you know, impose slightly different assumptions, slightly less
Speaker 4: optimistic assumptions, and suddenly you're dealing with a you know,
Speaker 4: a negative results.
Speaker 2: It's a math guy like you have a buy on Microsoft.
Speaker 4: I have a hold on Microsoft, as in hold the spy,
Speaker 4: and it's a part of the spy, not really doing
Speaker 4: single stocks as much.
Speaker 2: It's like, you know, it's like he's working for a
Speaker 2: mutual fund. You what you need is a carefully balanced.
Speaker 3: Portfolio exactly, Dean. What are you looking for here for
Speaker 3: the next direction move for this market? Do you think?
Speaker 2: Yeah?
Speaker 4: I think probably more than anything, consolidation with the you know,
Speaker 4: we just have to be incredibly mindful of what we've
Speaker 4: just gone through and that and this is not any
Speaker 4: Trump arrangement syndrome.
Speaker 2: It's just to notice things.
Speaker 4: You've got to notice a Twitter account that's moving markets
Speaker 4: in a way that doesn't feel really constructive. I think
Speaker 4: we're supposed to also look at the inflation side of things.
Speaker 4: That's a new new sort of thing that's been introduced.
Speaker 4: But at the end of the day, the earnings engine
Speaker 4: of the S and P is what empowers everything. If
Speaker 4: that can hold up, then we may just move on
Speaker 4: from geopolitical conflict decurrent.
Speaker 2: Thank you so much, really appreciate this morning. Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Boomberg Surveillance Podcast. Catch us Live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
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Speaker 2: Patrick Murphy is an earned authority. Is far more than
Speaker 2: a former Undersecretary of the Army service to the nation.
Speaker 2: He is geopolitical Advisory Hillcoke Global. Patrick. Did you study
Speaker 2: blockades when you were in service? Did you study them
Speaker 2: in forms of military school? How does Patrick Murphy discuss
Speaker 2: a given blockade?
Speaker 5: Of course, I listen, you had to talk about it,
Speaker 5: and you know, you learn about what we did, and
Speaker 5: then during a Cuban missile crisis, you know kind of
Speaker 5: what started that. But as you know, I taught at
Speaker 5: West point for years, and I still lecture at the
Speaker 5: US Army War College. You had to know all the
Speaker 5: demands domains of warfare, you know, land, sea, air space,
Speaker 5: and cyber. So you know, that's what we try and
Speaker 5: do at HOKO Advisory HOCO Global for our advisory group.
Speaker 5: And I tell you the world has never been as
Speaker 5: bald as it is right now, at least it feels
Speaker 5: that way.
Speaker 2: You know. I look at this and I fall by
Speaker 2: Patrick on my deep military career Russell Kroll and Master
Speaker 2: in Commander, the Patrick O'Brien movie of the Napoleonic Wars.
Speaker 2: This is a Napoleonic Wars AXIOS has today. That's seventy
Speaker 2: five percent of casualties Ukraine, Russia are from drones. Patrick
Speaker 2: Murphy on a blockade in an age of drones.
Speaker 5: Yeah, well, listen, I let's hope that there's not swarm
Speaker 5: drones going after you know, our troops that are over there,
Speaker 5: because as you know, we've had the largest US military
Speaker 5: build up in that region since before the Iraq War,
Speaker 5: which I served in Darni invasion. And you know, it's
Speaker 5: already cost you know, when you think about Tom Today's
Speaker 5: tax day, it's cost the micro tax payer by the
Speaker 5: end of this month, two months of the war, forty
Speaker 5: two billion dollars.
Speaker 2: And that's from the.
Speaker 5: Pen and Budget Model Office at Penn Wharton where I teach.
Speaker 5: So you know, that's why a lot of Americans are saying, Hey,
Speaker 5: you promised me one thing, no new wars, and you
Speaker 5: gave me this. You promised me less inflation. It's gone up.
