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All right, so we promised you a lot of the most read stories the Bloomberg and it does feel like the bond market man. The gains that we are seeing, the biggest boom that we've seen in decades. This month has been very different for the US treasury trade. But it's also mean, like everybody's kind of all in on everything. So let's get to it. Back with us the killer duo that wrote this story, Bloomberg News Race reporter Michael mackenzie. He is joining us as well as Liz McCormick, Bloomberg
News Chief correspondent for Global macro Markets. Liz is on zoom in, New Jersey, Dynamic duo. They are the Dynamic View. Michael. I want to start with you. You two are really the bells of the bond ball right now, because I feel like it is like your world in a big way as we watch the very different trade that we've seen in November. This has not been though an easy year Michael, for the US bond market, and yet here we are in November. How remarkable has this trade really been.
It's certainly been remarkable, and it's really something a lot of the active bond managers have been hoping for. They've been part of position for it pretty much since you can go back to last July last year, when they had the first kind of FED pivot. They thought inflation was transitory, and therefore they started putting bets on that the FED would stop in the middle of twenty twenty two,
except the FED didn't stop. Inflation wasn't transitory. And I mean I was talking to one of the investors who over at Western Asset who's had a terrible time, but for November their funders jumped six and a half percent. So he was saying, you know, we got the core wrong, but things are looking better now and there's a lot of relief from those guys.
Liz, I want to bring you into this conversation. Let's broad this out, so not just US treasuries, but other parts of fixed didn't come also this month, having pretty strong month here, talk to us more about that.
Yeah, So the index in the story that Mike, who I feel like is my fourth brother, I had three all that good stuff exactly exactly, but it is the US AGG which is Treasury's corporates and all that other good stuff, a bunch of bond types in there, and that, like, like we show in the story, you know, having the best month since the eighties, and it's just amazing. I was saying earlier to someone that, like, look at that iron page on Bloomberg, which Mike and I used to always look at it.
It was like red everywhere. That's all the bonded disease.
Now it's all green. I can't believe it, you know, I mean, like from month to day, year to date, you know, and like Mike said, some of these investors, which I guess you got to give them credit.
They stay the course, they take the pain.
For a while, been saying it's a good time for bonds, and they haven't you know, got any let's say success on that, and now they have. I mean, this this month is just I mean, and Mike and I keep saying, it's not gonna be a straight line like this. It's not going to be sixty bases points a month, but it's definitely kind of lifted all boats.
As you said, I'm pulling up the page Canadian Aggregate, China Aggregate Credit, Corporate Global Inflation, Link, Global high Yield, Penny European high Yield, and another It is all green, all green. But you know, Michael, this gets to a good point. Is this it? You know, it's been a very volatile market, to say the least, so and I do wonder does this trend continue, and what's necessary for it to continue, and does it necessarily translate into other parts of the fixed income world.
That's really a great question. It's really what's got everyone thinking in the fixed income market, because clearly you've got Trogies, which is the sort of your classic defensive haven rallying strongly. But John Bonds had a great month of November two. So there's a disconnect. I think at the moment, the market's looking at soft landing because we're nowhere near the lows in treasure. You'll be saw back in March when regional banks failed and the bomb market was definitely thinking
recessions coming. So now the debate it has shifted from the FED higher for longer and maybe not and maybe having a raise rates again. We now have kind of a new dynamic where the Fed, where the market now thinks the is going to cut next year. The question is are they going to cut by just the fifty basis points or half a percentage point that they indicated in their dot plot earlier this year, or do they
do more? And it really comes down to the sort of type of slowdown that we're going to get, and I think in that environment, any kind of turmoil that starts to seep into equities and the riskier parts of the credit market, any sort of shocks we get from commercial real estate over the next couple of quarters is going to really make owning yields above four percent, particularly in the sort of five year part of the treasury market, a very good trade.
Well, and then, Liz, what I keep thinking about, and we talk about this in the newsroom a lot is like, Okay, okay, it does feel like things are settling down. We keep getting these inflation report like everything the softness, and yet I think about next Friday's jobs report. Does it just take one report to remind us that way to mante guys, it's not a straight line, and that is something that the FED takes note of.
