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Ian Lingoln joins right now with demo capital markets. Ian, let's begin with first principles. Do you still maintain that out there we will see price up and yield down?
Yeah, I certainly do. I think that the path for ten and thirty years yields from here is certainly lower. We've seen four percent hold on a couple of occasions, but I think that as quick as or as soon as this weekend, we could see a weekly close below four percent in tins, which is constructive for the longer term.
Of course, with Ian Lingoln, I had to set up a chart that would make Katie commence blush. Okay, it's log ten year yield, which is gorgeous.
Spector are you ready?
Two standard deviations down like an Ian Lingodn direction is a three point seven seven that's what.
We're talking about. Can you imagine I can refinance the mortgage? Exactly? What does it do to in Lingodn's mortgage.
Paul, So, I we're sitting here with a ten year at about four percent here, What is my Federal Reserve going to do here? Assuming they have some data that maybe we don't have, how do you think they're going to proceed over the next two, three four meetings?
Well, they do have some data that we might not have. They certainly have models that tell them what the trajectory of the economy was before the government shut down. I think the path of base resistance is twenty five basis point cuts in October and December, followed by a pause in January, and shifting two quarterly cuts of twenty five basis points next year.
All right, So I mean is that? I mean, how do you think the FED is looking at this economy here? I mean, the inflation despite the tariffs, seems to be in check here? So is do you think their focus is really more so on the labor market?
I think that after the major BLS revisions and this summer's payrolls prints, that the Fed's focus clearly shifted towards the employment aspect of its dual mandate. As you point out, realized inflation hasn't been shockingly high. There has been some evidence of tariff passed through, but it hasn't been to
the point that it's troubling for the FED. And so I suspect that what the FED is doing at this moment is they're not as worried about the performance of the real economy today, but they're normalizing rates in anticipation of trouble ahead in twenty twenty six.
So and you're up at ce far with me today. I've been asking people for good. Good questions are smarter than mine. What is the question you would ask Christopher Wall who is on that short list to be chairman of the FED.
I would be very curious where he sees the combination of neutral and the overall participation of the balance sheet and SOMA in twenty twenty six, right, because if he has a lower gut estimate, let's say two seventy five, two fifty, I think that would be a shift from the market's thinking. Or if he's at three fifty or three twenty five, that's also key information that the market's looking for.
Link that into the balance sheet quantitative tightening, quantitative accommodation, link that into the balance sheet debate. This keeps coming up Paul, with Michael McKee and Christopher Whalen and now at Ian Lingen. I think our audience doesn't know this. I certainly don't link the monetary policy rate Ian Lingoln into what Christopher Waller and the Fed is doing with the balance sheet.
So currently the Fed is winding down or reducing its balance sheet, selling more or allowing mortgages and treasuries to mature, and not reinvesting them in their entirety. What the messaging from Powell was yesterday was that that will probably end in the next few months. So that means we'll reach a stable balance sheet, which should be good for risk assets, it should be good for the real economy. It will
also be good for best funding needs. As he contemplates how he's going to fund the deficit.
Is he going to fund you think it? Is he going to fund it with short term paper? Or is he going to start Can you see it now? US fifty year bonds swening will line up at.
The shore for that. How are we going to fund this deficit?
I think for the foreseeable future it's going to be funded in the bill market. There's plenty of capacity, there's plenty of demand, in the very short end of the curve, and once we get to the second half of next year, presumably, if my forecasts are right, will be in a lower rate environment for tens and thirties, and it's at that point that VESNT might consider increasing borrowing further out the curve.
Ian long ago, Lisa Bromwitz told me, I need to focus on the two ten spread.
I got the two year, I don't know three fifty.
I got the ten year like four percent, So that's fifty basis points of steepening there.
How do I interpret that? Is that a good thing?
Well, it's upward sloping, which is good for the economy. It's good for the system as a whole. So it has normalized. It's not as steep as many ourselves included, would have expected at this point in the cycle. The Fed has already told us they're going back to neutral,
which is three percent. I would have expected that we would have seen either two year yields closer to three twenty five as opposed to three fifty, or a bit more bearishness further out the curve, as there does seem to be some positive momentum lingering in the real economy, and.
Thank you for the brief, really really appreciate it. I'm going to mention you today with Christopher at Waller there that's smart observation on possibly a static balance sheet at the FAD.
Stay with us.
More from Bloomberg Surveillance coming up after this.
