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This is the Bloomberg Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join us each day for insight from the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global
headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always I'm Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app Joining us. Now as you just talk de equities, we talked about snow and yield, Stephen Major joins his global head of fixed income research at HSBC. Mister Major appears with us because we will not discuss west Ham season and me it's the only it's the.
Only reason he would come out.
Steve Major, you have been, You've been the bastion and Steve Major of saying, yeah, yields are going to go higher, but then they're going to work their way back down. Is that trend in place yet where yields are going to come down from the recent eyes and particularly the real yield recent high.
Yeah, I think we're seeing maybe the third or fourth peak in yields in the last couple of years. I mean, I've just written about this. It looks like a triple top. So any investor who bought in the last couple of years has been disappointed unless they were lucky on their timing. Really, so, I just think back in January this year, people were reluctant to go into fixed income because of the strong rally we had from October through December. But now you've
got a chance to go again. So those that missed out the last few months, they got a chance to buy. I would challenge the mainstream narrative that inflation is a problem because I think the main exploration for the rising yields is actually down to growth. It's down to things that people didn't forecast, like population increases, fiscal large yes, that kind of thing. So I suspect the setup is quite fragile for growth going forward, and therefore there's potential
for yields to fall quite a lot. I mean, if you want to look at it through the prism of what's priced in to the FED rate outlook, as you know, only a few months ago we were all talking about six or seven cuts. Now it's gone down to one or two. That's just how the market works. The forward rate is not a forecast. It can move a long way away from the center of gravity. So I suspect the probability of rate hikes is much less than the probability of rate cuts. Therefore, there is an that's symmetry
in the setup. So if you enter ten year treasuries today, if yields go up one hundred basis points, you lose a couple of percent. If they go down one hundred basis points, you make out big time. So I think that's what matters. You are now paid to go into fixed income.
So Stephen, I guess the question for a lot of folks is you know how much duration do I take? I mean, we can park somebody in a two year treasure and get down near five percent. There is that the trade? Or I want to go out a little longer.
Well, yeah, two year is the safe trade, And I imagine some people it depends who you are. So I can understand why a retail investor would extend from owning bills to twos right here.
But.
There's also this idea that you need to take account of the opportunity cost. So the danger with owning twos is that you're going to regret it in two years time when they mature. What you need is tens or longer. So I've been recommending people go into the belly. I think duration is a much underrated concept here. Obviously I'm wrong if equities keep going up every week, and I'm
wrong if the FED hikes again. But I'm just thinking about the balance of risks over the rest of the year, and I reckon yields go down.
Stephen, you're in Hong Kong and you've got a real perception about the Pacific rim. I'm going to start with the generalization that China is buying gold. Are they buying less of our bills notes in bonds?
Well, it's publicly available information. You can see the numbers for March that have just been released. So they have been reducing their holdings of dollar product so that they might have less treasuries, but they might have more of something else. I think it's it's again public clear information that the gold holdings have gone up in the private and public sector. What's interesting, though, is the entirety of
the data. When you look at who owns the treasuries, about thirty percent are held overseas, and that number isn't going down. So for every foreign investor that's been reducing their holdings, there's someone else who's picking some bonds up. That has to be the case. So look at the European investors. For example, what Japan's doing is quite interesting because perhaps the official sector could be selling some dollars
soon given the FX moves. But I think net net, the overseas holdings are fairly steady.
Tom stephen As, I think bout HSBC. I think complete global view. Where in a fixed income world do you see the best opportunities here? Is it the US ors?
At other parts of the world, Well, I like emerging market sovereigns, and so we've been thinking about an interesting comparison between US high yield corporates and high yield emerging market sovereigns. Now in that group they'll be Egypt, Turkey, Omahan.
For example.
But you can get dollar denominated em sovereigns with a really decent yield right now. So I think they compare quite nicely to corporate high yield. And I think globally, I would would look at duration as being quite attractive in Europe as well as the US. In fact, in fact the last three months we've favored taking more duration exposure in Europe than the US, and that's because we think the ECB and or the Bank of England are going to cut before the FED. But I think that's
becoming a bit of a consensus view. It wasn't at the start of the year. But it doesn't make it wrong. I think Europe cuts first.
