1 00:00:00,120 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,920 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:38,080 Speaker 2: Terminal and the Bloomberg Business App. Jake Peloski of TPW 10 00:00:38,120 --> 00:00:40,760 Speaker 2: Advisory thinks the Raley can extend right in this We 11 00:00:40,800 --> 00:00:44,080 Speaker 2: are optimistic not only about twenty four, but the out 12 00:00:44,159 --> 00:00:47,840 Speaker 2: years as well, twenty five, twenty six. Our analog remains 13 00:00:47,880 --> 00:00:51,240 Speaker 2: the US nineteen ninety five to nineteen ninety nine period. 14 00:00:51,280 --> 00:00:55,920 Speaker 2: The differences this time it's global. Jay joins us right now, Jacob, 15 00:00:55,920 --> 00:00:56,400 Speaker 2: morning to you. 16 00:00:56,480 --> 00:00:57,200 Speaker 3: Good morning, John. 17 00:00:57,280 --> 00:00:59,040 Speaker 2: Just the economy data in China back some of that 18 00:00:59,120 --> 00:00:59,680 Speaker 2: up this morning. 19 00:01:00,040 --> 00:01:02,240 Speaker 3: It sure does, John, I mean, I think it's clear 20 00:01:02,240 --> 00:01:04,960 Speaker 3: to us at least that, and it's not only the data, right. 21 00:01:05,000 --> 00:01:07,240 Speaker 3: We wrote a piece on Friday, our Friday musing is 22 00:01:07,319 --> 00:01:11,000 Speaker 3: called listen to stocks, not vox, and we want to 23 00:01:11,040 --> 00:01:13,880 Speaker 3: pay attention to what the markets are telling us. And 24 00:01:13,920 --> 00:01:18,360 Speaker 3: it's not just stocks, it's also credit outperforming the AG 25 00:01:19,160 --> 00:01:22,039 Speaker 3: in its commodities, and commodities I think right now are 26 00:01:22,040 --> 00:01:25,680 Speaker 3: the big tell commodities. And it's not just energy, it's 27 00:01:25,720 --> 00:01:29,760 Speaker 3: not just gold, it's not just copper, it's all of it. 28 00:01:29,760 --> 00:01:31,440 Speaker 1: It's ag it's all. 29 00:01:31,240 --> 00:01:34,039 Speaker 3: Breaking out, and that is telling us that there is 30 00:01:34,080 --> 00:01:37,319 Speaker 3: an opportunity in that the global economy, as we've been 31 00:01:37,360 --> 00:01:40,640 Speaker 3: saying since the fall, is early cycle. 32 00:01:40,680 --> 00:01:42,960 Speaker 2: Soft commodities as well in cocob. But a lot of 33 00:01:43,000 --> 00:01:45,800 Speaker 2: people might say that's a supply side story, not demand. 34 00:01:45,880 --> 00:01:46,800 Speaker 2: How would you frame it. 35 00:01:46,880 --> 00:01:49,840 Speaker 3: I would frame it as both, and that's perfect. It's 36 00:01:49,840 --> 00:01:54,120 Speaker 3: bull supply side as well as demand side. And the 37 00:01:54,160 --> 00:01:56,760 Speaker 3: fact is that most people have not been investing in 38 00:01:56,800 --> 00:02:01,160 Speaker 3: commodities and the demand has been weak. They've been okay, 39 00:02:01,520 --> 00:02:03,680 Speaker 3: and now we're coming into a point where that lack 40 00:02:03,720 --> 00:02:05,680 Speaker 3: of investment, which can't be made. 41 00:02:05,520 --> 00:02:07,840 Speaker 1: Up quickly, is going to bite. 42 00:02:08,160 --> 00:02:10,880 Speaker 3: At the same time as a global economy, we think 43 00:02:10,960 --> 00:02:15,400 Speaker 3: is setting up for a considerable period of good economic news, 44 00:02:15,840 --> 00:02:19,880 Speaker 3: and that combination in the fact that very few people 45 00:02:19,919 --> 00:02:23,560 Speaker 3: are invested there. Very few people understand that commodities are 46 00:02:23,600 --> 00:02:26,320 Speaker 3: the best performing acid class in the world year to date. 47 00:02:26,480 --> 00:02:27,160 Speaker 1: Everyone wants to. 48 00:02:27,120 --> 00:02:29,960 Speaker 3: Talk to Mag seven, Mag seven, Mag six, Mag five 49 00:02:30,560 --> 00:02:34,240 Speaker 3: commodities people. It's really basic. It's supply and demand. You 50 00:02:34,280 --> 00:02:37,720 Speaker 3: don't have to figure out AI. It's just simply buying 51 00:02:37,720 --> 00:02:39,079 Speaker 3: the stuff that people still use. 52 00:02:39,200 --> 00:02:40,760 Speaker 1: How much this hinge on China. 53 00:02:40,480 --> 00:02:44,520 Speaker 3: Though obviously not very much, because China has been been 54 00:02:44,560 --> 00:02:48,919 Speaker 3: a weak story and commodities have done well. Markets move first, 55 00:02:49,080 --> 00:02:51,600 Speaker 3: That's the thing that we have to remember. They're forward looking. 56 00:02:51,880 --> 00:02:56,280 Speaker 3: Discounting mechanisms say no more than you me even you John, 57 00:02:56,160 --> 00:03:01,639 Speaker 3: and therefore they move first. And so commodities are, you know, 58 00:03:01,720 --> 00:03:05,239 Speaker 3: your world's best performing acid class when now people are 59 00:03:05,280 --> 00:03:08,239 Speaker 3: just starting to think about China. Okay, PMI is better 60 00:03:08,280 --> 00:03:11,560 Speaker 3: than expected. JP Morgan last week raised their Q one 61 00:03:12,000 --> 00:03:15,840 Speaker 3: GDP estimate to six point six percent. Okay, so you're 62 00:03:15,880 --> 00:03:19,040 Speaker 3: talking about the second biggest economy in the world looking 63 00:03:19,120 --> 00:03:21,639 Speaker 3: like it's starting to pick up, and that is obviously 64 00:03:21,680 --> 00:03:24,640 Speaker 3: bullish for lots of things, including commodities. 65 00:03:24,639 --> 00:03:26,680 Speaker 2: A phrase we heard repeatedly I think over the last 66 00:03:26,760 --> 00:03:29,720 Speaker 2: year regarding that region that part of the world was uninvestable, 67 00:03:30,080 --> 00:03:31,880 Speaker 2: and I guess the cafe around that is it depends 68 00:03:31,880 --> 00:03:34,320 Speaker 2: what you're investing in to get exposure to it. There's 69 00:03:34,360 --> 00:03:36,160 Speaker 2: a great quote in your recent note and I'm going 70 00:03:36,160 --> 00:03:37,360 Speaker 2: to share it with our road against some one of 71 00:03:37,360 --> 00:03:39,880 Speaker 2: your thoughts on it. We note the discrepancy between the 72 00:03:39,960 --> 00:03:42,800 Speaker 2: China tech stack one that will increasingly have all of 73 00:03:42,920 --> 00:03:46,200 Speaker 2: China to dominate. That's a really important line. Can you 74 00:03:46,240 --> 00:03:47,600 Speaker 2: just build that out a little bit more? 75 00:03:47,720 --> 00:03:52,160 Speaker 3: Yeah, first off, on that uninvestable line, I also wrote 76 00:03:52,160 --> 00:03:55,360 Speaker 3: a couple months ago, pro tip when you hear uninvestable, 77 00:03:55,880 --> 00:03:59,880 Speaker 3: invest So that's point A because it can't get any worse. 78 00:04:00,280 --> 00:04:02,720 Speaker 3: Can't get any worse th investable. But yeah, I think 79 00:04:02,760 --> 00:04:05,800 Speaker 3: this point about the tech stack is really really interesting. 80 00:04:06,120 --> 00:04:08,440 Speaker 3: There are a lot of things setting up to create 81 00:04:08,480 --> 00:04:12,240 Speaker 3: a big opportunity. And what's remembered that markets have already 82 00:04:12,280 --> 00:04:15,520 Speaker 3: moved in the US in tech, etc. So we want 83 00:04:15,560 --> 00:04:18,760 Speaker 3: to be looking for the new areas of opportunity and 84 00:04:18,760 --> 00:04:21,840 Speaker 3: that's why that multi year positive framework allows us to 85 00:04:21,880 --> 00:04:23,800 Speaker 3: go from point A to point B to point C, 86 00:04:24,080 --> 00:04:26,200 Speaker 3: et cetera. And that's what we've been doing in our 87 00:04:26,240 --> 00:04:30,200 Speaker 3: model portfolios the tech stack story. Look, we've been trying 88 00:04:30,240 --> 00:04:33,360 Speaker 3: to freeze China out of the advanced technology. We're doing 89 00:04:33,360 --> 00:04:35,480 Speaker 3: a pretty good job. They've got the message they have 90 00:04:35,520 --> 00:04:38,599 Speaker 3: to build their own. They're now turning around saying, okay, fine, 91 00:04:38,680 --> 00:04:42,320 Speaker 3: you can't play in our tech space. And therefore the 92 00:04:42,440 --> 00:04:45,760 Speaker 3: question is, right now, do you want to be invested 93 00:04:46,000 --> 00:04:49,560 Speaker 3: in a market of one point four billion people growing 94 00:04:49,600 --> 00:04:52,720 Speaker 3: at six percent per annum, with an e commerce market 95 00:04:52,760 --> 00:04:55,720 Speaker 3: that's double the size of the US, ten times the 96 00:04:55,760 --> 00:04:59,440 Speaker 3: size of Japan, and trades at a seventy percent discount. 