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Why don't you bring it in? Zuke the map? Oh I didn't live over the lake.
Well, that's a lot of other places.
It's very zugi okay, very good. Is that how you pronounce it? It is zuke okay?
Close you you got it.
Tom Anastajia, Amarrossa, chief investment strategists at Partners Group Anastagia, Boy, we were just mentioning this that the socks index has had such a rip over the last sixteen days of games here.
Indeed, so tech is now back.
Being the driver for this market. Is that where we are these things?
Yes, you know, I think what's happening.
Paul's investors can't really figure out when the end of the ceasefire, when the end of the conflict is going to be in the Middle East, And in the meantime, they're focusing on what they can control where they can't observe, and that is artificial intelligence, And I will say the total addressable market for AI just keeps on expanding this year with the move from conversational AI to augentic AI to glimpses of physical AI. And what do you need
for all of that is semiconductors. And so that's why investors keep flocking to the space.
So as we step back, I mean, it looks like, I don't know, we're all in the same boat trying to figure out what's going to happen in ARAM. But I think what we can at least in the near term, it's higher for longer energy costs. Yeah, and we're starting to say, like a number of companies call that at most, notably the airlines and maybe you know they've been calling out and really calling out the cost incremental costs for energy. How does that factor into kind of your outlook for
these markets? If we do have a higher energy sector for longer.
That's right.
I mean, I think the really critical distinction for the market is how high and for how long?
You know?
I think if oil is at one hundred hundred and twenty bar you know, dollars a barrel for a long time, then this is going to drive material cost inflation but we're talking about oil being at eighty or ninety dollars a barrel, which is sort of the new normal.
I think that's more than manageable for companies.
And I would say we're in that ladder camp, which is look, the conflict will eventually be resolved and the straight up Horo moves most likely will be opened up. But what will end up with our inventory levels that are sufficiently depleted, So that does require a higher cost of a barrel, but again eighty or ninety dollars. Now, at Partners Group, we have been thinking about what this
means for a variety of our portfolio companies. And I will say, you know, very few of our portfolio companies, eight out of sixty five have some sort of commodity or oil exposure. But even that exposure, it's minimal and it can be mitigated with cost pass throughs and contractual appligations.
Of sixty five companies in.
Our private equity direct portfolio.
That's a hell of a conference call when you're on linked up with six. It's like the lights to deserve when she does that.
So, Anastasia, so let's talk about earning share. We're kind of got rake smack in the middle of earning season right here. Earnings have been really good again, and I've seen, you know, analysts take their estimates up, which seems kind of strange in environment where there's so muchunsertainy.
How do you think about the earning picture out there.
I think it's been stellar. I think it's been a rock star earning season.
I mean, really, you've never seen it's nuts.
I mean, no matter where you look at, Tom, you know, eighty eight percent of the companies are beating expectations.
A surprise is ten percent.
And you know we used to slice and dice it and say, well, Max even are doing great, the rest or not. Now everybody's actually delivering ten percent plus earnings growth, and Nvidia is a standout there.
So I think it's a really robust earning season.
And it really goes back to the point that companies can withstand oil inflation because they've passed that through and also they have hedges in place, so at the moment, it's back to economic strength.
That's the message we're doing.
Psycho it' psych doctor, Tom Folks, it's Boolberg surveillance doctor. When you were sitting in a classroom absolutely killing it at the University of New Mexico. What was the optimism then that you had that you clearly have now is you've led in this bull market. I want you to talk to the gloom crew and to explain the amoroso visceral optimism that was the third row in a finance class. I don't even know where the university.
It's next to Arizona, right it is, And it was always the first row.
It was.
Always the first row.
But you know, look, I mean, if we think about, you know, the basics of the US economy, the US or global stock market, it's about the earnings growth, It's about the multiple and what drives that earning growth growth. And what I'm excited about today is that you have multiple engines of growth playing out in the economy. Maybe that's what's really different is this is now a multi engine economy unlike we've had for quite so time. You've got the consumer side that is really really doing well
despite the higher gasoline prices. You've got the corporate side, tom that we just talked about.
