Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside my co host Matt Miller.
Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moving news.
Find the Bloomberg Markets Podcast on Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast.
There are certain sites you just never thought you'd see. Jess again.
You kind of the pandemic change the world in so many different ways, and one of the ways has just been this whole work from home phenomena. And so many people have been so successful working from home that productivity is as good or better than it ever was.
I know how bullish you are though about in office.
No, I think it's I think this whole work from home things a scam, but it is the way of the world that I have to adapt.
And Mike's listening. I'm coming back after exactly all right.
Vinceignerella joins us here. He is our one of our go to voices on the market. Seed joints us here on O Bloomberg Interactive Studio and Vince, we've got the FED.
Coming today here.
What are you hearing in the marketplace about you know, what the market expects and kind of where we go from here.
The market is looking for a skip, we don't really call it a pause, is a skip because the July meeting is still on the table. I said, July rate hikes still on the table. There's a hawkish bent or a hawkish lean is what we're expecting in the statements. But a few of the guys I talked to, and I think their rights are perhaps looking for a little bit more hawkish than I think the market's going to expect.
I think, you know, for their credibility purposes, and that's been a huge thing for Powell to try to regain the credibility they lost with the transient inflation story. That even with the skip, he really needs to lay the hammer down and say, essentially, core inflation is not getting down to the two percent goal anywhere near as quickly as they'd like it to.
So we have the statement at two pm, then we get the economic projections and the dot plots before we hear from the man himself, j palettes to thirty what are you looking for in the dot plots?
In particular, to be perfectly honest, with you. I hate the dot plots.
Dots.
They are the biggest joke I have ever seen.
Well, they also get altered, so obviously changed.
Sotquently I was, I was out of lunch with a bullet and he basically said, why are you guys pricing this in? And I said, it's because of your.
Bloody dot plots.
They're telling us where it's going. And he goes, oh, don't see, that's just those are just estimates. They change all the time, and so you know, people do look at them. I guess you have to take them seriously personally, I don't.
Bullard is a non voting member, but such an influential voice, and he had said in the last couple of weeks how he was expecting there to be at least two more even if they are two more great hikes, even if there was a pause at this point. Do you think that's likely with maybe just giving some of the inflation data obviously yesterday CPI coming cool with an expect.
I hope not to more. Actually I hope not even one more. And you're you're absolutely right. He isn't an influential voice, but he is a non member, and I think from what I'm hearing from the voting members so far. Perhaps the most interesting thing I should say about what this decision we should see later is any dissensions. I have a full expectation that this isn't going to be something to oh, that there's going to be some dissenters in there, and those dissenters will be people who basically
wanted a rate hike. There are a couple in there.
So Oxford Economics actually had some great data that they crunch that a FED governor hasn't dissented since two thousand and five, so most more likely it would be a president. So they were looking at either Neil Kashkari Lori Logan as a couple of them. Members's interesting, Yeah.
All right, So what are they when you talk to the traders out there, Vincent? Are they figuring price cuts later this year or this is twenty four event?
Do you think I think they're liking him later this year? I don't think they're going to get them again. Going back to the Powell credibility issue, I think he needs to at least totally line keep the markets on their toes that you know, inflation would have to do something drastic moving lower before we would see any cuts this year, or if we would see a recession, It'd be really hard to believe a FED would keep rates higher for longer. If we were in some sort of a recession, it'd
have to they'd have to bow to it. But I think it would be a very, very small and gradual move because I think he'd be worried more of anything for a repeat of stagflation, and so he's going to be on the tough side if he comes out in any way saying the word pause today, you're probably gonna see one of the most explosive rallies you've seen in a long time.
So even if the dots suggest in twenty twenty four that, like we had seen in the past, that there should be some cuts there, it's still tricky, right, just given what you were saying, with the backdrop of how much these things can flip flow.
Yeah, And I think it's more the analysts and strategists who are looking for cuts and traders looking for cuts rather than the FED officials. So I think the dot plot, if anything, is going to go against what's being priced into the swap market right now. But again, it's such it's such a waffly kind of changing environment with the dot plots that you know it could come together at any time.
Do you still feel like or does a market still feel like vince that this FED is behind the curve in terms of just dealing with inflation, and it just kind of the where the market is.
I mean behind the curve in the sense that they're too aggressive.
Yeah, I mean that they were too late coming into it dealing with it they were, or maybe they were too late tapering, they were too late tightening, they were too late.
And now kind of I think the way the market's looking at it, the way I would look at it is, you know, realistically, and this isn't a political statement, the reason why we have inflation is because of fiscal policy. Monetary policy is not very good at fixing fixed fiscal policy.
I won't say errors, but abundance. We say, So, what's really neat at this time is some pullback on the fiscal front, which most likely not going to see and so the FED has to try to fix it with what tools they have, but they're they're not very effective against fiscal policy.
You add a really interesting column that was on the terminal recently about how US consumer appears to be in trouble, but good news for bond bulls. Tell us more about that.
You know, you're always hearing this about the consumers doing well, and it's definitely something going on in the real estate market for sure, especially in the Northeast, but in general, all of the savings that were gained from a pandemic fiscal policy are gone. Disposable income is dropping, and you're seeing revolving credits sore, and all of that speaks to a consumer that's now borrowing to spend, and there's an endgame to that. Where it is I wish I knew,
but there's always an endgame to that. There's only so much they can borrow. And if you see the FED start to raise requirements on banks for loan portfolios, you're going to see the banks pull back on that credit. And when the banks pull back on credit, clearly you're going to see some impact on spending. And I just think the consumer is getting a little bit more tapped out than perhaps some of the optimistic people think, and that probably falls into where the recession potentially comes from.
Where are some of those red flags and some of the loans. When it comes to the credit, you were talking about.
One of the things that I would look at is the credit card companies. So we've seen very good earnings, very good profits coming from the likes of MasterCard, Visa an American Express. When that turns, I think then you're really looking at where consumers are getting in trouble, whether it be through default rates or simply just not spending, and therefore the earnings of those companies just don't show up.
Unemployment.
Where do you think that kind of goes over the next six to twelve months. Are we going to get to like a four percent number.
I don't know where we're going to get to an in exact rate, but I'll tell you there's a trick to this employment and jobs number that I think which the FED is missing is the Joel's number.