Yeah, I think, I mean, I think it's gonna be hard for that jobs report to kind of change the whole zeitgeist.
However, I think to your point, Carol, we're gonna have a.
Lot of volatility because the Fed, even the folks that like Waller who sounded quite dubvish the usual hawk this week, that's to kind of let the kindling going this week, but that they're still saying we're watching the data. I mean, of course, if things change and they kind of somehow out of nowhere to get a string of the labor market not easing, inflation bubbling back up. I'm not predicting this, but they will have to kind of at least lean in and sound hawkish. So yeah, I think that's.
Why the like Waller today, not Waller like John Williams today, right saying it's quite restrictive, but it's gonna stay restrictive for some time. So they're gonna kind of keep reminding us of that exactly.
And we have Pal tomorrow.
He might do the same kind of I don't think they want the market to get so ahead of them. I mean, we're the market is ahead, but there's probably a limit to how much they'll you know, accept that.
And Mike, I wanted you to jump back in because, as Liz mentioned, Pale does speak on the calendar twice tomorrow. This comes ahead of the blackout period next week. What do you think investors want to hear from Powell versus what we would most likely actually hear from him.
Well, I don't think they want to hear him being hawkish. I think they want to hear sort of being at least sort of mimicking what John Williams said. I think I expect they will hear that, I think Powe will play it pretty close to his chest. He'll essentially say, look, they're in a good spot. They just have to sit back and watch the data, which is what all the bonded market has to do as well. And ultimately it's
kind of now out of the Fed's hands. The data is going to determine just whether or not the bomb markets, you know, thinking of rate cuts coming potentially as early as next March, do come to fruition. I mean, if inflation continues to fall, and if we start to see the employment market we can probably not not turn next week, but probably more in the early next year, then you're going to see the market we'll start to run ahead
of the Fed. I mean, talking to investors this week is notable how some of them have been a's one said to me, I've been through five easing cycles. We know what happens here once it gets going, and the market wants to jump ahead of this, and so I think that's really the key point to keep to remember.
Well, and that's what I was thinking about, Liz, like, I'm looking at the story that you guys put out, you know, I'm curious what you know Pimco's doing double lines, doing you know, what are the positions and you guys, you know, say how that they've been kind of loading up on longer day to debt and that just keeps unrising.
Yeah, And Mike was out there, not this week, but last kind of visiting all them, you know, right in their shops and I'm you know, kind of upfront and center, and they were saying, and it's you know, that didn't work out the next day or so, but their long term investors saying, you know, hey, you're you know, we all love cash. Everyone's saying cash at about five percent. But they were telling Mike there's going to be a point where you're missing out, like it's kind of time
to get into further out the curve. And boy, they nailed that call what happened this week, but that there's a point where because I always say, you can't react fast enough. That's why you know, all the textbooks the long term investment don't jump around because by time you know, us average folks say, oh wow, the cash rate went down so much, you've missed a lot of opportunity and
the stock market and the bond market. So that's why they were saying, hey, you've got to get ahead of this and kind of go out the curve.
Well, Lasstock, guys, this is not just a US thing, obviously, it's a global thing, right, and you have global central bankers at work and everybody dealing maybe with the different economic or inflationary pictures. So Mike, how does that complicate maybe to what comes next or make it even more interesting?
Well, I think globally the economy is slowing. We haven't really seen the revival of Chinese growth which everyone expected earlier this year. It's been one another one of these missed sort of trades. You've got the oil price not really getting much love here, even though Opex just announced it intends to cut supply. So that's kind of telling you the economy is. It is slowing, and it's quite clear when you look at the inflation data across regions
it is slowing in unison. So that tends to suggest that we are going to go through a period of softer growth, inflation, easy back, and it is going to give central banks a lot more room to maneuver, although I'm not sure the Bank of England has that luxury.
Unfortunately, exactly just twenty five seconds left list. Part of me is like, I'm so suspect because I feel like I have been fooled so many times over the last couple of years. Is that a fair way to feel or do you feel like something's different now?
