WEBVTT - Bonds Price in Iran Risks 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.800 --> 0:00:17.880 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:21.960 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.320 --> 0:00:25.640 Listen on demand wherever you get your podcasts, or watch 0:00:25.720 --> 0:00:27.040 us live on YouTube. 0:00:27.400 --> 0:00:27.840 Listen to this. 0:00:27.880 --> 0:00:30.360 Let's jump to Tony Cascendi right now. We're really good. 0:00:30.400 --> 0:00:33.000 Join us. He's been definitive of all my work over 0:00:33.040 --> 0:00:37.360 the decades. To the Pacific Investment Management Company. There's now 0:00:37.400 --> 0:00:41.240 an executive vice president market strategy. I love this suit. 0:00:41.600 --> 0:00:45.040 What in God's name is a generalist portfolio managed? 0:00:45.240 --> 0:00:47.680 What means we can talk about that? You think, well, 0:00:47.720 --> 0:00:50.760 think of the Bloomberg aggregate index. It's a it's got 0:00:50.840 --> 0:00:54.920 it's a market as, it's got mostly treasuries forty percent, 0:00:55.000 --> 0:00:57.720 it's got mortgages around thirty percent. It's got corporates and 0:00:58.240 --> 0:01:01.320 the mid twenties or so. So generally will decide between 0:01:01.960 --> 0:01:04.720 moving between those sectors and perhaps also think about the. 0:01:04.680 --> 0:01:07.400 World moving for coupon or for total return. 0:01:07.959 --> 0:01:11.840 Well, today you just think of the starting yield and 0:01:11.880 --> 0:01:14.880 the starting yield today on the Bloomberg US aggregates four 0:01:14.920 --> 0:01:17.640 point nine one percent that's the highest of the past year, 0:01:17.680 --> 0:01:20.360 because yields have been rising lately, the starting yield, So 0:01:20.440 --> 0:01:23.080 think the year twenty thirty one. I could probably tell 0:01:23.120 --> 0:01:27.800 you in twenty thirty one, God Willing that the yield, 0:01:27.880 --> 0:01:30.600 the return that you had on bonds was in the 0:01:30.720 --> 0:01:33.920 US aggregate was four point nine percent ninety four percent 0:01:33.959 --> 0:01:38.240 correlation since nineteen seventy eight. So the starting yield is 0:01:38.240 --> 0:01:41.560 really important. It's the main determinant of your future returns. 0:01:41.600 --> 0:01:44.559 And so that's that's the thing I would focus on most, 0:01:44.640 --> 0:01:48.200 is just simply getting that return. The rising yields lately 0:01:48.920 --> 0:01:52.240 another bite provides another bite at the apple. Yields have 0:01:52.280 --> 0:01:55.640 been rising on and off for about four years, fluctuating. 0:01:55.680 --> 0:01:58.920 Some investors still stuck in care, still stuck in low 0:01:59.000 --> 0:02:01.280 yielding money marketing intruments in the mid threes or so, 0:02:01.960 --> 0:02:04.360 when you could get yields between five and seven percent 0:02:04.960 --> 0:02:07.800 in portfolios. Having an average credit quality is the key 0:02:08.240 --> 0:02:11.040 of double a minus, which is to say, ninety nine 0:02:11.040 --> 0:02:13.519 point nine eight percent chance of getting your money back 0:02:13.880 --> 0:02:17.440 according to historical statistics. So the starting yield is a 0:02:17.440 --> 0:02:18.280 really important story. 0:02:18.360 --> 0:02:20.880 Right now, look at the first job. I think for 0:02:20.919 --> 0:02:25.519 this guy, Tom trading assistant. Guess we're prudential Basin. 0:02:25.520 --> 0:02:29.480 Based Broadway, right next to Trinity Church. It was a 0:02:29.480 --> 0:02:32.920 wonderful place to be right near Wall Street. A room 0:02:33.000 --> 0:02:36.640 of stockbrokers, which today they call financial advisors, and I 0:02:36.720 --> 0:02:38.600 learned a lot from them, about thirty of them. And 0:02:38.639 --> 0:02:42.760 so today these days worldwide, I visit many financial advisors 0:02:42.760 --> 0:02:46.440 again that they once called stockbrokers working for commissions. Today 0:02:46.440 --> 0:02:48.840 it's a lot different. It's actually a good thing for 0:02:48.919 --> 0:02:50.640 investors in. 0:02:50.760 --> 0:02:53.119 Fixing the world today, Tony, Can I just clip coupons? 