Speaker 1: Welcome to the Bloomberg Penel podcast. I'm Paul swing you
Speaker 1: along with my co host Lisa Brahma Waits. Each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money. Whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. You know, when Amazon bought Whole
Speaker 1: Foods for I think fourteen or fifteen billion dollars, I
Speaker 1: thought to myself at the time, why would they want
Speaker 1: to get into the grocery business. It's a low margin,
Speaker 1: highly intensely competitive business. Why would they want to, you know,
Speaker 1: kind of get away from their cool tech and home
Speaker 1: delivery and all that kind of stuff. But they're there.
Speaker 1: They are sticking with it, and I think they're actually
Speaker 1: increasing their investments and that's forcing the industry, the supermarket industry,
Speaker 1: to respond with their own technology. Matthew Boyle, us retail
Speaker 1: reporter for Bloomberg News, joins us live here in the
Speaker 1: Bloomberg and Director Broker studio to help us break it down. So, Matthew,
Speaker 1: give us a sense of what the supermarket industry is
Speaker 1: doing to try to fend off or compete with Amazon. Uh, well,
Speaker 1: they need to do something. I mean, they're in a
Speaker 1: war of attrition right now and they're losing. And I'm
Speaker 1: talking about traditional supermarkets. You know, um places like Kroger,
Speaker 1: which just earlier this year had to throw out their
Speaker 1: long term guidance because they couldn't get a story remodel. Right,
Speaker 1: So you're talking about traditional supermarkets that are getting squeezed,
Speaker 1: and not just by Amazon, by companies like all the
Speaker 1: this German import which is very deep discount what they
Speaker 1: call hard discounters, where it's a lot of store brands
Speaker 1: and a very spartan store experience. But people don't mind
Speaker 1: if you've give them what they want at a price
Speaker 1: you know, that's affordable. They don't need a lot of
Speaker 1: the bells and whistles. So the grocers are kind of
Speaker 1: getting it from all sides. The traditional grocery stores. They
Speaker 1: need to think differently, and so they're looking to technology,
Speaker 1: some of which Amazon is has already adopted or is
Speaker 1: adopting as ways to not just you know, make shoppers
Speaker 1: go wow, look at all these funky bells and whistles,
Speaker 1: but just to sort of get the basics right and
Speaker 1: solve some operational problems that will hopefully lift those margins
Speaker 1: that you mentioned that are always a razor thing. You
Speaker 1: also suggested that perhaps they could hide under a desk
Speaker 1: in the fetal position, but that might not be the
Speaker 1: best business Other industries have industries have done that, and uh,
Speaker 1: you know, it is a business model that has been adapted,
Speaker 1: not necessarily successfully. One statistic in your story that I
Speaker 1: thought was really compelling was that food retailers globally lose
Speaker 1: about three billion dollars a year due to items being
Speaker 1: out of stock. Is this the type of technological challenge
Speaker 1: that could just be fixed by having the right program
Speaker 1: that understands what you have. I mean, I don't want
Speaker 1: to say fixed, but it will certainly help. I mean,
Speaker 1: what is easier? You know you've got these days you
Speaker 1: have to hire people to literally walk down the aisles.
Speaker 1: It could take hours and take them away from other tasks,
Speaker 1: let's say, like filling an online order and getting that
Speaker 1: out to a shopper and doing something more value added.
Speaker 1: These robots that we talk about in the story that
Speaker 1: just sort of meander up and down the aisles checking
Speaker 1: for out of stocks, for missing items in the company.
Speaker 1: I spoke to a Giant Eagle, which is, you know,
Speaker 1: a great Pittsburgh, Midwestern based retailer. Uh. They saw a
Speaker 1: twenty one percent reduction in out of stocks in the
Speaker 1: one store where they've had this robot the longest I
Speaker 1: gotta say in this, in this technological revolution that we're in,
Speaker 1: the problems that people are discovering, and the solutions stock
Speaker 1: the shelves. Yeah, I mean literally it's you know, how
Speaker 1: much how much money and how much time can it
Speaker 1: be just put into the idea of better Yeah, exactly. So,
Speaker 1: Matthew Canney, I'm thinking about, you know, walking down the
Speaker 1: aisle of a supermarket and seeing that worker with the
Speaker 1: kind of the price gun. Do you know kind of
Speaker 1: are those days can you do that one more time?