Yeah, Carol, I think I've been you and my team.
I'm always like.
Ah, that's the motion.
But I think this time it feels a little bit different. That it's pretty broad based, and like Mike said, and I think before we went on, I believe I saw Goldman Sachs European economists pull forward when they say the ECB starts cutting next year because they had a soft inflation data out overnight, and so I think we are seeing the disinflation, so we're okay, maybe we can trust.
All right, So appreciate it, guys. Bloomberg News rates report of Michael mackenzie, also the fourth brother of Liz McCormick. Just kidding, and of course Liz McCormick. Bloomberg newschie courseponder for Global macromarkets. It's among the most read. It's really what this month has been so much about it and it really is about today's narrative.
Thanks guys, This is Bloomberg you're listening to the Bloomberg Business Week podcast. Catch US Live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business App, or watch US Live on YouTube.
Let's get back to something that totally impacts a lot of Americans. Bloomberg Editorial Board writing about this in September. The US prescription drug market very different. Patients and providers don't make decisions about whether treatment offers good value middlemen do. These intermediaries, which design prescription drug coverage and negotiate discounts for health plans, get bigger fees for more expensive medications, and as a result, you've got payers such as Medicare
can't be sure that they're getting a good deal. And other countries do it very differently. So let's get to it. Some thoughts on how it all works in the US with US is Gbi, Professor of Health Policy Management at Johns Hopkins Bloomberg School of Public Health, which is supported by Michael R. Bloomberg, of course, founder of Bloomberg LP and Bloomberg Philanthropies. G is on zoom in Washington, dcg Nice to have you here. With Jess and myself talk
to us about this. These intermediaries, formacy benefit managers. You know, I think we all thought that they were going to make it all more efficient, and I guess we thought it would be better for consumers. Why is it not working out as we all thought?
It's actually not working for cheap generical drugs. So we found one hundred dollars paid by medicare actually forty one dollars. We'll go to PBM just as a spread as profit and then manufacturers only got thirty dollars.
So yah, the words PBM's profit problem.
The spread is already thirty percent more than what a manufacturers get in their revenue, and the pharmacy you got it seventeen dollars and then holds it like a twelve dollars. So you can see this whole supply chain is very efficient for the GW drugs.
So how did that happen? I mean, how is it that that? You know? And we've done some stories, certainly Bloomberg Business Week has done some stories. Increasingly we're looking at what's going on? How can it be better? You guys did a study, What did you look at specifically? What did you find so you.
Know why this happened.
Everybody want to get a big cut, the high spread if it's possible, but in most markets you can't because of competition. Right, if you're too grady you have a high cut, guys, what will be driven out of the market.
But the PBI market is very different. It's not very competitive.
So this lack of competition allows the PBMs, like we have only three large PBMs to generate such a high, large spread. So in other words, you are powerful. You can charge high from insurance and then you can pay load to pharmacies. That's what we found in our study.
What Shocking Money would say is if the government was involved, do you think that they would be saying, hey, go guys, this isn't okay, this isn't right. And I do feel like there's, you know, slowly, some momentum to do that. What are you anticipating potentially on the regulatory.
Front right now on the hill, there's some proposals to ban the spread pressing. But guess what if we do not change the market dynamics, we cut the spread pressing, and then other things will pop up.
Right, It's like a waterbed effect.
So I think the fundamentally, we need to address the market in efficiencies.
You know, insurance.
Actually works very well for high cost, expensive, low frequency things. That's why we are kigh insurance does all cover all change, right, our home insurance does all cover got a cleaning. But for drugs they're they're relatively cheap, so you very complex insurance to cover it. Actress not efficient. No study is found for many patients the alto pocket costs is already
higher the cash pay. Let's say if they go to Kudak's Mark Cuban cost plus company, I'm in a pharmacy without doing their insurance, they pay a lower price than if they use their insurance for the auto polking.
So that tells us insurance Actress is not efficient. Let's get it. Let's say push.
