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Bloomberg

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This is the Bloomberg Surveillance Podcast.

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I'm Jonathan Ferrow, along with Lisa Bromwitz

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and Amrie Hordern. Join us each day

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for insight from the best in markets, economics,

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listen, and as always on the Bloomberg Terminal

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and the Bloomberg Business app. Rri's

0:36

with us for the aut She joins us around the table. Lorrie, good

0:38

morning to you, Thanks for having fantastic to see

0:40

you. I want to start with this. This came from Peachier Academy

0:43

and he went through some of the big names in big tag

0:45

over the last week. And he started with Nvidia

0:47

two Fridays ago. So two Fridays ago,

0:49

we had a ten percent move on absolutely nothing,

0:52

a two trillion dollar company. Ten percent move

0:54

just like that Tesla last Wednesday,

0:56

and move a ten percent on a five hundred billion

0:58

dollar market cap Meta. Another move

1:00

a ten percent, this time to the downside

1:03

on a one trillion dollar market cap, and then we had Alphabet

1:05

with a move of ten percent on Friday on a two point

1:07

one trillion dollar market cap. Painter Cheer

1:09

asking the asking, the big question is

1:12

ten percent the new one percent for megacap

1:14

tech? And what's the message you take away from that?

1:16

So I'll go back to my small cap days if I

1:18

can, and I know these.

1:19

Are the far stace. It feels like, yeah, this is.

1:21

How small caps have always traded. You

1:23

know, I think some of the price reactions in small cap to

1:25

prints have gotten a bit worse than that, But you

1:27

know, I think in small cap this is just something

1:29

that was a normal, you know, sort of reaction to earnings

1:32

for a long time. So it doesn't maybe throw

1:34

me quite as much as it might some other folks.

1:36

What should we take away from the fact that uber

1:38

cap stocks are behaving like small caps

1:40

though?

1:41

Well, I think what we're seeing if we look at the earnings

1:43

data and Bloomberg does some great work

1:46

just forecasting where the earnings are expected to

1:48

go based on bottom of consensus forecast. We've

1:50

been talking about this since January, and you see

1:52

a deccelerating growth rate. So coming

1:54

off around I think thirty five percent twenty

1:56

twenty three. If you look at the basket as a whole for the mag

1:58

seven, that's four caps to drop to

2:00

about fifteen percent or so in twenty

2:02

twenty five and really basically come in

2:05

line with the rest of the market. And there's one thing I've learned

2:07

over the course of my career is that when you have these,

2:09

you know, powerful momentum stocks and growth

2:12

rates to celerate, it doesn't matter how good the growth

2:14

is. Growth investors get angsty.

2:16

And that's what I feel like you're seeing in the stock price reaction

2:19

race is.

2:19

Big questions right now about what's being rewarded and

2:21

what's being punished going and get too numbers from Apple and Amazon.

2:23

We talked about the days for those two names. Amazon

2:25

adets coming tomorrow, Apple coming on Thursday.

2:28

Can we focus on that a little bit more? What you sense has

2:30

been rewarded really well discerning season,

2:32

what's getting punished.

2:33

So if you look at the Russell one thousand, and we

2:35

have to look that big at this early in reporting

2:37

season, the beats aren't getting rewarded. I mean they're underperforming.

2:40

They're not performing as well as they typically do in

2:42

kind of the one to two day post prints.

2:45

So I think what I've noticed as we're going

2:47

through commentary, and again it's still very early.

2:49

We're reading as much as we can. We don't get through

2:51

everything, you know, they're fast reads.

2:53

But what I feel like I'm seeing is just kind

2:56

of an intolerance for the we need to be

2:58

patient conversation. We

3:00

sensed a lot of that early on. I sort of felt like

3:02

there was a shift last week kind of midweek

3:04

where companies who were saying, Okay, we're getting the benefit

3:07

of these things now, and I'm thinking about specifically on the AI

3:09

discussion. You know, we're benefiting from the

3:11

ramp that's going to continue in coming years. Investors

3:14

were okay with that, but the sort of wait and see

3:16

this is going to take time again. We've

3:18

got to celerating earnings growth that you know, kind of twenty

3:20

seven times multiples on a Media and PE and those

3:22

biggest tech stocks. Investors

3:25

just don't have a lot of patience for that right now.