But also we've got the.
US economy that's sixty three percent less oil intensive.
Than it was.
So that's why it's able to shake it off, and then we have the AI capec story, which you know, by the way, AI CAPEX investing is driven thirty five to forty five percent of economic growth over the last couple of quarters or several quarters, and I don't see that stopping. So you have a lot of engines that are working, and so how can you be, you know, overly pessimistic against against that environment.
What is the.
AI story from your perspective these days?
Because initially in.
The first year or two, it was just whoever's investing in it, that's who we're going to go, and whether it's the chip names or whatever. Now it seems like the market's trying to differentiate between some winners and losers, and they threw out some software companies earlier in the year of the SaaS companies.
How do you guys think about it now?
Yeah, so clearly we've been thinking about AI for a number of years. We have a dead catered effort to infuse AI into our portfolio companies. In the market, something like thirty five percent of CEOs or companies are embedding AI adopting AI. For US, ninety percent of our portfolio companies have an AI initiative. So, having said that we've been thinking about for a while, and you're exactly right. It is a bifurcation story. Some companies will absolutely.
Be disrupted by AI.
So when we sit in our global Investment committee, that's always the question, will this company be helped or heard by artificial intelligence? Now pivoting to software, though, you know, I think the market through everything out with the bathwater and said everything you know software is dead and is dead.
Now that is not the case. That is not our review.
I think some software companies will be disproportionately more impacted than others. But if you think about software, what does software have is profit margin? Gross profit margin for software companies is seventy five percent. So do you think these companies around the world are sitting there and waiting for a gentic AI to come for them and do nothing about it?
Or are they investing?
I just did this study, This is Bobsige years ago at Lara Sterns and Bank of America. Are you ready? I did a fibonacci retrace Mellboy from peak of Microsoft in August of last year. I guess down to the bottom here, which is the gloom of March of this year in Anastasia it's perfectly done a Fibonacci retlacement to thirty eight percent up from the bottom. I mean it's it's not even halfway back through the peak enthusiasm. Is
that sector still cheap? Is identified by Microsoft, which, yeah, it's come back, but it's not even halfway back, you know.
I think the sector is also seeing divergence and dispersion, and I think you have to parse through the hyperscalers.
You know.
The areas that I think are doing well is the cloud business, whether it's Microsoft, Wather, it's Google, whether it's Amazon. You know, that's projected to accelerate twenty three percent or more this year and further into next year. So that's the part of the business I think we can like, you know, the big question for the likes of Microsoft
is the software. And I was just sitting in a break room with your upcoming guest where we're talking about the use of Claud and the use of GROC and the use of other tools, and how some of those applications are great for charts, you know, some of those applications are great for formatting and fetching data. So what does that do to the traditional you know, database and software type applications. So what's to excel, Well, it's supplants. It it makes you or it brings up the.
VBA for dummies like me, so you could dump it right in right.
It allows you to s give ahead.
Were you completely fluent VBA at fifteen or were you flown at seventeen? I was not.
But you know what, my team now is very ffluent.
Your team, we don't have a team. So whatever, claude, perplexity, whatever, that's the.
Team right, that is the extended team for.
It helps you do excel right, to close the loop.
It helps you to excel at helps you fetch the data in a much you know, more timely matter. It helps you come up with a charts much quicker than you might have done otherwise. It's not a replacement. It is an extension. I would say.
So when you were Duke, was like the entire class all VBA and you were like, yes, exactly. I looked at VBA and my eyes clazed over. Yeah I was not that. I was a guy.
I just got up and I picked up a can of course three two beer and said, okay, let's do this.
That probably didn't help at the station.
What screens well, for you guys today, I don't know if it's a it's an industry, a sector, a factor.
What's attractive you guys.
