Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and am Marie Hordernt. Join us each
Speaker 2: day for insight from the best in markets, economics, and
Speaker 2: geopolitics from our global headquarters in New York City. We
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Speaker 2: Bloomberg Terminal and the Bloomberg Business App. Team over at RBC, writing,
Speaker 2: while this may have temporarily calmed markets, households are still
Speaker 2: grappling with the after effects of significant inflation over the
Speaker 2: past five years. Francis Donald of RBC joined us now
Speaker 2: from More Francisco, Morning to You.
Speaker 3: Good Morning.
Speaker 2: Spoke to a lot of people yesterday and they all
Speaker 2: said a very similar thing. We're going to see the
Speaker 2: past through today. We're going to see it today. Then
Speaker 2: we didn't see it, and they said we're going to
Speaker 2: see it next month and the month after. Your team's
Speaker 2: taken a different approach to this. Just walk us through it.
Speaker 3: It's going to be a couple more months, and there's
Speaker 3: a range of reasons why, and one of them is
Speaker 3: you might remember this massive inventory build that we saw
Speaker 3: in the past few months. That means there's plenty of
Speaker 3: inventories that did not get hit with those tariffs yet,
Speaker 3: and that's going to take some time. We've got to
Speaker 3: see that inventory depletion. We saw this in twenty eighteen
Speaker 3: with washing machines, three to five months before we saw
Speaker 3: it show up in the data, so there is some
Speaker 3: precedent there. We also don't know how many of these
Speaker 3: tariffs are going to come through in CPI versus PPI,
Speaker 3: so we're still going it's going to be a couple
Speaker 3: more months before we see this. And I think that's
Speaker 3: the reason why. While I'm happy to see that inflation
Speaker 3: is not accelerating right now, two things One it's a
Speaker 3: bit early, and second, inflation is not just a tariff story.
Speaker 3: Inflation is actually also a story with respect to a
Speaker 3: tight labor market. We have a very strong ultra wealthy consumer,
Speaker 3: we have big governments, so there's structural forces under inflation
Speaker 3: as well. And actually, while tariffs are important, they're not
Speaker 3: the most important story with inflation.
Speaker 2: Credits even the tame for the approach you've taken so far.
Speaker 2: Let's sit on the labor mind. I think I agree
Speaker 2: with you that it's ultimately very important for the pass
Speaker 2: through and whether we can stomach it as consumers. This
Speaker 2: is something we discussed over the last several weeks. It's
Speaker 2: the labor market tight enough for individuals to demount high
Speaker 2: wages to fund high prices.
Speaker 3: So in my view, Americans don't need to worry about
Speaker 3: losing their jobs this year, but they do need to
Speaker 3: worry about their grocery bill. And in this particular case,
Speaker 3: we have to segment which consumer is doing what, because
Speaker 3: if you're a low in middle income household right now, yeah,
Speaker 3: you probably have a job, but rent food prices, those
Speaker 3: are up almost thirty percent in the past five years.
Speaker 3: And even though on aggregate we've seen wages rise more
Speaker 3: than the inflation over the past few years, that's not
Speaker 3: true for low and middle income Americans, whose inflation basket
Speaker 3: is tilted towards those areas that have seen larger inflation.
Speaker 3: So we can't paint the same brush with inflation or
Speaker 3: wages to the entire consumer household. Now, if you're trying
Speaker 3: to get a sense of what are retail sales going
Speaker 3: to do. If you're forecasting GDP, you pretty much are
Speaker 3: focusing proportionalately on that high income household and they're going
Speaker 3: to be just fine in this environment. But forecasting GDP
Speaker 3: and saying what's best for the American economy and American
Speaker 3: people is a very different thing.
Speaker 1: When you're talking about underline inflation, you're saying tariffs aren't
Speaker 1: the biggest story.
Speaker 2: What is it?
Speaker 1: Is it the labor market or is it big government?
Speaker 3: Well, there's structural forces and it's both these things. So
Speaker 3: when we talk about the labor market, we're not talking about, oh,
Speaker 3: there's so much cyclical demand here, the economy is booming.
Speaker 3: We're talking a lot about demographics, and we think of
Speaker 3: demographics as being a ten year horizon story, but the
Speaker 3: demographic crisis is accelerating. Every single month we see more
Speaker 3: retirees than we did the week before, the month before.
