Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at seven am Eastern on Apple car Play or Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Joining us. Now, boy, do we need an update? Tiffany Wilding with this. The last time she was on it was chaos. Kembergs. Can't we remember what the excuse was, but it was nuts. Let's get some sanity now. Tiffany wild with the Pacific Investment Management Company PIMCO on America's economy. Can you be co cool, common collected, Tiffany? Or is the unknown unknown killing you?
Well?
You know, I think for the inflation report that was released this morning, you know, the real news was the headline report, you know, and the surge and energy prices, and that should be no surprise to anyone who has filled up their tank with gasoline lately. I think, you know, in terms of the impact of the Iran war and higher energy costs, you know, I think the you know, I think was very obvious. It's going to raise inflation. I think the key unknown right now is to what extent.
It's going to impact you know, consumers purchases, real purchases of everything else. If they have higher gasoline prices they have to pay. That leaves less discretionary income for for all other things, you know. And this was coming in a time when labor income was already you know, on the soft side. So so real labor income was already running around one percent, and this will further stretch, you know,
the the incomes that people have, you know. So I think the effects on the economy from you know, some weaker consumption you know, is kind.
Of yet to be seen. Now.
The good news is is that people are receiving higher tax refunds right now as a result of OB three bills, So that's cushioning some of the blow, you know. But we'll be watching retail sales data pretty closely moving forward to see how how the effects are playing out here.
So, Tiffany, have you taken your I don't know GDP numbers down? Have you raised your inflation forecast or is it still too early here?
Well?
No, I mean we are certainly seeing higher energy prices, so you know, you have to raise your your your inflation forecasts. You know, we know even with the you know, the ceasefire, you know, some of the decline in you know, in the front month oil futures prices. You know, Interestingly, the market is not really pricing in a decline versus what it had priced before in some of the longer dated futures contracts.
You know, So this is still expected.
The market is still expecting this to be a relatively temporary situation. But the current news, you know, has it really impacted kind of the market implied longer term outlook for energy, which is still twenty percent above where it was. So I would just say, you know, we are going to see higher prices. We think inflation accelerates to four percent headline inflation the next several months, you know, and then hopefully as things dissipate, you know, we'll get some
relief later this year. But we do think that will shave some off of growth as well. So we have lowered our GDP forecasts.
What does it do to yields? Link it into your day job, which is helping pimpco fixed income managers survive to the end of the quarter they got to get to June thirtieth. What does the wilding inflation four percent do to yield.
Yeah, I mean, you know, so I think anybody has to do scenario analysis. We always do scenario analysis, but of course it's incredibly important now, you know, just given the wide range of potential outcomes with Iran. But when we think about, you know, our positioning the bond market, you know, we still think high quality bonds provide a lot of value safe store of account here. And the reason is because if this does turn into a more
prolonged disruption, the CEA fire doesn't hold. You know, we really think global recessionary risks could increase there and the bond portfolio will will probably do better in that scenario. At the same time, if you do get a resolution, you get energy prices falling. You know, under our core forecast, with energy prices falling, you could see headline inflation moving below the fed's two percent target later this year, early
twenty twenty seven. Really, so that's the other thing that we have to keep in mind here, you know, that will allow the Fed, we think, to cut interest rates back towards neutral stuff.
You just all this morning, Tiffany, that was almost interesting thing I heard. Don't tell Margaret Brennan she was electric Lebanon tiffity wilding to get to a sub two percent tiffany wilding call correlate that over to a price of a barrel oil. Are you saying below seventy or like a collapse? No, Michael mcgloone collapse in oil.
No.
I mean if if we just look at if we just assume what is priced into the energy futures curve right now. Energy futures curve is basically suggesting that after oil and energy inflation peaks in April, you will see declines and energy prices which push the year on your rate down below two percent. Now, if we get a faster drop in oil prices relative to what's pricing the curve, that would happen before you know, that could happen as early as next late this year.
I'm exhausted. Are we working tomorrow?
No?
That was the most important.
Inside I know. Well, I'll tell you what I learned from Matt Million yesterday. If you want to see the crude curve where the futures are trading, you put in cl one Commodities space CT and that gives you the futures contract table. Matt Miller told me that I guess you what's you drive?
You this week.
I don't know, Hope has four wheels.
Hopefully it has four wheels. That's all I know about. Real quick, Tiffany, talk to us about the US consumer here, because we found out time and time again you cannot count out this US consumer.
Yeah, I mean the consumer.