Steve just a minute left, what's a normal ten year real yield in the United States?
We're at two points.
Well, it should reflect yeah, it should reflect the trend GDP over time. So if you can get too you're above what the what the FED is forecasted as longer run TRENDEDYP.
So you should be okay.
If you want to compare the real yield to the longer run neutral rate or all Star or what have you. I still think you've got enough yield in the So the market yield is one hundred and fifty to two hundred above the Feds are start. The market yield is above the trend GDP, so so take your pick. There's enough. There's enough yield there right.
Steve Major, thank you so much. Will they just be seen?
And there's something when you have to come in and fill very large shoes.
It's good to Redica.
It was iconic at Morgan Stanley. He was such a voice, particularly with all the turmoil of Europe and Brexit and all that. And to come in and try to fix and replace Anskun to Rediker is a tough test. James Lord joins US now had a foreign exchange and emergency market strategy. It Morgan Stanley, you haven't advantaged, James Lord. You have Robbie Feldman in Tokyo Dovetail, your foreign exchange work with truly the number one English speaking expert on Japan,
doctor Feldman of MIT in Tokyo Dovetail. Robbie Feldman and you together.
An Yen Well.
I mean you've just mentioned two of my heroes at Morgan Stanley, my former boss Andretica, who was all over the Dolly n trade when Abanomics first started in twenty thirteen, and Robbie Feldman, who is just absolutely fantastic on all things Japan.
Obviously.
I mean, I think has happened really.
With the end this morning is that there are it looks as though the Ministry of Finance has has intervened.
We don't know for sure, there's been no official confirmation.
Of it, but given the volatility that we saw on Friday and then move in dolly En this morning, I mean, it certainly seems like the market conditions that they would intervene in.
And yeah, we've seen it. We've seen a reasonable trae retracement since then.
Right, Well, I think the big question is is whether it really works, right, I mean, I you know, there's very little evidence that effects intervention by by official authorities, whether central banks or ministries or finance, actually actually works. You kind of need to have a lot of the fundamentals lining up for it to really change. And I just I just think that really in the case of dolly En, the hands the direction of it is going to be really more in the hands of.
J Powell rather than rather than anyone in Japan.
Let me ask you just a general unsophisticated question.
I do best on those on Monday. I'm really good at those.
James Ward, If they and out of their piggy bank to intervene, what is the cost? Is it a substantial cost to Japan to intervene or not.
Well, they have plenty of reserves that they can use to intervene in.
And given that the kind of the fairly sporadic way or a relatively rare nature of these kind of interventions, so I think dipping into their piggy bank every now and then for these sorts of events is not is not hugely costly in the overall context of their reserve position. But I guess like you have to sort of think about the benefit, right, like, what are they what are they getting for the effort that they put in and the money that they spend doing it.
And I'm not entirely sure that they get a huge lot huge amount.
I mean, they can buy some time, right, the benefit is that they get some time where the market starts to stabilize, temporarily starts to reassess maybe people who are long dollar yen kind.
Of justice the injuries for a little bit.
But I don't think that the benefit is really is really there for the long time.
Tip to tip on intervention if and I'm want to be careful your folks, Bloomberg does not report that there was an intervention by institutions in Japan. Mister Lord has made clear, that's their interpretation of Morgan Stanley.
I want to be very careful on that, Paul.
The yen strength tip to tip on this right now is about three.
Point five percent.
Okay, that's that's the ginormous move.
That's like a normal day in the you know, name the Polish.
Lot of here exactly, James. Why doesn't just for those of us that don't follow this day to day, why wouldn't this center bank come out and say that what they did or did not do number one? Number two? If they're out there buying yen, aren't they calling your trader Morgan stand there goldmen sacks same buy yen for me? Wouldn't you guys know? How does that all work?
Oh?
