This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. Join us each day for insight from the best an economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot Com, the Bloomberg Terminal and the Bloomberg Business app. Man Deep Singh is a smart guy senior technolical analysts and Bloomberg Intelligence.
What you learn from mister Nadella yesterday this was the mother of all home run reports.
Yeah, I mean the Azure acceleration. I think they sort of sandbag expectations because last quarter it was like one percent contribution from AI related stuff. This quarter was three percent, and the expectation is it's going to keep growing. But everyone knows that they are looking to deploy their large anglage models, trained their l and look, this is a secular trendo.
I mean, Tyler Radkey, it's sad.
Your published I believe was this morning, maybe late last night, and you just basically said, you know, this is like a complete report to find what co.
Pilot is yeah.
So right now they have a GitHub co pilot which basically allows developers to be more productive because it's right for a fee for a fee, and they're charging ten dollars and they have about ten million, uh you know people signed up, so it's it's already a pretty sizable revenue.
It's like your newsletter about that. Wow, you've got ten million people.
It all right, so they can you know, you can hire a chat GPT to fill a seat, which I think will be a beautiful thing one day. But this raises this question and I'm going to steal some of Katie Sunder because she had a really good point earlier. This idea of have we overplayed AI and not emphasized the cloud enough? Was the real surprise for Microsoft really just purely the cloud and the AI discussion not really there and the same story except the verse kind of sentiment for Google.
I mean, look at how much these companies are investing in capex to build their infrastructure. So clearly there is a huge upfront investment. And in terms of the monetization, copilot is one form, then renting your cloud infrastructure is the second big form, and they are launching a big three sixty five copilot starting November first, so that could add to the revenue in addition to what we heard
about GitHub. And look, at the end of the day, cloud training is where the money is because that's where the GPUs lie. I mean, everyone knows NBDIA had a big lift because of the GPU demand. Well guess what who are buying these GPUs? It's so hyperscalers and then they are renting it out.
The big fear right now is that Google's gap, its lag behind the cloud competitors, is only growing.
Do you see this as evidence of that?
I think Google again is more niche in the sense that they don't have a legacy in enterprise business as Microsoft does. So clearly they have to build it from scratch and they're focusing more on the AI side of things, rightfully so, and in this case, some of the deals are lumpy. So I won't make a lot out of
the miss last night. I know everyone focused on their two percentage point miss, but look, they are building this from scratch and it's at a very healthy thirty two billion dollar run rate growing at over twenty twenty five percent, and to my mind, it's going to accelerate because they are one of the biggest buyers of GPUs as well, So where would you rent the GPU capacity? Besides Microsoft and Amazon, it's Google.
And deip I also want to talk a little bit about search because this line from Microsoft's earnings caught my eyes that you take a look at being search and news advertising sales increasing ten percent in the quarter. So it seems a little bit like advertising spent has stabilized. But when it comes to being versus Google, does bing have any hope of taking serious market share from Google?
I think satan Adella walked back his comments you know, during the testimony that he was aiming for share, but he conceded it's very hard to take share from Google, and Google's results last night showed that at one hundred and eighty billion dollars round rate, if you're growing double digits. That just goes to show how much power you have. Where Snapchat group five percent, it's much smaller, and I think you get to see where the ad pricing power lies.
In the ex did Greifeld get the memo that we're being free, we don't talk about we don't talk about being here you big all the time?
Well, I lost it almost an hour.
If you could do better.
Let's see, are we allowed to talk about Snapchat? I don't know, but let's talk about snap.
They make great tools, are out of Ohio, and I love their socket wrench.
Can you take my AI? Okay, let's talk about Snapchat. Because they came out with earnings. The share spiked fifteen percent after hours. Now you take a look at shares, they're actually, I don't know, down slightly. What were we so psyched about at around four pm yesterday that we're not excited about it? What's six fifty three in the morning.
