Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Let's step away a
Speaker 1: little bit from fed speak and rates. Let's let's talk about,
Speaker 1: you know, some of the bigger, bigger trends, long term
Speaker 1: trends affecting investing longer term. 'm talking about climate change
Speaker 1: and our good friends at p JIM have some some
Speaker 1: good research out on that. Tim Er Hyatt, he's a
Speaker 1: chief operating officer for p JIM. PEJAM is a global
Speaker 1: investment management business of Prudential Financial one point five trillion
Speaker 1: with a t under management UH based in a researging Newark,
Speaker 1: New Jersey. Tamer. Thank you so much for joining us here.
Speaker 1: Talk to us about I know you guys are out
Speaker 1: with a recent report weathering climate change, opportunities and risk
Speaker 1: in an altered investment landscape. Climate change is such a
Speaker 1: huge issue on a global scale. There have political ramifications.
Speaker 1: How are you guys thinking about how that affects your
Speaker 1: investment paradigm. It's a it's a it's a great question,
Speaker 1: and you know, I really think it's it's long term.
Speaker 1: But with what we saw in Texas not very long
Speaker 1: ago and all the issues there, the sort of Minsky
Speaker 1: moment for climate change is happening around us with beginning
Speaker 1: to be priced in. And that's maybe our biggest pieceis
Speaker 1: that for all investors, whether they have an E. S
Speaker 1: G lens, but even if they don't, the data now
Speaker 1: this distinguished between winners and losers. Those will be on
Speaker 1: the right side of climate change and I'm making the
Speaker 1: evolution and those will be left behind as dinosaurs and
Speaker 1: stranded assets. And that increasingly every asset and every security
Speaker 1: will start having climate change externalities which have been there
Speaker 1: for you know, one group of people, but not reflected
Speaker 1: in market prices, increasingly reflected in market prices for but
Speaker 1: five different, very important reasons. So my question is we're
Speaker 1: all against climate change. Obviously, where can I make the
Speaker 1: most money on this? I mean, where are the opportunities
Speaker 1: that haven't already been uh, that are haven't already been
Speaker 1: crowded into? So I would say that two biggest areas
Speaker 1: are looking for places where climate change will actually impact
Speaker 1: a company's performance, but the markets haven't internalized it because
Speaker 1: they haven't utilized the data or seen the writing on
Speaker 1: the wall. And the two areas that give us examples
Speaker 1: is first, hidden risks in areas like semiconductors and pharmaceuticals.
Speaker 1: They seem like the in pristine areas, right a Swiss
Speaker 1: pharmaceutical company, a Taiwanese semi conductor company. But if you
Speaker 1: attract the supply chain back, you can separate between companies
Speaker 1: who have risk to medical manufacturing in India or semicon
Speaker 1: up to risk in Arizona where the water stress will
Speaker 1: really affect the manufacturing processes. And if you look back,
Speaker 1: you can start seeing which companies are much more immune
Speaker 1: to climate risk and therefore will perform better versus which
Speaker 1: that are not and will perform worse. Uh. And then
Speaker 1: the second area I would say is on the on
Speaker 1: the greener end of the brown fossil fuel industry. You know,
Speaker 1: not a lot of people have said, you know that
Speaker 1: divestment is a responsible investing strategy. I think there are
Speaker 1: some investors who are saying, I can actually now have
Speaker 1: the data to distinguish between companies like BP and Shell
Speaker 1: were maybe doing much more in evolving ensuring that don't
Speaker 1: become stranded acid versus energy companies that haven't made the
Speaker 1: transition that might die out as dinosaurs. The data now
Speaker 1: allows us to distinguish what we call the olive industries
Speaker 1: at the greener end of brand. And that is certainly
Speaker 1: another opportunity across the fossil field sector, which will be
Speaker 1: by the way, with us still at least twenty fifty
Speaker 1: we think about forty percent of energy consumption will come
Speaker 1: from possiblitives. Even then, despite meeting the parents agreement alright,
Speaker 1: time more. You know, here Bloomberg, we're all about data.