Speaker 5: And you know, I tried to be four point two
Speaker 5: percent gas prices over dollar. And that's why, you know,
Speaker 5: for US looking and advising industry, they want certainty. And
Speaker 5: that's why not just the American people, but Wall Street
Speaker 5: and business across American this world are pretty frustrated by
Speaker 5: what they're seeing.
Speaker 2: Patrick.
Speaker 3: You know, the air offensive against Iran has been extraordinarily
Speaker 3: and extraordinarily effective. But I think what we've all learned
Speaker 3: over you know, the last thirty forty fifty years, there's
Speaker 3: always so much air strikes can do here. What do
Speaker 3: you think the next step should be for the US here?
Speaker 3: I mean there's additional talks today of maybe extending the ceasefire.
Speaker 3: What do you think is is the best off ramp here?
Speaker 2: Yeah?
Speaker 5: Well, listen, that's those of us who've seen war and
Speaker 5: I've lost nineteen men of my unit, and evasion in
Speaker 5: Iraq do not want war. We'rethy, reluctant warriors. It's always
Speaker 5: the last line of defense. It's also a failure of diplomacy.
Speaker 5: So let's hope that we then restart new negotiations. Obviously, Pakistan, Turkey,
Speaker 5: i'mon and now China are trying to broker that and
Speaker 5: get that back on the table after the first twenty
Speaker 5: one hours didn't go well last weekend. And by the way,
Speaker 5: there's also negotiations as we know in Washington, d C.
Speaker 5: Right now, between Levenon and Israel. So it's a fragile ceasefire.
Speaker 5: But those of us who understand warfare understand that, you know,
Speaker 5: you cannot have regime change with just airpower. We knew
Speaker 5: that months ago, right and anyone that understands bilt their
Speaker 5: history and as commanded that understands it wasn't gonna happen.
Speaker 5: And you know, the Iranian regime is still in place.
Speaker 5: Obviously we took out their top leaders, but the toll
Speaker 5: Son is now George. He's even more radical. He lost
Speaker 5: his wife, he lost his son, and that's why a
Speaker 5: lot of folks are clamoring to say, how are we
Speaker 5: going to bring this to as you said, an elegant
Speaker 5: solution at elgon end here where we protect their interest,
Speaker 5: have the straight flowing again because of you know, our
Speaker 5: greatest allies get like you look at South Creage, you
Speaker 5: look at Japan.
Speaker 2: Seventy percent of the.
Speaker 5: Oil comes from the Strait, and so a lot of
Speaker 5: phrasey asking America to figure this out real quick.
Speaker 2: I got to get this in. I've only got a
Speaker 2: minute and a half. I'm so sorry, sir your comments
Speaker 2: and the firing of General George General Smith, General C. Q.
Speaker 2: Brown Jr. And for that matter, Admiral Franchetti as well.
Speaker 2: What are we doing with our top brass.
Speaker 5: Well, unfortunately, a lot of great public servants that have
Speaker 5: warn o'clock this country been let go. It reminds me
Speaker 5: of when we fired the Secretary of the Army, Eric
Speaker 5: Schecky before the Iraq work because he spoke truth to
Speaker 5: power and before that war.
Speaker 2: And I will.
Speaker 5: Tell you I am a big believer Tom and suing
Speaker 5: leadership over military should be that way. But at the
Speaker 5: same time, you know, as someone who helped lead the army,
Speaker 5: you have to listen to military experts and you have
Speaker 5: to listen, and God gave us all two eyes, two ears,
Speaker 5: and only one mouthful reason. And I feel like they're
Speaker 5: listening only for the They're already listening for what they
Speaker 5: want to hear. And patriots like Randy George Iraq, Afghanistan Vetcher,
Speaker 5: West Point graduate, c Q. Brown, the Chairman of the
Speaker 5: Joint Chiefs of Staff, and so many others have been
Speaker 5: let go. And a lot of us who've worn the
Speaker 5: cloth of our country. Are you know, one eyebrow up
Speaker 5: saying what the hell is gone down there?
Speaker 2: Washington?
