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Terminal, and the Bloomberg Business app Lots going on here in particularly gold pretty through twenty three hundred.
What do you make it? Gold?
It's just an extraordinary here. I mean it's only three China.
I'm with Rebecca Patterson.
I mean Central Backs've been buying a gold channeis I guess why.
We get a brief here into the blur of our labor economy over Thursday and Friday. In the markets, equities, bonds, currencies, commodities, Rebecca Pattison joins us for years with Bessemer Trust, with Bridgewater, and now about thinking about these markets.
Rebecca Classic you in your note you speak of a need.
For immediate humility. How do we get humility in this market? If you're Paul Sweeney and you bought Nvidia two years.
Ago, well, Paul, well done. We'll start off with that right now. What I think we're seeing that's pretty interesting is some broadening of global growth. Last year was all about the US being the engine, and now with the constant stimulus efforts by China, albeit focused on manufacturing, and that's trickling into Europe, we're seeing some very small, I don't want to overplay it, but green shoots in Europe. Even German confidence data this week came out slightly better
than expected. And of course in the US we're seeing a pickup in manufacturing at the margin. So when we see a broadening, what it tells us is that we're going to see some slight shifts in preferences among investors. US consumers and investors will have more confidence taking overseas risk, especially with a big valuation discount overseas versus the US. We'll tend to see more cyclical assets do well, commodities, small caps, will tend to see less liquid assets do well.
Emerging markets, and we often tend to see the dollar go down in this environment as US capital goes overseas. The question I have Tom Paul is does it last and how big a move is this or is it just incremental? And that's where the humility comes in. So I still like having a lot of my capital in US markets. I think the US economy is likely to remain strong for some time. But I think if you want to make a trade looking at a month or two, take a little bit more risk overseas or in some
of these areas I just mentioned. This is the moment.
So, Rebecca, I'm just reading through your notes. I see a lot of discussion of China. There are a lot of investors out there. I think I'm speaking for them when they say, I just don't know what to do with China. Some people say it's uninvestable. Some folks say, you know you have to be there because of the size of the market. How do you think about it, Well, you.
Know, we have a huge amount of geopolitical risk unfortunately today around China, and we don't know if that's going to be status quo, get slightly better or get a lot worse. After the election. If Trump is elected in November. Based on what he's saying during the campaign and his advisors, we could expect tougher trade relationships with China, and so that geopolitical risk you can't write off. A lot of that has to be discounted in market valuations. At this point.
We know Chinese stocks, even though they're off their lows, are still cheap. We know there's stimulus partiction, particularly in infrastructure and manufacturing. But again, is it a trade or is it an investment given the geopolitical risk, I'd view it as a trade if anything, And then you can always go through proxies find companies around the world, sectors around the world that will benefit from this without having the exposure in the country. Oil is a great example.
Right now oil price is going up. Part of that is demand from China.
Yeah, I find the specific room demand there to be key. Rebecca.
I want to go all bust iner trust and you, let's say you got a short term vision of three years. I think a lot of our people watching and listening to us have that kind of perspective. And I got to be in the markets, and I guess the basic idea is their value in index, spread it out, capture it all, even if it's some form of adjusted index fund or is this where active management and stockpicking and really trying to figure out free cash flow works out.
Well.
What we've seen historically, Tom, is that when we're in a period with liquidity being taken out of the market, ie central banks tightening, quantitative tightening happening, that's when you get more dispersion within securities, and so active management pays off. What we saw in the last ten years this move in passive, so passive assets actually larger than actively managed assets. That's partly a function of zero interest rates, and I think that environment is behind us and will be for
a while. So I think we're in a relatively better world now and looking ahead, even if central banks cut a little, we're still not going to go back to zero. So I think we're in a relatively better place for active At the same time, there are spaces US large cap, global, large cap liquid government bond markets we're having. Some passive
exposure makes sense because the fees are so low. If you can get your market beta, your market exposure cheaply, and then you can complement that with active manage, pay a higher fee, get take advantage of the dispersion that we're seeing in the markets with rice liquidity and have a barbell approach.
I think what's fascinating, or Paul, is the adjustment here and the ten you're real yield two percent? Yep, that's that's like we're where we were eighteen months ago.
Exactly right.
We got one more squeeze, one more Rebecca, just real quick here, American exceptionalism we think about the economy, is that the thing here for you?
It has been, it's going to continue to be. And part of it, I think that doesn't get enough attention is private equity.
Now.