Speaker 3: That's creating huge exits out of this labor market, and
Speaker 3: there's not enough replacement demand. So that unemployment rate, even
Speaker 3: though we believe the economy will soften this year, we
Speaker 3: have it peaking around four five, four six percent. I mean,
Speaker 3: I'm well enough to remember when that was an extraordinarily
Speaker 3: strong labor market. That's going to be our bar for
Speaker 3: a weaker labor market right now. We can't use the
Speaker 3: unemployment rate anymore as a cyclical indicator of growth. We
Speaker 3: have to turn towards other area. You're talking about retirees.
Speaker 1: What about Trump's immigration policy, what's that doing to labor market?
Speaker 3: Well, that's going to amplify the issue that I remember
Speaker 3: being here at the end of twenty twenty five and saying, yeah,
Speaker 3: tariffs are going to be a big deal, but keep
Speaker 3: your eye on the immigration story. In our view, how
Speaker 3: much available labor is actually going to be the big
Speaker 3: issue in twenty twenty six and twenty twenty seven. We've
Speaker 3: said it before. America doesn't need jobs. America needs workers.
Speaker 3: And if you want to see a boom economy, you
Speaker 3: got to have people not just who are willing to
Speaker 3: do those jobs, but actually in the labor force. Sometimes
Speaker 3: we get pushed back and they say, oh, well, the
Speaker 3: labor force is that there's been a decline since two
Speaker 3: thousand and one. The labor force participation rate is around
Speaker 3: sixty three percent, but prime age worker labor force participation
Speaker 3: rate in the United States eighteen to fifty four is
Speaker 3: near its highest ever. So there's not a lot of
Speaker 3: folks sitting on the sidelines right now who are of
Speaker 3: that age. And this is having impact on a month
Speaker 3: to month data. Now a structural trend that's showing up
Speaker 3: in the cyclical data as something we need to monitor.
Speaker 2: It's going to take time to figure out, and we
Speaker 2: need to be a minded about potential outcomes because I've
Speaker 2: been surprised so many different ways since the pandemic with
Speaker 2: regards to the economy. How much flexibility does the Federal
Speaker 2: Reserve have with.
Speaker 3: That in mind, Well, not enough, and so the key
Speaker 3: is just going to be what side of the mandator
Speaker 3: are they focusing on and also how are they being
Speaker 3: flexible with respect to how the data is changing in
Speaker 3: this environment. CPI is one indication of what's happening with inflation,
Speaker 3: but we're going to see a dashboard of inflation that's
Speaker 3: going to see problems in some area of prices and
Speaker 3: other areas where it's going to be okay. So this
Speaker 3: isn't just a divergent economy in terms of growth in
Speaker 3: terms of consumers. It's also going to be a divergent
Speaker 3: economy with respective prices that's going to complicate the fence job.
Speaker 2: You've heard of Trump derangement syndrome, no data of Renmack
Speaker 2: is kinded a new term that the Treasury Secretary used yesterday,
Speaker 2: Tariff derangement syndrome. Does the Federal Reserve have TDS?
Speaker 3: Okay, Well, we don't know what the policy's going to
Speaker 3: be and we don't actually know exactly how it's going
Speaker 3: to impact the economy. So we have two sources of
Speaker 3: uncertainty in play. And that's why I say yes, tariffs
Speaker 3: are hugely important. When we look at inflation forecast, it
Speaker 3: can be as much as half a percentage point on
Speaker 3: headline CPI, which could be make or break for the Fed.
Speaker 3: But the time right now is to focus on what
Speaker 3: are these underlying trends that are happening this key shape
Speaker 3: that's involved in the economy. Massive government spending, which can
Speaker 3: argue is muting the economic cycle in play. We got
Speaker 3: to talk about that labor market and how things are changing,
Speaker 3: and we have to talk about some of these other
Speaker 3: issues like a very extended, troubled electrical grid that is
Speaker 3: limiting the ability to move forward. These are things that
Speaker 3: exist with or without trade in tariffs and I can
Speaker 3: come up with a whole economic view on which the
Speaker 3: teriff is sort of the whip cream on top of
Speaker 3: the ice cream, but not actually the core meal. Even
Speaker 3: if right now it's the area where we have the
Speaker 3: most volatility.