The US consumer has just you know, defied I think, all expectations for any slowdown since the pandemic. You know, you you do have a very big wealth buffer that consumers have have been able to you know, to accumulate post pandemic that remains pretty solid.
You know.
Now we've all talked about the K shaped economy. There are certain differences under the surface here. Lower end consumers are not doing that well. They are getting squeezed by higher energy prices, you know. But but middle to high income consumers they will be able to weather this uh energy shock, you know. And I guess the question is, you know, they will they will maybe smooth through this with through savings and and and wealth.
You know. So the question is how how well do they hold up?
And if they do, then this is the US economy is going to be continue to remain.
Resilient, Tiffany. So next thing fed sit on its hands. I guess is the call for the remainder of this year, do you think.
Yeah, I mean, that's that's basically our call.
You know.
We we actually moved out, we delay, We aid our expectations for when the Fed cuts interest rates. We do think they're probably on a prolonged pause as they see how this plays out.
You know.
But as I mentioned, you know, they they're the inflationary headwinds right now will turn into tailwinds at least from the energy side, you know, later this year and into next year. So we do think they probably will cut a couple more times. I think the market is sort of maybe pricing one cut in twenty twenty seven right now.
We think they probably will get down to their.
Midpoint three percent of their expectations for the kind of neutral rate of policy.
We do think that'll happen.
You also have the changeover from wash from Powell Tosh coming in. You know, he has you know, on the margin, we think a bit more of a dubbish reaction function.
We think he probably will get the.
Committee down to that three percent under at least under the base case.
Jaw dropping Tiffany, Well, thank you so much, 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 Listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
Cancer Commission he joins Alpha Simplex just fabulous. Trend based work, Katie, is the general statement in then unknown massive uncertainty. You lead with a dreaded word, hope, how do you do a trend based analysis here or do you just step aside?
Well, I mean, it's interesting you asked that we have seen that a lot of the former trends consolidated into this move. But honestly, energy was able to offset a lot of this deleveraging and the changing in the trend direction. But it is interesting this week we're starting to see some of the old trends sort of equities doing well again. So it has been sort of a difficult pivot for the last six weeks, but something that trend has navigated reasonably well, I would say.
And Katie, one of the trends that a neophyte like myself could identify this year was a weaker US dollar, but that kind of got interrupted with this war in Iran. Can the dollar re establish a little bit more of a negative trend? Do you think?
I definitely think it's possible. We saw a big sort of reversal in that sort of weak US dollar trend, with the exception of some of the em currencies where there was some differences. For example, the end was, you know, kind of one that still worked very well despite most of these moves.
And so what I think.
Is happening now is we need some more resolution, and right now it's pretty mixed. You don't see very strong signals in currencies yet, but it has been tilting back towards weaker dollar as escalation has reduced in the markets.
You know, Katie, I've always joked that, you know, one of the roles on Wall Street that I could never do was be an oil trader. The volatility is just too crazy here. But do you think we're in an upward trend here just because we've got this uncertain industry of rome moves that maybe the trend is higher for longer for global energy.
So this is a good question because what we have seen energy trend signals have been very very strong, almost exponential in the month of March, but you have seen some of that consolidation with volatility really sort of exploding. And then of course the type of reversal that you saw earlier this weekend energy was just spectacular. So you have seen net on net signals pointing towards long energy, but it is a little bit less extreme than before.
And I think this to me makes sense because honestly, we haven't resolved the problem yet, so energy prices should stay somewhat elevated, maybe not as hyperbolic as they work before.
How do you do the how much ittness? When I give speeches on this, Katie, I talk about, you know, going to make the Wells wilder and Thorpin and all of it. So much of this is okay. You have a belief, you have a setup, you got a trend, like Paul says, you're catching a knife in the dark, and then you go position sizing. How much do I want to put in? How do you do how much it iss? If you're going to get derailed by a Secretary of Defense press conference.
That's a good question because what we see is it's all about the numbers. It's really about balancing the measurement of price moves over time and averaging those shocks out.
And so what I would say is, even though we've had some pretty difficult schalks like earlier this week, being able to be long energies and somewhat dynamic and taking position, taking profit in some of those positions as Volatiley expands was a really good hedge for many other portfolio strategies that were down quite a bit in the last month. So I'd say it's perhaps easier than just being long oil. That would be hard.
What is your plan you come in on a Friday morning, are you day trading, are you fifteen minute interval trading? Or are you saying what's going to happen in September?
So we're much more thinking over sort of the shorter to mid short horizon period, so in weeks to months as opposed to minutes to seconds. And I think this is important because as we know, in the shorter time horizons, there's a lot of noise, So it's really about balancing the direction of where oil is going and sort of doing that on the weeks to months horizon to kind of capture the macro themes using a data driven approach.