Yeah, yeah, no, no, no no. It's fascinating. I was thinking about and kind of prepping for this story. Other countries, you know, whether it's Australia, the UK, they don't have this middleman because they've got a single negotiator, the government, their governments that can press essentially the drug manufacturers right for discounts.
Uh.
And they regularly are doing oversight, doing cost effectiveness assessments. And so their prescription drug spending is a fraction of the United States. So you know, anytime you throw in the middle man, there's going to be increased cost. But it does sound like it's getting out of control. You say, though, in particular, that there should be an end to insurance coverage of low cost generic drugs. You're saying, we don't need it, right, because they're so inexpensive.
Uh huh.
Actually, ill save everybody in money, right, we got higher take home pay, we got a lower premium, or you know, they can put government towards sponsors, can put more money in our House sittings account that we can use it for buying the generic drugs writing now is five dollars per months from Amazon Pharmacy, and then we can use that for all sorts of social becoming for health.
Right, and then that can actually improve our health.
Yeah, it's interesting. It's certainly you know, you wonder if it'll come up in the upcoming politics politicians, uh, when they are out on the campaign trail for the November elections, because it certainly impacts a lot of Americans. Gee, thank you so much. Gibai. She's professor of health policy and Management at Johns Hopkins Bloomberg School of Public Health. Joining us on zoom from Washington, d C.
You're listening to the Bloomberg Business Podcast. Catch us live weekday afternoons from three to six Easter on Bloomberg Radio, the Bloomberg Business App, and YouTube. You can also listen live on Amazon Alexa from our flagship New York station Just say Alexa playing Bloomberg eleven thirty.
INChO Hell.
All right, he's back, Sam Altman back at open Ai. He asked a leader of chucchipt maker open Ai. But he's back at the company, returning there to the company that fired him earlier this month. It was quite a power struggle that shocked the tech industry, gave us all whiplash, brought attention to the conflicts around how to safely build
artificial intelligence. And this story written by Sheren Gafari. It is in the new issue of Bloomberg Business Weeek, which is out on newstands as we speak on the Bloomberg terminal and also at Bloomberg dot com Slash Business Week. But it's interesting. He may be back, but there's a lot more that he's got to deal with, including governance issues.
So let's get to it with us. As Rachel Matt's AI reporter at Bloomberg News, she is out there on zoom in San Francisco, right here in our Bloomberg Interactor Brokers studio, Bloomberg business Week Technology editor Joshua Brustin along with the editor of Bloomberg Business Week, Jill Weber. As we said here in studio, so Joel Sam Altman, winning the appened, Yeah, I was like, it ain't over.
I was like on vacation and I left and he was in charge of O an AI.
Track of I came back.
And he was still in charge. So like like nothing happened. That's not true at all. Of course, a lot of stuff changed on the way, and I couldn't stop reading about it because it was just one of the most incredible stories of the year. And I think we're all still waiting to figure out what it all means.
And I keep saying TVD, TVD.
SAM and open AI and and all of that. But to break it all down, Josh, like, what were the stories that we wanted to have in this week's issue and what do we know and what do we not yet know?
Well, I think there are two big things that we covered in the issue. The first thing is just what's going on with Sam Altman. Obviously, he was very surprisingly fired and then very quickly brought back as CEO of this company, which is right in the middle of all the discussion around tech and AI over the course of the year, and in some ways he's brought back and
his reputation has been really bolstered. I mean, anytime that you are the boss of a company and ninety five percent of the employees say they will quit if you are not brought back as boss, that's unusual. I mean, I've had jobs before. I feel like it's not always how people feel about the boss.
But there's how much was about the value of the company.
Oh yeah, for sure, there were there are some financial reasons that these employees wanted Sam back. There was there's a large tender offer in which they would be given a chance to cash out shares. Employe and the investors who were part of this deal were getting a little bit queasy about going through with it if Sam Almond was not back. So that's obviously part of it. I
don't think that's all of it. I think Rachel probably knows this better than anyone, but Uh, you know, I think Sam Almond has really built up a reputation among the people at the company as someone who takes the really big issues that they are looking at seriously.