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Right now, too quick a visit with Daniel Tannebaum with Oliver Wyman. Dan, I just want to go to the first line of your note, which is just simply the imf IF meetings is just when are we going to be adults about containing Russia?
Give us an update? No, that's right, Tom. There's at least discussions in the private forum of concern around when will the US finally take action. We've seen a lot of words, We've seen the President express disappointment. We know there's pending Senate legislation that would significantly increasealies on Russia, but we just haven't used any of them, and so it is leaving our allies. And I was in Brussels two weeks ago, feeling like they're left holding the bag without US support.
And Dan, I just again reading your note, it just kind of jumped out of me. There have been zero new sanctions levied by President Trump since returning to office. That kind of surprised me, given what's taken place in Ukraine. What's the feeling in DC here?
I think the feeling is a question of why, what is the hold up the discussions?
Previously?
The President said this that sanctions will somehow impede the negotiations with Russia. I mean, Russia has only increased the aggression since the Alaska Summit, which feels like an eternity ago, and with no tangible actions against Russia. The focus has been on pressuring allies to Ukraine more so than actually pressuring Ukraine, pressuring Russia, I mean, to to stop this war. So it is a real question mark as to what will it take to see actual action.
Is there some feeling within Congress that Congress can just without the President, go on alone a little bit and impose some sanctions or do they need a full support of the President.
They absolutely can, and they've done it before in twenty seventeen, which was definitely an eternity ago Congress imposed sanctions without the president's go ahead. It actually was to ensure that the President didn't lift existing sanctions on Russia. They will not act without them. Boone will not put this bill on the floor.
Good Dan, Let me ask the elephant in the room question.
I mean, what is, with all of your.
Experience, including with a fuller reserve in New York, Dan Tanebam, how close is President Trump to mister Putin?
I mean, that is the million dollar question. We don't really know. He's clearly shown a view towards the more autocratic leaders is a model that he aspires towards. Now he's certainly said repeatedly in recent weeks of the continued disappointment, particularly with drone and military intervention in NATO territory.
But that is the question.
He has not said anything positive about Vladimir Putin recently, so I guess that's a win. But it's hard to understand the calculus here.
I mean, you're one of the few people I know it's going to actually answer intelligently. So it's a victory in Israel Gaza. Can the president translate that over to a quote unquote victory in Ukraine. I think he can.
I mean, let's give the president credit on the Gaza deal. It's something that few others could have really done to bring both Hamas and Israel to the table to come to a deal. I think if the President put his energy into it, used the mouthpiece that he has joined back with the G seven allies that are trying to curb and get Russia out of Ukraine, I think it would make a difference. I think it would be something that gets him towards that famous Nobel prize that he
seems so excited about. But he hasn't done it yet, and that is the question is what will it take to get him off the sidelines?
Tanab, I'm shortlisted for the nobil.
Sure, absolutely, Dan.
In reality, there is everybody just waiting for the President to decide which way to go, because there are some serious sanctions in terms of frozen Russian assets that could be levied here that could have significant impacts on Russia.
But is it at the discretion of the president here well, so.
That's the one area where the President probably has less influence. The bulk of the immobilized Russian sovereign assets are actually in Europe, and there's been discussions for months, well for years, but really recently they've escalated within Brussels in the European Commission around what to do with these immobilized assets. Do
we seize them? Do we generate alone off them? Which is already a plan leveraging the interest gain from the matured securities that were held with some institutions in Europe. But the president here, if he said he was supportive, I think it will help the cause. But this is really an issue that Europe needs to solve predominantly.
Dan, thank you so much. In Washington. D tan Obaum with Oliver Whyman, stay with us. More from Bloomberg Surveillance coming up after this.
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David Balen. He's the CEO of CIO Capitol Group.
David it is formerly Chief Investment Officer in Global Head of Investments at City Global Wealth. So he's been around the block once or twice. Hey, David, A lot.
Of cross currents out there.
We like to focus on the fundamentals like interest rates and earnings, but boy, there's geopolitical issues out there. There's just domestic political issues as it relates to tariffs and so on and so forth. When you talk to your clients, what's the message you try to get across.
Right now, we're looking at next year's earnings being of about ten percent, We're looking at industrates coming down a little bit, and we're looking at an extraordinarily resilient economy that's pretty much ignored some of the major news, both a shutdown and also the tariff negotiations with China. But what we're seeing in client portfolio is a little bit more troubling, which is a great concentration in areas like technology.
