Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at seven am Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube right now.
A joy to have an extended conversation with Kenneth Grogoff of Harvard University. The scope and scale of his literature, from textbooks the classic Maurice Sobsfeld of Berkeley and International Economics, over to every effort Carmen Reinhardt and him changing the dialogue of America with this time is different. I love the subtitle Paul eight Centuries of Financial follow We've enjoyed them all. The bravest book I've ever seen in doing
this act. The Curse of Cash was an exceptionally brave book, going ahead out against corruption, crypto and negative interest rates. And now we celebrate. And it is my book of the summer in economics, Our dollar, Your problem. It's a bright green cover, Ken, I probably Natasha picked out the green cover. Kenneth Rogoff joins us right now, Ken, what a well timed book to say the least is the US dollar resilient.
Well, it's resilient, but maybe it might not be as dominant as at once was.
I look ken at the scope and scale of your work, and everybody dovetails it in to your look at our fiscal space. We were just talking with way Leah Blackbrock about this exploding debt, these exploding deficits. As you bring out our dollar, your problem is it the same old story of angst and worry about the debt and deficit? But we move forward or are we at a tipping point?
Well, I mean, the book is a sweeping history of the rise of the dollar after World War Two, all the competitors, how hard it is to live with crypto and many other things. And by the way, I hope I've made it entertaining enough that people will get through it. But certainly Dad is a big piece of it. If we think of the future, and Tom, you've had all
kinds of people on the program. I remember you had Olivier Blanchard and Larry Summers and many others who were convinced that the interest rates were for a long time, we're just going to keep declining forever. So Dad is a free lunch that was Olivier's American Economic Association presidential address in twenty nineteen. It's a great piece of work,
but I'm not sure it's a good prediction. I've been arguing for a very long time that they're real interest rates, something about the ten year rate, not the Fed funds rate, that real interest rates have some convergence to mean, reversion to mean, what do you know? And that's happened. That's what the panic about the debt is now. It always was going to happen. So I think people had their head in the sand to think that we were safe from that. Maybe AI will save us, but I don't
think so. That's why the debt's filing up. Our interest bill has more than doubled, it's about to triple, and it's more than our defense budget now. So yes, that is, and that and the deficit. And by the way, I'm just amazed at how few people really understand deficit and debt aren't the same thing. I mean, I know most of your listeners do, but you'd be so surprised. You know, obviously, the deficits, how much you're spending, and the debts, what
your credit card bill has gotten to. And I think the problem with the United States is not Trump, and it's not Biden. It's not the right, it's not the left. It's the American people right now just don't believe in any need for reigning things in and until we have I think another inflation crisis or some kind of crisis, I don't think anybody's going to be able to achieve that.
Kenneth Rogoff for this and extended conversation Yale University Press called me up to DiCaprio is playing Rogueff in the movie coming out in twenty twenty seven. I need to sell the book, folks. It's wonderfully brief, but very deep, and it's wonderfully, wonderfully accessible. This is the book you throw at your brady college kid this summer and say shut up and read it. He opens and this goes back to Rochester, New York, when he and I used
to go up to house the guitars years ago. He opens with the economist Grace Slick and Jefferson here played in Sarajebel. This book is accessible when you got Jefferson here Blaine in the first key pages.
Paul Sweeney, Professor, I think most of our listeners, most of our viewers over the last several months have kind of brushed up on their knowledge of tariffs. Here we've all tried to figure out what it all means. How do you present the concept of tariffs to your students.
Well, I mean, I think we when we teach tariffs, we're not necessily teaching crazy, wild tariffs going all over the place. We teach suppose country A, but it's a five percent tariff on and country B retaliates by putting a five percent tariff. And frankly, if that had been all along, what was going on. It's a tax. I don't agree with it. I don't think it's well conceived, but you know, it wouldn't be the end of the world.
We can cut other taxes. What has been, you know, so destabilizing to markets was this idea tariff could be used to solve every problem. I just came back from the UK. I don't know if you followed this that Trump wanted the British to have more free speech as part of his condition for releasing tariffs and things like
that all over the world. And you know, I think one of the things that's probably cheered markets up is the I think one of Trump's better qualities is he is a pragmatist, and when something doesn't work, he finds a way to back out. And I think everyone sees that's what's going on. He played some clips of him from a cutter recently, him using the word beautiful constantly. Tariffs were beautiful. It's going to be a beautiful thing. No, it's not. It was a disaster. It's probably the worst
policy in my five decades as an economist. But you know, even though he won't admit that it was so dumb, he's retreated, which is smart, and so I think that's probably why the markets are cheered up.
The markets are cheered up, a professor. We've seen the stock market RaSE, you know, most of the losses here were now flat for the year. But we haven't seen that in the dollar. The dollar's really taken a pound here, a pounding here. How do you feel about the US dollar here?
