Latest / Bloomberg Intelligence / Fed’s Favored Inflation Gauge Rises

Transcript

Fed’s Favored Inflation Gauge Rises · Bloomberg Intelligence

0:02
Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
0:09
Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
0:13
Speaker 1: Eastern on Apple car Playing and Broud Auto with the
0:15
Speaker 1: Bloomberg Business App. Listen on demand wherever you get your podcasts,
0:19
Speaker 1: or watch us live on YouTube.
0:23
Speaker 2: Alex Steal for the next hour on Paul Sweeney Live
0:25
Speaker 2: here on Bloomberg Interactive Broker Studio and streaming live.
0:28
Speaker 3: On YouTube as well, so you can do that as well.
0:31
Speaker 2: John Tucker, I'm looking at the inflation data. I mean,
0:34
Speaker 2: people tell me, the smart people that core PCE is
0:37
Speaker 2: a core or is one of the big big issues
0:39
Speaker 2: of things that the FED looks at. You know, month
0:42
Speaker 2: on month, zero point three percent, right in line with expectations,
0:45
Speaker 2: in line with last month.
0:46
Speaker 4: But two point eight percent, I mean that's above. It
0:49
Speaker 4: seems to me that it has stalled there.
0:52
Speaker 3: Yes, that is a great point, but it will above.
0:55
Speaker 4: But I think, true to.
0:56
Speaker 2: Me, just in my experience, two point eight percent is fine.
0:59
Speaker 2: I mean wages are higher than that, so I mean
1:01
Speaker 2: I have more money in my pocket.
1:03
Speaker 3: Relative to what I'm spending.
1:05
Speaker 2: Just if you look at the real wages four and
1:07
Speaker 2: a half five percent a nominal wage growth.
1:10
Speaker 3: You know, I don't know.
1:11
Speaker 2: It's interesting here, but I know the FED wants to
1:14
Speaker 2: go lower, doesn't it once it get down closer to
1:16
Speaker 2: that two percent level?
1:17
Speaker 4: What did the experts say.
1:19
Speaker 2: Well, I don't know, I mean they experts say, like,
1:21
Speaker 2: I think they kind of said what you.
1:22
Speaker 3: Said, which is, we kind of stalled here.
1:24
Speaker 2: We've made a lot of the economy has made a
1:27
Speaker 2: lot of progress in terms of bringing inflation down from
1:29
Speaker 2: that really high level coming out of the pandemic. But
1:32
Speaker 2: maybe this last fifty or a hundred basis points.
1:34
Speaker 3: Is going to be a little a little bit more tougher.
1:35
Speaker 2: So let's check in with somebody who actually, somehow has
1:39
Speaker 2: built a career out of doing this, and that is
1:41
Speaker 2: Ira Jersey, chief US interest rate strategist for Bloomberg Intelligence.
1:45
Speaker 2: He liked the government bond market that he focuses on,
1:48
Speaker 2: pays a lot of attention to a lot of this
1:50
Speaker 2: macroeconomic data.
1:52
Speaker 3: Hey, I don't know.
1:52
Speaker 2: I look at the inflation data today. I mean it's
1:55
Speaker 2: in line with expectations. It feels like maybe we've stalled
1:59
Speaker 2: a little bit in terms of pushing this down a little.
2:01
Speaker 3: Bit lower, but still all in all, not bad. How
2:03
Speaker 3: do you think the markets will look at this?
2:05
Speaker 5: So I agree to John's point. You know, it seems
2:08
Speaker 5: like we've stalled here on core inflation, and a big
2:11
Speaker 5: reason for that stalling in core inflation is some of
2:13
Speaker 5: the consumption that's going on. So services continues to be
2:17
Speaker 5: the main driver of that core PCE number being as
2:21
Speaker 5: high as it is because excluding gasoline and fuel prices
2:25
Speaker 5: which have come down, which is a reason you see
2:27
Speaker 5: headline year on year deflator down at two point three percent,
2:33
Speaker 5: the services continues to grow like gangbusters. So people are
2:36
Speaker 5: still spending money. You look at that personal spending data
2:39
Speaker 5: and you can see that. You know, people have money
2:41
Speaker 5: in their pockets and they're willing to spend it. So
2:43
Speaker 5: I think overall this is a steady state from where
2:46
Speaker 5: we were.
2:46
Speaker 6: Now.
2:47
Speaker 5: Does this mean that it gives a green light for
2:49
Speaker 5: the Fed to cut interest rates in December? They could
2:52
Speaker 5: if they wanted to, But you could also couch this
2:55
Speaker 5: in Hey, things still aren't bad enough for them to
2:58
Speaker 5: have to cut aggressively, so maybe they could skip this
3:02
Speaker 5: one and then reassess and then go again in January.
3:06
Speaker 5: But you know, next week's payrolls numbers will be the
3:09
Speaker 5: deciding factor of that more likely.
3:11
Speaker 4: Does this beg the question where where's everybody getting this
3:14
Speaker 4: money from? Or are they just charging other credit cards?
3:16
Speaker 5: Well, well, well, the simple answer to that, John is
3:19
Speaker 5: it's coming from wages. So when you look at the
3:21
Speaker 5: personal income numbers that that came out today, you have
3:25
Speaker 5: a zero point six increase month on month in personal
3:28
Speaker 5: income and if you know analyze annualize that you're talking
3:32
Speaker 5: about well well over five percent increase in wages in
3:36
Speaker 5: personal income year on year. Now, some of that comes
3:40
Speaker 5: from government transfers and the like, but a lot of
3:42
Speaker 5: that that that increase in government transfers really usually happens
3:46
Speaker 5: early in the year when you get costs of living,
3:48
Speaker 5: adjustments to social security and the like. So so it's
3:51
Speaker 5: really coming people are spending their extra income that they're receiving.
3:55
Speaker 5: So I don't see how that stops unless the labor
3:58
Speaker 5: market really turns around.
3:59
Speaker 2: Meaning here, So what else do you think the FED
4:03
Speaker 2: is looking at here? Because it feels like inflation by
4:07
Speaker 2: and large most parts of the economy kind of under control.
4:10
Speaker 2: Is it primarily labor here that they're looking at now?
4:13
Speaker 5: Ira, Yeah, they shifted that basically four or five months
4:18
Speaker 5: ago toward you know, looking at the job market, and
4:21
Speaker 5: it looked like for a very brief period of time
4:23
Speaker 5: earlier this year, in the middle of the year, that
4:25
Speaker 5: the job market was starting to slow very meaningfully. It's
4:28
Speaker 5: a reason why in a way, the Fed maybe panicked
4:30
Speaker 5: a little bit in September and cut by fifty basis points.
4:34
Speaker 5: You saw some anecdotal data out of the Beige Book
4:37
Speaker 5: and out of some of the other surveys that employment
4:41
Speaker 5: was softening, but you haven't seen that in the hard data.
4:44
Speaker 5: And what you've seen the treasury market do is follow
4:46
Speaker 5: the hard data, the actual data that's coming out, as
4:48
Speaker 5: opposed to the survey data, which maybe was influenced by
4:52
Speaker 5: the election, influenced by just sentiment of things and the
4:56
Speaker 5: political aspects that were going on where everyone was so
4:59
Speaker 5: divided and unsure about the future. But that didn't stop
5:02
Speaker 5: them from actually spending money or actually hiring people or
5:06
Speaker 5: giving raises. And you see that in today's data, where
5:09
Speaker 5: you know, personal personal spending was up zero point four percent.
