Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Leye. We bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg
Speaker 1: dot com, and of course on the Bloomberg Terminal. Chris
Speaker 1: Halfey of Well Found mistake for two thousand joints now
Speaker 1: the head of Ectday Strategy. You're line Chris, the high
Speaker 1: volume cathartic puke. We were waiting for Chris. What's that? Well?
Speaker 1: First off, that's my scientific term, and typically what we
Speaker 1: see at the end of the sell off is we
Speaker 1: see volume increase, we see money moved from the weaker
Speaker 1: hands to the stronger hands. And that's exactly what we
Speaker 1: saw yesterday. Yesterday there were probably three things that we
Speaker 1: wanted to see and three things that we got. The
Speaker 1: vics at thirty nine are close to thirty nine. We
Speaker 1: don't think that's sustainable based on the fundamentals. U two,
Speaker 1: you had small caps, I'll perform large. That's typically what
Speaker 1: you see when you you have a very aggressive hedge
Speaker 1: fund de grossing or the end of a very hedge
Speaker 1: aggressive hedge fund de grossing. And the last thing is, again,
Speaker 1: as you you point out so eloquently, that cathartic pute
Speaker 1: that we need that, that capitulation of those weaker hands,
Speaker 1: and now we can move forward. And that's exactly what.
Speaker 1: What about the Catharsis across the x X as we
Speaker 1: seem to be doing Catharsis in a three hour span,
Speaker 1: I don't buy that. If you go back to John
Speaker 1: Maggie in a slower maybe forty four and a slower time,
Speaker 1: Catharsis took a couple of days, even a week is
Speaker 1: the new Catharsis minutes? Tom, You know, everything happens fast
Speaker 1: enough nowadays. So can we have more of a sellout?
Speaker 1: Sure we can, But yesterday was one heck of a
Speaker 1: sell off. I think every time I looked down, we
Speaker 1: were gapping lower. Um, if you looked at some of
Speaker 1: the stories, we did hear about some edge fun liquidation,
Speaker 1: we did hear about margin calls, we did hear about
Speaker 1: some capitulation on the retail side. And I guess, as
Speaker 1: we were saying before, everything just happened a bit quicker nowadays. Okay,
Speaker 1: well it's quicker nowadays, I'll go with that. So do
Speaker 1: you do? You step in and by this morning, what
Speaker 1: does ubs suggest someone do with not ample cash, but
Speaker 1: someone managing retail or institutional portfolio does have cash. It's
Speaker 1: one one this morning an so Lasa did the rest
Speaker 1: of the show with Alice, which let's fight say. It's
Speaker 1: what people have been waiting full for the last few years.
Speaker 1: Just what do you buying? Don't don't know what? Well?
Speaker 1: I mean, I don't know what you do? Wow, this
Speaker 1: has got off the rails. Roll past. Anyway back to
Speaker 1: our show. We think you should be buying here. Yesterday
Speaker 1: midday we wanted to get a note out. I couldn't
Speaker 1: do it quick enough and we were looking for a
Speaker 1: ten percent pullback. We were looking for this and not
Speaker 1: break mentality to crack it. Did we checked those boxes
Speaker 1: as we talked about we we got good information on
Speaker 1: the BIX on small caps as well as our our
Speaker 1: buying or cathartic puke. And now what we want people
Speaker 1: to do is we want them to buy or higher
Speaker 1: COVID beta portfolio. We want them to buy the reopening trade.
Speaker 1: Fundamentals are improving, the COVID wave is coming down, and
Speaker 1: what we're seeing is a pretty good opportunity, we think,
Speaker 1: to get more aggressive and play the economy. For now.
Speaker 1: We think the economy is fine, We think the FED
Speaker 1: is doing a good job, and we think the probability
Speaker 1: of stack flation has diminished greatly as a fit as
Speaker 1: a curve is flattened, as competence in the FED has
Speaker 1: has come back. Chris, is there a high frequency data
Speaker 1: that you're looking at that really edifies this view that
Speaker 1: we're moving past the omicron wave and back to this
Speaker 1: solid growth picture that people believed in so strongly maybe
Speaker 1: three weeks ago. UM, high frequency data. We we look
Speaker 1: at the COVID cases every day. We look at them
Speaker 1: on a state by safe basis, We look at the
Speaker 1: country basis, and what you expected to see was a
Speaker 1: sharp run off, excuse me, a sharp run up and
Speaker 1: a pretty quick or pretty quick decay. Right. We're seeing that.