97 00:05:00,000 --> 00:05:03,760 Speaker 3: Allibaba trades at eight times earnings, Tencent trades at fourteen 98 00:05:03,800 --> 00:05:07,839 Speaker 3: times earnings, China overall trades at nine times earnings. Okay, 99 00:05:07,920 --> 00:05:10,680 Speaker 3: no one owns it. It's like, I think it's a 100 00:05:10,720 --> 00:05:13,800 Speaker 3: really interesting story. In the segue, you know, flip your 101 00:05:13,839 --> 00:05:17,200 Speaker 3: mag seven into k Web, which is the China tech 102 00:05:17,240 --> 00:05:22,479 Speaker 3: etf k Web can double and double again and still 103 00:05:22,520 --> 00:05:24,359 Speaker 3: not get to the level it was in in twenty 104 00:05:24,400 --> 00:05:27,839 Speaker 3: twenty one, John twenty five to fifty. The twenty twenty 105 00:05:27,839 --> 00:05:30,800 Speaker 3: one high was one hundred and one dollars. I mean 106 00:05:30,800 --> 00:05:33,359 Speaker 3: that to me is a no brainer, and we you know, 107 00:05:33,680 --> 00:05:35,160 Speaker 3: full disclosure we own it. 108 00:05:35,760 --> 00:05:37,960 Speaker 2: Pet chiev Academy is going to join us later in 109 00:05:38,000 --> 00:05:40,440 Speaker 2: the program. In the next hour. He's put the emphsis 110 00:05:40,440 --> 00:05:44,159 Speaker 2: on made by China. How important is that phrase going 111 00:05:44,240 --> 00:05:45,720 Speaker 2: to be in years to come? 112 00:05:46,040 --> 00:05:48,600 Speaker 3: Yeah, I mean, I think we're big believers. Our name 113 00:05:48,680 --> 00:05:52,680 Speaker 3: and our firm TPW stands for tripole the world. Our 114 00:05:52,720 --> 00:05:56,599 Speaker 3: whole thesis, our framework is regional integration in the three 115 00:05:56,600 --> 00:05:59,880 Speaker 3: main regions of Asia, Europe and the Americas. All of 116 00:06:00,040 --> 00:06:02,880 Speaker 3: this stuff is happening kind of as one would expect. 117 00:06:03,240 --> 00:06:09,200 Speaker 3: Supply chain, regionalization, tech stack independent development. Everyone needs AI, 118 00:06:09,839 --> 00:06:14,760 Speaker 3: everyone needs the climate proof everyone needs a semi, everyone 119 00:06:14,800 --> 00:06:17,719 Speaker 3: needs electric vehicles and batteries, and these are the things 120 00:06:17,720 --> 00:06:21,360 Speaker 3: that are driving that regional integration. And look, I think 121 00:06:21,480 --> 00:06:24,360 Speaker 3: China is in a much stronger position than people give 122 00:06:24,400 --> 00:06:27,320 Speaker 3: it credit for because the region that they're in that 123 00:06:27,320 --> 00:06:31,120 Speaker 3: they're going to dominate is asion Azion is the biggest, 124 00:06:31,480 --> 00:06:34,800 Speaker 3: fastest growing region and will be for the next ten years. 125 00:06:34,960 --> 00:06:37,240 Speaker 4: It's striking that you have such conviction in China when 126 00:06:37,279 --> 00:06:39,240 Speaker 4: what we continue to hear from Washington is that they're 127 00:06:39,240 --> 00:06:41,400 Speaker 4: just going to up the ante. Right now, they're wighing 128 00:06:41,400 --> 00:06:44,880 Speaker 4: whether or not they're going to sanction the chip makers 129 00:06:45,120 --> 00:06:49,640 Speaker 4: around wallways entire production. How much does that concern you? 130 00:06:49,800 --> 00:06:52,000 Speaker 3: Yeah, No, there's a race, right, there's a race going on. 131 00:06:52,160 --> 00:06:56,719 Speaker 3: China's racing to get itself kind of independent, and we're 132 00:06:56,800 --> 00:07:00,960 Speaker 3: racing to freeze them out of this stuff. And I 133 00:07:00,960 --> 00:07:04,359 Speaker 3: think the point that we see is that the US 134 00:07:04,440 --> 00:07:07,880 Speaker 3: trying to freeze China is already in the price. Everybody 135 00:07:08,200 --> 00:07:10,800 Speaker 3: who doesn't want to invest in China because they're worried 136 00:07:10,800 --> 00:07:14,320 Speaker 3: about US sanctions is already gone, long gone, and they're 137 00:07:14,360 --> 00:07:16,680 Speaker 3: not going to come in. Fine, we don't need them 138 00:07:16,720 --> 00:07:19,800 Speaker 3: to come in again. K Web can double and double again. 139 00:07:19,840 --> 00:07:22,400 Speaker 3: I'll just take the first double from twenty six to 140 00:07:23,280 --> 00:07:26,080 Speaker 3: fifty and weave the second double to somebody else. 141 00:07:26,160 --> 00:07:29,160 Speaker 4: So a sixty percent tariff wall for Chinese imports doesn't matter. 142 00:07:29,400 --> 00:07:32,320 Speaker 3: Oh yeah, sure it will matter. Markets will sell off 143 00:07:32,360 --> 00:07:34,160 Speaker 3: depending on where we go between now and then. 144 00:07:34,360 --> 00:07:36,360 Speaker 4: But I mean, if China is going to build within 145 00:07:36,400 --> 00:07:38,520 Speaker 4: their own achon. 146 00:07:38,360 --> 00:07:41,080 Speaker 3: Yeah, I mean I would look at what China's done 147 00:07:41,160 --> 00:07:43,160 Speaker 3: over the last thirty or forty years, and I don't 148 00:07:43,160 --> 00:07:45,320 Speaker 3: think we'd want to bet against their ability to kind 149 00:07:45,320 --> 00:07:46,720 Speaker 3: of construct what they need to construct. 150 00:07:46,800 --> 00:07:49,080 Speaker 2: So when everyone else said an investable, you go bullish 151 00:07:49,120 --> 00:07:51,880 Speaker 2: when you say no brainer. Does that make you uncomfortable? 152 00:07:51,920 --> 00:07:54,920 Speaker 2: What are the risk factors you would acknowledge exists around 153 00:07:55,040 --> 00:07:56,720 Speaker 2: this bullish thesis for China? 154 00:07:56,920 --> 00:07:58,200 Speaker 1: Yeah, fairly. 155 00:07:58,320 --> 00:08:02,200 Speaker 3: What Amory said is one, if we come out if 156 00:08:02,440 --> 00:08:05,720 Speaker 3: the former president wins, which, as I've said on the show, 157 00:08:06,120 --> 00:08:08,520 Speaker 3: I believe Biden will win on the landslide. But if 158 00:08:08,560 --> 00:08:11,240 Speaker 3: the former president were to win and we're to implement 159 00:08:11,280 --> 00:08:14,280 Speaker 3: the tariff structures that he's talked about, that's clearly going 160 00:08:14,360 --> 00:08:17,600 Speaker 3: to set the Chinese market back. But by the same token, 161 00:08:18,320 --> 00:08:21,280 Speaker 3: as we advance to that point in time, China's own 162 00:08:21,320 --> 00:08:25,080 Speaker 3: internal dynamics theoretically should get better, right, The property market 163 00:08:25,160 --> 00:08:28,360 Speaker 3: should be better dealt with the focus on domestic consumption, 164 00:08:28,480 --> 00:08:31,800 Speaker 3: should be moving further down the road. So it's not 165 00:08:31,960 --> 00:08:35,400 Speaker 3: a zero sum and how that all plays out, you know. 166 00:08:35,400 --> 00:08:37,280 Speaker 3: I mean, we have the ability to change our mind 167 00:08:37,360 --> 00:08:40,080 Speaker 3: and to adjust our positions, and so we'll look at 168 00:08:40,120 --> 00:08:42,480 Speaker 3: that when the time comes. But I mean that to 169 00:08:42,520 --> 00:08:45,240 Speaker 3: me is a big worry because I think everything else 170 00:08:45,320 --> 00:08:48,480 Speaker 3: is in the price Ali Baba, And no, it doesn't 171 00:08:48,520 --> 00:08:50,560 Speaker 3: grow as much as it as it did before but 172 00:08:50,600 --> 00:08:52,640 Speaker 3: as the prior guest said, same is happening in the 173 00:08:52,760 --> 00:08:56,640 Speaker 3: US tech space. Earnings acceleration is coming down, same as 174 00:08:56,640 --> 00:08:59,840 Speaker 3: in Ali Baba. The other point is that these companies 175 00:09:00,080 --> 00:09:03,320 Speaker 3: in China are just like the US companies. They're cash 176 00:09:03,360 --> 00:09:07,520 Speaker 3: making machines, they are buying backstock, they are paying dividends, 177 00:09:07,920 --> 00:09:10,960 Speaker 3: and so you know, eight nine times earnings. I think 178 00:09:10,960 --> 00:09:13,760 Speaker 3: the risk reward is some of the best in the 179 00:09:13,760 --> 00:09:16,160 Speaker 3: world because the risk is already in the price and 180 00:09:16,240 --> 00:09:19,080 Speaker 3: the reward is starting to materialize. 