5:12
Speaker 5: That's fine, right, but it's really that income numbers that
5:15
Speaker 5: come up, which also means ironically, Paul, that you have
5:18
Speaker 5: to remember that means the savings rate went up, and
5:20
Speaker 5: I haven't looked dug into the data significantly, but the
5:23
Speaker 5: savings rate now is four point four percent, up from
5:26
Speaker 5: four point one percent the month before. So you know,
5:29
Speaker 5: that increase in the savings rate means that there's more
5:31
Speaker 5: people putting money into money market mutual funds and into
5:34
Speaker 5: other investments. So that's something else that can prop up
5:37
Speaker 5: some risk asset markets maybe as as we move forward,
5:40
Speaker 5: and people are not only spending, but they're also saving.
5:42
Speaker 4: So the way it works, you've got to track workers.
5:45
Speaker 4: You're going to pay them more to attract them to
5:48
Speaker 4: keep them. If you're going to pay them more, then
5:50
Speaker 4: you have to raise your prices and pass that along
5:53
Speaker 4: to the customers who are actually the workers that you
5:56
Speaker 4: just hired, that you just paid.
5:58
Speaker 5: So well, yes, John, that's true. But at the same time,
6:02
Speaker 5: what you are seeing is that inflation is going up
6:05
Speaker 5: just a little bit more than consumer spending, right, So
6:09
Speaker 5: so what that probably means is that margins are basically
6:12
Speaker 5: being maintained, not necessarily increasing. And in services, and keep
6:16
Speaker 5: in mind, we don't have the same kind of you know,
6:20
Speaker 5: micro level detail in services because a lot of services
6:23
Speaker 5: are smaller businesses. They're franchises and the like, so you
6:26
Speaker 5: don't have the kind of you know, information like we
6:29
Speaker 5: always here at Bloomberg and a lot of financial market analysts, right,
6:33
Speaker 5: we see the public data that comes in from public
6:36
Speaker 5: companies and they give us a whole slew of information.
6:39
Speaker 5: But that's but there's most services companies are not those
6:43
Speaker 5: large corporations. They're smaller businesses or maybe franchises of some
6:48
Speaker 5: of the larger corporations that you don't necessarily know exactly
6:51
Speaker 5: what their margins are, exactly what they're charging at the
6:53
Speaker 5: ground level. And that's one reason why the PC data
6:55
Speaker 5: is so important because it does do a better job
6:58
Speaker 5: than say the retail sales figures in determining what service
7:01
Speaker 5: is spending and services prices are doing.
7:04
Speaker 2: Lisa Bromwitz told me this morning that there's a government
7:07
Speaker 2: treasury auction do what.
7:09
Speaker 4: I don't care about the seven years, right, it is.
7:12
Speaker 2: About that I refer for the folks out there and
7:15
Speaker 2: tell us why it's important.
7:17
Speaker 5: Yeah, Well, it's important because the government has to fund
7:20
Speaker 5: the massive deficit. So one of the reasons why personal
7:23
Speaker 5: spending is where it is as high as it is
7:26
Speaker 5: is because the government transfers money to the household sector,
7:28
Speaker 5: and where it gets that money from is from savers,
7:31
Speaker 5: So it is a bit of a circular thing going
7:33
Speaker 5: on here where where Right now, twenty eight percent of
7:37
Speaker 5: consumption is coming from government transfers, so basically social security recipients, Medicare, Medicaid,
7:44
Speaker 5: you know, and other you know programs that the government
7:47
Speaker 5: runs and gives transfers to the household and business sector.
7:51
Speaker 5: That's contributing about a quarter of our personal consumption right now,
7:55
Speaker 5: which means that that it has to be maintained in
7:58
Speaker 5: order for the economy to to continue to be as
8:01
Speaker 5: robust as it has been. And the government bond auctions
8:05
Speaker 5: just show how much demand there is for new bonds
8:08
Speaker 5: being issued. And forty four billion dollars of seven year
8:11
Speaker 5: supply right before a holiday weekend, when you know, maybe
8:15
Speaker 5: a lot of senior traders are off, you know, can
8:17
Speaker 5: create some fireworks and maybe move the market a little
8:20
Speaker 5: bit if demand isn't particularly high. That being said, the
8:23
Speaker 5: last couple of auctions this week have actually gone okay,
8:26
Speaker 5: So I don't suspect that the seven year is going
8:29
Speaker 5: to be particularly bad. But if you do see a
8:32
Speaker 5: big slip in the amount of demand at this auction
8:35
Speaker 5: and you wind up with pushing yields a bit higher.
8:38
Speaker 5: You know, that means we have to even pay more
8:40
Speaker 5: attention when we get the auctions next month to see
8:43
Speaker 5: if that is just a one off flip on a
8:45
Speaker 5: holiday week or if it's something that is more concerning
8:48
Speaker 5: in terms of demand for new bonds.
8:51
Speaker 4: Is there a loud and clear message coming from the bond.
8:54
Speaker 5: Market, Well, if there is one, it's that the economies
9:00
Speaker 5: better than a lot of people thought it was just
9:02
Speaker 5: six months ago. And and the market right now is
9:06
Speaker 5: signaling that it doesn't expect a very rapid pace of
9:10
Speaker 5: cuts or cutsow below four percent for example on the
9:15
Speaker 5: on the Fed funds rate right now. So it's you know,
9:17
Speaker 5: the market is expecting more cuts, but it's only expecting
9:20
Speaker 5: you know, maybe another fifty to one hundred basis points
9:22
Speaker 5: at the most in terms of interest rate declines because
9:26
Speaker 5: the economy has been so strong, and that is confirmed
9:29
Speaker 5: by this data, which is the first data that we
9:32
Speaker 5: get for the fourth quarter, of course, and and the
9:34
Speaker 5: fact that it is so strong I think bodes well
9:36
Speaker 5: for things like GDP. You're going to see GDP now
9:39
Speaker 5: forecasts get get updated after this data and they're all
9:43
Speaker 5: going to show that the fourth quarter is pretty good.
9:45
Speaker 5: Atlanta FED, Cleveland FED. There's a couple of different people,
9:48
Speaker 5: you know, Bloomer Bloomberg Economics has their own now cast
9:51
Speaker 5: as well, so so you know, take a look at
9:53
Speaker 5: those and see and you're going to see that the
9:56
Speaker 5: market right now is suggesting that we're that the economy
10:00
Speaker 5: is reasonably strong, and the STATA just confirms that we
10:03
Speaker 5: just had.
10:03
Speaker 4: An election, And I don't think that's the message I
10:05
Speaker 4: took away from the election results.
10:08
Speaker 5: Yeah, that's I you know, obviously there was a lot
10:11
Speaker 5: that probably went into the election, but you know, clearly
10:16
Speaker 5: there were people who, you know, maybe blame the Biden
10:18
Speaker 5: administration for the inflation that we had, right and that
10:20
Speaker 5: is backward looking, not forward looking. But the economy is
10:24
Speaker 5: not doing badly regardless of who's in the White House.
