00:00:02 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at seven am Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube. 00:00:27 Speaker 2: Listen to this. 00:00:27 Speaker 3: Let's jump to Tony Cascendi right now. We're really good. Join us. He's been definitive of all my work over the decades. To the Pacific Investment Management Company. There's now an executive vice president market strategy. I love this suit. What in God's name is a generalist portfolio managed? 00:00:45 Speaker 4: What means we can talk about that? You think, well, think of the Bloomberg aggregate index. It's a it's got it's a market as, it's got mostly treasuries forty percent, it's got mortgages around thirty percent. It's got corporates and the mid twenties or so. So generally will decide between moving between those sectors and perhaps also think about the. 00:01:04 Speaker 3: World moving for coupon or for total return. 00:01:07 Speaker 4: Well, today you just think of the starting yield and the starting yield today on the Bloomberg US aggregates four point nine one percent that's the highest of the past year, because yields have been rising lately, the starting yield, So think the year twenty thirty one. I could probably tell you in twenty thirty one, God Willing that the yield, the return that you had on bonds was in the US aggregate was four point nine percent ninety four percent correlation since nineteen seventy eight. So the starting yield is really important. It's the main determinant of your future returns. And so that's that's the thing I would focus on most, is just simply getting that return. The rising yields lately another bite provides another bite at the apple. Yields have been rising on and off for about four years, fluctuating. Some investors still stuck in care, still stuck in low yielding money marketing intruments in the mid threes or so, when you could get yields between five and seven percent in portfolios. Having an average credit quality is the key of double a minus, which is to say, ninety nine point nine eight percent chance of getting your money back according to historical statistics. So the starting yield is a really important story. 00:02:18 Speaker 5: Right now, look at the first job. I think for this guy, Tom trading assistant. Guess we're prudential Basin. 00:02:25 Speaker 4: Based Broadway, right next to Trinity Church. It was a wonderful place to be right near Wall Street. A room of stockbrokers, which today they call financial advisors, and I learned a lot from them, about thirty of them. And so today these days worldwide, I visit many financial advisors again that they once called stockbrokers working for commissions. Today it's a lot different. It's actually a good thing for investors in. 00:02:50 Speaker 5: Fixing the world today, Tony, Can I just clip coupons? That's that's a nice way to make a loosk. 00:02:55 Speaker 6: Yeah. 00:02:55 Speaker 4: And here's here's another statistic and looking at this yield where it is is where they are today and using the Bloomberg aggregate again as a gauge, and it can be mirrored worldwide in a one year period going back to nineteen seventy eight, investors one year later have made money ninety six percent of the time. In other words, a return a year for now probably will be positive. So even if yields rise further from here, and they've been rising lately, that means bond prices could fall. The coupon the income is poek. 00:03:24 Speaker 3: It in the coupon of the thirty year oat in France, the guilt in the UK, even in the United States gives pause. There's some superlatives like price back to where it was two thousand and seven, whatever. As you look at the global system, which you can do with pimcoh bring that over to US investors. Is it idiosyncratic or are they attached? 00:03:47 Speaker 4: It's radiosyncratic, and that's why at PIMCO we've been suggesting sourcing duration globally because the US story isn't great necessarily on the fiscal side. We know the US has a big budget deficit. It must continuously issue bonds and that could result in yields rising. So we decided lately to source our duration globally, including in the UK. For example, we yields are above that of the US. Australia for various reasons related to the macroeconomic situation. In the emerging markets where this year has been very fine, performance better than in the US, and it seems like the asset classes tending to fare better in the eyes of investors. So we think there are many idiosyncratic stories worth diversifying botfolio into. 00:04:35 Speaker 5: Michael writes in and says he thinks the Fed's going to raise next week. 00:04:40 Speaker 4: What do you think We do not think so. Of course Warsh isn't in the business of signaling things, but I think we think it would perhaps if he were imminent. We're in the camp of the Fed doing nothing this year. But even if it hikes rates, and I'm talking about this glorious bond market story, bond investing story, so what And I think of Alan Greenspand, who I had met years ago, very fortunate when he was an advisor at PENMC when I worked in Newport Beach. He raised rates aggressively in nineteen ninety four, battling the inflation fears of the late seventies, early eighties or late eighties, and he won as in his last two half point hikes the end of February of nineteen ninety four and then early ninety five, yields fell. So don't worry about hikes as a bond investa, because it actually it's it's medicine and it's tough life, and it's a good thing. 