181 00:09:19,080 --> 00:09:21,000 Speaker 2: I'm sure this morning you've managed to convert a few 182 00:09:21,000 --> 00:09:24,760 Speaker 2: non believers for a tactical trade. What's interesting about your call. 183 00:09:24,800 --> 00:09:27,120 Speaker 2: It's not just tactical. It's not twenty twenty four, it's 184 00:09:27,160 --> 00:09:29,960 Speaker 2: twenty twenty five, it's twenty twenty six. Why is this 185 00:09:30,000 --> 00:09:32,720 Speaker 2: being extrapolated out. It doesn't sound like this late cycle 186 00:09:32,800 --> 00:09:36,520 Speaker 2: story from your standpoint. It feels much much longer term. 187 00:09:36,600 --> 00:09:38,760 Speaker 3: Yeah, exactly, John. And you know, we put out a 188 00:09:38,760 --> 00:09:41,680 Speaker 3: piece our twenty twenty four outlook back in the beginning 189 00:09:41,679 --> 00:09:45,280 Speaker 3: of November, so five months ago. The title was surprise Surprise. 190 00:09:45,760 --> 00:09:49,520 Speaker 3: We had four macro surprises, lower inflation sooner than expected, 191 00:09:49,880 --> 00:09:54,800 Speaker 3: better productivity, growth, return the stability in early cycle. All 192 00:09:54,840 --> 00:09:58,600 Speaker 3: those are playing out, in particular the return to stability argument. 193 00:09:58,880 --> 00:10:01,960 Speaker 3: Look at the vics, look at the move, look at 194 00:10:02,000 --> 00:10:04,800 Speaker 3: the FED. With all respect to the lineup of FED speakers, 195 00:10:05,000 --> 00:10:07,400 Speaker 3: I pay virtually no attention to that anymore. 196 00:10:07,600 --> 00:10:10,280 Speaker 2: That is not the We've just had an eight minute 197 00:10:10,280 --> 00:10:12,840 Speaker 2: conversation and that's how long it took to mention the 198 00:10:12,840 --> 00:10:14,760 Speaker 2: FEDER reserve in your whole fasis. 199 00:10:14,800 --> 00:10:18,880 Speaker 1: Ye, that's exactly right. Way is that because it doesn't matter. 200 00:10:19,120 --> 00:10:22,640 Speaker 3: The important thing is that the FED and markets are 201 00:10:22,679 --> 00:10:25,760 Speaker 3: in sync after being out of sync. Right six rate 202 00:10:25,800 --> 00:10:29,160 Speaker 3: cuts in December now and FED at three. Now we're 203 00:10:29,200 --> 00:10:32,360 Speaker 3: both at three and guess what that happened without a 204 00:10:32,480 --> 00:10:36,439 Speaker 3: ripple of market on ease. And that tells me that 205 00:10:36,440 --> 00:10:38,240 Speaker 3: that's one of the things that tells me that this 206 00:10:38,400 --> 00:10:42,200 Speaker 3: market is a strong market. And so we have, in 207 00:10:42,280 --> 00:10:45,800 Speaker 3: our view, were early cycle. We've made a return to stability. 208 00:10:46,000 --> 00:10:48,200 Speaker 3: The FED is our friend now right can cut as 209 00:10:48,240 --> 00:10:51,520 Speaker 3: you were talking about with labor worries. The FED is 210 00:10:51,559 --> 00:10:54,440 Speaker 3: our friend. The rest of the world is picking up. 211 00:10:54,960 --> 00:10:57,720 Speaker 3: And so we look at twenty twenty three to twenty 212 00:10:57,760 --> 00:11:02,480 Speaker 3: twenty seven that that body of time as being very 213 00:11:02,559 --> 00:11:05,439 Speaker 3: much akin to nineteen ninety five to nineteen ninety nine, 214 00:11:05,760 --> 00:11:10,520 Speaker 3: where you had productivity inspired growth, you had lower inflation, 215 00:11:10,720 --> 00:11:13,520 Speaker 3: you had good earnings growth. The difference, as you quoted, 216 00:11:14,040 --> 00:11:16,400 Speaker 3: is that this time it's global, and it's global because 217 00:11:16,440 --> 00:11:19,800 Speaker 3: of this tripole, the world materializing and the fact that 218 00:11:19,840 --> 00:11:25,720 Speaker 3: everybody has to spend on AI, on climate, on semis, 219 00:11:25,960 --> 00:11:29,240 Speaker 3: on electric vehicles, and so you're getting, in our view, 220 00:11:29,280 --> 00:11:32,840 Speaker 3: a much more stable globe because you're not dependent on 221 00:11:32,920 --> 00:11:36,440 Speaker 3: the Chinese consumer or on the US. You now have 222 00:11:36,600 --> 00:11:40,720 Speaker 3: three centers that are going to be growing independently of 223 00:11:40,760 --> 00:11:44,480 Speaker 3: each other. And so really the question is who balances 224 00:11:44,600 --> 00:11:48,360 Speaker 3: best private and public sector because you need both because 225 00:11:48,400 --> 00:11:53,600 Speaker 3: these are huge, huge investments, right, these are game changing investments, 226 00:11:53,600 --> 00:11:56,640 Speaker 3: and so who manages that best. And that's one of 227 00:11:56,679 --> 00:11:58,560 Speaker 3: the reasons why we like Europe and you and I've 228 00:11:58,559 --> 00:12:01,240 Speaker 3: been talking about this for years, but Europe has more 229 00:12:01,280 --> 00:12:06,200 Speaker 3: experience than any region and getting everybody around the same page. 230 00:12:06,200 --> 00:12:09,160 Speaker 3: One can argue they do it well, it takes too long. 231 00:12:09,520 --> 00:12:12,120 Speaker 3: But you know, look at the US and Congress, right, 232 00:12:13,080 --> 00:12:15,960 Speaker 3: not really an example of great governance, and look at 233 00:12:16,040 --> 00:12:20,040 Speaker 3: China stumbling after a really good run. So I look 234 00:12:20,040 --> 00:12:24,040 Speaker 3: at Azion in China dominates Azion, the fastest growing region 235 00:12:24,040 --> 00:12:26,280 Speaker 3: of the world. We want to play there. We look 236 00:12:26,320 --> 00:12:31,640 Speaker 3: at Europe integrating, being and being forced by conflict to integrate, right, 237 00:12:33,480 --> 00:12:37,400 Speaker 3: multiple countries spending together, raising debt together, so you're going 238 00:12:37,400 --> 00:12:40,240 Speaker 3: to see that capital market integration. And then we look 239 00:12:40,280 --> 00:12:43,520 Speaker 3: here in the Americas and we see Mexico, which again 240 00:12:43,800 --> 00:12:45,920 Speaker 3: you know, we've been overweight and invested in for two 241 00:12:46,000 --> 00:12:48,680 Speaker 3: years because it is the flagship for the tripol the 242 00:12:48,679 --> 00:12:52,040 Speaker 3: World thesis, you know, the biggest beneficiary of what's going 243 00:12:52,080 --> 00:12:54,560 Speaker 3: on in the Americas. We're invested in Poland you and 244 00:12:54,600 --> 00:12:57,760 Speaker 3: I talked about that last time for the European thesis 245 00:12:57,760 --> 00:13:00,840 Speaker 3: as well. Yeah, and we're invested in China for the 246 00:13:00,880 --> 00:13:04,280 Speaker 3: Asian thesis and self to us, uh, it's an exciting 247 00:13:04,800 --> 00:13:07,880 Speaker 3: blue sky period ahead and the fact that most people 248 00:13:07,920 --> 00:13:10,360 Speaker 3: are not there. People have kind of gotten onto the 249 00:13:10,600 --> 00:13:14,400 Speaker 3: tactical trade. I mean, you know, twenty one weeks, if 250 00:13:14,400 --> 00:13:17,319 Speaker 3: you're not on the tactical trade, you're probably not working anymore. 