Rachel, come on in on this, because you've been following this closely. I mean, you finally hopefully got some sleep, because I know none of you guys were. It was just it was around the you know, it was kind of one of those things you walked away for twenty minutes or didn't read your phone and you're like, wait, something new, change.
What is sep?
What is it? No, I didn't walk away. That was the problem. My family was like, if this keeps going, we're going to murder you.
All right.
So, now that you've got some sleep, how are you looking at it? And what's still kind of at issue?
Oh gosh.
So there was a lot of rubber stamping that happened just yesterday in terms of saying okay, the company saying okay, Sam is officially back.
We're still figuring out a few things.
We have some the new board members that we said were coming in. So initially there was an agreement for him to come back, but it was an agreement of principle.
Now they've worked some of those things out.
There's going to be some additional board members. Right now, there's three board members. They're all men, so they're going to be looking to enlarge the board also make it more diverse. We're going to be keeping an eye out to see, like if there are governance changes, how will the board interact with Sam in the future. Like, clearly there were some issues at play that got the initial board to oust him in the first place, right, otherwise.
None of this would have happened.
So it'll be interesting to see if anything is changed, either specifically in terms of like rules that they have for how they're communicating or interacting, or simply if he is doing a better effort to work with this board in a different way. I think some of it remains to be seen, but it's clear that we are going to see the changes.
Okay, so what about Microsoft and all of this, Josh, Well, Microsoft the biggest investor in open Ai and unusually really had.
No formal control over the company. I mean, this is what the board, why the board was able to go ahead with this. Open Eye is an unusual entity and that a nonprofit, nonprofit entity controls the for profit startup and the board of that nonprofit can make the decisions.
Now.
I think what Microsoft showed is that when you've invested I think thirteen billion dollars into a company, you get to flex some power even if you don't have a board seat. And you know, the company was really played a key role in bringing Sam Altman back. They It's been announced that Microsoft will hold a board seat as a non voting observer going forward, so they're being brought
in a little bit more. But obviously they have a big stake in open Ai developing and continuing to thrive and also developing along the ways that will be commercially useful for Microsoft itself.
Hey, Rachel, I wanted to ask you about the personalities on the board because there was a surprise pick. When it comes to Larry Summers talk to us about who is the makeup of this new board?
See the adult in the room?
What this is?
I don't know.
I talked to him yesterday.
Actually I got a chance to do a quick interview with him, and yeah, it was interesting to talk to This was like like very late yesterday after the announcements came out saying like yes, Sam is officially back.
These are you know, As we said before, these are board members.
Larry's interesting as as many people know, he's got experience in government. He also is a is the Bloomberg TV contributor, I believe.
And has expressed a lot of views about AI. Has thought a lot about AI. My impression from things that he.
Said both to me yesterday and in the past in general publicly is that he kind of feels both ways on AI. That it could be that it is growing fast, it is extremely interesting, and it could be extreme useful and powerful, and it's a huge shift in how technology is working, but also that that there are concerns there about how it could be used. So it'll be interesting to see how he's interacting with the other board members, which include, uh, Brett.
Someone get me help me here. I'm banking on Brett black name.
Bt Taylor, Taylor, Brett Taylor.
Thank you. Sorry, it's been a long Uh okay, you know five hours. That was Actually we need more.
Sleep this week. Still, thank you, You're welcome.
Brett.
Brett should be an interesting condition as well, and it is.
I think it's interesting to note that Adam D'Angelo, the one remaining board member.
Yeah, what happened?
What's up with that.
Why is he the one sticking around?
I mean that was I think it was pretty important to the outgoing board members that would be Tasha McCauley and Helen Toner to as part of this deal to bring Sam back, to have one person remaining.
This is the dude. Isn't this the guy?
There's never been a board story as interesting as this one. They're usually so quiet and peaceful and you know, mysterious, and then it all breaks open over genera. AI.
Yeah, no, it's I'm man, there's gonna be some really good like books, maybe a movie.
Let's wait a couple of years, it's gonna be some good stuff.
You know.
