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Scrid thing is serious stuff. Are you rebuilding America Front Center? And it's It's a story that's not going to go away. Wayley mentions that with a great chart on materials, We're thrilled that she could join us this morning for an extended conversation chief investment strategists for the world for mister Fink and Blackrock this morning. Wyley, you're out on LinkedIn.
Dan Roth emailed me at LinkedIn, He says, Tom pitch LinkedIn. Okay, you want to join LinkedIn, folks for no other reason to watch way Lee of black Rock and Urine timor Fidelity and I'll mentioned Marcains as well at Pangaea in Washington. Wayley, this chart is spectacular on the emotion evaluation, energy up versus earnings, where technology continues to win. Whatever the word outcome is on July fourth, technology is going to continue to win, right.
Well, This is a sentiment emotional market, it's not a fundamental market. The chart that you refer to Tom shows the energy sector is the best performing, not surprisingly so far this year, but in terms of earnings is the worst in terms of earnings delivery. But it doesn't matter when market is a repricing risk premier, and by the way, it's repricing risk premium in an extremely extremely tropy ways
so far this week. It's just the latest evidence that we cannot predict the blow by blow in terms of announcements, which is white directionally with flattening exposure to equities.
Flattening exposure to equities.
Is that suggesting way that maybe these markets are maybe too sanguine about the risk opposed by perhaps higher energy prices for longer.
I would say two things.
First is this, Yes, there is a disconnect between energy market that is pricing in doable disruption and.
Broader risk assets.
You look at US equities that's just down I think four percent from the beginning of the conflict, So there is definitely a disconnect. And the second thing I would say is that I've spoken to a lot of investors the last three weeks, and lots of clients globally as well. There are really just two ways to invest in and navigate this market. The first one is directionally, second one
is thematically. So what flattening exposure directionally because in the near term it's just so trophy reacting to headlines.
But thematically, as a.
Result of events in the Middle East is to every single company, every single government globally, they are going to think even harder about supply chain resilience, even harder about energy independence, and those are the things that we want to lean into.
So waylia, are there certain sectors here that even though you're kind of taking down your risk appetite that thematically is it defense?
Is it infrastructure?
Is that a place to hide or maybe try to take advantage of this uncertainty?
Absolutely, So the adjustment that we have made is to brain broad US acrodies from modest overweight to neutral, recognizing that there is a disconnect between the energy market pricing and where risk assets are. And then we're also leaning into you know, like we up the European government bond front to end from neutral to models overweight and recognizing government bonds broadly the front end they have gone through significant reprising, really notable, So there is a big pash
buffer to be to be built. But you talked about infrastructure, defense and energy. Visit the themes that we want to lean into Waily with us.
And we continue with our sheu's with black Rock as Global Chief Investment Strategies. Paul helped me here because I'm sick of Duke and we'll talk about that in a moment. Is the University of Cambridge in March madness?
No, I don't think they are.
They're not in there. Okay, Wayley over at Duke, which is going to win the tournament. According to Paul Sweeney, there's a professor Cameron Harvey, Cam Harvey, and he is definitive on the idea that bonds lead stocks, that the price dynamics of bonds are out front of what equities will do. Do you buy that within your mathematical work, Cambridge?
I think it depends on lead by how much? Really, it's not unusual that the bond markets price in one version of the world and accadey market is pricing another version of the world. This is why we say that bond investors are a bit more bearish as in personality than accudy investors. But the jokes aside I would say that we have seen meaningful, meaningful repricing in bond market, both on the front end and also to some extent
on the on the back end. You look at concerns around inflation, concerns around fiscal and they have yet to be reflexed in equities.
And this is the dissonance that we are aware.
We're trying to take advantage of and lean into with the adjustments that we have made.
You've got a radar like no one out there way leading your visits with black red clients. Not what are they thinking, what their emotion is, but what are they doing in a reallocation a mid.
War Well, the first observation I would make is that actually there has been some continued momentum into US assets. So Regreader was just sharing this. So rec Raader was just can hear me? Sorry, there is are t give me.
Somebody is calling me. Chean Balvan is calling me.
So reg Raader was just sharing me this flow chart that shows that inflows into US assets across Appleism bonds have been quite strong. And this is despite the fact that steflationary momentum has been building, right, and I think that has really been the reason behind why these markets have been holding up reasonably while even in the face of the broad supply disruption. So that's one observation I
would make around flow. The second observation is that investors are not meaningfully, meaning fully kind of position for extreme scenarios yet because it takes it takes time, and also it takes a huge kind of conviction to position for a totally different automative scenario. So there's a lot of discussions around kind of Plan B, Plan.