Yeah, we are thematic investors, so we're constantly thinking of themes that are here to stay for the next several years. And you know what really does jump out today is this theme of energy efficiency, energy independence, energy diversification. And again, as we think about the higher price of oil, some of our portfolio companies and to benefit from that because
they're the energy infrastructure business. Longer term, also some of our portfolio companies that are likely to benefit maybe provide energy efficiency. What if we are in a higher for longer energy costs, you need to really focus on that. You know, we focus on energy diversification, maybe it's bio energy versus regular energy. And we also focus on the
resiliency and the security of the energy infrastructure. And if you think about some of the pipeline businesses, especially in the US, Mexico, you know, North America, those are really well positioned not only near term to capture the upside and volumes, but longer term because clearly security of energy supply is paramount to everything we're talking about, including AI.
So it's interesting here. I mean, are you concerned about valuation in this market? Because we hadn't you know, that sell off early in the year and people were even making a call boy, the market is cheaper. You know, it's not cheap, but it's cheaper. But now we've ripped right back up again. Is valuation and concern for you?
Yeah? Look, I'm not overlying erarned about public market valuations. I'll tell you why. But I also want to highlight the fact that private equity is actually trading. We're pricing at a fifteen year low invaluations relative to public markets. So just to extend both of those points. You know, if you think about public market valuations, if you look at MAC seven, what's happened there is in the last year or two. It's not actually multiple expansion, but it has been earnings growth.
So for that reason, I'm.
Not overly worried about the level of valuations there. If you look at the rest of the S and P five hundred or MSCI all country world, you have seen quite a lot of multiple expansion. But the reason I'm not concerned about that is because you do have economic growth that is doing well, and you do have the earnings growth that's accelerating as well, so I think we can grow into those valuations. But again back to my
point on private equity. You know, private equity multiples or at about twelve times of so EVIT EBITDA versus about fifteen or sixteen, which is the public market comp That means you're the lowest level. You have the largest valuation discount on private equity in about fifteen years. So you know, so I think the complement of the two can be really attractive for investors.
When you're at Zoomer are you at the Park Hotel? I mean, are you Jay on air?
Where it is?
I'm saying, do you know they have a Shoppers brunch? You go get an outrageously priced, fancy breakfast.
I don't do that.
Then go shopping.
I don't do that. I don't have time for that.
But I will tell you, Tom, we just hosted over two hundred and fifty of our clients at the Birkenstock in around Lucerne and it was wonderful.
It was a wonderful venue.
More than ten million dollars in assets represented in the room, and it was a great discussion about AI and the transformation potential that it has I don't care.
We don't care. All we wanted to. They want to invest in America, and I don't see that broken. With everything out there, Your bull is still intact.
That is absolutely the sentiment is that the investment commitment to America, despite everything that we have out there, has not changed.
It's not changing, there's no wavering on that.
Having said that, we are global investors, US represents fifty or sixty percent of our investment allocations, Europe thirty twenty five, thirty percent, and the rest of it is in Asia.
But that big commitment to the US is not changing.
So how about when you meet with your clients, are they looking to continue to invest in private equity, in private assets that you guys manage.
Yes, And I would say there's you know, there's a greater awareness of all of all that private markets have to offer.
So you know, certainly there's the.
Private equity opportunity and a lot of macro tailwinds for private equity right now, a lot of thematic tailwinds for private equity, a great opportunity to infuse AI and build platforms and scale those. At the same time, more and more clients are looking to diversify further into infrastructure, for example, and you know, infrastructure is perfectly position to capture the AI momentum for example, and also build the next generation
infrastructure platforms meeting. It's not just one commodity and one way to produce electricity, but it's multiple commodities.
It's maybe a.
Battery storage that is that is also coupled with that. And then you know, private credit, I would say, you know, there's a bifurcation story in private credit. There will be most likely places of higher defaults, but at the same time, there's there are places that will weather this, and there's lots of opportunity and institutional investors are certainly not stepping away from private credit.