Speaker 1: That sound? Did you? Are those days still with us?
Speaker 1: Things like which I didn't even write about, But those
Speaker 1: robots we mentioned, if you add electronic shelf labels or
Speaker 1: electronic shelf tags to replace the sticker gun, um, that
Speaker 1: can that will benefit even more so the use of
Speaker 1: those shelf stocking robots when you just have electronic shelf X.
Speaker 1: So there's a lot of them, but again it's slow adoption.
Speaker 1: A big problem here is that the grocers are very
Speaker 1: risk averse. They want to do, you know, what their
Speaker 1: dad did, their grandfather did. This is the way we've
Speaker 1: always run this store. Um, you know, this is what's
Speaker 1: worked in the past. But they again, they're starting to
Speaker 1: get a little bit more adventurous here. It's more than that, though.
Speaker 1: I mean a lot of these companies operate on pretty
Speaker 1: small margins, right. Uh, this is not a get rich
Speaker 1: quick kind of business, and you have to make investment
Speaker 1: in order to succeed against the Walmarts of the world
Speaker 1: or the Amazons of the world. So can you sort
Speaker 1: of give us a sense of how they're doing it,
Speaker 1: how they're investing, if they're able to invest given the
Speaker 1: overhang of their little Exactly, you're rightly, this is not
Speaker 1: get rich quick, this is not die. This is don't
Speaker 1: go away, don't become the next year's So they're making
Speaker 1: investments that exactly you know, they have to make. But
Speaker 1: a the same time, look at Walmart, they're they're also
Speaker 1: paying all of their workers more. You know, they've had
Speaker 1: to increase just their starting minimum wage and in many
Speaker 1: cities New York included. You know, if you're talking about
Speaker 1: a fifteen dollar minim waves. So they are making investments
Speaker 1: in their people, but these investments in technology, which are
Speaker 1: increasing what they will not make them though if they
Speaker 1: don't get a clear return on investment. That's why a
Speaker 1: lot of what we're seeing just now is just pilots,
Speaker 1: a couple of stores here, twenty stores there, figure out
Speaker 1: what's working tweak it. So we're not going to see
Speaker 1: wide scale universal adoption of a lot of these technologies
Speaker 1: for probably years, and there have been technologies over the
Speaker 1: past five years that we thought we're going to change
Speaker 1: the way we shopped, and they haven't because it was
Speaker 1: a lot of g whiz stuff that didn't really provide
Speaker 1: an r O. I. So Amazon again, they I call
Speaker 1: it dipping their toe with this Whole Foods acquisition, dipping
Speaker 1: their toe into the supermarket business. Is there any sense
Speaker 1: that they're gonna maybe do more than dip their toe. Yeah,
Speaker 1: I think we've got a foot in there now. It's
Speaker 1: more than a toe, given you know, it's started with
Speaker 1: Whole Foods, of course, but just in recent weeks we've
Speaker 1: had a lot of news from them. They are going
Speaker 1: to open a traditional, more traditional, lower priced than Whole
Speaker 1: foods Uh grocery chain. Starting in l A. They have
Speaker 1: slashed or eliminated the additional fee that they charge for
Speaker 1: their prime customers to do Amazon Fresh, which is their
Speaker 1: online service, essentially saying, if you're a Prime customer, now
Speaker 1: the food delivery is free, just as the streaming video
Speaker 1: is free. So and they're also planning to take their
Speaker 1: Amazon Go technology, the cashier list stores we all have
Speaker 1: heard about, and bring that to bigger stores rather than
Speaker 1: the tiny ones. What's that smell? It's the smell of
Speaker 1: burning cash. I mean, I'm listening to you speak. Where
Speaker 1: is the make money part? Well? For Amazon, you know
Speaker 1: they're making money off the cloud and advertising. Yeah, so
Speaker 1: that's why again we're seeing very selected small pilots. But
Speaker 1: with the things like the shelf scanning robots don't look
Speaker 1: at it of out of stocks, that's such jargon e term.