Speaker 1: D C.
Speaker 2: Patrick got a run and Paul and I got to run.
Speaker 2: But thank you so much for your time and your
Speaker 2: public service. It's odd I find Patrick Murphy, that sparta
Speaker 2: who drives the whole ship here. He said the same
Speaker 2: thing to me the other day. Hey stupid, you got
Speaker 2: two ears in one mouth. Fix it. Mister Murphy is
Speaker 2: with Hillco a Global and of course the former Undersecretary
Speaker 2: of the Army. We greatly appreciate his support. Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
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 Apple,
Speaker 1: Karplay and Android Otto with the Bloomberg Business app, or
Speaker 1: watch us live on YouTube.
Speaker 2: She is Wolf Research always a help to us to
Speaker 2: fed asides and lots of other good economic Stephanie roth
Speaker 2: darkins the door today. Can you make a GDP estimate? Now?
Speaker 6: Yeah, you ken, I mean you have to make some assumptions, right,
Speaker 6: So we're assuming that at some point in the next
Speaker 6: couple of weeks that the war ends, and I mean
Speaker 6: both sides seem to want to get to a deal
Speaker 6: despite them being relatively far apart. What you're seeing so
Speaker 6: far is that there's there's no real negative impact on consumption.
Speaker 6: You're hearing across the board from companies, the credit card
Speaker 6: data that spending is pretty solid.
Speaker 2: There is cattle a record high that does a dend consumption.
Speaker 6: I mean, there are parts of the inflation bucket that
Speaker 6: are elevated, but so far and spending has been solid.
Speaker 2: Returned to surveillance. Steakhouse correspondent Paul Sweeney, where's your tip
Speaker 2: point on a steak menu item? Is it seventy bucks?
Speaker 2: You go? I'm not paying that.
Speaker 3: I think I represent the market. There isn't one. I
Speaker 3: don't eat it. That often. But I'm going i will
Speaker 3: find myself in a steakhouse. I'm getting a New York strip.
Speaker 3: I'm not getting you don't have a price resistance point,
Speaker 3: but I don't know that often. So it's to me
Speaker 3: every time I walk into a steak house, it's a
Speaker 3: special event.
Speaker 2: So God, Lisa Mateo's not here. He has had steak
Speaker 2: in thirty years. Paul Sweety was Stephanie Row.
Speaker 3: So we're Stephanie. Where do you think we may see
Speaker 3: some of the spillover of now seven weeks of work,
Speaker 3: higher energy costs. Will we see it in inflation? Will
Speaker 3: we see it in slower economic growth? Where do you
Speaker 3: think we'll see it? If anywhere?
Speaker 6: Yeah, So far, the March inflation data have been a
Speaker 6: bit lower than expected for a couple of reasons. Airfares
Speaker 6: haven't been quite as high as expected. They were still elevated,
Speaker 6: you know, call it about two percent month a month.
Speaker 7: You've seen there's other some other.
Speaker 6: Things that went the other direction, like legal services, which
Speaker 6: is you know, sort of a one off thing. Generally speaking,
Speaker 6: we do expect to show up in the inflation data
Speaker 6: the next couple months, specifically in airfares, that's the component
Speaker 6: that is most tied to energy prices. That is part
Speaker 6: of core, but outside of that, it might take a
Speaker 6: long time for it to bleed into inflation. And if
Speaker 6: the economy is humming along, if the labor market is
Speaker 6: picking up a bit as we expect, then then the
Speaker 6: economy should be fine.
Speaker 7: We're looking for two point three percent GDP.
Speaker 3: Growth and the consumer. Are we in an economy here
Speaker 3: against are the US economies roughly seventy percent? Services? Is
Speaker 3: the case shaped economy such today day that the higher
Speaker 3: part of the K is just driving the bus. It
Speaker 3: almost doesn't matter what's happening out there because we have
Speaker 3: the other part of the k. Those folks are really
Speaker 3: struggling paycheck to paycheck, But we don't see it in
Speaker 3: the ultimate data points, do we?