In particular.
So during the pandemic, what you've saw where a lot of companies buying ads on Indeed, et cetera, those websites for job postings, and they were posting a lot more jobs that they really needed in anticipation of potentially losing staff because of the pandemic. Those are annual contracts, and those contracts are rolling off, so they're not likely to be buying the same size of ads that they did in the past, and they'll probably be just a little
bit easier on posting. So I think the job posting is going to go down, the Joel state is going to go down, and with that will get a little bit more realistic employment number because when you buy these contracts to post jobs, they're not per job, they're just per year, and so you can post as many as you want and over post and that makes it look like there's a lot more I think it makes it look like there's a lot more job openings that they really are.
Okay, Yeah, that's really interesting.
Yeah, that's interesting because the Jolts data is something and it usually ran in between four and six million and still up around ten me and it makes you think about, geez, that's a tightly Hey, Vince, don't be a stranger.
Vin.
Soon you mound his way back to the Bloomberg Interactor Broker studio and.
He will find his way out exactly.
Little FaceTime doesn't hurt anybody.
You're listening to the team Ken's our live program Bloomberg Markets weekdays at ten am Eastern.
On Bloomberg dot Com, the iHeartRadio.
App, and the Bloomberg Business App or listen on demand wherever you get your podcasts.
Just met in Paul Sweeney here in our Bloomberg Interactor Broker's studio. We want to get to the story, the update, the latest reporting on former President Donald Trump and his legal challenges, and of course there's no one better to do that with than Tim O'Brien. Tim is a senior executive editor for Bloomberg Opinion, and Tim is the author of the book Trump Nation, The Art of Being the Donald in two thousand and five, the Definitive Biography of
Donald Trump. So there's no one that knows this story in this individual better than Tim.
Tim, thanks so much for joining us. We know you're traveling here, but I'd.
Love to just get your perspective on We've had so many legal issues with this president before and during and after now his presidency. How important? How significant is this? Are these federal charges here?
Well, Paul, I think they're extremely significant because it's a clarifying moment. I think that there's been this myth around former President Trump that he can't really be touched by the law, that it's target holds him accountable. But the reality is throughout his entire career before going into the White entering the White House, he's never had major federal investigations surrounding him, and now he does. And there's some
very robust state investigations that are also targeting him. But as it pertains to this specific case, it is one of the I think things that are very very difficult for him to hint and with is the fact pattern. This is not a complex narrative to explain to a journey. He took documents allegedly that he was not entitled to take, and he obstructed justice when the federal government came looking for them, and his own video cameras that mar A
Lago recorded this. The testimony that the federal government put in the indictment comes from Trump's own staff and from his own lawyers. So it's a very tough case and I think it's consequential, and I think that he I don't think he's prepared for it. I don't think he has the legal talent surrounding him to adequately defend him right now against the case like this, So there could be a rough ride to have for him.
Tim set the scene for us after yesterday when Trump lefts a courtroom what do we need to know from this moving forward?
Well, yesterday was pretty undramatic. I think, you know, from all accounts, it was pretty in and out. He sat silently, the federal government and Jack Smith didn't make much of a show of anything, and they process things and he
left the courtroom. I think going forward, there's one more process hearing with a second magistrate judge, and then the trial begins with Judge Cannon, and I think there's you know, she's a Trump appoint There's been questions about whether or not she is going to run up their process in her courtroom, given the fact that she owes her job to the president. She also gets to decide even if a jury finds him guilty, she gets to decide how
severe his sentence will be. I think his maximum exposure on almost all of the counts is ten years, and there's one count that it has a maximum possible prison sentence for twenty years. I doubt we'll see any sentencing, even if it wasn't a possibly friendly judge go to the full amount here. But that that dynamic, I think how the government presents its evidence, how the jury interprets it, and then how the judge decide to sentence him. Is
are the next steps? And all he can do is try to mount an effective defense, which has already done a little bit publicly saying that he was entitled to roose documents and he did nothing wrong.
So, tim based upon kind of your knowledge and your reporting, is this trial h is it going to happen or is there going to be a plea agreement? And if it does happen, how quickly? There's a lot of moving parts here.
Well, you know, if there's gonna be a pre agreement, it's you're going to have to agree to a settlement that satisfies the federal government. And previous cases the government takes, you know, these kinds of cases seriously. He is alleged taken documents, exposed the vulnerabilities the US military had nuclear she puts in some of them, and, by the government's account,
compromise national security. We have a voteload of previous cases in which the charges events of here, and the defendants have gone to jail for the equivement for doing that. So if they try to do a plea agreement, it will be very interesting to see what the components of that are. And Trump at this point might be wise to try to do that, but I just don't know.
I think the second piece what you'll see here is that he will take his argument to the streets, and I'm concerned about the possibility of violence because he is not someone who goes gently into that good night. He is not going to if he has found guilty. I think he was going to be going to encourage his supporters to be heard. And that's another dynamic that I think we'll have to watch very carefully.
How long could the trial.
Last for.
Well, Jack Smith thinks that he wants a speedy trial, and I think they're going to try to move this along as quickly as they can. I don't think they're going to try to spend months and months presenting evidence. The federal government, particularly the Justice Department, did not by clinging cases during presidential election primary season goes in the
full force in January. That's new territory too. I don't think they're going to want to trying him come next spring, so I think you're going to see this move along pretty quickly. The other thing to remember is there's another investigation of the Justice Department involved January sixth, and the possibility that Trump incided and insurrection and tried to intrigue with the electoral count procedures. And that's a trickier case,
I think for them to bring the course. I think from a strategic standpoint, they were smart to go first with them are allowed o case, but they still have that one left to unfurrow, and you have to see what happens with that one too.
Hey, Tim, let's fast forward a little bit to the election. Any sense of how this might play during the election.
Well, I mean, this just throws such a wild card up. So here we know that after Alvin Bragg in Manhattan BA and guided Trump for financial for financial fraud in an electoral fraud in New York. It helped Trump with his base, and I think more generally with Republican voters who aren't part of his base, which are the ones he needs to amount of successful national election. I think he will probably be any other Republican in the primary
season right now. I don't think he can win a general election unless he gets moderate and moderate Republicans in an independent And that first case, you know, people felt that drag was being unfair to the former president, and the polls indicated that that gave him an electoral base. It will be interesting to see how Republican voters respond to this case. I think this is a much more muscular, clear cut base. I think what you know, the risure occurred is much more damning yep. And there's not a
lot of nebulous nips around it. So we'll have to see how that plays outs too.
