Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at seven am Eastern on Apple CarPlay or Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube for the next.
Good amount of time. Bob Michael will join us. You know him from the Fed decides driving all of JP morgan fixed income. Huge advice he has to give to mister Diamond and the senior management. I'd go back to Maynard Keynes at Bretton Woods, but why not. Let's go back to the guy that really said it, Paul Samuelson, his iconic textbook of nineteen forty eight. When the facts change, I change. What do you do, sir? For Bob Michael and JP Morgan Have the facts changed?
Well, first, Tom, thank you for reminding Jess forget about this equity stuff. Bonds are at the top of the Capitol staff.
This is really important, folks. Bob and I are going to talk about this. The way you learn that bonds matter when you're a mouthy equity guy like me is you lose money and realize you wouldn't have lost it if you paid attention to bonds continue.
We welcome everyone who wants to conserve capital.
Where are we right now? The facts change, mister Michael.
I'm going to up you one on Maynard Keynes and go with rogue off Ryan Hart. I wonder what they're thinking. After spending years writing a series of papers on financial repression and warning governments about the problems with excessive borrowing and debt to GDP climbing, it has all changed. What we knew as core Europe and fiscal austerity is gone. They've looked at the US and China. They want to join the party and they're coming in and doing it. So, yes, everything has changed.
Two days after this, I had the honor of David Folkertzlande of Deutsche Bank, who you and I know is work with Peter Garber in AWE, and he was heated that Europe would shift to fiscal liquidity. So I guess that's happening now. Within all the research capabilities of your mind platform and your economics platform, is your confidence Europe can make the shift with or without NATO.
We would argue they have to. If you look back over the last couple decades, Europe has underinvested in itself, and that's a result of decades of fiscal austerity. And they realize, certainly in Germany, that they have to catch up. They have to invest in their military, they have to invest in fiber optic, they have to invest in roads, bridges, all that kind of stuff, and they're going to and they have the fiscal capacity to do it.
So when we're looking at the ten year treasury peaking at around actually four point eight in the middle of January, to where it is now around four to two, what do you think the bond market is telling us in the US and the economy.
The bond market is telling us, we are your safe harbor. We are the anchor in the storm. We have yield now, so when there's volatility in policy, when there's volatility and risk assets, come in and join us. We will protect you.
So what is the best way when you're talking to your clients to position at this point.
I'm having meetings with clients every single day. I had a meeting yesterday with the University Endowment thinking about these issues, and we met with them five years ago. Five years ago, the aggregate bond market was yielding two two and a quarter percent today it's hielding four and a half percent. They didn't invest in, they're coming and now they're making smart decisions. Investors want to get into a bond market with yield you're starting at four and a half percent,
can construct a portfolio of over five percent. That's very different than zero and negative interest rate policy.
I look at the yield space and the answer is we've got a Bob Michael vector. You have called for price up, yield down. Maybe this is not the reasons that you looked for, but can you get this price up, yield down with tangible economic growth to sustain the machine? Dovetail this with Michael Feroli's work. Are we heading towards some form of Nber recession where we don't get the growth or are you're more optimistic that we can get the Michael yield plus some potential GDP growth.
I think the Fed has done a really good job of taking us into a soft landing. I think they're going to pull it off. I think we're going to get yields to stabilize here, maybe the front end come down a little bit. The FET still feels uncomfortable that they're too far away from their neutral rate. I think there are a couple more cuts coming. I'd like yields to just stabilize. And here I don't actually want the ten year to tray too far below the mid forest.
I wish it would just stay there. I wish the two year would stay about four percent and give investors the opportunity to get into this bond market.
You and I know, you know with the Pope so Ill, there's the Vatican and we hope for his healthy recovery. Bob Michael for you and me, the Vaticans on Madison Avenue, who at the JP Morgan Library, and you go in that red velure room where he locked the door and said, we have to save the country. We didn't have a FED in the Gilded Age. Doug Erwin's in the Ft, I believe it is today with a brilliant interview of Dartmouth saying, look, it is the nineteenth century. Abby Joseph
Cohen said yesterday it is the nineteenth century. How does this FED help the nation? Given tariffs?