10:27
Speaker 5: And I suspect that that could certainly change right going
10:33
Speaker 5: into twenty twenty five, but at least where we sit
10:36
Speaker 5: right now, you know, over the next two three quarters,
10:40
Speaker 5: I don't think that we're going to wind up seeing
10:41
Speaker 5: the recession that a lot of people, including myself, thought
10:44
Speaker 5: we were going to see by this time. But by
10:47
Speaker 5: this time when we were looking back eighteen months ago.
10:50
Speaker 3: I had great stuff. Thanks so much for joining us,
10:51
Speaker 3: our Jersey folks.
10:52
Speaker 2: He's the chief US interst rate strategist for Bloomberg Intelligence.
10:55
Speaker 2: Safely asconced then another Princeton, New Jersey officers nobody. It's
11:02
Speaker 2: a great office, by the way, and they redid it.
11:04
Speaker 2: It's an awesome place for those folks to work down
11:07
Speaker 2: a lot of good folks down there in Princeton.
11:10
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
11:14
Speaker 1: weekdays at ten am Eastern on applecard Play and Android
11:17
Speaker 1: Auto with the Bloomberg Business App. You can also listen
11:20
Speaker 1: live on Amazon Alexa from our flagship New York station
11:24
Speaker 1: Just say Alexa playing Bloomberg eleven thirty.
11:28
Speaker 2: John Tucker sitting in for Alex Steel and I'm Paul
11:31
Speaker 2: Swhen you were live here in our Bloomberg Interactive Broker studio,
11:34
Speaker 2: we're streaming live on YouTube, so you have to go
11:35
Speaker 2: over to YouTube dot com search Bloomberg Podcast and that's
11:38
Speaker 2: where you will find us. I don't know, John, We're
11:40
Speaker 2: getting some pretty solid economic data. I've the earnings that
11:44
Speaker 2: were just kind of finishing up were pretty solid. Expectations
11:47
Speaker 2: are still pretty positive for earnings. I got a FED
11:49
Speaker 2: that I think is cutting rates. I think that's all
11:52
Speaker 2: pretty constructive for markets. Here, let's check in with somebody
11:54
Speaker 2: who does this stuff for a living, Sylvia Jablonski, chief
11:57
Speaker 2: executive Officer and chief investment Officer, Defiance TFS. You know, Sylvia,
12:02
Speaker 2: I'd love to just get your thoughts just broadly defined,
12:05
Speaker 2: to start off here about where you think we are
12:07
Speaker 2: with some just kind of the market outlook as we
12:09
Speaker 2: think about twenty twenty five. Where are you guys in
12:12
Speaker 2: terms of thinking about where this could go.
12:15
Speaker 7: Well, good morning, and I'm happy early Thanksgiving to you both. Well,
12:20
Speaker 7: I think that the markets are probably poised for a
12:23
Speaker 7: small rally into year end. We'll probably you know, go
12:26
Speaker 7: back to these highs that we've tested this year and
12:29
Speaker 7: see that happen in the next month or so.
12:31
Speaker 8: You had a great setup there, right.
12:32
Speaker 7: The FED has cut already and is potentially on a
12:35
Speaker 7: path to continue cutting or at least holding and not raising. So,
12:39
Speaker 7: you know, financial conditions should be a little bit better
12:41
Speaker 7: for corporations. We have a president that's coming in that's
12:44
Speaker 7: pro deregulation, you know, market friendly, tax cuts, things like that,
12:48
Speaker 7: So that tends to, you know, do well for markets
12:51
Speaker 7: as well. So you know, my view on this is
12:53
Speaker 7: that for the next call it eighteen months or so,
12:56
Speaker 7: I think we're in a pretty smooth soft you know, spot,
12:59
Speaker 7: barring any kind of made or changes to fiscal monetary
13:02
Speaker 7: policy to see the SMP and the broader based indices
13:05
Speaker 7: trend upward.
13:07
Speaker 4: How much money's on the sidelines at this point, Sylvia, Yeah,
13:10
Speaker 4: a lot, I think, you know, to the tune of
13:13
Speaker 4: seven trillion or more.
13:14
Speaker 7: And I think that that's because you know, a lot
13:16
Speaker 7: of this kind of risk off mentality came about in
13:19
Speaker 7: twenty twenty two and didn't come back into the markets,
13:22
Speaker 7: particularly when you know five percent is the type of
13:25
Speaker 7: interest rate you're getting on your cash, and so I
13:28
Speaker 7: think that's changed now. You know, the SMP is going
13:30
Speaker 7: to be probably up twenty five percent or so this year,
13:33
Speaker 7: all of a sudden, it really makes sense to put
13:36
Speaker 7: some of that dry powder to work in the markets.
13:38
Speaker 7: And I think, you know, we're going to start seeing
13:39
Speaker 7: that come back in in the next couple of years.
13:42
Speaker 7: And I think you know that with high digit, high
13:44
Speaker 7: single digit corporate earnings outlook, cash coming off of the sidelines,
13:47
Speaker 7: that bodes well for at least a pretty decent average
13:51
Speaker 7: rate of return type of SMP five hundred.
13:54
Speaker 2: Sylvie, just with your ATF platform, I always love to
13:57
Speaker 2: just ask folks like you that are seeing the flows
14:00
Speaker 2: out there, where are the flows going in your ETF platform.
14:06
Speaker 7: Well, the most the most popular ETF that we have
14:09
Speaker 7: and potentially that you know Planet Earth has right now
14:12
Speaker 7: because I see everybody writing about it and talking about it,
14:14
Speaker 7: is the leverage micro Strategy ETF. So we have a
14:17
Speaker 7: two beta micro strategy ETF ticker symbols mst X, and
14:21
Speaker 7: you know, it's it's seen almost a couple of billions
14:23
Speaker 7: of flows just since its inception, which is basically September
14:28
Speaker 7: late August, and so that's just been a wildly popular trade.
14:31
Speaker 8: And then the election results and this idea.
14:33
Speaker 7: Around you know again deregulation and crypto adoptance really really
14:37
Speaker 7: helped that ETF.
14:38
Speaker 8: It's been widely popular there. Second place though is quantum.
14:42
Speaker 7: And there are all these little stocks out there that
14:44
Speaker 7: people don't talk too much about, but you know, I
14:46
Speaker 7: on qqba q qb ts like some of these small
14:50
Speaker 7: quantum computing companies. We have them in our Quantum ETF
14:53
Speaker 7: and so you know, a lot of flows have flowed
14:56
Speaker 7: into there is this AI evolution continues to grow.
15:00
Speaker 4: That's the little companies. I was fortunate enough to see
15:02
Speaker 4: the up and sleepy hollow, the IBM research center, the
15:07
Speaker 4: I think it's the Watson Reaches.
15:08
Speaker 8: Yeah, they've got a huge quantum center. Yeah.
15:11
Speaker 4: Yeah, and they've got this this thing is it looks
15:14
Speaker 4: really cool. Most of it is just cooling coils. It's
15:17
Speaker 4: like a big air conditioner, a big freezer for what
15:20
Speaker 4: is essentially a chip like this big and they have
15:23
Speaker 4: to keep it just above absolute zero, which is really
15:26
Speaker 4: really cool. I think of quantum computing those sylvia as
15:30
Speaker 4: sort of like you know, fusion energy. It's going to
15:32
Speaker 4: be another five ten years and then we get there,
15:35
Speaker 4: it's going to be another five ten years, et cetera.
15:37
Speaker 2: Center.
