This is Bloomberg business Week Inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
One thing for certain is the big banks have reported. We got another drop today, Goldman Sachs topping profit estimates as its equities trading unit posted a jump at revenue. It was triple what analysts expected. Capping off what is it's pitching as a year of transition. We did see Goldman shares trading slightly higher today.
And then there's Morgan Stanley shares sold off the most in three months as its traders fell short of expectations. Also executive said Carol that lower wealth management margins may stick around. A nice welcoming gift to Morgan's new CEO.
Ted Peck.
Yeah, have fun. Morgan Stanley shares down four point seven percent. Goldman just up a hare, just up for actually, So let's get to with CFA Research, Global Director Industry and Equity Research, Ken Leon. He's on Zoom in New York City. Ken, by the way, has a hold on Goldman and a buy on Morgan Stanley. Ken good to have you here. What are the key points for Goldman? What are the key points for Morgan Stanley.
Well, they're in many of the same businesses, but really the direction of these companies are a little bit different. Goldman, of course, is really downsizing or closing the book on a failed strategy, which was the consumer area, and they're looking to get in the more positive areas such as
alternative investment and private credit. Morgan Stanley, it's just because of market conditions that we did see a week fourth quarter for investment banking, but their strategy is firmly in place and think that they will execute well in twenty four.
Well, now that all the banks have reported Friday and then today, what's a way that you could characterize the quarter that was in the quarter that is.
So, what we're seeing is still a healthy US economy and that speaks to both loan growth and also credit loan risk, whether it's a commercial or consumer that held up incredibly well. We also saw the opportunities for these banks to gain wallet share from some of the smaller banks, and part of that was really the effects we had
from last March with the bank failures. On a global basis, all these banks that do investment banking are really getting the lion's share of their revenue from the US, and the US is expected to still be the driver for growth in twenty four, Asian next and then perhaps Europe. So it's an interesting time to look at these banks,
particularly since they're not firing on all cylinders. There are some doubt in terms of both the economic outlook and also investment banking, but their strategy has led to durable assets, more predictable revenue and cash flow and return of capital. I think the only dark shadow for these banks as we progress in the early months of this year would be what we're hearing from Washington in terms of bank regulation.
Hey can you have a hold on Goldman and a buy on Morgan Stanley? Last year Morgan Stanley gained about ten percent, Goldman was up more than twelve percent. Why the hold on Goldman? Why the buy on Morgan?
So we were negative on the strategy that Goldman had. It was a major action of time for management, not only for last year but the last three years. And in terms of right sizing the ship, yeah, Goldman finally did that. But again, these are highly competitive markets, whether it's the capital markets, we're moving into some of the more attractive areas of investment and asset management, and Morgan Stanley is not distracted.
As you look forward, what are you going to be watching out for these names in particular that you think investors bloom And I'm thinking about our audience who are listening and watching right now, she'd kind of keep an eye on Goldman, Morgan, but the whole group.
So I think the key point is that we did see in the financial sector but also the large banks outsized gains in the fourth quarter of last year. So we expect the stock prices to trade sideways, perhaps for a month or two, kind of consolidate their positions, and then as we see closer to a FED rate cut and what it means in terms of whether it's three or four, that might create the signal of a risk on environment, both in the boardrooms for M and A or in other aspects of investment banking.
So as long as the FED isn't too aggressive right which signals things are going south, it should be at least initially positive for the bank's bottom line. Twenty seconds here, we're pretty.
Confident because looking back at twenty nineteen to twenty when the Fed did raise rates, bank stocks, the large bank stocks of quality did well.
All right, good to know, great to check in with you so appreciate it. Have a great week. Ken Leeon, Global Director of Industry and Equity Research at CFI Research on Zoom in New York City. As we said, hold on Goldman By and Morgan, but breaking down the results. If you want to know more, do check out our complete reporter analysis of those names and they're reporting. Just head to Bloomberg dot com of course, the Bloomberg terminal. This is Bloomberg Radio.
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.
Well, airline stocks falling for yet another day, this after they got absolutely hammered on Friday. Back then, Carol. The smpage of airlines declined the most in nineteen months. United sell more than ten percent, Delta fell nine percent, American Airlines fell nine point five percent. This all a result of Delta lowering its profit forecast for the full year, which really underscores the challenges the broader industry faces when it comes back to recapturing that pre pandemic performance.
