Welcome to the Bloomberg Penl Podcast. I'm Paul swing you along with my co host Lisa Brahma Waits. Each day we bring you the most noteworthy and useful interviews for you and your money, Whether at the grocery store or the trading floor. Find a Bloomberg Penl podcast on Apple podcast or wherever you listen to podcasts, as well as at Bloomberg dot com. The key question, though, in my mind, as the spire reaches new highs of record highs, how much can a twenty five bases point rate cut actually
continue to support risk assets? Joining us here Peter Sheer, head of macro strategy at Academy Securities. Uh, he's here in our interactive broker studios. Peter, what is the answer to that? I mean, does this seem like it makes sense to you that stocks are rallying on this expected rate cut? Weirdly, it actually does. I'll give you my real cynical answer in a second. I think the first thing is what we've seen is a shift in the FEDS reaction function. I think the reality is they are
going to do very little, too slow the economy. So if we see any pause of science, they're not going to react quickly any negatives. They're going to react very very quickly to help out. So I think that's what's being priced in. And if you want the cynical answer, the FED is really out there to boast their asset prices. That belief is sinking in. That's what they're gonna do. You trade it that way, you think that that's what's
going on. There's a growing view that power who did want to kill the power put or the FED put. I think it's much easier to say you want to kill it than being the person responsible for it. And now he's gone the other way. They're there to support asset prices. So right now, you think that the best gauge of what the Federal Reserve will too is just to look at risk assets. If they're selling off, they're going to cut rates. If they're rallying, they might be
a little bit more patient. Yeah, I think that's it. So I think we've got one more good squeeze here. I think we see vick Strop maybe down to eleven, stocks continue to go higher yields. I think the front end is gonna be anchored. I think we're actually gonna see a realization Hey, if the Fed wants inflation, long endnield should be higher. So I think you're gonna see tens and thirties back up a little bit, all right, So how long can this go on before people care
about the real economy again? I think you need to see the squeeze finish, whether it's two weeks to a month. I want to see some of the sentiment surveys kind of get to extremes positive where every last bear gets pushed in. Okay, so this is this is a tactical bet on your part. Yes, I think that's what this is. Right, everyone's kind of having taken this message. Trade wars seem off the table for now. It's the summer. It's slow, y be short, this squeeze goes, and then we're set
up for a fall. Okay, So then we're set up for a fall. So let's move beyond just the next two weeks to a month and talk about what happens later in the year as we start to get more economic data and wage pressure, whatever happens on the trade front, how much do risk us it's potentially follow in your view, what's the what's the fallout? Or is this just gonna be a bumpy road for a while. I think it's
gonna be a bumpy road. To me. The real pause is going to be if trade wars start leading to the conclusion that we're actually gonna win, We're gonna fight for five G and the U s is actually gonna dominate five G rather than letting whahweh do it. Then I think risk assets can go off to the races. If it looks like we're gonna lose, we're gonna cave in, we're gonna let away dominate. I think we're gonna have problems there. And that's to me the swings. I think
Europe actually might surprise us to the upsides. Right now, I'm short term technically bullish. I think there's probably more upside than downside. And where I look at the economy heading, okay, so you think there's more upside than downside when it comes to US equities. What about high yield? You know, I think high yield's kind of played out. It's going to be a carry game at most um. Whether we will start seeing a few companies at trouble or not.
Maybe I think that was more likely at the start of the year when all in yields were slightly higher. That's all in. Lower yields just helps all these companies risk assets are well and alive, you know, M and A activities there, so companies can sell off. I think it's going to be kind of a mean for high yield all right. And then the other question is, I mean, I think it's just going to be a bumpy road
for a while. Does that mean that the prospect of a recession is pushed out substantially more uh than many are currently factoring in. Yes, I think it's pushed out. One. We now have this new reaction function from the Fed, so they're going to be overly aggressive trying to fend off a recession. And then I think people get a little bit too concerned. Remember Q four, Oh it's bad. Q one is gonna be a disaster, Q onet or not. Fine.
I think Q two is gonna be weak, But part of the weakness is going to be all the trade war related fights, the tariffs. Some of that's going to go away in Q three and Q four. So I don't think we're going to see this kind of straight line down. And to me, Europe's the wild card. What's Laguar gonna do is you able to implement stimulus there then all of a sudden, you know again there's might be positive surprises from Europe which we haven't seen in years.
One thing I'm struggling to understand is the efficacy of quantitative easing and of lowering rates at a time when borrowing costs are so low. I just I'm trying. I mean, there have been a number of academic studies that have come out showing that each additional round of quantitative easing and lowering rates from an already pretty low base doesn't really do all that much when it comes to juicing up the economy. So at what point do people care
about that? Again? At some point I completely agree with you too, though I'm not sure that these policies are right. I hate the idea of negative yields. I think negative yields are disaster for banks. I think at some point twenty years from now, people are going to revise how they look at economics and say inflation actually targets to the Fed funds rather than vice versas. So all these
cuts actually deep are deflationary over time. I think we're doing a lot of wrong things, but I've long since stopped trying to fight what I think is wrong and just accept what I think the FED and there are going to do and try and trade around that. So do you think that it's a good idea to go long US equities right now and also go a long, longer dated U S bonds. No, I actually don't like that trade here. I think that's been one of the
trades I'm starting to do some more work on. And you know, what I've been looking at is what are the safe trades? What are the safe assets. So a lot of people are in these sixty forty type funds where you own equities and you own bonds. I really don't like that here. I think yields are low, stocks at all time high. I think we want to pay back. I've also been looking at some of these men Vall and low Ball equity targeted funds. They've had massive amounts
of inflows. It feels to me like people are kind of reaching and saying, oh, I can invest in stocks, but they're safe stocks. I'm like, yeah, stocks aren't all safe, and when we have problems, they're all going to be hit. So that's kind of reluctant to I'd rather own equities here. Than bonds. I'd like to be short long dated bonds here short them. So you think that the olds are going to rise, I think in the tens and thirties are gonna go higher significantly or just a bit. Tend
to thirty basis points, so you know, meaningful from here? Yeah, I think we should be to to thirty five on the tenure treasury. Okay, just going forward, I'm trying to understand the picture in the key election year. What are you expecting in terms of what assets are expected to
do the best at a time. If the Federal Reserve is supporting the markets with the reaction function as you describe it, uh, and if certainly the government is looking to bolster markets given the fact that President Trump would like to get reelected, what are you looking for? So, you know, we've talked about this before and it's kind of maybe a weird view what I say. You know, look at the TV show Survivor. Let's pretend Trump has an immunity doll. That immunity doll is a trade deal
with China. Why use it now? Right? Use that close to the election. So I think we're gonna see a lot of hype about a trade deal Q one, Q two next year, and that's going to really bolster energy stocks, and I think tech interesting. So we're going to be listening in on J. Powell, the Federal Reserve Chair, speak in front of the House Committee, beginning of a two day testimony in front of Congress. UH, and we are going to hear from him. What are you expecting to
hear from him today? I think a lot of what he wrote, he's going to focus on inflation, right. Everything else really doesn't justify why he wants to be so dovey. So I think this lack of inflation is gonna be something we hear over and over. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa Abram Woyds. I'm on Twitter at Lisa A.
Bram Woyds. One. Before the podcast, you can always catch us worldwide on Bloomberg Radio