Katie Fixed Income globally. Are there some trends you guys can play these days? Where do you see some opportunities?
Fixed income has been super difficult to trade, but very interesting, and I think the interesting part has been that we have seen short signals across the board and fixed income and that means that you know, fixed income in the
short term has really reacted on inflation concerns. European fixed income in particular, particularly given how you know energy sensitive and as energy importers Europe is, so I think this could be a very interesting trade if we do see continued difficulty with supply and energy and continued energy I mean inflation uncertainty. Shorting fixed income and sort of higher yields because of inflation is an interesting trade.
Paul mentioned this earlier off the mic. Let's do it on the mic, Katie. Do you hold positions over the weekend?
Of course the positions are we usually trade in the futures marketed, so the positions are held, but then of course they don't settle and tell the futures markets open again the next week. But you can follow the you know, the the values over the weekend periods of time. So I think you do see that and that was particularly interesting when you're looking at asia hours let's say Tuesday this week, for example, where you saw things moving and you knew things would move even more the next day.
You try to, I guess, de risk your portfolio, headge your portfolio maybe a little bit more these days than you would d our normal trading our times.
So actually we have seen that across the board. Hedge funds as well as CTAs have been deleveraging, and overall this is for us, it's a systematic approach. You measure more risk, you take risk off, and so it's done in sort of a systematized manner. And so when volatility expands and signals and trends change and consolidate, you actually
see sort of a de leveraging. And that's what most of the banks have reported as well, is that you know, people have been taking money off the table and sort of deleveraging in an environment where risk is just much higher.
And that makes sense.
Because geopolitical risk increases overall equity market risk historically, and so you're seeing an environment where you want to maybe be a little you need less on the table to participate when things are this volatile.
Well, said Katie Kominski. Thank you so much, hugely valuable. She's doctor Kominski with Alpha Simplex in Boston. 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 Listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch US Live on YouTube.
The last time he was on there was a massive impact.
Andrew Gilbert Reducts is again with Energy Capital Partners today. If you were to write for Monday Morning given the oil upset, that wasn't hear the last time you were in that chair. If you were to write for Monday morning, what would you write about?
So we're at Energy Capital Partners, we're electricity focused and fortunately in the US we don't have to burn oil for electricity anymore. Natural gas US natural gas is a huge advantage we have and that's a big reason why electricity prices are some of the lowest in the world.
What the oil crisis does mean for natural gas is perhaps that more energy goes out longer term, right, and some of the export supply that many thought was going to be sort of overbuilt in the next few years, is likely going to be fully.
You said in the world for energy capital partners with your massive global reach, is President Trump basically the president for Malaysia because of hydrocarbon challenges, or Indonesia or Hungry.
It's a huge challenge for those countries and puts them at countries that are burning oil for everything and including electricity, are going to be a huge competitive disadvantage. I think there's no doubt about that. That's why I'm happy we're you know, we're focused. We're North America focused where we don't have that problem in electricity.
Andrew, you say in your notes, if done the right way, large load like data centers, should lower electricity bills over the long term. What do you mean by that, Because the concern is I'm paying for it, You're paying for it, and maybe it's not the Googles and the Amazons.
Of the world, of course.
Yeah, So there has been a short term increase in electricity prices that is driven by this, and that was really about excess demand kind of being soaked up by data centers. But the vast majority of your electricity bill, two thirds of it comes from the wires, and so when you add incremental load, you've got more megawatt hours
to spread that cost. And so for utilities that now have gigawatt plus data centers to connect and double right rate base, they have a much larger customer base to spread it over.
Paul's got the smartest question of the morning so far, Trophy taking. Let me add to that. Why doesn't some jillionaire Silicon Valley idiot in a white T shirt and you know whatever, Why don't they just say we're going to build a data center in Cozed Nebraska and everybody has free electric bills for ten years. It's like a rounding error to somebody living in Atherton, California.
I think increasingly you're seeing data center announcements come with not exactly that, but direct savings and tangible savings for customers. I think it's going to have to be part of the solution. You want to build a data center, you've got to make promises and events to lower Just.
Put a data center next to Alexis's house.
Please don't do that. How to move my mic You know you catch me off guard sometimes. Tell my mic is all the way to my right.
So Andrew talk to us about renewables. You talk about natural gas. We got a lot of that gas in the United State. It's not about renewables because we've got an administration that is less supportive, we can say, than maybe some other administrations. How does renewables fit into this?