I mean, clearly, the top line print was better than expected. But when it comes to the guidance, that EBITDN number is the key for a company like Snapchat because they keep losing money. So because they had a positive EBITDT quarter, everyone thought it's going to continue. But in their guide they were quite wage about where the leverage is going to come from, and it was just too uncertain to figure out whether this is sustainable or not.
But it goes to this question, this larger question of how the market is measuring the performance the response and you talked about how you actually disagree with the response to the Google to the Google earnings that you think people are overplaying the slight miss and they're underplaying the
potential for AI. Does that mean that right now, just from a market perspective, any results that show you the money are the ones that are going to be rewarded, not the ones that show you hope, which is what some people were really trading on with the AI promises of your.
Yeah, I mean results matter. And in Google's case, there was an operating income as well, but they are investing and is with Google I see, you know, YouTube being a very big business. In fact, YouTube subscription growth has accelerated past all the streaming players, so that live NFL content is working. Cloud is another driver's search remains robot. So the durability of earnings is there with a.
Name like Google.
Yes, they may have a bad you know, a slight miss when it comes to operating margin, but it doesn't change the fact that they've got all these large businesses with a long runway, and I think that's the thing to focus.
Can you extrapolate out to Apple here? I believe it's November two, whatever day. That is, if we saw a Microsoft do what they do, are we going to give the same joy, the same completeness, as Tyler Redken talks about, Are we going to get that from Apple?
Very unlikely given the what's going on with China and their focus on moving the supply chain. And look, they're a hardware company, so we know PC and smartphone markets are still bottoming out, so they will not have big quarter. And the one risk factor for Alphabet going back to that is if Apple decides to do their own large anglid model on the phone and take out the distribution they have for Google, which has come under scrutiny. That's a big risk for Google Search. I mean, other than that,
I don't see any risks for the business. But if Apple decides to do their search and maps and everything large anglid model, that's a big risk.
Mande, thank you so much, I got I gave more questions. Mandy's singing with us. We'll have them on here. Over this arc of these tech earnings, we start strong with Marvin Lowe, senior global macro strategists at Stage Street. Here in this time of confusion and cacophony, I guess I have to rebalance, I have to reallocate. Is the rebalanced formula changed because of this yield move.
I mean, for sure, everyone's thinking about, you know, whether sixty forty is appropriate. What we're seeing in terms of the institual investor is that they're so underweight fixed income at this point because the losses have been so great that they're still trying to catch up. If you're a bond bull, it's encouraging because they're still engaged with the asset class. But do they settle below that forty percent once we get there?
I thought of you, they said, marvinlow is going to open the show, and I thought of you. In a cold of winter, Peter Lynch used to walk around the streets of Boston without a coda. He looked like Jim Geordan, except it was ten below zero and he'd have his value lines and he's walking to meetings with Will and the rest of Betina and the rest of them. Okay, great, that's all fine and well. But to me, the securities analysis now is just out the window. It's about survival.
How do you survive in an allocated portfolio?
I mean, for sure, you are reevaluating duration in terms of a story, and you have to remember that duration is much more than just your fixed income holdings. The US equity market is very heavy, So you've got to be really conscious of where those long yields are affecting
your portfolio. Keeping powder dry right now is not a crime, absolutely not, particularly given the shape of the curve, particularly given that the fed's going to be you know, higher for longer, probably for a lot longer than people think. In my mind, you know, keep that powder dry because things are still going to be rough going into next year.
What does that mean powder dry? Because it doesn't just mean that you take cash and you put it in a mattress. Do you put it into t bills? Do you just keep it into your treasuries?
I love bills. Two years feel pretty good to me at this point. Also, you know, if you wanted to extend from your bill uh structure in your portfolio, I think you know, you could add that kind of duration. You can nibble on the tenure for sure, you know, if you like that income. But yeah, you know, I'm looking at the short end out to two years.
