1 00:00:00,120 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,680 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,760 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,960 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,319 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:37,440 Speaker 2: Terminal and the Bloomberg Business app. Towston Slock of Apollo 10 00:00:37,720 --> 00:00:40,559 Speaker 2: saying ten tail winds are increasing the likelihood that the 11 00:00:40,560 --> 00:00:43,479 Speaker 2: FED will have to reverse course at its November meeting. 12 00:00:43,720 --> 00:00:47,280 Speaker 2: Ensure the no landing continues. Torson' whe us around the table, 13 00:00:47,320 --> 00:00:50,080 Speaker 2: Torston cad Mornic. When you say reverse course, do you 14 00:00:50,120 --> 00:00:51,880 Speaker 2: mean pause or start gown the other way? 15 00:00:51,960 --> 00:00:52,560 Speaker 3: I mean pause? 16 00:00:52,640 --> 00:00:55,120 Speaker 2: You mean pause? Okay, share the ten tail winds with. 17 00:00:55,160 --> 00:00:57,960 Speaker 3: Us well, So the key tail winds, of course. 18 00:00:57,720 --> 00:00:58,440 Speaker 2: Not a memory test. 19 00:00:58,520 --> 00:00:58,960 Speaker 1: Pick five. 20 00:01:00,120 --> 00:01:02,080 Speaker 3: That's a lot of things that are supported for of course, 21 00:01:02,160 --> 00:01:04,880 Speaker 3: first of all, most importantly, when the FED turn stubbage, 22 00:01:05,440 --> 00:01:07,959 Speaker 3: financial conditions begin to ease. This has been a very 23 00:01:08,000 --> 00:01:10,080 Speaker 3: strong tail in just in the last few weeks since 24 00:01:10,080 --> 00:01:13,600 Speaker 3: the September meeting. Second, of all, underline the growth outlook, 25 00:01:13,600 --> 00:01:15,880 Speaker 3: we also have the Chips Act, the Inflation of our Check, 26 00:01:15,920 --> 00:01:18,840 Speaker 3: the Infrastructure Act. Those are also very strong tailwinds that 27 00:01:18,880 --> 00:01:23,080 Speaker 3: continue to provide support to construction of manufacturing facilities. We 28 00:01:23,160 --> 00:01:25,040 Speaker 3: also have, on top of that a lot of spending 29 00:01:25,120 --> 00:01:28,319 Speaker 3: on data centers on AI. I have not met anyone 30 00:01:28,360 --> 00:01:30,040 Speaker 3: who is saying, oh, I'm not going to build a 31 00:01:30,080 --> 00:01:32,160 Speaker 3: data center because the FIT just raised race twenty five 32 00:01:32,200 --> 00:01:34,800 Speaker 3: basis points. On the contrary, this is a structural force. 33 00:01:35,040 --> 00:01:37,840 Speaker 3: It doesn't matter what interest rates are doing. At the 34 00:01:37,880 --> 00:01:40,959 Speaker 3: same time, we also have at the highest level, stock 35 00:01:41,080 --> 00:01:44,080 Speaker 3: markets are rallying, credit markets are very tight, and at 36 00:01:44,080 --> 00:01:47,680 Speaker 3: the same time, consumers are still very strong. So overall, 37 00:01:47,760 --> 00:01:50,440 Speaker 3: the tailwinds in the form of what will the outlook 38 00:01:50,480 --> 00:01:52,760 Speaker 3: look like for the next level quarters just continues to 39 00:01:52,880 --> 00:01:55,800 Speaker 3: not be surprising. Why we're getting still two hundred and 40 00:01:55,800 --> 00:01:58,760 Speaker 3: fifty four thousand jobs. Why GDP growth in the second 41 00:01:58,840 --> 00:02:01,160 Speaker 3: quarter was three percent and Atlanta VEGDPN now for the 42 00:02:01,160 --> 00:02:03,160 Speaker 3: third quarter is three point four. I mean, you really 43 00:02:03,240 --> 00:02:05,320 Speaker 3: do begin to ask the question where is to slow down? 44 00:02:05,560 --> 00:02:09,400 Speaker 3: And as we've been debating before, is monetary policy really restrictive? 45 00:02:09,720 --> 00:02:12,040 Speaker 3: If it is so restrictive, why is the economy still 46 00:02:12,040 --> 00:02:12,680 Speaker 3: doing so well. 47 00:02:12,919 --> 00:02:15,919 Speaker 2: They don't just believe it's restrictive. They believe it's sufficiently 48 00:02:16,200 --> 00:02:18,840 Speaker 2: restrictive to get inflation back down to two percent of 49 00:02:18,919 --> 00:02:20,840 Speaker 2: a certain period of time. Do you have your dance then. 50 00:02:21,160 --> 00:02:23,960 Speaker 3: True, Well, it becomes a bit of a semantics of 51 00:02:23,960 --> 00:02:25,960 Speaker 3: what exactly does it mean, because it was for a 52 00:02:25,960 --> 00:02:28,160 Speaker 3: long time the argument that when the fit funds rate 53 00:02:28,360 --> 00:02:30,880 Speaker 3: is where it is at the moment at five percent, 54 00:02:31,200 --> 00:02:33,040 Speaker 3: and if we're supposed to go to our style, which 55 00:02:33,080 --> 00:02:35,600 Speaker 3: is three percent, that must imply, if you have that 56 00:02:35,680 --> 00:02:37,919 Speaker 3: model in your mind, that we have very restricted policy. 57 00:02:38,000 --> 00:02:40,040 Speaker 3: But the incoming data across the board, if you look 58 00:02:40,080 --> 00:02:41,880 Speaker 3: at the daily data on your Bloomberg screen for how 59 00:02:41,880 --> 00:02:44,000 Speaker 3: many people go to restaurants are still very strong, how 60 00:02:44,000 --> 00:02:47,160 Speaker 3: many people flying airplanes? Daily data also very strong. Debit 61 00:02:47,200 --> 00:02:50,280 Speaker 3: card spending on my Bloomberg terminal, also daily data very strong, 62 00:02:50,480 --> 00:02:53,359 Speaker 3: weekly day for retail sales strong. The number of people 63 00:02:53,440 --> 00:02:57,720 Speaker 3: who are at the moment spending across basically most categories 64 00:02:57,720 --> 00:02:59,920 Speaker 3: of consumption as we saw in the retail sales report 65 00:03:00,080 --> 00:03:02,760 Speaker 3: week also very strong. So in that sense, it's not 66 00:03:02,800 --> 00:03:05,160 Speaker 3: even the case that there was a slowdown last week. 67 00:03:05,280 --> 00:03:07,760 Speaker 3: It's still the case that things are still chugging along 68 00:03:07,840 --> 00:03:08,359 Speaker 3: very nicely. 69 00:03:08,480 --> 00:03:11,200 Speaker 4: That said, you are seeing in surveys and talking to 70 00:03:11,280 --> 00:03:14,280 Speaker 4: different executives that they're not really planning on hiring mass 71 00:03:14,280 --> 00:03:18,240 Speaker 4: groups of people, that they're actually allowing attrition to shrink 72 00:03:18,320 --> 00:03:22,040 Speaker 4: their workforces. You are seeing signs that there is sort 73 00:03:22,040 --> 00:03:24,680 Speaker 4: of evening out in the labor front, and that seems 74 00:03:24,680 --> 00:03:26,840 Speaker 4: to be the big concern for the Federal Reserve that 75 00:03:26,880 --> 00:03:29,360 Speaker 4: sees that as a slower moving ship. Why do you 76 00:03:29,400 --> 00:03:32,800 Speaker 4: think that isn't enough to really create a landing. 