Speaker 2: Sometimes I'll take that's the cool meal. Francis donald a
Speaker 2: vampi sick just to turn back to the market. So
Speaker 2: let's talk about crude giving back some of the gangs today.
Speaker 2: After smiking on reports of rising tens in the Middle East,
Speaker 2: the US ordering some of its embassy staff and Bangtann
Speaker 2: to Leisa region due to heightened security risk. Joining US now,
Speaker 2: as the former senior US intelligence official Norman Rule, No'm
Speaker 2: welcome to the program, Sir. We always enjoy leaning on
Speaker 2: your expertise and a sign like this, could you just
Speaker 2: frame for us whether this is the real deal, something
Speaker 2: to be concerned about, or just one of those things
Speaker 2: that we typically see every few months out of this region.
Speaker 4: Good morning, Well, it's something to be concerned about. What
Speaker 4: we're watching her Three issues that are coming together after
Speaker 4: months of work, the lack of progress in the Iran talks,
Speaker 4: the dangerous expansion of Iran's nuclear program, and right now
Speaker 4: the IA Board of Governors finding that iron is in
Speaker 4: non compliance with its nuclear safeguard obligations under the Non
Speaker 4: Proliferation Treaty. The DUMP administration is committed to diplomacy, but
Speaker 4: it shows every sign of willing to use military force
Speaker 4: to prevent Iran from acquiring a nuclear weapon, and the
Speaker 4: actions taken over the last twenty four hours are meant
Speaker 4: signal Iran that that intent is indeed sincere without raising
Speaker 4: the temperature in the region significantly.
Speaker 1: Norman, what does it say to you that the ia
Speaker 1: Board of Governors is saying Iran is non compliant of
Speaker 1: its obligation? What does this mean? I mean we're going
Speaker 1: to see more countries take more action and sanctions on Tehran.
Speaker 4: Well, first, the issues that the iae has worked on
Speaker 4: in the last few weeks are long standing, in some
Speaker 4: cases for many years. But diplomacy has very slow wheels,
Speaker 4: and people put a lot of effort into trying to
Speaker 4: avoid this step. Indeed, this censure of Iran is the
Speaker 4: first time something like this has been done in twenty years.
Speaker 4: This will require now that the IAEA pushed this towards
Speaker 4: the UN Security Counsole for what is known to snap
Speaker 4: back to in essence, restore all UN Security Console sanctions
Speaker 4: on Iran, probably in September. They have until October, but
Speaker 4: since Russia takes over the UN Security Council in October,
Speaker 4: that's unlikely to happen. What we're seeing is that Europe
Speaker 4: is seeing that diplomacy is coming to its end. There
Speaker 4: are no other options here, and they are agreeing with
Speaker 4: the United States that the more severe pressure needs to
Speaker 4: be placed on Iran. And again, Iran's nuclear program is
Speaker 4: reaching a very advanced stage. Most of its enrichment capacity
Speaker 4: is now being devoted to military which is not nuclear weapons,
Speaker 4: but still military great enrichment for which it has no
Speaker 4: actual purpose.
Speaker 1: Well norm maybe in even further breach of IEA obligations.
Speaker 1: What we're hearing today is that Iran says they're going
Speaker 1: to establish a new uranium enrichment center in response to
Speaker 1: this decision. At the same time, the Omani foreign minister
Speaker 1: confirmed that the sixth round of talks between Iran and
Speaker 1: the United States is still set to go on on Sunday.
Speaker 1: How is there a path for diplomacy if Tehran is
Speaker 1: continuing to enrich uranium and announcing new centers.
Speaker 4: It's a great point. I think you're seeing several things here.
Speaker 4: At first, I think whatever Iran announces it planned to do,
Speaker 4: in any case, it's just using the IEA Board of
Speaker 4: Governor's resolution as an excuse. It's likely going to expand
Speaker 4: its scale of nuclear enrichment, as I say, to continue
Speaker 4: its program in this dangerous direction. We should be most
Speaker 4: concerned if it further restricts ie access to its program,
Speaker 4: which it has been doing for a number of years,
Speaker 4: that would be most concerning. Iran, however, has all the
Speaker 4: reason in the world to continue talks to drag out
Speaker 4: this process, and that is what has been of greatest
Speaker 4: concern to the Trump administration and others, because again, there
Speaker 4: has been no substantial progress in the talks. Iran refuses
Speaker 4: to halt domestic enrichment, to close any facilities, and to
Speaker 4: halt advanced research and development. And unless you have significant
Speaker 4: constraints on those activities, besides temporary constraints, do have a
Speaker 4: program that any moment can be turned into a nuclear
Speaker 4: weapons program?