I know private equity isn't crushing it right now, but the US is more than half of global private assets. And we have an ecosystem that I think is going to continue to support that that keeps capital coming into our markets. You take that plus the depth of our capital markets. You have our education system, you have a
culture that supports entrepreneurship and innovation. I think that allows the US to continue to benefit, especially in technology, and I think that can propel the exceptional I'm at the margin as we look forward, it's ours to learn.
Yes, got to run, Rebecca Patterson, thank you for getting us started strong. Rebecca Patterson, of course, formerly with Bridgewater Associates. Markets are going to speak here in twelve minutes with claims folding economics into what we see for rate strategy, and Megan Swiber joins us right now with the Bank of America is where let's just get the land of Bank of America visualized.
Where's the ten year yield the end of this year?
You know, Tom, we don't really think it's going much further down. We have it at four twenty five. So even with a FED that's lining up to cut, we still really don't think longer term rates are going to rally all that much.
Folding claims. In the jobs report tomorrow, I'm sorry. I see nominal GDP well over Michael Gabe, and nominal GDP well over four percent, and I see numbers that say there's fully employed America.
Is that how you see it?
That's how we're looking at it, Tom, And you have a FED that's guiding the market to cut. But this real question, and what Powell was alluding to yesterday, is they really don't know the level that they're going to cut rates too. A lot of questions around what that neutral rate is. It's a really abstract concept, but it's this idea that the Fed's hiped so much already and we're really not seeing much of that cooling in economic activity, seeing a lot of great progress on the inflation front.
So that's what's going to drive the cuts. But really, at the end of the day, this could be a very different cutting cycle than what we've seen in the past when the FED is cutting to really ease conditions.
Well, given the FED, I mean, there's a lot of cross currents out there. One of the big ones is the labor market. We're going to get non We're going to get job as claims today, non farm payrolls tomorrow. How are you guys thinking about that?
So the labor market data is important, But really, at the end of the day, when we're listening to the FED, they know that the labor market data has been really strong, and so this question about when is it time for the FED to cut really comes down to the inflation numbers. Recently, these inflation numbers have not been great for them. They're showing some signs of picking up, particularly in some of
these cyclical components. So that really is what we think is going to weigh and move the needle more for the FED than necessarily some of this labor market data.
Well, we started the year the WORP function on the Bloomberg terminal is suggesting maybe as many as six rate cuts. Now we're three or maybe even less than that. I know, it's kind of lost a lot of credibility with some people that were function. How do you get how many ray cuts are we going to see this year?
Do you think so? House few would be of these seventy five basis points of cuts. So we see the Fed delivering that first twenty five basis point cut in June. But here's the difficulty. If they're not able to go by June, you get some questions around how close they can really begin that cutting cycle around the election season, and then you've also got base effects coming from from even just core PCE into the second half of the year.
The lead guitar effects are as bad as well. Megan, let me cut to the chase here, which is I would say, no, nobody has a clue where we're going, other than in the fixed income space. Is witnessed by the real yield. We see a buoyant economy. Give us a primer on what a two year real yield.
Signals ten year really yield is a nice investment opportunity for a lot of different clients, especially when we're looking at how much the equity market has rallied already. If you're worried about, you know, some of these downside states of the US economy, this is why people want to be buying duration. They want to be buying US rates. But the issue here again is that we're not seeing this very meaningful cool down in the US economy, and so rates are priced accordingly. We're having a lot of
inflows into fixed income. I mean, you just look at like at ig high yield spreads.
A lot of demands Bank of America.
I mean, what we're seeing is very strong inflows into fixed income funds across the board, and that's really helped support this tremendous amount of treasury supply that we see coming to the market, and also investment grade credit supply. There's been a lot of demand to chase these higher yields. The real question here is just how much are we actually going to be able to see yields fall if the US economy is staying so resilient.
When you and your colleagues at Bank of America, it's Merrill Lynch in my mind, I'm sticking with it. Thank you, Yeah, one of my employers, when you took me a great way.
Wait a minute, when you light up the major firms, can we say you've worked for them all.
And unfortunate they've all gone out of business after I've left, including Mery Lynch. So when you talk your hedge fund clients, sure, are they buying treasuries or are they shorting treasuries?
It's a mix, it's a mix. So on the macro side, right, you have investors who are taking on this year that well, maybe the Fed is not going to be able to cut it all this year, and that can really trigger a lot of concerns for exactly where that very important neutral rate is for fixed income. Is it two percent real yield or is it something higher? And so that really is a very big temperature check for whether or
not we can see yields continue to move higher. Is going to be the neutral and when the Fed is actually going to be.
Kind of they're at the Bank of America Palace. Okay, they're having lunch. They got pizza out.