77 00:03:33,040 --> 00:03:35,320 Speaker 3: Well, if you look at the Chatlender Grand and Christmas 78 00:03:35,320 --> 00:03:38,400 Speaker 3: survey of the announced job cuts, that's still very low. 79 00:03:38,480 --> 00:03:40,000 Speaker 3: This is a monst the series where they go out 80 00:03:40,000 --> 00:03:42,600 Speaker 3: and ask companies, are you're planning to do mass layoffs? 81 00:03:42,720 --> 00:03:44,280 Speaker 3: And the answer to that at the moment is there's 82 00:03:44,360 --> 00:03:47,560 Speaker 3: no increase in mass layoffs. In the dual survey, the 83 00:03:47,840 --> 00:03:50,680 Speaker 3: layoff rate, meaning the percentage of people who lose their jobs, 84 00:03:50,760 --> 00:03:53,000 Speaker 3: is at one percent. So total employment in the US 85 00:03:53,040 --> 00:03:55,040 Speaker 3: is about one hundred and sixty million people have a job, 86 00:03:55,280 --> 00:03:58,480 Speaker 3: so the layoff rate means that one percent get involuntarily 87 00:03:58,520 --> 00:04:00,840 Speaker 3: fired every month, so that's one point six million people. 88 00:04:00,920 --> 00:04:03,080 Speaker 3: But that's been very flat for the last two years. 89 00:04:03,240 --> 00:04:05,400 Speaker 3: There's no increase in the lay off rate. So in 90 00:04:05,400 --> 00:04:07,840 Speaker 3: that sense, there's a lot of worries, and there's certainly 91 00:04:07,840 --> 00:04:10,320 Speaker 3: a lot of things on the horizon, including election, to 92 00:04:10,360 --> 00:04:12,600 Speaker 3: your political risk, other things you can begin to think about. 93 00:04:12,760 --> 00:04:14,680 Speaker 3: But the bottom line still is that the incoming data, 94 00:04:15,000 --> 00:04:17,479 Speaker 3: it just continues to show that the economy is doing 95 00:04:17,560 --> 00:04:20,320 Speaker 3: just fine. Job as claims, we had some hurricane issues, 96 00:04:20,360 --> 00:04:22,840 Speaker 3: but look at the next non found payrolls report. If 97 00:04:22,839 --> 00:04:24,280 Speaker 3: we do get that at one hundred and fifty or 98 00:04:24,279 --> 00:04:27,480 Speaker 3: two hundred thousand, we could easily get a scenario where 99 00:04:27,480 --> 00:04:29,920 Speaker 3: they fit will basically have the reverse course and begin 100 00:04:30,000 --> 00:04:30,880 Speaker 3: to stay on hold. 101 00:04:30,960 --> 00:04:33,240 Speaker 4: Are you saying that you're completely discounting the next jobs 102 00:04:33,279 --> 00:04:34,080 Speaker 4: or forth that we get. 103 00:04:34,200 --> 00:04:37,160 Speaker 3: So I will say that I think the pain trade 104 00:04:37,200 --> 00:04:39,080 Speaker 3: for the market is that if it's a lot better, 105 00:04:39,320 --> 00:04:41,920 Speaker 3: because everyone is expecting it to be bad now, So 106 00:04:42,000 --> 00:04:43,760 Speaker 3: that's why if everyone is speaks to be bad, then 107 00:04:43,800 --> 00:04:45,760 Speaker 3: then well that could either be the economy slowing down 108 00:04:45,839 --> 00:04:47,600 Speaker 3: or could be the hurricanes. But imagine if that comes 109 00:04:47,600 --> 00:04:49,640 Speaker 3: in at one hundred and fifty or two hundred, then 110 00:04:49,720 --> 00:04:51,479 Speaker 3: I think the market will say, whoa, maybe things. 111 00:04:51,279 --> 00:04:51,960 Speaker 1: Are not that bad. 112 00:04:52,120 --> 00:04:54,920 Speaker 3: So I think taking the totality of the data the 113 00:04:55,000 --> 00:04:57,760 Speaker 3: mostsake of what's going on in the incoming data, it 114 00:04:57,760 --> 00:05:00,000 Speaker 3: still tells me that we are in the no landing scenario. 115 00:05:00,080 --> 00:05:03,400 Speaker 3: It's just really difficult to argue that Marsterrypolsi is restrictive. 116 00:05:03,600 --> 00:05:05,040 Speaker 2: How many moments of this do you need for the 117 00:05:05,080 --> 00:05:07,559 Speaker 2: Federal Reserve to come around? See your view of the world. 118 00:05:07,600 --> 00:05:08,920 Speaker 2: It's November seventh too early. 119 00:05:09,080 --> 00:05:11,279 Speaker 3: So I do think that the next employment report obviously 120 00:05:11,360 --> 00:05:13,400 Speaker 3: is very important, but I think that everyone is expecting 121 00:05:13,440 --> 00:05:15,320 Speaker 3: him now to be bad. So that's why I think 122 00:05:15,360 --> 00:05:16,840 Speaker 3: it will not take much more than a little bit 123 00:05:16,880 --> 00:05:18,200 Speaker 3: better than expected in poor report. 124 00:05:18,240 --> 00:05:20,080 Speaker 2: By the way, because you said one fifty might be 125 00:05:20,200 --> 00:05:21,159 Speaker 2: sort of the pain trade. 126 00:05:21,200 --> 00:05:23,880 Speaker 3: Well, as you know from Tara Watson and Andy Whittlberg 127 00:05:24,000 --> 00:05:27,760 Speaker 3: at the Handlson Institute at Brookings, they have been quantifying 128 00:05:27,839 --> 00:05:30,080 Speaker 3: what is the level of employment growth that way, I've 129 00:05:30,080 --> 00:05:32,560 Speaker 3: had so much immigration, and their estimates have said, well, 130 00:05:32,560 --> 00:05:34,800 Speaker 3: we should be more like two hundred thousand. Now the 131 00:05:34,920 --> 00:05:36,960 Speaker 3: question is, well, if we do get one hundred and fifty, well, 132 00:05:36,960 --> 00:05:38,719 Speaker 3: that would certainly be below that. But if you're correct 133 00:05:38,760 --> 00:05:40,960 Speaker 3: for hurricanes and all the other things that are holding 134 00:05:41,000 --> 00:05:43,120 Speaker 3: things down, well, then I would say a good report 135 00:05:43,160 --> 00:05:44,960 Speaker 3: would certainly be even something at one hundred and fifty. 136 00:05:44,960 --> 00:05:48,160 Speaker 3: Bad would be below one hundred thousand. But at the moment, again, 137 00:05:48,200 --> 00:05:50,719 Speaker 3: the totality of the data that comes in, it completely 138 00:05:50,839 --> 00:05:53,960 Speaker 3: justifies both why FITS pricing is changing and also why 139 00:05:53,960 --> 00:05:54,760 Speaker 3: long rates are going on. 140 00:05:55,000 --> 00:05:58,440 Speaker 4: John asked a question about potential reinflation, which I think 141 00:05:58,520 --> 00:06:00,680 Speaker 4: is a really important one because even as people see 142 00:06:00,839 --> 00:06:03,719 Speaker 4: all of this robustness, they still see prices on a 143 00:06:03,760 --> 00:06:05,960 Speaker 4: year over year basis continuing to come down, And that 144 00:06:06,040 --> 00:06:08,320 Speaker 4: alone is enough to justify some of the FED moves. 