15:39
Speaker 7: Yeah, I think, you know, the broad topic and idea
15:42
Speaker 7: for us is more around the idea of supercomputing, you know,
15:45
Speaker 7: machine learning, AI plus quantum competing. But we're kind of
15:48
Speaker 7: referring to the companies that are responsible for those coolers
15:51
Speaker 7: that you saw right, and they're they're kind of feeding
15:54
Speaker 7: the hyperscalers and their AI and machine learning R and
15:57
Speaker 7: D and you know they provide these cooling systems or else,
16:00
Speaker 7: you know, basic quantum computers for them to kind of
16:02
Speaker 7: run their data on. And so it does exist already
16:05
Speaker 7: to some degree, right, Like you have banks running supercomputing
16:08
Speaker 7: to detect risk. It's used in cryptography already. You know,
16:13
Speaker 7: drug research has some level of machine learning and supercomputing.
16:16
Speaker 7: But it's the idea that these quantum computers will come
16:19
Speaker 7: in and allow this to be done more efficiently and
16:22
Speaker 7: more quickly to make it, you know, kind of more commercial.
16:24
Speaker 8: Is what's going to play out, I think in the
16:26
Speaker 8: next few years.
16:27
Speaker 4: And if you have an algorithm, you can actually send
16:29
Speaker 4: it to IBM and they will run it for you.
16:31
Speaker 9: Is that right?
16:32
Speaker 4: Clean up all the mistakes that invariably happen to.
16:35
Speaker 3: Interesting So may you talk to us a little bit
16:39
Speaker 3: about x MAG, x M A G.
16:43
Speaker 8: Yeah.
16:43
Speaker 7: So if you know, if you're of the mindset that
16:45
Speaker 7: the that the MAG seven are kind of at their
16:48
Speaker 7: highs and have you know, high valuations, and you're looking
16:51
Speaker 7: to put that seven trillion to work in the market,
16:54
Speaker 7: but you know you're kind of worried about those names
16:56
Speaker 7: not being the leaders.
16:57
Speaker 8: We launch x MAG.
16:58
Speaker 7: So that's the S and P five hundred minus the
17:00
Speaker 7: top seven tech companies, right, And so the thought there is,
17:04
Speaker 7: you know, number one, diversify small caps. You know, domestic
17:07
Speaker 7: policy things like this might be whove the rest of
17:10
Speaker 7: the market sub Max seven. Again, you have winners in
17:14
Speaker 7: there in the other four hundred and ninety seven. You know,
17:16
Speaker 7: names like whether it's Costco or Broadcom or Fishtraw, Constellation Energy,
17:20
Speaker 7: like all of these stocks that are doing quite well
17:23
Speaker 7: this year and aren't talked about. You know, we kind
17:25
Speaker 7: of let them fly because it's a market cap waiting.
17:27
Speaker 7: But that's the diversification trade. And the second argument there is,
17:31
Speaker 7: you know, we love the Max seven. We just know
17:33
Speaker 7: you already have them. If you own SMP, you know
17:36
Speaker 7: a third of that is the MAC seven. So you've
17:38
Speaker 7: got it somewhere.
17:39
Speaker 4: You're mentioning tax cuts, et cetera, and so forth, the regulation,
17:43
Speaker 4: all that stuff. How much of that is actually baked
17:46
Speaker 4: into company forecasts right now?
17:49
Speaker 8: I think, you know, probably not much. I don't know.
17:54
Speaker 7: I think the market was anticipating this winner, but then
17:57
Speaker 7: there was enough of uncertainty where you kind of saw
17:59
Speaker 7: things like the dollar and gold and commodities and a
18:02
Speaker 7: ten year pop around a lot before the election, so
18:05
Speaker 7: I don't think any of it was fully priced in.
18:07
Speaker 7: I think that post election pop kind of gave us
18:09
Speaker 7: some of that. But longer term, I think this will
18:12
Speaker 7: play out as companies actually save this money and expand
18:15
Speaker 7: balance sheets and you know, kind of have better taxes,
18:18
Speaker 7: more capex hopefully and some growth.
18:20
Speaker 2: All Right, Sylvia, thank you so much for joining us.
18:22
Speaker 2: Always appreciate getting few mina at your time. Sylvia Jablonski,
18:24
Speaker 2: Chief executive Officer and chief investment Officer at Defiance EF.
18:31
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
18:35
Speaker 1: weekdays at ten am Eastern on Apple car Playing and
18:38
Speaker 1: broud Otto with the Bloomberg Business app. Listen on demand
18:40
Speaker 1: wherever you get your podcasts, or watch us live on YouTube.
18:44
Speaker 2: Do you have plitical front Some good news coming out
18:48
Speaker 2: of the Middle East? Lebanon ceasefire starts after Israel and
18:52
Speaker 2: Hesbloh reach a deal.
18:54
Speaker 3: That's the good news.
18:54
Speaker 2: Let's break it down a little bit and see what
18:56
Speaker 2: it means for that part of the world. Ned Lazareth,
18:59
Speaker 2: Associate Professor of International Affairs at George Washington University down
19:03
Speaker 2: here in Washington, d C. Joins us via that zoom thing.
19:06
Speaker 2: Ned talk to us about this agreement. What does this
19:08
Speaker 2: agreement say, what does it do? How is important for
19:11
Speaker 2: that part of the world.
19:14
Speaker 9: It's extremely important and has the potential to be a
19:18
Speaker 9: turning point in what has become the most active front
19:23
Speaker 9: of the war. It sets out a sixty day period
19:29
Speaker 9: during which Israel and Hezbela are supposed to cease fire,
19:36
Speaker 9: and so that means ceasing the bombardments of many areas
19:42
Speaker 9: in Lebanon, ceasing idea of troops that have gone up
19:46
Speaker 9: to the Litany River in Lebanese territory, ceasing the advance
19:50
Speaker 9: of idea of troops, and ceasing as Belaw has continued
19:54
Speaker 9: missile fire on Israel, firing dozens, often hundreds of missiles
19:59
Speaker 9: every day despite all of the blows that has absorbed
20:03
Speaker 9: from Israel in the last few months. So the fire
20:07
Speaker 9: is supposed to cease over a sixty day period. The
20:11
Speaker 9: Israeli military is to withdraw from Lebanese territory back to
20:19
Speaker 9: the international border, and the Lebanese army is supposed to
20:24
Speaker 9: deploy in southern Lebanon. So that is in tune with
20:29
Speaker 9: a former a previous UN resolution seventeen oh one. UN
20:34
Speaker 9: Security Council resolution that ended the two thousand and six
20:39
Speaker 9: war between Israel and has Belah. But the Lebanese army
20:42
Speaker 9: never did deploy and instead has been built an enormous
20:47
Speaker 9: militarized area right up to the Israeli border, including tunnels,
20:52
Speaker 9: including massive amounts of munitions, all set for the order
20:58
Speaker 9: to invade northern Israel. What the Israeli military has sought
21:03
Speaker 9: to do is to destroy hesbelaws, very elaborate set up
21:09
Speaker 9: for an invasion. And what is meant to happen now
21:12
Speaker 9: in these sixty days is that Hesbla is meant to
21:16
Speaker 9: not return to southern Lebanon and not to re arm.