Anastasia, thank you so much, and am Rosa with Partners Group with her enthusiasms. Stay with us. More from Bloomberg Surveillance coming up after this.
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Our interview of the day Paul Sankie Legendary, I'm parsing out the hot air of a hydrocarbonage, doing it with Adams Suminski years ago at Deutsche Bank. It is sanky research. When you watch the TV, what's the biggest myth error, stupidity you hear on your world?
I think that people are unaware of how bad this is, you know, certainly at a US level. It's just it's just not that much evidence of it. And as you know, the gasoline price here is actually relatively cheap globally, American incomes O higher, so the impact here is not being felt. But what we can see here Tom is a guaranteed ongoing deterioration of the situation for at least two months. And that's pretty scary for US.
But the data BRN I look at in a terminal was one forty four OMG. And it's come down. Are you seeing a lessening of price pressure in the i'll call the cash the physical.
Market, not really if you think about jet fuel and dislate. So that's the issue, and that's why the crude price has become so difficult to second guess, because you've lost probably six million barrels a day of refining capacity here almost directly. That's six million barrels a day of crude demand, and that, of course is why you've got this massive arbitrage between the jet price, the dislate price, and the crude price. And so what that you know, what we're really looking at.
Is how jet is doing.
We hit a high of three hundred dollars a barrel for jet in Asia, we come back probably down towards two hundred right now, and then you know, in Europe you've seen probably a peak of two hundred barrels a day and you're back down and holding about let's say one seventy. So these are enormous prices. Tom, that you know, that's the cutting edge, because obviously what you're really looking at the oil price and oil demand is the product.
The crude is just so complicated by the tanker situation and everything else, and it's hard to really decide where that crude price should be.
Why do you say two months, Paul, and I've got a president, they're saying the war is won, just at days will get peace.
Why do you suggest that pain may be long term?
Because of the difference that Tom's referring to, which is the physical and the paper. So the paper will act crazy and will react to the headlines. But the physical is a physical fact, the fact of physics literally, and the physics involved tankers, and the tankers are in all the wrong places.
A lot of them are trapped.
Twenty percent of the capacity that's out is effectively ten percent of tankers. Plus the fact that those Middle Eastern tankers are baseload tankers. They run all year running, you know, around the clock. They're not shadow tankers, they're not you know, wobbly tankers. They are the tankers that run the baseload and they're trapped. So in that regard, the tanker situation is going to take at least four weeks to I
mean even optimistically four weeks. And then of course you have the infrastructure damage that's happened within those huge facilities, you know, the LNG damage, the refrainer, any thing about that has been valid report. Tell you what's scary is if you look at that Katar LNG attack that hit two trains, the Iranians hit the two x On trains, and I think that was an accident. I think that was Russian intelligence. So there's some very scary things out there.
What can the US do here?
We've become in that, I guess exporter of oil here, can our guys down in Texas and Ohoma just start racking.
It's actually on a panel New York Energy Format Forum this week with Case van to Hoff, the Diamondback CEO, one of the best CEOs young CEOs we've got, and he was saying, look, the future strip is seventy two dollars a barrel for next year? What am I going to do with that? I'm going to draw more for seventy two? Now that's the that's the margin ory economics. Am I going to hedge at seventy two, you know, to spend more knowing I'll get seventy two?
Of course he's not. So the price is really.
Disincentivizing a solution there. And then I'll just add that, you know, unfortunately, the Iranians know what they've got, and so you know what they want is a load of redline things. You know, it's literally like the US out of the US military, out of the Gulf States. I mean, these are huge asks and we've heard GCC members saying they will not pay a toll. So you got some stuff here that's intractable.