Does this mean that you're concerned about risk equity valuations and other parts of the market that maybe haven't fully comprehended the level and have ignored it because volatility that's gotten so much more significant than what we're seeing in equity volatility.
You know, for sure, if we look at you know, even since the since the Milies conflict, it's been rates that have moved. Everyone else has been kind of frozen, if you will. The dollar hasn't really moved, effects hasn't moved, and equities are trading, you know, fairly well in a wider range. They're not reflecting the volatility that rates are showing. And you know, ultimately, I say to a lot of folks, the most important number out there is that ten year yield.
And that ten year yield is unanchored right now.
And that's what I want to talk about, saying in the fixed income market for rate now, I mean, the most important question, it feels like, is why are rates rising? And I'm looking through your notes and you right that you would push back against the buyer strike thesis. Why is that?
First off? You know, like I said, the institutional investor is still buying. They're still trying to get back to their benchmarks. We actually are able to also look across border flows at that institutional level and they're still buying. So they're buying it on hedge. There's various stories around the dollar that you could infer from that. But mof data around Japanese buyers, they're still engaged. China kind of
looking at tics data, tick data. They're not buying as much, but they're buying based on what their reserves let them buy. So we really haven't seen that kind of buyer strike. That seems to be one of the themes.
That are out there.
Certainly, all of the issuance is an overhang, and so I agree with you, Lisa, it's like these auctions become more and more important, particularly as we go into November and understand how the next phase of all this deficit funding is going to look like. But the buyers are engaged. There's just a lot of paper right now, and the knife is pretty big and falling.
Still well to that point, Okay, maybe there's not a buyer strike, but there is a lot of supply here, and with that in mind, you look forward to next week, which is going to be very fun because we have the refunding announcement in addition to the actual FED decision for the direction of this market from here, Which do you think is more important?
You know what, I think the supply is more important. The FEDS message is pretty well crafted at this point. It shows that they don't really have a handle on how this is going to evolve, and I think that's part of the volatility out there. But given that they've pulled back and turned more you know, less hawkish, if you will, with the volatility in the market, they're not looking to introduce much more into it at this point. We have nothing christ in for November. That's correct. I
think they're ultimately done. The question really winds up being how much longer we stay at these what they believe is restricted levels.
It sounds really gloomy, sounds pretty rough, sounds concerning a zure of Microsoft posted a twenty nine percent sales gain in their cloud services business. At a certain point, you take a look at the gloom of the doom, and you take a look at some of the cash producers, and they're minting money. So at a certain point, why are they not the havens?
You know, I believe I believe they still are. You know, we do like those big motes that are ultimately quite defendable. And if you're looking at the return that you get from cash, and you got these companies that can generate the cash and actually return it back however they decide it's an advantage.
So evaluation key thing.
I get what you're saying, but in this earning season we're proving it once again.
Then do you less.
Diversify and do you shift from index to more active management?
You know, I think that active managers are going to have their day in the sun. It's been a while.
I want to quote you on that.
Robert Armstrong was brilliant in the ft yesterday. Looking at the recent track record of active management, and you're saying this is the time for active managers.
Correctly, it matters, and these duration discussions that we're talking about, rather than just nearly willy going into it based on kind of what an overall market capitalization is allowing you to do, becomes important.
To my mind.
It's going to be interesting. Marvin Low, thank you so much, greatly, greatly. I appreciate it. I love the phrase keeping your powder dry. Assistance here. Editor in chief cbe emails in from London and he says, keep your powder dry, Tom, come on know your Cromwell English Civil War sixteen forty two, Oliver Cromwell, keep your powder dry, your English history for this morning to do. The other in chief said I have to do that. You know, when British history comes into what we're.
Talking about, you have to talk Oliver Cromwell, gunpowder, Well's the other Civil War. All I can say is your nailing the keeping your powder dry. How's the triple evertail cash, triple levers dot cash is.