All right, Tim, thank you so much for joining us.
Tim O'Brien, he's a senior executive editor for Bloomberg Opinion. He's also the author of Trump Nation, The Art of Being the Donald. He published that in two thousand and five, held as a definitive biography of Donald Trump.
So Tim has a.
Real good insight into Donald Trump the person as well as the politician as well.
You're listening to the tape. Can's our live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and.
The Bloomberg Business App.
You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
All right, let's get right to our next guest in studio, which she gets an extra start joining Gegos joins Is. She's a co founder of Bond Blocks. She co found a bond blog in twenty twenty one, and as the name would imply, it's an ETF firm that focuses on bonds. Jinna, thanks so much for joining us. So, I mean the reality join is I can go with a two year treasure, we can get four point sixty two percent. I mean there's actually income and fixed income these days, right, Yeah.
We like to say the income's back in fixed income, and we really are encouraging investors to take a look and think about repositioning in their portfolios now because of everything.
That's happened over the last year.
Of most areas in fixed income, yields have doubled since twenty twenty two.
It's interesting because you see so much money plowing into money market funds and other corners of the market when obviously you can yield five percent or more at this point. What do you think is the dynamic changing there between say, post the housing crisis, where you couldn't yield that amount whereas now. Is it not just a defensive posturing. Is it also just because of what investors can yield at this point?
Yeah?
So we have to remember the fundamentals of fixed income, and that the total return of fixed income includes the yield on the income side of your coupon pay plus the return of the asset itself. And with these yields, like they're really providing a lot of cushion for volatility that's still in the market is still we view is going to persist through the rest of the year, and so you don't want to forget that. You know, it's
not just about being defensive. It's about taking action in your portfolio to get great total return relative to other asset classes right now, and fixing them can provide that to you with a lot a lot less volatility relative to other asset.
Types, even equity. Well, this bid for cash is.
So interesting because you look at money market funds right now. Mutual funds so not quite as cool as ETFs, but still there's five point five trillion in them.
Money is still growing. At the same time, you.
Also have sort of the spiritual opposite going on, where people are chasing tech, they're chasing AI and those growth of your names.
So it's been.
Interesting to see those two opposite approaches build up at the same time.
And when you think about money market funds, When you think.
About cash like instruments on the ETF side, when does that money come out? What would be the catalyst to say, Okay, you know, I can sit in here and clip coupons, but maybe it's time to venture out.
Yeah.
I think last year's flows were just exactly that there's people sort of hiding out or on the sidelines, trying to figure out when they're going to come back into risk askets or when they're going to come back into the market. And in terms of when, I think what we've been telling folks is you probably shouldn't be waiting for everything.
To settle through the end of the year.
Yes, there's more volatility, Yes we have still the potential for recession coming up. But it's interesting you say that because I think there's some data that when you look at ETF flows still you're not seeing people rush back into equities, even though there's really attractive yields in I'm sorry, really attractive returns in places like technology. Actually, I think the flows are a little a little opposite of what you would intuitively think that people are running into them
through through the et apps. The same is true in categories in fixed income where you have these really big yields with sort of you would think relative risk, but you know something like a triple C which is yielding over thirteen percent, or even WC even double B is that you know, almost eight percent, and people just aren't grabbing those opportunities.
For their portfolios.
Now, we think by bomb blocks, we try to show people the relative value amongst all this different places in the fixed income offering so that they can take action. So we really think there's a call to action to reposition your portfolios now. But you're right, I think the flows into money markets are still saying people are waiting for more information, and we just think fixing income provides more opportunity.
Now, something I've been watching pretty closely is the CFTC data that we get on Fridays and looking at how much investors are shorting the treasury market, whether we're talking about the two year, the ten year. The speculative futures net positioning has been at a record when we're looking at these bonds when it's so extreme, because typically investors would do that in anticipation that bonds would or if
you're looking at yields, those would move higher. Do you think there would be any sort of opposite effect there when you see positioning so extreme to where yields could potentially fall when you have those kind of bets placed on that, our.
View is that yields are going to be higher for longer, like we are at. We had some good numbers last year yesterday in terms of you know, inflation and four percent number, but at the same time, like the Fed still has a two percent goal and going from four to two is going to be pretty difficult. So I don't we just don't see that pivot, even though there's a lot of interesting volume activity around all the markets.
On the short side, I would say that our view is, you know, there's a there's still more to process.
Can we get into the weeds here? Do you guys mind take it away straight into the weeds?
Okay, let's talk specifically about ETFs, because obviously bond Blocks's business is sort of carving up the bond ETF market into you know, sectors, into duration specific funds.
And if we look at, you know, what your most successful products are.
We have x h l F, which is six month target duration leave that launched in September, right, and you know, you're closing in on eight hundred million dollars in a U, which is impressive. And then at the same time, I mean there's products such as t bill, which recently launched
that is specifically three month treasury bills. And then Blackrock also has a suite of products they're ebond suite, which is also really narrowly focused on different duration and it's interesting to see all of this money coming into these duration specific funds. So I'm just hoping you can talk me through where that demand is coming from, who is using these ETFs, and how should these ETFs be used for the bomb blocks products.
Our clients are really using them for duration management to control the interestate risk they have in their portfolios, and we have seen some really compelling use cases in this
last two or three months. In this last quarter, as we entered into the debt crisis, we saw clients move out of the short short ultra short side and a little bit out of the curve one, two, three year because they were trying to avoid any of the you know, very short term settling maturities in very very short treasury products.
Once the dust cleared some set we saw the clients kind of move back in so I think what's really interesting is that these are tools for interest rate risk management and duration management, and we're seeing that it's not just that I'm going to hide out in cash for a while because I'm not sure what I want to do. People are using them to add to their portfolios, to manage their viewpoint over what kind of duration they want to add.
Or subtract from their portfolio.