C, but meaningful overhaul or for.
The scenarios I have yet to see coming through in my conversation with clients.
We continue with the way we leave with Blackrock here as well. Markets deteriorate futures in negative forty seven right now, the Vicks twenty seven point five four in oil moving, we're gonna get a one oh four one oh three point four to four on branch crewed up a solid three and a half percent. Paul Sweeney with Way Lee of Blackrock.
Welly twenty twenty five was a really good year for global equity markets. The US did quite well, but many non US markets did even better. And maybe I don't know, not not sure if that was to sell America trade or just because a dollar was weak in twenty twenty five. How's your allocation geographically these days US versus rest of the world.
We think that over the longer term there is steel space for US to continue to play a leading role if you just look at kind of the relative earnings momentum. But as I also said at the beginning of this interview, we have flattened over the very near term in terms of the exposure to actuality directionally, and that means us we are flat. Were neutral, Europe were neutral, Japan were neutral,
and broader emergent markets were neutral. And that is really recognizing that so far we haven't seen arrangeable avenues of actions that point to sustained polls to this broader supply disruption. But having said it, over the slightly longer term, we still expect the feedback mechanism from higher oil price to bind. Is just that this bread told that binds maybe more painful than he looked initially.
But you mentioned Wayy, the modern disease. You say you're neutral here, neutral there, neutral everywhere. I think of Gina Martin Adams on this Wayley, the modern American financial media says neutral is go to cash. What is the trap of going to cash here? If Black Rock says have courage and be neutral.
Well, I would say that it's very important to be invested.
Our CEO and chairman Larry it.
Is published his letter let me just pull up this key stet so over time, staying investors is mattered far more than getting the timing right. Over the last two decades, every dollar invested in S and P five hundred grew more than eightfold. Missed just ten best days, you would have earned less than half of that right. So I think staying investors, even in the face of droopolitical ANSWERSNTY, is important. But neutral is our way to tighten risk exposure.
But we're also very dynamic in looking to lean into thematic opportunities and looking to potentially.
Up if we see signs of tangible action.
Paul, this is just so great you and I. It's mister Fink, It's Lawrence Film for Wayly, It's like share.
It's just well exactly and we knew exactly who she was referring to.
Wall Again, before the Iran War started, the theme for most investors in most markets was AI.
How are you playing AI these days?
Because it's gone from being just we're going to buy whoever spending the most money to now we really need to think about can generate a return on all this investment.
That's absolutely right, and I think the infrastructure to build out layer is still very much well positioned at this point of AI transformation because it may take longer for the winners of the adoption phase to emerge, and right now, so far the narrative this year at least has focused a lot on the losers of the adoption pace. So the big picture is that here today we have seen
focus shifting from AI winners to AI losers. If you think about kind of software and the reasons for that, it's not entirely left field.
Right.
Like we've been flagging that it takes time for kapex spent to then lead to.
New revenue generation.
Markets can be in patient, and markets are periodically going to just question the return on investment of this investors or of the capex spent. But the conviction in AI transformation has increased, not decreased. And if you look at multiples after the derating that we have seen so far this year Max seven in media, they aretting at close to the same levels that they were at the beginning of tragedy the launch. So there are good value opportunities right now given the derating and we continue.
Do you like it as a thing degrading is.
Priced down in University of Cambridge Shock Paul. Forward to the summer of this year, Microsoft PE twenty two point seven.
Yeah, I did not know that. Now, that's amazing.
So whainly as you think about some of the software names that got sold off, I mean, how do you try to differentiate a winner and a loser on the software side, because it seemed like for a while there investors were just kind of selling everything.
Yeah, it has been a bit of a discrimin, indiscriminated to sell off, throwing the baby's out of the bath water, But there is huge room for dispersion and then being selective. So retail software providers with little mode could be more vulnerable, whereas enterprise software providers with deep vertical integration that can actually benefit from AI integration and productivity boost they are
better positions. So I think this is really an environment for active stock selection and being very dynamic.
Generous time Waye, thank you, thank you so much for the perspective today, and again I can't say enough folks about her commitment to informing the public. Out on LinkedIn way Lee with Blackrock, their global chief investment strategists. 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 Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
Joining us right now. Mark Howard's senior multa as a specialist at BMP Perry Bah under the category many talk but others do. Mark Howard driving for a Band of Parents.
This is a.