Speaker 1: As far as the high frequency economic data, one of
Speaker 1: the things that we said coming into the years, we
Speaker 1: thought the consumer needed to normalize. We're beginning to see that. Um.
Speaker 1: You've seen a lot of disruption on the retail side
Speaker 1: with people not being able to come into work. I
Speaker 1: mean this weekend I tried to go to library with
Speaker 1: my son and the library was closed. Right, We'll get
Speaker 1: through that. And now more importantly, what we're looking at
Speaker 1: is consumer balance sheets. Consumer balance sheets are quite strong,
Speaker 1: and that's a very good sign. So we'll have a hiccup,
Speaker 1: we'll have some you know, back and forth, but at
Speaker 1: the end of the day, with consumer spending being strong,
Speaker 1: with still a lot of pent up demand on the
Speaker 1: leisure and the travel side and on the service to
Speaker 1: spend side, that's where we think people are going to
Speaker 1: spend their money. I think that's where the real opportunity is.
Speaker 1: Do you think we should leave this conversation off the podcast.
Speaker 1: I don't think this is going to work somewhere on
Speaker 1: the podcast. A little bit like a christhing christ at
Speaker 1: you buddy, pleasure, Thank you mate, thank you, thank you
Speaker 1: very much. Glenn Hobbard, you go back to our best
Speaker 1: intentions on page one twenty two. You've got JFK before
Speaker 1: assassination with great intentions. But lb J could not implement
Speaker 1: the trade assistance. He couldn't build the bridge that JFK
Speaker 1: tried to build. That's just one example. Are we going
Speaker 1: to repeat a fractured American history? Oh? I don't think
Speaker 1: we have to. You know, the growth we celebrate always
Speaker 1: is the heads of a coin whose tails is disruption,
Speaker 1: and disruption is a demand for adaptation, and the supply
Speaker 1: could either be walls of protection or bridges like Kennedy
Speaker 1: tried to do with trade adjustment assistance. Problem is it's
Speaker 1: too small in US history that we've done it right.
Speaker 1: Lincoln did it, the land Grant colleges, FDR did it
Speaker 1: with g I Bill. It's time to think bigger again.
Speaker 1: That's really the theme of the book. It's really about
Speaker 1: Adam Smith, a delicate call maybe about Donald Trump as well.
Speaker 1: A delicate question Dean Hubbard. Can the Republican Party get
Speaker 1: beyond trump economics and Trump certitude is defined by the
Speaker 1: wall and the bridge you'd like to build. I think
Speaker 1: both parties can get behind bridge ideas because they're about
Speaker 1: two simple points. One is preparing people for the world
Speaker 1: that is and will be, and the others reconnecting people
Speaker 1: who get disconnected from an economy influx. That's something that
Speaker 1: doesn't have a Republican or a Democrat flavor to it,
Speaker 1: and in the past, people as disparate as former House
Speaker 1: Speaker Paul Ryan and President Obama have had many of
Speaker 1: the ideas I talked about in the book. When one
Speaker 1: thing that sort of tying the hands of certainly both
Speaker 1: Republicans and Democrats right now and spending more money is
Speaker 1: the inflationary backdrop. How do you incur more debt at
Speaker 1: a time when there does seem to be a concern.
Speaker 1: How do you think the Federal Reserve should handle it
Speaker 1: at the meeting that begins today. Well, I think most
Speaker 1: of the programs that I advocate are actually fairly small
Speaker 1: and spending that's the shocking political thing, and I describe
Speaker 1: ways in which we could pay for it. From the
Speaker 1: Fed's perspective, I think the Fed is behind the curve.