And it's great to see also some hits on the longer side too, So there's just people have the opportunity to say, like, you know what, I'm going to seven the belly of the curve.
You know, there's a little bit of a.
I'll get myself out a bit, not all the way out to ten and twenty, but yeah, I think they're really being precise with their viewpoints week to week.
Yeah.
And if I you know, if I'm worried about I'm trying to manage my duration risk, my interest rate risk, I mean, why do that through one of these products, through an ETF versus just going into the actual.
Securities, you know, buying a portfolio of securities actually, for any investor or any investment management firm is a lot of work. You have to have the teams that you know either on the credit side, you have analysts, you have research even back office in middle office operations to make sure things are settling into your accounts correctly. And we were just talking about this in a different form actually here at Bloomberg.
It's hard to do.
ETFs give you that exact exposure with one trade, one click, settles in your account. It's very simple for asset managers and investment managers to use them for these precise exposures. Our premise is there isn't enough of them in fixed income. You could do a lot in equities. You can get any kind of brick factor you want in a ETF in equities, and there just isn't enough in fixed income.
So you buy an ETF for it.
It's convenience, it's simplicity, they're low costs. They're great management tools for investors.
We only have about a minute left, but I was curious about in the ETF space, where would you shy away from. We talked about the opportunities there were whatevers. Do you not like.
That's a I guess that's a very personal question.
Forever I use more client specific.
It's very client specific because with the way you should view. ETFs are tools, tools to build portfolios, tools.
To express your view.
And the important thing about the ETF offering is that there is enough tools for you.
To do that with.
There's new types of products you can get access to managers inactive and so I wouldn't shy away from anything in ETFs because it's it's the premise of the ETF offering is to help investors action their ideas and take action in these markets. So there probably isn't an area
to to to avoid. I mean, we do see obviously the dangers of increased altility, and we don't we don't know exactly what kind of liquidity is coming out of the system, but you know, again, to be able to make those trades week over week with ETFs, that's what investors are coming.
To them for.
Hey, Joanna, thank you so much for joining us.
Really appreciate it as always having you here in a Bloomberg Interactive Broker studio.
Joining Diego's co founder of bond Blocks.
I think that was a good business decision, great round table.
Well I just stepped back toront of him. I can step back and let the smart people have the floor. So that was great appreciate Katie Greifeld sitting in with us.
You're listening to the team.
Ken's a our live program, Bloomberg Markets weekdays at ten am Eastern.
On Bloomberg dot Com, the iHeartRadio.
App and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
Just meant in and Paul Sweene here in the Bloomberg Interactive Broker Studio.
We've had some smart guests here.
Today, we have and they're going to continue coming with especially with our next guests.
Exactly all right. He's a pretty smart dude. That's why we kind of have him back. I usually can follow what he's saying. Sometimes I have to google some things. But Jay Haffield joins us. He's a CEO, founder and portfolio manager for Infrastructure Capital Advisors. Jay, I know you guys at Infrastructure Capital Advisors.
You fall inflation. You track this thing, right, and so does the FED.
What do you tell us about how you track inflation and kind of what your work is telling you guys?
Thanks Paul. So, the key element is to think of three separate buckets of inflation, so you have leading indicators. The key one there is oil prices, which we know well, and housing prices, okay, and that if you just looked at those two and tried to explain the seventies, that would explain over one hundred percent of the inflation during the seventies.
So that was the real problem, which was a good decade.
Right, this is a real problem. The FED has learned a lot of lessons that we don't think are accurate about why that occurred, like stopping and starting entrenched. We don't believe in any of that. In fact, we believe Volker made a big mistake raising rates too high. So those are leading indicators. Current indicators are today's a good day to talk about it. PPI Real Time and CPI desh r is are index. Other people have either arguably copied it or we copy them. There's no We're not
an index company center tracked that. But so all that is is just looking at that leading indicator housing and then stickating into the index and then the deeply unfortunately, the deeply lagging indicators are what the FED follows. So in fact, the worst is core PCE because Core, what the FED doesn't really focus on is that high headline bleeds into core. In fact, you can see this during the seventies, so they are going to probably be very
hawkish today, or at least somewhat hawkish. They're going to keep talking about raising rates because they're focused on that core measure, even though it's highly lagged and it's going to drop. It's just going to take a little while. So we've and we've had this view almost since July last year when inflation peaked, and we've been looking forward to this time of the year because this is the
Fed's almost always a year behind. So they're starting to figure out by pausing, and we think they'll pause next in July as well. But so those are the those three buckets are critical, and that's why we think the FED is fundamentally flawed, because they're looking at the wrong bucket.
What is your expectations this afternoon from FED chair Jerom Powell.
Thanks, Jess, Well, you know he has a stellar track record of tanking the market during press conferences, so i'd hate to bet against that. The only mitigating factor you mentioned Mike Wilson, who just reiterated his target. We just we raised our target. It's kind of a little bit of a bogus target. It's forty five hundred to five thousand. But the reason for that is we have data that
supports forty five hundred. The five thousand is just we've observed, you know, partly or I've observed being an investment banker, there's a tendency for hot markets to get overvalued. Like right now, we think that AI companies are probably undervalued, but they're going to get overvalued, so we don't know how much. It seems like five thousands of a pretty good
target or limit to that. But so we're quite bullish about the market, whether we pull back today, maybe even pull back through mid July, but we're bullish in mid July because you have earnings. Most companies are doing well, not just tech companies. We think the market will broaden out some of the things that we traffic in more heavily, like preferred stocks and dividend stocks will do better. So
we're bullish for the year. Whether I would say, if I had to bet, it's for sixty forty that you know, the market will be lower today just because of the Powell having to placate the hawks.
To Jay's point, the S and P five hundred has dropped on FED Day five of the last six meetings.
Is that right?
Here we go?
All right, we got it. That's a track record.
Jay, if you ever.
Had this discussion about inflation and policy with anybody from the FED, because we're going.
To set it up, Okay, No, I'd be happy to debate them, but I will say that we're I think we have a leading market share of criticizing the FED over the last two years.
We have a pretty good pr firmt.