Speaker 1: If you can't measure it, you can't management and manage it.
Speaker 1: Is what the one of our our folks here at
Speaker 1: Bloomberg is fond of saying, talk to us about the
Speaker 1: data that you think investors and maybe even companies should
Speaker 1: be disclosing and focusing on what's the data that you
Speaker 1: guys really look at. So so there are about a
Speaker 1: range of data providers, of which Bloomberg is one, but
Speaker 1: you know, you use about five or six different providers.
Speaker 1: Obviously the most common one is stubbing emissions, but increasingly,
Speaker 1: and we have a really big real estate business, as
Speaker 1: you all know, Increasingly it's satellite data flood maps that
Speaker 1: are more frequently updated than kind of you know, official
Speaker 1: government map is storm stress. So on the real estate side,
Speaker 1: I would say real assets in general infrastructure, there's a
Speaker 1: lot of good data that allows us to make an
Speaker 1: environmental assessment and often that aligns to actually creating more
Speaker 1: value for our customers by understanding how we build resilience
Speaker 1: to that. On the public market side, stuff and bond
Speaker 1: there's a long journey still to do. The basic ubun
Speaker 1: emission data is there for large caps, but if you
Speaker 1: go into high yield, if you go into emerging markets,
Speaker 1: the big data gaps there. The good news is they're
Speaker 1: filling in quickly, so we'd encourage all investors to just
Speaker 1: keep tracking this, not on an annual basis, but every
Speaker 1: two three months. The data is enriching and demanding more
Speaker 1: transparency and accurate disclosures from the public sector companies will
Speaker 1: allow people to build in What is important not just
Speaker 1: for E s G investors but for every investor, which
Speaker 1: is look at climate as a risk and an opportunity
Speaker 1: as just part of your co integrated investment process and
Speaker 1: that's what we do across PGM. Alright, Timer, thanks very
Speaker 1: much for joining us. Pleasure having you on the program
Speaker 1: time or high at Chief operating officer a PGM talking
Speaker 1: to us about a Really, I mean, now it's almost
Speaker 1: generally accepted umah investment. Uh. It's part of that whole
Speaker 1: E s G movement that is becoming so so prevalent
Speaker 1: among institutional investors. Every factor is the word I was
Speaker 1: looking for. It's really one of the one of the factors.
Speaker 1: And I remember, I think it's just in the last
Speaker 1: couple of years become one because two or three years
Speaker 1: ago there were still question marks about the validity of
Speaker 1: investing UM through the prism of E s G. And
Speaker 1: now all of the big houses I mean, look, PJAM
Speaker 1: has one point eight trillion dollars UM, so they got
Speaker 1: a lot of weight behind it, and they're joined by
Speaker 1: a lot of other big players out there. Well, yes
Speaker 1: they we heard from FED Chairman J. Pal and I
Speaker 1: think the message was generally, uh, status quo lower for
Speaker 1: longer as it relates to rates, Yes, monitoring inflation, but
Speaker 1: not overly concerned yet rates today looking at the tenure
Speaker 1: it is trading it just almost one point seven three percent.
Speaker 1: We see a steeping in the year field curve as well.
Speaker 1: Let's get a update from a good friend of ours,
Speaker 1: Lindsay Pexas she's a chief economist for Steple, joining us
Speaker 1: on the phone from Chicago. Lindsay, thanks so much for
Speaker 1: joining us here. What was your takeaway from the comments
Speaker 1: from a Fed chair poal yesterday. Well, as you mentioned,
Speaker 1: the the policy announcement was very much in line with
Speaker 1: expectation rates unchanged as it purchases on a monthly basis unchanged.
Speaker 1: But when we look at what was released along with
Speaker 1: that policy announcement, the set or the summary of economic projections,
Speaker 1: it does appear as if the committee is increasingly optimistic.