145 00:06:08,640 --> 00:06:11,680 Speaker 4: When you take a look at the panapoly of potential 146 00:06:11,800 --> 00:06:15,119 Speaker 4: policy that we could potentially get. When you start talking 147 00:06:15,120 --> 00:06:18,159 Speaker 4: about manufacturing more in the US, when you start talking 148 00:06:18,200 --> 00:06:22,160 Speaker 4: about tax cuts, how much does that actually feed into inflation? 149 00:06:22,279 --> 00:06:23,600 Speaker 4: What are you models looking at? 150 00:06:23,839 --> 00:06:26,840 Speaker 3: Well, what's most important is what is the fiscal impetus? 151 00:06:26,839 --> 00:06:29,560 Speaker 3: In other words, how much does it support GDP and 152 00:06:29,640 --> 00:06:31,800 Speaker 3: Of course, if you look at it from the broadest perspective, 153 00:06:31,920 --> 00:06:34,560 Speaker 3: the Trump tax cuts that are running out by late 154 00:06:34,560 --> 00:06:37,360 Speaker 3: twenty twenty five become very important in that discussion. But 155 00:06:37,400 --> 00:06:40,000 Speaker 3: that's still quite some time and way only in twenty 156 00:06:40,120 --> 00:06:42,040 Speaker 3: twenty six. So the story here and now is still 157 00:06:42,200 --> 00:06:44,919 Speaker 3: in the very near term that we still have tailwinds 158 00:06:45,000 --> 00:06:47,640 Speaker 3: from the fundamental reasons why the economy continues to do 159 00:06:47,680 --> 00:06:49,960 Speaker 3: so well. But to your question LeadSA what really becomes 160 00:06:49,960 --> 00:06:54,080 Speaker 3: important for inflation is that if this easing that now 161 00:06:54,480 --> 00:06:57,320 Speaker 3: is being signaled by the Fed begins to mean that 162 00:06:57,360 --> 00:06:59,560 Speaker 3: we still have more job growth, we still have more 163 00:06:59,560 --> 00:07:02,359 Speaker 3: weights growth, which are very important drivers of housing demand. 164 00:07:02,720 --> 00:07:04,960 Speaker 3: That means that the forty percent of the CPI basket 165 00:07:05,000 --> 00:07:07,800 Speaker 3: that is housing, if that begins to reaccelerate, then we 166 00:07:07,839 --> 00:07:10,240 Speaker 3: could have the risks that that inflation begins to move 167 00:07:10,320 --> 00:07:12,600 Speaker 3: higher again. So that's why we're watching very very carefully 168 00:07:12,720 --> 00:07:14,440 Speaker 3: what's going on in the housing market at the moment, 169 00:07:14,480 --> 00:07:17,480 Speaker 3: because there's already a number of indicators suggesting some most 170 00:07:17,480 --> 00:07:20,800 Speaker 3: signs of life which could potentially begin to be that 171 00:07:21,120 --> 00:07:23,360 Speaker 3: problem that inflation could begin to move higher because of 172 00:07:23,400 --> 00:07:24,840 Speaker 3: housing inflation moving high, is that. 173 00:07:24,800 --> 00:07:27,920 Speaker 5: Just a vicious cycle. Basically, people think the Fed's going 174 00:07:27,960 --> 00:07:30,360 Speaker 5: to cut more, so they start to potentially look at 175 00:07:30,440 --> 00:07:33,240 Speaker 5: maybe getting on the property ladder, maybe going out and 176 00:07:33,320 --> 00:07:34,880 Speaker 5: getting construction done on their homes. 177 00:07:35,200 --> 00:07:38,040 Speaker 3: Well, the FED has since December been signaling that now 178 00:07:38,120 --> 00:07:40,480 Speaker 3: rates are going down. The pivot in December of last 179 00:07:40,560 --> 00:07:43,320 Speaker 3: year was certainly after having said for several years rates 180 00:07:43,320 --> 00:07:45,160 Speaker 3: are going up, up, up, So now say rates are 181 00:07:45,200 --> 00:07:47,360 Speaker 3: going down and at the same time, the key drivers 182 00:07:47,360 --> 00:07:50,360 Speaker 3: of housing demand, of course, are three things. Mortgage rates, 183 00:07:50,560 --> 00:07:52,119 Speaker 3: of course they are a little bit up now again. 184 00:07:52,360 --> 00:07:55,240 Speaker 3: But the two other key factors are wage and income growth, 185 00:07:55,400 --> 00:07:57,760 Speaker 3: and at the same time job growth and waste growth, 186 00:07:57,760 --> 00:08:00,440 Speaker 3: and job growth still doing fine. So it's not prising 187 00:08:00,520 --> 00:08:03,240 Speaker 3: that we're seeing the housing indicators begin to show more 188 00:08:03,280 --> 00:08:03,920 Speaker 3: signs of life. 189 00:08:04,000 --> 00:08:06,160 Speaker 5: Let's talk about fiscal policy. You see in the bond 190 00:08:06,200 --> 00:08:08,160 Speaker 5: market today. Some people come on this program saying this 191 00:08:08,280 --> 00:08:09,760 Speaker 5: is down to a Trump trade. 192 00:08:10,000 --> 00:08:12,960 Speaker 3: Do you believe that. Well, if you look at your 193 00:08:13,000 --> 00:08:15,280 Speaker 3: Bloomberg screen at the term premium both from the San 194 00:08:15,320 --> 00:08:18,040 Speaker 3: Francisco Fed by YenS Christensen and also the New York 195 00:08:18,040 --> 00:08:20,200 Speaker 3: Fed term premium, they have been going up quite a lot. 196 00:08:20,240 --> 00:08:22,080 Speaker 3: And when it is start to go up. It started 197 00:08:22,120 --> 00:08:25,000 Speaker 3: going up exactly after the last employment report. So in 198 00:08:25,000 --> 00:08:27,440 Speaker 3: that sense, I would say that most of the rise 199 00:08:27,480 --> 00:08:29,280 Speaker 3: in the term premium we're seeing here, meaning most of 200 00:08:29,320 --> 00:08:31,760 Speaker 3: the rise of why is it that people are now 201 00:08:31,800 --> 00:08:33,440 Speaker 3: bidding higher rates to go up and why is the 202 00:08:33,440 --> 00:08:36,400 Speaker 3: ould curves deepening is because of this issue that people 203 00:08:36,440 --> 00:08:38,559 Speaker 3: are looking at it from that the business cycle is 204 00:08:38,600 --> 00:08:41,000 Speaker 3: simply a lot stronger than what we thought before. So 205 00:08:41,040 --> 00:08:42,800 Speaker 3: there's probably a lot of people that are squeezed out 206 00:08:42,800 --> 00:08:45,040 Speaker 3: of the short view, meaning that the economy is going 207 00:08:45,080 --> 00:08:46,839 Speaker 3: down and maybe it's now not going down and therefore 208 00:08:46,880 --> 00:08:48,559 Speaker 3: rates have to go up. But there's probably also a 209 00:08:48,600 --> 00:08:50,080 Speaker 3: lot of people that are beginning to come to the 210 00:08:50,080 --> 00:08:53,400 Speaker 3: conclusion that, hey, maybe Martins Harry policy is not as 211 00:08:53,400 --> 00:08:56,280 Speaker 3: restrictive as the Fed has been saying, and as the 212 00:08:56,320 --> 00:08:58,520 Speaker 3: market has been selling itself for quite some time. 213 00:08:58,640 --> 00:09:01,520 Speaker 4: Tour certain in your scenary or your look at the 214 00:09:01,559 --> 00:09:04,559 Speaker 4: world as it is, does that mean that where rates are, 215 00:09:04,640 --> 00:09:06,000 Speaker 4: even if they go to four and a half percent 216 00:09:06,000 --> 00:09:08,640 Speaker 4: on the tenure, you could see a sustainable rally in 217 00:09:08,720 --> 00:09:11,959 Speaker 4: equities that essentially this is a less bond sensitive equity 218 00:09:12,040 --> 00:09:13,319 Speaker 4: market than a lot of people. 