Well, it's up a shade in the last few days. I think I think the dollar's way over valued. So not for the reasons the administration saying it's just very high. It's not high because the dollars a reserve currency, the mar A Lago plan, the dollar has been very low, and the dollar's been a reserve currency. You know, throughout this the dollar goes in roller coaster waves. It's on a super high. I would have to go back to two thousand and two and before that to nineteen eighty
five to see anything like it. And what do I mean by high, I mean looking at the purchasing power of the dollars. So very simplistically, you know, think of yourself as a Japanese tourist in the United States or an American tourist in Japan. You're going to have very different experiences right now than you might have, you know, even ten years ago. So Japan's had almost no inflation.
We've had buckets of inflation making prices high. And yet and yet the dollar's gone way up against the end, and the Euro has had a bit of inflation, but less than us. And again the dollar's gone up against zero. It's very hard to predict exchange rates. If I go back to my long career, more than forty years ago, my first really well known paper was about how hard it was to understand, much less predict exchange rates. However, over the years, an exception to that has become clear
when something's way out of line. The end right now is really low, the dollars really high. Over a couple of years, it's going to come down. So I think, you know, Trump may take credit for it. I wrote a piece about this a year ago. I said, that doesn't matter whose president, gravity is going to bring the dollar down.
Ken Rogoff with his folks who celebrate my economic book of the summer on YouTube, take a look, Break Green cover our dollar, Your problem, Kenneth Rogoff hugely accessible for those of you on Bloomberg Radio. It's just simple. It's very very readable, and I want to go to one of the chapters where there's a bit of heavy lifting. Ken Rogoff, you go back to values you started to staying in France. Who gave us the phrase exorbitant privilege?
Berry Keon Green has written about it many other worthies is well, are we losing our exorbitant privilege? Are we losing the American advantage we've had for decades?
Well, I think it peaked about a decade ago. By my reckoning. The footprint to the dollar, by some measures, has risen, but I think by really some key ones. In particular, the one I look at is how foreign central banks regulate their economies and their currencies against the dollar. I think it was in decline, and my book argues
at the end of it. It's not the whole book, but my book argues at the end of it that in addition to the fact that China needs to break free, that's just happening, and Asia is half the dollar block, so that lowers our footprint. The fact the Europeans also hated and if they hadn't screwed up by bringing Greece into the European the eurosystem way prematurely, the euro might be doing better today. And that's all back on track.
But I think the biggest problems are from within, which is that our deficits are out of control, and I don't think we're bringing them under control. And I also feel fatal reserve independence from both the left and the right is under assault. Tom, I want to go back. I'm so glad you noticed Grace slick by the way I bring it in early to show how much other countries love the United States and yet they hate the United States. And I'll mention you know I was seventeen
years old. I think when that I was in a bar in Sarajevo people are singing to the Jefferson airplane and I was completely oblivious because I just was so close minded that my best someone who's become my best friend in chess, was actually giving chess lessons to Grace Slick.
We should mention here that mister Rugoff inter Ut and we all knew this in Western New York was esteemed in the effort of chess and has kept at it for years and is well. His affiliation with one B. Fisher is noted from his childhood. Oh, let's do this, Paul. Let's jump in here with a couple more questions with
Professor Rogoff. We're going to go to news on an incredibly busy day rebrief you on the markets, and we're thrilled to Ken Rogoff will join us on the state of America in another section here in a moment.
Paul Sweeney, Professor, I think most of our listeners and yours grew up at a time where globalization was the backdrop for economically.
Thank you for bringing this up.
Where is globalization over? I can't think of a world where we're not just thinking on a global basis about global economics, global politics, global defense.
Well, we're definitely in a different era than we were. I mean, it had been changing before Donald Trump. So actually, economists referred to the period up to the financial crisis two thousand and eight two thousand and nine as the period of hyper globalization. And then it really did slow down a lot. Trade growth, slowed down on other measures,
and you sometimes maybe heard the expression slobalization. And now we're definitely in retreat, introducing the tariffs, the war, and the Ukraine, the great cyber Wall of China that's going up, and I think that has dramatic effects for the global economy, for interest rates, for inflation. It's a big thing. I had a paper Brookings just over a year ago of a couple of papers with some very talented young co
authors Hassan Afruzi, Marina Hollick, and Pierrard. They joke that they don't think they're young, because the two of them are in the mid forties. But I think they're young. And Piers on Trump's consul of Economic Advisors now, by the way, and we argued that this period where it was easy sledding for the central banks because globalization made it easier to deliver good outcomes it's over and they're in a tougher period.
Kind I want to get this in. I think it's too important as we wait for Michael Barr and then it's kind of throwing off from the great moments of my act. Was you and Joe Stiglitz together in Davos. I thought it was a miracle to get you two warring over the years in a collegial way. Joe Stiglitz, change the dialogue as you did with this time is different with our discontent over globalization, Ken Rogoff, what does our next globalization look like?