Yeah, like you said, the group overall down seven point six percent on Friday, then another one point three percent today's session. All right, so concern lingers even after what was the busy stay over for US air travel just a few months ago. We're talking about the Sunday after Thanksgiving. So all right, what's going on?
Yeah, Haley Berg is back with us. She's lead economist for the travel app hop. That app analyzes trillions of data points i e. Prices on flights, car rentals, and hotels to make predictions about how much tickets are going to cost. Haley joins us on Zoom from Boston. Haley, good to have you back with us. So what gives here? Because Hopper says that more than three quarters of Americans are going to spend the same or even more on
travel this coming year. So why are we hearing the gloominess when it comes to airlines?
You know, one of the biggest sticking points for prices in the last three or four years has been supply. There have not been enough seats to book and that's why fares have been so incredibly high over the past few years. Think back to summer twenty twenty two, domestic airfare the highest that we had seen in all of our history at Hopper. So supply is now exceeding where it was in twenty nineteen. A lot of it is
exceeding now on international routes. So part of this is just the equation of travelers are looking for low prices. There are more seats available to books, so they have more options. A lot of those options are low cost carriers who may have entered or expanded in the last two years. All of that is putting downward pressure on prices, despite the fact that fifty percent of our users at Hopper are expecting to travel more this year than they did last year.
Is that true domestic versus international travel.
Yes, we're seeing a tremendous amount of demand for international travel, especially among younger travelers, and they're not just hitting the London.
And Paris of the world.
They're really going to more off the beaten track destinations, destinations where there might be deals or just more unique experiences. So still very strong demand on international capacity. There has been slower to recover prices to Europe are recovering because we've seen capacity added back there. Prices trans Pacific very different story. They still remain thirty to sixty percent higher because capacity has been slow to recover there.
What about when it comes to other parts of the travel experience? Hotels? I couldn't believe how expensive hotels were in the fall when Carol and I were traveling and we weren't even staying maybe I'm giving to we weren't even staying in nice hotels and like I was, what hotel one of the one remain It was not nice, but it was so I couldn't believe how expensive it was. What's it going to look like this year?
You're not alone in feeling like accommodation prices have been incredibly high. They have been, and we're expecting them to stay about the same this year. If we do see improvement, it would probably be towards summer or the second half of the year. But yes, demand for travel remains high, and that means that hotel stays vacation rentals, especially in those peak markets, they're selling out, and that means that if you're not booking far enough in advance, you're probably
seeing incredibly high prices. What we always recommend is for hotels in particular, if you're headed to a big city, book at the last minute. That's when those perishable rooms are going to go on sale. You're headed to a lesion your destination, you go to Miami, you're doing a spring break trip. Book that very far in advance a couple of months, because that's when prices will be lowest, when that availability is still high.
What are you looking at, Carol.
No, I'm just kind of close now.
I'm thinking are you thinking?
No, It's just interesting and I just wonder you know what you're seeing. We've got a great chart for our folks who are watching on YouTube and a streaming service. I'm just not sure. So if you're basically it says, if you're thinking about the main vacation plan you want to take in twenty twenty four, and this comes courtesy of our Bloomberg Intelligence team, if the costs exceeds your
plan budget, what will you do? Twelve percent are going to look for a cheaper destination, fifteen percent are going to look I guess at attractions and maybe what they're spending there. Forty five percent will increase their budgets. O.
Yeah, that's the tax.
And if you're just listening to us and not watching, the forty five percent is like, you know, the possible changes of your budget exceeeds plan. The majority of people, almost the majority of people, almost half the people said they'll just increase.
I manage it.
Yeah that's bullish, but it's bullish. But it's also interesting when we just did a story about where if people found that they had what a ten percent bump in incomers.
Yeah, they pay down debt.
They're going to pay down debt. So help me. Are you talking about I don't know what are you seeing? Higher end traveler, a bigger pocketbook, lower end? Is there any differences?
There are a few things happening.