3:26

So is there time for a pullback now?

3:29

So we've been getting a little bit of a pullback,

3:31

and a lot of that has happened as we've had some volatility

3:33

in these bigger names. You know, look

3:35

I'm not looking for any kind of massive

3:37

pullback in those names or massive pullback in the markets.

3:40

We've said we thought the pullback would be worth about five

3:42

to ten percent. We've had more than five. I

3:44

don't think we're quite done yet. If you look at

3:46

CFTC data on positioning in either

3:48

Nasdaq one hundred futures, SMP futures,

3:51

or the broader market, you know, we haven't

3:53

even begun the correction. If you look at AAII,

3:55

we've done some damage, but we've still got, you know, probably

3:57

at least a couple more weeks of damage to do there.

4:00

So if you look at the Peter tiernoon, he talks about

4:02

how all these big companies are treating like little

4:04

companies. Who's going to be leading If

4:06

there's not a pullback right now, how do you see this rotation?

4:09

So, you know, I think the financials have come through this

4:11

reporting season so far reasonably well.

4:13

I personally on my team read a lot of industrials

4:15

and materials. I'm not really seeing

4:17

any big kind of demand problems, you know, I'm

4:19

seeing companies that are talking a lot of being able to manage

4:22

through headwinds. I think it's not

4:24

so much a particular sector. I think it's

4:26

looking for industries, for companies within

4:28

the value cyclical cohort of the market, so that

4:30

could be energy and materials industrials.

4:32

I think certain small caps as well.

4:34

I want to talk about another big ubercamp company,

4:36

Apple on Thursday. This from Bernsteain this morning,

4:38

the latest note dropping from them by the fear

4:41

of growding the stock to outperform.

4:43

Apple is de rated significantly amid

4:45

a weak iPhone fifteen cycle and fears

4:47

that Apple's China business is structurally

4:49

impaired. They're taking the other side of some of this

4:52

lorry. I want to ask you specifically about Apple,

4:54

but maybe some of the forces associated with

4:56

that name at the moment. The difficulty navigating

4:58

international waters, particular China.

5:01

The strength of the US dollar a factor I think as well. I

5:03

was reading through your note overnight. How many times

5:05

have those two things come up on earning scolles so

5:07

fast?

5:07

So the FX headwinds are coming up. I'm noticing

5:10

it more with the tech companies, to be honest, than others.

5:12

When we'll see, you know, we've got a lot of stuff in the other parts

5:14

of the market to hear from, but so far it seems mostly

5:16

to be a tech company phenomenon, I will

5:18

say on the Geographic commentary, and

5:21

it's maybe a little hard to say because

5:23

we've had a lot of financials so far, but at

5:25

least in what I read last week the Geographic commentary,

5:27

so Europe China kind of trends

5:30

versus the US, things seem a lot more balanced,

5:32

Whereas if you look last year, it was all

5:35

China's not coming through as well as we anticipated.

5:37

There's a lot of uncertainty. Things haven't bottomed

5:39

yet, and I wouldn't say I'm seeing a lot of you know, jumping

5:41

up and down and celebrating on China, but it just

5:43

seems more balanced.

5:44

What do you think the difficulty has been in China for tech

5:47

firms specifically? What is unique about China

5:49

to them?

5:50

You know, I'm not sure I know the great answer to that question,

5:53

to be honest. I know it's been a growth part of the business

5:55

for many of these companies, and when you're encountering,

5:58

you know, sort of difficulty in the post pandemic

6:00

world. You know, there was so much excitement

6:02

a year ago that we were sort of finally getting

6:04

that recovery and that normalization, and that normalization

6:07

I think just hasn't been as clean as

6:09

a lot of companies would have anticipated. I think there's just

6:11

not a lot of visibility necessarily

6:13

on when that was going to turn around.