Speaker 6: No, you have it, and you've seen just the middle
Speaker 6: to upper income people just sort of driving the economy
Speaker 6: and it's you know, it's a problem and a real
Speaker 6: world issue, but from an economic perspective, when you look
Speaker 6: at the macrodata, you don't really see it because everybody
Speaker 6: else has been spending fairly well.
Speaker 2: Sephanie Wroth with us with a terrific synthesis with Wolf
Speaker 2: Research of where we are. So the UNIMF puts out
Speaker 2: the Green Book. I saw it, folks, I relinked in it.
Speaker 2: Guess what, I haven't read it yet. It's like four
Speaker 2: hundred pages long. I need a beverage and bill sit
Speaker 2: next to me. But then the Green Book, they say, OMG,
Speaker 2: the United States their their deficit treasury bill issue wins.
Speaker 2: And yet everybody out on Lexington Avenho says, we don't care.
Speaker 2: So what is it? It? Does it matter?
Speaker 7: I mean, it doesn't matter for now.
Speaker 6: At some point there could be an issue where the
Speaker 6: botto market really starts to be upset about it. But
Speaker 6: you know, we've seen a couple of periods of time
Speaker 6: where the bottom market gets concerned about the deficit and
Speaker 6: then it kind of moves on because over the short term,
Speaker 6: generally speaking, it's economic conditions and FED policy that tend.
Speaker 7: To drive where the tenure is.
Speaker 6: And by the way, the US is different from the
Speaker 6: rest of the world because the US is a reserve currency,
Speaker 6: so it has the ability to take a higher deficit.
Speaker 7: I get it.
Speaker 2: But okay, Paul, but I know you want to jump
Speaker 2: in here. I gotta go to this. I gotta sell Barry.
Speaker 2: I can agree my book of the summer, folks, is
Speaker 2: money and borders. It's very ic a green of Berkeley,
Speaker 2: And it's exactly what Ms Roth just said, which is
Speaker 2: our seniorage, our our having the US dollar is absolutely fundamental.
Speaker 2: The strength of the dollar, the use of the dollar
Speaker 2: is truly foundational to your work.
Speaker 7: Yeah, so, I mean what would happen in other countries.
Speaker 6: What tends to happen is if investors don't feel comfortable
Speaker 6: with the currency, they're gonna they're gonna pull their money out,
Speaker 6: and then you get some big currency moves. But in
Speaker 6: the US it's different because it's the reserve currency. So
Speaker 6: people continue need to need to trade in the dollar,
Speaker 6: and in times where you really get risk off, money
Speaker 6: still comes into the dollar, which then puts downward pressure
Speaker 6: on rates and helps to offset that.
Speaker 2: Paul. It's like your rock stars seating at God's country. Sure, Okay,
Speaker 2: it's an exorbitant privilege. That's your true that's you start
Speaker 2: to stay. He loved God's Country, Paul.
Speaker 3: There we go, So all right, talk to us about
Speaker 3: the labor market. Are we still in a market where
Speaker 3: it's little to no hire, little to no fire, and
Speaker 3: we're just kind of stasis, right, here.
Speaker 7: Yeah, it's been a slow labor market.
Speaker 6: This low fire, low higher environment seems to continue to
Speaker 6: be the case.
Speaker 7: We might see a bit of a pickup in hiring
Speaker 7: from here.
Speaker 6: We might see call it around seventy thousand, which has
Speaker 6: been the most recent three month run rate. You might
Speaker 6: see a bit of a pickup in cyclical hiring.
Speaker 7: There seems to be less of.
Speaker 6: An appreciation for the fact that tariff uncertainty did weigh
Speaker 6: on a labor market last year and that is starting
Speaker 6: to fade. So our expectation is the labor market should
Speaker 6: be hit better this year than it was in twenty
Speaker 6: twenty five.