Doing fine here, But this is really important and Lisa, this goes to the technical construction of the market. Now we've got to pull back a price up yield down, but on a technical basis, there's like zero veracity to it. We need a lot of constructive work here to begin to demonstrate lower yields.
On a technical basis, it's still a ping pong. I mean, basically, what you're seeing the redow every day is another ping pong and you're not sure where it's going to bounce and if it's going to hit a weird corner on the ping pong table. And that's sort of where we are, which goes to Marvin's point. We are sort of getting unanchored in terms of where that yield is, whether it is fundamental or whether to your point, Katie, it's something about the refinancing.
People disagree with the ECB media coming up.
I guess quickly to Marvin Lowe, here is the ECB unanchored.
No, and it's because their transmission mechanism is clearer than what we're dealing with here. We're seeing these higher yields make their way into their economy right now. In terms of Powell said it last week, based on the evidence, we might not be restrictive, even though they've been saying that they're restricted for the well they're gettings are restricted for the last three to six months.
Marvin, thank you so much.
Gregory Vllier of AGF Investments Rights every morning, he says geopolitics could be quote the trickiest issue in next year twenty twenty fours. Public opinion, especially among young voters, seems to be shifting towards isolationism. The idea of spending another one hundred billion in Ukraine and Israel, it's increasingly unpopular. Nevertheless, Biden has a police pical opportunity to become an effective wartime president. This with decent support in Congress, that from
Greg Valier and Lisa. This is something I've brought up. You've heard me like a broken record talk about America's history of isolationism and is now a demographic isolationism.
And how much is that going to really play out, especially into the next contours of two front conflict. Right it's both in Israel and Ukraine, and Greg Valier are joining us right now. I want to start there is there the political support to support Israel in addition to Ukraine going forward through not just the next month, not just the next two months, but six months to a year.
Well that's the key question, isn't it. And I do since over the last few weeks a waning of support. I think that Biden has enough backing in the Senate. I think he's got Mitch McConnell and Lindsey Graham and many others who are very hawkish. But I say young people are not in enthusiastic. A lot of Americans don't want to spend one hundred billion dollars more so it's soft. But I still think that Biden has enough support to get an aid package, probably not until the middle of the winter.
Craig, what do you make of the fact that you're essentially getting a Democratic party that doesn't seem to back Israel and is actually moving away from it, and a president that's trying to lead the charge in that effect.
Well, it's quite a dichotomy. It's really almost shocking to see the Democrats, the party that supported Israel so aggressively for decades and decades, now looking a little bit softer. I do think though, that we will get a deal done. My issue is the timing. I think we're still many weeks away from anything new for Ukraine, Israel, Taiwan, US border with Mexico. That's still a ways off in terms of getting it enacted.
Well, Greg, walk us through the ramifications of that. If we don't get an aid package approved until mid December, as you outlined, what would that mean for this war.
I think it sends a very bad signal to our allies, at the least ambiguous, but I would argue it sends a signal that the US is losing a bit of its resolved. You know, we all recall in the last year a year and a half that was the big issue that we would lose our resolve on Ukraine. If we lose our resolve on Ukraine and Israel, that to me sends a really negative signal.
And let's tie this into what we're seeing play out in the House right now and the efforts to elect a speaker there because a week two weeks ago, I would have asked if the Israel Hamas war would have put more urgency behind this process. But that doesn't seem to necessarily have materialized, Greg.
No, it doesn't. I think this deadline of November seventeenth is going to come and go. I can't see them getting a budget done by the seventeenth. So the new speaker if we get one. Because nobody's ever heard of this guy, but he has a pretty good reputation. He also is a denier that Biden was elected president. That is not my cup of tea, but he has denied frequently that this is a fake election result. He's going
to have to answer for that. But I think we're going to go well past the seventeenth of November to get a deal done.
How much? Greg? Is former President Trump driving the bus here? We heard from him this morning congratulating all of the congressman and saying that Mike Johnson is the strong suggestion from him.