I mean, I think we're going to go through a period where we're breaking up more. Donald Trump initiated it. The Chinese we're doing a lot. So I think we're in a period of retreat. I mean, it's very political. It's hard to know. I think it'll unfold slowly. The princident. Historic economic historian Harold James actually wrote a book, I think around twenty ten, noting that globalization goes in ways,
goes off, that goes down just because it's booming. We've had periods what that's happened before, and this kind of populous discontent. He it's normal, and you got a retreat. I think the long term is more, but over the next couple decades maybe not.
If we celebrate my book of the summer, our dollar your problem. And as you know, always with Ken Rogoff, there has to be a money chapter on our gross debt. The money chart is on page two sixty six, near the end of the book, and it is on the all in debt. He and Carmen Reinhardt codified this a decade ago, with this time as different. Ken, that chart is absolutely jaw dropping of our gross debt. I guess full faith and credit, corporate and hidden debts as well.
Is the rest of the world concerned about our gross debt?
Well, excuse me. The United States accounts for roughly half of all advanced country debt, we public debt, we account for more than half, perhaps of all corporate bonds. So we're big. And I think what's hitting the United States now more than the you know, gradual loss of exorbit and privilege. What's hitting us is the normalization of interest rates. If you're the world's biggest debtor, it hurts.
I mean, I look Ken at the real yield. I say, Ken in a simplistic way, as we look in the Bloomberg terminal. I look at the ten year real yield as a keel absolutely, I got it. I got a C plus. He gives out He's like Steve roach a yield, he gives out no aser bees. I'm looking Ken rogoff in.
A ten year you must be taking another class than mine.
But anyway, I look at the ten year real yield two point one. Where is a rogue off normal ten year real yield?
Well, it's very volatile. It'd probably think of one to five is where it'll settle after all of this. I mean it had gone to minus one. There is a slight trend, although it's a little bit hard to know if it's up or down. What was so like crazy after the financial crisis is the ten year that you're looking at the real inflation adjusted interest rate. It fell by more than three hundred basis points, even three hundred and fifty basis points. And that's when Larry Summers came
out with secular stagnation. We're never going to grow again the interest rate. It's always going to be low. And all this stuff about data is a free lunch. Modern monetary theory, I argued way back when it was happening. That this is normal after a financial crisis. Don't think that this is going to last forever. Happened in the Great Depression, interest rates collapse, it happens in many countries in the in the aftermath of a financial crisis. So
I mean a lot of what's going on. It's I think the most that chart you're looking at, it's only one way to capture the real interest rate. There others, But I think it's the most important variable in the world if you believe that it's going to stay on the higher side, as I do. You know, debt is very high, and it does gradually push up interest rates. The whole world, for better or for worse, is remilitarizing. Populism. Deglobalization,
which we discussed earlier, also pushes up interest rates. All of these things. I think we could easily see the ten year at that now I'm talking about the nominal, which is now for four or something like that. We could see it at five, five, six within a couple of years. Given how things are going. There are some very smart people, young economists, who think, nope, this is a aberration. We're going to go back on that downward
ride and debt is a free lunch after all. That is seems to me a very risky thing to bet the farm on.
Well, that's I mean, professor, that's what a lot of folks will come into the studio and tell Tom and me that, Hey, as long as investors, both domestic and international, continue to show up and buy us treasure securities, there's nothing to worry about. How do you respond to that?
But let's not.
Confuse that with what interest rate they want. So, yes, the market's liquid, but the interest rate we're paying it's been rising, and I predict it's going to keep rising. We're not going to have an Argentina situation. We may commit Harry Carrie, you know, somehow and refuse to pay a debt. We can always inflate, we can use financial repression. My book discusses the stuff at length. An that prints its own money doesn't need to default, sorry about my coughing,
doesn't need to the fault. But of course inflation is a form of default. We had an access ten percent inflation the last few years, maybe twelve, and that was a partial default on us dead in real terms. So I actually think we're going to get something like that or even a little bigger over the certainly the next five to seven years is what I say in my book. I maybe would pull it back to four years now that I've seen the opening salvos of the Trump administration.
Ken, at the time, we've got left, I got eight ways to go here. You've been more than generous this morning, canceling all your classes, and they got you know, I want to talk about X ten and what Furman's doing up at Harvard. I want to talk about the state of western New York as a wasteland of a former industrial might. I got other things to talk about. Ken.
When you look at American exceptionalism in the path of our decade, in the past forward, do you see a continued American exceptionalism after whatever the tenure is of President Trump.
I think it was fading somewhat already in some dimensions, but peaking and others. I think we've hit the peak, and I think, you know, I don't. I'm not an investor, but I would say this is a moment to think about diversification more. I see Europe with its forced remilitarization, with its ketchup probably doing outperforming the United States. China not so much. But it's going to break away from
the United States. Thank you for mentioning Western New York as a wasteland, because I actually talk a lot about our joint hometown of Rochester quite a bit in the book. But I see certainly the dollars staying on top, but less on top. You mentioned Barry Ikbread. I mean he wrote and many of us thought twenty years ago that we were headed to a more tripolar world. I think we're back on course to that. We'll lose some of our exceptionalism. It will hurt in national security too. There
will be other pathways to do transactions. Our sanctions won't be as effective, our spying won't be as effective, and a number of other things. I think Americans are going to happen to adjust. But I think we're going to have a bit a crisis of some sort first, because no politician can rein it in until we do that.