So you can go check that good because we literally we were talking about it coming in. We were trying to contact reporters in March of twenty one because again we follow oil prices they were skyrocketing. We follow housing prices skyrocketing. We didn't have CPI dash are, but PPI printed at ten percent in January of twenty one, and the FED a year over a year later was saying is transitory. PPI is again a real time indicator, Like if PPI is going up, you're almost certain that CPI
will follow, So I think that it would. It's just useful this conversation is going on. There was a Wall Street Journal editorial this morning that the Fed's methodology is just fundamentally flawed, including the two percent target. Two percent targets way too low, huge enemy of the middle class. There's strong evidence that it made the financial crisis way worse. And so these issues need to be drawn out because everybody treats the FED like they're sort of, you know,
some sort of god, and you can't. I mean, politicians aren't allegedly not supposed to talk about it, and they have like four hundred PhDs, but they can make bad mistakes. Having a PhD means you're an expert in writing, you know, research papers, not running the FED.
All right, So give all that you mentioned preferred stocks. I don't hear that nearly enough in this duty studio. Why do you guys are why are you favoring some preferred stocks right these days? And why should investors consider preferreds?
Well, we are kind of evangelical about preferreds because what's great about them they are good credits. They have load default rates abou zero point three percent on average for listed we do the twenty five dollars listed preferreds. They're issued by good public companies who care about their credit, but they're owned by retail and they tend to get
sold off way too hard during downturns. So, for instance, right now, you look at any credit quality of preferreds, they're cheap to high yield by about twenty five to thirty basis points. And right now, like the answer to your prior conversation about why, because you might ask, well, why when just buy the short term ETFs that the other the firm before me was here, Well, the reason is you can right now with preferred you can get
equity type upside with fixed income risk. So they're trading roughly our funds at nineteen, which is roughly par value par values twenty five, so you get potential for appreciation at twenty five. But meanwhile, and our fund yields a lot because we look for more like double B crossover credits, so yields about ten, so you get ten to weight.
It's not super volatile right now. It can become volatile and then you get upside, and it's a good hedge because we're pretty bullish on tech stocks, but most retail investors have way too many tech stocks and no income and fix this is going to be less volatile, certainly less volatile than Nvidia and high beta stocks, so we
think it's a good alternative. The answer why, maybe you don't want to go in and get five right now for sure, because you can get ten and then maybe you know twenty or thirty of upside potential, So preferreds you should also sell them at par by the way, which hopefully you don't have me on, you know, in the year and they're all part and I have to say, oh yeah, I said you should sell them all but you know, to get ready for like the next crisis,
next freak out. And during seven oh eight they went to like ridiculously low levels and we made a ton of money buying cheap referreds back then.
And to your point when you're talking about PPI, we watched the CPI PPI spread very closely, so you would have seen that obviously improving dramatically when it comes to the input prices before obviously consumer prices. I mean, how does that do you think bode well when it comes to corporate margins when that obviously is a key component of that and obviously in turn stock prices.
Yeah.
So I mean we tend to and I think this is why we differ a fair amount from Morgan Stanley, is that we don't focus as much on margins because really, if you analyze and I learned this doing utilities. Almost all earnings growth comes from reinvestment and utilities. It's just a tautology because it's regulated. But so a utility with a fifty percent payout ratio always grows at five because
they only grow from retaining earnings. So most companies, like McDonald's, wherever they grow because they return earnings and actually open new McDonald's, like an existing McDonald's, margins is going to be relatively flat. So I do think that that's a bit of a challenge, but I think that Morgan Stilling's overstated it and we're more open. This year's has been pressured and we're about two twenty on the S ANDP.
But actually next year's earnings, which is what our targets based on, has been holding up well, in fact even going up, so now it's two forty two. So we to your point to be this year, we think is going to be challenging and next year will be more normal. And then also you just get the growth from AI and from retained earnings. So I think it's easy to be too bearishit about the stock market because people don't realize that arithmetic of the reinvestment producing kind of automatic growth.
Wow, great stuff.
As always, a body continues to come in here. He hasn't figured it out yet. Jay Hatfield. He's the CEO, founder and portfolio manager at Infrastructure Capital Management Lots. I learn new stuff every time he comes in here, and we love having him in here on days when there's going to be some big news in.
Today's one of those.
Yeah, it's flag day exactly. Price target that he has forty five hundred.
Ye'll take that five hundred.
Yeah, like the five thousand and one. I'll stick with that.
Jay Haffield, CEO, founder and portfolio manager for Infrastructure Capital Advisors.
You're listening to the tape cansur live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the.
Bloomberg Business App.
You can also listen live on Amazon Alexa from our flagship New York station, just say Alexa playing Bloomberg eleven thirty.
All right, let's switch giers and talk about the pharma space, biotech and really with a focus on anti obesity drugs, and you just think about the opportunity there in terms of market size, just extraordinate. There are a lot of big players in there, so we want to get to the latest and see what's happening there. So we go to one Mikey Shaw, senior industry analyst at Bloomberg Intelligence.
He is live at his desk, I can tell you, at the Bloomberg headquarters in Queen Victoria Street, in the center of the city of London.
No better place to be in Mikey Shaw. Now he's in the office.
Unlike like Sam Fazeldi, who just mails it in from France, Mike's there every day, grinding it. We appreciate it. Mikey, thanks so much for joining us here. Talk to us about the market for anti obesity drugs. Give us a sense of how big this market is and the kind of the growth profile.
Sure, I mean, just a reminder, when we look at the market in terms of patient population, it could be three times larger than diabetes. So when we look at the target population in the US one hundred and forty million sufferers in the US six hundred and fifty million globally, and if left untreated, we think that could go to you know, that could double by twenty thirty to about
one point two billion. And what's you know, when we look at the number of patients that are medically treated, the proportion is load, so there's kind of a significant runway, you know, for these drug makers which are active in the space. And then you know, we published an update to our market model a couple of days ago, and we think that you know, looking at marketed drugs and drugs in phase three at the moment, we think that that market could go to forty four billion dollars in
twenty thirty. That's an eighteen fold increase on the twenty twenty two levels. And then we see two dominant players, so Novo Nordisk Eli Lilie with the fifty four percent share and a forty six percent share respectively in twenty thirty, and then pipeline drugs well drugs in the early to midsday pipeline could represent upside to that potential view you.