219 00:09:13,040 --> 00:09:15,439 Speaker 3: Think, well, I do still think that corporate earnings actually 220 00:09:15,480 --> 00:09:17,520 Speaker 3: are still doing quite well. What really is the key 221 00:09:17,600 --> 00:09:19,680 Speaker 3: issue for investors this here is that if yield level 222 00:09:19,720 --> 00:09:22,480 Speaker 3: is higher, that means that private credit will continue to 223 00:09:22,520 --> 00:09:24,559 Speaker 3: give you high yels, fixed income will continue to give 224 00:09:24,600 --> 00:09:27,439 Speaker 3: you high yels, and for investors an asset allocation, the 225 00:09:27,559 --> 00:09:30,560 Speaker 3: key message is we are not going back to zero. 226 00:09:30,760 --> 00:09:32,960 Speaker 3: So therefore capalis structures that were put in place when 227 00:09:33,000 --> 00:09:35,520 Speaker 3: it's just raised for zero will continue to be vulnerable. 228 00:09:35,960 --> 00:09:39,400 Speaker 3: Or put in different words, companies that have earnings continue 229 00:09:39,440 --> 00:09:41,280 Speaker 3: to be attractive, both on the debt and on the 230 00:09:41,280 --> 00:09:43,720 Speaker 3: equity side. And the reason why that's important is that 231 00:09:43,720 --> 00:09:46,480 Speaker 3: that also means for equities that this discussion about small 232 00:09:46,520 --> 00:09:49,280 Speaker 3: cap relative to large cap will continue to dominate the 233 00:09:49,320 --> 00:09:51,880 Speaker 3: debate in the equity space because small cap will continue 234 00:09:51,920 --> 00:09:54,600 Speaker 3: to be vulnerable if rates are higher for longer. Because again, 235 00:09:54,640 --> 00:09:57,079 Speaker 3: if I have a company with no revenue, no cash flow, 236 00:09:57,160 --> 00:09:59,640 Speaker 3: no earnings, of course, when my debt servicing cars go 237 00:09:59,760 --> 00:10:01,719 Speaker 3: up and stay higher for longer, of course I'm going 238 00:10:01,760 --> 00:10:05,040 Speaker 3: to get in trouble before other companies that actually have earnings. 239 00:10:05,120 --> 00:10:07,199 Speaker 3: So that's why it is all about investing in companies 240 00:10:07,200 --> 00:10:09,560 Speaker 3: out of earnings and looking at it both on the 241 00:10:09,559 --> 00:10:12,480 Speaker 3: equity side, and that's why those parts of the equity 242 00:10:12,520 --> 00:10:14,880 Speaker 3: and private equity world where you invest in companies with 243 00:10:14,960 --> 00:10:16,880 Speaker 3: earnings will generally you tend to do a lot better. 244 00:10:17,000 --> 00:10:19,640 Speaker 2: Towston, this was a clinic. It always is. We appreciate it. 245 00:10:19,679 --> 00:10:21,280 Speaker 2: We've had a healthy debate over the last few months 246 00:10:21,320 --> 00:10:23,400 Speaker 2: on this topic of the data's moving your way, that's 247 00:10:23,400 --> 00:10:35,599 Speaker 2: for sure. Towston's slock there of Apollo, Brent Shuley of 248 00:10:35,640 --> 00:10:39,000 Speaker 2: Northwestern Mutuals saying this, Well, it maybe months before we 249 00:10:39,080 --> 00:10:40,760 Speaker 2: know if the FED is able to cut rates fast 250 00:10:40,880 --> 00:10:44,199 Speaker 2: enough to resuscitate weak areas of the economy. The bifurcated 251 00:10:44,280 --> 00:10:46,800 Speaker 2: nature of the economy brings with it risk, but simply 252 00:10:47,080 --> 00:10:49,440 Speaker 2: there is less room for error when only a fraction 253 00:10:49,520 --> 00:10:52,200 Speaker 2: of the economy is healthy. Brent joins us now for 254 00:10:52,280 --> 00:10:54,520 Speaker 2: more brand welcome back to the program. Last time we 255 00:10:54,559 --> 00:10:57,120 Speaker 2: had this conversation, we were debating whether this FED is 256 00:10:57,160 --> 00:10:59,800 Speaker 2: too late. There are people around this table now saying 257 00:10:59,800 --> 00:11:02,480 Speaker 2: that maybe this FED was too early. What'd you say 258 00:11:02,520 --> 00:11:03,640 Speaker 2: back to them? 259 00:11:04,120 --> 00:11:05,959 Speaker 6: I think that highlights a difficult path going forward for 260 00:11:06,000 --> 00:11:09,240 Speaker 6: the FED. Look investors, are way too optimistic that the 261 00:11:09,240 --> 00:11:11,160 Speaker 6: FED is going to cut rates in a nice, neat 262 00:11:11,160 --> 00:11:13,960 Speaker 6: and tidy way. There is the possibility they cut two 263 00:11:14,040 --> 00:11:17,160 Speaker 6: rates too quickly, the possibility that they cut rates too late. 264 00:11:17,640 --> 00:11:19,600 Speaker 6: They don't know, We don't know, and I think that's 265 00:11:19,640 --> 00:11:22,000 Speaker 6: where the risk are is if there is the chance 266 00:11:22,040 --> 00:11:24,240 Speaker 6: that the FED has cut too early already and that 267 00:11:24,320 --> 00:11:27,440 Speaker 6: inflation pressures are coming back. The narrative was the FED 268 00:11:27,440 --> 00:11:29,720 Speaker 6: would cut rates, everything would be well, and it would 269 00:11:29,720 --> 00:11:33,040 Speaker 6: alleviate the interest pain on certain parts of the economy. Well, 270 00:11:33,080 --> 00:11:35,520 Speaker 6: the FED cut rates in the tenure Treasury sixty basis 271 00:11:35,520 --> 00:11:38,120 Speaker 6: points higher, which has pushed mortgage rates higher, which has 272 00:11:38,160 --> 00:11:41,360 Speaker 6: made housing more unaffordable for most every American in the country. 273 00:11:41,480 --> 00:11:43,079 Speaker 2: So, Brent, beant if you want to buy a house, 274 00:11:43,240 --> 00:11:45,400 Speaker 2: where does it leave the equity market. You've a cautious 275 00:11:45,440 --> 00:11:47,760 Speaker 2: last time around. You've a cautious on launch camps. I 276 00:11:47,800 --> 00:11:50,600 Speaker 2: believe sol any more bullish on smalls. Has that changed? 277 00:11:51,520 --> 00:11:53,319 Speaker 6: No, that's the irony. I mean, you've had a bifurcated 278 00:11:53,320 --> 00:11:55,720 Speaker 6: economy and a bifurcated market. At some point we have 279 00:11:55,760 --> 00:11:58,080 Speaker 6: to get back to equilibrium. How do we do that 280 00:11:58,160 --> 00:11:59,760 Speaker 6: longer term? I think is the question, and do we 281 00:11:59,760 --> 00:12:02,319 Speaker 6: need a recession to do it, which historically has been 282 00:12:02,400 --> 00:12:02,880 Speaker 6: the way. 283 00:12:02,679 --> 00:12:04,720 Speaker 1: That you've got an economy back into equilibrium. 284 00:12:05,040 --> 00:12:07,280 Speaker 6: I think the irony is there's opportunities in small and 285 00:12:07,320 --> 00:12:10,800 Speaker 6: midcaps because yes, they are interest rates sensitive. Who doesn't 286 00:12:10,840 --> 00:12:12,959 Speaker 6: know that. I could say, stay in quality for a 287 00:12:13,000 --> 00:12:15,520 Speaker 6: while and it could continue to work. But think about 288 00:12:15,520 --> 00:12:17,839 Speaker 6: the other side. What happened in July when we thought 289 00:12:17,880 --> 00:12:20,280 Speaker 6: the other side was coming. There was a ferocious rally 290 00:12:20,320 --> 00:12:23,360 Speaker 6: and small and mid which are historically cheap, And that's 291 00:12:23,400 --> 00:12:25,719 Speaker 6: where I think any investor should think about right now. 292 00:12:25,760 --> 00:12:28,800 Speaker 6: Given that uncertainty, look to valuations, which tend to matter 293 00:12:28,880 --> 00:12:31,360 Speaker 6: more over the intermediate time period as you're guiding light 294 00:12:31,400 --> 00:12:32,040 Speaker 6: and guiding posts. 295 00:12:32,040 --> 00:12:33,360 Speaker 1: And that's where we're positioned right now. 296 00:12:33,440 --> 00:12:33,640 Speaker 2: Bret. 297 00:12:33,640 --> 00:12:35,400 Speaker 4: I'm trying to put these two things together, and I'm 298 00:12:35,400 --> 00:12:37,839 Speaker 4: a little bit confused because if there is this risk 299 00:12:37,880 --> 00:12:41,520 Speaker 4: of no landing and inflation being stickier than expected and 300 00:12:41,559 --> 00:12:44,800 Speaker 4: frankly longer term yields rising, if the FED cuts more, 301 00:12:45,400 --> 00:12:49,200 Speaker 4: why go into the more interest rate sensitive stocks that 302 00:12:49,320 --> 00:12:52,360 Speaker 4: actually hinge and do better when you get more FED 303 00:12:52,440 --> 00:12:54,880 Speaker 4: rate cuts, which don't seem like they'd be in the 304 00:12:54,880 --> 00:12:58,120 Speaker 4: offing given some of the better than expected data and 305 00:12:58,160 --> 00:13:00,560 Speaker 4: the performance that we've seen in bonds are. 306 00:13:01,400 --> 00:13:02,839 Speaker 6: Look, at the end of the day, the Fed knows 307 00:13:02,840 --> 00:13:05,120 Speaker 6: how to get inflation down. It knows how to kind 308 00:13:05,120 --> 00:13:08,280 Speaker 6: of stem inflation overall. We saw what had to happen 309 00:13:08,320 --> 00:13:10,679 Speaker 6: back in the eighties. To me, it's always about what 310 00:13:10,720 --> 00:13:13,400 Speaker 6: happens next in marketing and what's not priced. If you 311 00:13:13,400 --> 00:13:15,200 Speaker 6: look at nineteen ninety nine two thousand, which I think 312 00:13:15,280 --> 00:13:16,960 Speaker 6: is a perfect example of where we're at, when the 313 00:13:16,960 --> 00:13:20,040 Speaker 6: market was concentrated and we were in economic cycle, over time, 314 00:13:20,360 --> 00:13:22,320 Speaker 6: you actually saw a small and middew better into that 315 00:13:22,360 --> 00:13:25,000 Speaker 6: recession and thereafter because they had already priced in the 316 00:13:25,080 --> 00:13:27,800 Speaker 6: fact that it was likely we're going to have a recession. 317 00:13:28,280 --> 00:13:29,559 Speaker 1: And that's where I think we're at right now. 318 00:13:29,559 --> 00:13:32,040 Speaker 6: And that's where I think, thinking beyond the next three 319 00:13:32,080 --> 00:13:33,719 Speaker 6: six and nine months and thinking out to the next 320 00:13:33,760 --> 00:13:35,480 Speaker 6: two three five years, that's where I. 321 00:13:35,480 --> 00:13:37,320 Speaker 1: Want to be a positioned because no one's thinking that 322 00:13:37,360 --> 00:13:38,160 Speaker 1: way any longer. 323 00:13:38,400 --> 00:13:41,000 Speaker 4: One thing that you point out is and you keep saying, 324 00:13:41,080 --> 00:13:43,600 Speaker 4: is valuations. That's one of the main drivers for you 325 00:13:43,679 --> 00:13:46,600 Speaker 4: right now. Given how high valuations are, particularly in large caps. 326 00:13:46,600 --> 00:13:49,400 Speaker 4: That's the area you like least. Why is an argument 327 00:13:49,440 --> 00:13:52,080 Speaker 4: not valid? Would say investment grade bonds where spreads are 328 00:13:52,080 --> 00:13:54,600 Speaker 4: pretty tight and valuations are pretty full. 329 00:13:54,440 --> 00:13:56,440 Speaker 1: So it is. 330 00:13:56,480 --> 00:13:59,000 Speaker 6: I mean, look, I agree longer term interest rates are 331 00:13:59,040 --> 00:14:00,599 Speaker 6: likely to be higher, but I think the path is 332 00:14:01,040 --> 00:14:03,280 Speaker 6: lower at some point, just because I do think you're 333 00:14:03,280 --> 00:14:04,679 Speaker 6: going to have to have a recession to kind of 334 00:14:04,679 --> 00:14:06,880 Speaker 6: clear the deck of all the abnormalities that are out 335 00:14:06,880 --> 00:14:08,960 Speaker 6: in the economy, where you have the haves that are 336 00:14:08,960 --> 00:14:10,640 Speaker 6: winning quite a bit and the havenots that are not. 337 00:14:11,520 --> 00:14:13,240 Speaker 6: This is where I think we want to be more 338 00:14:13,280 --> 00:14:16,199 Speaker 6: towards treasury debt, even though I do see longer term 339 00:14:16,240 --> 00:14:18,160 Speaker 6: risks there. I think there will be a flight to quality, 340 00:14:18,240 --> 00:14:20,560 Speaker 6: much like there was back in July, believe it or not, 341 00:14:21,080 --> 00:14:22,520 Speaker 6: and that's where I think we want to be positioned 342 00:14:22,560 --> 00:14:25,600 Speaker 6: more so so, not so much out on high yield. 343 00:14:26,000 --> 00:14:28,240 Speaker 6: I think investment grade high quality is still a place 344 00:14:28,280 --> 00:14:30,680 Speaker 6: to be as you think about the reality that the 345 00:14:30,720 --> 00:14:33,320 Speaker 6: FED will only be able to cut rates aggressfully if 346 00:14:33,320 --> 00:14:35,040 Speaker 6: they do see a recession on the horizon. 