Speaker 1: Think of it as lost sales. If the honey bear
Speaker 1: isn't there on the shelf, you're not getting that sale
Speaker 1: of honey If it is there, If the robot tells
Speaker 1: you it's not there, get you know, get somebody to
Speaker 1: get it in the back. You have now gained a sale.
Speaker 1: That is a sale that is profits certainly, so that
Speaker 1: is what will help these I certainly, rather than all
Speaker 1: these fancy terms like AI and VR and stuff like that.
Speaker 1: If the money bear ain't there, the honey bear ain't there.
Speaker 1: Here's the revelation for you. I actually enjoy food shopping.
Speaker 1: But I have to tell you this. If there was
Speaker 1: an app to say, hey, where is the honey bear? Oh,
Speaker 1: it's all three road to you know, ten steps that
Speaker 1: I actually looking. Most good retailers will do that. If
Speaker 1: you have their shopping app and you walk in and
Speaker 1: a lot of them will allow you to upload your
Speaker 1: shopping list. There will be a map overlaid. It'll know
Speaker 1: where your location is, and I will say, the honey
Speaker 1: bear is here. Um. You know that's what really screws
Speaker 1: people up. When a store gets remodeled, people are suddenly saying,
Speaker 1: where's the honey bear? I will say. One thing I
Speaker 1: think would be really cool being app showing the expiration
Speaker 1: dates of different things. So that's a totally different topic.
Speaker 1: You know, the sell by used by that's we'll have
Speaker 1: to continue that. We'll have to have a full show
Speaker 1: on the sell by and used by dates. Matthew Boyle,
Speaker 1: thank you so much for being with us. That was
Speaker 1: a great story. Matt Boyle, as the US retail reporter
Speaker 1: for Bloomberg News, joining us here in our interactive broker studios.
Speaker 1: Really interesting revolution under way in the groceries, not where
Speaker 1: the industry can keep up. Boy US shopper spent a
Speaker 1: record at nine point two billion dollars on Cyber Monday.
Speaker 1: That's sevent more than last year. It added to a
Speaker 1: robust Black Friday. So it seems like the consumer is
Speaker 1: in good shape as we head into the thick of
Speaker 1: the holiday sales. To get more color, we welcome Christian Magoon.
Speaker 1: Christian is a chief executive officers Amplify e t S
Speaker 1: with over seven hundred fifty million dollars and under management
Speaker 1: based in Colorado Springs. Christian, thanks so much for joining us.
Speaker 1: So it seems like the consumer is out there spending
Speaker 1: for the holidays. Yeah, Paul, has been definitely a very
Speaker 1: good start to the season. Um, We've likely to see
Speaker 1: record holiday shopping. Um. You know, some forecasts believe that
Speaker 1: this year will grow about four percent overall and holiday
Speaker 1: shopping and actually go from about a nine hundred and
Speaker 1: seventy billion dollar season last year to a trillion dollars
Speaker 1: season this year, so very exciting. I think, you know,
Speaker 1: fifty year unemployment, steady wage growth are really helping the
Speaker 1: consumer be confident. Here. Of course, the big area of
Speaker 1: growth has been online retail. UM. Well, total sales maybe
Speaker 1: up about four percent. Online retail is trending up maybe
Speaker 1: fifteen to sixteen percent. So that's going to be the
Speaker 1: sweet spot for investors and we think for those looking
Speaker 1: for to kind of ride this retail trend, both you know,
Speaker 1: for growth, but also for kind of the trend of
Speaker 1: going online versus in store. Christian, I'm looking right now
Speaker 1: at the holdings of I Buy, which is the e
Speaker 1: t F that you run, uh with about two billion
Speaker 1: dollars of assets over under management. I'm just looking. Hell,
Speaker 1: let's one is that is that a retail stock that's
Speaker 1: your top holding according to this That's right, So it's
Speaker 1: a newly added member of the e t F. And
Speaker 1: really the criteria, Lisa, is that a company has to
Speaker 1: have seventy or more of their revenue coming from online sales.