Speaker 1: They lower their outlook for unemployments, they increased their outlook
Speaker 1: for growth and inflation. And yet when the chairman was
Speaker 1: pressed on this improved outlook, he continued to downplay the
Speaker 1: improvement and focus instead on some of the lingering risks
Speaker 1: and the lingering pain in some of the hardest hit
Speaker 1: sectors of the economy, so really highlighting some of the
Speaker 1: further need for recommendation when the forecast does seem to
Speaker 1: be painting a much brighter picture, which the market anticipated
Speaker 1: the FED would have started to indicate, uh, maybe taking
Speaker 1: the foot off the gas. So it was a little
Speaker 1: bit of talking out of both sides of the mouth
Speaker 1: from from the FED chairman yesterday. For first of all, lindsay,
Speaker 1: thank you very much for clearing that up for me.
Speaker 1: Cameron Cries talks about the feds SEP forecast and I
Speaker 1: was reading that like, what on earth is a SEP forecast?
Speaker 1: But um, that's why we have the experts like you
Speaker 1: on the program. How high do you think, um Bizarro
Speaker 1: Vulcar is willing to let inflation go before he moves
Speaker 1: away from zerp. I mean, uh, if we see four
Speaker 1: percent inflation, does Powell still say hang on, it's transitory,
Speaker 1: it'll go away, or does he do something with raids? Well,
Speaker 1: it really depends in the near term. The committee seems
Speaker 1: pretty convinced that any sort of bump up in the
Speaker 1: coming month through the summer is really a reflection of
Speaker 1: this reflation trade so as the low loads of fall
Speaker 1: out of the annual calculation. So they're looking at this
Speaker 1: as a temporary bump up, not an indication of longer
Speaker 1: term inflation. But even if we did cease the stained
Speaker 1: upward momentum and prices. The fed new framework allows the
Speaker 1: FED to allow inflation to run hot without forcing their hands.
Speaker 1: So essentially they're now looking at inflation through an average
Speaker 1: flexible target, meaning that we could actually see inflation run
Speaker 1: near three percent for the next several years, but still
Speaker 1: not exceed the FED longer term average of two percent.
Speaker 1: So there's a lot of wiggle room that the FED
Speaker 1: has now when it comes to their inflation mandates. Hey, Linda,
Speaker 1: you know and that we got another piece of economic
Speaker 1: data this morning on the you know, the jobs claims,
Speaker 1: and they came in higher than expected. They came in
Speaker 1: stubbornly high, seventy thousands. It just doesn't seem to see,
Speaker 1: you know, much improvement there. How concerned are you about
Speaker 1: the labor market? You know, I've heard a lot of
Speaker 1: positive sentiments from folks saying this thing is going to
Speaker 1: bounce back really quickly when when we reopened. What are
Speaker 1: your thoughts? Well, I don't think we can expect anything
Speaker 1: to bounced back quickly when we're talking about one of
Speaker 1: the worst recessionary scenarios for the US economy and history.
Speaker 1: But we certainly have taken big steps in the right direction.