6:15

When you read through these earnings reports, I think back to

6:17

what Muhammed and Larian recently told us about how

6:20

a lot of people missed what CEOs

6:22

are saying, and they bought into this transitory

6:24

inflation, but CEOs were saying, actually, we still feel

6:26

inflation coming down the pipeline. What do

6:29

you gather from reading all these reports about where

6:31

inflation is right now for these corporates?

6:32

So, you know, it's funny. Back in the last reporting

6:34

season, so kind of calendar one Q for the four

6:37

Q numbers, companies were

6:39

raising the red flag right like, they were really

6:41

complaining about costs, margin pressures.

6:43

I'm not sensing quite as much of that now.

6:45

It doesn't sound good. It sounds, you know, some companies

6:48

are complaining a lot about inflation. Some people are

6:50

talking about moderating disinflation, deflation.

6:53

It's a little more mixed, but again it is still very

6:55

early.

6:55

Laurie, this was great. It's going to be fantastic to run through

6:58

some of the top stories ten minute comes with

7:00

Lori Cavasenior of RBC. Not a single

7:02

mention of the federal reserve gone into that decision

7:04

on Wednesday, which I guess is a good thing because we've actually

7:07

been talking about nothing but the federal Reserve

7:09

over the last month or so. As

7:21

they made event in foreign exchange, the end bouncing off its

7:23

weekest eleven and thirty four years dolly

7:25

yen falling to one sixty before running

7:28

back on thin trading due to a local public holiday.

7:30

Japan's top currency officials saying no comment

7:33

for now when asked by reporters if the government

7:35

intervened, Mart McCormack, a TEDI Securities

7:37

joins us right now to comment officially

7:39

on the situation. Mart McCormick, what happened

7:42

overnight?

7:44

Yeah, I think it's pretty clear if you think of the sequence.

7:46

We had some hot inflation data come

7:49

through last couple of weeks in the US. Then we basically

7:51

had BOJ that was standing pat basically

7:53

said we're pretty much not changing our stands.

7:55

We're not doing anything. I think one of the things

7:58

is the BOG is very good at telling us what they did his But

8:00

I don't think you should look at the BOJ for four guidance

8:02

on what they'll do in the future. So dollar

8:05

yen moved rapidly higher after

8:07

those events. And essentially what you have is the

8:10

BOJ and the Ministry of Finance seem

8:12

to not have the same opinion about where they again should

8:14

be. And it looks as if overnight that Japanese

8:16

officials had intervened in the FX market to try

8:19

to strengthen the end mark.

8:21

Let's get into that distinction. It's important. So we've heard complaints

8:23

from the Ministry of Finance, We've heard next to nothing

8:25

from the Bank of Japan. We have to deal with the big

8:28

question, is it a problem or not? Do you think

8:30

it is a problem.

8:32

Well, I think part of it is.

8:33

The problem is is it speculative

8:35

and does it have kind of somewhat of

8:37

a negative impact.

8:38

I think part of it with that fax is there's always winners

8:40

and losers.

8:41

So you know, if you think about it from one perspective,

8:43

the BOJ they're helping tourism, they're

8:46

helping profit margins, sourcings are good.

8:48

You can see the exporters are accumulating larger

8:50

surpluses. But again, at the same time,

8:52

if you look at the correlation to the

8:55

you know, whether or not the politics

8:57

and the politicians are actually doing their job

9:00

properly. I think what we can see is there's a very strong

9:02

correlation with the disapproval rating and the

9:04

diet versus the movement in dollar yen.

9:06

So this is a big pain point for consumers.

9:08

Also, if you look at oil based in yen

9:11

prices, we're back to where we were in two thousand

9:13

and seven, two thousand and eight, So there is a massive

9:15

consumer shock here that's going on from the weakness

9:18

in the end. So I think the Ministry of Finance

9:20

is more focused on the broad based movement

9:22

and whether or not it's kind of dislodged it tell from

9:24

fundamentals, and the boj is essentially

9:27

just kind of sticking to their party a line that this

9:29

is not something that they want to control.

9:31

They basically control interest.

9:33

Rates and monetary policy, and the FX is

9:35

basically a function for the Ministry of Finance.