Speaker 1: Normal, what kind of attack would it look like? Given
Speaker 1: the fact that we do have reports that Israel is
Speaker 1: ready to launch an operation into Iran, well, to.
Speaker 4: Be clear, there is no evidence that we're facing an
Speaker 4: imminent attack by the United States or Israel on Iran.
Speaker 4: Although such a likelihood is increasingly likely, it will grow
Speaker 4: likely more likely as a Uran refuses to cooperate. Such
Speaker 4: an attack would be would have a number of different
Speaker 4: elements to it. It is certainly unlikely to take place
Speaker 4: in a single strike. Iran knows this. Iran has almost
Speaker 4: certainly been preparing to live through such an attack and
Speaker 4: to respond with its own ballistic missiles and other tools
Speaker 4: against Israel. It will be a prolonged event, both diplomatically
Speaker 4: as well as militarily. But again, the United States has
Speaker 4: more than sufficient capacity to overwhelm anything Iran may seek
Speaker 4: to use to defend itself.
Speaker 2: And no, thanks for your signed today, no doubt will
Speaker 2: catch up against soon. Norman Roll there of csis I
Speaker 2: stand back to trade China, affirming a US trade deal
Speaker 2: announced earlier this week. Officials out in the country always
Speaker 2: quote keeps its word. Joining us now is Adam Posen
Speaker 2: of the Peniston Institute. Adam, welcome back to the program sir.
Speaker 2: Let's talk about what ultimately you've been engaged with over
Speaker 2: the past week or so. I think yesterday, after the
Speaker 2: inflation print, there might have been some excitement that maybe
Speaker 2: we could escape the higher prices off the back of
Speaker 2: the policy we've seen implemented over the last month or so. Adam,
Speaker 2: do you think maybe we're getting a little bit too
Speaker 2: excited too soon.
Speaker 5: I think we're being too excited too soon, Jonathan, for
Speaker 5: two reasons. First, as you imply, there is still a chance,
Speaker 5: and in fact, I think a very great chance, that
Speaker 5: we are just at the start of the terror cycle.
Speaker 5: I appeared before the Senate Finds Democrats and a hearing
Speaker 5: yesterday and there were small businesses, array of them sitting
Speaker 5: next to me talking about how they are having to
Speaker 5: make hard decisions on what teriffs to purchase or what
Speaker 5: to cut back on. And we're seeing that in all
Speaker 5: kinds of data, even though it's not in the New
Speaker 5: York Fed inflation expectations admittedly, and so I think the
Speaker 5: Fed's right to sit tight. But the other thing that's
Speaker 5: going on is we're not going to duck this as
Speaker 5: a real income hit. There's huge income hit because we're
Speaker 5: losing purchasing power of things people want to buy through TIFFs.
Speaker 5: Where it's a real income hit because uncertainty has gone
Speaker 5: up and it's going to remain up as the non
Speaker 5: deals of the last month's show, And so we might
Speaker 5: end up possibly with not that much inflation, but incomes
Speaker 5: are going to be.
Speaker 1: Hit, Adam. When you look at the core inflation yesterday
Speaker 1: we saw the decline was from airlines, cars, clothing. There
Speaker 1: was a drop across the board. When it comes to
Speaker 1: energy prices, when do you think it'll actually hit the
Speaker 1: hard data?
Speaker 5: It's a fair question. Memory And after four months of
Speaker 5: under expectations inflation, even somebody like me who's been forecasting
Speaker 5: inflation to go up, has to take a pause. Four
Speaker 5: months in a row is real information. But the fact
Speaker 5: remains that the used cars new and used cars number
Speaker 5: is weird, to use a technical term, given what we
Speaker 5: know is going on at Forward, at GM, at Toyota,
Speaker 5: stillantis at Honda, given what we know is happening to
Speaker 5: their supply chains, given what we know is happening to
Speaker 5: credit availability for cars. It's odd. Doesn't mean it's not
Speaker 5: literally true, but I wouldn't put too much weight on it.