Have one ken I've failed. We didn't talk about bitcoin in your magisterial The Curse of Cash. You got to come back at some point here in twenty twenty five and give us an update on your classic book on what I'll call your cryptic book on Crypto. Kenneth rug Off my book of the summer in Economics, Our Dollar, Your Problem. For those of you in radio, I'll get it out on Twitter and on LinkedIn today. It is a celebration of his academics for decades and also a piercing look forward to our debt.
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.
There is no one, and I mean no one we speak to who viscerally understands the cadence the culture of China, like Wayley of Blackrock, acclaimed in mathematics and her childhood in China and in Southern Asia as well. We're thrilled to the chief global investment strategists for Blackrock could join us this morning. Let me cut to my sort of theoretical sixty thousand foot view. What is the Chinese timeline? You've lived it, your family has lived it. Don't give
me this week. They're trying to get the labor they stuff. Do they just pause in delay in this trade war? Out? One year, three years, five years?
Well, certainly timeline is longer than the mid term in the US and the four year cycle in the US, which is why I guess they have longer time on their side as they engage in the in the negotiation. But the bigger picture is that as we kind of go through this period of policy uncertainty and negotiation back and forth, it's basically pointless to try to predict what the next step of policy making is going to be.
It has been very very hard, close to impossible. What is more rewarding is to try to appreciate what are the rules that cannot be broken, what are the immutable laws that cannot be broken, in order to gauge what the landing spot is looking.
Mutable rule for a totalitarian regime in Beijing, their labor economy, The hardcore foundational rule of China is to keep the.
People employed right, and that is the contract today, is the social contract. But another immutable law is global supply chain, deeply deeply intertwined global supply chain that took decades to build. One cannot rip it out just from one day to the next without deep consequences, which is what we have seen. It's not just a matter of inflation getting higher, going higher, prices going higher. It's a matter of access, you know, things not being available on the shelf, which is obviously
a problem. So I think these are the rules and and and constraint that ultimately helped guide the pace of negotiation and ultimately, in our review, will shape the landing spot.
Is the view? Is your view the view of black Rock that China wants to negotiate with US, wants to have an economic relationship with the US and the West in general.
Is that your view?
Or do you think they're willing to kind of go it alone a little bit?
What seems to have been the case is that both sides are incentivized to engage. It's a trait is bad for global growth, is taxflationary in nature, so decoupling suddenly
and thoroughly is bad for both economies. So that the willingness to engage ultimately led to kind of where we are and the economic rules that cannot be broken around that and foreign funding means that we're going to get to a place there is still reasonable for risk assets to tolerate, which is why we were able to stay risk on US equities in particular, despite the fact that we have had such elevated policy uncertainty.
We saw a lot of investor interest and dollars leave the US market in the last couple of months and go to Europe particularly a did you see that in your business and be do you expect it to come back now that we have the US markets kind of recovering a little bit.
The answer is yes. I'm both fronts. I would say, though, you know, people look at the fact that the dollar was selling off as evidence of investors losing confidence in
US exceptionalism. But I would say, you know, one thing that we heard from our investors and clients is that for a long time, international investors holding US assets have been somewhat quote unquote lazy with their currency hadgien strategy, basically leaving a lot of their US exposures unhadged because of hagien cost, but also because hadging for currency oftentimes
comes as an afterthought. But the volatility in the dollars so far this year has taught them to be more rigorous around their head strategy, which is in part why dollar has been selling off, because investors are hatching their dollar dollar denominated the US exposure a bit more rigorously. So it's not a sign what it cannot be interpreted just as a sign of international investment community losing confidence
in the US. I think there is still quite a lot to go for US exceptionalism, especially for US culprits.
Really, you're too young to remember this, but I'm sure Lawrence Fink remembers that the debt hysteria wrapped around Peterson, Paul Sungus of Massachusetts, Sam Nunn of Georgia. To bring it forward this time around, with the numbers I'm seeing and the legislation, are we finally at a point where America must confront its debt and it's deficit.
Yeah, that is the other immutable law that I didn't talk about in detail, that ultimately governed where we are now in the negotiation. Right, So, if you think about the dynamic of trade and that, if we want to close the trade deficits very very quickly, very very southernly, we're also shutting out the forum funding market by the same magnitude. And US government bonds a quarter of outstanding
that is owned by international investors. So if we shut down the forum market, international investors demanding quite a lot more compensation for holding US that, then we have a dead arithmetics that do not add up and US that is higher than the combined that of the rest of G seven. And it's a it's a very real and life issue that the government needs to needs to consider.
If US ten year gets to five percent, we're talking about an additional one hundred and fifty billion dollars per annum of that servicing cost, which will wipe out all the doage saving. So this is a big issue. I agree with you one hundred percent, all.