Speaker 1: We have put roughly half of the twenty two million
Speaker 1: Americans that lost their job at the onset of the
Speaker 1: crisis back to a position of gainful employment. That being said,
Speaker 1: we're still talking about roughly ten million Americans out of work,
Speaker 1: So there still is a big gap between where we
Speaker 1: are and where we were prior to the pandemic. And
Speaker 1: I do think that's one of the points that share
Speaker 1: Paul was trying to uh really acknowledge yesterday when he
Speaker 1: talked about the six percent civilian unemployment rate, but the
Speaker 1: real rate that he feels in the labor market is
Speaker 1: closer to ten percent. So there still is a lot
Speaker 1: of linkering pain in the labor force, giving the Committee
Speaker 1: no incentive to act with any sense of immediacy to
Speaker 1: remove accommodation. It's interesting, what do you expect um say
Speaker 1: at year end in terms of the reopened economy and
Speaker 1: continued client continue you in claims well, I would expect
Speaker 1: for a further improvement in the labor market as the
Speaker 1: economy is further able to reopen, and we see this
Speaker 1: as businesses are are able to open their doors. Welcome
Speaker 1: back employees, welcome back to sumers. We are starting to
Speaker 1: see the cycle over of organic We see it in
Speaker 1: some states, right, Lindsay, I mean Florida is absolutely Florida
Speaker 1: is open for business. Yeah. Absolutely, And you see a
Speaker 1: big economy between the growth rate in Florida versus the
Speaker 1: growth rate in California. And yet arguably the case rates
Speaker 1: were not that different. Uh, And so there is a
Speaker 1: very different approach rate by faith and certainly those that
Speaker 1: are allowing businesses to return. Now that being said, there
Speaker 1: are some federal impediments that businesses are facing with the
Speaker 1: extension of these very generous unemployment benefits. Some small businesses
Speaker 1: they're saying they're having difficulty now reconnecting with employees even
Speaker 1: as they're trying to reopen. So again, nothing is easy.
Speaker 1: Nothing is a flip of Swich scenario. The U S
Speaker 1: economy is still struggling to get back to pre pandemic
Speaker 1: level real quickly. I just want to get twenty seconds, Lindsay.
Speaker 1: The stifle GDP outlook, well, we are looking for a
Speaker 1: very robust one when you're talking about trillions of dollars
Speaker 1: coming down the pipeline as well as the opportunity for
Speaker 1: trillions more as the Biden administration has expressed UH somewhere
Speaker 1: between two to four trillion a likelihood for additional infrastructure, health,
Speaker 1: and social programs. So we're looking for an annualized rate
Speaker 1: somewhere around five to six percent. Very cool wealth of
Speaker 1: information from you, Lindsay appreciated as always Lindsay PEXA their
Speaker 1: chief economist at stifle Uh. Paul I was just gonna
Speaker 1: point out, there's a really cool chart that Mike McKee
Speaker 1: put together showing initial jobless claims holding continually above the levels,
Speaker 1: the high levels that we hit in the Great Financial Crisis,
Speaker 1: and even back in two and that's seven seventy you quoted,
Speaker 1: is still above that level. So still a lot of
Speaker 1: pain in the labor market. This is Bloomberg Mixed mixed
Speaker 1: markets here today, a day after FETE Chairman Pal says,
Speaker 1: stay the course, lower rates for longer we have inflation.
Speaker 1: Uh in check. Let's get a sense of maybe some
Speaker 1: a longer term perspective on these markets. And we love
Speaker 1: to do that with our good friend Barry rid could
Speaker 1: be well, now, it's always upbeat with Barry Suns. He
Speaker 1: was always a half half full kind of guy. Bloomberg
Speaker 1: Opinion Columns, host of Masters in business on Bloomberg Rady.
Speaker 1: He's also the founder in chief investment officer Rid Holts
Speaker 1: Wealth Management. So Barry, let's step back here take a
Speaker 1: longer view. FETE chairman Pal says, basically, we got this.
Speaker 1: Did that come across to you yesterday? Never or less?
Speaker 1: I mean, I think the big error that everybody has
Speaker 1: come to accept following the Great Financial Crisis is that
Speaker 1: we let all the heavy lifting get done by the
Speaker 1: Federal Reserve without enough fiscal stimulus. It was it was
Speaker 1: too much monetary policy, not enough fiscal Now there's some
Speaker 1: pushback from some quarters that hey, it's too much fiscal uh.
Speaker 1: And Pal sort of said, you know, explicitly said, this
Speaker 1: is the right sort of task for an economy that
Speaker 1: is still limping along in many areas and still hasn't
Speaker 1: fully recovered from the financial crisis. This is about unemployment
Speaker 1: and underemployment, which is really important. You know what. Uh
Speaker 1: depresses me. I'm looking at um looking through your blog, Berry,
Speaker 1: and I always feel like I was born too late.
