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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg
Terminal and the Bloomberg Business app. Ben Godige and Vesco remaining bullish on equities, writing, we're seeing resilient growth, moderating inflation, and more accommodative monetary policy. Despite challenges, this is generally a supportive mix for equities. Ben joins us. Now, Ben, let's talk about one of those challenges, the election. How do you expect us to trade over the next few weeks into that one?
Well, look, I mean there are multiple outcomes, both of different color and different mix, and one would expect the market to can so easily have a tantrum to one outcome,
could so easily fly on another. But we would say over the fullness of time, markets tend to sort of fade extreme reactions I would say, such as the dynamism of the US economy and quality of management and innovation within businesses that despite hedge funds, you know, whacking on and taking off trades, you know, from one day to the next, in and around the event, you know stop, markets can get through this in a positive would get through this in a positive fashion.
Ben, how much of a constraint is the bond market right now? We're tends back up to four twenty two and a two year with a four handle.
It's not a constraint just yet, just yet. I think whilst the Fed and the market still believes we're in a cutting cycle and that growth can remain resilient to that.
Alongside that, then markets can continue to perform. I think quite as expected, markets will sort of check themselves and a showcase volatility as the pace of cuts slows, and there are some question marks about where the hikes come back to the table, But the trend remains a disinflationary one and therefore supports a cutting cycle, and therefore I think markets can deal with yields at this level.
Let's define markets, Ben, when we talk about markets being able to deal with rates where they are even as they climb a bit. And I say this because we have seen a challenge to the rotation trade. We've seen a challenge to this idea that small caps and the rest of the four hundred and ninety three in the S and P can perform and outperform. We've seen a challenge to that as yields go higher. Do you think that that sticks?
Yeah, I mean it looks to us as though there isn't sort of an imminent catalyst for for a yield reversion. You know, of course a growth looks better, so a reappraisal of how davish the federal reserve might be certainly a focus on supply of bonds given the sort of political agenda really of both parties, and better better growth.
So you know, it does look as though yields will be well supported.
At this level. That supports we would say, you know, higher quality. The funding challenges that high yields bring suggests that higher quality businesses might continue to shine in this environment.
But I think ultimately we return to a disinflation narrative and that the sort of softer, softer landing, resilient growth becomes the focus once again, So in time, I think there is a sort of a catch up trade from the sort of small midcaps, but perhaps that's not the immediate position to take today given the we are we are there is some nervousness about this sort of h yield environment.
Then we're talking about the higher yield environment in the US. But as Joma's mentioning, it's global and we've seen yields really tick up around the world, even when the data might not be as obviously supportive as in the US. How much is the US setting the tone and the rest of the world gets subjected to it, and that's it?
Well, I mean I think, I mean, I think that's that is that is the case. I mean, it's I'm sure it's not quite such a surprise for everyone that that is the case.
I mean, it's interesting at this moment.
I think, as you sort of said, is that Europe's going through quite an appreciable sort of growth wobble at the moment. Certainly some you know, the manufacturing weakness weighing heavy on the European economy, and yet bond yields moving higher, sort of dragged higher by what's happening.
In the US. But you know, such is that the dominance.
Of the US economy and such such support avoidance of recession in the US offers the global economy.
But that is sort of dominating at the margin on bond yields.
But for sure, the growth challenges look a little more precarious in Europe, and therefore the opportunity for duration fine for buying bonds, and the opportunity in neils looks but a little bit more apparent at this moment in Europe.
One place in Europe, though you do like, is the United Kingdom. Why do you view that as a hedge.
Well, I don't know if you've heard the argument before, but valuation looks interesting. You tend to get a bit of eye rolling at that because it's been sort of trotted out, I don't know, for the last fifteen years or something. But valuations certainly look interesting relative to some global comparators. Certainly, dividends look are always interesting, but I
think relatives some very downbeat expectations growth could impress. But look, the hedge reflects, you know, sort of commodity rich components of the UK market, And thinking about a geopolitical hedge in amongst evaluation, hedge makes it a reasonable portfolio compliment to a more substantial position in US equities that we harbor.
Hey, Ben, it's going to hear from you. Ben Gunnrich, the investor on the mass more than stanle these Matt Hornback thinks the bond market is less exposed this time around. Writing many investors see the Republican sweep outcome as most bearish for US treasuries. We think any rise in treasury yields would be more contained than in twenty sixteen, based on a comparison between expectations for FED policy today versus then. I'm pleased to say that a good friend of ours,
Matt Hornback, joined us. Now, now let's jump into that story together. Give me some more detail on that the bigger difference now between now and twenty sixteen.