Speaker 1: It has acknowledged that, in a sense, it is behind
Speaker 1: the curve and is trying to catch up. The key
Speaker 1: question is not to add to demand while supply constraints find.
Speaker 1: I think the Fed now gets that the key will
Speaker 1: be communication and what Wall Street thinks then about stocks
Speaker 1: and what the economy thinks about near term growth prospects.
Speaker 1: How high can rates go before it becomes a real problem,
Speaker 1: given how much debt has been incurred, not only by
Speaker 1: corporations but by the United States, Well, actually, not that high.
Speaker 1: You know think about it. Even if you shifted the
Speaker 1: entire term structure of interest rates up by two hundred
Speaker 1: basis points, which is hardly super high, you would have
Speaker 1: real problems in the federal budget. I think the Fed
Speaker 1: is independent. It will do what it takes to to
Speaker 1: bring inflation under control. Think is a warning to official
Speaker 1: them in Washington that we have to take the federal
Speaker 1: budget more seriously than we have Glenn. The moment that
Speaker 1: we're in is defined by Ira Jersey at Bloomberg. Intelligence
Speaker 1: is a balancing of a rate policy and a balance
Speaker 1: sheet unwind. Let's call it QT, which is not an
Speaker 1: original thought. Are you optimistic that we can do original economics?
Speaker 1: I think it's harder than people thinking. It's certainly academically
Speaker 1: quite possible. You can do the math and try to
Speaker 1: count in equivalent rate hikes what QT would be. The
Speaker 1: problem is QT is not just the opposite of q E.
Speaker 1: There are a lot of asymmetries built in that we
Speaker 1: don't have experience with. I think the Fed is taking
Speaker 1: this very very careful. Does that extend the X access?
Speaker 1: I mean we had this conversation earlier with a great
Speaker 1: Claudius some of Michigan talking about Michael Woodford and what
Speaker 1: we all learned an interest in prices. Okay, great, But
Speaker 1: is a solution here for any central bank that the
Speaker 1: x axis here is much longer than any of us presume,
Speaker 1: and that they will take their time and wait for data. Well,
Speaker 1: I think the FED will certainly wait for data. How
Speaker 1: much time the FED has, of worse, depends on inflation
Speaker 1: readings and the reason for those media readings. You don't
Speaker 1: want to let inflation get ingrained into wage bargaining processes.
Speaker 1: So I think the FED could wind up moving, perhaps
Speaker 1: even more rapidly than people think. Glenn Glenn Hubbard of Columbia.
Speaker 1: I am curious for the economics profession with the takeaway
Speaker 1: is after the FED got inflation so wrong, and it
Speaker 1: wasn't just a FED, it was pretty much everyone, how
Speaker 1: did it happen? I don't know that I would call
Speaker 1: it pretty much everyone. I think a number of economists
Speaker 1: and myself in that boat said that we're adding to
Speaker 1: demand both the FED and frankly the government to at
Speaker 1: aprement supply constraints or binding. So I think this was
Speaker 1: a policy error that need not have happened. Okay, So
Speaker 1: if you think this is a policy error that need
Speaker 1: not have happened. Is it something that can be curtailed
Speaker 1: by aggressive FED actions such as what's being priced into
Speaker 1: the market, or do you think this has longer lasting
Speaker 1: sort of influences based on wages, based on rent prices
Speaker 1: and some of the other pressures. I do think the
Speaker 1: FED can get this under control. It has all the tools,
Speaker 1: and it has all the institutional incentives and independence to
Speaker 1: do that. Having said that, it's hard, meaning that history
Speaker 1: isn't kind of the view that you could have this
Speaker 1: kind of FED tightening without any kind of economic or
Speaker 1: financial hiccup. So the FED is walking it tightly. Can
Speaker 1: I did this fat chances of a second time? I
Speaker 1: think so? I mean I think Chair Powell acted very
Speaker 1: vigorously in the coronavirus pandemic. I think that the bias
Speaker 1: would be towards keeping a FED chair. You think is
Speaker 1: is doing a good job absence some obvious alternatives. So
Speaker 1: I I think so. But the only person whose opinion
Speaker 1: counts there's and I was May the president made the
Speaker 1: decision to give him a second term. The reason I
Speaker 1: asked the question is because for some people who lost
Speaker 1: a lot of credibility with this inflation code. Are you saying,
Speaker 1: Glen in your comments to Lisa, that ultimately you can
Speaker 1: win that back and win that back quite quickly. You can,
Speaker 1: but it's not without cost. It would have been better
Speaker 1: how to policy or not been made. But yes, the
Speaker 1: FED can win this battle, but I'm afraid we all
Speaker 1: in the economy are going to pay a cost. Well,
Speaker 1: let's talk about those costs. Gland. How big do you
Speaker 1: think those costs will be? We have the discussion on
Speaker 1: this program daily. Some people say soft landing, others say
Speaker 1: it's too late, recession inevitable. How large do you think
Speaker 1: the cost will be? I would say that the chances
Speaker 1: are better for a relatively soft landing if the FED
Speaker 1: is clear in its communication and everybody understands what is happening.