So our Hopper users are primarily millennial in gen Z and seventy seven percent of them say that they are going to spend the same or more on travel this year. And there's really two schools here. One is our millennial generation. They built wealth. They are coming out, many of them of a few years of savings. Those who were in advantageous positions headed into the pandemic. They are spending more on travel a larger proportion of their wealth is going
towards trips vacations. They have credit cards that allow them to gain points the more they book. They are loyal So this group is absolutely spending more in traveling more. And then on the flip side, we have incredibly priced conscious travelers more on the gen Z and in what they're doing. They're taking their travel budget and they're saying, can I get two trips out of my budget from last year that might have been one trip?
And we often see this.
Travelers are skipping the trip to Miami and they're going to a destination in Puerto Rico that might be a whole lot less expensive and flight and in country expenses, So there is some optimization within the budget.
That's absolutely happening.
We see that a lot among Copper users because they're very price insitle.
Okay, very briefly, we have top domestic and top international locations. Your top domestic locations. We got a list of them. We're about to show on the screen which one sticks out to you of these five.
Here, I would say that Orlando is always a big one. It's popular not just for those Disney trips, but also for Port of Orlando starting on cruises, which as we know, are coming back, you know, in the last year or two. So Orlando is always a big one, in part because, no matter how much demand we see going there, prices are low. It's inaccessible and affordable place to visit and international.
Your top international locations Cancun, Mexico, Dominican Republic, London, England, Rome, Italy, Tokyo, Japan. That's kind of a mixed bag. Just got about fifteen seconds left. Any thoughts on that.
Those tropical destinations are inexpensive alternatives to some of those longer hauled trips. But really this year is going to be all about Tokyo and the return to Asia.
Wow. That's cool to do.
That's interesting. Where are you going me?
Yeah, we don't have anything planned. Oh, I'll probably go to the American West.
Oh that's what you said that earlier. All right, Haley Burg, lead economist at Hopper, Thank you so much. That was fun.
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You're listening to the Bloomberg Business Week 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, I'm.
Putting all my eggs in one basket, pop bit.
You know, when we think about baskets of stocks.
We used to think about mutual funds.
We did, but alas no more.
Now we think about ETFs. And as I mentioned earlier, Carol, this year is already a huge year for ETFs thanks to last week's SEC approval of eleven.
This spot, well, we get approval, yefs we did, as tex sarcus, we got approval, you.
Know, via tweet that ended up not being correct. I don't know if can't remember that.
What a week it was.
In the next day, the actual approval came. But there's so much more to ETFs than the shiny new bitcoin ETFs.
Yes.
Indeed, Unfortunately, the team that covers ETFs at Bloomberg Intelligence, led by senior analyst Eric baltunis who hopefully got some sleep over the weekend. Uh while that team led by Eric whittled their global list of two dozen picks down to just a handful.
The story featured in the year ahead issue of BusinessWeek magazine, which is available now on newsstands on the Bloomberg terminal and at Bloomberg dot com slash BusinessWeek. This story, by the way, written none other than Bloomberg BusinessWeek editor Joel Weber. Joel's here in the Bloomberg Interactive Broker's studio with us. Also with us is Eric Belchunis, senior ETF analyst for Bloomberg Intelligence. He joins us on zoom in Philadelphia.
Joel, If I you know how to write a story.
It's amazing.
Oh come on, you have time.
Jeez, you have time for a story.
Oh come on. So Eric and I co host this podcast and we've been doing it for years.
Trillions You love ETF.
We you know, it's just this thing. It's an Eric. I think it's Eric's theory of everything. Like if you could kind of like put it, put the universe into one thing, the ETF would explain Eric and investment, investing in all kinds of other stuff. That's what working on trillions with him for me, he has felt like and so it becomes a really interesting way to kind of I think, look at finance and investing and there are
there's just more and more interest in it. We named it trillions because every year there's more trillions that go into these things. You can still talk about mutual funds. We actually make time occasionally on trillions to do so, and we also do this episode every year that we have not had a chance to talk about yet. And if you're if you'd like to listen to the whole thing, you can do so wherever you listen to podcasts. But for the year ahead issue, I took that conversation and
kind of whittled it down to just a handful. And while we were first talking about it, you know, we didn't have an approved ETF for bitcoin, for spot bitcoin, and then last week happened and it was just like we got to talk about this with Eric a little bit as well as some of.
