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This is a really timely conversation Nisha Poultel. We get a huge response when she's on with Parametric. I'm thrilled that she could join us here on taking advantage of text rebounds.
Not one, but two people in the last week have pounded.
The table on your world. They're saying, basically, it's never been like this. Yeah, has it never been like this in the muni bond.
World in the long end of the curve. So if you look at twenty year high quality triple A bond yields, we have not seen these yields system atinably this high in the past, I would say fifteen fifteen years or so. So, and here's the thing. As we talk about New York City, you do see, you know, headline stories around New York City,
possibly credit. We can certainly discuss the budget bill and federal funding cuts to issuers, but my main line here is not much has changed from a credit quality perspective, right, so you're still looking at a very high quality acid class that purely based on technicals. A lot of issuance in a short period of time, not as much demand has really created this imbalance, and long ENDMUNI yields are up anywhere from eighty to ninety basis points year to date.
So you're looking at tax equivalent yields for New York, you know, for New York residents anywhere around eight and a half to nine percent north of that in that long end of the curve. Right, these are bonds finite maturity.
Give us an example of one of those bonds.
Is it the New York Mets bond of two thousand fifty ten.
No, I mean you're looking at New York City waters, right, very high quality issuer, New York City geos, New York City TFAs. These are just your large issuers that you're getting these types of yields for. And this is on a national basis as well. So again what we've seen is as you've had this big, beautiful bill proposal. Do you remember earlier this year a lot of talk around possibly removing the tax exemption or selective young mini bonds.
I mean everything was on the table. So if you're an issuer and you're looking to issue death this year in the municipal bond market, a lot of that was pulled forward, right, you're like, let me just issue in the market now. Now, from a demand perspective, you really haven't seen a lot of inflows into the market. And that's really been the case for fixed income. It's been a little bit of a tough year, right, Choppy yields and investors don't want to take on a lot of durations.
So if you see the ten year maturity and in that part of the curve has been very well supported. But most high tax market individuals, that say retail investors, are a little fearful of investing further out. So when you don't have that natural support and you have so much demand, this is what's created that imbalance. So we're
seeing this as just a tremendous opportunity. And when you talk about those types of yields, right, I mean, compare this to any other asset class that you're looking at out there with this credit quality, it's you know, it's time to like in simply put, exactly, yes.
The best performance I'm looking at my go function on the Bloomberg terminal. The best performance in fixed income has been US corporate high yield. Yes, that kind of surprised me a little bit. Yeah, what do you see in a high yield market?
Yeah, I mean, look, spreads have remained incredibly tight, and a lot of this is based upon the fact that and I think a lot of your guests here have spoken about the resiliency of the economy, right, I mean, we just haven't seen any cracks in the economic data. Yet we're expecting the FED to stay on hold. And so you seen again a technical story there as well. You know, just an an incredible amount of demand which
has caused spreads to remain tight. And now if you're on I in you look at what your broad union next has done. Yep, I mean it's underperformed everything else.
If we have a debt and a deficit, we're debating whether mister Besson's going to give us more t bills and imaginable like back to biblical times.
Yes or whatever. The phrase I use as an amateur.
Is crowding out. Is the federal government full faith and credit. There's so much stuff because of the debt and the deficit that they're crowding out Niche Patel's world.
Look, this is going to have an impact on yields, There's no doubt about it. So you know, I'm not here to say that we're going to have your long end yields, you know, fall tremendously here. I think the debts and deficit story is going to keep yels relatively elevated have a seper yel curve. But I think in short, when you talk about additional debt issuance that happens on the curve is a big part of this story. Right,
We're talking about a lot of t bill issuance. So if you take a look at that in terms of the impact of the market, and you take a look at the assets that are seeing in money market funds, I mean, this is a story where you could see that easily being absorbed in the market. So does it relates to Munis? You know, you're seeing certainly some impact in terms of what treasure yields have done on Muni's but even more to a wider effect in the long and which is what's presenting this opportunity.
What do you expect are fed to do for the remainder of the year. I mean, I guess if I look at the WRP function on.