9:37

This currency's been bullied all month, Missila

9:40

describing it as a dog chasing an airborne

9:42

frisbee, which made me laugh at least this

9:44

morning. Mark. Looking at the direction to travel

9:46

over the last month or so, I want to know

9:48

whether you believe we've actually put a sustainable

9:51

ceiling now in this currency pair on

9:53

Dolly yen. And I want your opinion on this from

9:55

Kit Chooks of Silkgen, who said, basically,

9:57

what we need to achieve that is more aggressive policy

10:00

action from both the Ministry of Finance and

10:02

from the BOJ. Then the BOJ would

10:04

need to signal a willingness to normalize

10:06

policy even further, which so far,

10:08

Mark, as you know, they've been reluctant to do so.

10:10

So do you think we've established a pretty

10:13

durable, solid, resilient ceiling on

10:15

dollien around one sixty?

10:18

I think we have in part on the fact

10:20

that what intervention does is it

10:22

doesn't change the trend, it changes

10:24

a psychology. So you know, typically

10:26

what we can see is at least two weeks of

10:28

this intervention working. I

10:30

would say what we need on the other side is we do

10:33

need to see the trajectory of the dollar

10:35

change. We do need to see the fundamentals in US change.

10:37

I don't think that's going to change in favor of a

10:39

stronger again in the short term, but as you

10:41

mentioned, the BOJ does have an impact, and

10:44

you know, I think part of what if we go back to like every

10:47

major central bank when they started normalizing policy

10:49

over the last couple of years, everyone

10:51

chronically underestimated what the

10:53

terminal rate was.

10:55

And I think this was a part of it. It's price discovery.

10:57

Where in the new world central banks

10:59

are are essentially their forward guidance

11:02

and their forecasts themselves have not been able

11:04

to articulate exactly where they think the terminal

11:06

rate should be either.

11:07

So it's bad.

11:08

Basically, you know, the market has basically been

11:10

forced to kind of go through this process of

11:12

figuring it out for trial and error. And I think

11:14

basically what we should think about is that the

11:16

BOJ and the japan policy

11:20

rate, the natural policy rate is.

11:22

Much higher than what's being priced in the markets.

11:23

If you look at one year one year Japanese

11:26

basis price swap from basically around fifty basis

11:28

points, I would argue it's much higher than

11:30

that.

11:31

It's probably above one.

11:32

So I think at some point, whether or not it's

11:35

because of the currency, or whether or not just because

11:37

you know the level what's pricing the market and where

11:39

inflation is a bit more sticky in Japan.

11:42

You know, if you look at some of the stuff that's dropped out of the inflation

11:45

basket in Tokyo, and some of the other indicators

11:47

you track in Japan, they're more temporary,

11:49

they're related to fiscal stimulus

11:52

is come through if they've come through on subsidies.

11:54

So but the level of inflation in Japan

11:57

is generally pretty higher. So I would

11:59

argue here that the BOJ is going to be forced

12:01

to tighten more aggressively at what price

12:03

in the market that.

12:04

Will help stabilize the end.

12:06

But for the process to turn lower, you

12:09

just need a much more dubbish FED, which looks

12:11

increasingly unlikely at least

12:13

for the remainder of this year.

12:14

Well, Mark Gouffo, I want to ask, if short term

12:17

the US dollar is not going anywhere, won't

12:19

the BOJ, the financial chiefs

12:22

in the currency chiefs in Japan just

12:24

be dealing with this episode again.

12:27

Well, I think a big component here is if you think about

12:30

what drives dollar yet, I think

12:32

there's two factors right now that we could kind

12:34

of see in some of the models in data we track. It's

12:36

hedge funds because there's a trade in it, and

12:38

it's Japanese institutional

12:40

investors.

12:41

So I think a big piece of it is the market

12:43

wants.

12:43

To see institutional investors kind

12:45

of front run movements in the

12:48

policy, and I would argue that they are lagging

12:50

indicators. So if you think about pension funds, insurance

12:52

companies, even corporations,

12:55

you know, essentially these are probably some of the

12:57

institutions.

12:58

That are caught on the wrong side of this trade.