These other ones.
So Eric, you I quote you in the story because you say, by what march. By the end of March, we're gonna know who the winner of the race is. Sec let a lot of ETFs out at first, who's the early who's got the early lead?
Okay, So I've separated the ten launches into what I call the newborn nine and GBTC because it's different being a newborn in the ETF world, Joel, As you know, we call the terodome. It's a tough industry, so being a newborn is a different playing field. GBTC was a trust that existed, had thirty billion dollars in assets in a bunch of volume, and it converted into an ETF. So it came over with like ammunition, right, and all
kinds of supplies into the terodome. So if you if you look at all of them, GBTC still has the most assets and volume, but of the newborn nine, black Rock, no shocker, is in the lead. Fidelity a close second arc bit wise, you know, jockeying for the third position. But a lot of them are doing well, Like if you look at the volume of even like the least traded one, which I believe is the Wisdom Tree, it did six ten million dollars in the first two days. That would be a big hit, a big day for
any regular new ETF. So a lot of them has traded over ten billion dollars in the first three days. Unbelievable action in these ETFs. But Blackrock looking like the early favorite to be sort of the GLD of bitcoin, but it's got to overtake GBTC, which again came in with all this assets and volume and still has.
More there's a story though on the Bloomberg that talks about investors pulling over half a billion dollars from the Gray Scale Bitcoin Truster in the first days of trading as an ATF. Is that significant or how do you read that?
Eric?
Yeah, so this is a big situation. So the Newborn nine, all the volume is influenced pretty much because there's nobody who shares to sell because they didn't exist, right. So the GBTC, however, are people who probably want to get out. Now that said, you have to take a tax sit if you want to get out. So I don't think all twenty six billion as it stands now we're going to get out, but there could be some people who
want to get out take the tax hit. Now. It's a long story short, but it can't go right into the new ETF. So that's why I think a lot of the new funds into the newborns are new money, some maybe GBTC refugees. But over time, I do believe GBTC will be like a slowly melting ice cube and the Newborn nine will build up and at some point they'll probably be it. They'll both settle a little bit. But there is an interesting dynamic of play that you
don't normally see. And so if I had to guess, I'd say gbtcc's you know, four or five billion of outflows in the first couple of months and then kind of settles down.
Isn't it bigger than an ice cube? Though, it's like more like a glacier.
It's a glacier. Yeah, twenty six billion. I mean I believe that makes GBTC like the top three biggest holder of bitcoin on Earth. So yeah, it's a total glacier glacier change.
Yeah, yeah, hey, sorry, take it over the show, guys.
Podcast, This is a trillion podcast.
Eric, I got a question. I'm curious if you look at the eleven different spot bait, cooinytfs, should they all have the exact same performance every single day because they're tracking the exact same thing like Voo and Spy for example, that track the S and P five hundred. Shouldn't they have the same performance?
Yeah, it should be very close. The only thing you might find difference this is what the premium discount the price to the NAV. There's been like I don't know, a thirty basis point swing between them. But again, these are minor points. We were a little worried that the price in the NAB would be a little further apart, which is a sign that arbitrage and the mechanics of the ETF were more difficult because you can only do
cash creations. Long story short, everything looks pretty good. So the dollars you buy it at, like I think, ib ibit start at twenty five dollars. Another one might be trading at fifty, but the percentage day on each that it changes each day should be pretty much lining up minus ten twenty BIPs basis points.
You know the other thing that I wanted to ask you about where it's trading volumes, because I thought that was a really interesting insight. Here you said, don't don't look at you know, assets under management, and obviously GBTC is representative of that. But what why are trading volumes the thing that you all are watching as you evaluate these new newborn nine?
Yeah? Because volume. You need two things for a new category to have long term growth. You need volume and you need low fees. These have both. Because we already saw the few war breakout. You can get them all between twenty and thirty basis points.
Even before they were approved even before them.