I'm going to talk to the therapist.
The therapist who've been helping out this board, this company.
Okay, so totally or just the Thanksgiving conversations, Rachel, what what don't we know?
Still?
What don't we know? Still? So we're still looking at what exactly happened here?
You know, like there there are reasons for doing something as drastic as getting rid of the CEU of a company and then also doing something almost equally as drastic as bringing them back. Right, So so there's still I think a bit of mystery surrounding all of that.
Hopefully that'll be figured out very soon.
TBD and uh, I think it's also like a bit of a mystery, like who's going to be joining the board going forward and what's going to happen with them, who are they going to be, what are their aims going to be. And then the other thing that's still a little hanging out there is Ilia Siskiver, who was also a person at open Ai, who was also a board member, who was involved in the ousting of Sam Altman.
It sounds like they're trying to.
Get him to come back in some fashion, but it's not clear yet what that's going to look like if he will in fact be part of the company.
So that's the key player actually that I was thinking about, like, it's just it's just it's just unbelievable frenemies or whatever. But they're also Joshua right, are doing an investigation still or some kind of internal investigation of Altman? Right, Yeah, the board is business.
The board is planning on looking at at Sam Altman, investigating some of the behavior that led to his ouster, which is still rather cloudy. There are questions about whether it had to do with AI safety, whether it had to do with some of his other business interests. He is involved in a number of other companies of which could potentially have AI elements as well, and so it's not clear exactly how that investigation will be conducted. As far as I understand that might correct on that.
Rachel, Yeah, come on in on that, because he's going to still do his side things, right or is he?
Yeah?
I mean I have not asked him directly about that, but one would assume that those things are going to continue, at least for now.
But yeah, I did.
Actually I asked Sam, like, got to speak to him and Mirror Mradi, his CTO yesterday.
I asked them about the investigation. I think Sam said that I should ask the board. So then I spoke to Larry Summers hafter.
Then I said, Larry, Sam said to ask you what about the investigation. I mean, Larry basically said, yes, we're going to do this investigation, which is what they're supposed.
To be doing.
But he also politely and very rightly pointed out like give me a minute. I mean he basically said, look, we've been here for like thirty minutes this new board, so it's gonna take a little time, but it sounds like an investigation will be conducted and they'll try to figure out, like basically what happened here, which is what a lot of people want to know too.
Yeah, and Rachel, what are the prospects for some significant changes to the non the profit for profit startup within a nonprofit entity and this board composition? Is there a chance that that changes significantly going forward?
That's a good question.
I think we're still trying to figure that one out. I mean, like it was not even that that long ago. I mean, okay, it was twenty nineteen. Maybe it doesn't feel that, but in twenty nineteen the company which was funded in twenty fifteen said actually we were a nonprofit as people knew at the time, but now we're going
to be was called a CAF profit company. And really, if you haven't seen it before, you should go on to their blog on their website and look at this blog pust from twenty nineteen, because there's an org chart and you look at it and you're.
Just like, what what does this even mean?
It's very complicated. So I'm sure there was a reason for setting it up that way. It remains to be seen if they're going to try to simplify it, there could be perhaps the becoming board members and we'll have something to say about that.
We'll see.
So the other name that you mentioned there was Mira Moratti, who's the back to being Chief Techno Anology outsore, which is interesting because it was like Sam was in and then out, and then she was in and then maybe out and then was back to CTO. So what's her role going to be, Like, well, what is it previously and what do we expect from her going forward?
That's a great question.
So she is, she is and was Chief Technology Officer, and I feel like I've talked to people about this quite a bit recently because I've been seeing her a lot recently. Over the past number of months, the company has been increasingly positioning her as a public face of the company, as a leader of the company. She's appeared alongside Sam Almond literally aside him at events either in public like like in front of audiences or.
Like a press scrum.
On that opening I developed her day, it was for INSAM, side by side with a bunch of reporters.
So it's clear that.
She is a leader, and you know, a pretty public leader. At the company and she will remain as such. It sounds like they work pretty collaboratively as a team there, and she is part of the very top group of those people.