In the time we got left, I really want to do this to just parse into this. This is University of Manchester years ago before is just incredible career across this and this is the chemistry you and I learned. So I got C two age six, I got oil, and I'm cracking it out to ethane. The Chinese is an example, really really really need ethane. They can't get it. They're taking it from America. You take C two age six, you had some kind of heat to it. You know
better than me. Boom, you got ethylene C two H four and two hydrogens go off into the air. The entire media. What I just said, it's Greek. But the answer is this is really what matters like to the Chinese, to Indonesia, and to cut it right.
Yeah adds that the China is of a ninety percent dependent for ethane ethane on the US. So this came out very clearly during tariffs that you know they are highly dependent on that US flow, and you're seeing the other guys in Asia where they're dependent on NAFTA, which gets you the same effect through oil more directly as opposed to ethane coming from natural gas, and in NAFTA
you have sixty percent less supply to Asian petrochemicals. So our first move here was one of the very first moves we did, was start looking at Taiwan and TSMC. But we concluded that because they're a government company, they're going to keep going somehow, but they definitely will have a helium problem within two months, and that becomes a question for the whole ai The latest thing that we're seeing from Japan is a solvent issue, and this gets
into really complicated the you know, sub ethylene products. But these solvents are vital for chip making as well, and the Japanese chain is very Japanese, so they take the NAFTA from abroad and do everything within Japan. Losing the NAFTA breaks the chain and seems to mean that you're going to have a real struggle making the chips.
So, yeah, you're right, and these are the supply.
Chain issues that we're more focused on the demand side, because there's not much point inless talking about the.
Straight How does this redown back to tweets coming out at seven am from the President of the United States about marijuana. No, I don't mean about marijuana. I mean about fane, methyl ethl key tone and the rest of it. The real world of chemistry that's flat on its back.
Well, you know, Tom, I always say that there's only one barrier of entry to being an oil analyst, and that's units and obviously in physics and frankly the understanding you know, through the chain of politicians. If you look at I've listed every single major oial CEO in the US is an engineer, every single one. And if you look at politicians, I don't think you'll find one. Another extreme example is Gressa is high school level educated. I don't think she could have said what you just said
about C two, C three. So you know the reality is, and ultimately we've seen a story here where the conspiracy is in oil is a conspiracy of ignorance.
People just don't truth.
Yeah, Professor Bieler organic chemistry, in organic chemistry, physical chemistry. The only reason I got through it he sat and rolled for at the ice rink. That is the only way I got through. Well, I thought you had me on the ropes. Then did you have Morson and Boyd in organic chemistry.
I'm a Manchester University history and economic scrat on Nothing. I'll tell you, Tom, is that the reason that Manchester is it always rains is because it was built in a rain shadow of the Pennines for the water mills, for the for the mills, and so it's built for the factories to run on water, and that's why it always rains in Manchester.
So how cool was man study this week? I mean there was really.
You know, true Mankinians. I'm going to get a lot of hate mail for this. True Manchenians typically support City and you know they always say there's more Cockney reds for United. But now I'm happy for them. It's great, you know, it's they already outplayed Arsenal.
I felt.
And you know, my family history is from Woolwich, where the original arsenal was, where they made the guns that are on the my grad my great grandfather, grandfather worked at the original arsenal. And if you want to cheer up, my father was evacuated from London as a boy because the Germans were bombing the arsenal so much that it was unsafe. So when people get too depressed about the world, I always see, you know, well, we're not at the stage.
Jay Pharaohs told me about it about Coventry was just leveled.
Coventry was absolutely leveled, and someone was pointing out I'd mentioned in a note that Rottendam was redesigned by the Germans in the war, and you know it became the biggest container port and obviously a huge focus for oil markets.
We got to run. Yeah, Paul sank you there on a little more than just what's a barrel of oil? What's a gallon of gas? He is truly legendary. Stay with us. More from Bloomberg Surveillance coming up after this.