The FED has to balance all of these things. And I think a month ago everyone and the market looked at tariffs as an impulse to hire inflation. Today they're looking at it as a drag on growth the material one. I tend to look at tarifs as economy killers. So yeah, you get a price shock hire, but that's going to dial down aggregate final demand. And that's what I think the FED will be focusing on. They're going to be
laser focused on the labor market. They're going to see if businesses and households retrench.
I agree with you in the labor market, kerl Weinberg on yesterday high Frequency Economics solficer Leman is at a four point eight percent unemployment rate in the vicinity of labor day. We welcome all of you on your commute accrastination on YouTube worldwide. Good evening in India. I've got a special focus off of Ray YouTube on what you're doing in Bangalore and in Mumbai. We say good morning internationally on YouTube. Subscribe outit YouTube to Bloomberg Podcast, growing each and every day.
Jess Well, Bob, this is as you know last week, we're going to hear FED speakers before they go into that blackout period before the decision in the middle of this month, and of course we will hear from Fedshaer Jerome Pale on Friday when he gives a keynote speech at the Chicago Boost twenty twenty five US Monetary Forum. So what do you think markets want to hear from Fed officials before this week wraps up? Versus in reality, what we will end up hearing from them.
I think what we want to hear is how they're weighing taris and are they still looking for an opportunity to bring rates down to what they believe is a neutral rate. We'll also get the infamous dot plot, so we'll have some idea of how much higher the long term neutral FED funds rate will have crept up. I think it goes up about a quarter of a percent. I'd expect jpwell to be very very balanced and basically try to take a pass.
It's almost medical. First, do no harm. Tell me about the dynamics of the market. I noticed like three months, seven year when inverted the other day. Nothing I ever look at. But how does when you go? Bob has three bloombergs with twelve screens. Finally, the glow in the new JP Morgan building, it shines off Citadel across the street. It's amazing how that were They're on their binoculars across what's Bob Michael doing today. They're looking at them on
your Bloomberg. How do you perceive the vanilla two tens spread, the ten year or the two year real yield? What does Bob Michael look at to ascertain this market?
What I'm looking at is is yield settling in at levels higher than I believed a year ago they would settle in at. And I like it. I like the fact that we may have a German yell curve from two percent to three percent, we may have a US yell curve from four percent to four and a half percent two tens. I like credit spreads holding where they are because they're pricing in a soft landing. Those are the things I look for, and I think it's a
great environment. By the way, we didn't talk about Japan ten year Japan one and a half amazing.
Jordan Rochester at Missoulu. You should have hired him. Jordan Rochester says, this is a sea change for Japan.
I can't can't remember the last time we were one and a half percent.
Martin years, the late Martin Feldstein who was exquisite on this, Robbie Feldman at Morgan Stanley, that's a different bank, Bob uh They you know they said this would never happen, and here we are. Here, we are happening. You're laughing at me, Bob, Bob.
I think I think we were one before glass, but I'm not sure.
It was a d burgercepthing that we won't go there, folks and said, when mister Diamond comes in, we'll harass him about it. Bob. I look at this market and your advising clients right now. Is it a total return market? The great Dan fuss at Lumas sales. Is it that kind of market where you can make total return or you're clipping coupons in the basement.
I think you're going to get some total return with yield settling a bit lower with the FED coming in and cutting rates a couple more times this year. But I think it's mostly a Carrie market. I think it's mostly an opportunity for active managers to do what we used to do pre financial crisis. When sectors get a little bit ahead of themselves, you dial them down and go into sectors that live. I think this is also a bond market for more diversified portfolios to look overseas.
Now it's safe to go into nine dollars assets.
Just this is so charming. There was what we call the blue Book, which was a standard and Poores thick blue book and the value line you trip over on the floor and Bob and I would be going, oh the Boise cascade. It looks so good today. It's like you know, remember it's like a real bond market.
Yeah.
Then we didn't know how to price it. There was no babk. We had to punch it into our Monro bond calculators.
Yeah. Bill grow still has his own this Good morning Bill. Out on the left coast, you had a Monro trader and he and Charlie Gogelact were kick field goals. They tried to make three points on a twenty year piece and a guy named Secunda in Bloomberg showed up and they said, no, you're not in overnight. Just the museum's right behind us here, folks. Overnight, the Bob Michael act went away because people can do to convex the duration. Boom boom, Oh God, I can't charge your field goal.