I think they'll go mostly by the local banks and by local jet banks. I mean not the if not the representatives of of foreign banks that are working in Japan. I think mostly that will be done by by the Japanese banks at least. That's the kind of history and and and the market color that that we get when when these sorts of events happen, and eventually you know,
they will confirm it. I mean, I think at the end of the month, at the end at the end of May, they will report the official intervention data that gets that gets reported on a monthly basis, and in there we will see whether or not they've intervened.
And I think, you know, maybe that kind of.
Strategic ambiguity in the short term is helpful for them, because if they come out and say, actually, no, we we didn't intervene now, then you know, a lot of I think a lot of investors would see that as a green light to start buying some dollars again.
And they and they clearly don't. They don't really want to do that.
And if they, if they confirmed it now, then it would it would just result in a lot more questions about how much and is this going to be a new policy, And so I think for the time being they'll just let the market keep guessing and just wait for that official confirmation to come out at the end of May.
All right, James, So, if I look at the Bloomberg Dollar Spot Index up about four percent, really off of that kind of late December mark. Here, if the dollars that strong, who's on the other side of that train, what currencies are getting hurt the most?
Well, I mean, yen has been on the other side of it clearly for a lot of this year, and a lot of the low yielding currencies really have been the ones that have suffered the most, Right, I mean, we've been in an environment this year where, at least up until up until the end of Q one, we.
Saw appetite for carriage carry trades were very very strong, right.
I think we include the dollar in that, I mean, as the highest yielding G ten currency, it was performing extremely well against everything else that was pretty much lower yielding then it So euros obviously suffered a bit this year, Cables come under and started to come under a little bit of pressure.
But then as we've started to see more and more evidence of.
This reinflation in the the States, it has started to impact rates volatility, and it has started to impact effects volatility, and when that happy happens, car carry trades come under pressure. So even the lights of Mexican, Pesto, Brazilian around real they've started to weaken a little bit more meaningfully recently. So the dollar strength has really broadened out from what was just a low yield of trade to something that's had been a little a little bit broader.
Where are we on dollar strength, I haven't asked this question in ages, but unlike trade weighted broad trade weighted major real trade weighted dollar. I'll let you pick the series, But is it how richly richly priced is US dollar right now?
Yeah?
I mean we're kind of close to multi decade highs really in the real if you take the FEDS trade weighted real build dollar index on a real basis, we're pretty much in multi decade highs. I mean, you know, we haven't quite I don't think in real terms, gone back to the level that we saw around October twenty twenty two, which incidentally was the last time the minute your Finance in Japan intervened like that was coming off of a long bear market for US treasuries rate hikes.
Rate hikes have been priced in quite substantially, and we haven't quite got to that level on the broad on the broad doll I mean, this was when your dollar was kind of trading closer to parity and we had a lot more dollars.
We haven't got back to those levels just yet.
But yeah, I mean it's interesting that that was the last the Minister of Finance intervention in twenty twenty two. In October twenty twenty two did mark the peak of the dollar. I'm not sure it will be this time because I think we really need to see US inflation come down.
But the parallel is there.
James, I'm running out of time. Let me squeeze this in.
President Trump and his supporters over the weekend talk about managing the dollar. Can any given politician or government manage the dollar?
I think it's going to be really tough. I think it's really tough to do that.
I mean, I think on the one hand, they coordinated effects intervention can work, obviously, the most famous example of being the Plaza record. So if the US was were able to convince this many trading partners to cooperate, then.
Then that might then that might work.
But if it's just the US pushing for it itself, I'm not sure that it's going to be that affected, particularly if it's not again consistent with the outlook for the US economy. If you if you continuously get strong inflation prints and clearly if you have a week of dollar, the risk is that invasion just stays high in the US for longer and the FED just keeps hiking, then then it will really blunt the impact of it.
Very informative. Don't be a stranger. He's nicer than hands. Redicer Well, hands was sort of always sure, James Lord, thank you so much. With Morgan Stanley, it's been too long. Tina Fordham joins us right now with Fordham Global Force, so she's got some incredible perspective on geopolitics, and Tina, I really want to focus on what I haven't focused on. We're just to go near on Gaza. I saw a photograph over the weekend of the complete total serial like
devastation of Gaza. What are they going to do down the strip in Rafa and how does diplomacy fit in to a further devastration of Israel of the geography.