If few war happened before the race even started again wild stuff. The volume is crucial because when you're an investor in ETF investor with the advisor and institution, volume is like a party with people there. No volume is like someone who invites you to a party, but there's nobody going. And it's just the general way. You don't need volume to buy an ETF, but people just like to see liquidity. And so when liquidity forms around these ETFs,
and it's hard because it has to grow naturally. Assets you can just shove in there, but volume only grows in nature, and so it's harder and more covetive. But once you get liquidity, you get more liquidity because liquidity attracts the bigger fish because they like to go in and not have impact costs. So as you get more and more liquid you get bigger and bigger fish and more and more liquidity. And I think the volume the
start that they're off to is really really good. It shows that you will find a comfort level to any investor pretty quickly. Again, I got the low fees, I got the liquidity, and I'm off and get this stat I just ran the numbers of the five hundred ETFs launched last year, these bitcoin ETFs are are already averaging three times what all five hundred of those traded today. So again the numbers are just outrageously high for these products.
Okay, so do you want to keep talking about bitcoin ETFs or do you want to talk about.
Let's move on psyche words.
Amazingly, there are other things.
Interventions are coming for me. I know it. My friends, I can hear them talking about my back.
Okay, I want to talk about the small caps ETF calf and why that's been an interesting one that stuck out to you.
Yeah, because small caps were left behind last year and honestly a lot of the last decade. And here's this small cap ETF calf that did better than the S and P last year. So that just blew my mind. How can a group of small caps actually beat the large caps? And the way they did it was they looked it's a ETF that looks at cash flow, and why looking at cash flow you get to more quality
small caps, you get to the quality factor. And the quality factor was the best of all the quantitative factors last year, so it was enough to lift it above large So I thought it was interesting. Also, the CTF has seen flows for the past forty four months. It is decimated the Russell two thousand, which is it's index. Like I said, it beat the large caps, so you know,
it's decimating the small caps in general. And I think when people think of small caps this year, the big word on the street is it's time for them to play catch up. Well, here's some that already are off to a good start, so we wanted to look at it. We also want to know if it could keep these flows going, because these kind of flows for an ETF, it's like Indy like not a big three, are really unusual, and so it was also an indie feel good hit of last year, so that's why I chose it.
Okay, for my transition to the next ETF, I want to bring up a news story that was just published in the last fifteen minutes or so. Blackstone's defaulted NYC office loan is for sale at a fifty percent discount. Right now, we're certainly seeing some stress when it comes to commercial real estate as the return to work, despite Joel's all of Joel's best efforts to get everybody in the office.
I'm going propaganda campaign.
It's working for me, Matt. There's a way to bet. There's a way to bet on returning to work? Eric, how do you do that with a desk? Is the ticker that.
Can makes sense?
Yeah, this was a classic thematic ETF. My colleague Athanasios shows it. So this is the Van Neck office in commercial reate ETF. And basically this is a play on return to office. Commercial real estate has really lagged the real estate stocks in general, or the index for real
estate stocks. So here you have a laggard and you have a trend of like all these companies wanted to feel back in the office, and so you know that we're interested to see if this thing sort of plays ketch up, because even if the real estate index is flat, if this plays ketch up, you get a bump. Plus, it was a novel way to slice and dice the
real estate market. So it's got Boston properties Vernado are the top two holdings, and a lot of people use Vernado as sort of the proxy already for the return to office. So that's the top holding, so you get a lot of that stock in there as well.
I think it's just interesting, Like I can't speak to the Blackstone story necessarily, but there has been this perception that, you know, commercial real estate is down and out and no amount of rto can help it. But like slowly but surely, like there's at some point it becomes like, Wow, maybe this is a contrarian investment opportunity. And what's amazing
about that ETF which is brand new. It's like ETF can take a whole trade and just like package it into a ticker that you can trade like a like a.
Stock if we get a lower rate environment. So it's incredible, right, and make it much easier for this for these firms.
Yeah, yeah, Okay, here's another interesting one, especially off of last year where you had this Magnificent seven and the tech companies just ran away with it. Eric, what is Athanasios put forward as as another way to think about tech perhaps in twenty twenty four.
Yeah, so this is the Invesco SMP have hundred equal weight tech RSPT. So equal weighting is a way to sort of like take out any kind of imbalance in your index, and so people like it. Whether it's the SMP equal weighted, this is Tech equal weighted, so you get all of the big magnificent seven most of them, but you get them at one percent or two percent weighting each, so you get a little bit more of an overweight to the tech stocks that haven't done so well.