00:05:33 Speaker 3: Tell me here, generalist portfolio manager, somebody with a real job at the Pacific Investment Management Company, like Jerome Schneider is squizzing at the short term mark money market houses year going, and I mean Paul's talking about there's this wall of money. It is the wall of money moving out of money markets into the Jerome Schneider's space. 00:05:55 Speaker 4: It is I'd say we should you should run from cash to core. But of course cash has it's placed. But another statistic would show that on a three year rolling basis that core investments meaning in average maturity around five six years, or the Bloomberg aggregate around six years. Three year rolling bases meaning three years from now, should be able to tell you eighty five percent confidence that core beat cash. So it tends to beat cash, especially with yields and and cash high threes that get around five and high quality fixed income investments five to seven percent. So you probably better off shifting a bit from cash to course. So I'd say run, don't walk to that idea. Because here's one other point. Many Americans have, of course, locked in on a low mortgage rate, Americans should start thinking about joining what I call the double lock club. You locked in the low mortgage rate on your debt, why not lock in a high interest rate on your fixed income investments? 00:06:50 Speaker 5: How much creditis should investors be taken. I mean the year to day the high yield index on the Bloomberg almost forming the best. 00:06:57 Speaker 4: It's winning. But these yields are good enough, as I mentioned, w minus five to seven percent, so you needn't stretch out into and go down in the capitol. 00:07:07 Speaker 3: Chordy, thank you. You got a new book coming out. 00:07:10 Speaker 4: I'm contemplating a seventh a few different ideas. One is a novel called The Wall Street Tale, which we'll go back to my days I worked you mentioned potential base. After that, I worked at Lehman Brothers in the World Trade set of one hundred and fourth floor. Some good stories from an amazing view I had up there, Tony. 00:07:27 Speaker 3: Thank you so much. Thank you so much as well. Wonderful to Evan and studio. I should mention absolutely definitive effort and money market Funds a classic, all of twelve hundred pages. No I have not read it cover to cover. Stay with us more from Bloomberg Surveillance coming up after this. 00:07:53 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Otto with the Bloomberg Business app or watch US live on YouTube. 00:08:06 Speaker 3: Joining US now, Tina Fordham. She has been absolutely on fire out on LinkedIn Fordum Global Foresight with all of the international relations, the fractured foreign policy that we're facing out, Tina, I've got to go to the single item overnight that I believe the President of the United States, going after the nuclear efforts of Iran, has decided to give nuclear to Saudi Arabia. What are we giving to Saudi Arabia? It's any different than Iran. 00:08:40 Speaker 2: Well, the Security Pact, the Nuclear Sharing Agreement is normally regarded in international affairs circles as being part of a proliferation of access to weapons of mass destruction. 00:08:55 Speaker 7: But I think for the White. 00:08:56 Speaker 2: House this is seen as a way to level the playing field in the region and give a loyal ally that is also an adversary of Iran some protection and some peace of mind, and that is probably much needed. 00:09:15 Speaker 3: Tina. 00:09:15 Speaker 5: We heard from a Secretary of Defense Hexith yesterday testifying before Congress. 00:09:19 Speaker 2: Here. 00:09:20 Speaker 5: I think a lot of people were trying to get a sense of how does the US pursue its war with Iran with an eye on getting out of there. I mean, a lot of folks are unsure why we were there in the first place. Now we're trying to figure out how we get out of there in a positive scenario. Do you have any view of how this might play out? 00:09:42 Speaker 2: I mean, this is a classic textbook escalation trap, right, And you know that I've been consistent about this from the beginning, whereby the. 00:09:53 Speaker 7: War aims weren't clear, the. 00:09:55 Speaker 2: Strength of the adversary in the case of Iran was underestimated. With the new leverage that Iran has with the Strait of Ormuz, going back to the original objective, which was mainly around depriving Iran of nuclear weapons capability has now moved further down the list, and Iran has gained out that it is more patient and more willing to you know, software cavities than the United States. And so we're trapped. This is the most expensive war in some time, but also the most unpopular. This is the least popular war I believe in US history. 00:10:41 Speaker 3: Help us just you know, within the myriad of themes, Tina, you're expert this with your decades as City Group as well. The Secretary Defense is talking a thirty forty billion dollar worse so far I was suggest no one on the planet believes that number. What is the Tina Fordham klan of the war. 00:11:02 Speaker 2: I haven't made an estimate, but it certainly is going to cost more than it's going to deliver in terms of geopolitical or economic. 00:11:12 Speaker 7: Benefits in normal circumstances. 