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In from PIMCO Pacific Investment Management Company, is Tony Crescenzi here on short term paper?
Where's the tip between good morning? Where's the tip between?
Like?
Where is long duration? It's not out ten years to guys like you, is it seven years? Or dare I say? Is a five year note a long duration piece?
Well, I like to call on and in my books I've written that the five year is a long bond of the short end, So you could say because it's to move the most when the Federal reserve is moving. In fact, the five year point on the treasury curve is the top performing point on the Yeld curve when the Yel curve is steepening steepening, meaning of course, short term rates are falling faster than long term rates, so
we'd expect that to continue. We've seen, in fact, a big rally in the short end relative to the long end big steepening, but it could have a long way to go, because federal reserve is like, we keep moving, So I'd say it's beyond five years. We in fact call the pivot point on the eel curve, the differentiation between short and long term race a seven years. It's at the seven year point that whatever the Fed does stops impacting markets in the way that it's the seven year point in the.
Okay, I've got I just I do it.
It's just impressed Cressenzi and the only one that hasn't read twelve hundred pages of steigem CHERSNZ And the basic idea is the five year inflation and just a yield. I got a four standard deviation round trip from a positive two standard deviations to now exactly a negative two standard deviations. Is it finally where we get out of range with a lower real yield.
There's a chance for yields to plunge in the months ahead because the employment numbers likely to get substantially the weaker beginning in the fall due to the expiration of key immigration programs, for one, secondly because of the drop in immigration flows, and third because of the federal workers. Remember, many will let go three million federal workers, five million contractors. All of that impact probably will be seen in the fall.
Add on top of that uncertainty related to tariffs, geopolitics, even other facts. Is one final point. There's something called the birth death model, the edited bias adjustment. The government makes an assumption for how many new jobs are created based on the numbers of businesses that it thinks were created that it doesn't know about yet because it new, and it adds in near over one hundred thousand jobs
per month to that. But what is finding in the reconciliation of those data nine months afterward that it overcounted by twenty five thirty thousand per month. I can point to many other things that suggest the payale numbers will fall substantially below where they've been recently, and on a payroll Friday somewhere out there in the months ahead, the bottom market, specifically the short term interest rates and out to five years could rally substantially.
So why isn't it FED cutting.
Because we all know Mary Daily has just spoke from the San Francisco FED about the idea of wanting some validation We don't know. This is an assumption. Often people write off the US economy and it always shows resilience. It just wants to be short. And the biggest thing, though Paul, is inflation expectations. We met with Janet Yelling at our recent secular forum where we devise a five year out look. She's part of our global advisory board.
She wrote papers back in twenty fifteen and twenty seventeen, some of my favorite papers with forty footnotes, where she concluded it was called inflation dynamics. She concluded the cause of inflation, the main cause is how people feel about it, and how people feel about inflation has been affected by teriffs. And she wants then still daily noos wan be shor it's done.
We love to have tony perscents again.
Yellen codified the phrase slack in the economy. We perceived that then as an American economy. Can we do that now? Were there forty footnotes? If we have two stark Americas of haves.
And have nots, we can because all we have to look at is how fast can the economy grow? How fast is it growing? And that that suggests a growth recession, not an outright recession, which is defined as a contraction in GDP, which was seen in the first quarter of the year. But what if the economy grows at one percent?
Sort of pin cup projection in that zone and consensus for the next year, the Fed says it can grow according to the Summary of Economic Projections, about one point seven because that's the combination of the people and how productive the areto point three percent increase in people one and a half percent increase in productivity. If we grow at one percent, a company will say, hmm, I can I can handle about an increase of about two in a demand of goods and services. It's only one Should
I slow hiring and spending. That depends on the sentiment that exists at that time. They could either say yes, I'm going to cut back, I'm really nervous, or it's short term, don't worry about and keep the game going.