347 00:14:35,320 --> 00:14:37,760 Speaker 5: Brent, We're fourteen days out from the US election, so 348 00:14:37,800 --> 00:14:41,520 Speaker 5: I have to ask about how you're potentially your advice 349 00:14:41,560 --> 00:14:44,160 Speaker 5: for positioning ahead of that. You like the small caps. 350 00:14:44,160 --> 00:14:46,040 Speaker 5: Do you think that is a Trump trade that's on 351 00:14:46,160 --> 00:14:49,160 Speaker 5: right now because of policy or because of economics? 352 00:14:49,840 --> 00:14:51,360 Speaker 6: You know, I think it's a bit of each. Look, 353 00:14:51,360 --> 00:14:53,520 Speaker 6: I don't want to overweight the election too much. I 354 00:14:53,560 --> 00:14:55,560 Speaker 6: don't think anyone knows what the outcome is likely to be, 355 00:14:55,680 --> 00:14:57,080 Speaker 6: and therefore, if I don't know what the outcome is 356 00:14:57,120 --> 00:14:58,920 Speaker 6: going to be, I don't try to position too much 357 00:14:58,920 --> 00:14:59,440 Speaker 6: for it. 358 00:14:59,440 --> 00:15:00,800 Speaker 1: It certainly in the background. 359 00:15:01,000 --> 00:15:03,280 Speaker 6: I think the more important thing is the economic cycle, 360 00:15:03,280 --> 00:15:06,120 Speaker 6: which I keep coming back to. Look, we are later 361 00:15:06,200 --> 00:15:08,960 Speaker 6: in an economic cycle. Yes, the unemployment rate has risen, 362 00:15:09,200 --> 00:15:11,560 Speaker 6: but it's still low. Where are we going to find 363 00:15:11,560 --> 00:15:13,280 Speaker 6: the people to fill the supply that is needed if 364 00:15:13,320 --> 00:15:16,880 Speaker 6: demand reaccelerates. And to me, that's where I think that's 365 00:15:16,920 --> 00:15:19,160 Speaker 6: the most important thing. And no matter who wins, I 366 00:15:19,200 --> 00:15:21,640 Speaker 6: think they are likely to preside over a recession in 367 00:15:21,680 --> 00:15:23,840 Speaker 6: the next four years. I think they're likely to preside 368 00:15:23,840 --> 00:15:27,119 Speaker 6: over a market, especially large cap stocks that are historically expensive, 369 00:15:27,400 --> 00:15:30,800 Speaker 6: that does less. That's where I think investors should be optimistic. 370 00:15:30,840 --> 00:15:33,480 Speaker 6: On the other side, where things are cheaper and will 371 00:15:33,480 --> 00:15:35,600 Speaker 6: do better. I think when we get to the other 372 00:15:35,640 --> 00:15:36,920 Speaker 6: side of whatever lies ahead. 373 00:15:37,320 --> 00:15:39,040 Speaker 5: Get to the other side. Yeah, we're all looking forward 374 00:15:39,040 --> 00:15:41,480 Speaker 5: to getting to the other side. When it comes to 375 00:15:41,960 --> 00:15:47,400 Speaker 5: this idea of potentially your recession call could potentially the 376 00:15:47,440 --> 00:15:50,920 Speaker 5: policy of whatever administration we get next further push the 377 00:15:51,000 --> 00:15:53,280 Speaker 5: US in that direction, or do you think that is 378 00:15:53,320 --> 00:15:54,800 Speaker 5: going to happen regardless. 379 00:15:55,840 --> 00:15:57,840 Speaker 6: I think it's likely to happen regardless. Look, you have 380 00:15:57,880 --> 00:16:00,880 Speaker 6: a really unbalanced economy that has been demarketed by interest 381 00:16:00,920 --> 00:16:02,880 Speaker 6: rates and ownership of financial assets. 382 00:16:03,240 --> 00:16:04,240 Speaker 1: It's not balanced. 383 00:16:04,480 --> 00:16:07,760 Speaker 6: The economy is being pushed higher by higher income and 384 00:16:07,800 --> 00:16:11,520 Speaker 6: middle income consumers who have had a wealth effect at 385 00:16:11,520 --> 00:16:14,080 Speaker 6: their tails. If you have debt and you don't own 386 00:16:14,080 --> 00:16:15,840 Speaker 6: a house, you probably don't feel as. 387 00:16:15,800 --> 00:16:17,760 Speaker 1: Confident about what's going to happen going forward. 388 00:16:18,240 --> 00:16:20,960 Speaker 6: And so to me, I do think there are still 389 00:16:21,040 --> 00:16:22,680 Speaker 6: risks that are out there, and that's all we're asking 390 00:16:22,720 --> 00:16:25,360 Speaker 6: is that investors pay attention to those risks and importantly 391 00:16:25,360 --> 00:16:27,880 Speaker 6: stay diversified, which does tend to pay off at the 392 00:16:28,000 --> 00:16:29,920 Speaker 6: end of economic cycles, which I think is still out 393 00:16:29,920 --> 00:16:30,640 Speaker 6: there on the horizon. 394 00:16:30,760 --> 00:16:32,440 Speaker 4: But what it sounds like to me is that in 395 00:16:32,480 --> 00:16:34,600 Speaker 4: some ways you agree with this call that we heard 396 00:16:34,600 --> 00:16:38,040 Speaker 4: from Goldman Sachs and that Cameron Dawson over at New 397 00:16:38,120 --> 00:16:41,840 Speaker 4: Edges seem to agree with that equity returns on labarge 398 00:16:41,880 --> 00:16:45,640 Speaker 4: caps are probably pretty muted over the next decade or so, 399 00:16:45,880 --> 00:16:49,200 Speaker 4: and so you're basically trying to shift things around on 400 00:16:49,240 --> 00:16:52,920 Speaker 4: a valuation basis with that expectation that there isn't going 401 00:16:52,960 --> 00:16:55,040 Speaker 4: to be some sort of massive acceleration. 402 00:16:55,680 --> 00:16:57,960 Speaker 1: Is that correct one hundred percent? 403 00:16:58,040 --> 00:17:00,200 Speaker 6: I mean to me, evaluation does tend to matter. It 404 00:17:00,200 --> 00:17:02,240 Speaker 6: does not matter in the short term. It's an imperfect 405 00:17:02,280 --> 00:17:04,840 Speaker 6: timing tool, but I think about the regime change it's 406 00:17:04,880 --> 00:17:07,480 Speaker 6: likely to occur. Look, every economic cycle back to the 407 00:17:07,520 --> 00:17:12,200 Speaker 6: eighties has had new market leadership, and the prior leaders 408 00:17:12,240 --> 00:17:15,480 Speaker 6: have become the next cycles laggards because the economy changes 409 00:17:16,240 --> 00:17:19,080 Speaker 6: and those asset classes are typically priced for perfection at 410 00:17:19,080 --> 00:17:19,440 Speaker 6: the end. 411 00:17:19,680 --> 00:17:20,639 Speaker 1: And that's where I think we're at. 412 00:17:20,640 --> 00:17:22,520 Speaker 6: And how do you transition from what worked in the 413 00:17:22,560 --> 00:17:24,880 Speaker 6: past cycle to what we think will work in the future. 