Speaker 3: If it's not really growing the labor market, how does
Speaker 3: the economy growth to Did it exist? Workers just get
Speaker 3: more efficient? I guess maybe AI, I don't know.
Speaker 6: Yeah, it's been a productivity cycle that's been a key
Speaker 6: driver of growth and net what problemly continue to be
Speaker 6: and productivity could be really strong in the next couple
Speaker 6: of years, right.
Speaker 2: Paul, just ask folks the single smartest question of the quarter,
Speaker 2: of the year, of the decade, whatever. I mean, this
Speaker 2: is something on every American's mind. We're sort of leveling
Speaker 2: out with the immigration changes and all that productivity to
Speaker 2: the rescue. Okay, great, but does productivity help how many Americans?
Speaker 2: What portion of the people benefit from Stephanie Roth productivity?
Speaker 2: It's not fifty percent, is it.
Speaker 6: Well, So here's how productivity ends up being a good
Speaker 6: thing for American consumers. It's generally speaking, is initially good
Speaker 6: for companies because it helps the profit margins. They can
Speaker 6: hire less and produce more. But then eventually, at least
Speaker 6: in theory, then you end up having competition amongst companies
Speaker 6: that drives down prices and it allows real to rise
Speaker 6: or wages can rise above inflation, and the people that are,
Speaker 6: you know, having trouble with affordability can kind of grow
Speaker 6: into some of the prices are that exist today.
Speaker 3: We are seeing wages growing, are we not.
Speaker 6: We're seeing wages growing, but we just are growing faster
Speaker 6: than inflation.
Speaker 7: But we could see that play out even more.
Speaker 6: You tend not to have strong productivity cycles and inflation
Speaker 6: problems at the same time.
Speaker 2: This is brilliant, Paul, your question is beyond trench and
Speaker 2: this is unfair. It's not Cairo, it's kro Illinois. It's
Speaker 2: like this wicked historic Civil War location at the tippy
Speaker 2: tip bottom of Illinois. The unemployment rate there's fourteen point
Speaker 2: six percent. Now I'm cherry picking one of the worst
Speaker 2: economies in the country to be to be fair, Alexander
Speaker 2: County and Caro, Illinois. But stuff, I got to be
Speaker 2: quick here. I mean, the dispersion of productivity is more
Speaker 2: narrow maybe than we think.
Speaker 6: Yeah, it's possible, and you know, eventually that could that
Speaker 6: could broaden out, and that would be that would be
Speaker 6: a you know, really positive development if.
Speaker 7: It takes time.
Speaker 6: If it takes time and which it generally does these
Speaker 6: productivity cycles. And there are pockets of the economy where,
Speaker 6: of course unemployment radar is higher than others. But you know,
Speaker 6: you know, a little about four percent is a fine
Speaker 6: place today.
Speaker 2: Brilliant Stephanie Roth, Thank you so much for the little research.
Speaker 2: Stay with us. More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
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Speaker 2: David Serby and here I got to get one investment
Speaker 2: Covin in your David Sarby in studio in from Detroit
Speaker 2: with and Cora is, Well, you didn't go to cash,
Speaker 2: did you?
Speaker 4: Absolutely not.
Speaker 8: Cash is trash compared to on an inflation adjusted after
Speaker 8: tax basis.
Speaker 4: Why so, do you fly new cash now?
Speaker 2: Or do you go I made the right decision? You do?
Speaker 8: You put cash to work prudently. Okay, But if you
Speaker 8: look at when sentiment gets unusually bearish, as it did
Speaker 8: in mid March. Twelve months later, the S and p
Speaker 8: on averages up twenty percent, the Russell two thousand small
Speaker 8: caps up twenty five percent, why go to cash?
Speaker 2: Okay? So, folks, we've got a really special treat for
Speaker 2: you right now. We get Sobery out of the way
Speaker 2: with the investment thing. Nobody cares and we're thrilled he
Speaker 2: is here today, Paul Sweeney. He's like, yeah, I do
Speaker 2: finance and bonds and banking, and yeah I can do radio.