13:00

I think a lot of these places we're probably thinking between

13:04

that's top and dollar yen, So a

13:06

lot of these institutions were probably essentially

13:09

short dollars long en and basically

13:11

the move to one sixty just was too much, too

13:13

fast.

13:13

So that's where you start to see the shoulder taps.

13:15

But I think in terms of the movements

13:17

in dollar yen over the longer term,

13:19

the pension fund rebalancing, the insurance

13:22

companies, all these these institutions

13:24

that are really running low, unheaged

13:27

levels in dollar yen, these are the ones that'll start

13:29

to repatriate that capital. Yes,

13:31

you need some movements coming from

13:33

the FED and from the US curve, but essentially

13:36

at the same time, you also if you have BOJ tightening

13:38

policy a little bit more aggressively than what markets

13:40

are pricing, we will see the repatrion

13:42

of those flows over time, which

13:45

is.

13:45

Our expectations, but that's not going to be the short

13:47

term trade.

13:47

That is a process of how they look at an investment,

13:50

which those rebalancings usually come quarterly

13:52

or even annually.

13:53

If you want just joining us big moves overnight in

13:55

the FX market, allow me to run through them for

13:57

you. We brought through one sixty late last

13:59

night. Dolli en. This mark has just been bullying

14:01

the Japanese yen, pushing it ever higher over

14:04

the last month or so. Some big numbers taken

14:06

out, numbers we haven't seen since the early

14:08

nineteen nineties that range this

14:10

morning one sixty seventeen at the high

14:12

than the low, one fifty four, fifty

14:14

four. Japanese yen kicking in some

14:17

strength big time in the last few hours

14:19

or so, and a lot of suspicion that

14:21

the Ministry of Finance has intervened in

14:23

this market. The official comment from them so far

14:25

is no comment. This from Dow Jones

14:27

that financial authorities have intervened

14:30

in the FX market. Mark I want to

14:32

wrap things up more broadly in foreign exchange. This came

14:34

from Mary Robinson of Stanchart. He said this

14:36

for EM the combination of weaker currencies

14:39

and stronger commodity prices you alluded to

14:41

them, is creating a major dilemma

14:43

that could put rate cuts on hold indefinitely.

14:46

Mark, how do you think this story at the moment?

14:48

Pair what's happening with the US dollar with what's

14:50

happening with commodities. How does it shape central

14:52

bank decisions worldwide?

14:55

Yeah, it's absolutely critical. It's a very

14:57

strong point the two.

14:58

There's a way to think about it, right, If you have strong

15:00

growth, and strong growth is leading

15:02

to central bank changes.

15:03

That has one way of thinking the FX

15:06

market.

15:06

If it's strong growth and generally contained

15:08

disinflation, that is bearish

15:10

for the dollar, and that's where the commodity

15:12

store kicks in.

15:13

You get a terms of trade shock.

15:14

That's good for em especially in the context

15:16

that they have really high level of interest rates in

15:18

terms of carry. What we've seen recently though,

15:21

this is how it changes the market. These are

15:23

policy shocks, and the policy shocks driven

15:25

by inflation is what causes rate differentials

15:28

to matter a lot. So I think you could see this

15:30

last week Bank of Indonesia surprise

15:32

markets by hiking rates. No one was

15:34

expecting that we are now dealing with the policy

15:37

trade off for G ten and

15:39

emerging market central banks that if the FED is

15:42

basically priced to the point where they can cut once

15:44

or cut not cut at all, or even depending

15:47

on who wins the election, whether or not they actually have to hike

15:49

next year. What we're seeing is these policy

15:51

shocks are usually risk off, good for

15:53

the dollar. I think in the context of the commodities

15:55

there's some cushion for the.

15:57

Commodity exporters like Brazil and

15:59

some of the.

15:59

Other countries around the world, but it's very small

16:02

and it's going to be marginal in terms

16:04

of the context of whether or not these policy shocks

16:07

driven by US inflation, which is starting

16:09

to accelerate relative to other currencies that we

16:11

track and is more bullish for the dollar, that's

16:14

going to force central banks that will have the ability

16:16

to cut to change their perspective.

16:19

In that changing of perspective.