Well, it looks like Trump has veto power, doesn't it. The guy from Minnesota lasted for like eight hours before Trump, and then Trump boasted that I killed the nomination. So Trump is taking a very overt role in the House, and I've got to think there are a lot of House members who resent it.
How much is there still discussion about some sort of bipartisan answer. We heard that for a hot second, and then it was dropped because it was politically not viable on either side.
I wouldn't put the chances at much more than twenty percent. If that, I think it's unlikely that we could get it. If this thing totally breaks down and we get into the winter without anything, well then all bets are off, and I think Hakeem Jeffries might have to intervene, but it's not coming yet.
And Greg, this drama, this disarray that we're seeing in the House among the Republicans. Have we seen the Democrats try to capitalize off of that?
Not as much as I would have expected. I think they're sitting back. What's the old saying, if your opponent is self destructing, don't get in the way. So I think the Democrats will stay pretty muted, but at some point they may have to be called to enter this fight.
Riik Viliah, I want to go back to a comment you said, because I really think we need to paint this picture the New York Times reporting Mark Santorio of the war east of Kerson. This is done by the Black Sea folks. This is east of Odessa, east of Romania, and the Ukrainian forces are surprising by moving east along the shores of the Black Sea again east of Kirsan. What do they need from us that's going to wait
for the winter financing by America? Do they literally run out of artillery, run out of ammunition?
Well, timing is everything, Tom, and I think that they've only got another few weeks before it's the mud season, and we have four months of mud and ice, and you know, basically a stalemate. They will get more arms, I think from Western Europe, but I again looking at Washington, I think it's going to come later rather than sooner.
All wars have always been marked by propaganda efforts. We've always seen that through history. It's something very notable. This time feels different, though, whether it's Ukraine or whether it's Israel. And some of the images that are coming out in social media, some of the battles that are coming out in social media, how do you view this information war as having a materially different nature than previous ones.
Well, the first casualty of war is we all know is the truth. And I think it's going to continue to be very difficult to ascertain who's winning who's losing. I don't think that's going to change.
Greg Villiers, thank you so much.
With AGF investments, always an important morning note.
Pier, we get rebrief here. He's been on the show way too much.
It's a it's a folks part of our team, but actually huge value at Stephen Rashuda joins us down chief US economist in Missoo's securities. We all get the consumer boom. We all get that we were wrong. We're in the vicinity of.
Five percent Q three GDP okay.
Great, but I got an I, I got a G and I got an NX.
On the back end. Are they going to help out the booming consumer?
That's the real question, you know. I think you could look maybe for a little bit from trade. The real key question is the government component, because to be honest with you, we don't have any good priori data when it comes to government spending. We do have the monthly Treasury statement of receipts in outlays and we can look at that, but those don't translate well into the GDP accounts,
they don't translate as clearly as other components do. So we're looking at most of the other components and saying nothing else is contributing. So you down to maybe a little from trade and how much we get from government.
Is there a.
Separation in the eye of big business, ginormous business, successful, profitable, Microsoft like business investment and everybody else flat on their back.
Well, there clearly is. And when you look at the shipments of non defense, non aircraft capital goods, which is the key driver of the equipment investment components that you're looking at, they're really showing you that on a real basis, we're doing nothing in terms on average in terms of investing in this economy. But in an environment where you still have sort of an excess supply globally of tradable goods, it's not surprising that we're seeing that.
And I want to talk a little bit about a story that ran on the terminal yesterday that if you take a look at the deficit. The US government ran a two trillion dollar deficit in the fiscal year through September, and then you think about what's happening in the bond market, you think about a ten year at five percent. Does that level make more sense when you think about the deficits that we're running.
Well, it certainly makes more sense when you think about the deficits worrying, but it also makes more sense when you ask yourself the question what level of inflation does this.
Federal Reserve want?