Speaker 2: Tom Keene amateur, Mark Crumpton and Katie Ka Pittsburgh yep
Speaker 2: km OX and say you know these names, Walter Crost
Speaker 2: before CBS out in the midwe What people don't know
Speaker 2: here is we get to work every day with a
Speaker 2: rock star w JR. All you need to know is
Speaker 2: there was a point where they said to Ernie Harwell,
Speaker 2: where we structuring Michael Barr with us from w j R,
Speaker 2: which David Sawerby is a foundation part of Detroit. What
Speaker 2: was it like the day they said goodbye to Ernie
Speaker 2: Harwell of the Detroit Tigers.
Speaker 9: I'll never forget this. I was driving down dis Road
Speaker 9: and I'm listening and at first I hear that, okay, well,
Speaker 9: there you know, Ernie Harwell is going to move on.
Speaker 9: And it's like, oh, that's too bad. And as I'm driving,
Speaker 9: all of a sudden, Ernie says, no, I didn't want
Speaker 9: to go. They told me to leave, and I almost
Speaker 9: wrecked the car and I'm like, oh, no, this is
Speaker 9: And sure enough the moment I got into work, it
Speaker 9: was David Sawerby.
Speaker 2: I mean, you live this as well. Michael Barr is
Speaker 2: iconic within Detroit. We treasure having him every single explain
Speaker 2: like KMOX and Saint Louis or Katie Knaw. There's WTP,
Speaker 2: Washington and all that explain Michael Barr and w JR.
Speaker 2: To people who were bored out of his financial news
Speaker 2: every day.
Speaker 8: Ernie Harwell was the voice of the Tigers. They brought
Speaker 8: him back. Remember that and an icon in Detroit. And
Speaker 8: I'm here to speak for Detroit. When I was walking
Speaker 8: through the airport to board, there's a store. It's called
Speaker 8: Detroit Versus Everybody, and I can tell you with great enthusiasm.
Speaker 8: And Detroit debt has been upgraded eleven times in the
Speaker 8: last ten years, from Triple C to BUBA one. It
Speaker 8: has been It had been a long time since Detroit
Speaker 8: was investment grade, but it's a value stock that got
Speaker 8: much better.
Speaker 2: Okay, we got to get back to investors of Michael
Speaker 2: Barr quickly. Here where do you go for the best steak, sandwich,
Speaker 2: kind of meat thing in Detroit? Where is the restaurant?
Speaker 9: Well, you know, you know where I love going, and
Speaker 9: that's the Detroit to Coney Island.
Speaker 8: David American or Lafayette, Lafayette, Lafiete.
Speaker 2: Okay, we got Michael Bart. Thank you so much for
Speaker 2: joining us definitive at WJR. Our privileged to be with
Speaker 2: them every day. Paul Javier Blass. The price of beef
Speaker 2: just hit a record high, David sawbrig at Coney Island,
Speaker 2: La Fiette or anyplace else. How do we deal with
Speaker 2: record cattle prices?
Speaker 8: Inflation will still be a temporary event, I believe, because
Speaker 8: the FED is still only growing M two at five
Speaker 8: to six percent. That's not like the twenty percent growth
Speaker 8: rates that gave us the eight percent inflation. So the
Speaker 8: concern about energy, and it's rightly so four dollars for
Speaker 8: a gallon of gas, it will be temporary because the
Speaker 8: FED is not ratifying it by printing more money. They're
Speaker 8: much more sensible than they were in twenty twenty one.
Speaker 2: So David's what's.
Speaker 3: Kind of your allocation these days? Stocks, bonds, alternatives? Has
Speaker 3: it changed it all over the last couple of months.
Speaker 8: Generally, no, Public equity is still the best place to
Speaker 8: make money. Private equity is getting exposed for not having
Speaker 8: the illiquidity premium people often thought. Private credit is certainly
Speaker 8: under duress. So it leaves you back to public equity,
Speaker 8: and with the S and P generating eleven percent free
Speaker 8: cash flow margins and double digit earnings growth, it's still
Speaker 8: the place to be to grow your wealth.