414 00:17:25,160 --> 00:17:27,600 Speaker 6: That's the difficulty of trying to explain the positioning that 415 00:17:27,600 --> 00:17:29,439 Speaker 6: we have. It's just that at the end of the day, 416 00:17:29,520 --> 00:17:32,680 Speaker 6: valuation does tend to matter. I don't think valuation is dead. 417 00:17:32,880 --> 00:17:34,919 Speaker 6: I hear that argument, I'll be doing this for thirty years. 418 00:17:35,080 --> 00:17:37,840 Speaker 6: It typically gets loudest at the end of an economic 419 00:17:37,920 --> 00:17:42,679 Speaker 6: cycle where people are really tempted to concentrate in yesteryear's winners. 420 00:17:43,240 --> 00:17:45,560 Speaker 6: Eventually that becomes losing strategy. And that's where I want 421 00:17:45,600 --> 00:17:48,639 Speaker 6: investors to stay diversified, stay true to their plan, and 422 00:17:48,720 --> 00:17:51,840 Speaker 6: think about the reality that asset classes don't die, they. 423 00:17:51,720 --> 00:17:52,800 Speaker 1: Just go to sleep for a while. 424 00:17:52,880 --> 00:17:54,240 Speaker 6: And that's where I think there'll be new winners in 425 00:17:54,240 --> 00:17:56,359 Speaker 6: the opposite side of whatever comes in the next few months. 426 00:17:56,520 --> 00:17:59,280 Speaker 2: This wastfo frand we appreciate it. Thank you, sir, friend 427 00:17:59,280 --> 00:18:12,280 Speaker 2: Shitty daf No Western Mutualice kurk Ryman of UBS, assigning 428 00:18:12,320 --> 00:18:16,000 Speaker 2: a forty five percent chance Harris wins with a split Congress, 429 00:18:16,160 --> 00:18:19,240 Speaker 2: writing a Democratic sweep would likely be the most negative 430 00:18:19,280 --> 00:18:22,639 Speaker 2: outcome for equities. Markets would likely cheer a Republican suite 431 00:18:22,640 --> 00:18:25,439 Speaker 2: for its lower taxes and lights of regulation, but this 432 00:18:25,480 --> 00:18:28,439 Speaker 2: could be partially offset by concerns about the costs and 433 00:18:28,520 --> 00:18:31,360 Speaker 2: inflation impact. Some places say that in a studio Kirk 434 00:18:31,440 --> 00:18:33,240 Speaker 2: John just now Kirk and Monitorer, it's good to be 435 00:18:33,320 --> 00:18:35,560 Speaker 2: with you. You are in a fantastic seat because you 436 00:18:35,600 --> 00:18:37,959 Speaker 2: sit on both the fixed income side of things, and 437 00:18:38,000 --> 00:18:39,679 Speaker 2: you have to deal with the politics in this election 438 00:18:39,720 --> 00:18:41,520 Speaker 2: over the next few weeks. Can you tell us how 439 00:18:41,560 --> 00:18:43,600 Speaker 2: much of an election impact you think we're already seeing 440 00:18:43,840 --> 00:18:44,639 Speaker 2: in fixed income. 441 00:18:45,280 --> 00:18:47,359 Speaker 7: I think there may be some of an impact, because 442 00:18:47,359 --> 00:18:49,480 Speaker 7: it's not just happening in the bond market. You're seeing 443 00:18:49,480 --> 00:18:52,679 Speaker 7: in some of the sectors within the stock market that 444 00:18:52,720 --> 00:18:58,679 Speaker 7: would tend to favor a Trump victory in his numbers 445 00:18:58,680 --> 00:19:00,800 Speaker 7: have improved in the paws least. But I think the 446 00:19:00,800 --> 00:19:04,040 Speaker 7: bond market's also telling another story, which is at the 447 00:19:04,040 --> 00:19:06,920 Speaker 7: front end of the yield curve was pricing in more 448 00:19:06,920 --> 00:19:09,800 Speaker 7: aggressive FED rate cuts than we thought was reasonable. But 449 00:19:09,960 --> 00:19:13,359 Speaker 7: also the growth backdrop has improved, so we've seen a 450 00:19:13,400 --> 00:19:17,040 Speaker 7: bit of a of a of a bare flattening of 451 00:19:17,080 --> 00:19:19,159 Speaker 7: the curve over the past call it month or so. 452 00:19:20,080 --> 00:19:22,960 Speaker 7: I think that move higher in yields is more about 453 00:19:23,000 --> 00:19:27,000 Speaker 7: a growth pickup than it is about anything related to 454 00:19:27,080 --> 00:19:31,920 Speaker 7: necessarily concerns about inflation. So if we get inflation leading 455 00:19:31,960 --> 00:19:32,919 Speaker 7: to higher rates. 456 00:19:32,720 --> 00:19:33,560 Speaker 1: Then I'm concerned. 457 00:19:34,000 --> 00:19:36,080 Speaker 7: But at a four call it four fifteen, four to 458 00:19:36,080 --> 00:19:40,280 Speaker 7: twenty yield on the tenure, that's looking more. 459 00:19:40,080 --> 00:19:43,639 Speaker 5: Attractive, So you don't think, actually, what the bond market 460 00:19:43,680 --> 00:19:45,399 Speaker 5: is saying is Trump winning. 461 00:19:46,040 --> 00:19:48,240 Speaker 7: I think this is much more about the growth backdrop. 462 00:19:48,840 --> 00:19:51,639 Speaker 7: I think the election outcome is very much a secondary 463 00:19:51,640 --> 00:19:54,760 Speaker 7: factor because, let's face it, the polls are still very tight. 464 00:19:55,520 --> 00:19:58,920 Speaker 7: This can go either way. The battleground states, the four 465 00:19:59,000 --> 00:20:02,720 Speaker 7: of them are within a percentage point. So this is 466 00:20:02,760 --> 00:20:05,760 Speaker 7: not an election that has been decided. We still have, 467 00:20:05,960 --> 00:20:09,000 Speaker 7: as you know, a couple of weeks to go. Because 468 00:20:09,040 --> 00:20:11,919 Speaker 7: of that, it would seem unlikely that the bond market 469 00:20:11,960 --> 00:20:16,000 Speaker 7: and the equity market would be pricing in today a 470 00:20:16,040 --> 00:20:18,560 Speaker 7: more complete picture of how this election is going to unfold. 471 00:20:18,680 --> 00:20:21,160 Speaker 5: But as Jim Caram was saying, whether or not it's 472 00:20:21,240 --> 00:20:24,320 Speaker 5: Harris or Trump, it could be inflationary. With Trump you 473 00:20:24,359 --> 00:20:28,639 Speaker 5: get tariffs, and with Harris you get higher corporate taxes. 474 00:20:29,520 --> 00:20:31,840 Speaker 5: Both of these could be very inflationary. Also, it's going 475 00:20:31,880 --> 00:20:33,720 Speaker 5: to be tax cut for people like in the middle income. 476 00:20:34,000 --> 00:20:37,200 Speaker 5: Why wouldn't the bond market just be pricing in that environment. 477 00:20:37,840 --> 00:20:41,160 Speaker 7: I think that's missing a big element of what we're 478 00:20:41,280 --> 00:20:45,440 Speaker 7: seeing unfold in DC over the next administration, at least 479 00:20:45,440 --> 00:20:48,760 Speaker 7: the next two years, and that is constraints on government. 