You know, managed portfolios have large exposures, but then clients have added on more to that, and they've avoided shares, you know, offshore shares, which I think will do well next year. They've avoided healthcare shares, which will do well next year as well. And so really we want to see people reorient their portfolios a little bit away from tech simply because of the concentration risks that they have, even though we expect earnings to go up in the
technology sector. So it's a complacency that we're really most concerned about, to be honest with you.
Okay, So when it comes to portfolio construction, how big of a moat do I have to have around my castle?
Well, it's funny, you know, the sixty forty portfolio isn't going to work so well. But I think that clients don't have enough bonds and high quality bonds in their portfolio. They typically don't have gold, They probably have virtually no or zero exposure to big coin reating digital currency, and as already mentioned, they don't have much exposure to China tech or even to offshore equities. So there are lots of places where you want clients to reorient their portfolios.
And we're talking about a reorientation that could be twelve to fourteen percent of their assets. So it's not a small change that we're recommending for twenty twenty six.
So in your outlook there, David, what role does do alternatives play? And you know, I think falterners for most most of us are private equity, private credit, maybe hedge funds think things like that. How do you think about alternatives?
Yeah, I think there are certain areas in the alternative market this coming year that are going to be better for vintages, like, for example, with a number of you know, lack of exits of private equity companies, and with valuations of mid cap stocks you know, about three turns less than large caps. I think private equity, especially middle market private.
Equity, is good.
But the area that we like best is one that's actually harder to invest in, which is early stage venture capital. You know, companies that are in series A, you know, even startup equity. And the reason that we like them is that they give you really large returns, but they also give you a second and third opportunity to invest as the more successful companies come out of those portfolios and funds. So we're emphasizing that our you know, ultra
high net worth clients lean into that asset class. In twenty twenty six, are.
Most investors on the same page, whether it be retail, a high net worth or institutional.
You know, it's interesting the retail investors are actually more active. We're seeing you know, family offices and ultra high net worth clients really focused on what they did in the past, and that's one of the dangers of FORTFOLI management is if they don't look forward and actually change their strategy, they actually are taking on increased risk. When markets have done as well as they have for the last four or five years, all of these concentration risks build up,
and that's what we're seeing. You know, even as families have become wealthier, even as family officer have done better, the fact is that their portfolios have become far riskier, and that I think is underappreciated.
So fixed income here, it feels like fixed income kind of getting squeezed out over the last several years with a strong performance of the equity market. But you know, how do you think about fixed income allocations? How much credit risk do you want to take on fixed income side?
Right, So you're hitting upon it a critical point. One of the things that's be't squeezed out is fixed income. And with rates where they are right now, both in the traditional markets and the high yield markets, there really are opportunities for people to capture and hold on to very good fixed income rates that are highly likely to come down next year. And you're right, people are very
under allocated to that as well. Again as equities have done well, So we want to see clients take on a full slug of that, right, even including municipals in the United States, And that's why we have such a large orientation to reorienting portfolios. And we also want clients
to think about their cash balances. The typical client today has more than eight percent of their money in cash, earning less than three percent when they could be earning four and a half percent right if they actively manage it. And they have two higher cash balances and they're earning too little on them. So there's a lot for clients to do in twenty twenty six and getting ready for next year.
David, here's the softball for you. Don't turn it into a commercial. But what happens at the intersection of AI and wealth management.
A lot is going to happen at the intersection. First of all, in terms of benefits to clients. We're going
to see clients develop hyper efficient portfolios. Right, they need to spend less for their fund management, for even their wealth management and advice, and they're going to be able to do that by looking at their entire portfolios using data aggregation, taking a look at where they're just getting index exposure, like the S and P or the NASDAC, bringing that down to the lowest possible cost, and then doing the reallocations we just talked about right in a
very methodical way. What AI doesn't do well is anticipate some of the market conditions that we actually have right now. That's where you need people to do that job, the CIO part. But in terms of making portfolios efficient, it is just remarkable right that the state of the wealth management industry right now is that the typical retail client will will spend one point one to one point five percent to get asset management services and fun including their fund costs.
And that's ridiculous.
It won't it won't be that high in two years.
David, Thanks for joining us. Always appreciate getting the benefits of your wisdom. David Balen, CEO of CIO Capital Group.
I note that Stephen Whiting, formerly of City, recently enjoying it. David Balen, stay with us. More from Bloomberg Surveillance. Coming up after this.