00:11:15 Speaker 2: And I was talking to Bill Burns in London here yesterday, a former rector. 00:11:20 Speaker 7: Of the CIA. 00:11:22 Speaker 2: You'd be looking for off ramps in diplomatic terms. Trump tells us that the talks aren't happening, that there aren't even discussions going on, and so what is most likely is episodic use of violence and expansion of the target set. One of the risks is, you know that the United States decides to make it ron uninhabitable without putting boots on the ground, which I think would be too high costs, unbearable costs for the United States to contemplate. 00:11:57 Speaker 3: And you know this geography, folks. Here's an anecdote. I'm in London at Finsbury Square. It's where Bruckner wrote many of his symphonies, at the Bloomberg headquarters. There was just fame, famed headquarters, and Tina I was absolutely thunderstruck. How the United Kingdom media followed a soldier who died in Afghanistan and followed the casket home the entire way. Now, I'm not saying we're doing that right now with the dead and injured of America, but our reaction to this, these soldiers and sailors in harm's way doesn't seem to be like other American wards. Is there going to shift in America to the agony of war. 00:12:45 Speaker 7: Yeah, it's a it's a very deep question. 00:12:47 Speaker 2: And as you shared that anecdote, I would just add for for your viewers and listeners that not only is the casket followed here, but people line the streets strangers, people line the streets in a sign of respect. 00:13:05 Speaker 7: And it's a puzzle, really, isn't it. 00:13:08 Speaker 2: I mean, the US casualties currently are around eighteen You know, my father was a war orphan in World War two. To I know how these are all tragedies, and yet are we inured to the human costs of war, the economic costs of war? There is some pretty significant cognitive dissonance going on. But to bring it back to the markets, in a way, the markets are letting it happen by, you know, by not reacting. If you like, you know, we're still only at what ninety dollars a barrel? 00:13:41 Speaker 3: Yeah? Do you have a price in your head? To you one final question, do you have a Brent crude price in your head? Where things unravel for the West? 00:13:51 Speaker 2: I don't think that the hostilities will continue at a you know, sustained clip to get over one hundred. I think that that's the kind of magic number. Having said that, the White House didn't expect this war to be going on for as long as it has, and for the regime in Iran to still be in place, and for the people of Iran not to have risen up. It's the law of unintended consequences and you can never plan the perfect ideal scenario. 00:14:23 Speaker 3: Just wonderfully valuable, Tina Fordham. Thank you so much, Fordham Global Foresight with that one hundred dollars mark on oil. Stay with us. More from Bloomberg Surveillance coming up after this. 00:14:42 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch US live on YouTube. 00:14:54 Speaker 3: Joining us right now rafaeld Thon. Is that correct? I want to get it right. It is good. 00:15:00 Speaker 6: Like Raphael Tuen joins us here at Tico Tiko capital, Tiko capital hugely out of massively prestigious derivatives in capital markets at suction years ago. 00:15:15 Speaker 3: Fact I read every word of the pre election in Lamonde two days ago into the chaos of twenty twenty seven. I got to back up, price down, yield up in French paper. Is it an opportunity or do you really see stress in the fixed in market in France? 00:15:36 Speaker 8: Yeah, if you take the front page of the newspapers in France, it's a lot of anxiety. We don't know what's going to happen. We know the deep Left and the deep Ride or potentially contenders there, and what's going to happen with deficits that yields on government dates is obviously a high anxiety. If you look back though and take a broader picture of what's happening, you're seeing actually deficits trending them. In France from six percent starting point, we're probably going to be ininearing five percent very soon. 00:16:06 Speaker 3: So that's good news. 00:16:07 Speaker 8: And there is somewhat of consensuous building now around the fact that yes, it's time to act, that it's probably gone too far, that you know, people have to raining spending and make sure that deficits can be manageable going forward. So obviously a lot of uncertainty, but maybe not as scary as it seems. 00:16:26 Speaker 5: How are just you know, when the tariffs came in, a lot of money left the US markets and went to other parts of the world, including Europe in particular. I'm not sure that trade's still there. How do you think about investing in Europe versus maybe the US or Asia. 00:16:41 Speaker 8: So it's interesting the big picture in Europe now that we're entering, as well as in the US, a massive capex cycle for. 00:16:50 Speaker 3: The years to come. 00:16:51 Speaker 8: When you look at the list of things we need to finance in Europe, it's und less. We need to finance defense after decades of underspending. We need to finance data centers and we're far behind compared to where we are in the US. We need to finance electrification, decarbonation, digitalization, you name it. And so against this backdrop of massive investment needed. When you look at the capacity of capital markets in Europe to sustain and finance those needs, those are extremely narrow, extremely stretched. 