Get another question.
Of course, I have to bring up our star everyone's favorite topic when people want to debate about the neutral rate. Because you were bringing up the dop blots. Obviously we get those quarterly. We last saw it in December, so when we get those in a couple of weeks from the Fed. The longer term rate that they had updated was at three used to be closer in recent years to two and a half percent. Where do you expect when people are debating where the neutral rate is actually is?
Remember they started doing this in twenty twelve because they had gone to QE. They had brought rates down this zero. They didn't think we in the bond market were smart enough to know what neutral was anymore, so they were going to help us out. That first long term neutral dot was four and a quarter percent, so that was textbook. That's two percent inflation targeting, plus the long term real yield on the FED funds rate was two and a quarter percent. Four and a quarter that's where we are today.
I think it's closer to four than three twenty seconds.
Is it stagflation or is it legit damp and but good nominal GDP?
I think it's good nominal GDP. I think we're getting the bad stuff now as far away from the midterms as possible. The good stuff will come at the back end of this year. Extension of the tax cutting Jobs Acts some deregulation closer to the midterms, if you will.
I'll editorialize, folks, for those of you in a panic after what we saw it in historic Tuesday. I agree with mister Michael, Bob Michael, thank you so much, with JP.
Morgan and the spirits a nation here and on what we see in a constructive nominal GDP, given all the policy out there.
Listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Apple Karplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube.
Joly Now My Grammarian Terence Hayes joins us with Beengaea policy. Terry, thank you for the love note yesterday. Mark, the wonderful Mark Crumpton keeps a list of the names I mispronounce, starting with Jess Manton, and it's a long list. Terry, thank you for adding to it yesterday. So eighty five percent of potassium chloride that Republicans in the Midwest need comes from Canada. You got fenestra in the fourth Congressional District of Iowa. When does the Republican from Southwest Iowa,
dial one eight hundred Trump and say stop it. When does that happen?
Terry the case of Brandy Finstra, I don't think that happens at all, frankly. But the issue here is kind of how to manage the tariff relationship and what what the United States gets out of it?
Uh.
Scott Besson has a great uh, a great phrase for this, and the you know the essence of it is that, uh, it's path dependent. It's path dependent on upon what the other side does in tariff negotiations. So uh, I doubt mister Fienstra is going to be in a situation where he needs more potash from other So you're.
Optimistic where you able to work out of this or do we get into the game theory of reciprocity tip for tap Well.
I think the answer is both. Frankly, you're going to have individual tariff negotiations with Canada and Mexico ongoing based on geopolitical matters. You're going to get the UH, You're going to get the reciprocity overlay on top of it. I think what markets aren't fully digesting is that the endgame of this is not more and more tariffs. The endgame of this for the for the Trump people is
less and less tariffs. And I don't say that in any sort of matter or manner, but the goal is to actually reduce trade barriers.
So let me bring in jes Met here, Jess to Terry Haines. Don't say I'll.
Avoid of that.
Terry is something I'm thinking about heading into next week because those implied volatility is picking up steam for the
equity market here. So, as you know, we still have that deadline for a government shutdown coming on March fourteenth, but then also on March twelfth, even ahead of that, there's still is supposed to be those tariffs on all aluminum products, And so what do you think that really means is we're getting closer to those deadlines as well as other ones that are supposed to happen in the beginning of April.
I think there's still going to be some tariffs on aluminum. They're going to want to show Trump's going to want to show bona fides on that, and I think there's a rising potential for a government shutdown. You see Democrats last night grasp you get anything they can to show resistance to show differences and the shutdowns, because what they're about at root is more spending. What Trump's about it
root is less spending. You know, and you know there are three parties in the negotiation Congressional Democrats, Republicans, and Trump. Two of those three benefit politically from a shutdown, frankly, Democrats and Trump. So you know, there might be one short term that never matters for markets particularly, but stylistically it's a bad look.
How do you respond, Terry Haynes to where is John Thune? Well, people say, Okay, the House is fracticed, everybody's running for office starting Friday. Great, the Senate is more measured. Where is the senator from the Dakotas John Thune?