251 00:13:18,200 --> 00:13:20,840 Speaker 3: But you know, to us, the good news is that 252 00:13:21,160 --> 00:13:24,240 Speaker 3: we are you know, we we we see the process 253 00:13:24,320 --> 00:13:27,240 Speaker 3: moving for multiple years and we're still early in that 254 00:13:27,480 --> 00:13:29,560 Speaker 3: and others are going to come behind us. We're already 255 00:13:29,559 --> 00:13:32,640 Speaker 3: double weighted commodities and we have been for six months, 256 00:13:33,080 --> 00:13:36,240 Speaker 3: and so we're you know, we're just moving from point 257 00:13:36,240 --> 00:13:37,400 Speaker 3: A to point being onward. 258 00:13:37,600 --> 00:13:39,480 Speaker 2: This is some super bolish stuff. Just remind me never 259 00:13:39,520 --> 00:13:42,920 Speaker 2: to book you for FED. Decision done, okay, He Piloski 260 00:13:43,080 --> 00:13:56,880 Speaker 2: TVW Pina chiev Academy Security, saying he's ready for a rotation. 261 00:13:57,280 --> 00:13:59,600 Speaker 2: He writes this, I'm so sick of hearing about the 262 00:13:59,640 --> 00:14:03,800 Speaker 2: maximum FAB four or whatever it's words, not mine, and 263 00:14:03,840 --> 00:14:06,080 Speaker 2: that it is time at the time of the twenty 264 00:14:06,080 --> 00:14:08,520 Speaker 2: second old time high for the S and P five hundred, 265 00:14:08,800 --> 00:14:11,240 Speaker 2: I'm looking for anything to stand me away from that. 266 00:14:11,520 --> 00:14:15,800 Speaker 2: The Russell two thousand Suddody outperforming is interesting. Patreons is 267 00:14:15,800 --> 00:14:17,800 Speaker 2: around the table for more pink and mornings here. 268 00:14:18,120 --> 00:14:18,640 Speaker 1: Good morning. 269 00:14:18,760 --> 00:14:21,360 Speaker 2: Is it more than just interesting? Is it a real deal? 270 00:14:21,600 --> 00:14:21,800 Speaker 1: You know? 271 00:14:21,800 --> 00:14:23,560 Speaker 5: I'm not one hundred percent sure because I've been kind 272 00:14:23,560 --> 00:14:26,320 Speaker 5: of thinking about this. Marketers as really AI, anything that's 273 00:14:26,400 --> 00:14:29,320 Speaker 5: kind of been deputized into AI has been driving the market. 274 00:14:29,360 --> 00:14:30,600 Speaker 5: But for the last week, all of a sudden, the 275 00:14:30,680 --> 00:14:32,440 Speaker 5: Russell two thousands a little bit better. I've liked the 276 00:14:32,560 --> 00:14:35,400 Speaker 5: energy sector in particular, and I'm wondering how people are 277 00:14:35,400 --> 00:14:38,920 Speaker 5: starting to say, maybe banking's okay, commercial real estate, your 278 00:14:38,960 --> 00:14:41,400 Speaker 5: biotech sad is ups and downs, So we could see 279 00:14:41,400 --> 00:14:44,240 Speaker 5: a rotation. Unfortunately, I think this time, unlike November where 280 00:14:44,280 --> 00:14:46,600 Speaker 5: we saw the rotation with strong gains for both, this 281 00:14:46,720 --> 00:14:48,240 Speaker 5: time I think we might get tepic gains in the 282 00:14:48,280 --> 00:14:50,920 Speaker 5: Rustle two thousand and a small pullback in the Nasdaq 283 00:14:50,960 --> 00:14:51,400 Speaker 5: one hundred. 284 00:14:51,440 --> 00:14:53,520 Speaker 2: Yeah, your words, and I think they're interesting, they're important 285 00:14:53,520 --> 00:14:55,920 Speaker 2: power for words. It's the rotation more about losing less 286 00:14:56,000 --> 00:14:57,720 Speaker 2: or making more, which one is it. 287 00:14:57,880 --> 00:14:59,840 Speaker 5: I think it's going to be about losing less right now. 288 00:15:00,000 --> 00:15:02,360 Speaker 5: I think where a lot of the froth is, where 289 00:15:02,440 --> 00:15:05,000 Speaker 5: things are overextended, is really in that Nasdaq one hundred 290 00:15:05,000 --> 00:15:07,000 Speaker 5: types stocks, and if you look at it, it's really 291 00:15:07,240 --> 00:15:09,440 Speaker 5: unchanged in about a month month and a half, so 292 00:15:09,520 --> 00:15:11,320 Speaker 5: it keeps coming up and maybe it's a new hire, 293 00:15:11,440 --> 00:15:14,880 Speaker 5: but barely unlike maybe the S and P. So I 294 00:15:14,880 --> 00:15:16,640 Speaker 5: think there's room for that to kind of top a 295 00:15:16,680 --> 00:15:20,080 Speaker 5: little bit. As people question have we overextended on AI? 296 00:15:20,280 --> 00:15:20,560 Speaker 3: Listen? 297 00:15:20,600 --> 00:15:21,800 Speaker 1: AI is going to drive the future. 298 00:15:21,840 --> 00:15:24,440 Speaker 5: The questions to me are are you getting enough value 299 00:15:24,480 --> 00:15:27,600 Speaker 5: at today's technology level, at today's pricing, and I'm not 300 00:15:27,640 --> 00:15:30,400 Speaker 5: sure everyone's getting that. So if you see a pullback there, 301 00:15:30,520 --> 00:15:32,600 Speaker 5: it's going to be the Russell two thousand plus. People 302 00:15:32,600 --> 00:15:34,720 Speaker 5: are looking where to put money that's not at all 303 00:15:34,760 --> 00:15:37,040 Speaker 5: time highs or really high pe ratios. 304 00:15:37,080 --> 00:15:39,200 Speaker 4: I'll ask a question too that I asked the Lord Calvacina, 305 00:15:39,240 --> 00:15:41,560 Speaker 4: who is seeing potentially the signs as well of a rotation. 306 00:15:41,680 --> 00:15:45,480 Speaker 4: We've had so many rotationary false starts. What makes you 307 00:15:45,520 --> 00:15:47,120 Speaker 4: have the conviction that you think this could be it? 308 00:15:47,400 --> 00:15:49,200 Speaker 5: Well again, I think we go back to the fall. 309 00:15:49,360 --> 00:15:51,800 Speaker 5: We had a twenty two percent rise in the Russell 310 00:15:51,800 --> 00:15:54,400 Speaker 5: two thousand versus eleven in Nasdaq one hundred, so that's 311 00:15:54,800 --> 00:15:56,600 Speaker 5: ten percent out performance. That's the sort of thing I'm 312 00:15:56,600 --> 00:15:59,080 Speaker 5: looking at. I think people are getting tired with the 313 00:15:59,080 --> 00:16:02,000 Speaker 5: same story. Okay, I've already fully committed to AI. Where 314 00:16:02,000 --> 00:16:03,320 Speaker 5: am I going to put my new money? And you 315 00:16:03,360 --> 00:16:06,600 Speaker 5: start looking for value, you start putting money elsewhere. You've 316 00:16:06,640 --> 00:16:09,880 Speaker 5: seen energy do very well, mining is doing well, so 317 00:16:09,920 --> 00:16:12,320 Speaker 5: I think that starts leading the way. If banks can stabilize. 318 00:16:12,320 --> 00:16:14,720 Speaker 5: When we get bank earnings next week, the regionals do well, 319 00:16:14,880 --> 00:16:17,040 Speaker 5: that really pushes nicely there, and that's where I think 320 00:16:17,120 --> 00:16:17,480 Speaker 5: drives it. 321 00:16:17,560 --> 00:16:20,680 Speaker 4: Ja Plowski was also talking about energy, you like mining, 322 00:16:20,800 --> 00:16:23,440 Speaker 4: He also liked soft commodities like agriculture. So you're just 323 00:16:23,480 --> 00:16:26,480 Speaker 4: see the entire commodity landscape push higher, you know. 324 00:16:26,560 --> 00:16:28,760 Speaker 5: I'm more in the hard commodities. I think me energy 325 00:16:28,760 --> 00:16:30,920 Speaker 5: has been really the big focus because how I've been 326 00:16:30,960 --> 00:16:33,720 Speaker 5: looking at it is it feels like we're finally understanding 327 00:16:33,760 --> 00:16:36,040 Speaker 5: if we want sustainable energy, we have to build up 328 00:16:36,040 --> 00:16:38,800 Speaker 5: sustainable energy more rapidly. So that's going to require a 329 00:16:38,800 --> 00:16:40,960 Speaker 5: lot of commodities. But we also, for the first time, 330 00:16:41,000 --> 00:16:43,720 Speaker 5: I think, understand we need real traditional energy for the 331 00:16:43,800 --> 00:16:46,920 Speaker 5: next twenty thirty years, so that's going to be built out. 332 00:16:46,960 --> 00:16:49,800 Speaker 5: So that's why I think that hard commodity energy is better. 333 00:16:50,080 --> 00:16:52,520 Speaker 5: I'm not as sure about the egg stuff, though I 334 00:16:52,520 --> 00:16:54,040 Speaker 5: would not touch Coco for example. 