Yeah, John, will the differences extend well beyond what people expect the FED to deliver over the course of the next couple of years. But certainly the FED is a very big part of the story. In twenty sixteen. We have to remember that, you know, Janet Yellens, FED was about to embark on a rate hiking cycle. It was the second time they were trying to start it up, and investors generally expected the FED to be hiking rates
very gradually going into that election. In the wake of that election, of course, investors changed their minds very quickly, and over the course of that next year revised higher their expectations for FED policy to the tune of about one and a quarter percent. Now, one and a quarter percent doesn't sound like that big of a deal today, because we've just lived through five hundred and twenty five basis points worth of rate hikes in twenty twenty two
and twenty three. But back then, one hundred and twenty five basis points was quite a big deal. And so if we take that number, John and we apply it to day's environment, that would essentially be the same thing as saying that investors would go from expecting the FED to cut rates modestly to know more rate cuts in this cycle. And that's a leap that I don't think investors are going to make in this particular cycle, which ultimately means that the bond market sellof will be more contained.
Matth the's an argument that this time is different because a deficit is different, it's significantly bigger. We just had a cycle where we essentially we got fiscal stimulus into a growing economy, a healthy economy by many measures. Why is a deficit issues not a concern for you? And I'm not talking about the short end or the specific rates tied to Fed policy, but the long term rates that are more hinged to the fiscal outlook.
Potentially, Lisa, I'm really glad that you asked me this question. I have a strong view that in the end, what moves the bond market are how investors change their expectations for fiscal policy or or treasury supply. And if you ask every investor in the marketplace today whether we are going to have bigger deficits in the future, irrespective of the election outcome, to a person, you will hear the
view that, yes, we will have larger deficits. It's already expected by most investors, and therefore it is already in the price to a certain degree. And the question then is what type of deficits do we get over the next five years relative to what people expect already. That's going to be the most important part of the bond
market reaction to this election. And so in the end, it's how people's expectations change visa via the deficit is what ultimately moves bond markets in any given period of time.
That said, Matt, given how vers some people are getting on bond deals and the expectation we heard from ti row price, potentially we can get five percent on a ten year yield aggressively. Are you buying longer term bonds right now on some of the backup Yeah?
Well, look, I certainly think that there's value and the treasury market, but a lot of that value depends on knowing an outcome that at this point in time is unknowable. So what we've been telling investors is to hug their benchmarks tightly and wait for the opportunity to arise in the wake of the election, an outcome of which is very uncertain. In addition, the timing that we will know that outcome is also somewhat uncertain, and therefore I think
investors are best place to hug their benchmarks tightly. And so in terms of the duration exposure, Lisa, really about
where you think any additional Treasury supply will come. And in the end, when the Treasury increases coupon issuance, they don't do so just in the thirty year Treasury bond, they increase supply generally across the yield curve, and so for investors out there who are worried about higher deficits, who think that those deficits will be larger than the marketplace is priced for, my recommendation is to be underweight the intermediate sector of the yield curve, not necessarily the
long end, because in the end, when the Treasury increases supply, they're going to do it, you know, across the curve, and so the weighted average of that supply is going to hit most strongly in the intermediate sector of the curve, the five to ten year sector.
Matt, I've got forty seconds left. I want to squeeze this in dollar stronger against everything in G ten. The inter date chat of Dolly Yen today is just a slow and steady march up into the right one fifty ninety six, about to break through one fifty three. What's the story there?
Well, I think the largely of the story is the US economy has once again proven more resilient than fears had suggested, and as a result of the interest rate complex moving higher, taking real returns in the US higher, that's going to attract capital into the into the US. It's gonna it's gonna put upward pressure on the US dollar, of course, just like there's some degree of you know,
a pricing of a potential election outcome. Uh, there's probably something going on in the dollar just the past week really that is perhaps putting some higher probabilities on an outcome involving tariffs. And yeah, a lot of investors think that the dollar is going to go up on tariffs.
Matt, appreciate it, Matt holmback of moment. Stanley close to Evan roth Smith writing the best testing closing goncuments against Trump, those that emphasize his lack of support from his former cabinet and numerous Republicans sling shots Evan roth Smith, Johns to snaph for Moore, Evan, welcome back. It's good to see it.
Thank you.
I see commercials like that absolutely everywhere, which makes the question, if that's the best testing case, why is this race still so tight?
Well, the race is tight because the electorate is tight. You know, we have a structure in our electorate right now where Democrats need to overperform at the national level to even have a chance in the swing states, and every poll shows this closing up to a very very tight race. This is what every polster has been saying for months, Right, this is going to not just polsters. It's going to be a fifty to fifty race. It's
going to be really, really tight. But now we're living that reality because the Poles have gotten there.
Evan, you say this is their best test in terms of their messaging to get out and it comes at a time you have John Kelly speaking to the New York Times and he basically says that Trump is the definition of fascism? Is this though diluted in the sense that we have heard this for years for members who were part of Trump one point zero.
Well, so this was the best closing argument we had in terms of going after Trump. Right, the kind of language you saw from her around her mission, her go around the economy, around working people and Donald Trump as a patsy of the wealthy and who will cut taxes and who will be fiscally or responsible, as well as sort of the undertone to that is still the best
thing for her to say about herself. But yes, many people in the electorate are worried about this, Nicki Haley, voters, people who supported her in the primary, who are Republicans instinctually on policy, are worried about things like a former Trump White House chief of staff coming out and saying, the guys of fascist don't let him back in.