Speaker 1: And Peloton fits that that criteria. Um, you know, most
Speaker 1: people think of Amazon as being you know, kind of
Speaker 1: the primary online retailer, but you know, Amazon is just
Speaker 1: one of many. We've actually had more performance in alpha
Speaker 1: generated in the last year from companies like Carbona, Shopify,
Speaker 1: v I P Shop, all those companies up between a
Speaker 1: hundred and thirty and a hundred this year. UM. You know,
Speaker 1: I buy is unique from an online retail ETF because
Speaker 1: it is not market cap weighted. It's equal weighted UM
Speaker 1: and we do have that revenue test, so we think
Speaker 1: that you're getting access to a lot of unique names
Speaker 1: that maybe don't necessarily know. I think Peloton is one
Speaker 1: that people know right now, but the carbon is of
Speaker 1: the world, v I P Shop, Okado, those name tims
Speaker 1: to have a nice impact and have been an alpha
Speaker 1: driver for the fund, which is a five star rated
Speaker 1: morning Star fund in the number one performer in the
Speaker 1: consumer cyclical category over the last three years. I will
Speaker 1: just say, Paul, it's interesting to see what retail online
Speaker 1: retail consists of. It consists of food and getting cars
Speaker 1: to take to places, right, I mean, it's it's grub Hub,
Speaker 1: it's getting lift uber and then and then when you
Speaker 1: feel really guilty about not moving around, you go bike
Speaker 1: and covered. Hey, Christian, so I know there's one less
Speaker 1: shopping week here for this holiday period relatutil last year.
Speaker 1: What kind of risk is that for some of these
Speaker 1: retailers and some of the ETFs that track them. Yeah,
Speaker 1: it definitely is a risk. I mean, we're six days
Speaker 1: less because the holiday shopping season started later, with Thanksgiving
Speaker 1: being six days later than last year. So you know,
Speaker 1: one risk is bad weather, frankly, because we have a
Speaker 1: compressed time period, and we've actually now seen that a
Speaker 1: little bit on Black Friday and Cyber Monday. Thank you
Speaker 1: guys experienced it yesterday a little bit. And the interesting
Speaker 1: stat we're seeing from Adobe Analytics, which tracks the hundred
Speaker 1: largest online retailers, is that uh, states that had bad
Speaker 1: weather two inches or more of snow solid uptick and
Speaker 1: online retail sales by between uh you know, seven and
Speaker 1: nine per cent. So we're seeing that, um, you know,
Speaker 1: brick and mortar kind of face this headline risk of
Speaker 1: bad weather where people stay in, but it actually turns
Speaker 1: into a tail wind for online retailers. Um. Also, you know,
Speaker 1: this this trade issue is definitely something that could impact
Speaker 1: some consumer confidence. In the last four months, we've seen
Speaker 1: it trending downward, still in a very healthy range, but
Speaker 1: it's something to watch, particularly as we've heard President Trump
Speaker 1: back away from maybe the urgency of doing a trade
Speaker 1: deal here by the end of the year. Christian, you
Speaker 1: talked about the good performance of I Buy over the
Speaker 1: past three years, and certainly the shares of stocks that
Speaker 1: you have, the shares of companies that you have in
Speaker 1: your portfolio have done very well, the likes of Expedia
Speaker 1: or let's see lift Uber Netflix, That however, is getting
Speaker 1: called into question now because of how high the valuations
Speaker 1: are and this question of yes, this is the new model,
Speaker 1: but perhaps there has been too much capital put into
Speaker 1: these particular companies. How do you respond to the valuation questions. Well,
Speaker 1: it's definitely a challenge because when you look at maybe
Speaker 1: the counterparts of brick and mortar, they have very low valuations,
Speaker 1: but of course there's the risk they're going out of business.