Speaker 1: You know. I wish I was a trader on the
Speaker 1: floor of the New York Stock Exchange in the eighties,
Speaker 1: Like I want to just front run the crowd and
Speaker 1: make money for nothing. But you're looking at annualized returns
Speaker 1: on equities and bonds across different generations. The baby boomers
Speaker 1: had it good. Gen Z is s o l that
Speaker 1: to say the very least well. First, the bigger picture
Speaker 1: takeaway from this is just how random so much in
Speaker 1: life is. The year you happen to be born has
Speaker 1: a really significant impact on how your portfolio does over time.
Speaker 1: I remember my parents buying a house in the late
Speaker 1: sixties early seventies and then selling it um just about
Speaker 1: twenty five years later for about ten x what they paid.
Speaker 1: You're not gonna get that sort of return today. And similarly,
Speaker 1: if you were a working stiff in the seventies and eighties,
Speaker 1: and you not that there were four oh one case
Speaker 1: in the seventies, but if you were saving and investing
Speaker 1: in the stock market, you got a huge je return
Speaker 1: over seven percent annualized versus what we've seen over the
Speaker 1: past twenty years. You know, the market was essentially flat
Speaker 1: from two thousand to two thousand and call at eleven plus.
Speaker 1: Back then, you got a pension, dude. I mean, my
Speaker 1: grandfather worked for General Motors after he got out of
Speaker 1: the air force, and he retired with you know, pay
Speaker 1: until he was dead, right, and and that you know,
Speaker 1: a big part of the impetus behind four O one
Speaker 1: case and and this is sort of unique to the
Speaker 1: United States, was that we have shifted a lot of
Speaker 1: what is normally governmental responsibilities onto corporations, um things like
Speaker 1: healthcare and retirement. In most Western democracies, industrialized economies, the
Speaker 1: government manages that it's their responsibility. It's not so I
Speaker 1: run a business, I take care of the health care
Speaker 1: for my my employees. We take care of there for
Speaker 1: oh one k. That's so unusual. The rest of the
Speaker 1: world doesn't do that. And trying to shift set away
Speaker 1: from I think that what you're pointing out is when
Speaker 1: we try to shift that away from corporations, it moved
Speaker 1: to individuals instead of moving to the government, which has
Speaker 1: created a giant doughnut for a lot of people. Meaning
Speaker 1: there's a big hole in about sev the retirement expectations
Speaker 1: out there where people are going to retire with vastly
Speaker 1: insufficient money. Although Barry, you know, go to go back
Speaker 1: to your chart. I'm looking at you know, baby boomers
Speaker 1: and Generation golf kids, they all had decent returns on
Speaker 1: stocks and bonds, but none of us have thought to
Speaker 1: buy an n f T of people, you know, none
Speaker 1: of us the gen Z kids, maybe they were all
Speaker 1: in bitcoin ten years ago. So maybe, but I don't think,
Speaker 1: you know what, there was a if you if you
Speaker 1: fast forward a few days in in on the blog
Speaker 1: at Dholtz dot com, you'll see the right up I did.
Speaker 1: Merrill Lynch, Brent America, b Mail Interest did this immense
Speaker 1: study on cryptoconcy in bitcoin, and one of their main
Speaker 1: takeaways was that the vast majority of holdings in bitcoins,
Speaker 1: something like two point four percentity accounts are responsible for
Speaker 1: for a huge chunk of the assets, far more concentrated
Speaker 1: than what we see in either stocks, bonds or real estate.