What are the potential.
Go ahead?
No, well, just there's one thing in the story that Altman says he has no equity in open AI. Is that really true?
That is what he has said publicly?
Huh? And then a lot, Yeah, it's a lot. Oh wait, there's something odd to this story, shocking, Like.
Look like where we began this year was like generative AI force. We've all seen this play out over the course of the year. So it's so satisfying just to know that, just like any workplace, there's drama and you know, right in time for us to like mess with our holidays and everything else, you know, So just prove that it is actually a perfect bookend for the year.
What is CHATCHI?
I asked chat GBT in the middle of all this, Actually, I was like, I don't know what else to do anymore. Can Chatchy bet to sort this out for us? An issue with chat cheept though, depending on how you're using it, is it's.
Training data, you know, stops at a certain point. So yeah, I.
Didn't say, but currently been loaded.
I was like a Sam Altman, still in charge of open AI, and it was like, well as of the end of my training day.
And I was like, I don't care. That's I do think that it's like a perfect it's perfect.
Right.
Like the year started with everybody obsessed with CHATYBT, whether or not it was loved or.
Hated for various reasons, we're ending the year now with chat It is Chatty's.
Birthday today, Happy birthday, and we have all this drama that it just came just behind us.
Because you're gonna need it next year. I can just feel it. Rachel mattsay, you re put our Blomberg is Joshah brucetein Bloomberg BusinessWeek technology editor and the editor of Blomberg business Week, Till Weeber, both of those guys in studio. All right, check it out. It's in the new issue.
This is Bloomberg.
I'm brom.
A journal.
How about you let me drive?
Oh no, no, no, no, who's going to drive?
Honey?
Please, I'll do the riding gravel.
Let's wat I want to try it.
Try it's a question. This is the drive to the Globe done well by hill it.
On on Bloomberg Radio.
All Right, everybody, just under eighteen minutes left in the trading session, getting ready to thirty day's house September, April, June, and November. Getting ready to wrap up November. I always have to check them. I was like, wait, is this one of those thirty one over? It's kind of a meth day when it comes to the equity trade, But what a month it's been the same thing for the
bond market. It's just unbelievable. And it's that time of the year when we were wrapping up not just presents but the year that was, and just really thinking largely about what lies ahead in the new year.
It's such a big thing, especially with what's going to happen ahead of that December thirteenth FED decision. What it means we'll get those quarterly projections and dup plots that well we know we'll get changed again in March with.
The dollar platter. All Right, our next guest has the top ten items on his mind as we drive to the clothes on this Thursday back with us in our Bloomberg Interactive Broker Studio Real treat John Augustine Cio of Huntington Private Bank, a wealth manager subsidiary of the publicly held bank Huntington Bank Shares. How are you, sir, great?
Good, thanks, We're ready for the holidays.
You are talking, wrap it up right.
I'm just curious before we get into kind of your thoughts on the market. You are a subsidiary of Huntington Bank Shares. I'm just curious about the conversations you guys are just talking about. They obviously, in the banking environment, have a good clue of consumers and lending and so on and so forth. You are obviously closely tied to what investors are on their mind. How would you sum up the environment right now?
The environment's still constructive. Now, now the consumer has split. There's a credit consumer who's under stress, higher interest rates, but the job market is still good. There's a cash customer that's still plentiful in cash. So what we've noticed since the summer it had the consumer attitudes have shifted, which even played through to consumer confidence this week. If you remember, last month got revised down. This month was hired and expected. So that there's been a shift high end lowing.
Consumers, the consumers who have cash, is that the higher higher end, higher end cash customers are still there and they're important to the I mean, we talk about consumers generally about important to the economy. Are they more important to the economy and you're viewing in terms of what you see.
There they have been second half of this year.
Yeah.
The question for next year now is will rates come down middle of the years, the weather warms up, whatever you want to call it, to help bring the credit customer back.
All right, I'm looking at the KBW Bank index. If you look for monthly, it's up fifteen percent. But obviously we're on the back of when you think back to the spring and mar with those issues with regional banks. What are you hearing about the banking environment right now?