335 00:16:54,200 --> 00:16:56,640 Speaker 2: Are you doing this through equity exposure or directly through 336 00:16:56,640 --> 00:16:58,000 Speaker 2: the commodity market, which we want? 337 00:16:58,040 --> 00:16:58,960 Speaker 1: I prefer the equities. 338 00:16:59,000 --> 00:17:01,360 Speaker 5: I think again, our story for the last two to 339 00:17:01,400 --> 00:17:04,040 Speaker 5: three years has really been that the energy companies of 340 00:17:04,080 --> 00:17:05,560 Speaker 5: the future are the energy. 341 00:17:05,280 --> 00:17:06,080 Speaker 1: Companies of today. 342 00:17:06,240 --> 00:17:07,719 Speaker 5: People kind of toss them out the window A few 343 00:17:07,800 --> 00:17:09,440 Speaker 5: years ago and saying, Oh, it's all going to be 344 00:17:09,440 --> 00:17:10,840 Speaker 5: about wind farms. It's all going to be about this, 345 00:17:10,880 --> 00:17:13,480 Speaker 5: And people are realizing the traditional energy companies have the 346 00:17:13,520 --> 00:17:16,600 Speaker 5: resources to provide energy today, but the skills to figure 347 00:17:16,600 --> 00:17:18,200 Speaker 5: out how to provide energy in the future. 348 00:17:18,400 --> 00:17:19,720 Speaker 1: I think that's where the big bet is. 349 00:17:19,640 --> 00:17:21,440 Speaker 2: Still starting to see that. In March, start to see 350 00:17:21,520 --> 00:17:23,680 Speaker 2: energy pitcomp I think by about ten percent, really solid 351 00:17:23,680 --> 00:17:26,359 Speaker 2: month against for energy stocks on the SMP. Likewise, on 352 00:17:26,359 --> 00:17:28,320 Speaker 2: the banks as well, You've got an interesting take on 353 00:17:28,359 --> 00:17:30,399 Speaker 2: a federal reserve. We've heard echoes of this over the 354 00:17:30,440 --> 00:17:33,320 Speaker 2: last week following Shairman Powe. Well, they haven't officially changed 355 00:17:33,359 --> 00:17:35,360 Speaker 2: their target. They seem to be willing to ease monetary 356 00:17:35,400 --> 00:17:39,520 Speaker 2: policy even while inflation remains closer to three percent than two. 357 00:17:39,960 --> 00:17:42,359 Speaker 2: What is one hundred banks is points between friends? What 358 00:17:42,400 --> 00:17:43,520 Speaker 2: does it change in this market? 359 00:17:43,640 --> 00:17:45,600 Speaker 5: So I don't think it changes that much. I think again, 360 00:17:45,680 --> 00:17:47,800 Speaker 5: we saw the market priced out. I think we started 361 00:17:47,840 --> 00:17:49,440 Speaker 5: the year at six rate cuts, we went down to 362 00:17:49,440 --> 00:17:51,480 Speaker 5: as low as two and a half, and the market 363 00:17:51,480 --> 00:17:53,400 Speaker 5: did fine because it's all about growth. So I think 364 00:17:53,400 --> 00:17:55,720 Speaker 5: we can manage around that. But I think there is 365 00:17:55,760 --> 00:17:57,879 Speaker 5: a little bit of froth, and maybe it's deserved. 366 00:17:58,000 --> 00:17:59,440 Speaker 1: As you see, Powell kind of. 367 00:17:59,800 --> 00:18:03,080 Speaker 5: Shift is narrative to things that allow him to cut. Right, 368 00:18:03,119 --> 00:18:05,439 Speaker 5: No one's talking about the market doing the work for him, 369 00:18:05,520 --> 00:18:07,959 Speaker 5: remember back in November when yields were high. Now the 370 00:18:07,960 --> 00:18:10,040 Speaker 5: market's undone all the work for him, and no one 371 00:18:10,080 --> 00:18:11,000 Speaker 5: wants to talk about that. 372 00:18:11,119 --> 00:18:12,000 Speaker 1: So it feels to. 373 00:18:11,960 --> 00:18:14,320 Speaker 5: Me they're constantly looking to pivot to some excuse to 374 00:18:14,320 --> 00:18:17,480 Speaker 5: be easy, which I understand. If you're the person in 375 00:18:17,560 --> 00:18:18,920 Speaker 5: charge of the FED, you probably don't want to be 376 00:18:18,960 --> 00:18:20,919 Speaker 5: the one who drives us into recessions, so you're probably 377 00:18:20,960 --> 00:18:23,560 Speaker 5: slightly biased easy. And now he's figured out a new 378 00:18:23,640 --> 00:18:24,359 Speaker 5: rationale for that. 379 00:18:24,520 --> 00:18:26,600 Speaker 2: Do you think the FED is actually working against the 380 00:18:26,640 --> 00:18:28,640 Speaker 2: market or other The market's working against the Fed because 381 00:18:28,640 --> 00:18:31,080 Speaker 2: the FED seems comfortable with stocks at all time highs 382 00:18:31,080 --> 00:18:32,920 Speaker 2: and credit spreads that are super tight. 383 00:18:33,200 --> 00:18:35,360 Speaker 5: You know, I think we're okayish right now. I think 384 00:18:35,640 --> 00:18:37,919 Speaker 5: there's kind of a decent balance, right. No one's going crazy. 385 00:18:37,920 --> 00:18:40,040 Speaker 5: We're not talking about four or five cuts this year. 386 00:18:40,359 --> 00:18:43,080 Speaker 5: I think we are rightly saying it's probably the end of. 387 00:18:43,000 --> 00:18:43,919 Speaker 1: The hiking cycle. 388 00:18:44,400 --> 00:18:46,400 Speaker 5: Though having said that, right as some of this data 389 00:18:46,400 --> 00:18:48,240 Speaker 5: comes through and if I'm right on some of the commodities, 390 00:18:48,440 --> 00:18:50,399 Speaker 5: we might see a bit of a resurgence. And the 391 00:18:50,440 --> 00:18:53,320 Speaker 5: other topic that's coming up a lot is as we're saying, oh, 392 00:18:53,359 --> 00:18:56,240 Speaker 5: inflation's coming down, I think people are questioning, did we 393 00:18:56,280 --> 00:18:59,680 Speaker 5: ever really managed to monitor rout inflation for the last 394 00:18:59,680 --> 00:19:02,320 Speaker 5: three year? Are we heavily understating because you go into 395 00:19:02,359 --> 00:19:03,879 Speaker 5: the stores and it doesn't look like things are up 396 00:19:03,920 --> 00:19:05,800 Speaker 5: three or four percent parandum. It looks like they're up 397 00:19:05,800 --> 00:19:08,639 Speaker 5: ten percent perandum. So I think people are questioning some 398 00:19:08,680 --> 00:19:12,280 Speaker 5: of the actual starting level from this decline. 399 00:19:12,400 --> 00:19:14,320 Speaker 4: If the feed is trying to find any excuse, to 400 00:19:14,359 --> 00:19:18,040 Speaker 4: your point, potentially to cut, what could they use, say 401 00:19:18,080 --> 00:19:20,200 Speaker 4: in June, say they really want to cut in June, 402 00:19:20,240 --> 00:19:23,119 Speaker 4: but inflation is still on this path where it's not 403 00:19:23,160 --> 00:19:24,639 Speaker 4: exactly where they want to be that the end of 404 00:19:24,720 --> 00:19:26,240 Speaker 4: last year, but it is moderating. 405 00:19:26,560 --> 00:19:27,200 Speaker 1: Is that enough? 406 00:19:27,560 --> 00:19:29,360 Speaker 5: I think it could be enough, because I think one 407 00:19:29,400 --> 00:19:31,840 Speaker 5: they'll just say, listen, it's long lag times and we've 408 00:19:31,880 --> 00:19:33,800 Speaker 5: got to get a little bit ahead of this. And 409 00:19:33,880 --> 00:19:36,399 Speaker 5: I think behind the scenes, if they can avoid cutting 410 00:19:36,400 --> 00:19:38,879 Speaker 5: in September and November, right into the meat of the election, 411 00:19:39,200 --> 00:19:40,879 Speaker 5: they prefer to do that, So I think you're. 412 00:19:40,760 --> 00:19:41,320 Speaker 1: Much better off. 413 00:19:41,320 --> 00:19:43,480 Speaker 5: If you want to get two cuts done early this year, 414 00:19:43,600 --> 00:19:46,040 Speaker 5: you do it June July. Let the markets kind of 415 00:19:46,040 --> 00:19:48,240 Speaker 5: adapt with that, and then the next one maybe comes 416 00:19:48,240 --> 00:19:49,639 Speaker 5: in December if we're still there. 417 00:19:49,880 --> 00:19:53,040 Speaker 4: John asked a question earlier to a lot of our guests, 418 00:19:53,040 --> 00:19:56,640 Speaker 4: what's more important the payrolls number on Friday or inflation 419 00:19:56,760 --> 00:19:57,280 Speaker 4: next week. 420 00:19:57,720 --> 00:19:59,080 Speaker 1: I think it's ultimately the payrolls. 