You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am Eastern on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
Michael purvers for us to get us start a strong airy, we say good morning in crassination. The way you choose to listen to us, particularly on YouTube. Subscribe to Bloomberg Podcast. When he's up at his cottage in New Hampshire for nine months of the year, he listens on YouTube. Okay,
good to have you here, Michael. Michael, I'm going to play this off Julian Emmanuel over at Evercore Isi, who's out with twenty one percent of earnings in I've never seen what's in his research note, which is earning's growth up, revenue up. Is everything going on now with the backdrop forget about all the bloom is just one big stimulus.
Well, I think it's more than stimulus.
I think we have to step back and look at the fact that there's a lot of factors.
That are supporting strong earnings growth.
We have a shift, I think a long term shift that started a few years ago towards a higher nominal GDB condition. Persistent grow and uh, persistent inflation is pushing up nominal revenues. When we go to Starbucks and buy coffee, we pay nominal dollars right there, and that flows through all the way down to their earnings line.
So I think that's it.
But we are we do have late cycle fiscal stimulus on top of very low unemployment rates. Uh there, that's really particularly unusual here. So yes, you know, we you know, the big beautiful bill of four hundred and four hundred and fifty billion dollars a year per CBO estimates for the next four years late cycle. That's that's that's aggressive, right, Well, go back to your wheat for security exactly.
Rich.
I've never seen the numbers in Julian Emmanuel's research. I know, I know, pretty solid.
Hey Michael, we had a rotation maybe addas some growth, add of some high margin, high multiple stuff last year, but that seems to reverse the big time. People are running back into tech. The SEMIS, the Socks Index hit a record sixteen straight days of gains. The index now thirty. Research that I did know it doesn't.
You're up at four am researching that.
Dan Curtis in London comes up with the best stats that I use every day. I don't know where he gets them, but this is the best month for the SEMI since two thousand. I mean, people are running back into tech.
It seems like they are.
And I think one thing that's interesting to note, Paul is that if you look at just you know, broad earnings estimates like Bloomberg consensus twelve month forward estimates, every sector in the S and P is up since the attacks began. Right now, the S and P five hundred is up, you know, the three month move higher and forward estimates is eight percent.
That's about as high as you get.
And that's on top of a strong ear What's really driving that is tech earnings, tach earning, since the around attacks began on February twenty, twenty eighth, are just up about eleven percent there. So now every sector is actually marked up, even some of the consumer staples and consumer discretionary. So look, if earnings are strong and there's not a good reason to really categorically exit the equity asset class.
The index is probably going higher.
I mean, you know, I'm just looking here again Dan Curtis out of London. Got to give them credit, man, I use this stuff every day. Tech is outperforming the broad index by eight and a half percent this month. That's the second biggest since two thousand and three. So see a big rotation back. How about on the rate side, it feels like we're in a kind of a trading range in a ten year four to four and a half percent, somewhere in that kind of And that's kind of where we.
Are, and I think we're going to be in a tight, tight range for some time to come.
Here.
You know what's happened with the rates since and again I'm going to start with the attacks breaking out in Libruary twenty eighth, is that the entire curve shifted higher. It shifted higher why because people were the market was repricing FED policy trajectory right, and it was pretty much that it wasn't back in inflation. So to get rates back down lower you need one of two things things.
You either need horrible economic data coming in in the next few months, or you need the FED to really change its messaging on what it's going to be doing with cuts. The way I see it is that with Warsh presumably coming in at some point in the near future as our as our new chair, he's got to walk a real uh difficult tightrope balancing a lot of things between the guy who nominated of President Trump on the one hand, and then his colleagues at the FED there.
And so if he looks the last you know, f OMC meeting it was but for morn it was the you know, they kind of circled the wagons, right, I mean everyone was on board with a sort of a more hawkish position there.
So for worsh to undo that, it's going to take some time.
You know, I was away for there. I've actually been away sort of you know, for three days, but I was thunderstruck by the worst testimony. Yours just thoughts on his execution at the testimony.
Well, you know, that's his first test of the tight rope walking, right, Yeah, I mean I'll.
Give him that, that's correct. The first time out is tough.