Speaker 1: So when we look at the valuations of these growth companies,
Speaker 1: you know, their PEG ratios are we think are still attractive.
Speaker 1: You know, right now there's still about eleven percent market
Speaker 1: share of online retail as opposed to all retail sales
Speaker 1: in the US, uh in China, for example, that's over
Speaker 1: market share. We think many of these companies are going
Speaker 1: to double or triple their market share or their sales
Speaker 1: over the next three to five years as online retail
Speaker 1: starts to continues to emerge. Right now, going back to
Speaker 1: online retail has gone about an average compounded annual growth rate.
Speaker 1: So when we look at these companies, we actually think
Speaker 1: that over the next three to five years, if they
Speaker 1: double or triple their their sales, that these these valuations
Speaker 1: will actually look potentially like values. Um. We just think
Speaker 1: this trend is going to continue. More and more consumers
Speaker 1: are going to trust going online, whether that's through mobile
Speaker 1: payments or the convenience, the competitive pricing, or the or
Speaker 1: the increased selection. So we think this is a global
Speaker 1: trend that investors can capitalize. And you know, since the
Speaker 1: fund has been out, it's returned about over the last
Speaker 1: three and a half years versus the SMP at about
Speaker 1: fift so it's definitely been a place for Elphin. We
Speaker 1: think that's going to continue. Christian mgoon, thank you so
Speaker 1: much for being with us. Christian mcgoon, chief executive officer
Speaker 1: of Amplify E t F. It's all about trade today.
Speaker 1: That's what's thinking at stocks. At least if you trust
Speaker 1: the price action in responds to certain headlines President Trump
Speaker 1: coming out and saying, who knows, Maybe we'll make a deal,
Speaker 1: maybe we won't, maybe we don't need to make a
Speaker 1: deal before election, and I'll push it back after that.
Speaker 1: You're seeing the nastack down one point two percent. Also,
Speaker 1: now we're hearing about taxes on porcelain and French wine,
Speaker 1: and she's joining us on to discuss all things trade.
Speaker 1: Brendan Murray, who covers the entire area for US here
Speaker 1: at Bloomberg News, Brendan, can you just paint a scene
Speaker 1: here on what was driving the escalation that seems to
Speaker 1: be coming to a ford in some ways? Today the
Speaker 1: President and his advisors say that we're inching closer and
Speaker 1: closer to a deal with China, uh, making it sound
Speaker 1: like something was imminent and they were going to meet
Speaker 1: meet this uh sort of a deadline of December fift
Speaker 1: before the U s raises more tariffs on Chinese imports.
Speaker 1: And yet the President today kind of stepped back and said, Uh,
Speaker 1: you know, I don't really have a deadline that I'd
Speaker 1: be fine if this drags out fully all the way
Speaker 1: through the election of next year. So I think the
Speaker 1: stock market reaction is definitely Uh. They were that is
Speaker 1: that investors have been thrown for a loop here, Uh,
Speaker 1: you know, thinking that they were close to a deal,
Speaker 1: but now this is something that could drag on and
Speaker 1: on for months and months. Uh you know, whether this
Speaker 1: is just a negotiating strategy on Trump's part, the idea
Speaker 1: being that you know, the closer you get to deal,
Speaker 1: the more you the more you act like you don't
Speaker 1: need it, you don't want it. Um is a whole
Speaker 1: another question that uh you know that that is still
Speaker 1: remains to be answered. But I just want to take
Speaker 1: a step away here. This has been just a tariff
Speaker 1: news cycle here over the last several days. It's not
Speaker 1: just China. Uh we had yesterday steel tariff discussions on
Speaker 1: Argentina and Brazil. Today it's French wine and cheese. You know, Historically,
Speaker 1: how effective have tariff's been and has the US been
Speaker 1: a big wielder of tariffs historically? Not in the recent past.