Speaker 1: So I don't think the millennials or or I don't
Speaker 1: know what they're gonna call the generation after them, I
Speaker 1: don't think they're holding enough bitcoin to fund their retirements
Speaker 1: fifty years from now. Yeah, you know, it's interesting. My
Speaker 1: kids are, you know, entering the workforce, and you know,
Speaker 1: one of the things I told them is, you know,
Speaker 1: just max out on your four one K and it
Speaker 1: really really really makes a difference. But boy, this low
Speaker 1: interest rate environment, this low return environment. I'm not sure
Speaker 1: that's enough anymore. Um Well, first of all, the low
Speaker 1: interest rate environment. Who knows how much longer that's gonna
Speaker 1: be here. Um we're already up to one seven. It's
Speaker 1: going to be a long time. Um Well, the Fed.
Speaker 1: Everybody forgets the Fed doesn't determine what bonds are yielding.
Speaker 1: They only determine the FED funds rate, which drives the
Speaker 1: shorter turn rates. It it's the market that determines what
Speaker 1: the yield um on the ten or thirty or if
Speaker 1: we're lucky, fifty and a hundred year bonds are. So
Speaker 1: I think what we're seeing with these rising rates is
Speaker 1: optimism about uh the economy on the other side of
Speaker 1: the pandemic. That doesn't necessarily translate automatically into higher stock gains.
Speaker 1: The correlation between GDP and and stocks are is surprisingly low.
Speaker 1: All that said, a good economy and expanding tax base,
Speaker 1: um innovation and new technology tends to lead to higher
Speaker 1: living standards and higher stock prices. I will say, also, Paul,
Speaker 1: if you can get your kids a job at Bloom,
Speaker 1: they get an employer match, so that's they're automatically making
Speaker 1: fifty returns. That's pretty sweet. Yeah, it's pretty sweet, and
Speaker 1: you know, be you gotta gotta get that savings mentality
Speaker 1: back out there into certainly one of the messages I'm
Speaker 1: trying to convey to my kids here as they enter
Speaker 1: their workforce, because boy, this low industrate environment, it's can
Speaker 1: be a tough environment to make money. Barry rick Hilt's
Speaker 1: founder of rick Holt's Wealth Management. He's also a Bloomberg
Speaker 1: Opinion columnist and of course, host of Master's in Business
Speaker 1: podcast on Bloomberg Radio. We always appreciate getting Barry's thoughts
Speaker 1: and I get talked to him about cars at all,
Speaker 1: which we kind of will do that next time. We'll
Speaker 1: do that. I want to do a whole show with
Speaker 1: Barry about cars. I feel like I think we could
Speaker 1: probably do that. All right, let's bring in Brian Shipata
Speaker 1: from our Bloomberg Opinion team. He's writing about the FEDS
Speaker 1: move or lack thereof yesterday. I guess a lot of
Speaker 1: people Brian were impressed by j Powell's press conference. I
Speaker 1: believe it was either m or John this morning that
Speaker 1: said it was the best job he's ever done in
Speaker 1: the press conference. Do you agree? I mean, I think
Speaker 1: he was just remarkably consistent, and for a good reason.
Speaker 1: I mean, he's basically just falls back on this framework
Speaker 1: that the FED has. Now every time anyone presses him
Speaker 1: on anything, he says, Look, we have laid out the
Speaker 1: conditions for what it will take for a rate hype.
Speaker 1: People keep asking why won't you high rates in twenty
Speaker 1: three He's like, there are reasons why. Um, you need
Speaker 1: to have a maximum employment, you need to have inflation
Speaker 1: that has reached two percent and is on track to
Speaker 1: moderately exceed two percent for some time. Those are the conditions.
Speaker 1: If we see those conditions, we will raise interest rates.
Speaker 1: If we don't, we're not going to It. Just kept
Speaker 1: repeating that over and over and and I tried to
Speaker 1: get the message across. I don't know if bond Trader
Speaker 1: has got it though. Yeah, Brian, it's it's I'm looking
Speaker 1: at the treasury market right here, the tenure treasury down seconds,
Speaker 1: pushing that yield up to one point seven four percent. Boy,
Speaker 1: it's been more than a year since we've seen that.