I think has done a very good job of keeping everybody together number one in his party. Number two, he's doing a very good job of quietly establishing the Senate as an effective counter to Trump. You have to look
no farther than defense spending to get that. At a time where markets think that defense spending is going down because of some cost savings that Pete Hegsas wants to do, the reality is that there's kind of a dream team of senators that are going to pump up defense spending in no small part to react to China's announcement that it's going to increase by seven plus percent.
I mean, I look Terry at Ruster. Scharmer's book arguably could be my book of the year. I'm not there yet, folks on capitalism, and basically he says, whatever the process, spending will go up. After the speech last night, after what we've witnessed deep into the Trump second term, do you see any frugality out there. I don't observe it.
No, there's no frugality out there. And the reason why is because they judge. I mean, to them, this is not economic policy only. This is not an economic crisis or problem only. What this is all about is marshaling and improving the US economy as much as possible, turbocharging it to meet geopolitical goals. Everything's arts from debt service. We now pay more in debt service than anything else.
That is an intolerable situation if you're interested in United States hegemony, as Trump is, and what they're going to want to do is turbo charge the economy, frankly to meet those geopolitical needs. That's one reason why you heard so much about manufacturing for defense. Last night shift building, steelmaking, all that.
Oh, that's the politics of the moment, Terry Haynes with us, and we're going to continue in a moment. A bit ago seven oh two am a headline the United States cuts off intelligence sharing with Ukraine. That from the Financial Times, and now a headline coming out a Ukrainian official says the nations still getting US intelligence. We'll see what the next headline says jes Terry.
Of course, there's so much focus on those pro growth expectations potentially from tax cuts and deregulation. What is exactly the timeline of when investors as well as Americans could potentially see some of that happen through Krongers.
Well, this is the problem. Just is that in a nutshell, is that Trump this time out is front loading the bad news for markets, the tariff's news, with the expectation that things are going to improve throughout the year in markets as they understand that the tax cuts, deregulation, energy dominance, and so on. Is very likely that happens, the tax cut bill happens in the fourth quarter of calendar twenty
twenty five. I'd give it eighty percent today. Eight years ago, I was almost alone in the markets and telling people that the task cut bill was going to happen and it was going to be a big one. But the same dynamic exists today. It's going to take them that long to get to the finish line for a variety of procedural reasons.
Hey, Terry, I got to get this in from Greg Juro and Bloomberg government, and you're expert at this. What are Republicans saying to mister Trump, President Trump, who are in in close districts. Do they have a say in the discussion or are they so marginalized nobody cares.
Well, they have a huge say in the discussion. And you know, I point immediately to the New York and New Jersey members to whom Trump has owed a House majority on the salt negotiations. Right, So, eight years ago, salt didn't matter at all. Salt went away. This time out, Trump's listening very closely and positive to those who want the salt deduction to come back. They will fundamentally, they'll play the smartest politics they can and try to make
sure they do everything to maintain their majorities. Part of that is getting the tax bill done in fourth quarter of twenty five, so that they can run on it right right, benefits in twenty six thirty seconds.
Is there an El Domato out there to save the middle ground? Gop.
Yeah, there's a bunch of them, actually, you know, and I'd put Thune in there among others. But yeah, there's there's a bunch of them. And you know, there are lots of good pragmatists French Hills one. So yeah, I think there's a bunch out there.
Terry.
I email me every time I love emails from Terry. Email me Terry, every time I mispronounced something. It'd be great, Terry as pangea. Thank you so much. There in the state of play.
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.
Someone who's absolutely nailed this, Bullmark at Brian Belski joins from FEMO. Right now, have you adjusted your call? Wow?
No, I mean, as I stand here next to a Red Sox.
Excuse me, Can we notice Lisa how canned Intersted? He is everybody else, you know, it's all about the deep sleep.
Midnight Tom and I get that hotel room down to about sixty degree.
Where are we right now? Have you made an adjustment?