Samit a Supermanian. Megan Schweiber Gabin shows up with three of his minions and all, and they're blah blah blah blah blah, and Brian moynihan walks in and what I know what Brian moynihan is going to say is, but this is what we see in the real economs. What do you forget about all the finance mumble jumble in the Georgetown financial malarkey. When you with Brian moynihan look at the real economy, don't you see a buoyant seed that's just irrefutable.
We do see that in a lot of the data that we look at, our card data for examples. Just a fun part of my job is we get to actually go out and meet a lot of our corporate clients at be of a too.
They meet their story so strange.
Besides just the hedge fun folks, right, So you can kind of get a good temperature check from that as well. And really the story has been a story of resilience. It's been a story of still needing to find people to fill seats in the job market, and it's it is quite strung.
I'll get none more in here, but the science here, Megan, is I just mad. Nineteen hundred dollars for an economy ticket to Europe, and he says the restaurants are packed.
What I love about Brian moynihan tom is when you ask him in an interview, Hey Brian, where do you think rates are going? What he says our rates people, Yes, they're going to the economy is going well. Our economists say.
He isn't back at Bank of bost He's very good at that.
So he always gives you guys all the props. So Megan here, I mean, I think one of the concerns for a lot of folks is people are saying this FED is already behind the ball, inflation is whipped. They should be cutting now. What do you say to those folks?
So the idea here is that a lot of the improvement that we've seen from the inflation backdrop so far has really been supply driven. It's been the story of the improvement in goods inflation, which was the easy part of the story. It was the part of the story that the FED knew was going to be more transitory. The big question for the FED, and what we'll see in the upcoming data prints, is whether or not we
see more of this cooling and services. This is very important for inflation to come in sustainably where they want it to. So you know, certainly a lot of good progress has been made. The big question is the confidence and prediction around that staying where it is.
Thirty seconds, we're all watching Final four with Megan swiber and somebody asks you, are you worried about the ballooning interest expense of the United States of America?
Are you?
So?
This is actually a very big part of certainly how we're thinking about deficits going forward. And this is really where higher for longer can become a big problem for the largest borrower in the world. If you're seeing rates settle above a three to four percent handle, that's above where we think the long run GDP growth is of the US economy and can contribute to a lot of
these financing costs. So it's a concern, especially in an environment where the head's not going to be able to cut all that much.
Neature to come bring loin hand with you.
We just want to hear him say well, Megan Schweibers says this exactly. Megan, thank you so much for the Bank of America Director US rates A strategy Jillian Tessa, shut up and read it. The book is simple, how to Listen when Markets Speak, And in classic Larry McDonald form, it's about yeah, the text, but also along the way vignettes do this, don't do that, little appendices and that that lead to thought provoking work. And that is a
hallmark of what Larry McDonald has done for years. Everything is always interesting in the bear Trap Report.
And then last year he wrote let me get the date out here.
I think it was in the summer of last year. It was like an article in the New Statesman in London. It was like ten thousand words, Lawrence McDonald, these are the forces that are putting a constant bid under the market. Every once in a while you write something that is so prescient you just go, damn, I hate him. I got to read these ten thousand words. Joining us now, Lawrence McDonald, great to have.
You with us.
It's not that you nailed the bullmarket like your Dnni or Akampora, but you said, there's this.
Wall of money out there.
How does that wall of money in your acclaimed essay, how does it fold into how to Listen when market Speak?
Well, you know, Tommy, think about passive investing, right and Jack bowlgels up in heaven, God bless him. But you know,
the vanguard origination of passive investing. Passive invest's starting with the best of intentions, the best of intentions, but at some point passive becomes a little bit more evil because there's thirty five trillion, at least thirty five trillion time to the index S and P. And so when you have a stock like in Nvidia that's now become five percent of the S and P five five percent, and
it's trading eighty percent above it's two undred day moving average. Meanwhile, you know, the energy sector as a whole is only three percent of.
The S ANDP.
And so what happens is at some point, too much money is in passive investing. There's not a lot of thinking behind that, and it gets very crowded in what we call herdy in other words, right like a herd, and it creates more distortions on the upside, and it will create more distortions on the downside.
Okay, somebody like Cliff Astinus, who's smarter than me, you know, they're basically apoplectic about the interior dynamics of the market. Years ago with Lehman, this is what you did. And my answer is when you wake up in the morning, what does Larry McDonald apply from how to listen when markets speak over? I just want to get to the end of twenty twenty four. What's the dynamic you're using right now, Larry to analyze this market.
Well, you know, as a former Lehmen trader, our first book was a New York Times bestseller and it's done pretty well. It's in about twelve languages. But I tell my wife once a month, Tom, if we sell a million books, we'll break break even on our Leman stock, right, So in other words, you know, it's it's been a long road. But the lesson from this book is that
the Lehman collapsed. The response to that was a four trillion fiscal and monetary response, four trillion the response to COVID So far it has been all in about sixteen trillion fiscal and monetary. Fiscal and monetary response. So everybody's in at twenty ten to twenty twenty portfolio. In other words, everybody's in that kind of disinflation regime portfolio, which includes a lot of growth stocks. It doesn't include any hard assets,
it's all financial assets. There's twenty two trillion TOM in the Nasdaq one hundred twenty two trillion, and there's very little money in real hard assets bitcoined overall. Most of the money is in what we call financial assets. It's bonds and growth stocks. But in an inflationary regime that is sustainable, and that might just happen after a sixteen trillion fiscal and monetary response, you probably need an entirely
different portfolio. A twenty twenty to twy thirty portfolio is going to look a lot different, a lot different Tom than a twenty.
Twentyfolio, exactly. So, Larry, the book's incidled how to listen when markets speak? Boy, what are the markets telling us right now?
Well, right now, we have a tremendous amount of capital that's moved into certain spots, and volatility is low, and there are opportunities really in if you look at not just gold and silver, but look at aluminum.
Look at al.
CoA ol Co equity is moving I think about sixty seventy percent off the lows, right, and that's from the since the fourth quarter. And you've got oil and gas companies making new highs in the XL. So I think, what's happened with the market's telling us is that there's a migration of capital that's starting. Capital is moving from
financial assets into hert assets. And if Powell is truly on this dubbish crusade in an election year as to lean a little bit dubbish relative to where inflation is, then I think the market's telling us that you want to start moving into you know, your aluminums, your coppers, and your heart asset equities.
So Larry, I mean, I guess you know a lot of folks were sitting here and we're looking at this the S and P five hundred. Let's just take that from October up about twenty five percent. Here is a market ahead of itself. Here do we need to get a little bit more cautious here?
Well as a whole the index. You know, what we argue in the book is the everybody's four oh one K in the United States has been hijacked by about twelve companies, and everybody knows that. And it's nice when it's rolling along, but it's more like it's more like
we're heading toward a transition. You know, I think the market is clearly over valiant relatives too, Okay, you know, in a sustained inflation regime and sustained inflation regine is going to put on a lot of challenges to high valuations, and it's going to also move money into different spots. But yeah, I mean I would be very cautious here relative to you know, when the street's falling over all
over themselves. To upgrade stocks, you typically typically want to take the stuff, some equity off the table.
I want to get you back. We're out of time, but I got thirty seconds. Really important.
How should our listeners and viewers use the financial media you've been hyper critical? How should they use Bloomberg surveillance and other enterprises like the Michael bar Show.
Well, I think you know overall the financial media, pay attention every day, have passion in My goal with this book When Markets Speak is you can get everything in life that you want if you just help enough other people get what they want. Pay attention, listen to Tom Keen every morning. That gets you stronger and smarter, and then make your allocations portly book.
It's Sarah, be sure we get young McDonald back again. Lawrence McDonald, thank you so much. How to listen When Markets Speaks?
Now I'll look at the front pages. What's making news around the.
World Your daily roundup of today's headlines from major publications, Bloomberg Surveillance, The Lisa Matteo Show.
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What do you have, Lisa?
All right, we're starting with X. This is the Musca's X. Those blue check mark say come back to some I keep saying Twitter, sorry, execcounts. It started last night. Okay, so they gifted those premium subscriptions to the service that comes with those blue check marks. So must post it back in marks that it's gonna happen, and apparently last
night it did. Who gets these which that counts, yes, with over twenty five hundred verified subscriber followers, so not just a follower like Joe bow Blow from the Bronx like you have to have verified subscriber followers, and then it counts with over five thousand of those same followers will get Premium plus for free.
Not everyone you know.
They're happy about it, don't you know. They don't want followers to think that they're supporters of Musk. But I do want to point out that mister Tom Keene does have the blue check mank nice.
Of course he does.
I wake up this morning, the dogs are mental about the wins her wins were having. And there's Olivier Blanchard, the giant of French economics, and mit they gave Olivier a blue check.
He's like, loan you know this?
And then I think Bradmo has one now, Joe Wisenthal so, and we're waiting for Lisa.
I don't have.
Either.
It's a sign of desperation.
Well, they're trying to get those users, keep the popular ones, you know, they still want people to you know, perform on.
The I'm not going to mince words, folks.
I would love to find a way to exit X because of the garbage that's in my feet, the inappropriate stuff.
That's in my feet.
Have you joined threads?
I tried it for two days, as did everybody else.
It's like it was like a committee formed it. These things have a real personality, like Lisa Matteo.
Who elon deserves a blue star next.
Okay, uh, this one is interesting. The Estate of Committee and George Carlin, you know who died Back in two thousand and eight, they yet filed the lawsuit against two podcasters who were allegedly using AI to create a new carl In comedy special that was released on YouTube. Well, it turns out they reached an agreement to end the lawsuit. The podcasters will remove that AI generated special. They're going to stop using his image. His name is likeness unless they get permission.
What do you think.
I think it's artificial intelligence, Tom, It's kind of one of the risks to artificial intelligence. Artificial intelligence can create the video, the audio, everything, and so if you're a content creator, think about the writers in the Hollywood you're really concerned about that.
Keith Grossman called Keith Grossman folks Generateloomberg Surveillance and he was hugely formative in what we do here and a great advisor as well. Keith Grossman called me up and he's doing his fake Tim Keen voice and he's.
Like, Tom, we don't need AI. We could just have kids do it. I don't. This isn't going to be out of control fast.
Yeah, And that's why this is a big thing because it's advancing, like you know the AI deep fake technology laws, so it's starting.
To do it.
So the car to state one, Yes.
They agreed to settle, so so yes, they reached an agreement to end that lawsuit. So it's a step in the right direction.
That's what.
Are you doing well, street journals.
So I don't know if either I had braces growing up and I hated it, but.
Your teeth are teeth are amazing, thank you mom or dad.
Yes, but now the nerd look, it's cool again because kids or gen z are getting fake braces, so they're cosmetic braces. They buy them online, they apply them on home with with scissors and glue. I'm sure their parents are not thrilled about this. It's a trend on TikTok. But apparently a lot of licensed dental professionals are installing these fake braces. So they have pre made wires brackets. They put them on your teeth with nail glue. It doesn't sound right. I don't know how you get them off.
I didn't get to that point of it, but it's this new trend going on, and I don't know, but orthodonts are saying it's not good. The risk can include tooth law, even gum recession.
This is nuts.
And there was one Orthodonis guy up in Massachusetts.
I bought him a new heayroo.
Yes exactly.
He put like fourteen more feet on the sailboat due to the offspring's hurrizica.
My daughter six grand done none.
Thenwards you have the plastic thing after the retainers.
Yeah, they're under the couch with the airba.
My nineteen year old just reached out to me and said, can I get invisile lined? And my answer was no, because I spent that six thousand dollars on the braces and you did not wear the retainer when you're at fifteen or sixteen when you should have. So now you're exactly, we need to rent.
We need to rent the Irish guy to come over exactly. Yeah, yeah, are you done or is there one? We got one because it is landed.
No, this is a medical breakthrough.
Okay.
The patient you remember hearing about it, transplanted pig kidney. He's headed home. He's been discharged from the hospital after surgery. The doctors is at Massachusetts General Hospital. He's sixty two years old. His name is Richard Slayman. He is working fine. They say the kidney is producing urine, removing waste products, delivering the body's fluid, so it's doing all the things
it's opposed to. The guy even says he left the hospital with one of the cleanest bills of health he's had in a long time.
Wow.
So there's you know, there's still no word if you know, anything can go wrong after that, but it's this step in the right direction of Wow. I mean, cross species Oregon transplantation could become a thing.
We had Sam Fizzelli in studio yesterday Bloomberg Intelligence. Did you Yeah, he does all the farmer stuff, and he just said they're making amazing breakthroughs and cancer, drugs and dementia. He's heading out to a conference in San Diego this weekend where they have some major major breakthroughs in dimension Alzheimer's and things like that. So he says the next ten years are gonna be really, really big for medical breakthrough.
One night, we had the North Spring in MGH, and to make a long story short, everything worked out fine due to the wonderful people at the Massachusetts General Hospital and as wandered around the halls.
At three am, board staff.
Everybody's finally sleeping, and I wandered into the pretty much extent eighteen forty six ward where they first used ether, and that was at MGH in America.
They were doing it in England and all.
That, but it was eighteen forty six was the first public demonstration of what we all take for granted today. It's really spiritual, mass channel, very cool what they're doing up at MGH, and of course some of the other great hospitals. This is the Bloomberg Surveillance Podcast, bringing you the best in economics, finance, investment, and international relations. You
can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg
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