0:02:53.200 --> 0:02:55.000 That's that's a nice way to make a loosk. 0:02:55.120 --> 0:02:55.280 Yeah. 0:02:55.280 --> 0:02:58.720 And here's here's another statistic and looking at this yield 0:02:58.760 --> 0:03:01.239 where it is is where they are today and using 0:03:01.240 --> 0:03:04.480 the Bloomberg aggregate again as a gauge, and it can 0:03:04.520 --> 0:03:08.200 be mirrored worldwide in a one year period going back 0:03:08.240 --> 0:03:12.200 to nineteen seventy eight, investors one year later have made 0:03:12.360 --> 0:03:14.519 money ninety six percent of the time. In other words, 0:03:14.600 --> 0:03:17.000 a return a year for now probably will be positive. 0:03:17.160 --> 0:03:19.400 So even if yields rise further from here, and they've 0:03:19.400 --> 0:03:22.360 been rising lately, that means bond prices could fall. The 0:03:22.440 --> 0:03:24.840 coupon the income is poek. 0:03:24.919 --> 0:03:28.160 It in the coupon of the thirty year oat in France, 0:03:28.400 --> 0:03:31.480 the guilt in the UK, even in the United States 0:03:31.520 --> 0:03:35.360 gives pause. There's some superlatives like price back to where 0:03:35.360 --> 0:03:38.240 it was two thousand and seven, whatever. As you look 0:03:38.280 --> 0:03:40.880 at the global system, which you can do with pimcoh 0:03:41.320 --> 0:03:45.440 bring that over to US investors. Is it idiosyncratic or 0:03:45.440 --> 0:03:46.360 are they attached? 0:03:47.400 --> 0:03:51.360 It's radiosyncratic, and that's why at PIMCO we've been suggesting 0:03:52.280 --> 0:03:56.960 sourcing duration globally because the US story isn't great necessarily 0:03:57.040 --> 0:03:58.920 on the fiscal side. We know the US has a 0:03:58.920 --> 0:04:02.440 big budget deficit. It must continuously issue bonds and that 0:04:03.400 --> 0:04:07.200 could result in yields rising. So we decided lately to 0:04:07.280 --> 0:04:10.000 source our duration globally, including in the UK. For example, 0:04:10.000 --> 0:04:13.080 we yields are above that of the US. Australia for 0:04:13.160 --> 0:04:17.240 various reasons related to the macroeconomic situation. In the emerging 0:04:17.279 --> 0:04:20.839 markets where this year has been very fine, performance better 0:04:20.880 --> 0:04:23.640 than in the US, and it seems like the asset 0:04:23.680 --> 0:04:27.240 classes tending to fare better in the eyes of investors. 0:04:27.240 --> 0:04:33.120 So we think there are many idiosyncratic stories worth diversifying 0:04:33.160 --> 0:04:34.400 botfolio into. 0:04:35.279 --> 0:04:38.039 Michael writes in and says he thinks the Fed's going 0:04:38.080 --> 0:04:40.080 to raise next week. 0:04:40.160 --> 0:04:43.160 What do you think We do not think so. Of 0:04:43.160 --> 0:04:46.039 course Warsh isn't in the business of signaling things, but 0:04:46.080 --> 0:04:51.080 I think we think it would perhaps if he were imminent. 0:04:51.760 --> 0:04:54.120 We're in the camp of the Fed doing nothing this year. 0:04:54.120 --> 0:04:56.240 But even if it hikes rates, and I'm talking about 0:04:56.240 --> 0:05:00.960 this glorious bond market story, bond investing story, so what 0:05:01.640 --> 0:05:04.440 And I think of Alan Greenspand, who I had met 0:05:04.480 --> 0:05:07.560 years ago, very fortunate when he was an advisor at 0:05:07.600 --> 0:05:10.560 PENMC when I worked in Newport Beach. He raised rates 0:05:10.600 --> 0:05:14.159 aggressively in nineteen ninety four, battling the inflation fears of 0:05:14.200 --> 0:05:17.800 the late seventies, early eighties or late eighties, and he 0:05:17.880 --> 0:05:20.800 won as in his last two half point hikes the 0:05:20.880 --> 0:05:22.880 end of February of nineteen ninety four and then early 0:05:23.000 --> 0:05:26.800 ninety five, yields fell. So don't worry about hikes as 0:05:26.839 --> 0:05:31.120 a bond investa, because it actually it's it's medicine and 0:05:31.160 --> 0:05:32.680 it's tough life, and it's a good thing. 