No, we haven't. In fact, we're sticking behind our sixty seven hundred target. And remember we put our peace out for the year ahead November eighteenth. Typically, historically during an election year, we do it right away after the election, as soon as possible. And a lot of quite frankly, strategies that have been late to the game in terms of entering this bull market have much higher targets than us because they published them after And that's okay, welcome
to the party. I'll just pull the great Ricky Bobby and say, if it ain't first year, last we've been. We've been bullish and resolutely bullish since two thousand and nine. It's in a record, it's published and all of that. But I think what's happening is that this is a return to normalcy. Many people don't understand that, but we've had several shots across the bow. I think that momentum investing is changing into fundamental investment thing I heard Jess
is a fran I just can't help myself. I just had to do that talk about correlations. Correlations short term. Yeah, I are certainly doing that, and that's why the hedge funds are getting crushed. And that's fantastic news as far as I'm concerned, because they're the ones that are causing a lot of the noise and they don't invest, they
trade and they follow everybody else. So if you're an investor, you want to be more fundamental, more stock picking, and the correlations are actually very low, which means you actually want to be a stockpicker.
Right, So those correlations have actually been hovering around their lowest level on record if you look at the c Bow indicator over the three month timeframe. So they've spiked up close to where the highest they've been in early September, so coming off of the heels of the yen carry trade unwinding and also the worst week of the year
in twenty twenty four. So in relations still low compared to history, but spiking a bit higher now when things were a little bit more volatile at certain points last year. So that's sixty seven hundred price target. That's actually implying to sixteen percent rise for the end of the year based on yesterday's close. So what do you think would need to change in the economy in the view for corporate earnings for you to adjust your target in any way.
Well, first off, there's been this rhetoric that earnings have changed.
They haven't changed.
In fact, earnings have actually continued to improve over the last two or three months.
And actually twenty twenty six, you still have fourteen percent earnings growth for the S and P five.
Yes, we do, and I think actually just that could be too low. And I think why that's too low as you have an increasing amount of companies in the technology space, discretionary space, communication services space that are taking the mantle in terms of leadership away from the meg seven in terms of earnings growth, that's number one. Number two. I do believe that earnings and financials are consistently and way understated, and I think we can get a lot of kiss there In terms of the upside.
What's the risk to your target?
Risking of the.
Target quite frankly, is more on the inflationary side. In our view, it's been a little bit stickier. I think that could be the biggest issue. And I think too Tommy and I have been talking about this for years. I mean, the whole focus on fed Fun's futures and all this kind of stuff. I mean, let's just stop focusing on that. Let's just look more at what's happening in the underlying parts of the stock market.
Yeah, I'm looking here. I mean, I mean, all right, help me here. Who got buried by the Minnesota Vikings. Here we go, Sam Darnold. They just said, see you. I mean, they just didn't give him.
Listen, if you if you look at his eyes right, okay, looking to look into his eyes, brother, the last lid.
If I ever do this, Lisa, if I ever do this to you today, h violation.
This week to see to see the swaks and and anyway look into his eyes versus the lions and then look into his eyes during the playoff game, he was not there.
Man, was you mentioned? Ricky? Bobby? Are your kids as well? Managed? Just Texas Ranger?
You know, listen, we always Last night, I think my daughter had some delicious taco bell. But she also informed me this morning in Saint Bonifaceia's, Minnesota, they got five inches of snow. They had ten inches of snow in Lakeville, Minnesota.
Okay, in Duluth they got snow as well. I noticed Duluth exports to Canada. There's second word of just exports to Algeria. It's iron ore. It's like real people, some type of those people. How I mean, you're giving me optimism about America and I'm looking at Duluth, Minnesota crushed on tariffs. How can you have the two?
Well, the other thing about Duluth, Minnesota, you know that Duluth, Minnesota has the largest Polish cemetery in the world outside of Poland. Did you know that? I did not know, So you know what, Listen, I think that there's there's different things going on in terms of Duluth in Minnesota, particular because you have the North in the south which are dominated by mining up north and farming in the south, which obviously heard the President's address with respect to the farmers.
But in terms of the North, it's been kind of a more of a mixed picture, and there is still a lot of obviously back and forth trade between let's call it Duluth and Under Bay, Ontario, if you know your your geography. But I do think that Minnesota, given given the massive amounts of stage GDP that is tied to Ontario in particular, this is actually more emotional with
respect to to Minnesota. But obviously you've heard with respect to some of the news, who knows how long these tariffs are gonna be?
You know, that's the key thing. You're Here's the way I.
Want you to think about this, Tom, This will be in your your knowledge. I don't know much about fixed income, but in terms of bonds, it's all about duration and convexity, right, So let's talk about the duration of terriffs.
How long they could be gone today.