421 00:19:59,080 --> 00:20:01,679 Speaker 5: I think the market's been driven much more by the 422 00:20:01,680 --> 00:20:04,159 Speaker 5: growth in the economy, and really it's both the spending 423 00:20:04,200 --> 00:20:07,560 Speaker 5: on AI. Our companies benefiting from AI, are the AI 424 00:20:07,640 --> 00:20:09,400 Speaker 5: companies growing as a competitive. 425 00:20:09,080 --> 00:20:11,879 Speaker 1: And so we've had it FED. I think for the FED, 426 00:20:12,680 --> 00:20:14,439 Speaker 1: it's probably going to be the job's number. I think 427 00:20:14,440 --> 00:20:15,960 Speaker 1: they have to look at that. But even then I 428 00:20:16,000 --> 00:20:16,480 Speaker 1: think they're. 429 00:20:16,359 --> 00:20:17,879 Speaker 5: In the mode that they are going to close their 430 00:20:17,880 --> 00:20:20,240 Speaker 5: eyes and say, you know, it's all good enough. 431 00:20:20,240 --> 00:20:21,200 Speaker 1: We can cut once or twice. 432 00:20:21,240 --> 00:20:22,880 Speaker 2: It's funny you say that, because that was my sense 433 00:20:22,880 --> 00:20:25,200 Speaker 2: of things as well, asking the question, that's not the answer, 434 00:20:25,200 --> 00:20:28,560 Speaker 2: I go the Answerrinke still repeatedly was that CPM is important. 435 00:20:28,840 --> 00:20:31,560 Speaker 2: At ho Senni of Columbia Thread and a mat or 436 00:20:31,640 --> 00:20:33,160 Speaker 2: was with it's just moms agum, and he was talking 437 00:20:33,200 --> 00:20:35,159 Speaker 2: up CPM be more important than paying rolls for the 438 00:20:35,160 --> 00:20:37,720 Speaker 2: next several months, maybe even the next few courses. What 439 00:20:37,840 --> 00:20:40,080 Speaker 2: I'm hearing from Chairman Powell is that he could be 440 00:20:40,080 --> 00:20:42,679 Speaker 2: willing to move earlier if you see something happen with 441 00:20:42,720 --> 00:20:45,639 Speaker 2: a labor market and deterioration. What do you make of that, 442 00:20:45,760 --> 00:20:47,560 Speaker 2: just in terms of the shift in emphasis, if we 443 00:20:47,600 --> 00:20:49,680 Speaker 2: can indeed called it a shift, you. 444 00:20:49,640 --> 00:20:51,639 Speaker 5: Know, one of our theories coming into this year had 445 00:20:51,680 --> 00:20:54,760 Speaker 5: been that in twenty twenty three he was happy to 446 00:20:54,760 --> 00:20:57,000 Speaker 5: cause a recession. I don't think it was his first choice. 447 00:20:57,040 --> 00:20:59,159 Speaker 5: But if you got a recession, that's fine. There is 448 00:20:59,240 --> 00:21:01,600 Speaker 5: no way he wants to create a recessionary election year 449 00:21:01,600 --> 00:21:05,120 Speaker 5: because that almost hands the accumbani loss. So I think 450 00:21:05,160 --> 00:21:07,080 Speaker 5: he is going to be much more cautious about creating 451 00:21:07,080 --> 00:21:09,200 Speaker 5: a recessionary and that's where I think the balance is 452 00:21:09,240 --> 00:21:11,360 Speaker 5: tipped this year or too. It's much more about jobs 453 00:21:11,520 --> 00:21:12,679 Speaker 5: and far less about inflation. 454 00:21:12,800 --> 00:21:16,520 Speaker 2: You introduced politics. You think he's worried about the incumbonent losing. 455 00:21:17,200 --> 00:21:21,560 Speaker 5: I think he wants to be as independent of causing 456 00:21:21,600 --> 00:21:22,720 Speaker 5: an election result as. 457 00:21:22,600 --> 00:21:23,360 Speaker 1: He possibly can. 458 00:21:23,600 --> 00:21:26,359 Speaker 5: Okay, and so keeping the economy on a steady flow 459 00:21:26,520 --> 00:21:28,480 Speaker 5: and not turning into recession is probably better. 460 00:21:28,280 --> 00:21:30,000 Speaker 2: For him thinking about politics, so he doesn't have to 461 00:21:30,000 --> 00:21:30,880 Speaker 2: think about politics. 462 00:21:31,320 --> 00:21:34,600 Speaker 4: Kind Of okay, Well, your timeline basically says they need 463 00:21:34,640 --> 00:21:37,920 Speaker 4: to move so they don't look like they care about politics. 464 00:21:37,920 --> 00:21:39,280 Speaker 4: But the fact that they would be moving so they 465 00:21:39,280 --> 00:21:41,200 Speaker 4: don't look like they care about politics, they do care 466 00:21:41,200 --> 00:21:41,960 Speaker 4: about politics. 467 00:21:42,000 --> 00:21:43,240 Speaker 1: You know, it's probably pretty. 468 00:21:42,960 --> 00:21:45,919 Speaker 5: Hard when one you've got Elizabeth Warren writing letters the president, 469 00:21:46,000 --> 00:21:48,200 Speaker 5: your boss is the president, and then you've got the 470 00:21:48,280 --> 00:21:51,760 Speaker 5: former president who is very active on social media and 471 00:21:51,960 --> 00:21:54,199 Speaker 5: happy to point out any problems. So get this out 472 00:21:54,240 --> 00:21:56,760 Speaker 5: of the way, bear the pain, and hopefully fingers crossed, 473 00:21:56,960 --> 00:22:00,960 Speaker 5: have to do nothing September November and let politics take 474 00:22:01,000 --> 00:22:01,560 Speaker 5: care of itself. 475 00:22:01,720 --> 00:22:03,800 Speaker 2: So big part of this conversation where we started it 476 00:22:03,840 --> 00:22:06,439 Speaker 2: was the big rotation and whether it is about making 477 00:22:06,520 --> 00:22:09,400 Speaker 2: more or losing less, and you said potentially it's about 478 00:22:09,440 --> 00:22:12,960 Speaker 2: losing less, which should prompt the next question, what part 479 00:22:13,000 --> 00:22:14,639 Speaker 2: of the market right now? Which part of the market 480 00:22:14,640 --> 00:22:16,320 Speaker 2: do you think is most vulnerable? Because the way we're 481 00:22:16,320 --> 00:22:19,080 Speaker 2: set up right now in commodity markets, we've got things 482 00:22:19,080 --> 00:22:21,760 Speaker 2: that are multi year highs. Gold this at an all 483 00:22:21,840 --> 00:22:24,760 Speaker 2: time high. In credit, high yield spreads are at multi 484 00:22:24,800 --> 00:22:27,479 Speaker 2: year tights, equities at record highs. What do you think 485 00:22:27,520 --> 00:22:29,760 Speaker 2: is vulnerable at the moment where the loss is going 486 00:22:29,800 --> 00:22:30,040 Speaker 2: to be. 487 00:22:30,080 --> 00:22:31,600 Speaker 5: So, I think it's going to come really from the 488 00:22:31,640 --> 00:22:33,480 Speaker 5: oh performers. So I think the NAZAQ one hundred is 489 00:22:33,480 --> 00:22:35,680 Speaker 5: the most susceptible you're gonna have. Some of the individual 490 00:22:35,720 --> 00:22:40,440 Speaker 5: stocks we're now on individual stocks, they trade leverage gtfs, 491 00:22:40,440 --> 00:22:42,359 Speaker 5: which seems insane to me why we would have a 492 00:22:42,400 --> 00:22:44,879 Speaker 5: single stock leverage GDF. Yet it's there. I think it's 493 00:22:44,920 --> 00:22:47,119 Speaker 5: over two billion dollars in market caps. So people are 494 00:22:47,119 --> 00:22:47,600 Speaker 5: trading this. 495 00:22:47,640 --> 00:22:48,560 Speaker 2: There because people want it. 496 00:22:48,640 --> 00:22:51,000 Speaker 5: Yeah, and it seems a bit like memes stock type stuff. 