Well, you've laid out just how complex and depressing the picture is. There's no other word for it. We are hearing that the ICC, the International Criminal Court, is on the verge of issuing arrest warrants to Israeli Prime Minister Natanyahu. There are talks going on with Mohammed Ben Solomon and other officials in Riad on the sidelines of the World
Economic Forum meeting there. And I guess it was Friday that the IDF, the Israeli Defense Force said that they were prepared to begin the offensive in in Rafa unless Hamas returns the hostages and aegreates to a peace deal.
Paul wants to get in here. But I I ask a dumb question. If I'm in northern Gaza and they blow me out, I go down to Middle Gaza. If I'm in middle Gaza and they blow me out, I go down to lower Gaza. Gaza is on the border with Egypt. If they blow people out of Rafa, where do they go well?
And this is why the talks are going on with the Egyptians right now, who who have not accepted Palestinian refugees right And a corollary to this, which I think people forget, is that during the war in Syria, Turkey accepted large numbers of refugees from that war. A similar agreement has not been forthcoming with Egypt. They don't want to get stuck with a lot of refugees, and they have their own security concerns to be mindful of. But yes,
there's nowhere for the for the refugees to go. There's nowhere for the people of Gaza to go, and Israelis are ramping up the pressure and we have to wonder if what's going on on the sidelines of these meetings in Riad is that golf Arab states are doing exactly the same thing.
So, Tina, we're more than six months into this operation here by the Israelis, you know, unspeakable levels of destruction of Gaza. In hindsight, is there any indication that Hamas miscalculated here terribly in their October seventh attack.
Well, it's hard to see what they've gained apart from putting the Palestinians back on the agenda. Remember that, you know, just a few well six months ago, really people were talking about this impending deal normalization between Israel and sou and others that would have paved the way for a lot of regional economic integration. Gulf states still want that to happen, but a Palestinian state was not part of
the discussion. And then you know, we've entered this kind of hellscape of the offensive in Gaza, the Houthi rebels, the recent exchange, you know, kind of unprecedents in exchange of missile fire. My question, I mean to myself, is this the geopolitical bottom, Like can it get worse? Or are is Hamas decided that it's going to accept oslo kind of terms. I mean, that is kind of mind blowing. But you really have to get to the bottom before you can consider.
Tina, I think you're the most qualified person I know, maybe leslie Vena, Muria Chathamouse as well, but Tina Fordham, you are more qualified than anyone I know to talk about the college protests in America over to nineteen sixty eight. In all the work I've done on that with Gui Sarman of Paris and others, how do you treat the protests in elite schools in America within the filter that you have of diplomacy and the history of protest It is.
Quite a spectacle. I mean, first of all, I'm a Columbia alum, and I'm on the advisory board for SIBA, the School of International and Public Affairs, which is also caught up in these o it's mainly the college. I don't think this is nineteen sixty eight, right. I think that this is identity politics in the United States that
has now incorporated a foreign policy angle. I think it's incredibly difficult for the university administrations to balance their commitment to free speech and to the community that is a university with their title six obligations. They've got to protect students and the whole sorry spectacle seems to me. And you know, I said in London, where I have for a long time to be a culmination of the culture wars and in some ways the tiktokification of very complex issues.
So Tina, I guess again, we're six months into this. Is there any consensus with the people that you talk to that really have informed opinions and analysis of this situation? Is there a scenario where Israel can end this war in any reasonable time frame?
There are off ramps available. They're definitely scenarios where Israel and this war. What is less clear is whether Nata Yahoo can end the war because his political future is so wrapped up in the continuation of the conflict. As soon as the conflict ends, he's no longer a wartime
prime minister and new elections will be called. He's he was unpopular before, remember those massive protests in the cities and the failure to bring the hostages home and the failure indeed to protect Israel against the Hamas attack has made him even less popular. So he doesn't want to face elections. And you know, he's this is a very tactical, I think response that we see now. I think Natagne who is going day to day.