21:21
Speaker 9: The test will be if this is actually what happens,
21:25
Speaker 9: because the you know, the chaotic reality, you know, may
21:29
Speaker 9: put the best of intentions. Of course, right away after
21:35
Speaker 9: announcing the ceasefire, there were you know, celebrations of relieved
21:41
Speaker 9: people in Lebanon and protests from many of the displaced
21:47
Speaker 9: residents of northern Israel who don't trust that the agreement
21:52
Speaker 9: will in fact be enforced.
21:54
Speaker 4: This is Hesblah and Lebanon. What about to the south,
21:58
Speaker 4: with God, what's happening on that front? Does this cover
22:03
Speaker 4: anything like that or could it be used as a
22:06
Speaker 4: template for something with respect to Hamas well.
22:10
Speaker 9: President Biden certainly expressed that hope in his announcement of
22:15
Speaker 9: the ceasefire, and the the Israeli families whose family members
22:20
Speaker 9: are being held hostage by Hamas have repeatedly expressed both
22:26
Speaker 9: that hope and also some anger, saying that you know,
22:32
Speaker 9: similar terms could could result in a deal with Hamas
22:36
Speaker 9: that would free their loved ones from captivity. And so
22:41
Speaker 9: there was anger at the government that it has prioritized
22:45
Speaker 9: the Northern Front and not the release of the hostages
22:49
Speaker 9: while sort of accepting terms with Hasballah that the Israeli
22:53
Speaker 9: government rejects with Hamas. So we will we will see
22:59
Speaker 9: if there is renewed momentum. Hamas has also issued a
23:05
Speaker 9: statement that it is you know that that it is
23:09
Speaker 9: ready ready for a deal. So that is that may
23:12
Speaker 9: perhaps just be meant to put pressure on the on
23:15
Speaker 9: the Israeli government right, because the far right elements in
23:19
Speaker 9: the Israeli government on which Bignami Natail's coalition depends, do
23:24
Speaker 9: not really want any kind of hostage deal. They want
23:28
Speaker 9: to reoccupy the Gaza strip permanently.
23:32
Speaker 2: Professor, what was the role of Iran in this ceasefire agreement,
23:37
Speaker 2: and what do you think the role will be going
23:39
Speaker 2: forward as a which to a gaza.
23:42
Speaker 9: So the ceasefire agreement is binding on Israel and Hasbella
23:49
Speaker 9: has Belah is the armed actor that needs to cease fire,
23:52
Speaker 9: but it's not signed by Hesbella, and it's not it's
23:56
Speaker 9: an agreement between Israel and the State of Lebanon. It
23:59
Speaker 9: is simply understood, uh, that hes Belah must follow this
24:03
Speaker 9: agreement and a sense to it. And it's a similar
24:07
Speaker 9: thing with Iran. So hes Bella is a proxy of Iran.
24:11
Speaker 9: It is armed, funded, trained, supported by Iran.
24:16
Speaker 7: Uh.
24:16
Speaker 9: And so without Iranian consent, this agreement wouldn't be happening. Uh.
24:23
Speaker 9: And uh, you know, I think the UH it's very
24:27
Speaker 9: clear that Israel's military campaign against Hezbollah in the last
24:31
Speaker 9: three months has been devastatingly effective. UH and uh and
24:36
Speaker 9: has forced uh, you know, the organization to accept terms
24:40
Speaker 9: that it probably would not have wanted to. Nonetheless, has
24:44
Speaker 9: Belah is apparently, uh, you know, putting out messages in
24:49
Speaker 9: the media celebrating its great victory today. But in reality,
24:56
Speaker 9: it's very it's very clear what has happened.
24:59
Speaker 5: Uh.
24:59
Speaker 9: None the less, Hesbilla remains a potent organization and again
25:03
Speaker 9: has continued to fire hundreds of missiles into Israel every
25:05
Speaker 9: day during the past few months.
25:07
Speaker 4: How many caveats or provisions does this agreement have? Those
25:12
Speaker 4: aren't the usual words you'll toss around a diplomacy with
25:16
Speaker 4: agreements such as this. But is there a chance that
25:23
Speaker 4: Israel's militaries is going to strike at the slightest provocation
25:28
Speaker 4: and send things spiraling back to square one?
25:33
Speaker 9: There there are, I mean, the key caveat is in
25:37
Speaker 9: a side letter between the US government and the Israeli government,
25:42
Speaker 9: and that caveat says that if Hasbolah attempts to re
25:47
Speaker 9: arm attempts to re infiltrate personnel into the southern Lebanon
25:53
Speaker 9: area on the Israeli border, that Israel retains the right
25:58
Speaker 9: to strike to use military force to prevent the re
26:04
Speaker 9: emergence of that threat. President Biden explained that by saying
26:11
Speaker 9: Israel has the right to defend itself as any country does,
26:14
Speaker 9: and that Lebanon has the right to its sovereignty. So
26:18
Speaker 9: that's a side letter between the US and Israel. Because
26:21
Speaker 9: the Lebanese government would not sign off on an agreement
26:25
Speaker 9: that included an inherent violation of its sovereignty.
26:28
Speaker 3: All right, Ned, thank you very much, really appreciated.
26:30
Speaker 2: Ned. Lazarus's associate professor of International Affairs, George Washington University
26:34
Speaker 2: down there in Washington, d C. Getting the latest analysis
26:38
Speaker 2: of this ceasefire between Israel and Hesbola, which is a
26:44
Speaker 2: good news for that.
26:45
Speaker 3: Part of the world. And we'll see how much more
26:47
Speaker 3: we can get.
26:48
Speaker 5: This is Bloomberg.
26:50
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
26:54
Speaker 1: weekdays at ten am Eastern on applecar Play and Android
26:57
Speaker 1: Otto with the Bloomberg Business. You can also listen live
27:01
Speaker 1: on Amazon Alexa from our flagship New York station Just
27:04
Speaker 1: Say Alexa playing Bloomberg eleven thirty.
27:08
Speaker 3: Brian Wellen joins us here in our studio.
27:10
Speaker 10: He's in New York.
27:10
Speaker 3: How about that?
27:11
Speaker 2: Brian Wellen, Chief Investment Officer and Generalists Portfolio Manager at TCW.
27:15
Speaker 3: Hey, Brian, when you and your team got up.
27:17
Speaker 2: The day after the election, you centered around your big
27:20
Speaker 2: conference room.
27:21
Speaker 3: Did you all look at each other saying, do we
27:22
Speaker 3: have to change anything? Here's what just changed, if anything overnight?
27:26
Speaker 3: How did you guys?
27:26
Speaker 4: We did?
27:27
Speaker 11: In fact, we kind of scratched our head a little
27:29
Speaker 11: bit because we felt like the market's reaction was just
27:31
Speaker 11: kind of a knee jerk reaction.
27:33
Speaker 5: You know.
27:33
Speaker 11: It felt like it was the holidays coming up. It
27:35
Speaker 11: felt like the market hit the easy button. They just
27:37
Speaker 11: wanted to take everything kind of on the surface, which
27:39
Speaker 11: was like, Okay, we're gonna have tariffs, you know, twenty
27:42
Speaker 11: percent on the rest of the world, sixty percent on China,
27:45
Speaker 11: We're going to deport tens of millions of people, and
27:47
Speaker 11: inflation's going to jump up.
27:48
Speaker 1: You know.
27:48
Speaker 11: We sat back and we said, you know what, like, actually,
27:51
Speaker 11: you know, inflation was running at about two point two
27:53
Speaker 11: percent when Trump came into office the first time, and
27:56
Speaker 11: through his presidency up until you know, the pandemic.