That's three cent right here for America across the nation. An extraordinary busy, eclectic news flow here at Bloomberg Surveillance. We welcome all of you, particularly ninety nine one FM in Washington. A briefing by the Pentagon, by the Secretary of Defense, by the Chairman of the Joint Chiefs of Staff, with really striking video of the military actions of the last number of days. We're going to look at private credit for global Wall Street, for Manhattan Wall Street. Randy
Schummer will be with us in a bit. We continue now with Tony Crescenzi of Pimco.
As well, Paul Tony.
How much credit risk should investors be taking these days? Because I can sit into your treasury, I'm not getting four percent, but I'm still getting three and three quarters percent.
That's not a bad living.
How much credit or well in investment portfolios managed by Pimco and other large managers, a bond investor can achieve a yield up between five and seven percent for a double A minus average credit quality, which means a ninety nine point nine eight percent chance of getting your money back according to long Term Moody's data. But that five to seven percent number, which we would call the nirvana for bond investing, need have credit mingled in that. But
what is credit? You could say that agency mortgage backed securities, the mortgages that are backed by Fanny May and Freddie Mack implicitly back by the United States, is a form of credit. It has a yield spread to treasuries of one hundred and fifty basis points one fifty. That's a big yield advantage. And so we are at PIMCO overweight mortgage backed security. So it's just a matter of how you obtain that credit allocation. In fact, the credit beta
as they call it. We'd be more careful about high yield, for example, where we'd be significantly below where we would let's say one more extreme covaluation. It's a great performer, but we know the convexity of it, which is to say, in bad times you're not going to fare well. And if you can achieve five to seven percent, which is very attractive relative to history, inflation and volatility taken up, don't.
Do Does he understand that if you say convexity the surveillance trapped door, Yes, is it risk?
It's another way of saying of like a boomerang, be careful. It could really swing the other way.
So short term paper like Jerome Schneider's just killing it this year, isn't he?
The money market king is faring well. We've got a big yield advantage in that space.
The thing to.
Worry about most is investors, you know, have a households have a major task here. They've been so successful in locking and low mortgage rates. They should move with the same urgency from shorter instruments into into somewhat longer duration five years or so five to ten years and locking these high yields.
To thank you, Tony, Thank you, sir.
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.
Stephanie Mouth joins us down from Wolf Research, but far more stuff. They've got to ask the thing that mayor that mayor not Mayor Daily that Chicago, Mary Daily of San Francisco said, which is I think important?
And this is something in.
The financial media that I think is lost. They don't really follow the bond market and all the predictive statistics that we have available today, do they.
No?
And I mean the main focus for them is going to be on the data as they come up data and as as Mary Daily said, if they were purely looking at the inflation data as it was reported, which is somewhere backward looking, they would think the inflation picture is quite good.
Can we get two.
Negative statistics of GDP, the King keep James Perturba and the NBER on a path to recession.
No. I mean well, first of all, the first quarter certainly revised down on consumption, so that's not great. But the second quarter is looking to be a number that could be nearly four percent because we're gonna have a bounce back in trade. So a lot of the volatility that drove Q one to be so weak was driven by front loading of tariffs that's going to go and reverse in the second quarter. The measures of real final demand were something like two percent for the for the
first quarter, so it was just fine. So we expect it to be kind of a decent year for growth, certainly slower than where we've been, something in the one and a half percent range, but nothing that's going to flag our session to the.
To the like me takes the two quarter moving Hell, you look at you.
How about the labor market, Stephanie, I'm looking at the continuous continuing claims came in in higher than expected the heights twenty twenty one.
Should we start worrying a little bit about the labor market here?
I think what we're seeing is the job finding prospects have slowed down pretty substantially. But the important thing is we're not really seeing layoffs pick up. So it is the sign of a cooling labor market, which was largely consensus kind of heading into this year. I think that should be the sort of messages that the labor markets.
Should hold up.
But it is certainly a lot cooler than where it's been. The thing to focus on from here on out is to what extent immigration ends up putting significant downward pressure on job gains. So our forecast we just put out for for next Thursday the Perils for reports on Thursday next week, it's for one hundred and thirty thousand, which is a decent number. Granted we do think it will ultimately get revised down below that, but at least on first print it should be decent.