Speaker 1: Obviously the Trump administration changed all that. But tariffs are
Speaker 1: are fairly blunt instrument, used mainly as uh leverage in negotiation.
Speaker 1: You threaten them before you actually impose them. So the
Speaker 1: big difference that we've seen in the Trump administration is
Speaker 1: that they impose them and then they say, Okay, let's negotiate, uh,
Speaker 1: you know, if you want to, if you want us
Speaker 1: to remove them. So uh they have traditionally in the
Speaker 1: you know, in the recent in the recent past, the
Speaker 1: past few decades, you know, uh, countries have have been
Speaker 1: moving more and more to lower tariffs. Uh. You know,
Speaker 1: Trump has come in and uh you know, is using
Speaker 1: them to extract concessions from from trading partners. The interesting
Speaker 1: thing about the French uh move that you that you
Speaker 1: mentioned is that this could sort of bring the trade
Speaker 1: war into Europe as a whole. The the European Union,
Speaker 1: uh you know, uh will will have a reaction to
Speaker 1: to that on France's behalf. And you know there's a
Speaker 1: scenario that uh you know that you can see where
Speaker 1: things kind of spiral out of control in this sort
Speaker 1: of tip for tat uh way that the U. S.
Speaker 1: China trade war has evolved, that you know, we could
Speaker 1: wind up with two fairly large showdowns on you know,
Speaker 1: two huge continents for a huge economic trading partners of
Speaker 1: the US. Brendan, do you think that the headline is
Speaker 1: the US and Europe are kind of ratcheting up the
Speaker 1: tensions on both sides of the Atlantic, or do you
Speaker 1: think that the headline is it could have been so
Speaker 1: much worse and President Trump could have been going after
Speaker 1: the auto sector for example, uh in Europe. And this
Speaker 1: is sort of more a negotiating tactic all around as
Speaker 1: he tries to seem powerful heading into a couple of
Speaker 1: tough weeks. Absolutely, the car terirafs that you mentioned, that
Speaker 1: deadline for the Trump administration to act upon came and
Speaker 1: went without any action. A lot of people, uh economists
Speaker 1: and auto industry experts have said that, you know, something
Speaker 1: like that would surely uh you know send you know,
Speaker 1: some economies like Germany into recessions. Uh you know, so, Uh,
Speaker 1: there was a measure that there is a measured approach
Speaker 1: it easton that way from the Trump administration. Uh. And
Speaker 1: you know in in in reality, the two point four
Speaker 1: billion dollars UH tariffs on two point four billion dollars
Speaker 1: in French products is it's not a huge amount when
Speaker 1: you consider, uh, you know, the tens of billion dollars
Speaker 1: that the that the country's trade between themselves. Brendan, you
Speaker 1: briefly describe what the digital service taxes and why it's
Speaker 1: a big deal to the US government. So this is
Speaker 1: a three percent tax on the gross revenue of of
Speaker 1: large tech companies. Companies that make over bring in more
Speaker 1: than seven fifty million dollars in revenue a year. This
Speaker 1: hits companies like Google and Facebook and Amazon, and France
Speaker 1: has has enacted that's enacted it this year. They're trying
Speaker 1: to drive a sort of international move toward towards such attacks.
Speaker 1: Uh and and the U. S has has has come
Speaker 1: out against it, saying, if we're gonna tax, if American
Speaker 1: company is going to be taxed, the U. S. Government
Speaker 1: is going to do that, is going to do that,
Speaker 1: not the French government. So uh, you know, in some ways,
Speaker 1: you know, the Trump administration is acting, uh, you know,
Speaker 1: to to defend companies that it normally doesn't defend. Uh
Speaker 1: and and you know, and and in in this case
Speaker 1: in particular, you know, they could have gone to the
Speaker 1: w t O UH to dispute this, uh this tax.