The bloomer, maybe two two cuts.
Yeah, is that kind of where you think it's going to be.
Is that where they should be?
Yeah?
I mean, look, I think I think two cuts are still plausible. And I I'm thinking, look, we can be in a scenario of where we were end of twenty three. So end of twenty three we had a sharp rally, at the end of the year, we had softening economic data, we had a FED pivot, and so look, no one's expecting the FED to do anything tomorrow, but the main story being we haven't given it enough time, right, we haven't maybe given it enough time for any of the
cracks that possibly show up. So if you do start seeing any softening in the labor market Friday, I will say it again as you've been saying today, big day, big big jobs number, but solo the one the month after, and so the one a month after that. So I think the FED could be in a place by fall,
late fall to start cutting. And I think that narrative could be you know, one cut talking about it could be that pivot that could possibly send send yels you know, certainly a little bit lower than where we are today, no doubt about it.
Is there a demand?
I mean, if I got a seven percent netclean, eight percent clean, nine percent triple, is it.
Four poll tax free in New York?
I don't know.
I don't even know. But is there a demand you know within the street? Is it retailed demand?
There is? There is, So we have started to see demand and pick up. I would say, I don't want to say very substantially, but we're starting to see you know, certainly investors picking their heads up and thinking, look, I can lock in this type of yield. You know, you can hold it to maturity, right, you can let it roll down again. Beautiful, beautiful thing about bonds. There's a finite maturity outside of credit issue, which is what a
professional manager is paid to do. This is a tremendous opportunity. So I think, as we again go into the fall, possibly with the narrative that look, the FED could start cutting, how do I lock in yields?
Right?
And the last thing I'll kind of say here is like for fixing come investors, it's been a frustrating few years. I mean, as you all know, we are now sitting at yields where if you have a starting yield a four or five percent, this is going to be a big driver forward performance, right, So that's also the that's also the huge catalyst here on top of that, you
have a pretty high cushion. Should rates move even further from here, so you can you know whether one hundred basis point move in many cases before you're even flash exactly.
Thank you so much, Parametric.
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Neil Dota is an optimist and maybe on this day, this is the best day in history to speak to Neil Doda of Renaissance Macro about the optimism of this nation.
Neil, you've been.
Writing on the tariff dynamic and how they are changeable as well.
How will tariffs change our listeners our viewers?
Well, Hi, Tom, how are you you know to me? The way I'm looking at tariffs as really it's it's a rotation of growth, right, I mean, over time we should see more activity going into our manufacturing sector, but that will come at the expense of other sectors of the economy. So you know, to me, it's it's not so much good or bad. I'm just looking at it, you know from the you know from my seat, which is it's rotating growth into some industries and away from
other industries. So as an investor you should probably proceed accordingly. But you know, tariffs are going to be meant to are meant at some level to boost manufacturing activity. I think you know that will show up for for producers, and that will and then that will come at the expense of consumption. You remember, tariffs are a consumption tax and inefficient consumption tax, but a consumption tax.
And Paul and Neal's note he talked to it's a VAT I mean basically it's you know him VAT tax as well that they use in Europe.
So Neil, I mean, is this net net Can we at this stage meets too early say whether this is going to be a net positive a net negative for this economy because this is an economy that's based upon seventy percent consumption.
Well, I mean, I think, I mean, most if you look at most models of the economy sort of workhorse macro models. They'll say that it's net negative that there's a persistent loss of output over a longer term period. But this is all I mean. But this is also sort of I guess, to some extent what people voted for. I mean, you know, they want more growth source domestically, and tariffs are one way to achieve that goal. But what I was trying to get at with what I
wrote is, you know, all I'm saying is this. If you had told me that the effective tariff raid based on how much customs was collecting would be close to you know, let's say, ten to fifteen percent by the summer, you wouldn't really see other nations retaliate, stocks would be at records, and inflation would generally be coming in better than expected. I probably wouldn't have believed you, but that's that's kind of what's happened now. That doesn't mean that
we're out of the woods. I mean, you know, as you know, I'm still cautious on the economic outlook, but I mean that it is what it is, right. I mean, if you had told someone that even though the effective tariff right has gone up over ten percentage points, that stocks would still be at records. I don't think most people would have believed you, but that's exactly what's happened. It's almost as if the uncertainty around the tariffs going away is more important than the tariffs themselves.