So how do we think about that immigration issue, the southern borders effect that we've been closed. How does that flow into I don't know, the farm and farming industry, the construction housing business, which I know employs a lot of immigrants. How does that work.
Yeah, that's going to be a challenge. And I think it's not even just about the order being closed. The flows of immigration have slowed down quite a bit since the the beginning of the Trump administration, and even at the end of the Biden administration they did start to slow down the flows of immigration. What's going to be important from here on out is the visa expiration. So there is about one and a half million to three
million people whose visas are going to expire. Because these are discretionary visas, the administration has the ability to end them over the next eighteen months. And this is going to be the real impact to the industries that you cite, farming, construction, leisure, and hospitality. In some areas, this is where it could start to become a real tightening and the companies might have trouble finding labor. Again.
Really, let's crystallize this to the jobs report on July third. It's the first time I've looked at the numbers. Folks definitely were off the course. Living this last time around was one hundred and thirty nine thousand, well under one fifty, well under two hundred. The statistic now is one hundred and sixteen thousand. That one hundred and sixteen thousand isn't the same as one hundred.
And sixteen thousand and five or ten years ago, is it? No, it's not what's ad delta.
So the way I think about it is the job number versus sort of the break even rate. The break even rate meaning kind of a steady state that would be sort of neither tightening nor easing up on the labor market. Today, that's around seventy five thousand based on our estimates, but two years ago that was double that.
So that's why we were able to sustain really high job gains without really seeing, you know, a significant tightening in the labor market because we had all this flow of immigration that is largely cut off, and that seventy five might even be slightly lower than that realistically.
So is there an unemployment rate number that gets the Fed's attention?
Do you think?
Yeah? I think I think in two directions. Right, So, the FED zone forecast or that it could be four and a half percent by the end of this year, and they kind of expected to stay there through next year. So if you get to four and a half percent by you know, the fall certainly would be grounds to
be cutting. But there's a chance that this whole immigration dialogue that we're having does the has the opposite effect on the unemployment rate because it is tightening the labor market in those blue collar industries and could actually put some downward pressure keeping it from rising substantially. That would be the environment where the Fed doesn't cut this year.
Interesting because right now the unemployment.
I'm getting a lot of mystery here.
Well that's I mean, on the one hand, Tom, on the other, I mean, unemployment rate is forecast to be just four point three percent, uh coming up. I mean again, it feels to me, and I think that most people like kind of full employment.
Yeah, so I think I think that to take it to like remove some of the mystery. I think what we're looking at is an environment where the economy is slowed down. We're at a one and a half is percent GDP growth, which is fine, not great. The unemployment rate kind of bounces between four to two and four five, and we kind of see an environment that's okay, and
then we actually begin to accelerate next year. The immigration thing is going to mean that we see slower job but we don't necessarily need to be scared of That is the nehru.
I mean, we've got literally, folks, we've got a function on the Bloomberg TAYL which is the tailor rule, which is, you know, somewhat out.
Of vogue to say the least.
Can you do a fancy Stephanie roth Nehru into tailor rule, Oaken law calculation or is all that academic mumbo jumbo just as useless right now? Yeah?
I mean, well, for a long period of time it was particular uses. I think now it's going to become more relevant. But what we're looking at is an environment where the sort of non inflationary unemployment rate is probably in this, you know, for two to four five percent range, and I think at that point, you know, you're not really seeing that that have to reap either way. If it moves below for certainly inflationary moves above four and a half, then that's weakening in the economy.
Thirty seconds week dollar. If we get a legitimate week.
Dollar, does that provide stimulus through exports?
Yeah, And it also crites some inflationary pressures in an environment where we don't really want to see inflationary pressures. So base cases you start to see inflation pick up over the summer. There's because we've had the past couple of months of low inflation, the markets has sort of assumed that tariffs don't matter, and we're going to see inflation. Just because we saw low inflation recently doesn't mean over the summer it's not going to pick up.