Speaker 1: Instead they're taking the you know, the the Trump strategy
Speaker 1: of going one on one uh you know, so w
Speaker 1: t O case could drag on for years and years.
Speaker 1: So uh, this is this is the Trump administration strategy
Speaker 1: is to is to uh is to fight their own fights.
Speaker 1: Brendan Murray, thanks again so much for joining us here
Speaker 1: and bring us up to date on all things trade.
Speaker 1: Brendan covers the trade issue globally for Bloomberg News. Joinning
Speaker 1: us from London and there is a lot for Brendan
Speaker 1: and his trade team to be working on now. We
Speaker 1: have trade discussions, tariff discussions, it seems like in every
Speaker 1: corner of the world, and it's obviously has major impacts
Speaker 1: on financial markets. Rates continue to be exceptionally low. The
Speaker 1: question is, how about is it time to start looking
Speaker 1: at and what should we expect To answer that question,
Speaker 1: there's nobody better than our good friend, Ira Jersey, chief
Speaker 1: US interest rate strategist for Bloomberg Intelligence. Thanks so much
Speaker 1: for joining us. So as we think about is it
Speaker 1: still a lower rate for longer type of outlook from
Speaker 1: your perspective, Well, I think in the in the front
Speaker 1: end and policy rates I think will continue to remain
Speaker 1: kind of in the in this area. I don't think
Speaker 1: that the Fed is likely to do anything, if at
Speaker 1: all next year. Um Potentially they could, they could ease
Speaker 1: policy a little bit if things get really bad on
Speaker 1: the economic front, but I think they'll wait until after
Speaker 1: the election to kind of reassess how things are unless
Speaker 1: unless you see things like you know, negative payroll prints
Speaker 1: for example, um on on. On the on the longer
Speaker 1: term side, it's looking at like a tenure rate. I
Speaker 1: think it's pretty clear that when you get these headlines
Speaker 1: about trade, you wind up, uh, you know, rates winded
Speaker 1: rawling like today ten years down eight basis points and
Speaker 1: yield um but you know that goes away and you
Speaker 1: wind up with probably a pretty substantial sell off and
Speaker 1: you wind up with um tenure yields up closer to
Speaker 1: two and a quarter instead of where they are now.
Speaker 1: So so I think a lot of this is very
Speaker 1: predicated on uh, kind of the balance of uncertainties remaining
Speaker 1: remaining negative. But if you get rid of some of
Speaker 1: those uncertainties and you know, the market can kind of
Speaker 1: take off. Troy Gisky of Skybridge Capital is on Bloomberg
Speaker 1: Radio earlier. We were noting that, yes, the market was
Speaker 1: down ahead of the open, but not down by as
Speaker 1: much as you would expect if President Trump, say in
Speaker 1: the summer, had been saying, you know what all tariffs
Speaker 1: are ago, who knows if we're even going to get
Speaker 1: a deal this year or next year for that matter,
Speaker 1: there seems to be a buffer, and he was saying
Speaker 1: that comes in the form of the FED increasing its
Speaker 1: balance sheet about three bill million dollars since the end
Speaker 1: of August. How big of a support is that to valuations,
Speaker 1: certainly in bonds. Yeah, well, well it helps a little bit.