0:05:33.640 --> 0:05:37.680 Tell me here, generalist portfolio manager, somebody with a real 0:05:37.800 --> 0:05:41.560 job at the Pacific Investment Management Company, like Jerome Schneider 0:05:42.200 --> 0:05:45.440 is squizzing at the short term mark money market houses 0:05:45.600 --> 0:05:48.320 year going, and I mean Paul's talking about there's this 0:05:48.560 --> 0:05:51.679 wall of money. It is the wall of money moving 0:05:52.120 --> 0:05:55.160 out of money markets into the Jerome Schneider's space. 0:05:55.560 --> 0:05:58.000 It is I'd say we should you should run from 0:05:58.040 --> 0:06:00.839 cash to core. But of course cash has it's placed. 0:06:00.839 --> 0:06:03.320 But another statistic would show that on a three year 0:06:03.440 --> 0:06:08.400 rolling basis that core investments meaning in average maturity around 0:06:08.440 --> 0:06:10.919 five six years, or the Bloomberg aggregate around six years. 0:06:11.640 --> 0:06:13.520 Three year rolling bases meaning three years from now, should 0:06:13.520 --> 0:06:16.120 be able to tell you eighty five percent confidence that 0:06:16.520 --> 0:06:19.680 core beat cash. So it tends to beat cash, especially 0:06:19.680 --> 0:06:23.839 with yields and and cash high threes that get around 0:06:23.839 --> 0:06:27.080 five and high quality fixed income investments five to seven percent. 0:06:27.279 --> 0:06:30.280 So you probably better off shifting a bit from cash 0:06:30.320 --> 0:06:33.480 to course. So I'd say run, don't walk to that idea. 0:06:33.600 --> 0:06:37.279 Because here's one other point. Many Americans have, of course, 0:06:37.360 --> 0:06:40.520 locked in on a low mortgage rate, Americans should start 0:06:40.520 --> 0:06:43.000 thinking about joining what I call the double lock club. 0:06:43.200 --> 0:06:45.320 You locked in the low mortgage rate on your debt, 0:06:45.680 --> 0:06:47.960 why not lock in a high interest rate on your 0:06:48.960 --> 0:06:50.160 fixed income investments? 0:06:50.520 --> 0:06:53.440 How much creditis should investors be taken. I mean the 0:06:53.800 --> 0:06:56.359 year to day the high yield index on the Bloomberg 0:06:56.400 --> 0:06:57.640 almost forming the best. 0:06:57.680 --> 0:07:01.880 It's winning. But these yields are good enough, as I mentioned, 0:07:02.000 --> 0:07:04.800 w minus five to seven percent, so you needn't stretch 0:07:04.800 --> 0:07:07.080 out into and go down in the capitol. 0:07:07.360 --> 0:07:09.159 Chordy, thank you. You got a new book coming out. 0:07:10.120 --> 0:07:14.040 I'm contemplating a seventh a few different ideas. One is 0:07:14.080 --> 0:07:17.200 a novel called The Wall Street Tale, which we'll go 0:07:17.280 --> 0:07:19.720 back to my days I worked you mentioned potential base. 0:07:19.880 --> 0:07:21.480 After that, I worked at Lehman Brothers in the World 0:07:21.480 --> 0:07:23.280 Trade set of one hundred and fourth floor. Some good 0:07:23.280 --> 0:07:27.000 stories from an amazing view I had up there, Tony. 0:07:27.600 --> 0:07:30.120 Thank you so much. Thank you so much as well. 0:07:30.160 --> 0:07:34.240 Wonderful to Evan and studio. I should mention absolutely definitive 0:07:34.320 --> 0:07:37.280 effort and money market Funds a classic, all of twelve 0:07:37.360 --> 0:07:40.360 hundred pages. No I have not read it cover to cover. 0:07:42.480 --> 0:07:46.680 Stay with us more from Bloomberg Surveillance coming up after this. 0:07:53.920 --> 0:07:57.480 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:07:57.560 --> 0:08:00.760 weekday afternoons from seven to ten am Eastern Listen on 0:08:00.800 --> 0:08:04.480 Applecarplay and Android Otto with the Bloomberg Business app or 0:08:04.600 --> 0:08:06.360 watch US live on YouTube. 