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