Charity you do every year in ice hockey, discuss pediatic cancer and what you're doing.
You know, when you see kids suffer and their families suffer, it is just incredibly heart wrenching. And so band of Parents does this thing at Madison Square Garden where old guys like I get to go out and whip around the ice and play a game behind it rather.
Than the Rangers last night with nine shots.
It wasn't pretty. It wasn't pretty, but it's it's a tremendous cause. It brings people from across the country. They actually come to play from Chicago and from other.
And at Madison Square. Yeah, so it's a it's a.
Wonderful charity and and uh and and the outcomes the research that it supports at MSK and at other institutions actually leads to positive outcomes with kids with these rare cancers.
Explain the uniqueness of memorials slung Cottering in.
Cancer just world class and very deep pockets and very creative. I've also been an active participant in Cycle for Survival, which you're probably familiar with. A lot of organizations in New York do that as well, which again provides for MSK to do groundbreaking work, long tail work that requires consistent funding but leads to really positive outcomes.
Mark hard being prepared by their on cancer in pediatric cancer. We have a war. I guess the optimism is someday it will be over. Do you prepare now for the good news of an end of the war.
I think you have to prepare for multiple outcomes. Tom clients I talked to and our trading desks are gaming out using real game theory to anticipate various outcomes, because as we saw yesterday with an incredible whipsaw and we could see that tomorrow the next day. You have to be prepared for multiple scenarios because this is not like tariffs, where a simple strike of the pen can reverse and
you go back to close to where we started. The damage to infrastructure is going to take years to replace, The damage to trust, and the implications on global inflation are going to be here for a while. So I think you have to be prepared for better but not normal outcomes. But you also have to be prepared for weaker outcomes. Haven't we haven't seen the knock on to corporate profit expectations. I think we will see that in the months to come, So you have to prepare for both.
So how are you positioning these days? At BNP Pirie bought multi asset specialists. What asset are you guys focusing on these days or how are you positioning amongst the assets?
That's a great question. I wish there was one silver bullet, one great asset, but there is no one. I think diversification is how you prepare and deal with this adversity. There are also some asset classes that you might have ignored because they seemed a little sleepy, or perhaps less
compelling but stand out now like mortgagees. You know, the number two fixed income asset class category doesn't get a whole lot of commentary from time to time, but it actually is a is a really you know, compelling opportunity.
How much bigger is the yield on a mortgage piece than a full faith.
And credit Well, it depends, you know, it varies, but it could be anywhere from thirty to fifty basis points. It's not a tremendous amount, but in terms of a store of value, a place of safety where you get some extra spread is quite compelling, particularly at a time when treasuries have been, you know, kind of backing up aggressively.
Until yesterday, Tom's been making the point that we're not for a rin. One of the bigger.
Issues for Global Wall streeting these markets to deal with is private credit and really how much of a risk that represents for investors. We know it's a two trillion dollar market. Gary Gensler a couple of days ago said, yeah, it's two trillion dollars, but the global capital markets are one hundred and twenty trillion, So put it into context, how do you guys think about that?
Yeah, it's a great concern amongst investors right now. My colleague Calvin C who you know, was recently in Asia and in particularly in Japan, and it was the number one question Calvin received from every client he visited in Japan. So it's not just a domestic concern. A lot of money has flown into the asset class ball and so I think the question is not so much the systemic impact, because I think most people who have really thought it through don't see a systemic knock on, but rather they
see a rotational effect. They see people halting their investments into what was a hot new category and now we're seeing actually reversals, people trying to put the money out.
It's Paul's important question, folks. I don't think there's any other question more important right now for Global Wall Street other than this war. Brent crude right now one oh one seventy three up a dollars seventy nine and private credit in this the people in the game saying this is not a big deal. That's the summary. Everybody's radars up. I'm sorry it's on the cover of Bloomberg cover the Ft and that BOYD does it feel like two thousand and six? Does it feel like two thousand and six.
We're getting tom where Yeah, I think six is more accurate than perhaps eight. And but the on ramp is there, and if certain dominoes don't go the right way, absolutely, that's gonna be a real problem.
Story. Can I do a story? You won't walk out of the studio?
Yeah.
I'm in the Saint Regis in Beijing, dumpy old hotel before the fancy Saint Regis, sitting in a chair six Laido five. Two bankers are giggling about whatever they're giggling about. I got the ft open in Gillian tet Is lecturing me on cdo squares. It was frozen in time that moment as I listened to the synthetic unsynthetic derivatives. Why is this, Paul, Why is this any different? You tell me?