So the cost of new gas turbines has more than doubled in a very short amount of time. It's nearly tripled in three or four years now. And at that level, solar is the cheapest form of electricity. It's intermittent, so it doesn't run around the clock. It's not dispatchable, so it's not exactly the same product. But it is really affordable today, even with tariffs and kind of the protectionist policy that's raising prices. It's got to be part of
the solution. It can also be built a lot more quickly than natural gas.
I kind of feel like the solution to energy demand, if we listen to all the piper scillers and the data center people, it seems like we're going to need everything absolutely, including nuclear. Talk to me about what you think is a reasonable nuclear go to market strategy.
So I mentioned the cost of natural gas, which went from about a thousand of kilo lot four years ago to over twenty five hundred today nuclear is as well over ten thousand as best we know, and we really don't know, so it will absolutely be a part of the solution. I think it has to be. But it's quite expensive and there's a lot of risk involved in that.
Is there Gougey like it with all your experience like it? You know what was it? Symbols D dominion? Sure, dominion? Yeah, the big utilities, how do they manage the pressures that people face? I mean, forget about Great Britain right here, it's terrible. We just did that in the last hour. But do the utilities, like do they understand the pressure people are under?
Absolutely? I think they're doing the best they can. I think quickly they're figuring out ways to use data centers and the opportunity it presents to spread the cost over more over the right days, So spread the cost of those wires over the new customers.
Okay, I got one final question. It's critical. N y U Stern was the first people to got behind me. They're the first people that advertised my act. What was it like your first day at NYU Stern. I was sort of shocked by what I saw the rigor was Oh, is that what it felt like?
Coming from a town of about five or six thousand people in Massachusetts, My first day at NYU was a bit of a shock.
Diversity of.
My classmates, the side of the city. It was a shock, but an exciting one.
Very good. Please come back, really really, I love it. Andrew Gilbert, that why you stern?
He's with the Energy Capital Partners.
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 Listen on Apple, Karplay and Android Otto with the Bloomberg Business Up, or watch us live on YouTube.
Walter Todd, president's CIO at Greenwood Capital.
Who for years has made pimento sandwiches in Augusta, joining us now from the south is a say, how far are you from Augusta?
So Greenwood is about an hour due north of Augusta.
So you've been there zillion times?
Right, I've been there a few times.
What do you like tell people? Are you one of those people?
Yes?
I am, and I prefer the chicken sandwich to the pomena cheese, but the eggs old is also very good, so it's all very nice.
What's your most magical experience?
Well, Tom, interestingly, I actually got engaged on the seventeenth t.
In twenty.
Thank you Alexis for to don't you You got engaged in the seventeenth t Yes, sir, stopping people.
People were looking around thinking what's going on?
But Paul Walter Todd the Greenwood Capital Walter.
What's the conversations you're having with your clients these days? We've had six seven weeks of these crazy black Swan event in Iran. It's kind of pushed the markets all over the place. How do you communicate to your clients in that kind of environment.
Yeah, I mean we try to be proactive and so you know, our job is to worry so our clients don't have to.
So I do quite a bit of worrying.
But so the conversations, you know, especially given the market is back to basically where it was before this all started, which we I know, we can talk about more, but so the conversations haven't been you know, to you know significant or you know, people aren't that concerned, just you know, given the dynamic of the market, just you know.
Paul continued, but just to observe, I looked at a couple growth mutual funds yesterday. The rebound, Paul, in the last five days, I don't think it's in the zeitgeist. It's been extraorda dinner, it had been.
And Walter, I mean, I guess the question for a lot of folks is where do we go from here? I mean, do we think about, you know, some of these growth names that have been such star warts for this market for as long as we can remember, or do we kind of embrace that rotation we saw a little bit late last year earlier this year into maybe some more value names, maybe some more cyclical names, maybe small and MidCap.
How do you think about that?
Yeah, I mean, first of all, to set the stage right, you know, from pre war to to now.
Right, So the ten year was it four Now at four.
To three, Oil is at sixty six an hour, at ninety eight GDP growth was estimated at three percent in the first core now at one point three percent. So the markets where it was, but a lot has changed for our portfolios. We think it's a balance of the two things that you outline, So it's having some defense and offense. It's having exposure to some of those big names, and by the way, the valuations on those have gotten very attractive.
You saw the price action at Amazon yesterday. I think that makes sense.