27:58
Speaker 4: It actually went down point one.
28:00
Speaker 11: And that included tough immigration policies that included tariffs, and
28:04
Speaker 11: then on the growth side, the market all of a
28:05
Speaker 11: sudden said, oh, oh my gosh, we're gonna we're gonna
28:07
Speaker 11: cut corporate taxes. We're gonna, you know, maybe do this
28:10
Speaker 11: adjustment to the salt man. I know that's near and
28:13
Speaker 11: dear to your heart, huge for me, right, and all
28:16
Speaker 11: of a sudden, we're gonna have higher treasure issues and
28:18
Speaker 11: higher budget deficits and treasure yields have to go higher.
28:21
Speaker 11: You know, we sat back and said, wait a minute,
28:22
Speaker 11: Like the first time Trump came into office, it was
28:25
Speaker 11: one hundred percent debt.
28:25
Speaker 3: To GDP with three percent budget deficits.
28:28
Speaker 11: You know, right now he's coming with one hundred and
28:30
Speaker 11: twenty percent debt to GDP the budget deficits over six percent. Yeah,
28:33
Speaker 11: you've had a Republican suitep. However, the margin in the
28:36
Speaker 11: House is not that great. There's certainly budget hawks out there,
28:39
Speaker 11: and so you know, at the end of the day,
28:41
Speaker 11: we just didn't feel like, you know, the narrative or
28:44
Speaker 11: the landscape had changed that much, and that whatever was
28:47
Speaker 11: going to get done, was it going to get done
28:48
Speaker 11: and probably a deluded manner from the administration, and what
28:51
Speaker 11: was going to be effective was probably going to be
28:53
Speaker 11: something later next year, if not twenty twenty six. And
28:56
Speaker 11: so from our perspective, we felt like it was an overreaction,
28:58
Speaker 11: particularly an interest rates, and rather we'd rather kind of
29:01
Speaker 11: get back and focus on maybe the economic trends that
29:03
Speaker 11: were in place before the election day.
29:05
Speaker 6: It's interesting because I always put the question usually the
29:08
Speaker 6: stocks guys on my TV show Bloomberg Open Interest weekdays
29:12
Speaker 6: nine to eleven AM Boom.
29:13
Speaker 3: I always listen, so I always put the question would
29:16
Speaker 3: you rather be in stocks or bonds?
29:18
Speaker 6: Going into Trump two point zero? Because he's gonna, he says, deregulate,
29:22
Speaker 6: he's gonna cut taxes, he's going to you know, raise tariffs,
29:26
Speaker 6: and it would seem that stocks are the answer. But
29:29
Speaker 6: right now the S and P is yielding like less
29:32
Speaker 6: than four percent, right and the ten uere is I
29:35
Speaker 6: don't know, four to twenty six right now.
29:38
Speaker 11: So what do you think I think that Well, the
29:40
Speaker 11: knee direk reaction was, you know, bonds went down in
29:42
Speaker 11: price and stocks went up. And now I think cooler
29:44
Speaker 11: heads are prevailing, and they're kind of looking at what
29:46
Speaker 11: I said earlier, which is saying, you know what, like
29:48
Speaker 11: maybe the story right now should be like what was
29:50
Speaker 11: the economic and trend in.
29:51
Speaker 3: Place going into November?
29:53
Speaker 11: And you know we can talk about that and look
29:55
Speaker 11: at the end of the day, you know, Trump is Trump.
29:57
Speaker 11: You're gonna get a lot of volatility. And you know,
30:00
Speaker 11: let's not forget who he's a commercial real estate guy.
30:02
Speaker 11: You know Donald Trump wants lower interest rates, right, you
30:04
Speaker 11: know that that's good from his perspective, and I think
30:07
Speaker 11: the administrations.
30:08
Speaker 3: Them, but can you get them.
30:09
Speaker 6: I mean, you look at dots go on the terminal.
30:11
Speaker 9: Dude.
30:11
Speaker 6: If you look at dots go right now, and then
30:14
Speaker 6: you punch in FED funds futures, the market is pricing
30:19
Speaker 6: a terminal rate of like four percent, and the Fed
30:22
Speaker 6: is penciled in a rate of less than three.
30:24
Speaker 4: Right.
30:26
Speaker 3: You know, he's probably going to get him.
30:27
Speaker 11: Unfortunately for the administration, he ain't not get him in
30:29
Speaker 11: the way he wants, you know, which may mean that
30:32
Speaker 11: some of the softening trends we've seen in the economy
30:35
Speaker 11: and the labor market that were in place before the election,
30:39
Speaker 11: you know, from our opinion, they're more likely going to
30:42
Speaker 11: be what you want to look to in terms of direction,
30:43
Speaker 11: which means once we come to the new year, we
30:45
Speaker 11: could be in an environment where the economy is slowing.
30:48
Speaker 11: The Fed may have to lower rates further than the
30:50
Speaker 11: markets expecting, but that's probably going to be coinciding and
30:52
Speaker 11: due to a slowing economy, which is not necessarily the
30:55
Speaker 11: best thing for the administration.
30:56
Speaker 2: So where we're giving that kind of backdrop, do you
30:59
Speaker 2: guys see that value in the fixed in market these
31:01
Speaker 2: days days.
31:02
Speaker 11: We love the you know, the for the bond nerds,
31:04
Speaker 11: it's the front end of the yield curf. You know, basically,
31:07
Speaker 11: if you think about, let's put the yield curve into
31:09
Speaker 11: two pieces, we'll call it the front end, which.
31:10
Speaker 3: Is like the two year treasury and the five year treasury,
31:12
Speaker 3: and then you.
31:13
Speaker 1: Got the long end.
31:13
Speaker 11: That's kind of like, let's call it the thirty year
31:15
Speaker 11: treasury out there, you know, we think the thirty year TCW.
31:18
Speaker 11: We're kind of looking at the at the math and
31:19
Speaker 11: the fundamental kind of bottoms of work and say, you know,
31:22
Speaker 11: there's a lot of questions on the long end, like
31:23
Speaker 11: maybe we do have a lot of treasury erasments, Like
31:25
Speaker 11: there's a lot of factors maybe overseas, you know, essentral
31:29
Speaker 11: banks may sell it, Like a lot of factors can
31:31
Speaker 11: influence that. Where we would rather kind of tie our
31:33
Speaker 11: client's money is to is to the Federal Reserve. What
31:36
Speaker 11: they're gonna do with with the Fed funds rate, and
31:38
Speaker 11: that will highly influence what happens with the two year
31:41
Speaker 11: and the five year. And right now those yields are
31:43
Speaker 11: about four point two percent plus or minus. So first
31:46
Speaker 11: of all, you're getting paid a good yield or coupon
31:48
Speaker 11: to kind of sit there, kind of like a cash
31:50
Speaker 11: like investment. And then if we're right and the Fed
31:53
Speaker 11: actually has to lower rates not to what the market expects,
31:55
Speaker 11: which is about four percent, maybe three percent or even lower,
31:59
Speaker 11: you're gonna get a really good price return and that
32:01
Speaker 11: prices are going to jump up when yields go from
32:04
Speaker 11: about four point two today to something closer to three
32:06
Speaker 11: or even below that.