Speaker 1: I mean, you remember, they're buying mostly um, they're buying
Speaker 1: mostly shortened UH debts, so they're buying mainly TE bills,
Speaker 1: which you know don't have really a lot of market risks,
Speaker 1: so um. So yes, it's helpful a little bit, but
Speaker 1: it's not as meaningful as if they were going out
Speaker 1: and buying a whole lot of you know, five, ten,
Speaker 1: and thirty year bonds. But but that said, it actually
Speaker 1: dampens volatility, which is a proven risk encourager, right, I
Speaker 1: mean basically, the lower the the the volatility, the more
Speaker 1: people will be inclined to buy stocks and by jump
Speaker 1: bonds and going to risk. Well, I think I think
Speaker 1: it is a little bit more of a risk on
Speaker 1: because by buying by by buying TE bills, they're effectively
Speaker 1: increasing the UM. They're increasing bank reserves, which which does
Speaker 1: encourage some risk taking. UM. But but that's not what's
Speaker 1: helping keep ten year yields low? Right, So, so there's
Speaker 1: a difference between you know, how this might be helping
Speaker 1: risk assets versus how it might be UM supporting or
Speaker 1: not supporting things like ten year treasuries and and and
Speaker 1: the like. UM. So I think the the thing that
Speaker 1: economic fundamentals, I think matter much more to the long
Speaker 1: end of the curve. And what you see is when
Speaker 1: you see uncertainty and you see heightened uncertainty, you're gonna
Speaker 1: wind up with UM regardless of what happens to say
Speaker 1: the equity market. The equity market might go up a
Speaker 1: little bit under the idea that's going to ease, that
Speaker 1: interest rates are going to be low, and that might
Speaker 1: be supportive evaluations in some risk assets. But on the
Speaker 1: other side that the reason why that's happening is because
Speaker 1: you have the expectation for low inflation, for for low
Speaker 1: and and stable grow low but yet stable growth that
Speaker 1: will keep bond yields very low. So UM because when
Speaker 1: you look at things like really yields, so the that's
Speaker 1: the yield on on tips and and the yield that
Speaker 1: investors are demanding above inflation, you're only looking at that
Speaker 1: being ten basis points over the next ten years. So
Speaker 1: people don't think that there's going to be a lot
Speaker 1: of volatility or particularly fast growth where you would expect
Speaker 1: there to be a lot more risk in things like
Speaker 1: uh inflation and inflation expectations that you demand a higher
Speaker 1: premium for that, and you don't see that. So as
Speaker 1: long as that remains very low, which I think is
Speaker 1: what the trade tensions do, um, you're gonna wind up
Speaker 1: seeing low bond deals. But again, like that can go
Speaker 1: away in a heartbeat, and you can wind up with
Speaker 1: a fifty basis point sell off in a hurry if
Speaker 1: that uncertainty goes away. Presidential election year and your experience,
Speaker 1: has there been increased volatility or the hows the bond
Speaker 1: market typically done in presidential election years. Yeah, so so
Speaker 1: during presidential elections, the only time that you saw a
Speaker 1: major move after an election was really after Donald Trump's
Speaker 1: election in two thousands sixteen. You go back, um, you
Speaker 1: go back to the prior thirty years, so the prior
Speaker 1: six elections, and you really did not have significant market
Speaker 1: reaction one way or the other. It tended to be
Speaker 1: whatever the trend was going into that based on economic
Speaker 1: fundamentals is what continued to drive the bond market. But Steen,
Speaker 1: you know that that was a significant change, and you
Speaker 1: know this this year, maybe you could see something similar
Speaker 1: if you've got to had a candidate win that you
Speaker 1: know was going to either, uh, you know, change policy
Speaker 1: quite significantly, and you know we'd have to see who
Speaker 1: that was before you can make a guess us to
Speaker 1: which direction the bond market would move. Our Jersey. Thank
Speaker 1: you so much for being with us. Our Jersey covers
Speaker 1: all things interest rates for us as chief US interest
Speaker 1: rate strategist for Bloomberg Intelligence. Thanks for listening to the
Speaker 1: Bloomberg pen L podcast. You can subscribe and listen to
Speaker 1: interviews at Apple Podcasts or whatever podcast platform you prefer.
Speaker 1: Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa
Speaker 1: bram Woods. I'm on Twitter at Lisa bramwods one. Before
Speaker 1: the podcast, you can always catch us worldwide on Bloomberg Radio.