Speaker 1: The risks would be if inflationary pressures move faster than
Speaker 1: the FED things and it has to move faster and
Speaker 1: were they're bad reactions either in financial markets are frankly
Speaker 1: on the government budget. That's the tight rope I was
Speaker 1: referring to. But yes, the FED can pull this off,
Speaker 1: so they should look through what was happening on the
Speaker 1: screens this morning yesterday threw much of the start this
Speaker 1: year glean with equities down and down hot again. Well, that,
Speaker 1: of course it's for the FED to decide. I don't
Speaker 1: think the FED should be in the business of putting
Speaker 1: a put from the stock market. The question is more
Speaker 1: are Fed actions affecting financial stability or economic performance? Those
Speaker 1: are legitimate questions and I think they're very much on
Speaker 1: the Fed's mind in put and comments. Glen as always
Speaker 1: and really enjoy catching up with you circle. And how
Speaker 1: about that of Columbia University. It was stunning ninety days
Speaker 1: ago to CEG announced a three company breakup. It is
Speaker 1: far more stunning this morning to see General Electric really
Speaker 1: put some meat on the discussion. And the discussion is simple.
Speaker 1: They've got two divisions, two new companies getting it done,
Speaker 1: including g Aviation, and they've got another one which they
Speaker 1: title Renewable Energy Power in Digital. We're just simply it
Speaker 1: ain't happening. Claudia sam is this industrial analyst, senior fellow
Speaker 1: at Jane Family Institute and joins us this morning. Claudia
Speaker 1: ge is a metaphor for how everyone, including your own Powell,
Speaker 1: is dealing with the structural changes of America. How does
Speaker 1: a central bank deal with industrial failure, industrial breakup, global competition,
Speaker 1: and at the same time deal with a technological boom
Speaker 1: has seen in the excellence of ge aviation. What is
Speaker 1: an economist to do? Right? Well, good morning. I mean,
Speaker 1: these are just one of the many questions that the
Speaker 1: Federal Reserve is puzzling over right now. I mean, frankly,
Speaker 1: I would put a lot more of it on consumer demand.
Speaker 1: But we do know that demand has been strong, and
Speaker 1: we have heard multiple times about the production, particularly of goods,
Speaker 1: not making up for the demand. We have basically anything
Speaker 1: that's bad news on that front, whether it's COVID or
Speaker 1: problems in the production sector. I mean, this is not
Speaker 1: good news. But if you step back and look at
Speaker 1: big picture industrial production and a lot of the consumer
Speaker 1: good spaces, it looks a lot better now and it
Speaker 1: did even months ago. This is not saying much, but
Speaker 1: you know, we need anything moving in the right direction here.