32:08
Speaker 2: But the best performing sector is just a year to
32:10
Speaker 2: date have been US high yield and US leverage loans.
32:13
Speaker 3: That does that surprise you? Are you an I go
32:16
Speaker 3: I N go? Yes?
32:19
Speaker 11: Does it surprise when you look at you know, equities
32:21
Speaker 11: at twenty two plus? You know, price to earnings when
32:24
Speaker 11: you look at the Vicks at fourteen, does it surprise me? No,
32:27
Speaker 11: because it's kind of in line with other things going
32:29
Speaker 11: on in the marketplace. But that's extremely expensive, Like you
32:32
Speaker 11: are not getting compensated to take risk. In the high
32:34
Speaker 11: yield bond market right now, you get about two point
32:37
Speaker 11: six percent of extra yield. It's over it's great height,
32:40
Speaker 11: just historical levels or north of four percent. So basically
32:43
Speaker 11: what the market's telling you, at least in the high
32:44
Speaker 11: yield market is that it's going to be a no
32:47
Speaker 11: landing things are there's not going to be volatility. Everything
32:50
Speaker 11: is going to be smooth sailing for a year plus
32:52
Speaker 11: on out, you know, when we're willing to kind of
32:53
Speaker 11: position against that.
32:55
Speaker 3: Yeah, I was.
32:55
Speaker 6: I think there is a Bloomberg story just a couple
32:57
Speaker 6: of days ago about building up short positions in that
33:01
Speaker 6: in that debt. By the way, we are always pimping
33:04
Speaker 6: Bloomberg functions. That's why Yes, I and go you know
33:07
Speaker 6: them all right, But how about worp YEA, Yeah, we're
33:11
Speaker 6: for sure. I absolutely love warp N go E C
33:15
Speaker 6: t R goes.
33:16
Speaker 3: I'm not thinking out today.
33:18
Speaker 6: I wonder how focused you are in on the US
33:22
Speaker 6: or do you also cast your gaze abroad? Because someone
33:26
Speaker 6: sent me the Feta breeze spread today, which I thought
33:30
Speaker 6: was interesting. So French tenure yields are about to be
33:33
Speaker 6: higher than Greek ten year yields, and I mean those
33:37
Speaker 6: of us old enough to remember the European debt crisis.
33:40
Speaker 6: That's insane, right, Athens was burning.
33:44
Speaker 11: It is all over the bat in fact, yeah, what
33:46
Speaker 11: Greece is actually paying down debt? Yeah, France is having
33:49
Speaker 11: you know, they're gonna their government is probably gonna dissolve,
33:51
Speaker 11: I think.
33:51
Speaker 3: Actually, yeah, we do stuff all over the globe.
33:54
Speaker 11: Like actually, just this morning, we were buying French debt
33:56
Speaker 11: at eighty six basis points over boons, you know, which which.
33:59
Speaker 3: Is quite a bit, and then other areas of value.
34:02
Speaker 11: You know, we love the pound, you know, we think
34:04
Speaker 11: you know, that currency looks attractive versus the Euro. New
34:07
Speaker 11: Zealand talk about cutting interest rates. You know, Zealand just
34:10
Speaker 11: cut interstrates fifty basis points overnight. There's still at least
34:13
Speaker 11: two hundred basis points away from neutral. So given the
34:16
Speaker 11: just it was a except for Japan, there was this
34:19
Speaker 11: kind of developed central bank hiking throughout twenty one through
34:22
Speaker 11: twenty three, and now we're on the other side of that.
34:25
Speaker 11: We're on the back nine, and interstrates globally except Japan,
34:28
Speaker 11: are coming back down and they're creating some interesting opportunity.
34:31
Speaker 11: A lot of cross currents out there to do things
34:33
Speaker 11: not just in the US, but from a rate and
34:35
Speaker 11: a currency perspective all over the globe.
34:36
Speaker 3: Yeah, that's the exciting part of the story.
34:38
Speaker 6: And do you see any significant divergence there. I mean,
34:42
Speaker 6: at the beginning of the year we all thought everyone
34:44
Speaker 6: was going to be on a cutting cycle together. And
34:47
Speaker 6: now I mean, is it still the case or do
34:50
Speaker 6: you expect some banks to be cutting more than others,
34:53
Speaker 6: others to be holding.
34:54
Speaker 11: Back, some cut more than others the ECB and I said,
34:58
Speaker 11: New Zealand will probably cut more. So then Australia is
35:01
Speaker 11: going to hang back a little bit. You know, inflation
35:02
Speaker 11: in Australia has not come down. Actually, growth looks decent there,
35:06
Speaker 11: and then you look at places like Japan, like Japan's
35:08
Speaker 11: behind the curve. I mean, you know what an incredible
35:10
Speaker 11: turnaround story there. So they're gonna have to hike rates
35:13
Speaker 11: a lot more aggressively, we think than the market expects.
35:15
Speaker 11: And you know when you talk interest rates, you can't
35:17
Speaker 11: you have to talk about currency.
35:18
Speaker 9: Yeah.
35:19
Speaker 11: Absolutely, So when we look at that, it's like, you know,
35:20
Speaker 11: the end looks like an incredibly attractive The dollar's been.
35:23
Speaker 3: On a run.
35:24
Speaker 4: It's so weak.
35:25
Speaker 3: I mean, you can buy more than one hundred and
35:26
Speaker 3: fifty en for a dollar.
35:28
Speaker 11: But you know, I think both from an economic perspective,
35:31
Speaker 11: from an interst rate perspective, and a growth perspective, you've
35:34
Speaker 11: got three nice tail winds behind the end right now
35:36
Speaker 11: and it's gone against you for the last month, but
35:38
Speaker 11: you know, it's kind of value investors, but we think
35:40
Speaker 11: is like, that's just a buying opportunity. You're getting in
35:42
Speaker 11: at a better price right now to purchase that currency.
35:45
Speaker 3: How about emerging markets? Do you guys traffic in that
35:47
Speaker 3: alt all over?
35:48
Speaker 11: And yeah, I talk about you know, the election and
35:49
Speaker 11: tying it back to the emerging markets, like great opportunities
35:53
Speaker 11: cross currents, like with regards to tariffs and immigration and
35:56
Speaker 11: the currency volatility, it's created opportunities, kind of bottoms up,
36:00
Speaker 11: kind of issue selection opportunities, and kind of where we've
36:03
Speaker 11: been favoring is is economies that are more in the
36:06
Speaker 11: emerging markets and more idiosyncratic, so kind of less exposed
36:09
Speaker 11: to generic like tariff increases on high exporting economies right
36:12
Speaker 11: on the other side, where the economies tend to be
36:15
Speaker 11: more isolated and they've had very favorable fundamentals behind them.
36:18
Speaker 6: Damn, I want to come back as a macro trader, dude,
36:20
Speaker 6: that's where all the action.
36:22
Speaker 9: I know.
36:22
Speaker 10: Yes, why are we stocks guys?
36:25
Speaker 3: You could be you could be the next Treasury secretary.
36:27
Speaker 3: Yes you can macro.
36:29
Speaker 6: You know, I probably have a better shot at that
36:31
Speaker 6: in this administration than I ever have in my life.
36:34
Speaker 3: Exactly, just the odd unique calls.