You know, they seem to give lip service to the two percent numbers, but they seem to also be paying a lot of attention to the employment aspects. So they've kind of shifted the dual mandate. What used to be inflation first, then employment comes along as a result. Now it's almost like, well, we want to get employment first and see what happens with inflation later, and you know,
maybe we'll tolerate three. So the upward movement in the tenure note is reflecting a new fair value, which I don't think markets have fully discounted yet.
So does that tell you that they still see that link between the unemployment rate and what's happening in inflation that to get inflation back to two percent you do need to get unemployment of I.
Think most investors see that. Unfortunately, I don't think this Federal Reserve does. And if you were at the New York Economics Club lunch the other day with Jerome Powell. You really got a sense. You really got a sense that these people are he in particular as well, are looking at the things like the jilt S data, which, to be honest with you, there isn't that much history
behind the jailt stata number one and number two. The history we have is only available for what we call credit recessions, recessions that were driven by a credit crunch. This is not a recession that would be driven by a credit crunch. This is an inflation monetary policy, and that's a different story, and therefore the reaction it function is very different.
Did you feed David Weston's questions? They were so vicious and so mean spirit. I'm like, we shootos given him those questions.
I thought he could have gotten even harder if he did.
Yeah, well, you know, there'd be like a pharaoh was there. Can you imagine John Farrow doing the Economic Club in New York.
It would have been good television.
That would be good entertainment, it'd be sport. Powell, I don't think it was game changing. I think he's just trying to get from event to event. Waiting for the data Kating.
I will say that the thing that stuck with me from that appearance was the focus on financial conditions. I mean, I think he said financial conditions at least fifteen times. When you look at financial conditions, you think about the lag of monetary policy. Have we finally started to see that?
Well, see, I don't follow the financial conditions in disease that are on the street, particularly because they're reflecting long term interest rates, which, to be honestly, should be driven by inflation, not by real rates. That's number one. Number two, I don't look at it because they're looking at currency, and the currency is really not part of the financial conditions.
In the marketplace.
I look at the availability of companies to bring paper to market and get that paper sold, and I look at the Treasury's ability to bring a ridiculous amount of paper to market and get it sold, and all these markets are functioning beautifully. So I sit there and say, you know what there really is and illiquidity in the system. Financial conditions aren't tightening in the sense that really matters
to the economy. It's tightening in the sense that we're trying to measure what would cause a credit crunch, But there is no preconditions for a credit crunch. There's no asset liability mismatch, and there's no valuation problem to be triggered, and therefore these things are looking for the wrong indicator.
Halloween, I'm going as Gamma this year. That's my Greek letter this year. But after Halloween, we've got a FED meeting and.
We have a jobs report, the first jobs report questioned for October folks with mister Rashudo of Bazoo.
Is it finally going to slow down? I don't think so.
No, because you're in an environment still where the initial n employment claims are telling you that we still have a very very tight labor market to continuing claims numbers are telling you we still have a very very tight labor market. So the people that are getting laid off are getting hired fairly quickly. So I don't think it
will show up. And will there be some potential for a little bit of weakness in the payroll employment number in the headline number month over a month, a little bit of a change, sure, but we're not saying substance of change in the underlying dynamics of the labor mark.
Stee thank you so much.
We've took it for the frequent visits as well, really really valuable. Stephen Rashudo with this with Missoo's securities today.
This is right.
Now for Global Wall Street, the Interview of the day. Everybody's fundamental based. Katie Kaminski is weaned on the technician technical analysis of trend, going back to the giant Wells Wilder of nineteen seventy eight.
She's with alpha simplex.
Katie an opening question, what's a trend right now in equities?
So equities right now, we finally see some of our signals tick short net, which kind of is surprising to me. And second of all, the biggest trade and biggest thing to fall in. This goes with what Lisa's saying divergence. We've seen long signals in big tech megacap and we're seeing short signals in the small cap. That tells the consumer the average stock is in trouble. Your big high names they are doing well, but your average stock is worried about higher rates.