Yeah, no, and it's gonna I think it's going to be really really tricky. I think he's got one of the most difficult jobs you could possibly have, right, I mean going forwards there, because he really you know it is it is a vote h there.
It is a consensus building process.
It's not a you know, he's not a CEO, right, I mean where his word is the words.
So I think that's going to.
Be really really tricky, and how he how he kind of navigates that. I think some of this commentary on on where the inflation is going will be make make that job even trickier because you know, what we are seeing just before around is that producer prices were starting to go higher super coorinflation was starting to go higher here, and so we can you know, you can always come
up with a narrative about where inflations. You know, why inflation might be going lower here, but if people are paying higher food and higher gas prices, that's kind of an incertain respects the inflation.
People are really going to be caring about Michael Purvers.
For us, we continue with Tabeck and this morning we welcome all of you on radio ninety nine one FM, Nathan and Hager Radio and one Good Morning ninety two nine. Sabers crushed bruins, Really everybody, Sabers, Sabers, Sabers, everybody in the airplanes we're in Sabers, you know, merch and all that Bruins put them in their place. We have to see on that headline out speaking of airlines, Paul, American air sees four jillion dollars boost and expense due to
fuel prices. And this is just Yeah, the actual price of stuff on the runway is way higher than the prices we.
Will Yeah, I mean I'm seeing that. You know, they're talking about really strong revenue growth here, but obay, the costs are going up big time with fuel costs here. So, Michael, we we see like a piece of news out of like somebody like United Airlines, American Airlines, whatever, you know, talking about higher fuel, higher energy costs. This I think we are now higher for longer. I think that's the world where we now find ourselves in. That's got to
impact economic growth. That's got to infect the impact inflation expectations, Well.
It is, it has been, and certainly on the consumer expectations, long term inflation expectations per the New York Fed survey that came out.
The other day, we're it had soared a lot.
What's not happening, you know, really is in the back end of the bond of the tips market where you're not really seeing back in inflation really move higher there. But I think for the near to intermediate term inflation,
you're going to see it actually realized. And I think, you know, we look at these supply shocks as sort of one time shifts here, right, But to your point, if this is going to be sort of more of a higher, longer X axis, if you will, as opposed to you know, a surge to one point fifty and then assert and then a plummet right back to seventy, if it's really more about you know, eighty five to one hundred and five for the next several months, and
it's kind of relentless that there, there's that kind of builds into a longer, higher floor for inflation going forwards, and there's a lot of knock on effects from you know, everything from you know fertilizer prices coming into.
Food, but it will be pay at the grocery store a year from now. Okay, we're gonna have.
To run here. Mark Champions are gonna be with us in London. Michael Purvis, it's mud season up in northern New hamp described for our international audience a joy of mud season.
There's the reason why I'm here in New York. No, it is it's a it's a it's a it's a it's a few weeks out of.
The out of the year where you really want to avoid.
Melting snow, melting ice. It's just melting snow, melting ice, and a lot of money your food.
So, Michael Purvis, we hope you survive. I like what llll Bean says manage expectations for mud season. Michael Purvis tall back in with us this morning. Stay with us. More from Bloomberg Surveillance coming up after this.
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Dysha Patel joins us out SMA fixed and come portfolio manager. What is the distinction of parametric right now? What is the thing about coupon right now?
Yes, so I would say at Parametric, our clients are coming off of post tax day, A lot of focus on tax is tax efficient investing. So if you're a high tax bracket client, your first and foremost looking at tax equivalent yields that are looking very attractive, right anywhere from five and a half to seven percent in the municipal bond part of the curve. What's different at parametric, I would say, the way we take exposure, you can
customize it. But again, coming off of tax tax day, adding a co opponent of what we call tax hol's harvesting, right, So that's where we do it parametric. We can do that also in meanicible budy.
Do people call up on April sixteenth and go help me? Is that like the act? Well?