I hope it is so?
Mark? What do you where's the risk in this market here? Aside from the geopolitical risk here? What do you guys maybe staying away from maybe hedging.
What are those conversations like, well, I think inflation is a risk. And you know you had a great speaker on last week. I belie I believe it was Loop and Ramen great boiler, and she frames some of the important not so obvious factors around the sovereign debt markets in the developed markets, not just in emerging markets. And I think people take for granted. You know, there's a
view that a Trump put exists. There's also a view that the you know, the fedkins come to the rescue, that fiscal policy can come to the rescue, and and others are saying that's not the case. You can't assume that there's going to be fiscal largessit. There's going to be monetary backstops the way there have been in the past, because the degrees of freedom, the flexibility to starn't there.
Alexis what was the shopping show years ago on the channel QVC QVC QVC Folks, it's loop in Ramen's new book, The Sovereign Debt Investors, she's TEMPCO, I AMF. She was in the other day. This is the best two hundred page non math walkthrough of Mark Howard's World. We thank you and a QVC it's yours for sixteen.
There you go, mar we heard from the FED recently. What do you think the Fed's thinking about these days? Because it looks like if you look at the WRP function. It seems like the market has no idea cut rates, raise rates, kind of. It looks like the markets right now is just pricing in nothing.
Yeah, it's a really difficult time to be a central banker, and not just here but around the world, particularly in places where inflation is the primary or only mandate. At least here, we've got both growth and inflation as a mandate, So they're looking at everything, and as you know, with a supply shock, the first order is usually on inflation, the second order is on growth. So they're trying to calibrate the severity and the duration of both the shock
and then the now gone to growth. And it's a very imprecise thing because you have other vectors such as deficit spending, such as trade, etc. So it's a very complex calculus.
Markhart, thank you so much. BMP Perry bout stay with us. More from Bloomberg's Surveillance coming up after this.
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One of the great joys of Bloomberg is the absolute depth of the academics backing up the news and analysis that we do. Jennifer Welch has chief you Economics analysts for Bloomberg Economics out of the Bucknell East Asian Studies combined with Eric Lofkran. Jennifer, I want to start there, where is China in this war debate? You've done a
lot of work on that, including work in Beijing. Where do you see China fitting in to the uncertainties we face with President Trump, with mister net Yahoo, and with Iran.
I think China is playing a balancing actor right now. It's also playing the long game. It is being careful to maintain it's rhetorical support for Iran, which has a strategic partnership with Beijing packed a formal pack signed in twenty twenty one, but it is not going so far as to provide around material support in this war, at least as far as we can tell, in part because China is worried about balancing its ties to other goal states who it also sees important partners in the region.
So I think what we're likely to see from Beijing is this continued calibrated approach of right backing Iran, but only so far.
What is a distinction of that versus mister putin Moscow and Russia.
Moscow is going in a little bit further tilts with Iran. We're seeing reports that Russia is, for example, providing targeting intelligence and other intelligence sharing with Iran to support its actual military activity against the US and Israel. That is certainly further than where China has been willing to go to a date. But I think even for Russia, we're unlikely to see Russia get directly involved in this pray.
It remains very much focused on the war in Ukraine, and it is also a little bit leery of doing anything that would draw Washington's iire maybe pushed the United States to either support Ukraine more deeply or to heightened distinctions on Russia.
Jennifer, The market's very uncertain as to the status of what's going on in Aron, particular as it relates to negotiations. Yesterday, President Trump issued via social media that talks were in fact taking place, and he was so enthusia that he was going to pause some military options. Yet we've not really heard anything confirming that from the other side, Do you have any insight as to what's actually going on.
Yeah, we're actually hearing directly contradictory things from Iran, which is flat out denying that talks are happening, including denying this Axios report regarding specific talks that were happening between Steve Whitkoff, Jared Kushner, and Ron's parliament speaker, with the Irani and parliament speaker coming out on x and saying
he is not involved in those negotiations. I think to be clear, we should recognize that both sides have an interest in putting out different language on this, that the US wants to reassure markets, and Iranian officials probably don't want to to negotiating with the United States while still under attack. That being said, the United States does seem to be pursuing negotiations. Talks might be happening through back channels or indirectly through mediators. There does seem to be
some sort of communication occurring. But I think the larger question is does that mean we're any closer to a ceasefire? And at this stage we would say no. Both sides seem to be very far apart on what the terms of that would be, and so we see the odds of a full resolution of this conflict in the near
term is rather unlikely. Instead, what we might see is either further escalation, as the United States is considering deploying additional forces to the region, or a dip into a lower intensity conflict that could still pose major risks of the global energy market.