0:08:06.680 --> 0:08:10.240 Joining US now, Tina Fordham. She has been absolutely on 0:08:10.360 --> 0:08:14.360 fire out on LinkedIn Fordum Global Foresight with all of 0:08:14.400 --> 0:08:20.240 the international relations, the fractured foreign policy that we're facing out, Tina, 0:08:20.280 --> 0:08:24.120 I've got to go to the single item overnight that 0:08:24.240 --> 0:08:27.880 I believe the President of the United States, going after 0:08:27.960 --> 0:08:32.440 the nuclear efforts of Iran, has decided to give nuclear 0:08:32.520 --> 0:08:36.280 to Saudi Arabia. What are we giving to Saudi Arabia? 0:08:36.559 --> 0:08:38.040 It's any different than Iran. 0:08:40.520 --> 0:08:46.800 Well, the Security Pact, the Nuclear Sharing Agreement is normally 0:08:46.840 --> 0:08:50.760 regarded in international affairs circles as being part of a 0:08:50.920 --> 0:08:54.560 proliferation of access to weapons of mass destruction. 0:08:55.120 --> 0:08:56.800 But I think for the White. 0:08:56.520 --> 0:08:59.559 House this is seen as a way to level the 0:08:59.600 --> 0:09:03.640 playing field in the region and give a loyal ally 0:09:03.760 --> 0:09:09.120 that is also an adversary of Iran some protection and 0:09:08.840 --> 0:09:13.200 some peace of mind, and that is probably much needed. 0:09:15.040 --> 0:09:15.319 Tina. 0:09:15.360 --> 0:09:18.840 We heard from a Secretary of Defense Hexith yesterday testifying 0:09:18.840 --> 0:09:19.560 before Congress. 0:09:19.559 --> 0:09:20.160 Here. 0:09:20.960 --> 0:09:22.520 I think a lot of people were trying to get 0:09:22.520 --> 0:09:26.760 a sense of how does the US pursue its war 0:09:26.800 --> 0:09:30.240 with Iran with an eye on getting out of there. 0:09:30.280 --> 0:09:31.920 I mean, a lot of folks are unsure why we 0:09:31.920 --> 0:09:33.760 were there in the first place. Now we're trying to 0:09:33.800 --> 0:09:36.080 figure out how we get out of there in a 0:09:36.120 --> 0:09:38.600 positive scenario. Do you have any view of how this 0:09:38.720 --> 0:09:39.280 might play out? 0:09:42.559 --> 0:09:47.440 I mean, this is a classic textbook escalation trap, right, 0:09:47.600 --> 0:09:51.120 And you know that I've been consistent about this from 0:09:51.160 --> 0:09:53.400 the beginning, whereby the. 0:09:53.080 --> 0:09:55.760 War aims weren't clear, the. 0:09:55.760 --> 0:09:59.960 Strength of the adversary in the case of Iran was underestimated. 0:10:01.720 --> 0:10:05.880 With the new leverage that Iran has with the Strait 0:10:05.920 --> 0:10:11.320 of Ormuz, going back to the original objective, which was 0:10:11.400 --> 0:10:15.960 mainly around depriving Iran of nuclear weapons capability has now 0:10:16.040 --> 0:10:20.880 moved further down the list, and Iran has gained out 0:10:20.920 --> 0:10:25.000 that it is more patient and more willing to you know, 0:10:25.120 --> 0:10:29.840 software cavities than the United States. And so we're trapped. 0:10:30.160 --> 0:10:35.599 This is the most expensive war in some time, but 0:10:36.280 --> 0:10:39.480 also the most unpopular. This is the least popular war 0:10:39.840 --> 0:10:41.240 I believe in US history. 0:10:41.800 --> 0:10:45.160 Help us just you know, within the myriad of themes, Tina, 0:10:45.200 --> 0:10:48.840 you're expert this with your decades as City Group as well. 0:10:49.280 --> 0:10:52.880 The Secretary Defense is talking a thirty forty billion dollar 0:10:53.000 --> 0:10:55.760 worse so far I was suggest no one on the 0:10:55.800 --> 0:10:59.880 planet believes that number. What is the Tina Fordham klan 0:11:00.360 --> 0:11:00.880 of the war. 0:11:02.880 --> 0:11:06.760 I haven't made an estimate, but it certainly is going 0:11:06.800 --> 0:11:09.880 to cost more than it's going to deliver in terms 0:11:09.960 --> 0:11:12.560 of geopolitical or economic. 0:11:12.080 --> 0:11:15.880 Benefits in normal circumstances. 0:11:15.920 --> 0:11:19.400 And I was talking to Bill Burns in London here yesterday, 0:11:19.400 --> 0:11:21.319 a former rector. 