16:20

Is what titans financial conditions, and

16:22

it's what changes the growth outlook for the

16:24

next six to twelve months, which can be mutually

16:27

reinforcing and negative for risk and strong

16:29

for the dollar and mark.

16:30

This is great, just fantastic, gay fe'

16:42

so no'll design Franklin Sampletson expecting cuts

16:44

the stock in September at the earliest and

16:46

rights in this I believe this will be a short

16:48

and shallow right cutting cycle and expect

16:50

that tenure notes will jump around in a

16:53

full twenty five to four seventy five range.

16:55

After the shallow right cut cycle is done,

16:57

we're likely to see long gen yields moving kaigh

17:00

due.

17:00

To fiscal pressures.

17:02

So now let's start the journey with Wednesday if we can,

17:04

and great to catch up with you as always. What are

17:06

you looking for from chair and Pow in that press

17:08

conference?

17:10

So?

17:10

I think it's going to be the usual.

17:12

I think unfortunately

17:14

Chairman Powell has a very difficult time

17:17

sticking with a hawkish

17:19

tone during the Q and A, so I wouldn't

17:22

be surprised if in the Q and A,

17:24

you know, he turned a little bit dubbish

17:26

left to open some roads for rate

17:29

cuts sooner than I think the Fed probably

17:31

will cut. But you

17:34

know, this is a pretty robust

17:36

economy. We're looking at a strong labor

17:38

market, we're looking at decent wage growth,

17:40

we're looking at decent productivity gains,

17:44

and the underlying underlying

17:46

GDP data last

17:48

week was pretty darn strong and inflation

17:51

sticky. There's very little room for the Fed

17:53

to be particularly dubbish

17:56

or quick in terms of rate cuts.

17:58

Are the save yes, and I as you know, they thought they were on

18:00

a journey directly towards two

18:02

percent and maybe cutting interest rates, and the

18:04

market certainly thought it was going to be set up to

18:06

cut interest rates, maybe as soon as March. And ultimately

18:09

we start to get these bumps and they refer to them as bumps

18:11

in the road. Do you think they are just bumps in the road

18:14

or if they change course.

18:16

I'll just say that if they're bumps on the road, it's a

18:18

pretty bumpy road, and it's a pretty long one,

18:20

you know. I don't think that these are just bumps

18:22

in the road. I think what you're seeing is genuine

18:25

stickiness and inflation, and it's

18:27

coming from a lot of misreading.

18:30

I think what went on in the

18:32

post COVID period where everyone

18:34

assumed that, you know, the economy had fallen

18:36

over and gone to sleep for

18:38

an extended period, and it hadn't, and there

18:41

was so much a fiscal expansion

18:43

during that period, and we continue to see the impact

18:46

even today. I think it's going to be a long time before

18:48

we start seeing in fishion going all the way back to

18:50

to certainly not this year, sonya

18:52

Ja Pulowski.

18:53

Here, we were talking earlier before

18:56

we went live about why

18:58

one should own bonds or buy bonds, and

19:00

we're not. We're very underweight treasuries

19:02

here at TPW Advisory. You

19:04

talked about strong growth. That's the reason why we're

19:07

very underweight. Strong

19:09

growth is not really constructive for treasuries.

19:11

So I'm curious what would

19:13

be the case if

19:16

you could make the case for buying

19:18

bonds here at these levels or

19:20

where What level would you suggest

19:23

people should get long?

19:24

But I think it's I think it's very fair. What

19:26

you're saying is definitely a fair point. On

19:29

the other hand, you would say, I would

19:31

say that most institutional

19:34

investors retail investors are massively underweight

19:36

bonds. I'm not suggesting going massively

19:38

long here. We were short

19:41

and we did go neutral over the last

19:43

several months, and we're slightly long right now.

19:45

But I would say that

19:47

that range that I'm talking about in

19:49

anticipation of a rate cutting cycle

19:52

orbit shallow, and I don't anticipate

19:54

that this is going to be the rally to end all rallies.