Jenniferser, from your sources, is there a sense that there's a possibility or probability or a likelihood that President Trump may just wake up some day and say I'm kind of bored of all this and say we've achieved our objectives and just kind of walk away.
Is that in the cards at all.
It does seem, and it has seemed for at least two weeks now, that President Trump is looking for an exit ramp. He's referred to the war as having already achieved many of his objectives, as being very complete, and he did an end to it would come very soon. I think that being said, the fact that we're still continuing to see US strike Center on suggests it hasn't achieved or he doesn't feel he has the leverage of the terms that he's looking.
For to end this war.
And I think in particular, what he's concerned about is reopening her moves before he can fully back away.
Jennifer, one final question. It's outside your remit, but you're more than qualified to handle this. I'm looking at yields higher in many different flavors, including the inflation had just yield the cost of capital, if you will, Does Jennifer Welch believe in markets telling politics what to do? Do you believe in ed Yard Denny's bond vigilantes?
Well, I would say this.
I think President Trump is uniquely quite sensitive to markets, and that's part of what we've seen in terms of his rhetoric shifting over the last week or two. In particular, his message yesterday morning when markets are about to open that he was seeking talks at the run, kind of backing away from his prior threat to strike running and energy facilities. That seemed very much directed at shaping markets as they were opening in the United States.
It's great brief, Jennifer. Well, it's hugely valuable. Thank you so much, Chief to you economics analysts for Bloomberg Economics. Stay with us. More from Bloomberg Surveillance coming up after this.
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Aaron Kevin joins us in studio right now, co founder's CEO Clear Harbor Asset Management. On the moment at hand, I understand this is now uncertain key and not measurable risk. If I stand aside, what do I stand aside into cash?
Well, it's been challenging Tom.
This all began the weekend of February twenty eighth, and there's been no place to hide. Gold is off one thousand dollars an ounce, bonds are higher and yield lower in price by what thirty to fifty basis points, and equities are off somewhat measurably. So there's been a very I guess unless you were just sort of long the dollar and maybe your triple levered cash, there's very very difficult place to be right now.
What do you do with duration in the fixed income space? And all your work at City Group over the years in RBC, I mean duration's a tool, right, Explain that to people that don't get convexity.
Right, I mean clearly if you're of the view and your long duration your for every basis point moving the bond market, as you move out the duration curve of your as rates move lower, you're capturing oftentimes multiples of the upside relative to when rates move lower in the front end of the curve, by about four or five times and tens relative to twos, and about ten times and thirties relative to two.
So it can work in your favor.
But in an environment like the one we've been in over the last month where rates have gone up, if you've been just long the long bond, you would have clearly underperformed relative to just being long let's say the two year or the ten year. My view on duration at this point is really a question of where are we on inflation in the long run. If you look at ten year break evens, there are about two thirty
five this morning. The ten year is about four to thirty five, so you know we have a month ago the break evens were about five basis points lower, so really unchanged in terms of long term inflation expectations.
Stocks, bonds, commodities, alternatives. What's your asset allocation look today versus maybe or five weeks ago, anything.
Changed, not significantly.
I would just highlight that we own all major asset classes across many of our client portfolios. Even you mentioned alternatives alternas. We try to own the areas within the alternative segment that are less correlated, negatively correlated, or non correlated to long only equities and long only fixed income. And I think that's really held in there quite well
for us. We're not owning just you know, sort of long only private equity, long only private credit that's highly correlated to both equities and high yield in the public markets. That doesn't provide the diversification that we're looking for in alternatives within equities. Clearly, the value trade has been on its heels month to date, but if you look over the course of just year to date or even last year, still the value orientation has generally worked both home and abroad.
You know, the Russell's still up fractionally on the year, equally to S and P's up fractionally on the year. The rest of the market in the US is down on the year, Japan up on the ear, EM's up on the ear and that's a very value oriented sector or allocation there.
We saw in twenty twenty five as well as the US markets did, a lot of markets outside of the US did even better, in part, maybe in large part, due to.
The weakening dollar in twenty twenty five.
How do you think about US versus the rest of the world in twenty twenty six.
It's tricky, and I think the real question is narration of this war and Iran and the degree to which that's going to potentially keep the dollar sort of buoyant relative to possible weakening if there's an off ramp or if there's a secession of things there.