497 00:22:51,000 --> 00:22:53,080 Speaker 5: So I think your mem stock, however you pronounce it. 498 00:22:53,800 --> 00:22:56,040 Speaker 5: But I think those things start pulling back a little bit, 499 00:22:56,080 --> 00:22:57,400 Speaker 5: the overall market can do well. 500 00:22:57,520 --> 00:22:59,439 Speaker 1: I think credit's fine. I think credit's very good. 501 00:22:59,520 --> 00:23:02,560 Speaker 5: I do think, separate from everything else, people should be 502 00:23:02,600 --> 00:23:05,640 Speaker 5: allocating more to whether it's credit in terms of munis 503 00:23:05,920 --> 00:23:09,280 Speaker 5: agency debt, corporate debt than treasuries. I think if you're 504 00:23:09,400 --> 00:23:12,200 Speaker 5: running a big bond portfolio, I like the extra spread 505 00:23:12,240 --> 00:23:15,679 Speaker 5: that you're getting and you have technically better governance at 506 00:23:15,720 --> 00:23:16,800 Speaker 5: these entities than now you. 507 00:23:16,800 --> 00:23:17,440 Speaker 1: Do out of DC. 508 00:23:17,880 --> 00:23:20,120 Speaker 2: Interesting, you're gonna stick with us. That raised the question 509 00:23:20,160 --> 00:23:22,560 Speaker 2: about treasuries will hit a little bit later. From the program, 510 00:23:22,560 --> 00:23:35,560 Speaker 2: Pitt chair of Academy Securities, former n WIYE FED president 511 00:23:35,920 --> 00:23:39,000 Speaker 2: Bill Dudley is saying another bank rum could happen. Right 512 00:23:39,080 --> 00:23:42,560 Speaker 2: in this regulators have been focused primarily on increasing loss 513 00:23:42,600 --> 00:23:46,359 Speaker 2: absorbing capital at the largest US financial institutions. Much less 514 00:23:46,359 --> 00:23:49,680 Speaker 2: attention has been paid to the problem that precipitated last 515 00:23:49,720 --> 00:23:55,040 Speaker 2: Springs banking crisis, vulnerability to sudden depositor withdrawals. A place 516 00:23:55,080 --> 00:23:57,000 Speaker 2: to say that Bill is now with us for more. 517 00:23:57,040 --> 00:23:58,520 Speaker 2: So Bill, let's start there and then we can sort 518 00:23:58,520 --> 00:24:01,600 Speaker 2: of lean into monitoring policy as the conversation progresses. Let's 519 00:24:01,600 --> 00:24:04,520 Speaker 2: start with the stress of the Spring of twenty twenty three, 520 00:24:04,880 --> 00:24:08,200 Speaker 2: twelve months ago. What was behind that and what haven't 521 00:24:08,240 --> 00:24:09,680 Speaker 2: we done to address it? 522 00:24:10,800 --> 00:24:12,960 Speaker 6: Well, the problem was that one bank, Silicon Valley Bank, 523 00:24:12,960 --> 00:24:15,680 Speaker 6: which was very poorly managed, failed, But the problem was 524 00:24:15,760 --> 00:24:18,360 Speaker 6: the contagent that's then generated a whole bunch of other banks. 525 00:24:18,600 --> 00:24:20,639 Speaker 6: And what we saw at the time was that the 526 00:24:20,720 --> 00:24:24,080 Speaker 6: positive outflows were much faster than anyone had anticipated. 527 00:24:24,080 --> 00:24:25,920 Speaker 7: Its most rapid. 528 00:24:25,600 --> 00:24:27,639 Speaker 6: Demise of a bank that we've ever seen in terms 529 00:24:27,640 --> 00:24:30,239 Speaker 6: of money going out the door. The regulators have been 530 00:24:30,240 --> 00:24:32,680 Speaker 6: focusing on increasing capital on the biggest banks. They have 531 00:24:32,800 --> 00:24:35,400 Speaker 6: not been focusing on how to deal with that contagent problem. 532 00:24:35,720 --> 00:24:38,800 Speaker 6: We need to really build up the FED slender of 533 00:24:38,880 --> 00:24:42,000 Speaker 6: last resort functions so it's credible to unsure depositors so 534 00:24:42,040 --> 00:24:44,280 Speaker 6: they don't run. And one way to do that is 535 00:24:44,320 --> 00:24:47,040 Speaker 6: to require banks to pledge claudel to the window, to 536 00:24:47,040 --> 00:24:49,840 Speaker 6: the disco window of the FED, equal to all their 537 00:24:49,880 --> 00:24:50,840 Speaker 6: runnable liabilities. 538 00:24:50,880 --> 00:24:53,520 Speaker 7: So if undersure the polsers know that's the case, they 539 00:24:53,560 --> 00:24:55,000 Speaker 7: don't really have a reason to run. 540 00:24:55,160 --> 00:24:57,520 Speaker 6: It's a contagion issue that I think which was so 541 00:24:57,800 --> 00:24:59,600 Speaker 6: striking and powerful that we need to address. 542 00:25:00,119 --> 00:25:01,399 Speaker 7: That was evident last March. 543 00:25:01,680 --> 00:25:03,879 Speaker 2: Don't you think the keys to answer that question though 544 00:25:04,000 --> 00:25:05,959 Speaker 2: at the FED or they have sweat. I'm thinking more 545 00:25:06,000 --> 00:25:08,600 Speaker 2: about depositive insurance. Is that something we need to change 546 00:25:08,600 --> 00:25:09,960 Speaker 2: and maybe changed quickly. 547 00:25:11,160 --> 00:25:13,480 Speaker 6: Well, you could raise deposit insurance, but that's the first 548 00:25:13,480 --> 00:25:15,399 Speaker 6: of all going to require congressional legislation. 549 00:25:15,880 --> 00:25:17,360 Speaker 7: The other problem with deposit. 550 00:25:17,040 --> 00:25:20,359 Speaker 6: Insurance raising is is It basically increases what caud is 551 00:25:20,400 --> 00:25:21,119 Speaker 6: called moral hazard. 552 00:25:21,160 --> 00:25:23,199 Speaker 7: People are going to be less careful. You know, we 553 00:25:23,240 --> 00:25:24,000 Speaker 7: saw during. 554 00:25:23,760 --> 00:25:27,000 Speaker 6: This S and L crisis that banks, you know s 555 00:25:27,080 --> 00:25:29,480 Speaker 6: andls with lots of insured deposits go out and takes 556 00:25:29,560 --> 00:25:31,000 Speaker 6: lots lots of crazy risks. 557 00:25:31,160 --> 00:25:32,760 Speaker 7: So I think the addressing. 558 00:25:32,400 --> 00:25:34,520 Speaker 6: Contagens through the window last resort function, I think is 559 00:25:34,520 --> 00:25:36,840 Speaker 6: a better way to go to guard against that kind 560 00:25:36,880 --> 00:25:37,440 Speaker 6: of risk taking. 561 00:25:38,640 --> 00:25:40,760 Speaker 5: Yeah, my question, I guess would be, well, the FED 562 00:25:40,840 --> 00:25:43,800 Speaker 5: is somewhat reactionary. My sense is they are much they 563 00:25:43,880 --> 00:25:45,560 Speaker 5: learned from two thousand and seven two thousand and eight 564 00:25:45,600 --> 00:25:48,880 Speaker 5: to act more aggressively, much more quickly. Does that kind 565 00:25:48,920 --> 00:25:50,880 Speaker 5: of fix the problem or should there be more being 566 00:25:50,960 --> 00:25:52,280 Speaker 5: done preemptively. 567 00:25:53,760 --> 00:25:54,640 Speaker 7: I like to fix. 568 00:25:54,440 --> 00:25:56,720 Speaker 6: Problems excellent, rather than after the fact that we saw 569 00:25:56,760 --> 00:26:01,160 Speaker 6: a very awkward result in March twenty twenty three when 570 00:26:01,560 --> 00:26:04,280 Speaker 6: we had this issue of the systemic risk exception that 571 00:26:04,320 --> 00:26:07,440 Speaker 6: could only be voked after a bank failed. 572 00:26:07,119 --> 00:26:08,520 Speaker 7: To ensure all the depositors. 573 00:26:08,960 --> 00:26:11,800 Speaker 6: So the Janney Yellen and Jay Power are basically saying 574 00:26:11,840 --> 00:26:14,120 Speaker 6: the banks are strong and resilient, but they couldn't actually 575 00:26:14,720 --> 00:26:18,440 Speaker 6: guarantee that all bank, all deposits would be insured because 576 00:26:18,480 --> 00:26:21,000 Speaker 6: it only can be invoked after a bank fails, and. 577 00:26:20,960 --> 00:26:22,520 Speaker 7: Only on a case by case basis. 578 00:26:22,840 --> 00:26:26,440 Speaker 6: This is a way of reassuring people that Solvment Bank 579 00:26:26,800 --> 00:26:28,120 Speaker 6: is not going to be subject to. 580 00:26:28,640 --> 00:26:30,040 Speaker 7: Run that deplete its cash. 581 00:26:30,440 --> 00:26:32,800 Speaker 6: You know, basically reads who right people run is it's 582 00:26:32,880 --> 00:26:35,680 Speaker 6: very inexpensive to run. It doesn't cost very much to run, 583 00:26:36,040 --> 00:26:38,199 Speaker 6: and you really run if there's some risks that. 584 00:26:38,200 --> 00:26:39,720 Speaker 7: You're not going to be paid off. 585 00:26:39,720 --> 00:26:41,960 Speaker 6: Banks have enough collateral pledge to the window to cover 586 00:26:42,000 --> 00:26:44,120 Speaker 6: all their runable deposits and there's no reason to run, 587 00:26:44,119 --> 00:26:44,880 Speaker 6: and you serve. 588 00:26:46,280 --> 00:26:48,600 Speaker 7: Damp and down the risk of containing right at the start. 