19:57

I see some point in actually diversifying

20:00

fixed income ideally plays a diversification

20:02

role in portfolios,

20:05

and I think that's really the case to

20:07

be made to whole treasure. So

20:10

when I talk about it being shallow, the

20:12

reason is I think over the longer term,

20:15

it is inevitable almost

20:17

that we see treasuries moving systematically

20:21

higher for a while, so

20:23

we might see them come down. And I don't expect

20:25

them to rally all the way down to two percent. I

20:28

don't expect the FED cuts to take

20:30

us to two percent, and certainly treasure

20:32

aren't going to rally anywhere close to what we've

20:34

seen in the last fifteen years. But

20:37

then we will start seeing the sell off which comes from

20:39

the fiscal pressures, which is going to go on for several

20:41

years, I would anticipate, So it's a period,

20:44

it's a short cutting cycle.

20:46

I think that's really important.

20:47

To think about. Yeah, and I would agree with that completely,

20:50

Sonia, what about credit versus treasuries?

20:52

And then could you just touch on that fiscal

20:54

pressure, because you're absolutely

20:56

correct, people have very much underestimated

20:59

the power of the physical side of things

21:01

because we've been so used to monetary policy

21:03

driving everything since a great financial

21:05

crisis, So help me understand the view

21:08

between credit in the US or

21:10

globally versus treasuries. And

21:12

then this idea of fiscal how much

21:14

of a window do we have between a

21:17

rally in bonds before that

21:19

fiscal pressure really manifests.

21:21

So I'd say that the first bit on credit,

21:24

the reality is all in credit yields

21:26

will still give you if you're talking about

21:28

high yield seven and a half percent, and so you can

21:30

find pockets of value there. The all in

21:32

yield is somewhat attractive, and I can see that

21:35

in spread terms, we're looking at pretty tight

21:37

spreads. Again, the case

21:39

can be made reasonably and I'm

21:41

sure you would make this one that

21:44

we're looking at corporates which are in better financial

21:46

health than they happen historically. So I

21:49

accept all that, and I think that

21:51

credit definitely has a space in portfolios,

21:54

despite how tight it is. From an

21:56

all in perspective, there

21:59

is room for some credit in portfolios.

22:01

I'd say the second

22:03

point that you were making, which is

22:06

when does the fiscal ax

22:09

for we have

22:11

begun to see it, and we periodically

22:13

see it when the market focuses on

22:16

the fact that we're looking at six percent

22:18

plus six percent of GDP plus

22:20

deficits in a forward looking

22:22

way, and this is probably conservative in

22:25

the event that we have a split Congress at the

22:27

end of the next set of elections,

22:29

in the sense that it doesn't matter who

22:31

wins, right, as long as you have a split Congress,

22:33

you are unlikely to see much fiscal consolidation.

22:37

That I think is an important factor.

22:40

I don't think it happens or certainly

22:42

not this year. You know, we're going to see a lot of fiscal spending,

22:45

that's a given this year, but I

22:47

think you would continue to see that. When does

22:49

that really drop that ax.

22:52

I think we're going to need to see more of a buyers

22:54

strike, and as we see long

22:56

end yels move higher and higher, I

22:59

think the US will be forced

23:02

to do a certain amount of fiscal consolidation.

23:05

But until we see until we see that, I

23:08

don't see that consolidation happening. And

23:10

treasury yields absolutely can go higher

23:12

than five percent in that scenario.

23:14

Do you think that's a challenge to treasuries as

23:16

a diversifier. So now, if you think about

23:18

where the deficit is now, that's going to gap out

23:20

if we go into an economic downturn, and typically

23:23

that's when you would by treasuries.

23:25

Is that going to be a.

23:25

Challenge to that. I think there is a

23:28

challenge to that. I think right now the

23:30

growth of the economy is something that

23:32

we all have to be really

23:35

grateful for because right now there aren't

23:37

that many silver bullets, certainly not on fiscal

23:39

and very few on the monetary side. So

23:42

it's the fact that the economy continues

23:44

to grow is the one somewhat

23:47

saving grace here though the fact

23:50

that it continues to grow also indicates

23:52

very clearly that neither fiscal or monetary policy

23:54

are particularly tight.

23:56

Yep, So no, thank you.

23:58

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