Talked about the big players in the space with Lily Novo break it down on both sides of the spectrum. As far as what it comes to whether there are free here when it comes to those entire obesity drugs that they have in the pipeline.
I mean, ultimately, what we've seen in terms of you know, obese medications is you know, prior to the launch of WEGOV, the effectiveness of these treatments was relatively I want to say low, but sub ten percent weight loss. WE'REGOV across its PASE three trials showed eighteen percent up to eighteen percent weight loss, and then Lily's to zeppetide, which should get approved by the end of the year, showed more
than twenty percent weight loss. So what these two drugs have done the second generation of medicines, They've really raised the facy bar in this in this treatment space. And then we see that tussle in terms of innovation continuing with Novos. Basically, it's got a drug called Kagari Semma in its FACE three pipeline and it's targeting twenty five percent weight loss with that particular product.
Now that I mean, those are I was going to ask you kind of what is the efficacy of these drugs, I mean, and what are these you know, farmer comings, what are they kind of promising their patients?
I mean in terms of I mean most of the patients when we look at the trials, they're going off baseline weight of you know, ninety five kilograms to one hundred kilograms and.
What we pounds for the rest of the world.
The pounds conversion I'm not sure about.
All right, go ahead, let's google.
So I mean, you know, as I said earlier, Lily showed Lily's basically shown the best efficacy to date with the zepptide, and that showed upwards of twenty percent weight loss, so it's kind of a significant it's a significant fac And when we look at bariatric surgery, which is obviously invasive, costly, you know, that's associated with twenty five percent weight loss plus. So you know, with this new innovation, you're really narrowing
that gap between you know, therapeutics and surgery. And what's going to be key for this market is going to be, you know, getting pairs on site. Traditionally, you know, probably because of the ficacy or they of prior treatments, it's been an out of pocket market. So we hope that's going to change. And what's key to making that change is going to be outcomes data. So the effects that weight loss have on kind of cardiovasclet en points such
as cardiovasca death, heart attacks, et cetera. And we should see the first outcomes data midyear for Novo and noticeable go VI. We think that's gonna read out positive and hopefully that should kind of.
Break down the access hurdles faced by some.
Patients when it comes to companies like Ela Lilly trying to move toward this fast track approval. What kind of dangerous could be there?
I think in terms of, you know, the fast track approval In terms of clinically, I think, you.
Know, they've done they still needed two trials to file. What they did was they you know, they've had a rolling submission, so the first phase three data set came out, they then had their discussions with the sk FDA. The second Phase three data set came out, and that enables them to kind of complete the filing in sorry, it should enable them to complete filing by mid mid year, mid year, which would enable them approval by the end
of the year. So in terms of kind of data sets, they're still submitting the same amount of data to support to support approval. It's just that they've kind of done it in they've just done it in a quicker manner, right.
They haven't had to.
Wait for the second trial trial to report before being able to file, So.
You know, obviously they've invested a lot of money in but these companies in coming up with these therapeutics, what's the I guess the risk of the generics coming in and kind of impacting the profitability.
I mean, we don't see generics coming in until you know, you know, twenty thirty post twenty third See, so I believe you know that these drugs are.
Protected by patents.
We've got a litigation analysis that's done a deep dive into all these passives called Tish Walker, and I believe she's you know, she thinks that WEGOV could remain unpatent until twenty thirty eight.
I believe the Lily.
To zeppatide pattern is you know, somewhere somewhere around that time point as well. So there's significant you know, these drugs should remain free of generic competition for a significant time.
As far as when it comes to the timetable, what's next in the immediate future that you're keeping your eye.
On with this, So in terms of catalysts, use players approvals, you know, as I mentioned earlier, Goovy outcomes data that's due mid year. To Zeppetite approval should happen by year end, and then we should see oral seg side which there's an oral GLP one, so an oral product that should get approved in twenty twenty four and that could really
open up the market. So we did a survey of one hundred prescribers, and there's a clear need for oral therapies, especially in the primary care setting where you know, doctors are often short on time they may want to avoid the complex titration strategies of some of the injectable.
Treatments on market at the moment, such as We'll.
Go be So, Mike, you're just looking at your research report here, which is awesome. By the way, Novo Nordesk and Eli Lilly vuying for leadership. You say, is this kind of a dwopoly here or more farmer companies going to come here? More providers are going to come in here and try to compete for this space.
I mean in terms of how the market's going to play out, I mean we think it's going to be similar to the JLP one class in diabetes. So Novo Lily dominating, They're going to drive the innovation in the space and continue on that tussle. But you know, given the size of the indication, there's room for other entrants these might include pfizor Zealand and and I'll say also and all of them have got drugs in mid ear least amid stage sevelopment.
It's interesting.
I'm looking at how Bank of America recently actually boosted their price target on Eli li Lad of five hundred dollars is actually trading around four hundred and forty four dollars right now. But this is based on the obesity drug demand.
Yeah.
And I mean, and Mikey, this is I mean, the US.
Is really from you know, unfortunately leading the way in terms of cases, aren't aren't we?
Yeah, I think the presidence in the US is high. China is obviously a big market as well, but when we look at you know, numbers in general, I think the presidence of the disease is on the on the rise everywhere.
Yep, all right, all right, Mikey Shaw, folks.
He I'm gonna say, Mikey, you were like one of our first analysts we ever hired to be I like fourteen or fifteen years ago, and I see him on zoom, Folks.
He's actually got some gray hair.
I mean, he was a kid when we hired him, and now he works along with san Fazelli, and they just do outstanding work covering the farmer space in the biotech space.
Mikey is well known in the city of London.
For with institutional investors and with the companies he owned, so we appreciate getting a few minutes of his time. Mike Schai is his senior Industry and also at Bloomberg Intelligence, based in our London office.
So good stuff there. It's a great report, very detailed. Check it out on the Bloomberg terminal.
Bigo gets you to all the Bloomberg Intelligence research and some top notch stuff there coming from a healthcare team.
You're listening to the tape Cat's are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and.
The Bloomberg Business App.
You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Just met and Paul Sweene here in the Bloomberg Interactive Brokers studio.
Really excited for our next guest.
I'm always excited to chat with Gina Martin Adams.