Speaker 2: Economic data out to get a lift, I got a
Speaker 2: little bit higher yield, a little bit of the disinflationary
Speaker 2: since plus empire manufacturing, the buffalo statistic that comes in
Speaker 2: more optimistic with an eleven versus zero. These are more
Speaker 2: constructive numbers, Paul, as we've heard from others, including mister Sowerby.
Speaker 3: Exactly right. How about equities here at David US versus
Speaker 3: non US, because we did have a little bit, you know,
Speaker 3: in twenty twenty five, US equity markets did very well,
Speaker 3: but a lot of the markets outside the US did
Speaker 3: even better. How do you think about that?
Speaker 8: I still think it's a US biased allocation in portfolios.
Speaker 8: It's been that way since nineteen eighty seven. SMP has
Speaker 8: compounded five percentage points annualized over the MSCIEFA. As I said,
Speaker 8: our free cash flow margins are still well above we're
Speaker 8: seeing in non US. And a quick shout out to
Speaker 8: small caps as we like to talk about that. Since
Speaker 8: Thanksgiving of last year when we all asked for good things,
Speaker 8: small caps are up fifteen percent. The SMP is up
Speaker 8: four percent, so they're certainly robust opportunities in small caps.
Speaker 2: As Detroit Lions faded. David Serby AI, is there a
Speaker 2: mid cap play in AI? Or does David Sawerbery gotta
Speaker 2: buy Microsoft I?
Speaker 8: For the record, in my large cap portfolio, the largest
Speaker 8: position is Broadcom, which is AI spending beneficiary, but indirectly,
Speaker 8: I'll give you Stefol mid cap only six analysts following.
Speaker 2: Still the financial, Yes, the financial. They're on the shoulder
Speaker 2: of the Saint Louis Cardinals.
Speaker 8: And they're growing revenue at ten percent. The valuation is attractive.
Speaker 8: They're acquiring advisors who are leaving the big shops to
Speaker 8: go to somebody who's more entrepreneurial and a very good opportunity.
Speaker 8: And they're a beneficiary of AI. It's helping them with
Speaker 8: productivity and compliance administrative duties. Young advisors are learning as
Speaker 8: fast as to become smart like older advisors because AI
Speaker 8: is helping UH and a company like.
Speaker 2: Steve they have lind Yes, I mean that's another reason.
Speaker 3: I'm still looking at the Lafay at Coney and menu
Speaker 3: here what I do? That's my next ship. That did Detroit,
Speaker 3: That's where I'm going. We had rotation kind of late
Speaker 3: last year out of some of the high growth or
Speaker 3: high multiple stocks into smaller value. Was that a short
Speaker 3: term trade? Is that something you're playing? How do you
Speaker 3: think about that?
Speaker 8: I think it's got more duration because now it's six
Speaker 8: months into this small cap rotation and I can buy
Speaker 8: valuations in small cap on a technical free cash flow
Speaker 8: yield basis of six and a half to seven percent
Speaker 8: compared to a treasury that looks very attractive. Amentum is
Speaker 8: another idea. It's a global engineering technology play. They made
Speaker 8: equipment for the Artemis Orion rocket. They make equipment for
Speaker 8: a golden dome for missile defense. There's only six animals
Speaker 8: who follow Amentum. It's a small cap MidCap stock.
Speaker 2: Twenty seconds. Is it so cool to see Mary Barr
Speaker 2: and Cadillac at F one? It's just got It's just
Speaker 2: in Detroit. It's just got to be great.
Speaker 8: GM has made a great transformation, better better capital allocation
Speaker 8: of their cash flow generation. They're growing the dividend once again.
Speaker 8: You can own the auto stocks more permanently than simply
Speaker 8: dating them, and that speaks to general motors.
Speaker 2: David Sarvey think as much treasure the comments on Michael
Speaker 2: Barr and w JR.
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