00:17:23 Speaker 3: Equality is very. 00:17:24 Speaker 8: Poor on capital markets in Europe, and here is really an opportunity. It's an opportunity for people with capital to bring capital take part of what are oftentimes mega trends in the making. And so that's what we're doing at TKO. But guess what this is what a lot of money managers across the world are doing. You're seeing, for instance, from the US a lot of internative asset managers flocking to Europe opening offices to bring that capital to Europe. 00:17:51 Speaker 3: Your heritage how to suck and with the immense derivative and mathematics background is to always be aware of what is the bead? What what the bet right now? On friends another friends in Europe? Excuse me, what's the bet that's being placed by finance in Europe right now? 00:18:08 Speaker 8: So the idea he has to say, well, it's a pretty good setup to invest in Europe if you take the broader picture. Earnings will be strong this year, double digit earnings growth, which in Europe is quite something. You will have potentially the impact of fiscal stimulus coming from Germany. You know, that's a pretty sizable stimulus coming. It was a bit on the disappointing side in H one some delays in implementing these stimulus, and that is a bet and the case to be made that in H two you will see the effect of the stimulus. You will start to see the effect in infra and defense and so on. That inflation compared to what we get in the US is somewhat a bit more content. I'm not talking about energy, but xCE energy co inflation, wage growth, service inflation, all of that is a bit more manageable. 00:18:56 Speaker 3: I got twenty seconds, mister King, thank you dear for listening today. Emails and then she says, would you ask Rafael what a god's name happened to France and the World Cup? 00:19:05 Speaker 8: Oh please don't stop with that. You know, we had a nice conversation and here. 00:19:12 Speaker 3: I'm sorry they were going to win it. It was like a layup in oops. But really that was sort of like the word copy was France in Spain was like. 00:19:22 Speaker 8: The the best team one and I think we can't say that. 00:19:26 Speaker 3: I don't know beans about soccer, but it was magical to say that Spain, can you come back? I wish I can. Okay, I'm going to work on my friends. Here we're just trying to get a remote here. We want to go get a remote with you as as we can. Raphael seeing with us here from Tico, capital of Paris. There, stay with us. More from Bloomberg Surveillance coming up after this. 00:19:59 Speaker 1: You're listen to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube. 00:20:12 Speaker 3: This is incredibly well timed. I want imagine this wonderful work at Edward Jones tearing a pot the market, piecing them back together. She has really abrupt terse notes, which I love. Is part of it into earning season and I saw this today with Philip Morris as Switzerland not Eltria, but PMI a shocking revenue number. Are we going into this ballet where we don't understand the linkage of nominal GDP over the revenue pop? 00:20:43 Speaker 2: You know? 00:20:43 Speaker 9: Look, I think to your point, the consumer economy has held up really well and that is showing up in revenues across sectors. So yes, we are expecting tech to have an amazing pop this earning season. But we are also seeing this revenue gain across consumercrashary across I'm not. 00:21:02 Speaker 3: Hearing enough about this. I hear earnings this, and you know a lot of naval gazing and that. But Paul, I remember Honeywell years ago like four percent revenue growth, and all of a sudden they were doing six percent because of a spirited economy. 00:21:15 Speaker 5: So we've seen we've seen some rotation in the markets here, maybe add of some of the tech names into I don't know, cyclicals defenses. That is that a short term trade or is that the market telling me something? 00:21:28 Speaker 9: You know, it is interesting. I do like to see some of the most parabolic moves in the market take a breather here. So an area like semiconductors was up close to one hundred percent before we saw a little bit of a pullback twenty percent type of correction. But we thought that was healthy. It was a good reset. Semis are still up sixty seventy percent this year, so not a concerning year to date number by any means. The rotation, though we like to see it. We think it's a healthy sign as well in terms of broadening of market leadership. This you know, you're war of a bull market, does it have legs? Well, I think earning season will drive that. We're going to get alphabet tonight. That'll set the tone, and we think tech could potentially get some legs again here. 00:22:11 Speaker 5: So what is the AI story from your perspective these days? I mean, you just buy the chips? Do you try to bind what people call the picks and shovels utilities? How are you guys thinking about it? 00:22:23 Speaker 9: Yeah, you know, certainly what we've seen this year. Interestingly, the hyperscalers and the Magnificent seven have actually lacked the broader market. So they're up you know, one two percent, while the broader SMP is up nine ten percent. And so could we see an opportunity there, especially if we do here that not only are they spending more, but that spending is yielding some results. They're seeing better revenue growth, cloud revenue growth, potentially they talk about return on this investment. I think all of that would be a good signal that the AI trade not at its last innings, but maybe in even the middle innings of the cycle. And so we're hopeful that's the direct of travel and you get some opportunities in those lagging parts of the market. 