He's a chief equity strategist for Bloomberg Intelligence. Gina, thanks much, thanks for joining us here. I'm just looking at my Russell What is it two thousand chart? Man, it's how to move over the last couple of days and this month and this month.
Yeah, exactly what what's going on? Well?
I think part of it is the FED. Part of it is finally regting to the point where the FED is looking likely to pause. Maybe it's just a skip, but it is pretty close to a pause, and FED tightening packages of the past have certainly dampened the outlook for small cap stocks. Part of it is also the earning cycle. You know, we do appear to be in the worst of the worst of the earning cycle right now.
With an improvement going forward into twenty twenty four, small caps revenues are finally expected to recover into twenty twenty four. So to the degree that investors are getting some visibility into a recovery process emerging for small caps, that may be driving some of it, and certainly we see that with some of the more suppressed areas of small caps. Part of it is in the banking crisis, which really weighs on small cap stocks, does appear to be increasingly
in the past. So certainly there's a lot of hesitancy with respect to that call. It's not as profound a drag on sentiment for small caps as it was in March. And then generally, I think it's just large caps have performed so well they're dragging the overall market a bit higher. Sort of investors are starting to capitulate to the idea that maybe the worst for equity performance is in the past.
And as you know, Gina, investors watch small caps very closely because typically they'll bottom before larger caps, do you. I know, various points last year they were holding up better than their larger counterparts. But to your point, we saw some of that, especially in the smaller cap spiece pressured which was going on with the banking stresses. What do you think small caps are telling us moving forward as far as the direction of the stock market.
Yeah, and they're confirming large cap gains. Finally, I mean, it's very intriguing when you look at the small caps charts. Small caps actually bottomed all the way back in June of last year. They never made low lows, but they've sort of failed to spring higher even though they did create a bottom and sort of traded sideways at large they really weren't springing higher until more recently when they
finally appear to be breaking out. I mean they sprung a little bit from October to January, then got overbought. You know, some big sentiment swing happened in small caps. Now we're starting to see a little bit of recovery again. I think those January peaks are pretty consequential to watch for the small cap index. But you know, I look
at small caps as a confirming signal. Usually when all stocks are rising, small caps are confirming large caps, you've got a much healthier market than when, you know, just large caps are a rising alone. So what we're seeing is a confirmation of the breakout in large caps that occurred in the latter part of May now occurring in small caps as well.
You know, it's Fed day When the likes the surveillance stars like Tom Yes, you know, and and Lisa Brommins sticking around in the afternoon. You know it's Fed day because they have got to come up on one thirty with a big show.
And guess who darkens the door here? We're excited about it.
I mean, Gina Martin Adams knows.
It'll move the mark I know, and it's.
All there is to it, and it's going to be interesting. We've got a great set of guests today. Randall Krasner will lead us off to the former governor, without question, the nation's lead financial analyst. But but there'll be more And is you and I talked about earlier, Paul, there's a huge mystery here, and particularly first, I mean Gina. Martin Adams told me Apple's trading at a pe of thirty and it's like a pink sheet stock.
So I mean, Gina, I mean, you know Tom's here, he's working hard, he's working late, same with Lisa Bromins.
We don't no idea where John Pharaoh is. But what are you looking for, Gina? On on this FED day?
I think everyone's kind of looking for the same. Is it a pause or is going to confirm a pause? Or are they going to talk about a skip? I think is the first thing that everyone's looking for. If they confirm a pause, do they then start to address the balance sheet? Is the second thing to look for. I do think we want to watch for their language around inflation and their comfort level with respect to the inflation trajectory. You know, the difference between a pause and
the skip. We could be underestimating how meaningful that is. The skip this late in a rate high cycle. It is very rare. There have only been two times in which the FED since nineteen seventy has embarked upon a rate hike cycle, then skipped at the very end of it for just one month, then hiked again, and then was done. And the market performance following those two instances has been very different. So in nineteen eighty nine the market greeted that sort of FED hike trajectory pretty kindly.
In two thousand they tried it again, and the stock market obviously did very poorly following that. But typically pauses are very good for stocks. I mean, the average gain following a pause as long as that pause lasts at least three months after or a rate hike cycle is about eight percent over three months. So if we get the confirmation of a pause, we could have a continuation of the momentum that has emerged in stocks. But I'm a little worried about this idea of a skip.
A skip is.
Unusual, as I said, and also creates pretty variable results for the equity market. So That's what I'm watching most carefully, Gina.
This argument about breadth in the market. Obviously we had just talked about the strength and small caps. We're seeing it broaden out this month. When you're looking in the S and P five hundred with materials, industrials, other more sickle corners of the market. What do you need to see to give you more conviction that this breath is growing and not narrowing to these obviously more coherent when you're talking about these kind of big growth and technology.
Stocks, yeah, we have seen them in the market broaden. I mean, frankly, I think that much of the commentary around the narrow breath of the market is just way over emphasizing narrow breath as a factor. What we find is narrow breaths more than often actually is a signal that will broaden to the rest of the market. It's not a word some sign that stocks are overdone or we're going to get some sort of crash following narrow breath. It's not a particular profound signal that said, I do
like a market that has broad participation. You now got about sixty percent of S and P five hundred stocks trading above their two internay moving average. We love to see that above fifty percent to confirm that the market has entered a new bull phase. I think the more participation you have from sectors and the leadership of cyclicals relative to defensives is very consistently a strong signal for
the durability of a rally. The fact that consumer discretionary stocks, for instance, are outperforming staples and have been all year. The fact that utilities are underperforming the rest of the market and have been all year. Those are consistent signals of longer term performance or a longer term, more durableble trend emerging in the equity market. And so the broader the market games are, the more comfortable I think the investor base gets with sort of dipping in the water.
I think we do need to get passed a lot of this recession chatter before we can get too excited about it. But nonetheless it's a positive sign.
Yes, that sound you hear, Gina, is Tom Keane dipping his toe in.
I got the paper ticket out. I think I'm going to do an odd lot. I don't think I could stretch you up a hundred shares, you know, I'm thinking something safe, like you know Bank of New York or remember the safe dominion Mityell. I'll go on, give me the d e as at first purchase.
So Gina tell us about earning's risk in this market.
We talked to some guests earlier who you know, called that out is still a potential risk out there.