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We actually have a guest who really is an expert on this whole energy stuff, Regina Mayor, a global head of clients and Markets at kp MG.
Regina.
You know, I note that WTI crude oil has got a fifty eight handle. I mean, I think the folks down in your neck of the woods, they're not real happy with that. Talk to us about kind of where oil is now and what does that mean for the economics of the energy business.
Yeah, So it's really interesting because we've got dueling forecasts going on and an attempt to seize the narrative. So opek is saying supply demand roughly in equilibrium, IEA predicting a big supply gut. The industry titans trying to say it's short term, it'll work itself out in the medium and long term. My own view is I think we're near the floor. Why do I think that? Cushe is out a six year low for inventory so US space. I do think for shale we're going to see flat
to low production in twenty twenty six. We're starting to see more speculative plays. We're moving into more marginal territory. I think that'll put some of the supply off and we might be even approaching acentangle market where we start to see some uneconomic behavior. We're already seeing floating storage doubled twenty million barrels to forty million barrels. You're on, colleague covey Er bloss Broad actually a really interesting piece about that. So we think it's the floor. So we
don't necessarily like WTI at fifty eight. I think it should be comfortably in the mid sixties, and we'll still see really strong growth from energy companies in twenty twenty six.
All right, backwardation in contango. One of these days, somebody's going to give me a clear, clear explanation of that. Hey, One of the regional issues we're facing here Regina is a debate, a really intense debate over a proposed pipeline that would from Pennsylvania through New Jersey through the Raritan Bay under the water and to Queen's you know, the
governor here for it, the congressional delegation against it. Can you talk to us about where we are in the debate between oil, gas, and renewables.
So right now we have an environment that is probably more friendly toward oil and gas. I shared the story with Tom and Paul earlier this year at an Astros game. I know he's a Red Sox fan, but for the first time in a long time, I'm seeing oil companies advertise, you know, baseball brought to you by oil and gas. You would not have seen that two years ago, so I think that the industry is trying to take advantage of that. I actually think your part of the country
would really benefit from more access to natural gas. In the New England, New York, New Jersey area, you know, you have propane deliveries. It still go house to house with heating oil, and if we had natural gas lines in. We have a ubiquitousness of natural gas, particularly from Appalachia really close by, relatively inexpensive. So I think we're trying to do more of that.
Offshore wind.
I think it's being really under an onslaught in this current administration, but we'll still see a lot of renewables investment with solar and onshore wind and other investments. We're still seeing investments in hydrogen for example, carbon capture, etc. So it might be more stealthy those non oil and gas moves, and I think that we're trying to capture
more of that space. The other thing I would say is the ITEA did say thirty percent of the world's energy will still have to come from oil and gas in terms of the growth that's coming between now and twenty fifty. So we see insatiable energy demand and we got to use oil and gas for filling a good chunk of that increase.
When you talk to your clients, Regina, I mean, how did they think about Again, you just brought up this forecast we see for heightened demand for energy going forward, whether it's AI or for other sources. I know, it seems to me like we're going to need everything, whether it's you know, a fossil fuels, renewables, maybe even increased use of nuclear.
I mean, how do your clients think about that.
It's definitely in all of the above strategy, Paul. But we're making investments. They're looking at what's economic and then what might the future look like that I can still consider that might scale and ultimately become economic. In the meantime, you're seeing more exploration and production in other parts of the world for core oil and gas assets while they're still exploring, you know, lithium deposits hydrogen as a fuel cell alternative. How do we drive more electrical generation and
improve the strength of the grid. So they are looking at all of the alternatives and figuring out which ones are going to be the most economic because they have shareholders that they have to respond to.
Hey, real quick, do you think a reckoning has come out for these AI data centers that they want to build out? If they're competing you against me and Hall for energy usage as we see our bills climb high.
And hire, it's a really good question, you know.
I think we do see an insatiable demand for electricity. The tech folks that I talk to, they talk about.
Moore's law a lot.
So what we see and know the hockey stick of energy consumption, there is a lot of work going on to try to make these data centers not so energy intensive. I'm a believer in technology continuing to drive those curves down, and I don't think it'll be exponential growth. I think they'll figure out a way to moderate it.
Gena great stuff is always We really appreciate you taking a few minutes to chat with us. Regina Mayor, Global Head of Clients and Markets at kp Energ.
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