0:11:20.960 --> 0:11:21.720 Of the CIA. 0:11:22.559 --> 0:11:27.680 You'd be looking for off ramps in diplomatic terms. Trump 0:11:27.720 --> 0:11:31.679 tells us that the talks aren't happening, that there aren't 0:11:31.720 --> 0:11:36.319 even discussions going on, and so what is most likely 0:11:36.800 --> 0:11:41.640 is episodic use of violence and expansion of the target set. 0:11:42.720 --> 0:11:45.760 One of the risks is, you know that the United 0:11:45.760 --> 0:11:50.480 States decides to make it ron uninhabitable without putting boots 0:11:50.480 --> 0:11:54.040 on the ground, which I think would be too high costs, 0:11:54.120 --> 0:11:57.119 unbearable costs for the United States to contemplate. 0:11:57.240 --> 0:12:00.719 And you know this geography, folks. Here's an anecdote. I'm 0:12:00.760 --> 0:12:04.280 in London at Finsbury Square. It's where Bruckner wrote many 0:12:04.320 --> 0:12:08.360 of his symphonies, at the Bloomberg headquarters. There was just fame, 0:12:08.480 --> 0:12:13.880 famed headquarters, and Tina I was absolutely thunderstruck. How the 0:12:14.040 --> 0:12:18.960 United Kingdom media followed a soldier who died in Afghanistan 0:12:19.800 --> 0:12:24.719 and followed the casket home the entire way. Now, I'm 0:12:24.760 --> 0:12:26.920 not saying we're doing that right now with the dead 0:12:26.960 --> 0:12:32.520 and injured of America, but our reaction to this, these 0:12:32.559 --> 0:12:36.840 soldiers and sailors in harm's way doesn't seem to be 0:12:37.000 --> 0:12:39.840 like other American wards. Is there going to shift in 0:12:39.920 --> 0:12:42.280 America to the agony of war. 0:12:45.360 --> 0:12:47.160 Yeah, it's a it's a very deep question. 0:12:47.240 --> 0:12:50.760 And as you shared that anecdote, I would just add 0:12:50.880 --> 0:12:54.320 for for your viewers and listeners that not only is 0:12:54.360 --> 0:13:00.760 the casket followed here, but people line the streets strangers, 0:13:01.360 --> 0:13:05.359 people line the streets in a sign of respect. 0:13:05.640 --> 0:13:07.960 And it's a puzzle, really, isn't it. 0:13:08.000 --> 0:13:13.520 I mean, the US casualties currently are around eighteen You know, 0:13:14.040 --> 0:13:16.760 my father was a war orphan in World War two. 0:13:16.880 --> 0:13:20.760 To I know how these are all tragedies, and yet 0:13:21.240 --> 0:13:25.040 are we inured to the human costs of war, the 0:13:25.120 --> 0:13:29.880 economic costs of war? There is some pretty significant cognitive 0:13:29.920 --> 0:13:33.000 dissonance going on. But to bring it back to the markets, 0:13:33.679 --> 0:13:36.000 in a way, the markets are letting it happen by, 0:13:36.240 --> 0:13:39.120 you know, by not reacting. If you like, you know, 0:13:39.120 --> 0:13:41.360 we're still only at what ninety dollars a barrel? 0:13:41.520 --> 0:13:43.240 Yeah? Do you have a price in your head? To 0:13:43.280 --> 0:13:45.840 you one final question, do you have a Brent crude 0:13:45.840 --> 0:13:49.160 price in your head? Where things unravel for the West? 0:13:51.000 --> 0:13:55.360 I don't think that the hostilities will continue at a 0:13:56.000 --> 0:13:59.600 you know, sustained clip to get over one hundred. I 0:13:59.600 --> 0:14:02.680 think that that's the kind of magic number. Having said that, 0:14:03.559 --> 0:14:06.760 the White House didn't expect this war to be going 0:14:06.800 --> 0:14:10.120 on for as long as it has, and for the 0:14:10.160 --> 0:14:13.280 regime in Iran to still be in place, and for 0:14:13.400 --> 0:14:16.680 the people of Iran not to have risen up. It's 0:14:16.760 --> 0:14:20.320 the law of unintended consequences and you can never plan 0:14:20.680 --> 0:14:22.640 the perfect ideal scenario. 