I mean, that's the risk.
Gotta mccundav Yell was just do and said the same thing we had from PGM. They're leading quant analyst. He said the same thing MIT physics, and I'm sure Ian Lingol would say the same thing. Folks the Exexus right now, the media doesn't look at the timeline, and Professor Belski is correct. It's all about the length and you get to optimism like Belski when you believe the timeline is shorter.
The leader of Mexico, Shane Bauma, is out now. If tariffs continue, Comma Mexico will reach out to Canada.
Well, we've been talking so much about the Midwest, Middle America.
Do you want to get something in your right idea? Do you see Talladega Max? Of course, Okay, you can continue. Are you going to say with all respect, no, not at all.
I was going to pick your braid on Obviously, when it comes to the page book, I mean, it's never really market moving here, but I feel like it's going to be more closely watched.
Now.
Obviously it's gonna be a little bit more backward looking. But when it comes to the different districts and particularly in the Midwest or other regions, what kind of sticks out to you and what kind of indicators within those types of reports do you keep a close eye on.
You know, we're we're seeing the most economic and population growth is clearly those areas that are more state front, some more tax friendly, so the Southeast or even Texas and Tennessee and some of those areas. So if we're going to see weakness in those areas, I think that would be a telling on that number one. Number two again, macro data I've always had an issue with historically. You know, you mentioned m I T PhD. I'm from Saint Claus
State University. I mean, there's not much difference between that quite frankly, but you know, it is what happened yesterday. And I think we have to remind ourselves that stock stocks lead earnings, which lead the economy. And oh, by the way, stocks are leading indicators, and they've kind of told us what's happening. And so are we seeing a slow down? You ask me earlier what the risk is
if we slow down too much? Right, and we're throwing these tariffs which again duration in convexity, and we still have this mixed inflation picture that kind of puts in a more of a muddle type market scenario.
Parse serious question, parse stagflation versus a lesser but still buoyant nominal GDP that keeps American business going.
Yeah, I think the stake inflation argument has become increasingly let's call it consensus. I think what's what's happening. Let's go back to the normal seat side of things. When Tom was at Rascher Pearson, I was at a place called Dame Bosworth. We had these periods in the mid nineties where we had kind of single digit, low single digit GDP five percent, four to ten year treasuries, remember that Tommy and ten percent Ernie scrowth. I think that's kind of where.
We're going shot.
And I think we just don't know what normal is because we think that normal is zero percent interest rates and all these wild moves in the market.
In the modern day. You don't know what, folks. But Minnesota was a massive and this was off of IDs and all a huge financial component and a good morning to all up in the northwest of Piper, Jeffrey and Dame Bosworth from years ago. It was really something. And the Canadians came in and said, these are the smartest guys in the block, let's buy them. And that's how you get RBC and BEMO Bank of Montreal into it. With Brian Belski with his optimism on inequity, marcut's a
little red on the screen. We've given it back off ADP into the jobs report on Friday just meant to Brian Belski.
So the past two years, of course, the boom in the markets, adding eighteen trillion dollars to the market cap for the S and P five hundred up close to fifty percent for the past two years. So the third year in the bull market typically you do see those games slow down throughout history, but of course you have
such a strong road. Does this make sense where we're at in the calendar, and especially when you think about the presidential cycle typically weaker at this point in the first quarter post.
Election hundred percent. You typically in especially February and March have weaker seasonality because the platforms are coming out and people are reacting to what's happening and actually typically seeing things be put to work. Now, clearly in the last forty two or forty three days, we haven't seen this kind of flurry of activity that President Trump's been doing. That at the end of the day, do you kind of take two steps back, just and think about what's
happened in the last couple of years. Twenty twenty four, sorry, twenty twenty three was really an overreaction to tech being massively oversold. Remember the first two or three weeks you were crazy writing about these massive reversion to be in tech technology names, and then twenty twenty four was, oh, my gosh ai is actually real and we are not invested there. So then now you started to see this notion. I really believe the broadening out trade is happening I
really believe it. I really believe it. And you've seen how value is massively outperformed. Some of that is the defensive trade into healthcare. We don't think that's we think that's less fundamental and more about momentum into defense. But we think ultimately value true value stocks, small MidCap. I think ten years from now, town, we're going to be looking back, how come we didn't buy more small MidCap.