00:23:03 Speaker 3: You have a wonderful vista, radically different folks. And this is all going back to the Edward Jones. So I never met. I regret they never met. I mean he lived to be a ripe old eighty nine, dying in the early eighties. You have fifteen thousand is Ish branch offices managing umptying gazillion dollars. The phrase here folks were TNT brokers. This is back to before World War Two, which is they traveled the countryside out of Missouri Saint Louis Tuesday through Thursday. It used to be the heritage. Okay, so now you're not TNT. But you people have a handle on the nation like nobody else. What's the mood out there? 00:23:44 Speaker 9: Yeah, and it's a great call out. Look, we have a client in every county in the US, So yeah, to your point, the retail investor base we have a strong handle on. And look, this investor base has been leading the way. Actually used to be institutions that ledd market. It's the retail audience we think is getting more savvy. And by the way, they're pretty optimistic. Now, are there worries out there? Yes, we're seeing a reacceleration or re escalation in the Iran War. Geopolitics never sits well with this audience, but there's some optimism that the end goal here is that neither side of this aisle will want you know, it's not great for either side of the isle, and so we want to make sure that there's some de escalation over time on the geopolitics. And by the way, innovation has been something that's captivating the retail audience. So the US has been hotbed for innovation. All the mag seven are housed here. I think there's a lot of optimism around that. 00:24:40 Speaker 5: We all like a this year, we're getting a lot of big IPOs. SpaceX obviously the largest what is your client base, the Edward Jones client base in every county in the country. 00:24:51 Speaker 3: Are they bringing up their. 00:24:52 Speaker 5: Advisers saying you got to get me into SpaceX or how do they view those things? 00:24:56 Speaker 9: Yeah, you know, there was a lot of enthusiasm around SpaceX. The space economy over time could be exciting. Here. We were very mindful that the IPO cycle tends to look very similar and it almost happened again this time identically in that there tends to be a pop up front, but over twelve month period IPOs tend to lag the broader S and P five hundred and so certainly SpaceX in particular is probably back at it's near its IPO levels. There's ways to play it. If you have any sort of Nasdaq index exposure or Russell Index exposure MSCI, you're getting exposure to SpaceX, and so I think that's the basket approach is still the right one there. 00:25:35 Speaker 3: Let's talk reversion to mean. We've got a lot of fancy people in today like you, and it's fine. It's an easy prep a pet phrase to say. But from a wannamahajen, what is reversion to mean? After a great bull market? 00:25:50 Speaker 7: Yeah? 00:25:51 Speaker 9: You know, look, I think bull markets tend to be longer and stronger than bear markets, and that's what we know. So on average, bull markets are five and a half years. We're probably four four and a half years into this bull market. They tend to be up over one hundred and twenty percent versus bear markets tend to be shorter lived, so you know, one one and a half years, maybe down twenty to thirty percent, but they really present opportunities. So you know, from our perspective, you want to think long term, you want to think you're twenty to thirty year horizon. And so while there could be some mean reversion after a bull market, if you're young enough, if you still have that horizon in front of you, there's your opportunity. 00:26:35 Speaker 5: I think it's something that's new in your career, my career. ETFs from such a big part. How does Edward Jones what's in type of Edward Jones client do with ETFs? 00:26:46 Speaker 7: Yeah? 00:26:46 Speaker 9: You know, look, ETFs are a great low cost way to access a broad set of stocks, a broad set of sectors, and we think at index exposure, and so you know, I think it was Warren Buffett who said there's not been any individual fund manager that has beat the S and P five hundred over a ten year period. And so getting that ETF and index exposure, in our view, is a great way to. 00:27:09 Speaker 3: With with the ETFs or just some running out of time. Oh yeah, with the ETFs. Are we over diversified today? 00:27:17 Speaker 2: You know? 00:27:18 Speaker 9: I think there's ways even in ETFs to have sector ETFs, to have thematic ETFs, so you could focus your investing. But in our in our mind, the only free lunch and investor we'll get is diversification. So there's no such thing as over divestication. 00:27:33 Speaker 3: Speaking in freelanch, stop the food Court, and thank you so much with Edward d at Johns. 00:27:40 Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, seven to ten am Easter and on Bloomberg dot Com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube Tube and always on the Bloomberg Terminal 00:28:09 Speaker 9: MHM