0:14:23.000 --> 0:14:25.640 Just wonderfully valuable, Tina Fordham. Thank you so much, Fordham 0:14:25.680 --> 0:14:28.880 Global Foresight with that one hundred dollars mark on oil. 0:14:30.760 --> 0:14:34.920 Stay with us. More from Bloomberg Surveillance coming up after this. 0:14:42.160 --> 0:14:45.760 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:14:45.840 --> 0:14:49.000 weekday afternoons from seven to ten am Eastern Listen on 0:14:49.080 --> 0:14:52.720 Applecarplay and Android Otto with the Bloomberg Business app, or 0:14:52.880 --> 0:14:54.400 watch US live on YouTube. 0:14:54.720 --> 0:14:58.760 Joining us right now rafaeld Thon. Is that correct? I 0:14:58.840 --> 0:14:59.960 want to get it right. It is good. 0:15:00.520 --> 0:15:06.720 Like Raphael Tuen joins us here at Tico Tiko capital, 0:15:06.840 --> 0:15:12.320 Tiko capital hugely out of massively prestigious derivatives in capital 0:15:12.360 --> 0:15:14.720 markets at suction years ago. 0:15:15.120 --> 0:15:20.800 Fact I read every word of the pre election in 0:15:20.880 --> 0:15:25.480 Lamonde two days ago into the chaos of twenty twenty seven. 0:15:26.080 --> 0:15:28.280 I got to back up, price down, yield up in 0:15:28.400 --> 0:15:32.440 French paper. Is it an opportunity or do you really 0:15:32.480 --> 0:15:35.800 see stress in the fixed in market in France? 0:15:36.280 --> 0:15:38.800 Yeah, if you take the front page of the newspapers 0:15:38.840 --> 0:15:41.240 in France, it's a lot of anxiety. We don't know 0:15:41.280 --> 0:15:43.840 what's going to happen. We know the deep Left and 0:15:43.880 --> 0:15:48.040 the deep Ride or potentially contenders there, and what's going 0:15:48.080 --> 0:15:51.720 to happen with deficits that yields on government dates is 0:15:51.760 --> 0:15:55.280 obviously a high anxiety. If you look back though and 0:15:55.320 --> 0:15:58.400 take a broader picture of what's happening, you're seeing actually 0:15:58.480 --> 0:16:02.440 deficits trending them. In France from six percent starting point, 0:16:02.520 --> 0:16:05.640 we're probably going to be ininearing five percent very soon. 0:16:06.160 --> 0:16:07.200 So that's good news. 0:16:07.760 --> 0:16:10.520 And there is somewhat of consensuous building now around the 0:16:10.520 --> 0:16:13.360 fact that yes, it's time to act, that it's probably 0:16:13.440 --> 0:16:16.360 gone too far, that you know, people have to raining 0:16:16.600 --> 0:16:20.840 spending and make sure that deficits can be manageable going forward. 0:16:20.920 --> 0:16:24.400 So obviously a lot of uncertainty, but maybe not as 0:16:24.880 --> 0:16:25.960 scary as it seems. 0:16:26.280 --> 0:16:30.360 How are just you know, when the tariffs came in, 0:16:30.600 --> 0:16:32.440 a lot of money left the US markets and went 0:16:32.480 --> 0:16:34.920 to other parts of the world, including Europe in particular. 0:16:35.520 --> 0:16:37.320 I'm not sure that trade's still there. How do you 0:16:37.320 --> 0:16:41.000 think about investing in Europe versus maybe the US or Asia. 0:16:41.760 --> 0:16:44.440 So it's interesting the big picture in Europe now that 0:16:44.480 --> 0:16:48.160 we're entering, as well as in the US, a massive 0:16:48.360 --> 0:16:50.120 capex cycle for. 0:16:50.000 --> 0:16:50.920 The years to come. 0:16:51.000 --> 0:16:53.120 When you look at the list of things we need 0:16:53.160 --> 0:16:55.960 to finance in Europe, it's und less. We need to 0:16:56.000 --> 0:17:00.360 finance defense after decades of underspending. We need to finance 0:17:00.440 --> 0:17:03.240 data centers and we're far behind compared to where we 0:17:03.280 --> 0:17:08.680 are in the US. We need to finance electrification, decarbonation, digitalization, 0:17:08.880 --> 0:17:12.600 you name it. And so against this backdrop of massive 0:17:12.680 --> 0:17:16.360 investment needed. When you look at the capacity of capital 0:17:16.400 --> 0:17:20.520 markets in Europe to sustain and finance those needs, those 0:17:20.560 --> 0:17:22.960 are extremely narrow, extremely stretched. 