Yeah, see, well usually call up their financial advisor, and then their financial advisor will call us and say, look, you know, if we're looking at an allocation, right, how can we create possibly more tax free income. And then eventually as they're making allocation shifts assessing different parts of the market. They will look at an asset class like meanis and again where the entry point is attractive, that ends up being more of a compelling conversation, especially for clients.
We've been sitting in cash, right, You've seen cash rates come down significantly. If you do see short term rates continue to come down over the next six, twelve, eighteen months, you can make an argument of stepping out of cash adding a little bit of duration, particularly in Muni's quality is still very good and fairly resilient. The tax equivalent eels are great to lock in.
But there's been so much supply in the marketplace. I mean, twenty four and twenty five record years issuance. I'm being told twenty six might also be a record year.
Picient.
Does that make it.
Tough for the bonds reforms? I'm really just clipping coupons here.
Yes.
I think that's a great point, Paul, because twenty twenty five record year of issuance. And when you look at the technical side of me and eas right, it's supply, and then the other side of that is demand. And twenty twenty five demand wasn't there, right, We had a lot of rate volatility post Liberation Day and then you slowly had that come together at the end of the year. March of this year worst performing month since twenty twenty two.
Really okay, this was a classic macro rate volatility. Obviously, as the war started, oil prices came up ends high supply, But I think the difference being is that while they're still higher supply, if that's met with higher demand, right, you can use that could offset some of that. I would say the biggest advantage of leveraging an active manager and why we see this as an attractive entry point.
These new issue.
Deals in these periers of volatility are coming with very attractive concessions. So Tomson, we spoke about, right, you know, we're not going out and buying individuals small pieces necessarily, if we are buying in the new issue market where we can leverage our buying power, right, be able to clip off some incredible spread.
This is a really good way to be.
Able to put some of that money to work.
What's what I should say, what's the dumb trade right now? Because that also what I'm going to do.
But what's a.
Smart trade now? To buy call items, to buy premium bonds, to buy a bond at eighty that's going to one hundred eventually. What's what's what are the adults doing?
What are the adults doing? So I would say right now, probably buying. You know, the intermediate part of the curve, we've seen a little bit of valuations come in a little bit to more for more fair value. We're liking the five percent coupon structure, right, So I would say kind of in that intermediate to long end. I mean that's fifteen plus year part of the curve remains to be very steep. So if you can stomach a little bit more duration, uh, you're going to be holding these
right kind of closer to maturity. Credit is solid. We're really liking that trade out long right again talking about tax re yields at.
Four to four and a half or.
Continue, Paul, fifteen years you can, yes, So how about you don't have to take a lot of credit quality risk here, right, So that's that's a beauty about it.
Yes, So New York City just came. We had a guest sitting there a couple of weeks ago in New York City. We just came to the market with general obligation one point nine billion.
Yes, the New.
York City if you were in New York City resident, your taxable yield was ten point one.
Yes.
Crazy, I'm in a very high tax state, maybe the highest tax state in New Jersey.
Yes, how much do I have credit risk?
Actually be worried about credit risk in general out there in the municipal bond market.
I think that's a good point.
So, while while we're saying the bigger story is like credit generally across the board is fairly resilient. Tax collections have been great, economy has been great, we are seeing pockets of bifurcation. So my short answer, Paul would be I think active credit over set you to here is important. There's certain sectors that have been strained post Medicaid cuts and federal cuts right specifically in healthcare. I think you're
seeing certain trends in higher education. So while you're not seeing massive downgrades, I do think active selection is going to be key. So in a state like New Jersey, plenty of great credits to be able to leverage, and it's all about how much risk you're willing to take. But you know, again, if you're leveraging the new issue market, you've got a lot of great local credits coming to where Paul. You know for you specifically, you can lock in some great yields.
Do you want to continue this discussion outside if you want to go for another half front.
I'm the largest private credit at the State of New Jersey. The Governor picks up my phone call in the first ring.
This is great donation. Never enough time, Thank you, thank you, I really really appreciate with parametric.
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