Right, Neil dunna with us here with Ren McNeil, I'm gonna throw the eight thirty data. You know, I know you haven't had time to digest it. I'm just going to give broad strokes here, folks. The advance goods trade balance was not worser. The survey was negative ninety eight and it came into a much better negative eighty six.
The advanced goods imports cratered.
That's the economic word that Neil Dudda would use. We saw month over months plunge of I guess stuff coming into the country.
Neil, in a general statement, help us with that. Do you have a clue what the three months moving averages of our trade dynamics?
I mean, I haven't looked at that yet.
Tom.
I mean, it's interesting you just gave me some eight thirty numbers. But what I will say is, look, I mean, in business economic economics, I tend to tune out what goes on with the trade deficit and inventories. I know that's kind of surprising to hear, but ultimately what you want to look at is domestic demand. Obviously, the fact that in ports or decline, I mean, that's going to show up somewhere else. You know, maybe it means less
inventory stocking, maybe it means less consumption. But ultimately the decline in imports, right, you know, we'll show up in some other area of GDP. You know, the fact that exports continue to weaken, you know, suggest that you know, the trade war might be having consequences for our you know, major trading partners, uh And is sapping growth over there, which means that if they're not growing as robustly as they had been, we can't export as much to them.
So is a general statement, let's pick on Europe, we could pick on any other region.
If Europe is slower, do we become slower.
All else equal? Probably?
Yes, Neil.
When you think about these tariffs, is it a one time kind of jolt to prices or is it something and that we can lap and it won't we can put in our rear view mirrors. It's something different, something more longer term.
Well, I mean i think it's I think it's a one time shock to the price level. I don't think it necessarily increases inflation, which is a general increase in the level of prices across the economy. I mean, what we've seen so far with tariffs is goods prices have gone up, as you'd expect for things like, you know, furniture, household furnishings, tools, you know, garden equipment, things like that, But prices for services have kept going down because the
nominal anchor hasn't changed. I mean, John Cochrane University of Chicago has talked about this really well. I mean, basically, if you don't change the nominal anchor, tariffs represent a relative shifting of prices, it doesn't increase.
The general level of prices.
And that's what we're seeing right Like, so the fact that nominal income has generally been slow in households don't have the capacity to absorb higher rices across the economy. So if if goods producers are absorbing some of the cost which they are and passing on some of the cost of the consumer, people start paying more for goods, that means they have less money to spend elsewhere, and that ultimately forces the prices for those other areas down.
It doesn't mean that it's good. It doesn't mean that it's a good thing. But that's kind of where I'm at right now. It's ultimately about the nominal and the fact that you know, Governor Waller, as you know, has been talking about this quite a bit, and that's why you're not seeing overall inflation rates celerate despite teriffs.
Neil, thank you the brilliant note. Brilliant note. I can't say enough about what he says. They're folks of a disinflationary tendency of China, of Europe, and potentially of America.
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 Alec from our flagship New York station, Just say Alexa Play Bloomberg eleven thirty.
We have the absolute perfect guests this morning to give you perspective across the nation on the geography of this horrific event. We all talk to Peter Scheer here about the market, about all the news flow, and of course a bull market with futures. Frankly, this morning up eighteen the vis Paul Under fifteen, I didn't notice that.
Yeah, I think it's a bull market and part of that. Peter Sheer.
I was with someone from the Midwest this week and a family member, and I was trying to explain the resurgent New York and I was standing outside the glory of the new Waldorf Astoria. As you look from the Waldorf up Park Avenue to Blackstone, the Rudent Building and north up to fifty ninth Street, it is Finance America, isn't it.
Yeah, And it's a little bit scary what happened. I was very scary, and I think we're all going to wind up trying to rethink how security should be working.
What we do. It's you know, tragic and offer.