0:17:23.240 --> 0:17:24.480 Equality is very. 0:17:24.320 --> 0:17:27.720 Poor on capital markets in Europe, and here is really 0:17:27.760 --> 0:17:31.080 an opportunity. It's an opportunity for people with capital to 0:17:31.200 --> 0:17:35.280 bring capital take part of what are oftentimes mega trends 0:17:35.320 --> 0:17:38.280 in the making. And so that's what we're doing at TKO. 0:17:38.720 --> 0:17:40.840 But guess what this is what a lot of money 0:17:40.840 --> 0:17:43.600 managers across the world are doing. You're seeing, for instance, 0:17:43.640 --> 0:17:47.000 from the US a lot of internative asset managers flocking 0:17:47.000 --> 0:17:51.040 to Europe opening offices to bring that capital to Europe. 0:17:51.080 --> 0:17:54.280 Your heritage how to suck and with the immense derivative 0:17:54.280 --> 0:17:58.840 and mathematics background is to always be aware of what 0:17:58.920 --> 0:18:01.320 is the bead? What what the bet right now? On 0:18:01.400 --> 0:18:05.320 friends another friends in Europe? Excuse me, what's the bet 0:18:05.400 --> 0:18:08.080 that's being placed by finance in Europe right now? 0:18:08.720 --> 0:18:10.919 So the idea he has to say, well, it's a 0:18:10.920 --> 0:18:13.320 pretty good setup to invest in Europe if you take 0:18:13.320 --> 0:18:17.040 the broader picture. Earnings will be strong this year, double 0:18:17.080 --> 0:18:20.840 digit earnings growth, which in Europe is quite something. You 0:18:20.880 --> 0:18:24.600 will have potentially the impact of fiscal stimulus coming from Germany. 0:18:24.680 --> 0:18:28.200 You know, that's a pretty sizable stimulus coming. It was 0:18:28.240 --> 0:18:30.840 a bit on the disappointing side in H one some 0:18:30.920 --> 0:18:34.120 delays in implementing these stimulus, and that is a bet 0:18:34.200 --> 0:18:36.160 and the case to be made that in H two 0:18:36.200 --> 0:18:38.640 you will see the effect of the stimulus. You will 0:18:38.680 --> 0:18:41.960 start to see the effect in infra and defense and 0:18:42.000 --> 0:18:45.320 so on. That inflation compared to what we get in 0:18:45.359 --> 0:18:49.119 the US is somewhat a bit more content. I'm not 0:18:49.160 --> 0:18:53.120 talking about energy, but xCE energy co inflation, wage growth, 0:18:53.520 --> 0:18:56.160 service inflation, all of that is a bit more manageable. 0:18:56.160 --> 0:18:58.439 I got twenty seconds, mister King, thank you dear for 0:18:58.480 --> 0:19:01.520 listening today. Emails and then she says, would you ask 0:19:01.600 --> 0:19:04.240 Rafael what a god's name happened to France and the 0:19:04.280 --> 0:19:04.840 World Cup? 0:19:05.080 --> 0:19:07.320 Oh please don't stop with that. You know, we had 0:19:07.359 --> 0:19:14.400 a nice conversation and here. 0:19:12.480 --> 0:19:15.560 I'm sorry they were going to win it. It was 0:19:15.640 --> 0:19:18.760 like a layup in oops. But really that was sort 0:19:18.760 --> 0:19:22.640 of like the word copy was France in Spain was like. 0:19:22.600 --> 0:19:25.600 The the best team one and I think we can't 0:19:25.600 --> 0:19:27.520 say that. 0:19:26.359 --> 0:19:30.160 I don't know beans about soccer, but it was magical 0:19:30.200 --> 0:19:33.359 to say that Spain, can you come back? I wish 0:19:33.400 --> 0:19:36.440 I can. Okay, I'm going to work on my friends. 0:19:36.440 --> 0:19:39.040 Here we're just trying to get a remote here. We 0:19:39.080 --> 0:19:41.720 want to go get a remote with you as as 0:19:41.760 --> 0:19:45.480 we can. Raphael seeing with us here from Tico, capital 0:19:45.600 --> 0:19:50.800 of Paris. There, stay with us. More from Bloomberg Surveillance 0:19:50.880 --> 0:19:52.200 coming up after this. 0:19:59.440 --> 0:20:03.040 You're listen to the Bloomberg Surveillance podcast. Catch us live 0:20:03.119 --> 0:20:06.280 weekday afternoons from seven to ten am Eastern Listen on 0:20:06.359 --> 0:20:10.000 Applecarplay and Android Auto with the Bloomberg Business app, or 0:20:10.160 --> 0:20:11.680 watch us live on YouTube. 