Katie Kimisky and I studied Tishushande on beta. I'm not a big believer in beta. For those of you from Global Wall Street, Katie in this world, do you have to do beta as a sector study or index study or can you actually have the conceit and confidence to do beta on individual securities.
So we tend to think about looking at sectors because we're trading more in the futures markets, but we do also look at some of cash equity strategies as well, and we're definitely seeing tilts right now. You're seeing people talking a lot more about tilts to defensive tilts towards oil companies. So right now, I think this divergence trade is about finding certain areas of the market that are going to do better or worse in a higher rate environment.
But it is tricky because it's uncharted water. We haven't really figured out what's going to happen next. That's pretty much the theme worse thinking and seeing is that we got to the higher rates.
What's next?
Which stocks are going to succeed, which are going to be able to refinance, which are going to waivers through this new environment?
Katie, I was so excited to speak with you today because you follow trends and I'm looking for a trend in the ten year yield and yet it's up. But it's also you know, we've we're talking about a ping pong ball. Pick your metaphor. How can you find a trend in a market that's unanchored?
Good question. I've been asking this myself as well. Because we have seen consistent short trends for months, I have still yet to see a steepener in the relative positioning and trend signals. That's something that I've been kind of looking for to understand when we might have an inflection point. There was a little bit more pressure on the long end this month, which is something that kind of brought my attention to the fact that we might be eventually
at a buying point. It does feel right now in terms of how we're seeing the market's trade, that we're at a point where there's some interest to buy because we've come so far in this disinversion in the yield curve, and so I think the next step is going to
be what's the next phase of this bond trade. Is it wait and see and see if we see something that could push us to a new shape of the yield curve, or do we go to a state where we have worse financial conditions and we have to actually tighten stop tightening and thus see you know, the shorter end has to release some of the pressure.
Are you still short bonds?
Yes?
Okay, So are you basically seeing this as a sign that there could still be more yield increases to come, even though you are seeing a bid to buy come in around the margins.
Yes, Lisa. And what's amazing to me is that signals in the technical space have been short and fixed income for two years almost consistently. That hasn't happened in many decades, And I think what we need to start to see is to see some consolidate and see some actual view that that trade might turn around. But so far I keep looking for it, and I haven't seen the end of this trade yet. So that suggests that we haven't seen the bottom of perhaps the long end of the
bond market as of yet. I think we might see it in the next three to six months.
So maybe yields have more room to climb here. But can we talk about the importance of five percent, because I think it was very telling that you had the ten year treasure yield just kiss five percent earlier this week and then immediately drop in the path to higher yields. How much of a hurdle will five percent be.
Well, five percent was a pretty important philosophical boundary for many investors, and maybe it also represents a buying point
if you think about it from the investor perspective. As yields go up, there starts to be more and more of a trade off between at what point do you not worry about the entry point of that particular investment, and you start saying, it's actually pretty good to lock in five percent over these horizons, and there is some risk that we might have deteriorating financial conditions, so purchasing those bonds might actually seem like a good idea. And
that's what I'm hearing from investors as well. We're starting to see more discussions about the trade off for the risk of investing in risky assets versus the return of fixed income. That has become so much more more interesting than it was a few years ago.
Well, we're talking about the level here. Let's talk about rate of change a little bit, because the rate of change has been shocking over the past few months. You look over through the next few months, are things going to calm down?
Well, I think these things come in spurts and in runs, and I think we've gone through a pretty strong run in terms of trends. And one thing that we note in the trend falling space is that fixed income is not linear. It tends to accelerate very quickly when it wants to, and then it can be very smooth for some period of time. It feels like we've gone through one of those phases and now there's going to be some consolid until we see something that has the ability
to move that curve again. So far, we need to have something a little bit more extreme, perhaps some deteriorating financial conditions or just an excess supply of treasuries that just has difficulty, you know, kind of consolidating.
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