This commitment that we've seen to these blocks. Citadel is there. We have Blackstone with their long term lease commitment across the street, the absolute miracle of what Jamie Diamond did at JP Morgan explain to our national audience why Wall Street's choosing to be midtown versus the stereotype of downtown.
You know, I think it probably comes down to the commute for many people whether.
You're coming in central stations there and.
It's getting easier and easier to come into Penn station. So I think you want to be in this area.
We'll have more coverage. Miles Miller will be with us here. He is on Park Avenue this morning. Peter, this bull market on Friday.
We're distant from Friday after earnings reports coming out, we get a rationalization by the Bears. How did the bears get this market wrong?
You know, I think there's been a few things.
One is, I do think people have been missing how powerful this you know, national production.
For national security element is.
We've been talking about it for a while, and it started I think when the Department Defense invested four hundred million in MP two weeks ago and got billion dollars of debt for them. When Treasury Secretary Besant was on with Anne Marie last Tuesday, he almost said those exactly
where it's national production for national security. And then President Trump later in the week went on talking about the importance of AI and data centers and that we are going to get defeat regulations to make sure that we get enough electricity to those data centers. So I think that's been an uplift to this. I think the trade deal noise is more just noise. I think it's actually weighing on the market. I think people are a little bit nervous, and I think the tariff impacts will be
felt over the time. But for me, it's really been this resurgence of let's build things, let's build the infrastructure.
And it does tie in.
Very nicely with the big beautiful bill, with the accelerated depreciation. I think if we can just jumpstart some of these national production for national security, whether it's in chips, AI, data centers, rarest, critical minerals, pharma.
That gets the economy going.
I think that's why you've seen Also, it's and very few sectors that have really been driving this market, and the small capsits are still kind of lagging.
Yeah, exactly. So I mean, I mean we're right smack in the middle of earnings. Peter, what have you learned so far in earnings? What do you expect to hear from the earning seriesce?
You know, I think the biggest thing I've learned so far is if you say you're spending a lot of money on AI and chips, your.
Stock goes up.
So I think We're still in that mode that everyone is still very focused on the growth in AI, the growth and data centers and companies that are spending on it and helping grow that benefit.
So that's not going to stop. I don't think anytime soon, is there.
I mean, we're sitting here twenty two times earnings. I mean when do we?
I guess valuations have not been.
A problem for this market for the longest time. Is that still the case?
Do we?
How do we think about valuation this market?
I'm not comfortable paying twenty two times twenty three times earnings.
You know, I'm with you, And that's why I've been looking at the things that I think really have the upside. Are things that are still trading a little bit cheap that can benefit from this real you know, logistics, the industrial base kind of growing that I feel there's still value there.
Got it?
And so I guess the question is what do we need to see from earnings here? Do we need earnings growth to accelerate from here to.
Support this market?
Or if earning stay right where we are, we don't have any disappointments, that's good enough.
You know.
I think again, it's going to come down to those handful of companies. I keep looking at the rust of two thousand. What I want to say is I would love to be able to say, let's buy small caps. And the problem I hear and we're out there talking to companies, I think it's small and mid sized companies are still much more affected by tariffs than the large cap. They've had the ability to front run things, they've had
the ability to buy up. You know, they've got the working capital, and the flip side of it has been you know, the President wants company countries to buy things from the US. But the three things they can buy us energy, airplanes, and chips. So that's going to continue to do well.
I think.
This morning, Peter Sure, this with Academy here as we welcome all of you acrasstination.
It is a shaken in New York City.
We'll have continuing coverage of the tragedy on Park Avenue. Last night, John Tucker leading our coverage with Michael Barr, Miles Miller with this on the scene with a wonderful article in Bloomberg a complete story of this, or Miles Miller with this later. Peters Sheer, one of the feelings I'm getting and it's percolating, and maybe we need to get to the weekend to get it.
Is.
What we've got is all American Trumpians stimulus, and there's a horizon out past the stimulus where the stimulus ends, somewhat like the pandemic.
Do you worry that there's a point where Trumpian stimulus, Trumpian deregulation ends.
Yeah.