So overall we're calling this sort of like the methadone version of the cues, right, And there's many ways to do this. Many people are figuring out how to get off of the sort of reliance on these seven stocks, yet they want to stay invested in equities. So we've got NASDAK cover call is a way to do it. You've got equal weighting is another way to do it.
Midcaps or another way to do it. So we think there'll be a movement of flows away from the market cap weighted indexes a little bit this year to these types of less magnificent seven up ETFs.
Still get the tech but just you know that equal weighting kind of makes it all fast. Well obviously, yeah, and then.
Well I mentioned if we actually get a FED that cuts rates. Here there's a treasury play here.
Yeah, this is TUA. This is designed by hedge fund people who start a company called Simplify and it's I like it because these products are really interesting. This is almost like five times leverage short end of the curve. So because you're short in five, it's not that much. But it's a it's a it's a kind of a strategy that you might find Pimp Goo doing for institutions or a hedge fund. Two is the ticker, and this company has gotten a lot of actual institutional investors, which
is rare for a small company. And so I like to highlight it because a lot of ETF they don't just package different asset classes. They package like people. I mean, these are hedge fund brains designing funds. And TUA is their biggest hit so far, and if if the rates fall, this should pop.
Hey, Eric, make sure to tell your friends and family you talked about stuff today other than bitcoin ETFs. Okay, my name is Eric.
Clip.
Hopefully they make they turn it into a clip all forward into my friends.
Okay, good, you definitely sound like I got sleep, so really good stuff. This is so much fun.
The two of you are.
Pretty you know, if we should do a podcast, you know, it's called trillions about you Nis and of course Jill Webber, this is Bloomberg brother Mark.
A journal.
How about you let me drive?
No, no, no, no, who's going to drive? Honey? Please, how do the gravels Let's wait, I want to drive.
It's a good question.
Good, this is the drive to the clothes downs me.
I think we'll buy around on Bloomberg Radio.
All right, Well, her firm closed out a more than two year short bet against US bonds with its model, signaling that it's starting to become a time to buy as the market emerges from its worst route in decades. We were talking about the bond market, time for the drive to the clothes with us as Katie Kaminski, chief research strategiest portfolio manager at Alpha Simplex Group. They've got
eight point two billion in assets under management. Katie, we're so delighted to have you back because we feel like you've been talking about what is kind of playing out, not kind of, it's starting to play out in the bond market. Tell us how you see it. And I do wonder if you think the bond market is getting it more right when the US yield curve trades above four percent, because you were on our air talking about a six percent in the tenure. What was a ten back in August.
Yeah, we didn't get there, but we didn't get to five. So we're on our way. I guess what we're looking for now is a completely different phase. I mean, we saw nine quarters of short positioning and short views and fixed income and that has dissipated. And I think the next step is looking for the steepener in the yield curve. And look at today, I mean, wow, like some of those rate cut bets have really come back. And look
at where yields are now. You're seeing steepening in the curve right now, the thirty or four point three something, all.
Right, And I'm gonna be honest with you because Liz mc kapa, mcorn, she's like a killer when it comes to the bond market. You know her well, and I'm like, le's laske because she's been covering you know, your your moves and your thoughts on the market. And she's like, say, you know, she said, ask her. Has the trend following signals gotten more strongly bullish since you discussed them earlier this month? And can you talk about how they look in more detail now? So have they gotten more bullish?
Yes, you are seeing more of a long view. And actually, even when we've looked empirically over different historical periods, it really is the next phase is really for the curve to actually normalize. It feels like we hit the bottom of that particular short trade and now we're pivoting towards a stabilized yield curve. The question we're asking is, given the wide range of outcomes, what is that steep yield curve?
Is that going to be cuts on the short end or could it possibly be unexpectedly that we start to see weakness in long term bonds and we have a longer time to wait for cuts and we actually see a steepen on the long end something like we're seeing today.
What do you think it's going to be?
And do you still think six percent of the tenure is possible?
I mean, I think it's always possible. It's going to be a question of how is.