Speaker 1: And when I see moves in the bond market like that,
Speaker 1: I want to chat with either Lisa Bramwitz or you. So, Briant,
Speaker 1: is there a risk here that maybe the market will
Speaker 1: lead up. Mr Powell behind here. I mean, I think
Speaker 1: right now, what the market is suggesting is that we
Speaker 1: will get inflation. The markets growing content that there will
Speaker 1: be inflation, and that the SAID will see that inflation
Speaker 1: and the FED will be compelled to act. The Fed's
Speaker 1: not going to do anything that the FED is going
Speaker 1: to be reactive um, whereas the bond market is more
Speaker 1: forward looking right now, and they're suggesting that we are
Speaker 1: going to see inflation down the pipe. We are going
Speaker 1: to see robust growth and that's going to um ultimately
Speaker 1: cause rates to go up. But I think the thing
Speaker 1: that's missing here is that this is exactly what Jerome
Speaker 1: Powell and the FED want to see. They want everybody
Speaker 1: to be talking about inflation. They want Google searches for
Speaker 1: inflation to be the highest since two thousand eight, which
Speaker 1: apparently they are um because it's been so long since
Speaker 1: anybody's been worried about inflation, that the FED was worried
Speaker 1: that no one was worried about it, um and that
Speaker 1: that would that would keep them at the zero lower
Speaker 1: bound and prevent them from having flexibility to conduct monetary policy.
Speaker 1: So I think this is all playing into the hands.
Speaker 1: And I don't know if bond traders necessarily realize that
Speaker 1: now get out and buy that washing machine now right,
Speaker 1: because next month it could be a lot more expensive. Um.
Speaker 1: But the the flip side of this is, you know, Brian,
Speaker 1: we call um what bond traders are investors are doing
Speaker 1: a tantrum. Really they're just making money. I keep thinking
Speaker 1: about Bill grows a short position, and I know he's
Speaker 1: only the airstwhile bond king. But as these rates march higher,
Speaker 1: everybody who's into the inverse treasuries e t S is
Speaker 1: just making more money. How much longer can they do it? Yeah?
Speaker 1: I mean I think right now the positioning is definitely
Speaker 1: UM for higher rates. UM, it doesn't seem like anybody
Speaker 1: really wants to step in on any on any major
Speaker 1: sell off you're seeing today. For example, UM, when you
Speaker 1: reach these kind of milestone numbers, it seems like every
Speaker 1: twenty five basis points, UM, there's there's buyer that come in.
Speaker 1: So one point seven five on the ten year, two
Speaker 1: point five or some of the thirty year you saw
Speaker 1: them pretty quickly retreat from those levels. So there are
Speaker 1: certain points, but you are seeing many of these gaps Um,
Speaker 1: I was just looking at how how much ten year
Speaker 1: yields to move. For example, I think there's been five
Speaker 1: moves of eight basis points or more in the past
Speaker 1: sixteen days, and in the entire second half of there
Speaker 1: were only four. So you're seeing these big moves, uh,
Speaker 1: in pretty quick quick order. So, um, it's hard to
Speaker 1: step in and buy at that point. So, Brian, I'm
Speaker 1: I'm looking at the d O T S GO function
Speaker 1: dots on the Bloomberg terminals. I look at. Yeah, it's
Speaker 1: very cool. It's a cool function. It looks neat, and
Speaker 1: it really shows that we're getting I guess a little
Speaker 1: bit more upward bias for rates higher. I'm looking at
Speaker 1: I guess seven dots above the trend line for three.
Speaker 1: That's a little bit different than we had before. So
Speaker 1: I guess that's suggested even at the Fed there maybe
Speaker 1: recently thinking about higher rates. Yeah. Well, I think what
Speaker 1: was kind of telling in the press conference was Jerome
Speaker 1: Powell's that the strong bulk of the committee still sees
Speaker 1: rates near zero. So that kind of tipped the hand
Speaker 1: that that he and probably Vice Chair Richard Clarida, and
Speaker 1: probably New York Fed President John William Kind of the
Speaker 1: three big ones probably all still see rates near zero UM.