And I think on the tariffs right now, everyone there's a lot of people doing a victory lap. Oh, tariff's okay, fifteen percent's fine, And I think the reality is we get the benefits from the tariff revenue right away, so we're seeing that hitting the deficit. I think it's just going to take time for the tariff impact. I've always thought it's going to take time. Let's say you turn your inventory over twice a year, you're probably five to
six months before your full inventory has been tarriffed. So I think it's going to be a slow decline in either corporate earnings or we're going to see a bit of inflation pressure. So I think there is damage being done to the economy through teriff that's just taking longer, and I think that's all going to tumble, not tumble, but it's going to start impacting things. And I don't think the job market is that healthy. And again I keep coming back to small and midsized companies. Is the
engine of growth? Are they benefiting or being hurt by Tariff's I think their net being hurt.
In the wall of economic data today, what matters to get to Friday and.
Friday at eight thirty five, where are we going to meet Peter?
I want to look at the quits rate.
I think that the Jolts quit rate, to me is still one of the more useful pieces of information because it's almost crowdsource, right. People can tell how good their job situation is. Are not That quits rate has been fairly low, and if that continues low, it tells me there's still a lot of uncertainty.
Let's go to Peter's Sheer world.
I mean, we can just what you don't know, folks, is Peter Sheheer is this whole sidecar industry of looking at the technology of America? Is our jobs report, our quits rate, all this other fancy pants stuff.
Is it AI affected? Now? All those gloomy articles. AI is going to take way John Tucker's job.
Yeah, And I'd say I see that, and I think three different ways. One is the birth death model.
Kind of to get wonky.
Unfortunately, it's saying that new companies are being formed.
I think that occurs now when.
People get worried about their jobs and start thinking about a gig economy and apply to get an EI N or employment identification number. You're seeing law school applications skyrocket, which means to do right. And what's really starting to get nervous is the youth. The unemployment rate for recent college grads is creeping higher, and to me that seems the most likely area to be affected by this AI is, well, maybe we don't need four people doing decks, we just.
Need one or two.
You're not going to hand AI real decision making, but you might try and see if you can get rid of some of the junior employees. And I think that could be really detrimental to the economy over time if you lose that group of people and they're starting, you know, past to careers.
Given all that background, peer, what's our Federal Reserve thinking these days?
Do you think?
You know?
I think they're still very focused on inflation. I think they take the job data, the non farm payroll establishment headline is having been good. To look at the unemployment rate. I think they're you know, on hold. I think they should be cutting more. I think they should be start. I think honestly, they should have cut now. I think it's probably hard because they're getting so much pressure. I'm still looking for three cuts this year. I think the economy is going to be just.
Weak enough on the jobs front that they have to cut.
Bloomberg Surveillance folks with US railroad analyst Peter Sheer, remember did you read early Graham Dodd Coddle, Folks. Graham Dodd Coddle's a bio and they've rewritten it. But remember the first to two editions. We're all about railroad stocks, you know, because that was America.
I spent some misguided, you know, teenage years playing railroad tycoon on.
The computer back in the day.
So I think it's just always a fascinating industry. And I do have to say one thing that I don't think i've ever said here before. In your fixed income portfolio, I think you're supposed to be heavily weighted munis. One of the little lost stories that we're talking all about this is Muni's are trading almost on top of taxables. So if you can afford, you know, if you have some money, I would put I take money out of
money markets, put it in law dated muni's. I think that trade will actually be really good for income and total return.
Niche Patel with this later on in the show. She's expert on MUNI bonds. So I got Norfolk Southern Paul, what is it? Two billion plus trade? The determination fee just billions of dollars.
I mean a regulatory this is gonna shock.
Well, that's where I want to go. But let me frame it out. Folks.
No revenue growth, I mean they just they haven't had it. It's not happening since twenty twenty two. There is some profit, I'll.
Give him that, and cash flows not all that moldy.
I guess it's old line trading at a pretty rich multiple. It's not trading like Ford or GM.
They couldn't do this in a Biden administration.
Peter, I think that's spot on.