480 00:20:49,320 --> 00:20:52,320 Speaker 7: So you think about the Senate and the House. If 481 00:20:52,359 --> 00:20:56,160 Speaker 7: you get a united government, you're going to have very 482 00:20:56,240 --> 00:21:01,240 Speaker 7: narrow majorities. And the prospects for divided government under Harris 483 00:21:01,320 --> 00:21:04,800 Speaker 7: are quite high because the Senate looks very likely to 484 00:21:04,840 --> 00:21:08,479 Speaker 7: shift Republican. So when it comes to all of the 485 00:21:08,480 --> 00:21:11,840 Speaker 7: policy prescriptions that have been put out on the campaign trail, 486 00:21:12,480 --> 00:21:14,320 Speaker 7: not a lot of them are going to get done. 487 00:21:14,400 --> 00:21:17,000 Speaker 7: I think when it comes to personal income tax cuts 488 00:21:17,040 --> 00:21:19,640 Speaker 7: and extending those, we'll probably get. 489 00:21:19,560 --> 00:21:21,000 Speaker 1: Most, if not all of them. 490 00:21:21,400 --> 00:21:23,639 Speaker 7: But on the corporate tax side, when you think about 491 00:21:23,640 --> 00:21:27,720 Speaker 7: the current state of deficits and the debt load, adding 492 00:21:27,760 --> 00:21:30,480 Speaker 7: another tax cut in the case of Trump is going 493 00:21:30,520 --> 00:21:32,960 Speaker 7: to be hard to do with the fiscal hawks. And 494 00:21:33,000 --> 00:21:36,880 Speaker 7: if you have divided government under Harris, well, I mean, 495 00:21:36,960 --> 00:21:38,240 Speaker 7: then that's just a non starter. 496 00:21:39,040 --> 00:21:40,840 Speaker 4: So if you don't think that what we're seeing right 497 00:21:40,840 --> 00:21:43,240 Speaker 4: now in the bond market is a Trump trade, are 498 00:21:43,240 --> 00:21:45,879 Speaker 4: you saying that the market is not going to price 499 00:21:45,960 --> 00:21:49,000 Speaker 4: in some of those fears of higher deficits, higher inflation, etc. 500 00:21:49,600 --> 00:21:52,080 Speaker 4: In the direct aftermath if Trump does what? In other words, 501 00:21:52,280 --> 00:21:55,600 Speaker 4: could you see yields climbing quite significantly in the immediate aftermath. 502 00:21:56,000 --> 00:21:58,239 Speaker 7: Yes, there's going to be the knee jerk reaction as 503 00:21:58,280 --> 00:22:01,560 Speaker 7: there always is. We could get at a bear steepener 504 00:22:01,840 --> 00:22:04,800 Speaker 7: of the yield curve in the event of a Trump victory. 505 00:22:04,800 --> 00:22:08,520 Speaker 7: We could get the dollar appreciating quite a bit, even 506 00:22:08,600 --> 00:22:12,879 Speaker 7: though it's already very expensive. So you think about some 507 00:22:12,960 --> 00:22:15,399 Speaker 7: of those reactions, Yes, but then I think the market's 508 00:22:15,440 --> 00:22:19,719 Speaker 7: going to get back to what is the foundational elements 509 00:22:19,800 --> 00:22:22,399 Speaker 7: of the markets that we're seeing today, which is that 510 00:22:22,480 --> 00:22:26,080 Speaker 7: the economy is strong, that the Fed is cutting interest 511 00:22:26,160 --> 00:22:28,400 Speaker 7: rates into the end of next year, and maybe even 512 00:22:28,480 --> 00:22:32,080 Speaker 7: further than that. We've had strong earnings growth. We think 513 00:22:32,080 --> 00:22:36,200 Speaker 7: earnings growth is going to remain strong next year. Where 514 00:22:36,200 --> 00:22:39,880 Speaker 7: are the concerns on a Trump victory. Yeah, sure, it's 515 00:22:39,960 --> 00:22:42,920 Speaker 7: on tariffs, But then the question is is how strong 516 00:22:43,040 --> 00:22:47,199 Speaker 7: will they be. They get more stagflationary the more that 517 00:22:47,280 --> 00:22:50,440 Speaker 7: tariffs are raised, but then that has sort of cycles 518 00:22:50,480 --> 00:22:54,280 Speaker 7: back on itself. If it becomes inflationary and bad for 519 00:22:54,320 --> 00:22:56,720 Speaker 7: the economy, then maybe that'll be a signal to the 520 00:22:56,760 --> 00:23:00,360 Speaker 7: administration that they want to do a deal or some 521 00:23:00,480 --> 00:23:01,679 Speaker 7: kind of an adjustment. 522 00:23:01,960 --> 00:23:05,080 Speaker 4: Terry Wiseman was talking about how his key tell will 523 00:23:05,119 --> 00:23:08,400 Speaker 4: be if the dollar weakends in tandem with yields going 524 00:23:08,480 --> 00:23:11,280 Speaker 4: higher after this election. Do you see that as a 525 00:23:11,320 --> 00:23:15,120 Speaker 4: possibility if international investors get concerned about the US deficit. 526 00:23:15,960 --> 00:23:18,320 Speaker 7: Yeah, I mean, I still think that deficits and debt 527 00:23:18,520 --> 00:23:22,960 Speaker 7: are more of a secondary factor. They're not showing up 528 00:23:23,119 --> 00:23:26,280 Speaker 7: in influencing where the bond market is headed. The bond 529 00:23:26,280 --> 00:23:30,600 Speaker 7: market's principal direction is coming from the macroeconomy. It's coming 530 00:23:30,640 --> 00:23:35,399 Speaker 7: from the decline and inflation rates, the sort of trend 531 00:23:35,520 --> 00:23:37,520 Speaker 7: rate of growth in the economy or if you will, 532 00:23:37,960 --> 00:23:40,440 Speaker 7: nominal GDP. I mean, we're sort of getting back there. 533 00:23:42,040 --> 00:23:44,800 Speaker 7: I also think though, that it's possible that the dollar 534 00:23:44,880 --> 00:23:49,159 Speaker 7: could weaken, very likely because it is so strong right now. 535 00:23:49,240 --> 00:23:52,000 Speaker 7: So the longer term view, and what we tell our 536 00:23:52,040 --> 00:23:55,520 Speaker 7: clients is keep with the long term, keep the focus 537 00:23:55,560 --> 00:23:59,680 Speaker 7: on your strategic portfolio weights, focus on it makes some 538 00:23:59,760 --> 00:24:03,159 Speaker 7: tax trades if you can that you think makes sense. 539 00:24:03,760 --> 00:24:08,000 Speaker 7: But for the most part, hue towards your strategic acid allocation. 540 00:24:08,440 --> 00:24:10,600 Speaker 2: Kurt, this was great. We've got to do it again soon. 541 00:24:10,720 --> 00:24:13,920 Speaker 2: It's going to say and before the election two weeks ago. Kurt. 542 00:24:13,960 --> 00:24:17,240 Speaker 2: Thank you, Kurt Ramming there of ubs. This is the 543 00:24:17,280 --> 00:24:21,520 Speaker 2: Bloomberg Surveillance Podcast, bringing you the best in markets, economics, 544 00:24:21,520 --> 00:24:24,480 Speaker 2: angient politics. You can watch the show live on Bloomberg 545 00:24:24,520 --> 00:24:27,679 Speaker 2: TV weekday mornings from six am to nine am Eastern, 546 00:24:27,960 --> 00:24:31,320 Speaker 2: Subscribe to the podcast on Apple, Spotify, or anywhere else 547 00:24:31,359 --> 00:24:34,040 Speaker 2: you listen, and, as always, on the Bloomberg Terminal and 548 00:24:34,080 --> 00:24:35,399 Speaker 2: The Bloomberg Business Out