I look at this in the heart of the matter, Brian, and we've all lived. This is a really down market. It's negative thirty five percent. Yeah, a bear market. Dow Jones Industrial average is negative eighteen percent, and a normal healthy correction is ten percent. In the Ute of America, they've never experienced it. They were done six percent, blended, and it's like people are in a panic, like I don't get it.
Well exactly when you think about year to date, we're basically flat and we're acting like we're down twenty to twenty five percent. And I think that comes to the reactive nature investors, which was exacerbated during COVID. I actually think all this stuff started. I think all this stuff started during the financial crisis, and then obviously that was much more near and dear to New York and our hearts in terms of the financial world, in terms of our jobs and everything. But that really.
Right, Well, Sharma has this this book likely by book of the year, and basically we've become addicted to Let's fix It. So everyone's happy. Yeah, that's the heart of the matter.
It is, it really is okay.
In one final big questionaire, the vikings have blown up because Sam, siya, do the Lions look good this year? I mean, you know, I mean I think you know the lines, the lines that they didn't prove.
I was rooting for them. I really wanted to see the lines and the Bills in the Super Bowls. And but you know that now that the Bears have their offensive coordinator, that was a huge loss and the Bears have a real coach now. Whether or not they have the right quarterback there, who knows. But I think the NFC north Man is going to be really really competitive again.
I mean, Caleb to the rescue, right.
Well, we'll see JJ to the rescue with the biking.
Let's go. Brian Belski, thank you so much. Capital Markets.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal Right.
Now, Regina Mayor James Global Ahead of Clients and Markets at KPMG, truly expert on the emotion of Texas oil production, for that matter, global oil production as well. Regina had the the phrase I believe from the President is drill baby drill. Does Texas does the Permian? Do they want to drill baby drill?
I think absolutely, It's been a sentiment that has dominated the industry for a decade. I think drill baby drill emanated from the Permian. I think we have to look at what does it really take though to drill baby drill, and how quickly you can get the production running. What are the economic incentives? I will say, with WTI and Brent below seventy where WTI was eighty dollars in mid January, that doesn't give you a great economic incentive to drill more.
And then you have to think about it takes time to find, develop, produce the wells. It's not like you can turn a tap on or off. But it's a positive environment for the industry, absolutely, and the administration is taking steps that the industry welcomes.
So, as you know, oilfield service providers in big energy companies used to comprise so much more of percentage of the top companies and big equity indexes like the S and P five hundred, but that changed a lot post housing crisis, and even during Trump's last term, you still didn't see energy companies in aggregate performing that well, even had Excellon eventually kicked out of the Dow Jones Industrial average, but has recovered from since and then. So what makes
this a little bit different? Even with oil prices treading around lows.
In terms of the stock crisis, I don't know that we'll see huge surges in those valuations. And I do think certain parts of the sector that you mentioned. While field services they're just not gonna become the darlings that maybe they were in the past. I think, you know, they're competitive now, they've figured out ways to manage effectively in a very cost constrained environment. They're coming back into being able to be profitable and seeing growth in their backlogs.
But I don't know that it's a basket of investments that will necessarily outperform in in amazingly different ways. I do think it's a strong sector to continue to bet in that. I don't know if it's going to be anything like the Super seven or some of the tech stocks that we're seeing.
When it comes to the outlook for oil and fuel prices, especially when you're thinking about the tariffs on trading partners like Canada in general, who do you think has more of the upper hand here, is it America or Canada.
Well, I think it depends on what you mean by a quote unquote upper hand. But the US imports four million barrels per day of crude from Canada. Seventy percent of that is processed in the Midwest, and that our refineries are really geared in certain parts of the country to process only that type of crude, heavy sour, and that you can't swap it out. So definitely we'll see
retail gas prices increase. We're already seeing wholesale gas prices increase in the US Northeast and will likely see retail gasoline prices increase in the Midwest as these tariffs continue. I think the rest of the country will continue to benefit from relatively lower gasoline prices, but for sure, I think we'll see upward pressure now. Keep in mind gas prices are even lower than they were a year ago, so we're working with a pretty low base to come up from.
Regina. Thank you so much. Too short a visit. Let's do it longer next time, Regina Mayor with us with KPMG on oil.
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