I think this will be a good test for the Trump administration what we've been hoping for, right deregulation. This is something Trump is so expert at and is dealing with real estate and stuff. He likes deregulation. This gives him an opportunity, and there's so much that could be done in the railroad industry in and around New York City, let alone where you have all these different things. So
I think this is really an interesting task. If you can push it through, that's exciting for the economy as a whole.
Peter, thank you so much, and particularly thank you so much for your comments. I'm Park Avenue in Manhattan.
Here at the beginning, mister sheer is with Academy Securities.
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 watch us live every weekday on YouTube and always on the Bloomberg Terminal.
Christian Coolian rather saint with Blackrock, as we had to talk railroads there for a minute, and she's had an Ice shares investment strategy, but what it amounts to is tackling the ETF event for Blackrock to institutional clients. Christy More, I think you're maybe more qualified in the trenches than anyone I know. Where are ETFs in five years? Did they take over the world?
Thanks for having me. It's nice to be here this morning. I heard some of the comments earlier from Verry as well upend of the the etfsation of the world. You know, I think that you know, we are certainly seeing ETFs continue to grow. I think there's some very notable changes though in what we've seen in just the last few years.
Is give us the big change, give us a big change.
Yeah, yeah, So, so you know, one of the biggest ones that we see is really just the adoption of active management inside the ETF wrapper. So for the first time ever, there's actually more active ETFs listed in the US than there are index ones. There's certainly still more assets in the index ones, but really we've seen this this c change in terms of launches being much more
gravitating towards the active side. So, you know, we think that there's a huge amount of advantage, especially in something like some of these rotational strategies that you'll see from US too. So the ability to put even high turnover strategies active management inside an ETF can give you that tax benefit of the ETF while still being able to stay really nimble in an environment like this. So something like d y On F. That's our our Blackrock Factor
Rotation ETF. It is our largest active ETF at Blackrock, and it does just that.
Christy, my first knowledge and understanding of ETFs was lower cost visa VI the alternative being a mutual fund because in large part it was passive. I didn't have to pay for research, channalysts and all this kind of stuff. Now, the active, as you were just mentioning, is a real big source of growth. How does an active ETF from a cost perspective sack up to a mutual fund.
Yeah, so we're still seeing that the the lower cost preference for ETFs is still true. So typically if you look at the cost profile of an active ETF versus an active mutual fund, you're still going to get quite a bit of cost savings. So it's somewhere in between the index average in the active average with the mutual funds. So lower cost also really importantly again for those active strategies, it's the you know, the tax benefits. I think that matter just as much and maybe even more for the
ETF structure than the mutual fund one. But I certainly don't want to suggest that you know all of the growth and ETFs is coming from active management. You know, if you look at the portfolio of twenty twenty five, if you look at flows so far and where investors are choosing to allocate, there's a really big difference between this year and what we've seen in previous years. The first biggest change is we're seeing a tremendous amount of
flows to alternative categories. So about eight percent of total ETF flows this year have gone to alternative categories. If you're worried about death and debt and deficits, you're probably thinking about gold and bitcoin. And if you are, you're probably thinking about IAU and IBIT, which are our funds and les.
Listen to her working in Nice job, Christy.
You got to go after that, you're in the timeout chair or at Survannahs Christie. One final question, how much are people losing in the triple leverage name the stock funt I mean, what's the damage? Come on, it's log normal, you know this from CFA. What's the damage to triple leverage that black Rock is seen?
Certainly, I mean it's not a space that we play in, but certainly we see investors, you know, who are maybe thinking of that more as a long term play certainly pay the price in terms of much higher phase and daily reset. So it's not something that you should think of as a perennial position in your portfolio. I think sometimes they're using it tactically.
Great, Christy, thank you so much. Next time, keep it under eighteen symbols from Blackrock.
She said everything she's she's genuinous for so, I mean, Christi Aculin.
This is all Coolian. This is all about like, actually, what do you you do? The wall? The blinding wall.
That's unbelievable.
I mean. Over the last twenty years has been one of the most amazing developments to me in global Wall Street.
This has been the growth of etaps.
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