How do you look at shocks? I just had an email come in thank you so much folks for all the information from listeners, and it's amazing what you can do with is AI. You can convert a leader per pound or pence into a US gallon by just typing in a couple of words.
Wow.
I spent a fullesser slide rule to figure that out not too long ago in London eight seventy eight cents per gallant. Thank you. In Hong Kong with Laura Davison thirteen fourteen, fifteen dollars per gallant. These shocks at some point have to affect all the bond lift we saw Friday and into Monday two. I'm gonna call it a forty eight hour structural price down, yield up and presidential reaction. Is that what moved the president to make those statements?
What we'll have to see, I mean, is this a head fake for strategic reasons? Are they bringing troops in from Asia to initiate more of a ground operation, or was yesterday's overture at about seven to ten in the morning a real off ramp that indicates the beginning of the end of things. And of course we do not know. The public probably knows about twenty percent of what's happening.
Right, But in all your years, the bond vigilantes, I mean, you know Doney's right, they're for real.
Yeah.
But if you look at the bond market too, Tom, credit spreads have widened. What some grade five year CDs is about fifteen twenty basis points wider month today. If you look at high yield five year high yield CDs is probably about forty to fifty basis points wider.
Haven't seen a major.
Move the two of you here. I got a four ninety five thirty year yep, And I'm watching the ten year real yield is two point zero two percent. That was one eighty one ninety. Everything is Paul Sweeney and everything's creeping.
Up right, absolutely, I mean that's the look if you look at the warp function, the market's kind of pulled back on any rate cut here.
What did you hear from the Fed last week?
And do you think that's being to what extent is of being impacted by what's going on? And Ran?
I think it's interesting.
I mean, clearly the Fed is in sort of a period of where there's a real predicament, right. They don't want to be accused of what they were accused of in twenty twenty one into twenty two, which is they relate to the game. Inflation was rising, headline went to nine point one percent, they reacted late. There's a lot of criticism there, but I think when you look at the source of this inflation pressure in the duration of it, which is energy and supply, I think the FED is
being prudent remaining on hold here. And in fact, I would argue that if the duration of this is shorter, and perhaps even if it's longer, if growth is impacted negatively the Fed's going to be more willing to cut than the raise rates going forward.
Aaron Kennon with us, we continue with clear harbor asset management this morning on fixed income, I'm going to suggest for equity participants, right now is a good time to watch all the movements within the bond market. Let me, I rarely do this. It's just, you know, it's like
a bunch of numbers, but right now it matters. Three point eight eight percent in the two year Paul Sweeney noted four percent even on the two year a cup of coffee were creeping up by three basis points a four thirty seven on the ten year and the thirty year bond, I'm sorry, four point ninety five percent, close to five percent yield four point ninety five percent as well, Paul Sweeney with Aaron.
You know, we kind of lose fact as some of these other news items in the marketplace. One of them is it's an election year, and historically that introduces a whole level of volatility to the markets outside of some core fundamentals like earnings and interest rates and so on and so forth.
How do you guys position for that kind of volatility or you try to look past it. We do try to look beyond it.
We do ask ourselves, how about the fiscal sort of momentum coming into an election year with a big, beautiful bill. Prior to this war, we were sort of constructive, right. You had the impetus for consumers to consume more with potential for paychecks coming in. You had no tax on tips, no tax on overtime. You had the ability to deduct your expenditures at the corporate level by one hundred percent year one. That was going to accelerate a lot of
economic activity. That is accelerating a lot of economic activity. We are very constructive on that theme. But it's being obviously that the crosswind of this moment is problematic.
I look at the makeup here of equity listening to the buying market. You say spreads have backed up. What will well, if this continues, this fragility continues, I'm going to be up three dollars on Brent Cruz here in a moment. I mean, how does what's the history here of what happens to equity markets when spreads widen? Well? I would?
I mean, clearly there's a correlation. If we see how yield spreads, you know, move in a pronounced way upward, where that probably means that volatility index has spiked and equities are lower. And when VALL spikes, we know what investors and hedge fund managers and some institutions do. They reduce their risk, they reduce their exposure. And so that
that's what we would anticipate. If this is a longer duration occurrence in Iran and not you know, something that's just going to settle down over the next let's call it two to four weeks, we would anticipate the VIX to probably shoot up well above thirty and then you would have risk take and come off. We haven't seen the VIX above thirty months to date, which is sort of interesting, almost but not quite.
Aaron, thank you so much for the generous time this morning. Aaron Kennon with us here on fixed income course as a measurement of the rest of the market with clear harbor asset management.
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