SEFERI row.
Thank you so much for the world research this morning. Just a great brief off that key economic data.
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.
Anticipated for Global, Wall Street and a Manhattan Raffendy Swimmer joins us here from Churchill Paul.
Randy Schwimmer is the vice chairman investor Solutionscripts Churchill Asset Management Joints. Is here in our studio here, Randy, if I've got if I'm a private equity, private credit, can I get out of any of my deals? I need some liquidity, dude, It's been years since I've been able. The IPO market seems kind of lame. I'm not seeing a ton of m and ah.
How do I get liquidity?
Yeah?
So see, you know, I always come armed and prepared for because this is the center for a private market's excellence here at Bloomberg Surveillance with you too. So we just came out yesterday with a survey of almost sixty four yeah, one hundred and sixty four private equity leaders. And what they're saying, which is now consistent with what we're seeing, more optimism about deal flowkay opening up before
the second half starts of this year. About twenty five percent said more deal flow than another twenty five percent, so total about fifty saying it's coming before the first half of the next year. Why is that happening? Because the deals that they're looking at have isolated tariff risk already. So for example, hot topic right now, pest control businesses. Why is that hot topic? Because you know who does care about fed cuts, ants and termites? They are indifferent,
all right? Why don't they care? Because it's more of
a seasonal thing. And by the way, you are experiencing lots of flies in the kitchen during this hot weather, right So, pest control firms are opportunities because very little equipment, not a lot of labor, and repeatable revenue sources of occurring how many times have you fired your pest control at very few once they're in and these are small business so privately, it's like, you know what, we're going to consolidate these mom and pops and create bigger platforms
than sell them. And those businesses, because they're they're strong through various cycles, right, all of a sudden have greater value. So now what we're seeing in our shop is a tickup of deal flow, which means more realization. So stay tuned, Paul, it's coming.
The headlines is private credit is trying to find a new valuation and maybe private equity too. You mentioned there's three trillion dollars looking to exit out there in some way somehow out Yeah, go through the process right now about somebody an endowment or whoever.
Has to clear they have to sell private credit.
How does that occur on a less heated Thursday in June.
Yeah.
So what they're doing now is they're coming to us and they're saying, Randy, you know, you guys have really successful platform. There's certain strategies we really like about your business. We have these other businesses that we want to get out of. Okay, can you help us to move our portfolio from strategies that we thought we're going to work out, but over the last several years has not been as resilient as we thought, or the returns haven't been there.
So we sit down on a consulting basis with these firms and we say, we can help you get into a let's call it, a more resilient area with better returns.
And lower risk. Everyone wants to know how much hair.
Depends on the well, it depends on the risk asset class that they are currently in, right, So if they're in a distress class and they're not getting the volume, which by the way, historically has been the case. Because where's the recession. Everybody's saying, Hey, every thing about private credit is you know, you've done really well, but there hasn't been a real recession, which is true. You know, there's been little crises. As one of my friends at
Moody says, there have been quizzes, not tests. Okay, but you know what, some of the asset classes have failed the quizzes.
Right, if you fail a quiz.
You're still failing. So I do think that what we're seeing now from our survey and what we're seeing in our pipeline, so April was kind of a low month, you know, given tariffs and everything else. May was a bit of a comeback. June we have seen fifty percent higher deal flow than we saw June of last year. So I think this three trillion dollars time that you mentioned globally of corporates waiting to acxit is that that
ice cube is starting to melt. We're seeing it in our pipeline, We're seeing it in global m and A data. The folks at London Stock Exchange keep track of this. M and A for twenty twenty five through the middle of June is up, you know, over twenty two and twenty three. So I do think that it's coming back.
Where are the banks here? As you in your private credit folks look at deals, where are the banks these days? Because you guys walk on middle market.
And where are the banks?