589 00:26:49,119 --> 00:26:49,760 Speaker 1: Has there any risk? 590 00:26:49,800 --> 00:26:51,439 Speaker 5: We've pushed a little bit too far in terms of 591 00:26:51,440 --> 00:26:54,080 Speaker 5: some of the regulations where we're forcing banks to have 592 00:26:54,119 --> 00:26:56,159 Speaker 5: more and more treasuries, which did cast some of the 593 00:26:56,200 --> 00:26:59,000 Speaker 5: problems in Silicon Valley Bank, but it's also really turned 594 00:26:59,000 --> 00:27:01,520 Speaker 5: the private credit into three around where that's where more 595 00:27:01,520 --> 00:27:03,399 Speaker 5: and more people are turning to as banks are somewhat 596 00:27:03,440 --> 00:27:07,760 Speaker 5: restricted or uncomfortable with the current regulations. 597 00:27:07,800 --> 00:27:09,920 Speaker 7: Well, you're on a very important point. 598 00:27:10,000 --> 00:27:11,439 Speaker 6: One way you could respond to what you saw in 599 00:27:11,440 --> 00:27:14,320 Speaker 6: March of twenty twenty three is dramatically raise the liquidity 600 00:27:14,359 --> 00:27:16,760 Speaker 6: buffers that banks have to hold. But if you do that, 601 00:27:16,840 --> 00:27:19,400 Speaker 6: then they have to hold a lot more securities, can 602 00:27:19,440 --> 00:27:21,800 Speaker 6: make less loans, they become less like banks. They can't 603 00:27:21,800 --> 00:27:26,280 Speaker 6: perform their intermedion interreachion role. So I think, you know, 604 00:27:26,600 --> 00:27:28,840 Speaker 6: piling on more and more regulation on banks it's not 605 00:27:28,880 --> 00:27:32,000 Speaker 6: really the way to go because it makes banks less competitive. 606 00:27:32,040 --> 00:27:36,040 Speaker 7: As you noted with the non bank financial sector Bell. 607 00:27:35,960 --> 00:27:40,159 Speaker 4: The deregulation of twenty eighteen have a meaningful impact on 608 00:27:40,200 --> 00:27:41,520 Speaker 4: the failure of the likes of SVB. 609 00:27:43,400 --> 00:27:47,040 Speaker 6: Well, if SVB would have been much tightly more tightly regulated, 610 00:27:47,040 --> 00:27:49,360 Speaker 6: if you had had the rollback in terms of the size, 611 00:27:49,480 --> 00:27:52,520 Speaker 6: you know, the acid size, where you were subject to 612 00:27:52,520 --> 00:27:54,159 Speaker 6: tougher prudential regulations. 613 00:27:54,200 --> 00:27:55,159 Speaker 7: So that contributed. 614 00:27:55,560 --> 00:27:57,840 Speaker 6: But I think the big surprise to people was how 615 00:27:57,880 --> 00:28:01,440 Speaker 6: fast this all happened. You know, it's taken in several 616 00:28:01,440 --> 00:28:03,800 Speaker 6: weeks for a bank to go from trouble to actually fail. 617 00:28:04,160 --> 00:28:05,560 Speaker 7: To look on Valley Bank, it was a couple of 618 00:28:05,600 --> 00:28:06,800 Speaker 7: days and they were gone. 619 00:28:07,000 --> 00:28:09,160 Speaker 2: Bill, let's do a sprinkill of monetary policy as well. 620 00:28:09,520 --> 00:28:11,359 Speaker 2: Add that to the recipe. Can I talk to you 621 00:28:11,440 --> 00:28:14,240 Speaker 2: about everything else, because we're talking about bank crisis, and 622 00:28:14,280 --> 00:28:16,240 Speaker 2: I'm just seeing equity markets at all time highs and 623 00:28:16,240 --> 00:28:18,639 Speaker 2: credit spreads and MOTIEA tights. How do you think this 624 00:28:18,800 --> 00:28:22,080 Speaker 2: FMC is thinking about what's happening with financial conditions beyond 625 00:28:22,119 --> 00:28:24,280 Speaker 2: just what they look at looking at equity markets, looking 626 00:28:24,320 --> 00:28:26,359 Speaker 2: at high yield spreads. Because when you hear the chairman 627 00:28:26,440 --> 00:28:29,560 Speaker 2: talk about financial conditions, he says they're tight. When you 628 00:28:29,600 --> 00:28:32,600 Speaker 2: hear market participants talk about them, Bill, they say something else. 629 00:28:34,640 --> 00:28:36,920 Speaker 6: I was surprised by his answer at the press conference 630 00:28:36,920 --> 00:28:39,400 Speaker 6: to the question about financial conditions. He didn't you really 631 00:28:39,560 --> 00:28:42,120 Speaker 6: didn't really want to talk about financial conditions, where in 632 00:28:42,160 --> 00:28:45,000 Speaker 6: the past he's talked about financial positions a lot, and 633 00:28:45,040 --> 00:28:47,640 Speaker 6: he actually implied that the financial divisions were still tight. 634 00:28:47,800 --> 00:28:50,960 Speaker 7: I don't see that stock market's up very dramatically. Credit spreads, 635 00:28:50,960 --> 00:28:53,200 Speaker 7: their narrow bondils are down, mortgan rates are down. 636 00:28:53,960 --> 00:28:56,640 Speaker 6: Since the end of October, we've had a dramatic eating 637 00:28:56,640 --> 00:28:57,719 Speaker 6: and financial conditions. 638 00:28:57,840 --> 00:28:58,560 Speaker 7: So right now there's a. 639 00:28:58,560 --> 00:29:01,000 Speaker 6: Bit of a battle going on the long legs of 640 00:29:01,040 --> 00:29:02,600 Speaker 6: monetary policy versus the. 641 00:29:02,520 --> 00:29:03,880 Speaker 7: Easing of financial conditions. 642 00:29:03,880 --> 00:29:06,040 Speaker 6: And you know, if you're trying to figure out what 643 00:29:06,040 --> 00:29:07,880 Speaker 6: the impulse of Madre policy right now is you have 644 00:29:07,920 --> 00:29:08,520 Speaker 6: to figure out. 645 00:29:08,360 --> 00:29:10,320 Speaker 7: What the balance is between those two things. 646 00:29:10,880 --> 00:29:13,960 Speaker 6: My personal opinion is Madre policy is not really exerting 647 00:29:13,960 --> 00:29:16,480 Speaker 6: that much restraint on the economy, and that's why the 648 00:29:16,480 --> 00:29:19,240 Speaker 6: Fed has been on this path of being having to 649 00:29:19,240 --> 00:29:23,520 Speaker 6: stay higher for longer. And you know, I think another 650 00:29:23,560 --> 00:29:25,640 Speaker 6: aspect of it is that you know, so called our 651 00:29:25,720 --> 00:29:28,239 Speaker 6: star and the neutral mandreary policy rates probably higher than 652 00:29:28,280 --> 00:29:31,000 Speaker 6: what the Fed officials are assuming. It's very interesting to 653 00:29:31,000 --> 00:29:32,880 Speaker 6: me is the FED thinks that the fund federal fund 654 00:29:32,960 --> 00:29:34,040 Speaker 6: rates is going to go all the way back to 655 00:29:34,040 --> 00:29:35,000 Speaker 6: two point six percent. 656 00:29:35,080 --> 00:29:37,000 Speaker 7: That's their ready rejection in the long run. 657 00:29:37,160 --> 00:29:39,200 Speaker 6: But if you look at the market expectations of where 658 00:29:39,280 --> 00:29:41,120 Speaker 6: interest rates are going to go, they have them coming 659 00:29:41,160 --> 00:29:41,400 Speaker 6: down to. 660 00:29:41,400 --> 00:29:42,760 Speaker 7: About three point six percent. 661 00:29:42,880 --> 00:29:44,880 Speaker 6: So the one hundred basic point gap between the where 662 00:29:44,920 --> 00:29:46,920 Speaker 6: the market thinks the Fed is heading and where the 663 00:29:46,920 --> 00:29:47,840 Speaker 6: Fed things that are sitting. 664 00:29:48,120 --> 00:29:50,400 Speaker 7: And in this case, the Fed is actually a lot more. 665 00:29:50,240 --> 00:29:52,680 Speaker 6: Optimistic about the scope for rate cuts over the next 666 00:29:52,680 --> 00:29:53,160 Speaker 6: few years. 667 00:29:53,280 --> 00:29:56,240 Speaker 2: Yep. Three six in climate, some people talking about four bill. 668 00:29:56,280 --> 00:29:58,160 Speaker 2: This is wonderful. Thank you to a great pace on 669 00:29:58,240 --> 00:30:02,200 Speaker 2: Bloomberg Opinion today and on the Bloomberg Terminal. This is 670 00:30:02,240 --> 00:30:06,600 Speaker 2: the Bloomberg Surveillance podcast, bringing you the best in markets, economics, 671 00:30:06,600 --> 00:30:09,560 Speaker 2: angio politics. You can watch the show live on Bloomberg 672 00:30:09,600 --> 00:30:12,760 Speaker 2: TV weekday mornings from six am to nine am Eastern. 673 00:30:13,040 --> 00:30:16,400 Speaker 2: Subscribe to the podcast on Apple, Spotify, or anywhere else 674 00:30:16,440 --> 00:30:19,080 Speaker 2: you listen, and as always, on the Bloomberg Terminal and 675 00:30:19,160 --> 00:30:20,400 Speaker 2: the Bloomberg Business app.