Tina, thank you, brilliant, Tina Fordham Fordham Global Insight, Thank you so much there on the narrowness of.
Gaza your daily look at the front pages around the world out on YouTube.
Use those hearts like you use for Lisa.
Give John Tucker some love.
This one comes from the polls and I am shy shocked by this story. The post sites are report by financial tech company Self. It says New York, New Jersey, and Connecticut rank among the top five states for residents paying the most in federal and state taxes on their lifetime earnings. Yes, we have the unenviable distinction of being number one in the Garden State, leading the bank breaking pack.
Residents shell out a staggering nine hundred eighty seven thousand, one hundred seventy two dollars on average for various taxes during their lifeline. So that's roughly fifty four point three percent of a resident's total lifetime earnings.
And we get it.
We get a bank for the book for that though, don't we.
Oh yeah, and this doesn't include my tolls or the advancement of the MTA's June thirtieth.
This is different than when Lisa doesn't just say oh, by the way, just dealing with doctor Paul here West rest Virginians consider pretty well they have to fork over the lowest amount of total taxes nationward.
But it's affecting migration nationally. You see Illinois and some of these other big says.
Well, when you retire, do you stay here and still you know, fork over gigantic taxes or whatever.
Anyway, I said, I'm never going to retire, so you know it works out.
The next one has me crying in my beer. This comes from the Financial Time Sitting, a study by Deloitte Britons are choosing to spend less money in bars and pobs than at any time since the lockdown added. This survey asked about thirty two hundred UK customers if they had spent more less of the same on leisure the past three months. It showed sentiment in eating out and drinking in pubs and bars had declined by about six percentage points. They didn't talk to anybody.
I know.
Apparently it's just getting too expensive though.
Yeah.
For example, they cited Tim Martin. He's the founder of JD. Wetherspoon, the chain there. He's had com petition from supermarkets is a pretty big challenge for a lot of the pubs. You buy your beer in the supermarket, Well, yeah, it's cheaper and you just sit home in front of the telly and all.
Right, So John, I'm at a beach bar in Belmore yesterday, rush sunny day. Gonna go get a cold beer out there, sit out on a patty and watch some boats. Miller Lite Draft fourteen dollars at the Jersey Shore.
For one draft. Exactly what exactly I buy a case for that?
I know, I said, is transfixed by this.
We got designs.
Bring back Lisa anyway, all right, let's let's do the Stones. They kicked off the latest tour last night at Houston's Energy Stadium. That's appropriate, ap describes Mick Jagger often strutting up and down the stage with seemingly boundless energy. Well, Keith Richards and Ronnie Wood played many familiar guitar riffs below by fans, and Jagger let the audience and sing as drummer Charlie wants he wasn't there. That's because he's dead. Houston was the frust Nice on the band's sixteen city tour.
During the eighteen song concert setlist, the Stones played several tracks off a their new record. The Stones have been touring for more than sixty years and Mick eighty years old, along.
With Keith, Paul, you're the expert in how many times have you seen the Stones?
I've seen him three and I wish I would have seen him like ten more.
But I mean, do they do most of the performing the music or is it like the backup?
Oh?
No, no, I think I mean every song Keith starts with the world famous riff, you know, and then but yeah, so it's an extoriny. But I can't wait to see what they're charging for tickets and all that kind of stuff. And another thing, Luke, one of the Luke's, the country singer, put in like ninety thousand fans of Beaver Stadium at Penn State over the weekend. Country music's huge too.
Yeah.
So yeah, most appropriately for the Stones, they were sponsored in Point Bright Aa.
Are you serious?
I'm serious?
You're serious?
Here's that serious?
Well?
I mean, these guys they go on tour and they sell out these stadiums. They don't know, it's just extraordinary.
I think they had to be in bed by like a.
Wh is Listen.
This is a Bloomberg Surveillance podcast, bringing you the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.