Speaker 1: If corporations are clearing markets, including getting rid of the debris,
Speaker 1: as General Electric is doing, do we assume consumer demand
Speaker 1: and the buoyant consumer demand is legitimate and sustainable. Yeah. So,
Speaker 1: having worked on consumer demand for over a decade at
Speaker 1: the Federal Reserve, I know that the biggest thing driving
Speaker 1: demand is in common people's pockets, and we have seen,
Speaker 1: particularly from the federal government letting child tax credit expire,
Speaker 1: seeing millions of workers be out of work even five
Speaker 1: days like that. A lot of families cannot make that work,
Speaker 1: and certainly are going to make it work and go
Speaker 1: out and buy a big, durable purchases that you know
Speaker 1: they can put off a little while. So I think
Speaker 1: we've seen a lot and will see when we have
Speaker 1: the January numbers that's done more than a FED increase
Speaker 1: is going to do in terms of pulling the demand out. Claudia,
Speaker 1: there is a conflation in between fiscal and monetary policy often,
Speaker 1: and people look to monetary policy to do a lot
Speaker 1: of things that fiscal policy have done years and years ago.
Speaker 1: I am wondering at this point, given the sense that
Speaker 1: you've long called for the FED to be patient, you
Speaker 1: think that they're on track, they're not behind the curve,
Speaker 1: At what point do you see the inflation mandate becoming
Speaker 1: pressing and important for them to address at a time
Speaker 1: when it seems unclear what more they can do on
Speaker 1: the employment front. Right, So, I know the narrative is
Speaker 1: really gloom and doom right now, but we gotta step back.
Speaker 1: We had unemployment moved below four percent at the end
Speaker 1: of last year. Yes, we have had inflation, but we
Speaker 1: have inflation adjusted because sumer spending, business investment, you name it.
Speaker 1: This is not stagflation. And fiscal and monetary policy really
Speaker 1: push that. And that's that is so important. It is
Speaker 1: absolutely appropriate. And we've seen this in messaging from j
Speaker 1: Powell and lay Layo Brainerd. We are so much closer
Speaker 1: on the maximum employment and yeah, the thing that's you know,
Speaker 1: not where we wanted to be as inflation. So I
Speaker 1: don't think they've changed how they are valuing or kind
Speaker 1: of waiting the two. It's just we're a lot close
Speaker 1: to the finish unemployment and that's a big deal for
Speaker 1: American family. Although participation rate has not gotten back up,
Speaker 1: and this is something that people are concerned about. And
Speaker 1: given that, and given that it may not recover two
Speaker 1: pre pandemic levels, people are starting to worry about a
Speaker 1: wage spiral. How are you thinking about that? Yeah, so
Speaker 1: we have to remember the two things that push up
Speaker 1: on prices or supply and demand, right, and consumers aren't
Speaker 1: out demanding and omicrons taken the ends out of some
Speaker 1: of the service sector. Well, if the demands not there
Speaker 1: from the consumers in there from the employers either. So
Speaker 1: I do think when we get the numbers for the
Speaker 1: fourth quarter, they good employment compensation index numbers, We're gonna
Speaker 1: see some pretty big numbers in December, unfortunately for the FED.
Speaker 1: And this is for markets to the information that we
Speaker 1: really need to understand where demand is going is January
Speaker 1: and we're not going to We do not have your
Speaker 1: right now, you know, we're data dependent, waiting out for
Speaker 1: the data. Claudia. A lot of good analysis into this
Speaker 1: FED meeting, and one of them is Kit Jukes. There
Speaker 1: is a society general with decades of experience of linking
Speaker 1: in the dollar into other markets as well. Mr Jukes
Speaker 1: this morning suggests that the FED can slow demand, Can
Speaker 1: any central bank slow demand? Absolutely? Again, I think the
Speaker 1: fiscal support income out of people's pockets COVID is wreaking
Speaker 1: havoc right like that is the big straightforward effect on demand.
Speaker 1: But the FED does have an effect on the borrowing
Speaker 1: costs of consumers. Now the tenure Treasury is not moving
Speaker 1: in a way that's really helping them push on those costs.
Speaker 1: But in a world without the FED moving right like,
Speaker 1: the FED can make it more expensive and can take
Speaker 1: particularly the durable goods which consumers often need to borrow
Speaker 1: to make it happen. Yes, the FED can bring demand
Speaker 1: cool it off some Uh, that's that is what's happening.
Speaker 1: It's sad because the real way to fix inflation. And J.
Speaker 1: Pau said this is to get us out of the pandemic.
Speaker 1: But I think, frankly, listening to President Biden last week,
Speaker 1: this is not going to happen. So the FED is
Speaker 1: going to have to cool off demand. Claudian, an unfair question.
Speaker 1: And this goes to fancy mathematics which gives us beautiful
Speaker 1: curves that we never read in Michael Woodford's book on
Speaker 1: Interesting Prices, and there are oil functions. I don't want
Speaker 1: to go into it. What I do want to say, Claudia,
Speaker 1: is there's all sorts of lovely curves. Is get us
Speaker 1: back to an inflation rate? Where is your image of
Speaker 1: where that new inflation rate is? Is it two percent?
Speaker 1: Is it adam posens three new inflation rate? Or is
Speaker 1: it a number that's higher but not frightening? Where? Where?
Speaker 1: Where does inflation settle out? Ad on the glide path? Yeah,
Speaker 1: so first of all, I just say every single one
Speaker 1: of my forecasts about where inflation is headed, and this
Speaker 1: has been true now the entire pandemic. Is when the
Speaker 1: pandemic moves into an endemic and we really have this
Speaker 1: under control, then when that happens, we're talking another six
Speaker 1: months of getting us back to something that's really close
Speaker 1: to two percent. The longer this goes on, the harder
Speaker 1: the more backup we have, the more things have gone haywire.
Speaker 1: But the fundamentals in the US economy are not notably worse.
Speaker 1: And that's a lot of the response last year is
Speaker 1: just we have this other factor that is, until the
Speaker 1: pandemic is under control, we are going to see well
Speaker 1: above two percent something, not seven. If the Change Family Institute,
Speaker 1: I think we all hope it's not going to be seven. Clodia,
Speaker 1: thank you for joining us right now, and this is
Speaker 1: up Lisa ramots As weel so I'm gonna ask one
Speaker 1: question and get out of the way. Winnie Caesar joins
Speaker 1: us from Credit Sites. She was with Wells Fargo for years,
Speaker 1: global head of credit Strategy at Credit Sites. And what's
Speaker 1: absolutely fascinating here is the dynamics and the things we
Speaker 1: can learn from the credit market, and particularly high yield.
Speaker 1: There is this phrase Winnie yield to worst. We have
Speaker 1: yield to worsened out, worser now And as you say
Speaker 1: in your lovely research note, there's a point where you
Speaker 1: step in and buy the price for yields to come
Speaker 1: down or yield to worse to come down? Are the
Speaker 1: Are we there at this moment? We are just about there.
Speaker 1: We had been telling investors that five percent yields worst
Speaker 1: for high yield was the level that we up was
Speaker 1: much more attractive, and we got there yesterday with the
Speaker 1: market volatility that we saw. Now, how yields off to
Speaker 1: a pretty rocky start to start the year. This is
Speaker 1: actually the worst January performance on record at this point,
Speaker 1: worth than two thousand sixteen. Commodity sell off worse than
Speaker 1: two eight as well. But we think at this point,
Speaker 1: given the amount of cash that still fits on the
Speaker 1: sidelines and the need to generate some income in this
Speaker 1: inflationary environment, five percent on HW yield doesn't look too shabby.
Speaker 1: Let's take a step back and talk about the credit
Speaker 1: markets is an important functioning tool that the Federal Reserve
Speaker 1: looks at. They're not going to get that concerned about
Speaker 1: the stock market sell off. If you see the fixed
Speaker 1: income market, in particular credit behaving. You talk about that
Speaker 1: five percent level for yield to worse, But if you
Speaker 1: look at credit spreads, the extra premium that investors charge
Speaker 1: of our benchmark rates, it stayed incredibly tame for the
Speaker 1: riskiest securities. What's the message that you get from that?
Speaker 1: The that so that we get from that is that
Speaker 1: investors should consider continue to expect a very low default
Speaker 1: environment this year. Nobody has expected economic growth to really
Speaker 1: roll over quite yet. And with that, borrowing conditions in
Speaker 1: the credit markets have remained pretty favorable to issuers, which
Speaker 1: means that companies are going to continue to enjoy access
Speaker 1: to liquidity at levels that are still very attractive relative
Speaker 1: to historic norms, despite the fact that we've seen yields
Speaker 1: move higher overall. So the strice action that we've seen
Speaker 1: in the credit markets has been much more collateral damage
Speaker 1: from equity and rates volatility rather than the credit markets
Speaker 1: sending a signal that liquidity is really drying up across
Speaker 1: the financial markets, and we view that as generally constructive.
Speaker 1: So we need fast forward and talk about what this
Speaker 1: means two years from now, three years from now, as
Speaker 1: rates are expected to continue to rise and become more normal,
Speaker 1: whatever that means. At point does that become a serious
Speaker 1: problem given the trillion dollars of corporate death that have
Speaker 1: been issued over the past couple of years. So there
Speaker 1: is a point where we'll reach this kind of tipping
Speaker 1: point where borrowing costs very much exceed what issuers can
Speaker 1: ultimately pay. Especially as you point out debt loads have
Speaker 1: increased pretty significantly, we're still a far cry away from that.
Speaker 1: With investment grade yielding about two point seven percent, we're
Speaker 1: still a hundred basis points below the average coupon on
Speaker 1: the index, and that average coupon is an all time load,
Speaker 1: So you still have at least a hundred basis points
Speaker 1: just to get back to that average level. And so
Speaker 1: long as we keep growth good enough for credit, as
Speaker 1: we like to say, then issuers should be able to
Speaker 1: continue to operate pretty nicely. When I saw a blurb
Speaker 1: the other day, I didn't even read the whole thing, folks,
Speaker 1: It was just in the blur of the moment where
Speaker 1: it was trying to calculate how much of a debt
Speaker 1: deal Microsoft could do. Now, Microsoft is the antithesis of
Speaker 1: your world, I believe they're triple A. There as far
Speaker 1: from high yield as you can get. When you hear
Speaker 1: the ability of any company in your world or in
Speaker 1: the technology world to raise ten twenty thirty billion dollars,
Speaker 1: how do you respond to that size of number. Well,
Speaker 1: those sizes of numbers have actually become much more normal
Speaker 1: to investors over the past few years, where we've seen
Speaker 1: more and more jumbload deals, both in the investment grade
Speaker 1: markets and also in leverage finance. As high yield and
Speaker 1: leverage loans have grown, issuers have a lot of avenues
Speaker 1: to raise very large trenches. I'd also like to point
Speaker 1: out there there is still an awful lot of cash
Speaker 1: on corporate balance sheets that needs to be used for something,
Speaker 1: and companies like Microsoft and other very highly rated technic
Speaker 1: bology companies are some of the issuers that have the
Speaker 1: most cash balances. So I'd be a little bit less
Speaker 1: focused on the size of kind of jumbo transactions that
Speaker 1: can get pushed through in the investment grade market, whereas
Speaker 1: the high yield and leverage loan market are really primed
Speaker 1: for these massive LBO type issuances over the course of
Speaker 1: this year. Interesting when he thank you an impotent pound
Speaker 1: of the cross, as that story with Whinnie says of
Speaker 1: credit size, what do you do against a reported one
Speaker 1: thousand troops of Russia. We go to Alex Brudeaux, who
Speaker 1: gave us a lot of smarts early in the year
Speaker 1: with the Eurasia Group risks for the year. We're thrilled
Speaker 1: he could visit with us again on his expertise of
Speaker 1: Russia and Ukraine. Alex, I am thunderstruck at the granularity
Speaker 1: of Eastern troops. Thank Vladivostock taking the Trans Siberian Railway
Speaker 1: all the way over to Belarus. You don't do that
Speaker 1: unless it's for a reason. Why does Mr Putin have
Speaker 1: East Stern troops in Belarus threatening Kiev. But we have
Speaker 1: seen other signs of that happening as well over the
Speaker 1: last few months. Troops coming from Siberia as another example
Speaker 1: of this, and it does point to a build up
Speaker 1: on the Russia Ukraine border. We now have some of
Speaker 1: these troops heading to Yellow ris for these military exercises,
Speaker 1: and I think that is another part of the pressure
Speaker 1: that's being put not just on the Ukrainians, but also
Speaker 1: on NATO and the US to come to some terms
Speaker 1: on demands of the Russians made back in December UH
Speaker 1: to UH that they want a ban on Ukraine's membership
Speaker 1: and NATO, they want other concessions coming from NATO in
Speaker 1: terms of troops deployments in Eastern Europe. This is, you know,
Speaker 1: not just about Ukrainie. It's also about the threat that
Speaker 1: Putin perceives coming from the US and NATO on Russia's
Speaker 1: western border. Is the threat cultural? Is that the westernization
Speaker 1: of the Ukraine. I think that Ukraine's turned to the West,
Speaker 1: particularly it's turned to Europe economically and then to Europe
Speaker 1: in the US on the security front is of concern
Speaker 1: to the Kremlin. Historically, Ukraine had been very close obviously,
Speaker 1: not just I mean when we're talking post independence, there
Speaker 1: had been very close relationships between Ukraine and Russia, and
Speaker 1: after in particular, we saw that really decline. It is
Speaker 1: in many ways a very different relationship now because of
Speaker 1: the conflict of the last eight years, because of economic
Speaker 1: changes in terms of Ukraine's orientation. Uh Putin has been
Speaker 1: pushing against that over the last several months and sees
Speaker 1: that as a problem. But I think the security issues
Speaker 1: really have come up in the last couple of months
Speaker 1: as being the priority for the Kremlin and the thing
Speaker 1: that they want the US and NATO to make confessions. Alex,
Speaker 1: I know you don't have a crystal ball, but if
Speaker 1: you could game out what you think is likely to
Speaker 1: happen over the next few weeks, what would you say. Well,
Speaker 1: I do think that diplomacy has a real chance here.
Speaker 1: In fact, we think that it probably will in the
Speaker 1: end lead to some level of the escalation in the
Speaker 1: coming months. But this is gonna be a real challenge
Speaker 1: seeing all of the escalation and and and posturing that
Speaker 1: we've seen just in the last ten days or so
Speaker 1: after the first round of talks really did not go
Speaker 1: well between Russia and the West. But there are still
Speaker 1: areas where Russia and the US in particular can have discussions,
Speaker 1: including on these issues of NATO's presence in Eastern Europe,
Speaker 1: including issues like missile deployments, UH, nuclear weapons. UH. There's
Speaker 1: a whole host of things that Putin wants to talk about,
Speaker 1: particularly he wants to talk about them with President Biden,
Speaker 1: and things that that a deal could be struck. So
Speaker 1: there is this room for progress over the next several weeks,
Speaker 1: but it is going to be slow going. And is
Speaker 1: going to be hurt to a certain degree by the
Speaker 1: escalations that we've seen over the last few days. Alex,
Speaker 1: How concerning is it from your perspective that China in
Speaker 1: Russia are increasingly teaming up at a time when the
Speaker 1: US is trying to regain its status with the European
Speaker 1: Union as the alliance. Well, I think that it is
Speaker 1: a concern certainly for Washington to see sort of this
Speaker 1: this close relationship. You know. I would say that the
Speaker 1: Russia China relationship, it's gotten better over the last several
Speaker 1: years on a number of fronts, particularly economic, but now
Speaker 1: increasingly on the security side. I think it's unlikely that
Speaker 1: we're going to see, you know, a formal strategic alliance
Speaker 1: where one of them comes to the defense of the
Speaker 1: other in the case of a major conflict, but they
Speaker 1: will give each other a certain level of support. Uh
Speaker 1: And in this particular case, I think, you know, the
Speaker 1: Russians in particular, I have been sort of that they've
Speaker 1: appreciated the fact that the Chinese government has sort of
Speaker 1: given a nod towards some of the Russia's security concerns
Speaker 1: when it comes to the U S and NATO. I'm
Speaker 1: gonna leave it. The ratis Thank you, sir, As always
Speaker 1: sound expert there if you write you. This is the
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Speaker 1: Tom keene In. This is Bloomberg