They've been doing a lot of campaign events with Liz Cheney. But then you hear from Governor Tim Walls who says, well, we want her to be a part of Kamala Harris's campaign, to talk about the fact to give basically this idea of Republicans It's okay, you can vote for Kamala Harris. At the same time, he said we're not going to take any of their foreign policy advice. So what are you getting if you are saying a Nicki Haley Republican and thinking about voting for Kamala Harris.
You're getting some sense of security that the Democrats are not this foreign entity that you can't crossover. That would be verboten for you to cross over to Nicki Hilly voters in our pulling, you know, these people are really Republicans. They are Republicans on economic policy, They're Republicans on immigration policy, the Republicans on just about everything. They love George W. Bush,
they love Condolleza Rice. They love that era of Republican politics, and there's a lot of push out of the Republican Party from Donald Trump on them. They do not like Donald Trump, but we need to establish some pull into the Democratic Party if they're ever going to cross over, because they've already voted against Donald Trump once in the primary, and what the Democratic Party needs to do is to
get them to vote against him a second time. That's a fairly tall order, but you need to make them comfortable doing something that their entire lives they've rarely done, which is vote for a Democrat for president. And that's what Liz Cheney is there to do.
Kamal Harris was asked in The View what separates her from Joe Biden. She said, well, really, nothing really comes to mind. How bad was that for her?
That was pretty bad. We tested it out. It was the worst possible thing she could have said in that moment compared to the other things we did.
Why wasn't she prepared for that question?
I think she was prepared. I just think she she has hang ups, and I don't think they're they're they're you know, ill considered or dismissable around how it's perceived for a vice president to be disloyal to their president. Also, by the way, for the first female vice president to be disloyal to their president, for the first black vice
president to be disloyal to their president. You know, sort of a cruel joke of history that to elect the first woman president, she's now been tasked in the final weeks with some supreme act of disloyalty against against Joe Biden. Right, that's that's that's pretty pretty messed up. But she's dialed that answer in, right, we saw yesterday in that in that NBC interview, I believe she gave a much more
pointed answer about price gouging and housing prices. So she's gotten there, she's you know, she's gotten more comfortable with it, but she's she's a loyal, dedicated member of this administration.
Do you think that it's a good thing for her to go on Joe Rogan Show after Trump?
Yeah, I think it's a great idea. I think she should absolutely do it, not just because any time that she goes out and does an interview and talks to people, it works. You know, we test all sorts of clips, even moments we didn't think we're particularly good from those first rounds of things she did with people like Oprah, and sixty percent of anyone who's of voters who saw clips of her doing interviews were like, that was great.
Even if those of us in the media and politics would have gone, oh, I coul would have tweaked that this way that way. So when she goes on these media appearances, it works for her.
At this point, we are seeing the polls seem to favor Donald Trump. We're seeing that pretty much across the board. You're kind of nodding back and forth. Last time you were on, you said that you think pollsters are so self conscious about getting it wrong in terms of not skewing the data enough to Donald Trump, that they're actually overweighting him. Do you still think.
That, I think the odds of an error in this election a polling air likely, or a polling air in favor of Kamala Harrison. There are a couple pieces of evidence that might support that. One is, frankly, the last time we had a black candidate at the top of the ticket, Barack Obama in twenty twelve, polling underestimated him by six points in any given swing state. Because you have polling is good at establishing what a given electorate
is going to do. It's not always so good at picking up at changes in the electorate, like the kind of high turnout you get from black voters when there's a black president on offer. And the other thing is the last election we have, the twenty twenty two elections, was a polling miss in favor of Republicans, right that
overestimated Republican sports. So people like to talk about the twenty twenty miss, the twenty sixteen miss, but the last national election we had in the twenty twenty two midterms, was a large, multi point miss that overestimated Republican support.
So I think there's plenty of reason to believe that if there is a polling error, and by the way, I don't think there necessarily will be a polling air, but if there is one, that Kamala Harris is a likely beneficiary of that error rather than someone who will be punished.
By We've got to squeeze this in this weekend. Harris is in Texas, Donald Trump is around the color at Madison Square, gun and here in New York City. What is gvin on that? What do you think that's soil about.
It's the attention war. It's the attention warner there. You can go to Wisconsin twenty million times, you can go to North Carolina twenty million times. But these closing weeks of the election, you have to get into people's living rooms, not just the people who come out to a rally to see their favorite candidate. You have to get attention.
You have to get cairns. You have to you know, you have to win the news day and doing a big rally at MSG or doing a big appearance potentially with some sort of celebrity, maybe in Houston is a way to do that, in a way to at least you know, these people have jets. They can go back into the swing states the next five minutes. So winning the attention battle with a couple hours of your time and then going back to the campaign trails is not a silly way to spend here.
It's getting a lot of attention. That's the sure. Evan, It's good to see you, Thank you sir. This is the Bloomberg Sevenants podcast, bringing you the best in markets, economics, angio politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am. Eastern, Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business Amp.