0:20:12.040 --> 0:20:15.160 This is incredibly well timed. I want imagine this wonderful 0:20:15.200 --> 0:20:17.760 work at Edward Jones tearing a pot the market, piecing 0:20:17.840 --> 0:20:22.160 them back together. She has really abrupt terse notes, which 0:20:22.200 --> 0:20:25.399 I love. Is part of it into earning season and 0:20:25.480 --> 0:20:29.280 I saw this today with Philip Morris as Switzerland not Eltria, 0:20:29.359 --> 0:20:34.480 but PMI a shocking revenue number. Are we going into 0:20:34.480 --> 0:20:39.520 this ballet where we don't understand the linkage of nominal 0:20:39.600 --> 0:20:41.879 GDP over the revenue pop? 0:20:43.200 --> 0:20:43.359 You know? 0:20:43.440 --> 0:20:47.680 Look, I think to your point, the consumer economy has 0:20:47.720 --> 0:20:49.960 held up really well and that is showing up in 0:20:50.000 --> 0:20:54.280 revenues across sectors. So yes, we are expecting tech to 0:20:54.320 --> 0:20:57.160 have an amazing pop this earning season. But we are 0:20:57.200 --> 0:21:02.240 also seeing this revenue gain across consumercrashary across I'm not. 0:21:02.160 --> 0:21:04.520 Hearing enough about this. I hear earnings this, and you 0:21:04.560 --> 0:21:07.480 know a lot of naval gazing and that. But Paul, 0:21:07.520 --> 0:21:11.160 I remember Honeywell years ago like four percent revenue growth, 0:21:11.160 --> 0:21:13.080 and all of a sudden they were doing six percent 0:21:13.480 --> 0:21:15.080 because of a spirited economy. 0:21:15.560 --> 0:21:19.240 So we've seen we've seen some rotation in the markets here, 0:21:20.280 --> 0:21:23.040 maybe add of some of the tech names into I 0:21:23.040 --> 0:21:26.800 don't know, cyclicals defenses. That is that a short term 0:21:26.840 --> 0:21:28.720 trade or is that the market telling me something? 0:21:28.800 --> 0:21:31.480 You know, it is interesting. I do like to see 0:21:31.520 --> 0:21:34.400 some of the most parabolic moves in the market take 0:21:34.440 --> 0:21:37.960 a breather here. So an area like semiconductors was up 0:21:38.080 --> 0:21:40.520 close to one hundred percent before we saw a little 0:21:40.520 --> 0:21:43.800 bit of a pullback twenty percent type of correction. But 0:21:43.880 --> 0:21:45.840 we thought that was healthy. It was a good reset. 0:21:46.000 --> 0:21:48.520 Semis are still up sixty seventy percent this year, so 0:21:48.600 --> 0:21:52.000 not a concerning year to date number by any means. 0:21:52.640 --> 0:21:55.320 The rotation, though we like to see it. We think 0:21:55.359 --> 0:21:58.200 it's a healthy sign as well in terms of broadening 0:21:58.200 --> 0:22:00.359 of market leadership. This you know, you're war of a 0:22:00.400 --> 0:22:03.320 bull market, does it have legs? Well, I think earning 0:22:03.320 --> 0:22:06.080 season will drive that. We're going to get alphabet tonight. 0:22:06.160 --> 0:22:09.600 That'll set the tone, and we think tech could potentially 0:22:09.600 --> 0:22:10.760 get some legs again here. 0:22:11.280 --> 0:22:15.280 So what is the AI story from your perspective these days? 0:22:15.400 --> 0:22:17.880 I mean, you just buy the chips? Do you try 0:22:17.960 --> 0:22:21.359 to bind what people call the picks and shovels utilities? 0:22:21.920 --> 0:22:22.960 How are you guys thinking about it? 0:22:23.040 --> 0:22:25.760 Yeah, you know, certainly what we've seen this year. Interestingly, 0:22:25.840 --> 0:22:29.159 the hyperscalers and the Magnificent seven have actually lacked the 0:22:29.200 --> 0:22:31.359 broader market. So they're up you know, one two percent, 0:22:31.359 --> 0:22:34.320 while the broader SMP is up nine ten percent. And 0:22:34.359 --> 0:22:38.159 so could we see an opportunity there, especially if we 0:22:38.200 --> 0:22:41.520 do here that not only are they spending more, but 0:22:41.560 --> 0:22:44.640 that spending is yielding some results. They're seeing better revenue growth, 0:22:44.720 --> 0:22:49.800