36:37
Speaker 2: Brian Well and thanks so much for joining us. Brian
36:39
Speaker 2: Well And he's a chief investment officer and a general's
36:41
Speaker 2: portfolio manager at TCW based out there in Los Angeles,
36:43
Speaker 2: but in our New York studium in New York City. Exactly,
36:46
Speaker 2: we just get rain on the parade tomorrow.
36:48
Speaker 3: Still capital in the world.
36:49
Speaker 1: Right, you're listening to the Bloomberg Intelligence Podcast. Catch us
36:55
Speaker 1: live weekdays at ten am Eastern on applecar Play and
36:58
Speaker 1: androyd outto with Bloomberg Business. You can also listen live
37:02
Speaker 1: on Amazon Alexa from our flagship New York station Just
37:05
Speaker 1: Say Alexa playing Bloomberg eleven thirty.
37:10
Speaker 2: One of the most widely read stories on the Bloomberg
37:12
Speaker 2: terminal has to do with some of the bigger names
37:14
Speaker 2: out there in global wall streets. That's not a surprise.
37:16
Speaker 2: Black Rock Vanguard accused of antitrust violations by Texas. What's
37:22
Speaker 2: going on down with our friends in Texas? Peter Jeffrey
37:25
Speaker 2: joins as Bloomberg News Legal editor. Peter, what's going on
37:28
Speaker 2: with some of these huge, huge asset managers and are
37:31
Speaker 2: good friends at the State of Texas. What's going on?
37:33
Speaker 10: The asset managers have belonged to groups that are seeking
37:39
Speaker 10: to mitigate climate change by reducing, for example, coal output.
37:44
Speaker 10: Some of them have drifted away from these groups. But
37:47
Speaker 10: Texas sued this morning in federal court claiming that the
37:50
Speaker 10: asset managers are effectively colluding to depress the output of
37:55
Speaker 10: coal and therefore raising energy prices on consumers in the
37:59
Speaker 10: states that suit, including Texas, West Virginia, Montana, Alabama, and
38:03
Speaker 10: so forth. Republican led states.
38:05
Speaker 4: How much of this is just kind of looney? Ken Paxton,
38:09
Speaker 4: Republican Texas Politics.
38:12
Speaker 10: Ken Paxton does sue a lot, But it's an interesting suit.
38:15
Speaker 10: It's one hundred pages long, and I think you know,
38:18
Speaker 10: just looking at over they're going to have to show
38:21
Speaker 10: that it was the actions of Black Rock and State
38:25
Speaker 10: Street and Vanguard themselves. They're pushing these portfolio companies to
38:32
Speaker 10: cut down on their coal output. The states are going
38:37
Speaker 10: to have to show that that is what led to
38:39
Speaker 10: the reduction of the coal output, it seems to me,
38:42
Speaker 10: and therefore raised prices on consumers. So to your question, yes,
38:45
Speaker 10: Ken Paxton does sue a lot. Yes, he's got to
38:48
Speaker 10: show all that as well as the other states.
38:51
Speaker 4: Attorney the Attorney General, who himself went through an impeachment
38:55
Speaker 4: and prevailed.
38:56
Speaker 10: But I will say that it's carefully been looking at it.
38:59
Speaker 10: This just this more. It's a carefully written, fairly well
39:02
Speaker 10: structured suit presentationally. Now, whether it can prove the allegations
39:07
Speaker 10: is an open question.
39:08
Speaker 3: I always find that funny.
39:09
Speaker 2: I'm learning from Alex Steel, who's, you know, our expert
39:11
Speaker 2: hero on energy. You know, you think of Texas, you
39:14
Speaker 2: think oil and gas, but they're also the biggest wind
39:17
Speaker 2: farm people, the biggest solar places are down there in Texas.
39:21
Speaker 3: I mean, so they are cranking out a ton of alternatives.
39:24
Speaker 10: And in fact it's those alternative sources that are partly
39:27
Speaker 10: playing a role by competing with coal one of the
39:30
Speaker 10: forces that may be making it maybe depressing coal output
39:35
Speaker 10: as well. So again to show this connection that it's
39:37
Speaker 10: Larry Fink who is driving down the coal output and
39:41
Speaker 10: up the prices is the challenge for the states that
39:44
Speaker 10: are suing. It's quite an interesting suit.
39:45
Speaker 4: We also know from having rid the grid that Texas
39:48
Speaker 4: has its own grid that's not hooked up to the
39:50
Speaker 4: rest of us, right, but fiercely independent streak that yes, yeah, exactly.
39:55
Speaker 10: And coal output in Texas I think is down to
39:59
Speaker 10: ten percent of its energy output from eighteen percent just
40:03
Speaker 10: four or five years ago, if I've got those figures right.
40:06
Speaker 10: So there's no question that the coal output is diminishing.
40:10
Speaker 10: But what's causing that will be one of the crucial
40:13
Speaker 10: links to show in succeeding.
40:15
Speaker 3: And what are these asset manage Have they said anything
40:17
Speaker 3: in response to these so far?
40:19
Speaker 10: No, they haven't yet given us their position. We're waiting.
40:23
Speaker 10: We're hoping to get that position. Put it in an
40:25
Speaker 10: update in our story. But I'll tell you what they're
40:27
Speaker 10: asking the court to do. They're asking the court. It's
40:30
Speaker 10: kind of interesting. One of the possible asks, if necessary,
40:34
Speaker 10: is asking the court to force these giant money managers,
40:37
Speaker 10: the top three US money managers, to divest themselves of
40:41
Speaker 10: these coal holdings. We'll see if it happens, but that
40:43
Speaker 10: is one of the things the suit seeks.
40:45
Speaker 4: Do they still shake in their boots when this happens
40:48
Speaker 4: or are they sort of like the asset managers kind
40:50
Speaker 4: of fighting back.
40:52
Speaker 10: Well, that's a good question. I mean, there's been so
40:55
Speaker 10: much litigation around ESG and some money withdrawn because of ESG.
41:04
Speaker 10: But I think at this point, you know, they'll look
41:07
Speaker 10: the suit, they'll read the suit carefully, they'll be prepared.
41:11
Speaker 10: I don't know if they're shaking in their boots.
41:13
Speaker 2: Yeah, it's uh, I'm from Van Garter State's really you know,
41:17
Speaker 2: I'll go against.
41:18
Speaker 10: One of the federal statutes that the suit invokes is
41:21
Speaker 10: the Clayton Anti Trust Act from nineteen fourteen, and what
41:24
Speaker 10: that says is that if you any action that you take,
41:28
Speaker 10: for example, in shareholder proposals, voting on shareholder proposals, has
41:32
Speaker 10: the effect of limiting competition is illegal.
41:37
Speaker 3: All right, Peter, thank you so much for joining us.
41:38
Speaker 2: Peter Jeffrey, he's a legal editor for a Bloomberg News
41:41
Speaker 2: joining us here in a Bloomberg ARCTORP.
41:42
Speaker 3: Porker studio.
41:43
Speaker 1: This is the Bloomberg Intelligence Podcast, available on apples, Spotify,
41:48
Speaker 1: and anywhere else you will get your podcasts. Listen live
41:51
Speaker 1: each weekday ten am to noon Eastern on Bloomberg dot com,
41:55
Speaker 1: the iHeart Radio app, tune In, and the Bloomberg Business app.
41:58
Speaker 1: You can also watch us a long I have every
42:00
Speaker 1: weekday on YouTube and always on the Bloomberg Jominal
42:07
Speaker 5: M