Yeah, so great segue. So kudos to Carmen Arroya and Ellen Schneider, your reporters who came out yesterday. I guess it was Tuesday headline JP Morgan Traders shut out of private credit market. Okay, what's going on there is they're going out with their list. You know, I worked there, you worked there right. You know, remember they go out lists, Hey, we'd like to buy these loans, and then here's a bunch of loans, okay, or we want to sell those loans.
Here's here's the list. And what your reporters basically said, which is really true, is that you know, nobody wants to sell these loans. If I have a three hundred, I have three hundred loans through the companies in my senior portfolio, and they're doing well, why would I want
to sell them? So while JP is obviously a giant in terms of secondary trading and loans and bonds and everything else, in the private markets, it's more challenging because these things are I liquid And one of the people that they quote says, it's like making an Ostrich fly. It doesn't happen.
Do you care just one final question quickly, do you care about mark to market?
There is no such things, right, So, what we care about our third party valuations? So we have three distinct outside firms who come in every quarter and value all of eachlums, each item. Right now, we have a run on team that weighs in sure, But you know, if you have three outside firms saying here's what the loan is that's that's mark to market.
Okay, Randy too short of visit Randy Schummer, Thank you so much. Let's do this again much bunch longer. Get you at the top of the hour.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple Coarclay, and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.
A lot of people we'll talk about fancy degrees.
I think a PP and E at Williams, any of another, you know, microeconomics at the University of Chicago, Biomedical science at Texas, A and M bience medical arguably the most prestigious BioMed degree in the country. There's a few other institutions getting it right. Angie Guildea survived that. Angie, what was it like surviving the biomedical combine at College Station.
It was hard. I'll tell you. There were a lot of really smart aggies out there. So I'm glad to have graduated and gotten a prestigious degree from the types of A and M.
Absolutely iconic degree. I have to have you.
Alisa Matteo mentions the shell BP none event. Do you people at KPMG, do you look for a big oil upstream roll up?
You know what we've been seeing in the market, and we've seen this over the last couple of years, is consolidate. You saw Exxon Bay Pioneer. You saw Chevron make a bid for Ana Dharker, which the Oxy ended up purchasing and then hes. So certainly, I think consolidation in the market is something that will continue. Who buys who is something that's still left to be.
Determined, Angie.
I watched the Whoa Whoa?
You know the answer because she watched Limb Man. I know, you know who buys who?
Yeah, I mean I watched the first season of Land Man. I consider myself an expert now in all things oil and gas, Angie, but I noticed that that risk premium that we saw in crude oil from the Mid East, escalation in Iran, that seems to be out of the market now. So what are the underlining fundamentals of global oil these days?
It's a fascinating situation that happened because if you compare what happened in the seventies with the oral embargo, with the Iraqi war in two thousand and three. I mean, we just not see the spike that historically we've seen when there's conflict in the Middle East. And I think part of that is the markets are more mature, we've got more data. But a big part of that is one, there's oversupply in the market right now, so we're washed
and oil. And the second thing is the relevance that the US shale and American production has had to the market. I mean, we're the number one producing country in the world, and the reliance on the Middle East oil is not what it was twenty thirty forty years ago.
You're down there in Houston, the center of the US energy business. Where are your clients. What do they want to really see crude oil in terms of price? What's kind of the ideal range.
Ideally it's above seventy dollars a barrel. It's different in different assets. But the cost of drilling the shale is the inventory is depleting, so the cost are going up. There's some additional costs from drilling with the terriffs on the steel pipe and things like that. So really you've got to see above seventy dollars a barrel is really a good sweet spot. Otherwise it just gets really really tough to maintain profitability.
Angie, one more question and a busy busy day here. As I talked about the roll up as well the ev electric ESG thing and all of it related to hydrocarbons. Are we in the same regime of thirty six months ago or is it a new new for the debate in America of hydrocarbons and electricity.
Well, it's interesting. We just had the statistical review come out that KPMG sponsored with the Energy Institute, and we're seeing all forms of energy grow. We saw US renewables grow at a seven percent rate, which was faster than Europe. But we're seeing it play out in different parts of the world. China, for instance, added more renewables than any other country combined. They still use a big part of their wedge around gas and fossil fuels cold, but they are completely adding to the mix.