So the banking environment, we would say, is trading on the ye'll curve writing itself next year, risker recession coming down, which we've seen in consensus. Then in the third quarter THEY'LK curve supposed to write itself go back to being positive. And and that's what the markets are thinking about. That's our view of what the markets were thinking about.
Would you be buying banks here, yeah, baby steps, yeah, big guys.
Yeah, we're primarily big. We're primarily large cap shop Huntington, but that's one of three groups we would be buying financials banks specifically.
What else when you we talk about these ten items on your mind, what else is on your mind?
Well, what else is on our mind is do we get to exhale next year because we've been holding You know, we were wrong at our shop. We thought the FED would be off the table in June.
Right, not happen, right, But everybody's been you know, we were right.
On the economy, We were on the FED, so we were able to guide portfolios pretty well. But next year, do we get to exhale? Will we not wait for the jobs report every Friday, not wait for the FED meeting every six weeks or so? Will we be able to exhale? We think what's going on now, and you all been talking about it in November is Americans are exhaling because they're investing some cash, both stocks and bonds. And that's what's going on.
You're seeing that directly and continued.
We've been talking about it with our portfolio managers for the last sixty days almost.
So is it no longer about moving into cash like or cash get it is moving out money market funds.
Yeah, it's same equivalent. I mean it's a five percent world there. That's new. It was zero a couple of years ago. But now I think people realizing, you know that the Bloomberg Barclays EAG is up four and a half percent month of November, and stocks are up obviously well large caps. I think people are starting to realize that, starting to think about all the media talk, all of our talk about lower FED funds right next year and moving out of cash, doing it slowly both sides stocks and bonds.
You don't think that the Fed gets to two percent.
Think, well, we don't think their inflation called target.
And you think the Fed's gonna be okay with it. They're not going to be like, we want to get it down.
Yeah, they're gonna be okay with it. We think what they're going to be watching more next year is the unemployment rate. They'll shift focus.
How significant do you think that gets hurt?
It's going to go above four.
The terrible as you.
Talked about, Jess, it's really that step because they really blinked in September. They went from an expectation of an unemployment rate of four and a half to four point one Now, what are they going to do in December that that'll be of interest to us? That statement of economic projections, you're right, is going to be a big deal out of that FED meeting now that it's expected they stay on hold.
So what are you advising clients to buy and sell?
Both ways? Buy something now? Think about the bond market, though, we're in the camp four to four and a half ten year next year, so we're a little bit above consensus. Consensus thinks it starts with the three. We say four. So at the low end of the range by stocks, high end of the range by bonds, you can buy either way. Right now, we're kind of in the middle ten years, kind of in the middle.
So we go back to kind of a balanced portfolio, bounced portfolio. What do you do with some of the high growth areas, the Magnificent seven that have often outperformed. Again, even though people are saying enough enough.
Even today, we're seeing some rotation. We're seeing a broadening out. We've been seeing it through the month. There were two new sectors that came into play positively in November. Financials and reads both up double digits in November. So that joined the three sectors that the magnificent seven are in we would suggest and in our ten things, maybe the other four hundred and ninety three you get a shot next year, so it'll flip.
So maybe those gains annually next year still higher, just not as strong because you don't have that more heavily weighted stocks that are pushing things.
Yeah, and the expectation that the profits recession and the S and P five hundred is over and profits move up broadly, not just those big growth stocks. That's probably what helps them the most, the other four hundred ninety three if anything.
So it's not a case of that the seven stop growing, the other ones just join the party because it's interesting because I feel like wheneverybody's that's growth exactly exactly. Do you have a number favorite investment as we head into the new year or favorite investment idea? Just got about twenty seconds.
Stay in the US first half of the year. The summer is going to be most interesting next year. Will we go small cap? Will we go overseas? That's what's going to be interesting next summer.
And I've heard both people are kind of strategy with you. Be well, happy holidays, too great to see you, Great to see.
You as always.
John Augustine, Cio of Hunting a Private Bank, joining us here in our Bloomberg Interactive Broker Studio.
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