Look, I think that we've been talking about earnings risk for so long that eve analysts haven't embedded an expectation for recession into their estimates, and we should really be ashamed of ourselves. I mean, I think that's really been the story all year. Is we got to a point in twenty twenty two where we were pricing in the equity market just really terrible conditions emerging on the earning stream.
And what companies have proven so far this year is those things are not as bad as the analysts had anticipated. Analysts are still marking down their expectations, believe it or not, but they're not marking them down as fast as they were six months ago, eight months ago, nine months ago,
and so the result is net positive for equities. I think that we're just in this space right now where our expectations were so grim by the end of twenty twenty two that it was almost impossible for companies not to beat those expectations, and I think that that's going to be the case for at least the next quarter or two, where expectations are already very grim. We're already
seeing companies start to show some margin stability. So last week, last year's really weak players that had too many employees and we're overlaiden with cost pressures. They're starting to show some improvement. And on the other hand, you've got some deteriorating companies in the S and P five hundred, but are earnings and P five hundred, but they're being overwhelmed by the improvements at large.
All right, Gina, thanks as always, aways appreciate getting a fe minutes of your time. Jean Martin Adams, chief Acorty strategist at Bloomberg Intelligence, and Tom, you guys, you and Lisa are going on at one thirty Bloomberg Radio and TV going to walk us through kind of what we're gonna get from this.
It's going to be interesting to see the statement, obviously in Michael McKee's interpretation of it, but I think the press conference will be really extraordinary. I had the surveillance NAP I gotta go.
Back to makeup.
Yeah, exam, we need to work. A little work needs me.
I look a little peak it.
All right, Tom Ky, thanks so much for stopping by.
You're listening to the tape cans are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com.
And the Bloomberg Business App.
You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Let's check in with Jeff Phipps.
He's a portfolio manager in trading strategists at Picton Mahoney Asset Management. Jeff, again, it's a frust down here in the United States. It's Flag Day, but for folks that also follow the markets, it's it's FED Day as well.
What do you expect from the US Federal Reserve today?
And how's that kind of influencing kind of how you guys are allocating capital these days.
Thanks for the question and happy to be on. So I mean, short term, I think, yes, there are solid reasons here for a FED pause today. That is a
fairly consensus view. I do think that you know, there was there was enough in yesterday's CPI to think that the particularly on core services, if we do think about rents and as having a leg I do think that it's you know, likely that the median dots are most likely to move up, say twenty five basis points for the end of the year from the last update back in March, probably not fifty at this point, that's a possibility.
I think though that the big picture, though, is probably probably more important here, particularly as we move into the second half. So this FED meeting is probably going to be a pause, which is consensus, but I think the bigger picture is really becoming more front and center.
As we head into the second half of the year. How are you positioning.
Well, I think when we think about the second half, and you know, I think we have to think about how we got here as well. We have a lot of moving parts right now for the FED to try to manage. We have this economic resilience across DM economies coming from a.
Number of sources.
We have a pretty substantial fiscal expansion that's been going on this year and we'll continue next year in the year after, and we also do have we are entering we are about fifteen months from the beginning of the hike cycle, So we're going to be in a window in the second half where historically more of those impacts start to play out. And second, and we also have a large treasury issue in schedule to refinance the the t g A, and then that is a few analogs
for what's about to happen. So you know, I I do think that as we move into that second half where where the FED is probably going to be in a in a bit of a weight and see mode. And and we can make the case that if you if you you know that one of the measures of FED likes to look at is is a real rate
version of of the FED rate. So if you look at FED fund rate and you and you back out some FORWD inflation expectation, it's approaching three percent, it's two point eight two point nine percent, and that is a pretty high number historically. So I think what the FED needs to do today and they probably will try, is to maintain a a forward set of expectations towards tightness that will in theory, in their maybe be able to to mitigate how how forward expectations for inflation react.
So you know, the FED has stated Jeff that obviously that they are their number one goal here is to fight inflation. It looks like they're kind of doing it. Looking at the CPI print and the PPI print seems like it's kind of working.
What do you think.
I don't disagree. I think there's more work to do on CORE.
I mean, if CORE is annuallyzing uh, you know four and a half five percent, that that number is still too high. I think there is still the understanding that that the variable the variable legs are are indeed variable,
and that will take some time to play out. The one thing I'd say though, is that the uh, the ability for them to have a high level of confidence in terms of forward expectations for inflation not becoming embedded, because historically that can create a more entrenched expectation for inflation.
It can make policy makers jobs much more difficult. So overall, I think that they they are getting some work done on headline and energy has a lot to do with that and that and that has been positive from the perspective of their policy interacting with with the economy. But I I do think they are they are, you know,
wary of the fact that you know what happens. If if there is some exogynoist shock in the next six to nine months that does move energy prices higher, that would that would reduce that that real rate of of of on FED funds and would be a would be a potential concern.
What range of inflation do you need to see get to where you're more comfortable. Obviously we have the c p I, but then there's the Fed Preferred Measure of Inflation with PCE.
Right right.
I think that there's a couple of measures that that that that matters, as PC is one of them. As you mentioned, I think a real a real rate sort of sort of in the on a one year basis, if we're using the inflation swaps as a as as a tool to back out to relate, it's something something
above two and a half percent is important. And then on on core, I do think we need to see, you know, if if we're at if we're annualizing at a at a four and a half percent core or somewhere thereabouts in two or three months, I don't think
that's going to be acceptable for the FAT. I think we need to start UH to see core UH annualizing it at a rate that that has that has a three handle over the next few months, and that and that is something that that that you know, is also going to be highly watched by this market as well.
All Right, Jeff, thanks so much for joining us there.
Jeff Phipps, portfolio manager and trading strategist at Picton Mahoney Asset Management. That up there in Ontario, Yeah, yeah, in Toronto, So good stuff up there. So I mean again, we're gonna hear you know, in uh a little bit of time here, We're going to get that statement from the FED at two m Wall Street time, and then the press conference at two thirty.
Dots at two o'clock.
Thanks for listening to the Bloomberg Markets podcasts. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.
And I'm fall Sweeney. I'm on Twitter at pt Sweeney.
Before the podcast, you can always catch us worldwide at Bloomberg Radio