Andrew too short of visit, Angie Gilde, Thank you so much, the KPMG, the United States Energy Leader.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple, Cocklay 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 joining us now with our newspapers.
And she said, we're starting with this. I don't care what you people think, Lisa Matteo.
Yes, but Brad Pitt can fit into that F one And this is interesting. It's a question from the Wall Street Journal. So it's can F one finally deliver Apple a big screen hit? So it's coming out in theaters this week, right, Brad pitts in it. When the team first started pitching the movie, there was a bidding war for it. Okay, so Apple paid some big money. They agreed to spend two hundred and fifty million dollars. Brad
Pitt paid more than twenty million dollars. He's going to get a cut of the film's revenue if it becomes a big hit. Yeah, and you have big like directors. The director of Top Gun Matters, It's yes.
I'm gonnapreciate it in the theater.
Yes, And I feel like you have to, like even Imax because the sound and all that kind of stuff with it. But pre release surveys are showing that F one is struggling to generate interests of audiences beyond older men. So they're not getting that younger group.
Okay, but the one is all the all the the drivers are you know, honky boy toys for the girls. So they're getting a lot of girls watching F one, huge worldwide audience. Is that what they think here, that, like you know, Barbie or whatever, women will show up to.
See F one? Is that in the zeitgeist?
Well they're hoping, I mean, because you think about like that, what was that other movie, Grand Tarorismo, that other race car movies that came out, and that was a great one. It attracted the younger audience, It attracted the women. It did that. It also had a younger star. And okay, no, not at all right over my head, but we will give the recap on Monday. I'll let you know how it did. This is when I'm also in the Wall Street Journal. Weighted vests. I know you've trained. I have
the waighted vest. I got it for Mother's Day.
I asked for it.
It was on special requests. But you've seen the women right running around with these things. It was huge with the military and now the women. It's like a fashion statement.
For Father's Day. It was a case of.
What works for you has and she does the peloton like treadmill, so she wears it at the Again, by the way, while she's doing this, I'm just kicking back on the couch watching ESPN.
Oh my god, you have to because they went into the research behind it. So, yes, it does burn more calories. That's the whole thing why the women are doing it. If you wear one about ten percent of your body weight, it's going to burn an initial eight and a half calories. And then if you get the heavy one. I have a sixteen pound one and a twenty pound one.
Let's get two on hand.
But that's the thing. They say. If you go too high and if you start feeling pressure in your back, they say to go down in weight. They say, don't do it in like jumping exercises and all that, because you can hurt yourself. That's the morning pound just fine. But no, you got to wear it around the house like you gotta as you're doing your cleaning.
Yes, so you've done Brad Pitt and Girl Wellness Year. This is a twisted newspapers.
We have time for this one's even better.
Okay.
Nike comes out with earnings today, right, but the talk is about its latest shoe. It's a snowfer snow Yes, it is a sneaker and a loafer. Okay, and this is the phenomenon. You've seen men wearing the right they're the comfortable shoes. So now Nike is starting to jump on that. You know, Tom, you've talked about all like the executives kind of wearing them. You see the pictures if you're watching on YouTube.
What do you think?
I mean, they're they're kind of cute. No they're not. They're kind of ugly. But it's the air Maax phenomenon. And it's it comes out June twenty seven. It hasn't even been released yet, and it's and it's going for like five hundred dollars in resale prices.
What's a snow part? Does it feel?
Sneakers? Yes, sneaker and a loafer. Sneaker, sneaker and a loafer. So you see the bottom is like the sneaker and the top is like a penny loaf.
David Weston walking around the snow.
For then I know it's I'm telling you men love these things.
Yes, all right, we're getting to Jack per Sells, the original snowfer. Yes, remember that you'd have white and black Jack Bert. There was a huge choice, be a Flyers or Jack Purcelles.
That was it.
Lisa Mateo, the newspapers, Thank you.
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