Speaker 5: But more than that, I think it's just needs to
Speaker 5: be as the FED I think is rightly doing by waiting.
Speaker 5: You need to wait to see what happens if it
Speaker 5: turns out there isn't inflation, then great, and we just
Speaker 5: have to deal with the real income laws.
Speaker 1: Well, Adam, what about if we do get trade deals
Speaker 1: and this is all wrapped up in terms of the
Speaker 1: uncertainty by the middle or the end to the summer.
Speaker 5: It still doesn't fix the underlying problems. Emmery, I mean
Speaker 5: two things. First is again two things again, it's both
Speaker 5: direct and uncertainty. The direct effect is we still have
Speaker 5: tariffs that are twenty times on average as high as
Speaker 5: they were for eighty years, and that has to work
Speaker 5: through the system, and that is paid for by American
Speaker 5: companies or American consumers or American companies who buy inputs,
Speaker 5: so full stop, that's there. Second, because of the nature
Speaker 5: of the tariffs that they're not done through legislation, they're
Speaker 5: done through presidential emergency power, executive orders. And because everything
Speaker 5: gets negotiated, everything's up for negotiation at all times, the
Speaker 5: uncertainty doesn't go away. I know Jonathan hates it when
Speaker 5: I bring up Brexit, but the analogy is to Brexit.
Speaker 5: From twenty sixteen to twenty twenty, people kept saying, well,
Speaker 5: once the uncertainties resolves, once we know if it's a
Speaker 5: harder soft Brexit, It'll be okay. And I kept saying,
Speaker 5: the problem with Brexit is an uncertainty, the problem with
Speaker 5: about Brexit, problem with Brexit is Brexit, and so it's
Speaker 5: not the same thing. But there is that parallel here.
Speaker 5: The regime has changed, and we're seeing that in the
Speaker 5: fixed income markets. We're seeing that in the currency markets.
Speaker 5: People do not view the US assets, or US policy
Speaker 5: or US fiscal policy as safe as it once was.
Speaker 5: It's not gone to heck, but it is less safe
Speaker 5: more than zero risk asset, and that has a cascade
Speaker 5: of effects that will not go away.
Speaker 2: Adam, if you asked me seriously what Brexit is, what
Speaker 2: it was, I cann't tell you. I still following the
Speaker 2: conversation a long time ago. I just feel lucky to
Speaker 2: live in America and no longer than the UK. Is
Speaker 2: trite that story anymore? Did you give up to one, Marie,
Speaker 2: I sort of did.
Speaker 1: I did give up, especially because I moved to the
Speaker 1: UK at a one seventy two handle self Brexit breasit
Speaker 1: I'm still left after Brexit.
Speaker 2: Enough of that, Enough of that. I wanted to get
Speaker 2: your view on the next FED chair and the kind
Speaker 2: of characteristics that you would like to see from the
Speaker 2: incoming FED chair after of course, Cham and Paus steps
Speaker 2: aside next year.
Speaker 5: Right, I think Jonathan as Ben Burnanki, Thomas Lobocker, Rick
Speaker 5: Michian and I argued for after Greenspan, it should matter
Speaker 5: less who the chair is. It should be a system.
Speaker 5: It should be less about the personality. Obviously it does matter.
Speaker 5: J Powell has had unique attributes that have mostly been
Speaker 5: extremely great leadership. I think the next chair is going
Speaker 5: to end up having a very simple job because they're
Speaker 5: either going to get lucky because AI kicks in and so,
Speaker 5: like green Span in the mid nineties, you get higher
Speaker 5: growth and lower inflation and they can sit back and
Speaker 5: thereby please President Trump, or inflation will be obvious and
Speaker 5: the committee will leave them no choice and they'll have
Speaker 5: to hike. So there's going to be a lot of
Speaker 5: hype around who's the next year and if there is
Speaker 5: a crisis, it matters whether it's been Burnanki or not.
Speaker 5: I don't mean to dismiss that, sure, but I think
Speaker 5: people are overdoing it. The FED will do what the
Speaker 5: FED does.
Speaker 2: Let's talk about Adam. Let's talk about what the FED
Speaker 2: will do and what they'll do next. You said for
Speaker 2: quite a while there's a real risk of the next
Speaker 2: move might be an interest rate hike. And you also
Speaker 2: acknowledge this morning that four months of self that expected
Speaker 2: inflation is not nois it's information. So Adam, with that
Speaker 2: in mind, what's the view now and what you would
Speaker 2: expect to come from.
Speaker 5: The Fed, you're right to call me on that. I
Speaker 5: had been expecting higher inflation this year, and I was
Speaker 5: expecting that the FED would be hiking before the end
Speaker 5: of the year a few months ago, even before this
Speaker 5: run of data, I changed my forecast. It was still
Speaker 5: out of market, out of consensus, and remains a bit
Speaker 5: so that the Fed is not going to be cutting
Speaker 5: until November December at the earliest, and if they do,
Speaker 5: it's only going to be two cuts before the end
Speaker 5: of the year. There are a bunch of reasons for
Speaker 5: them to sit still. Some of them were articulately by
Speaker 5: feder Atlanta president Raphael Bostick the other day. The general
Speaker 5: sense of the committee, I think is broadly right that
Speaker 5: we're not falling off a cliff in terms of unemployment
Speaker 5: or growth. So anyway forecasts, they're going to sit tight
Speaker 5: and they're going to sit tight at least through September,
Speaker 5: probably till fourth quarter, and I think if they do
Speaker 5: puty cuts in the fourth quarter that are likely you're
Speaker 5: going to have still likely to have to take them
Speaker 5: back by in the middle of twenty twenty six.
Speaker 2: Interesting, Adam, we get new information, the outlook changes. I
Speaker 2: appreciate the update. Adam Poston at the Peterson Institute. Thank you, sir,
Speaker 2: Thank you very much. Still ahead, Ben last on this afternoon,
Speaker 2: thirty year debck coming to market, Lindsay Rosno, Goldent Sachs.
Speaker 2: It's with us around the table for a preview, Linday,
Speaker 2: it's going to see you.
Speaker 6: Thanks for having me.
Speaker 2: Let's talk about fixed income, the kind of risks out
Speaker 2: that lots of people worried about the long bomb, the
Speaker 2: thirty year issue.
Speaker 6: Yes, and that has been trading more like risk asset
Speaker 6: than it has been trading as a flight to quality,
Speaker 6: which I think we're used to. The big thing here
Speaker 6: is just trying to figure out where fiscal is on
Speaker 6: the going forward, and what we've been telling clients is
Speaker 6: there's no need to go into the thirty year bond.
Speaker 6: There are a lot of bombs in the belly and
Speaker 6: the very short end of the curve. Stay there and
Speaker 6: you'll be better served.
Speaker 2: If you're worried about risk and treasuries. Does it upend
Speaker 2: how we perceive risk elsewhere in corporate credit.
Speaker 6: Absolutely, because treasuries are the base, which is what we
Speaker 6: then build everything off of. It's the risk premium above
Speaker 6: it that gets us to where spread risk is valued.
Speaker 6: So what we're seeing in the back end actually influences
Speaker 6: our views on back end investment grade corporates, for example,
Speaker 6: And as a result of what's happening in the back
Speaker 6: end of the rates curve, we've actually also stayed in
Speaker 6: the front end of the corporate curve and stayed away
Speaker 6: from the back end of the corporate curve.
Speaker 1: Jeff Gunlock yesterday talking to Lisa. John's been talking to
Speaker 1: a lot about these comments, but he says, it's certainly
Speaker 1: behaving differently than it was for the last four decades.
Speaker 1: Things are behaving differently. So when I won't touch the
Speaker 1: thirty year treasury, why do you think this is so
Speaker 1: different than what we've seen with skirmishes in the last
Speaker 1: four decades.
Speaker 6: Yeah, I do disagree a bit in that this isn't
Speaker 6: something we've never seen before. Questioning fiscal questioning the fiscal
Speaker 6: sustainability or unsustainability of the government is not anything new,
Speaker 6: and it has been a concern. What's different is the
Speaker 6: problem's gotten larger and larger and larger. And I think
Speaker 6: we're getting pretty close to a breaking point. And that's
Speaker 6: what the back end of the curve is telling you.
Speaker 6: That being said, there's always a right price for something,
Speaker 6: and I think we're getting fairly close in the back
Speaker 6: end to an area where it seems interesting. And certainly
Speaker 6: we've bounced off today. Yields are lower on the back
Speaker 6: of the economic data that we got that we're surprising,
Speaker 6: But there will be a point in time where the
Speaker 6: thirty year is something that you want to own because
Speaker 6: we're putting in some real, real yield in the back end.
Speaker 2: Let's talk about this economics it no doubt. So what's
Speaker 2: with us Moments ago? I'm sure you heard I got
Speaker 2: worried about the labor market and continuing claims. I wonder
Speaker 2: what your perception of where the economy is right now
Speaker 2: is and ultimately have that shape in your approach to
Speaker 2: corporate credit more broadly.
Speaker 6: Sure so, for us, the labor market is gradually softening
Speaker 6: and I think each piece of that phrase is important.
Speaker 6: Gradual is comfortable, and softening is actually okay. It's when
Speaker 6: you have something that's more extreme. And I think that's
Speaker 6: what Neil is trying to sus through, is that are
Speaker 6: we seeing continuing claims at an alarming level? Are there
Speaker 6: things that we should be more worried about? The non
Speaker 6: farm payroll last Friday, I think was kind of the
Speaker 6: beginning and telling us that we are for sure in
Speaker 6: this softening episode.
Speaker 1: But the read through for that for.
Speaker 6: Us is not that the economy is falling off a cliff,
Speaker 6: but it puts us in a position where we think
Speaker 6: it is important that the FED begins acting. Agree with
Speaker 6: Neil completely, it's not at the next meeting. I know
Speaker 6: that he joked he said that they should cut, but
Speaker 6: I don't think he really means that. We don't think
Speaker 6: that they should cut either. But I think it'll be
Speaker 6: really interesting to see the dots, and we are hoping
Speaker 6: that they at least preserve one or two for twenty
Speaker 6: twenty five. I think if it was zero, that is
Speaker 6: really going to upset the market.
Speaker 2: Speed matters, and it's not happening quickly, and I think
Speaker 2: that's important not just for policy makers, but also for
Speaker 2: corporate balance sheets. So can you describe the kind of
Speaker 2: corporate balance street strength that you see at the moment
Speaker 2: and how resilient corporate credit would be in a continued downstid.
Speaker 6: Sure, so balance sheets look really good. All the things
Speaker 6: that we look at, metrics, leverage, metrics that they've termed
Speaker 6: out debt, thinking about just their business models. Not all
Speaker 6: of them, but most of them are in really really
Speaker 6: good standing. For example, we did have a fallen angel
Speaker 6: earlier this week with Warner Brothers that's getting a lot
Speaker 6: of fair and fair. That's the fifth largest fallen angel.
Speaker 6: But if you take that out of the equation, we've
Speaker 6: had a really solid investment grade corporate market that's been
Speaker 6: extremely resilient. That makes us feel comfortable with the balance sheets.
Speaker 6: The problem that we're dealing with right now is spreads.
Speaker 6: So are you being compensated for the potential going forward
Speaker 6: economic softness? Spreads are really tight right now, and they
Speaker 6: are pricing in that everything's going to go fine. That's
Speaker 6: where we take issue.
Speaker 2: Our role in yields attractive enough to compensate for that.
Speaker 6: They have certainly in some of the backup we've had
Speaker 6: gotten to levels that have hit triggers for some of
Speaker 6: our clients. We've seen clients saying that we're actually interested
Speaker 6: in getting into fixed income. We want to add we're
Speaker 6: underweight our fixed income allocation, so yes, we all in
Speaker 6: yield is good. But what we really encourage, and I
Speaker 6: think our clients agree is important, is active management around
Speaker 6: this exciting guild thing because not every corporate is going
Speaker 6: to have a solid balance sheet on the going forward,
Speaker 6: and tariffs are happening. Maybe they're less than we thought,
Speaker 6: but they still are happening.
Speaker 2: So down one night, one hundred Goldman Sachs. As a
Speaker 2: management it's the pitch.
Speaker 6: I think, yes, that line should ring.
Speaker 2: Thank you, Lindy, thank you. I appreciate it as always,
Speaker 2: so Lindsay Rosen, there have goldment sex. This is the
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