A unicorn possible?
Or is it I don't know somebody, but it's like, is it possible in this cycle? Like are we still in the cycle where you say we could see ten six percent yields on the tenure?
I mean, we've already come back to four to three on the thirty year, so I think six may be a little bit of a way to go at this point. But I think the difficult scenario would be a situation where we have cuts and it's not doing enough for the economy and sort of we have week becomes two weak.
Nobody wants to talk about that, but that's the scenario with a wide range of outcomes, where you'd have a steeper yield curve where basically long term debt didn't have as many buyers and we just have too much supply.
I think we're far from that right now, but that's always possible, right I mean, unicorn, I'm not sure, but I always try to think about the range of outcomes, and if we're looking for a steepener, there's the happy steepener, which is everybody wants which you get cuts in the short term, and then there's the not so happy steepener, which would be you know, a situation where long term yields go higher.
Again, well that's what just to follow. You know that bet on a steeper usuel curve this year? Can that pan out even if the Fed doesn't come through with the about six quarter point cuts that the market is priced in for them doing this year. I mean if the FED dot plot showed something about half of that, so different, But the trade and what traders are saying is it's going to be a lot more aggressive. So can it come through with the FED doesn't do those six rate cuts?
Well, I think, I mean, I think that's the challenge. That people are very very optimistic, hoping that cuts are going to be coming sooner than later. But if you even listen to the common terry today, I've tended to kind of think that the FED is taking their time. They would have to see something that would be a catalyst to get them to act, and I don't think
that catalyst would be a good catalyst. So from my perspective, it's more likely that we're going to bounce around and what would be I'm calling a bumpy landing where we're sort of trying to get there as opposed to a situation where you know, everything just goes back really quickly.
I think it's going to take time, and I think they're going to be cautious because inflation still is not above target, is still above target, So I think we're in for sort of a bumpy ride to get there, and we're not going to get the cuts perhaps as aggressively, unless something more negative occurs, which isn't positive.
How many cuts do you think we'll see this year.
Most people are looking at four or three. I think it's going to depend when they start, and what do you aggressively they start?
What do you think?
What do I think you have to.
Make investment bets. I'm just curious, We're curious kind of what you're betting on.
I mean, I think for us, if you look at what's happening, you're seeing definitely those long signals on the short end and across the curve, which to me is suggesting that the market is really starting to price in more and more. From a technical perspective of those cuts, Are they too optimistic in terms of how they're buy
and selling? Possibly? But in general I think there will be a convergence towards somewhere in between, maybe not as aggressive as people would like, but also not as patient as some might think.
So if that.
What's in the middle, I.
Don't know, maybe three, Yeah, I think it's it's I think we need to see something start happening.
I mean, it's not that of it.
Yeah, I was gonna say, that's not that out of this world. I mean, that's kind of what the dot plot showed, is that there are going to be three cuts this year. It was that. You know, at the end of last year, vestors really started saying, wait a second, Carol, we're going to see we think we're going to see six cuts.
Yeah, it's really interesting. But I will say the conversations, the market conversations at the end of twenty twenty three, we're definitely starting to pull back on that that they didn't think it was going to be that aggressive, because let's remember, if the FED is going to be that aggressive, folks, you know, Houston, we have a problem, you know, us we have a problem. Hey, the dollar it's up about one percent this year. I'm just looking at the dollar index.
You know, do you still see a very short signal on the US dollar despite it doing well?
Actually, the dollar, the short signal really was gaining a lot of momentum towards the end of the year. But I'm not surprised that we're seeing some respite there because we saw so much selling of the dollar in the end of the quarter. And also, as you see pressure and equities, that tends to be very favorable for the US dollar. And if the FED is actually not going to be as aggressive in cuttings, that's also favorable for
the dollar. So lot of stuff moving towards that long dollar signal, but it's still kind of mixed, given from our side, given just how noisy we've seen it.
Hey really quick ten. Secondly, what's a key thing that you watch really quickly?
Oh, I'm watching bond volatility it's still way high and bondstock correlation. Those two things are the things that are different.
You're Jack now so much fun. Kati Kaminski over at Alpha Simplex Group, Thank you so much. This is Bloomberg.
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