Right, So I mean we're gonna have to figure it out to companies.
I got the dollar.
Dollars not rebounded.
Dollar has not rebounded. US treasury has not rebounded. If you think about markets since April second, applet is more than recovered in the US term premier went from thirty basis point on April second for US ten year treasuries to seventy basis points right now. So that has no comeback down and dollar has not recovered, which means that corporates and companies are more exceptional in the US ware leave with.
Us with black Rock, we continue our discussion. Apple did a deal the other day for tranches. Don'tated the details in front of me. They made two phone calls, one to Black rock and one to somebody else sold the thing in three seconds. Is there basically in this topsy turvy world and insatiable appetite for debt? I mean, is any corporation, any government just yes, we'll take it. That is that where we are right now.
I think there's a difference between corporate debt and government that if you look the level of indebtedness in the US for government, just since pre GFC peerage level of government that was sixty percent, it's now over one hundred and twenty percent. And if we look at the equivalent for corporate exponancials, that level of indebtedness has basically gone sideways. So I think there is greater appetite for that from corporate, especially quality corporates versuss US government bonds.
What do you guys, how do you think about emerging markets these days, particularly China, just emerging markets in general, because boy, the world's crazy here. There's so much uncertainty about tariffs, about trade. I would think you'd had to be really careful looking at emerging markets.
Well, emerging market has a higher beta in terms of growth relative to the US, which is why when US policy trade policy was leading to kind of market volatility. Emergent markets were very much not spared right. But if we have a bit of a walk back, which is what we're experiencing right now, we could see a tactical rebound in this market because by virtual of the higher gearing,
higher higher beta. But we do want to be selective in emerging markets rather than rather than across the board, because there is no such a thing as emergent market. China is very different from India, that is quite a bit more expensive, very different from Latin America as well, and we prefer emergent market that more broadly than than equities because of the income.
I just looked at sign dollar. I just looked at Taiwan dollar Taiwan dollar. We clearly had a really unique four or five six standard deviation move. But is there stability on the Pacific rim around this? Just crazy news flow? Is there a bet you can make there on Singapore, a bet on Taiwan?
I think the Taiwan dollar episode is another example of the debt dynamics at plate right. Like if you want to shut off the trade deficit, forum funding all of a sudden needs to also decrease in a commensary way, and currency Hagien becomes a consideration that leads to huge amount of volocility. So we actually look to the Taiwan dollar episode as another case in point for why that immutable law cannot be broken. But it can be Taiwan dollar,
it could also be Mexican pestle. It's it's just immutable law that governs the pace and destination of negotiations. There are selective opportunities in Asia, Asian countries, Southeast Asia, we see it. Look at the China export data to the US significantly decreasing, but to the rest of the world, including reservation increasing.
But with all your sourcing, can you just say out they're down in one eight hundred Vietnam, one eight hundred Malaysia and saying we're running it through you guys. Is it just as simple as that?
Oh, we sort that in Trumpton the first term, right, like the connector country is benefiting. But I think you know that is now well understood, so that could be something that gets addressed in the ongoing discussions and negotiations. But yeah, connector countries have benefited, which is why their markets have also done well during the same period.
What do you folks at black Rock think about the US, What the US will do with interest rates? What will FED Chairman j Pal do for the remainder of the year. How are you guys baking that in?
Right now?
We're looking at one and most two raycuts this year, which is not too far from where market's uprising. The big picture is that we're talking about an environment where tariffs are still going to be effective. Tariff ray for the US average ten to fifteen percent, which is the highest since the nineteen thirties, and five times the level compared to the beginning of the year. Higher tariffs, higher inflation as a result of that, and potentially lower growth.
That's an environment where actually the fat cannot readily come to the rescue of the economy. So high rates for longer is our base case. But in addition to to kind of current lab is it.
Thirty you know whatever the ridiculous in nineteen thirty seven valuation here? Do you just assume we're going to have another tranch of tariffs coming lower because the market's going to tell the president what to do.
Well, what we have seen, you know, we have UK deal, we have the the posts facing off to China. Ten percent reciprocal tariffs have stayed in both cases. That's probably a floor rather than to potentially go lower from so our expectation at this current juncture is that the final destination is somewhere between ten and fifteen percent. It's lower than previously, you know, like high meet the twentieth Hi exactly.
That's the big picture. And the fact that mark is a jumping to incremental positive development is the excellent really the case, really the perfect case of behavior biers of anchoring.
Yeah, thank you, Salid, We're rolling it.
We got way leave from Blackrock and Co. We appreciate it from Harvard. Look at her.
I'm sure schedule today's book like everything, but she makes time to come in.
This is the highlight of my bas.
Thank you, please, thank you so much. Don't thank you Wayley with Blackrock greatly greatly appreciated.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple Corplay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa Play Bloomberg eleven thirty.
Lindsay Rosser's age. She's had a multisector investing at Goldman Sachs with some tangible portfolio management as well. Could you manage money right now?
I do? Actually I have to. That's my job. So I am managing money right?
Are you doing it? I could not manage money here against the perspectus, against the mandate.
I think you could. I have faith in you, Tom, But what you have to do is when you have more unpredictability, I think the bar to leave your home base asset allocation is higher. And what I mean by that is we manage portfolios for all sorts of clients. We have a long term alpha objective and tracking error for all of them. And with that you can think of a home base allocation, the kinra structure of your
portfolio that should win over a market cycle. This is not a market in this moment where it pays to be dynamic. Trading policy is a losing game. And I think we've all seen that.
What do you do with equities here? We've had a dearth of equity analysis today? So I got to go there. I mean, I know it's away from your heritage, but what do you do with equities here?
I did start off in convertible bonds there was a twet convertible bonds. It's just it's hard. It's hard to leave where you start. But in terms of equities, I mean, I think what's going to be really important. It was the canary in the coal mine before Walmart and earnings tomorrow. I think you want to hear that to learn about what's happening with the consumer and what's going on with this backdrop of macro uncertainty and have the deals that have been I'm struck is probably the wrong word. Have
they made a difference in terms of tariffs? What's happening with input prices?
Oh, I'm giving a speech. I look out. Somebody asks a question and they say, what's the dumbest statistic on the Bloomberg terminal? You ready, Walmart forward pe thirty seven. I know that's just a single I don't get retail statistic.
I don't get that Tom's You know, whenever we have a Princeton graduate like lindsay, come in, I say, what is your go to sandwich at Hogi Haven, which is the best Hogies in the world in my opinion, she came back with a stellar response. A heart stop. This is a cheese steik bake. In eggs ketchup and hot sauce. How about that. I didn't expect that that came out.
At least one of those.
No, it's in macrobiotic, you know. So it's a little bit for everyone. It's cleansing, clensing pleasant.
That's all I care about. When I meet Princeton people, lindsay, what do you do here? I mean, how do you think about the markets today versus maybe January first, before we got into all this tariff's talk and all this economic uncertainty and companies pulling guidance and all that kind of stuff.
Absolutely, So what we try to figure out is what is the distribution of outcomes? Because if you think you can pinpoint the exact outcome of what's going to happen with the economy or the markets, you need to do us of humility.
Yep.
So in the beginning of the year, the left tail, so recession risk was small, and when we looked at valuations they were tight. They were in the tenth or twentieth percentile from a spread perspective. But it all made sense given how small that left was. What has happened with the more aggressive tariff policies on Liberation Day and yes, we've backed off. Since then, that left tail has expanded, and so it really has changed the game since then.
Now we're in better spot now because we have the ninety day reprieve, we've had the beginning of us UK us China deals. But things are still challenging on the forward economic outlook.
So in the fixed income space, do you just sit short term treasures and clip your four percent coupon on two year Where do you take credit risk? How do you guys think about that?
As you sin, Yeah, I think I do multisector fixed income portfolios. In terms of portfolio theory, the more degrees of freedom you have, the easier it is to get further out on the efficient frontier. You want to do diversified investments. That's the antidote to what's going on right now in the market. That's corporate credit. We like Triple B's for example. It's high quality structured product. Bringing them all together with some duration should win over time.
I am absolutely fascinated. And this is after listening to Professor Rogoff my book of the summer, and let me bring it up one more time for you to bright green book. Here our dollar your problem. He's saying that we're going to see in his call, and this has been ken for decades, We're going to see a persistently higher inflation adjusted rate. How does our investment world change if we get a rogue off reset to what we used to know, which is a higher yield spectrum, a higher yield regime.
Yeah, yields are very simply in the economy the cost of capital. So some businesses, also some countries of some consumers, it just doesn't work at that higher cost of capital. So it's figuring out how much higher it will in fact be and what can survive and thrive in that environment.
So how do you think our federal reserve is going to, I guess react going forward this year? How do you guys have them trying to, you know, prop things up a little bit or are they just going to sit on the silines and let this whole thing play out.
Sure, so we still think that there'll be two cuts by the end of the year, but they've been very clear in that they are not going to be doing preemptive cuts. Okay, the data will guide them. They need to see the data, and I think yesterday's muted response to CPI is case in point Normally, when you have a softer CPI, you would see movement in the forward interest rate probabilities on bed funds, and you didn't because it's one print only, and it's not inclusive necessarily of
the big tariff impact. And so the data is one print. Let's wait and.
See Goldvin SAX made a huge splash. I'm going to say six months ago plus or minus a month David Constant looking at MEME reversion on equities, which gave him a vector down to a single digit, even low single digit total return. Do you invest every day, Lindsey based on equities not giving us the double digit magic we've seen post pandemic?
Well, I invest every day based on what I think is going to happen in the bond market. There are obviously relationships between the two. I think when you do see the volatility in the equity market and you have decent yields in fixed income, that to me is encouraging from a technical perspective. So I'm really thinking about how does capital flow as a result of what may happen
in equities? And so you need significantly more growth to have continued upside, And that's kind of what Datas was speaking about bonds look good.
Relatively quickly or isn't bond demanded satiable? Like, you know they make four phone calls Apple computer, you know, Lindsay, you know.
Look investment great deals are four to five times over subscribe. So your point is fact, people like bonds, people want bonds.
Lindsay, thank you so much. Lindsay Rosener with us. She's head a multisector investing Golden Sex Asset Management.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.
We move right on now to what's interesting in wealth management. David Bale and iconic at City Group today like announcing today the launch of his Capital Group, which is fascinating, and some of this comes out to what you observed at City Group. I want to talk about cash in a moment, but tell us what your new operation is doing. I think it's original in terms of helping people manage money.
Yeah, so the idea behind Cio Group is pretty straightforward. We take a family's aggregated data how they actually are managing their money using all of their providers all over
Wall Street and elsewhere. We can look at that every single day, the valuations of what they're doing, how they're moving capital around, and then able to advise them so we can improve portfolios at each of the money managers and also run portfolios that augment what they're doing now and improve you know, their asset allocation, improve their risk profile.
Within portfolio turnover increasing or portfolio turnover could decrease.
Because you're looking every day, right, You're looking every day at the sort of behaviors. And then what we have, which is really interesting time, is this macro data where we can look at family offices as a group to see how they behave right. And one of the observations we talked about was the fact that they have so much cash. They tend to have too much cash. They
don't view it as a strategic asset. And this year, in particular, we see cash levels, you know, families go up by two percent when it would have been far better off for them to have left them alone.
I look at the management of cash now. Most of our listeners and viewers aren't in family offices. They're trying to get to the end of the month. But what's the biggest mistake we make when we quote unquote manage cash?
Right, we just leave it wherever it happens to be. So you have a little bit in your brokerage account, a little bit in your bank, you know, a little bit here in there. You know, most people have five or six places where they have their cash, and some of them are earning zero or just two percent on what they're you know, what's hanging around. We think about the idea of aggregating cash in one account. You can sweep now with technology, all of your money into one cash account.
It earn two or three percent.
More for doing that, and we think everybody should do that.
What should do you think for the average investor, maybe your average investor, what should be a cash allocation?
Generally speaking, so for the average individual, you know, three to six months of cash is all they should keep, you know, sort of like emergency stack. But what happens is that most you know, most larger investors have more than a million dollars, have between three and a half and five percent in cash, but no real intention to actually use it. They claim to be opportunistic, but they aren't, and so effectively they should be putting that money back into their portfolios automatically.
So that's like David Balen is going to manage Warren Buffett's cash. That would be a good job time.
I think every one of us would sign up with that.
But the Warren Buffett with a gajillion dollars in cash, that's the lead brick that a lot of people visit it.
It is, and anyway, it's one of the big reasons why portfolios don't even meet, you know, sixty forty averages is because of that is because of the cash. And then there are other you know, there are other sort of symptoms that families have and many other investors have. For example, today they're not invested internationally at all, you know, they become wholly domestic centric at a time when there
are really good opportunities overseas with the dollar foling. Well, I actually think China is going to make a bit of a comeback here. And one of the things that you know, people are afraid to talk about, right because they're thinking, well, maybe the US will restrict investing in
Chinese ADRs or or in Chinese funds. But the fact is that their economy is now I think, going to grow a little bit faster, and their emphasis on technology is going to be a little bit greater, and that's very investable here in the States.
How About on the other end of the risk spectrum, alternative investments. I've seen them go from five to ten percent of a portfolio. So now if I look at an endowment, it's forty fifty percent of the portfolio. And I even see some rias when we got Field, they're saying that their clients won a big allocation to alternatives.
How do you think about it?
Yeah, So alternatives are, you know, in an interesting subject right now because if you take a look at one of the fastest growing segments of it, it's private credit. And private credit is providing real high yields to investors. You know, nine and a half to eleven percent right now, publicly traded b DC is private you know, private investment vehicles,
and these are very attractive. And one of the reasons I talk about that is, if that's the rate you're going to earn on the credit, what is the rate you're going to earn on equity? And one of the risks that investors face right now. That's very significant. Is that making long term commitments to private equity with rates this high strikes me as really risky.
Celebration as Cio campbelll Group David Balen here on the first day they put this together. Of course forever it's City Group helping manage their Christmas club accounts. I'm going to go. I mean, Paul wants to go to private equity. Come on, nine to eleven percent private credit sounds too good to be true to an amateur like me. Is that a legit yield or they goosen it?
No, Well, there's some leverage in some of the publicly traded vehicles, but it is a legit yield, you know, and it is something to look at, and it's a huge part of it's probably the fastest going part of the private credit thing, both public and private, for individual investors and for wealthy families, and so it's one of those things that's there.
And it does.
Suggest that, you know, if you can do that, and you can basically double your money in seven years, why would you not do that right rather than own equities? And that I think is the real challenge. So, yes, it's real. Those funds typically have you know, a forty five to sixty percent exposure right to a given transaction, and with the length and give time of leaving transactions, it really does suggest that private credit deserves a bigger place in portfolios that it's getting.
How about this world is so much different today than the West? January First? How is your view changed of risk opportunities, asset allocation? How's kind of your view changed?
Yeah, so I think that our view is really about diversification and this idea of where you can find it. So we talked a little bit about China, We've already talked a little bit about private credit. I think we have to talk about digital assets. I think they belong
in portfolios now. A little bit of bitcoin and a little bit of some of the assets that we're going to hear more about, one of which Bloomberg wrote about yesterday called hyper liquid, which is the idea that there are going to be new technologies, new exchanges that are taking place in the digital world, and you can invest
in those. And the reason I mentioned this is that these different investments are going to give you good equity like rates of return and potentially higher but they also don't behave like traditional US equities, and I think that's what we need to add more up to portfolio.
What is the underlying what do you call it a hyper liquid? Hyper liquid is the name of what is an underlying of a hyper liquid? What is the quarterly cash flow?
You know?
I mean, you know where I am on this date?
What's I am on tom? And what's really incredible is that when you go online you can actually see the actual revenue production of these digital assets every single day, actually how much revenue they generate. Now, it's interesting that no, meme coins and NFTs and stuff don't generate revenue, but there are a handful of companies that are online that literally generate revenue every day.
And you could see it.
And this is a company that if it were you know, if it were to be Robinhood or would to be coinbased, the company would probably be worth four times what its market cap is in the digital world.
Just for example, what a city wealth investor seriously ask you about this stuff and say, I want exposure.
You know, I have to say that six years ago I was a wild skeptic about the digital world and about cryptocurrencies in general, and I don't like even calling them that, but there are a handful of companies that are online today that I think are going to be game changing.
They're literally going to be the.
Next generation of banks, of the next generation of lending, and so I think that we're ignorant if we don't think we should give our clients exposure to that.
Congratulations on this new effort. Thank you very much. The CIO Capital David Balen is the launch today for family offices of the real focus on cash management.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Right now, the newspapers, we need this with Lisa Matteo. Lisa, what do you have?
All right?
So I'll start with the New York Times. They pointed out this interesting trend of how rival countries are looking to pick up American researchers. But we've seen it. Are billions of dollars federal dollars being cut from American research funding by the Trump administration. So experts are saying there's a thing the salaries are much lower in places like Europe.
So in France, for example, you have a thirty five year old researcher who can earn about four thousand a month before taxes, and then you compare that to a post doctoral fellow at Stanford who can earn about sixty five hundred a month in the US. But experts are saying Europe has the better benefits, like the free social security, healthcare,
university tuition. So there's a bunch of these different countries that are starting to look to these American researchers because a lot of them may be out of work or maybe they're just frustrated with how the system is working, so they're starting to kick them up.
Here' j expert on as Jonathan Cole at Columbia University and he centers on the Johns Hopkins University and in Chicago. But I would really emphasize, Lisa, it puts a cloud over all the universities. I would editorialize Paul that it puts a cloud over Duke, it puts a cloud over Georgia Tech, it puts a cloud over Harvey Mudd out in California.
Yeah, absolutely, I was just down at Duke for a board meeting a few weeks ago, and that was topic number one. And they've been taken ACT and they have a huge medical center, so they get the NIH funding as well. But they're the government's investing in research, which is what made America the leading country in the world since World War Two.
So go figure it out.
Yeah. The next one is what continue with the job market? Right, So if you remember this is in the Wall Street Journal during the pandemic, a lot of people scored these big raises right when they jump from job to job to job because you had.
This talent war.
But now this is interesting switch because a lot of those folks who jump from job to job are saying, you know what, we're kind of scared because they're realizing they may be getting paid too much. And what that does is that puts them at the top of the chopping block when it comes to cutting jobs. So they think they're going to be replaced by cheaper talent. So it shows that, you know, tech and other industries they're paid have been falling a little bit. That's what different
stats are showing. But they're just concerned about it that you know, they could lose their jobs.
It's very look at the Burbery News today. Yeah, and then that's not like a summer cut. That's like huge, that's a big cut.
Give me one more, all right, So this one might be the thing that finally takes my husband off a cable. Okay, So Disney unveil this new ESPN streaming service. It's called ESPN yes, originally no plus, no plus, Nope, that's a different one. It's just under thirty bucks a month. So it's set to start later this year. But what's more is that they're going to bundle it. So Disney has the new ESPN as part of this bundle with Hulu Disney Plus for thirty six dollars in mine. Just a promotion.
This is it.
This is the last arrow in the Disney quiver to get everybody to go streaming. Because once you put sports, yeah, streaming or streaming primarily or streaming only, that's it.
That's game.
Listeno, thank you so much the newspapers this morning.
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 Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal