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Right now, Secretary Page joins Sebastian that Page has had a global multi asset definitive undiversification here at tea row Price Sebastian after this, this non breadth rally, this lack of dispersion, I think it's three stocks as the reason we're going up. How do you rediversify? How do you rebalance? Or do you just stay with it?
You know, Tom, when you're at a cocktail party and someone finds out you're an investment business, want advice right and I always feel like you don't have enough time to do this, So I always stay stay invested, stay diversified. Right now, I would say stay invested, stay diversified. Hedge inflation risk. I think it's important investors to diversify their hedges, not just treasuries, but holds in cash, some hedged equities, some tips, some real asset equities.
You know, look Sebastian at the card and rule here, the technology doesn't play like an industrial if yields go up, what does the technology sector typically do?
You know?
I think the typical is hard to describe because it's duration, it's sensitivity to interest rate moves has been highly unstable historically. You know what matters right now, Tom, is the earnings. The earnings growth projected for the next twelve months for US large gap growth stocks are at twenty eight percent. That's the highest it's been in my twenty five year chart. Now, you could say that's a high bar, but those are
companies that tend to meet that high bar. So Tom, we're still along the broadening trade, but we've taken about half the profits and we've been moving money from international back to the US. US ultimately is an et exporter of oil. Europe is much more exposed. Those earnings are phenomenal, and the evaluations for large cap growth stocks they're actually lower than their five year average. So that's the move we're doing now. It doesn't mean to your introduction that
we're concentrating the portfolio. It just boils down to balancing, taking a little bit risk of risk, active risk off the table. And I go back to stay invested state diversified hedge. Inflation risk tom more neutral between stocks and bonds.
Right now, Sebastian inflation. It's there, and a lot of folks are saying it's going to become even more pronounced in the back half of twenty twenty. How does one hedge.
That you can diversify the hedges. One way is to have a short duration position, so hold some cash. You can also hold some short term tips. Of course, a lot of people like to buy gold or metals. We like to do that through stocks, so metal stocks and energy stocks. I think there's still time to establish those hedges. Even though it's already happened, right the oil shock has already happened, I think the risk is still there on the table. So that's another way. Another way we like
is just to hedge equities. You know, hedged equities give you a little bit of asymmetry. You give up some of the upside, but you hedge your tail risk. And any portfolio where treasuries might not hedge you really well. If you get an inflation shock, you start building some positions that help you make up for the failure of treasuries and an inflation shock.
And Sebastially, you call that earnings and we're just finishing up. It's turned out to be a really solid earning season for corporate America. Are the earnings and earnings forecasts enough to support this market?
I think so, and I think this can continue. The earnings momentum is remarkably strong. The last estimate I saw for ai cap X is three trillion by twenty twenty eight. Of course it sets a high bar, and chips are more cyclical than other sectors. Of course, there's a lot of this that's priced thin. Look, I don't like the
bubble comparisons, the tech bubble, the Internet. But you know, if you look at trailing price to cash, trailing price to sales, those metrics are actually higher than during the Dot Com But I will say this fall but margins, margins are double.
Sebastian Page, Thank you so much. Sebastian. You think Montreal can do it? You think it past the Savers? Do you think Montreal can take out the Carolinas.
I'm all in on montre all all the time, Tom, Given my French Canadian heritage, it's just completely on bias.
I do tear up. I get misty eyed like Taylor Kendall, and I would be misty eyed if Sebastian Tyler Kendra, excuse me if I brought If Sebastian brought in the torch, you know, wash your torch, twenty thousand people at the Bell Center, Sebastian, that would be great. Sebastian Page, Thank you so much from Sherbrook and I've always tea wrote price as well. 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 app, or watch us live on YouTube.
Ian Lincoln taught me this price down yield up, but it's the rate of change. You got a five point one zero thirty or I've got a four point this up, Ian go. Ian Lincoln wouldn't do this, but it's entertainment, Connie, and stay with me. Four point five six percent and a ten year yield four point zero six and the Sweeney two year yield. The interview of the Day for Global Wall Street Ian Lincoln of the Bank of Montreal Demo Capital Markets. The tickets you got me for Saturday,
I almost teared up. Thank you, the AA box right at the goal line. I looked those up on stub hup. Two tickets eighty five hundred dollars. Thank you, Bank of Montreal. I'm glad you appreciate it. Good. What's the first and second derivative of this bott move the convexity? We say, what's the rate of change that we need to know about?
So I'm really worried that what we're seeing in the equity market is going to accelerate. We haven't seen a breakout of yields to these levels in quite some time, and that five percent level for the long bond that matters, and it has in the past for equities. So I'm keeping an eye on what happens in the stock market today.
Frankly, what is pushing rates higher?
Again?
You mention at the thirty year at five point one zero percent, That really gets people's attention. The ten year four point fifty five, that breaks out a little bit. What's going on there?
Well, I think we're still trading the conflict in the Middle East. We're still worried about the energy complex, we're coming off of a series of inflation prints that have demonstrated that we're already starting to see some pass through to core. There were a few technical adjustments from the BLS that propped up the core numbers, so we weren't
particularly surprised or worried. But the market clearly is. And we just went through the ten and thirty year auctions and so they're still in the process of being redistributed. And as we have seen in the run up to pretty much every weekend, we're worried about the event risk of those two days in the Middle East, because frankly, anything can happen.
You don't want to hold a risk position over the weekendise exactly. I mean, this is telling me. I'm an equity guy, so but you know, I try to stay away from the bond market. When I see rates move higher like this, that just shows me angst in the marketplace. And I guess, yes, the angst is for more persistent, more stickire inflation. Is that what we're seeing.
I think that's part of it.
There's also a fiscal concern, Okay, so the inflation argument is fed into by the by the notion that the labor market remains on solid footing. We had a higher than expected but still low initial jobless claims number. We inflation is moving along fine, but not two kill levels that are troubling.
Yet.
If the unemployment rate had been materially higher, or we hadn't had strong payrolls, I think we'd be in a much different macro environment.
In Lincoln with U BMO Capital Markets. He's taken every trophy there isn't fixed in comers note dense in extremely read on the morning hours. Get that from the Bank of Montreal, BMO Capital Markets, BMO Capital Markets. So I look at the real yield. There's a number of ways to look at this. I've seen a leap here from a one ninety out to a two point zero four. I got some history at two point one point one. What are the ramifications if the ten year really breaks out the new territory.
Well, I think that it depends on how that occurs. If it occurs with a compression of break evens because inflation expectations have moderated, then I think that the real economy can absorb that in it.
It's a more voyant economy, productivity, innovation in that.
But if it's a flip side, and you see why native break evens and higher real rates that is a vote of non confidence of treasuries.
Nicely explained. Now you're a grizzled pro at this. He's got three bloomberg you should see it. I mean, twirivere darkens what he dunes in his Bloomberg. Okay, so you've got a bond market complexity and the answer is there have to be trip points. What's the Ian lingoln trip point is that the five year yield the ten year yield? Is it something esoteric?
Well, I think that the world looks at ten year yields. I look at the two year yield. There's nothing more than reflection of near term monetary policy expectations. And so anytime we're over four percent in this environment, that means that we're really contemplating rate heights, which I don't think should be on the table. The long bond is more of an inflation story, and as we see, five handle on the thirty year is troubling for a lot of
different asset classes. So I do think that the shape of the curve is going to be the story to follow this year.
Kevin Walsh can be stepping into the big chair at the FED that's going to be a little uncomfortable given some of the data we're seeing here. I mean, what do you think the messaging that's going to come out of this new FED chair will be should be? Because we're going to hear from in the next few days probably.
So he has been given a very difficult FED to take over. At the moment, Powell's still going to be in the room. He's coming in with three descents against some of the language within the statement. It's interesting that the descents were against the language and not against the move itself, as is typically the case. I suspect that he's going to have a very hard time building consensus over the summer to do anything outside of potentially scale
back some of the forward guidance. Normally, I would say one of his objectives is to talk less in terms of being a FED leader, and that could mean at some point reducing the SEPs or the dot loot. But I don't think anything's happening.
Say I mentioned this earlier, Governor Myron on yesterday, Faro grilledim. I thought John did a great job on the interview, and the distinction there is the inflation not so much at one off. But is it various supply side even demand side shocks or is there a fiscal persistency finally to it, how do you parse that? When you look at the dynamics of the ian LNCOLN bomb market.
It does feel as though forward inflation expectations are moving higher for the average consumer and the average household. And that's what the Fed needs to worry about, because you can drill down into CPI and you can see that in April, core goods or effectively flat, and that's what everyone was worried about last year, the past through. So we're beyond the tariff story, but now we're worried about airfares, energy prices flowing through to products at the end of
the day. But that takes months to actually see zero diet.
A nice summary of a Goldman Sachs note where they triangle it out to a four point sixty zero percent ten ure yield being important. Do you have in your head that trip point on the ten year where things change for the stock market.
I would say that we're right up against it. I would say four seventy five. But right now we're just chopping around in a range that is reasonably well defined and again we're the level of conviction that is in this market is so low right now when we talk to clients and make the rounds, people just don't know. In fixed income space.
Ten year at four fifty six, I mean the year ender. Are we higher here?
Do you think?
I think we're lower? But the floor has been certainly been increased given the events of the last eight weeks.
I mean, I'm pounded the bloomberg here. I'm trying to pretend like I mean Lincoln no on a triple high top at a thirty year bond, pall out of five point one zero five point one point one. We're you know there there now? If I go c t thirty Ian Lncoln taught me how to do this. I went to bond camp with Ian Lincoln. Okay, you should say Kumbaya and ie bring tears here. If I look at the current thirty year bond, I don't know if it's going to give me much information here. Let me see
if I can get it up. But I believe there's a price decline involved. If yields go up, prices go down. Is it hard for institutions forget about all this financial media stuff like alexis the way you quote the yield, it brings tears to my eyes. Nobody cares. It's about price down right. Is there pain out there into this weekend.
Into this weekend? I would say less so than we saw at the beginning of the conflict. There were a lot of position stop outs when this all started. People were caught on the wrong direction on the curve, caught the wrong direction on duration. Now positions have been paired back, and frankly, there's plenty of shorts in the market, so this run up could actually be benefiting certain holders.
But again, as you mentioned, the two year well above four percent now, and we don't typically see that in this in the last I don't, however, long But I mean is that I mean again, that kind of tells me that the Fed is more as likely to raise rates than the cut rates the next time they move.
So I think that the two year is very interesting at this moment because if you believe what the FED has been saying, which is we're pausing on the way to further normalization, then two year yields should be at or below effective FED funds, and that's in the mid three sixties, and we're well above that. So the market is saying, either we know the bestone's going to do a lot of borrowing in the front.
Ad Come on, it's a hope and a prayer that the hormones opens up, right, I mean, that's all words unlikely. An air force one flying back right now, Bemo has a golf student should see it's Montreal Canadian colors. It's wonderful, red les, blue, be rouge. Okay, So whatever airplane you're on in your fancy like Ian Lincoln, this is just a hope and a prayer that Iran gets over oil breaks and we all go back to fed normal, right.
I do think that there's a lot of optimism implied in the notion it's going to reopen, and you also see it in in oil futures. Oil futures should be higher, and in the doors are going to draw down. Over the summer, I go.
You know, when I took the Bemoh summer camp with the Ligan course, you don't look at the c T thirty. You look at the old old like there's different old old bonds, Paul. Since the end of February, the thirty year bond on price, not yield, folks, not the way bow type people talk ian We're down seven point five five percent thirty one percent annualized. Is that a bear market in bonds? Is that where we are.
Certainly has been a bear market in the thirty year sector. There's no question about that.
You know, movements in the bond marker. We're talking bomb marking. I'm all fired up. Where's Lisa Rows?
I just start going. She's off the door. She's going. She's like she's rocking it. She's going skiing somewhere.
Ohe like way like North Okay, like band for something? Can I do one more question? I mean they didn't pull Dobish last night. I mean Montreal took out Buffalo.
It was enough. It was just magical to see. Explain the culture. I mean, we're all witnessing this as outsiders. Twenty thousand mental people in the Bell Center, twenty thousand mental people outside the Bell mentor they have a portrait of Leonard Cohen on a Bank of Montreal building and they got up dressed in a habs explain culture of the Montreal Canadians to the Bank of Montreal and all of the city.
I do think there's a lot of history and they're very proud of that history. I think you can see it in the sports, you can see it in the culture, you can see it in the music. So I do think that the Bank of Montreal is a very good representation of that culture.
Can you get rush tickets for the summer? Ian? Thank you so much. I love busting his chops because Ian plays it so straight and he is so excellent with his work over the years with Pimo at Capital Marcus Stay with us. More from Bloomberg Surveillance coming up after this.
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What we're gonna do here, which a lot of people don't know, is how did we get here? And I don't mean Kissinger's sitting in the Piece hotel in Shanghai. Are on the way to Beijing. And for all of us fossils the shock of seventy two and Nixon with us, Robert Hormants, some people talk other people? Do you? And Winston Lord got this going back then? There had to
be literally like Columbus looking over the horizon. Tell us about what Winston Lord, with your assistance on economics, Ambassador, what was the shing I communicate like to jumpstart this new Asia US nexus.
It's a great question, and I wrote a piece about it in Foreign Affairs to document this. The goal at that point was to try to make the relationship more normal, to deal with a whole series of problems that had been built up over twenty five years of no communication,
no trade, no investment. And of course the key issue on the minds of both the Chinese and the Americans was Taiwan and Joe and Lai, who was the premier of China who was their negotiator, and Henry Kissinger, who Wasson's negotiator, and both formidable people on their own, decided they would need some compromise language and the Shinghai Declaration that still is the centerpiece of China US relations on that issue was worked out between the two of them,
and that opened the way to a building up of confidence. And then after that we came up with a few economic issues that we can use to normalize relations, to increase trade incrementally, and it built from there. But it was trust and confidence and precise planning, and we're critical to this and trust.
Which of course the Trump administration is wonderful and just because of time and Paul wants to get in here with some real questions. I've got to ask you this President g seems to venerate the pre cho in like China. He wants to go back to Mao. He wants to go back to a more rigid, tougher China. When you see the turmoil with their defense leaders, generals, they're admirals, when you see just the clock ticking, is there any chance President, she can pull back and become more like the China.
Robert Pormance new Well, I think he's I know him quite well because I've worked with him since he was the Party secretary and Juan Province, which was in the nineties. He's a very methodical person and he does sort of venerate Mao, but he also realizes Mao had a number of issues that made him controversial. But there are two parts of the Mau background that are extremely important to understand.
Mao made one point that we've been bullied by the foreigners over the last one hundred years, and we're not going to be bullied again, and she is very much of the view that that must be a critical part of China's strategy to be invulnerable to bullying or pressure or leveraged by the foreigners. The second is that Mao understood, and she understands that the fall of the Soviet Union was in part because they did not have a lot
of trading partners. They were confined to very few products that they produced and a very few countries to sell them too. And he Shi Jinpain was going to make sure that China had a broad range of trading partners and had a very diversified economy and therefore could not be leveraged by the United States or anyone else. Those were really two key points that he draws from the
mal period and the fall of the Soviet Union. And let me make one other point follows up your point, Tom, and that is, if we learned anything from this summit, it is that for the first time in nearly one hundred years, the US has a peer competitor, a peer competitor on military issues, political issues, technology issues, and he can issues and appear both in scale and in skill.
We have.
If we didn't know that before, we know it now.
If Paul David Weston had a brilliant insight I think it was yesterday or the day before on how we were back in the time of Robert Hormance and there's a whole new China out there.
There is, so Bob, what is some of your takeaways or what are some of your takeaways from this President Trump, President g I guess we call it a summit here. I'm not sure what was really accomplished, But what are your takeaways?
Well, my takeaway is that Trump came to understand that China is a peer competitor, unlike any we have seen for as I say, nearly one hundred years. The second is that China does business negotiates in a very different way Trump Trump came in with a great deal of flattery of she Chinese does not necessarily take the flattery. And she came in with a very crisp agenda and
was particularly crisp on Taiwan. And I think it was because he had picked up and the Chinese authorities had picked up that there was a lot of pressure in Washington on Trump to in effect give away a little bit on Taiwan, to move closer to the Chinese position on Taiwan. But also so the people in Washington wanted a statement or something that was clear that said we
would we would toughen up our support for Taiwan. And she wanted to make sure that that issue did not arise and that the United States did not use this summit to make any statements that were pro Taiwan or gave Taiwan additional power in terms of at least verbal support from the United States. Trump she wanted to avoid that. That's why he made the statement very early on I mess around with Taiwan.
Yeah, the first two readouts of the first day were very different. President Trump brought a planeload of American CEOs over to Beijing. Here. Do you think Beijing as wants to do business with the US with the West?
Here?
Yes, I think that they realized that they have a need. They see a lot of companies looking for new supply chains diversifying away from China.
Yep.
They want to make sure that they don't that that does not continue. And therefore I think it was smart to bring those CEOs and every one of them has the potential to make a deal that can actually enhance our capability and maybe theirs. The problem is has a lot of them encounter a lot of complex difficulties on regulatory issues, intellectual property issues.
So they killed me, Bob Homer sos, they've been to interrupt here. So we brought over a bowtload of billionaires. See you there were what's the shoes of the white souls? Yeah, they're all decked out of the Laura Piano shoes. Hormance would be called dem noos. We didn't take Nicholas Burns, we didn't take William Burns. We didn't take Robert Ormatz, we didn't take the detrees of James Baker out of Rice University. Can we rebuild your world at State?
Not in the way we're doing it now. If you look at the number of diplomats who Trump took over relative to the number of CEOs he took over, the latter vastly outnumbered the former. And I think that China is a matter of building trust, and China trusts a few people who've worked on China, not that they always agree with them, but there are a lot of There are several diplomats, and Nick Burns is certainly one. I think I'm another, and there's several others who have a
long history with China. I think he would have done well to consult with those people and bring them over to show continuity with the China, the knowledgeable people about China from the past, not necessarily that we agree with that quick. That would be a way I got a run.
Can we do a once a month thing with you? Can your people talk to my people so we can figure out it once a month? Stay with us. More from Bloomberg Surveillance coming up after this.
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We welcome all of you across America as we try to recover from China, the pomp, the circumstance. Henrietta Trees, of course with Ada Partners, is fab on this and she remembers Monday, February twenty eighth, nineteen seventy two, Richard Nixon got off the airplane at Andrews Air Force Base and it was a ginormous deal back then.
It's a big deal now and it's amazing that the core takeaway is Taiwan and not know the tariffs or soybean purchases or even ai with all those CEOs on board, it's Taiwan.
Well, Lindsay Graham's going to say, I don't care about Taiwan, even though I do. What are we going to do about jerrymandering? What are we going to do about the midterms? For these midterms is it's so messed up in a Henrietta tresway that the new September is may. I mean, are we just more intense and closer to the election now that.
We think we are very close to the election.
You're right to point out September people vote early more now, especially since the pandemic, and people are really engaged and ready to vote, and you can see that in the swings that we're seeing in the special elections. Unfortunately, it's
disproportionately in favor of Democrats right now. They're winning the special elections by an average of twelve points, and that's because of huge democratic engagement, independent voter engagement, and there's new polling data out this morning that shows that voters support their party jerrymandering the heck out of the House of Representatives. There's huge support from Republicans and Democrats to do whatever it takes get your guy in.
So I would.
If I would at the Republican National Committee, I don't know what to do. I'd be apoplectic. I've got tariffs not polling well. I've got higher energy prices not polling well. The Warner around and not polling well. What did the Republicans do come to these midterms?
Yeah, and I think that there's going to be a real interest in seeing whether these gerryman during efforts are going to work, because the data that they're working off of was a hugely robust Republican wave in twenty twenty four. When you've got majorities in the House, the Senate, and the President. But now you're hemorrhaging votes with black voters, Hispanic voters, and in particular, young males, and you've lost independence precisely because of the reasons that you just listed.
It's inflation, it's energy costs. Voters didn't like the tariffs, and they didn't like the developments and the killings in Minnesota, and they absolutely hate the fact that they're paying more for gas.
Right now, that being said, I'm not seeing anything out of the Democrats. I thought I seeing some voices just come pop up and say this is my time. I mean, these guys Republicans are really at rich. I'm going to pop up at it and you know, anywhere around the country and say I'm the voice of the Democrats. Are I'm not seeing that?
No, definitely not.
And you have individual states where there's a member that can really pipe up. I would say Mary Peltola and Alaska, tall Ico and Texas. There's some interest obviously in Maine. But you're absolutely right, there's still a even less.
Popular than Republicans as Democrats.
In studio on Friday Henrietta Trees Veta partners as well. So paint this picture for us and give us your wonderful perspective. Mister Clydeburne of the Carolinas, I guess is protected from jerymandering the Black Caucus is Does the Black Caucus go away? Does it become an artifact of the nineteen sixties.
Well, I don't know that clyburn seat is necessarily going to be safe. I mean South Carolina is thinking about what they want to do in terms of jerrymandering and the response.
You can see it across the country.
I mean I live in louis and they just wiped out two seats in Louisiana as well, from both black representatives. It's it's a very heavy lift, and it's happening right when they had been making games with black voters. You know, you see thirty percent approval ratings in the conference that want to vote, and that's a huge win amongst black voters going out mince words.
The tweet of the day yesterday was Gety goopin at the Harvard who put out the photo with a blistering note on how it was all male in China. Everybody looked the same on the right side of the table as a stereotype, everybody looked the same on the left side of the table. Are we going back to an all white Congress?
That's definitely the direction that you're seeing, especially on the House side.
The Senate at least has.
That is Congress is the House.
Yeah, yeah, the House side is definitely moving away from anything that looks like a voting rights Act. You know, the reason that we passed it, and that's that's been wiped out now.
So I'm not sure if Congress is back in session, because every time I talk to you, you're telling me they're either in recess or so I'm on recess.
She's working like a three day work.
Exactly what's on the to do list for our congress these days?
That's a great question, and I think it provides a lot of direction about how long the street's going to be closed, what lawmakers are actually thinking. There are two bills that I would concentrate on right now. The first is the Authorization and Military Force. There's a bill that's introduced that will allow the president to perpet the weight the war through September first. Okay, that's the shortest version. The longest one is Tom Tillis's, which is a year.
And then even more telling is the gas tax holiday. They don't have the votes for it, but in order to understand how long they think gas prices are going to be high, note that they give the president through December fifteenth, of twenty twenty six to suspend the gas can I.
Do a Friday audible post. Sure. I was talking to somebody up in the food court last yesterday. I was, you know, having a I think it was a mohito know something like yeah like that, And here was his zeitgeist. Rubio's going to step away after the terms best will become Secretary of State, preparing to be vice president under President Rubio. Are animals like you in Washington actually thinking things like that.
Well, animals like me have to think about it, because animals like hedge funds have to think about it. And they definitely asked me this question all the time. The question is is it going to be Vance at the top of the ticket or Rubio? The way that I think about it, and I'm a veteran of New Jersey politics, so we go after whoever is the least unpopular, and Marco Rubio is substantially less unpopular than JD. Vance Right now,
I think it's about twelve points. So in the parlor game of who's at the top, I think Rubio.
For should he raise money?
Oh, absolutely no question from the Florida Republican juggernaut that exists now, I think absolutely Well.
Get one more, something more smarter.
Than mid terms coming up again. I think the consensus was building that the Democrats would have a chance to really get control of the House, maybe even the Senate. That has that changed with some of the jerry mandering or redistricting rulings.
My odds are still very high. The Democrats take the House. I'm at ninety percent or so. The margin is going to be much smaller. So if you thought maybe Democrats with a six point average in the generic polling would pick up maybe twenty five thirty seats due to jerrymandering, it's more like eight to fifteen at the most now. So they're still win the Chamber, but it won't be by a huge majority like we saw in twenty eighteen or twenty twenty one.
Is the president maybe on campaign trail in these midterms, do you think?
I mean, theoretically he was supposed to turn the campaign trail on affordability back in January. What I hear from Senate Republicans is that they want the president on the trail come June.
So that's coming right up.
So, like you're in New York, so like you have lunch with hedge funds, after lunch with hedge funds, dinner with hedge funds.
All day, every day.
What's the number one question, they asked quickly.
Right now, it's on energy prices right now, eight dollars a barrel, exactly. We talk a lot about the fiscal situation, though, debt and deficit.
One of the bond markets.
Going because of the American debt and deficit.
I think so, yeah, there's there's a tension. It's not at a fever pitch yet, not enough to make lawmakers do anything about it.
But I got headlines. I got to go to Hendry had us more important than the headlines. But Henrietta, thank you on behalf of a team Surveillance. Thank you for all of your wonderful at work today.
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