Speaker 1: You probably expect to see some regional FED presidents that
Speaker 1: aren't quite buying into this, this new framework that that
Speaker 1: Richard Clarida and Jerome Powell Leo Brainerd, I mean kind
Speaker 1: of the core of the FED UM has implemented. So
Speaker 1: and I think there was a lot of effort by
Speaker 1: Jerome Powell to say, can we please keep the median
Speaker 1: dot at zero UM for now we haven't seen actual inflation.
Speaker 1: You could raise it maybe in June when you start
Speaker 1: to see some of those big inflation prints due to
Speaker 1: base effects in the next few months, as Bill Gross said,
Speaker 1: for example, a three percent or four percent, you could
Speaker 1: see those on CPI in the next few months. Just
Speaker 1: because of how lo it was a year ago. Francine
Speaker 1: this morning was comparing Um Powell to the provincial commander
Speaker 1: of the UM, you know, regional American Army during the
Speaker 1: Revolutionary War, saying don't shoot until you see the whites
Speaker 1: of their eyes. But but really, Um, what Pal's messages.
Speaker 1: I know, I'm going to see the whites of their
Speaker 1: eyes and they're gonna run right past me. So the
Speaker 1: idea is we are going to see inflation and we're
Speaker 1: not gonna shoot right, Yeah, pretty much. I mean the
Speaker 1: idea of average inflation targeting is inflation below two percent
Speaker 1: for so long that we will tolerate a modest overshoot
Speaker 1: is the way I think they phrase it. Will they
Speaker 1: tolerate four percent? Probably not. I've heard they'll tolerate three percent.
Speaker 1: I think Charles Evans among others, has said, you know,
Speaker 1: three percent would be okay. Uh, there's been talking with
Speaker 1: two point five percent kind of being maybe a lion
Speaker 1: the stand um. But I mean if you look at
Speaker 1: core PC, which is one of the things that they
Speaker 1: put on their Summary of Economic projection, it was basically
Speaker 1: no point um in the entire post global financial crisis period,
Speaker 1: where for the entire course of a year at average
Speaker 1: two I think was the only time where it actually
Speaker 1: met that threshold. So it's a pretty high threshold, and
Speaker 1: I think that markets are getting with the program and
Speaker 1: maybe that that merits tenure yields being above two percent
Speaker 1: eventually once this inflation starts coming around. But until they
Speaker 1: see it, the FED is not going to necessarily fak
Speaker 1: out about it or overreact. Brian, what do you think
Speaker 1: is the key metric that the FED is really focusing
Speaker 1: on as they think about rates. Yeah. I mean, I
Speaker 1: think there's a lot of talk about inflation, but people
Speaker 1: are underestimating just what maximum employment means for the FED. UM.
Speaker 1: You know, the FED is projecting a three point five
Speaker 1: percent unemployment rate that would match the low of late
Speaker 1: early before COVID UM. But that might not even be
Speaker 1: enough to get them to move because they've changed their
Speaker 1: view to be broad based and inclusive um, and so
Speaker 1: they want to see other metrics. They want to see
Speaker 1: later forest participation rate come up. UM. They wanted to
Speaker 1: see minority employment UM be strong as well. So there
Speaker 1: are a lot of a lot of different metrics could
Speaker 1: come in here, UM that I think people are are underestimating,
Speaker 1: and that could keep the FED pin toneer zero for
Speaker 1: a while. Yeah. Interesting. Yeah, Look, the rhetoric was certainly
Speaker 1: a constant from FED chairman Pali. You stay with his
Speaker 1: prior dialogue, Brian Chapatta, Thank you so much for joining
Speaker 1: us Brian's debt markets calmness for Bloomberg Opinion. You can
Speaker 1: read his work and all of the other fine work
Speaker 1: from the Bloomberg Opinion columns at Bloomberg dot Com. Slash
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