But also having some exposure, as you said, to those equal weight type names energy for example, we were iyres of energy on the weakness on Wednesday when oil came off real hard for new clients and new money as an example. So I think you've got to have, you know, balance in the portfolio. I think this is a time, as I say, the dual mandate of a CIO, you know, maximize returns while managing risk. I think you want to skew to managing risk right here, especially given the rebound.
Does that mean maybe leaning a little bit more towards fixed income? I mean you can sit there at a two year US government treasury three point eight percent here, or do you take credit risk on top of that?
Yeah?
I think so what we've been doing in our fixed income portfolio is shifting, you know, reducing credit credit exposure a little bit. So we were two three years ago where eighty percent credit. Today we're about fifty to fifty. So the spreads have near they did widen temporarily but have come back in. So Yeah, we think fixed income can be a very important part of a portfolio. You kind of you're going in at four and a half to five percent.
Depending on that. You know you're going to get that at the end of the day.
Tell me about the repricing, Meg seven. I mean, we're into Friday, we're going to play Friday music and five day work week, and we're just sort of slogging her up here. It hasn't been more I think it's been a cold spring, but you know, maybe do we get eighties this week not next week?
Very chilly this morning, yeah.
Snow fit Avenue. But you know, I look, Walter tut where we are, and the thing that I noticed is a repricing of tech. What do you do with that? Is a responsible wealth manager?
Yeah, I think I think it's a good you know, again, to the extent you don't have exposure to it, I think it's a good time to start legging into that. I mean I was looking this morning. Amazon trades at
you know, fifteen times cash flow. Microsoft trades at about the same multiple of cash flow, not free cash flow, and that's a debate, right, They're spending a lot of money on free cash flow side, but still, I mean those those have come down quite dramatically, Microsoft in particular, but Amazon as well, so we would we would find those attractive.
Greenwood, South Carolina.
I'm looking at the map.
Where do you fly into?
Well, you can fly into Greenville, which is about an hour north, or you get fly into Columbia. No, you don't fly into Atlanta because Atlanta Airport is a disaster.
Yeah. Where are you guys?
I mean hopefully, Yeah, we're an hour north of Augusta to the.
Paul thinks so much for bringing us up to the Carolinas. You know, we talked to people from Columbus, Ohio. They're surrounded by budding data centers. Yes, I'm assuming maybe maybe not you are you know, everybody's retiring to the Carolinas.
Of that?
Is AI good for you down there?
Yeah, it's a great question, Tom.
I mean Google's actually made a huge investment in South Carolina to build data centers towards the lower part of the state. So we are you know, some would say benefiting from that investment. Obviously there's a debate on you know, the adverse consequences of that, but yes, we are benefiting from AI. We are benefiting from people moving out of other parts of the country into our part of the country, manufacturers coming in there.
You BMW has their North American.
I mean, everybody left at BMW and made South dumb South Carolina jokes. And it's been enough humly.
Successful, right absolutely, and the ABOA is there all.
The execution of it. I had the seeds, ye see. Treated somebody's moving from California to Phoenix. They just announced it yesterday.
I know.
I just ordered the home of my new BMW and it's getting built as we speak in your backyard.
You got to come through the racetrack that it's really fun to do. The driving course.
We got to get down there.
Well, there's a lot of that. I mean, a Lexus is thinking, are you going Western East Carolina? Have you figured out?
I don't know yet.
It's still it's out for debate. But you know what, speaking of this bmgby of course, there's one in upstate New York that that my husband did and just raved about it.
It's fabulous.
It seems really cool.
I get myself behind the wheel.
Your clients want to be an alternative investments. They don't want private equity, private credit, hedge funds, because I hear so much more about that from all right ri I A's around the tuntry.
Yeah, so our client base not so much. But we are kind of, you know, talking to the more about that. About adding exposure. I think alternatives is such a broad term, right, and you are you adding alternatives to goose your returns? Are you adding it for diversification purposes? And that's an important distinction that you have to have.
Okay, we got to run do the news and catch up on what's going on the Eastern Mediterranean. When you get out of the car at Augusta, what's the first thing you do when you're there?
You can put your phone away because you can take it in.
You just leave your phone in the car.
Yeah you can't. I mean that you can't get through security with the phone.
Yeah, So market should professional golfer got tossed a couple of days ago.
We should have a Bloomberg Yeah, exactly, Absolutely well, Joey Walter, thank you so much.
This is the Bloomberg Surveillance podcast, available on Apple, Spotify and anywhere else you get your podcasts. Listen live each weekday seven to ten am Eastern on Bloomberg dot com, the iHeartRadio app tune In, and the Blue bom Berg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal