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Please start strong this morning with the perfect guest. Patrick Armstrong is fearless at Pleurimi wealth in.
The United Kingdom.
He's very visible within the British press, but far more has a wonderful crocesset view Patrick within the equity markets.
Is this a correction or something more?
Well, we're already in a correction if you look outside of the United States. Since October, the MSCI World Xus is down ten percent. Now the US has probably done the book six percent peak to troph if you include today's futures. So a correction won't surprise me because we're already in it in many places in the world. The US is very close. We've been really negative on ten year yields for a number of months now. We think Trump getting inaugurated next week, he's unequivocally pro both short
term and definitely inflationary. All of these policies we think either provoke growth which is inflationary, and provoke inflation through tariffs and protectionism. So you do have the S and P NOTDIC record multiples, but it is near record multiples on many measures, and it's hard to have those multiple sustained as yields do move higher.
If you suggest higher yields, lower bond prices, note prices, bill prices, does that mean some equities do well and others don't or do you just run and sell?
So yeah, definitely there's intersensitive equities are going to struggle in this. We do think the tenure yield keeps moving higher throughout this year. Companies that have a long duration where the market's basically discounting future cash flows that are very far into the future. So those are the megacap both companies that don't have massive earnings today but the market's hoping for massive earnings. Those get discounted at a higher rate. And the traditional interest rate sectors that are
interest rate sensitive sectors such as property companies. I think you're going to continue to struggle utilities, dividend pairs.
Those kind of companies. As an alternative bonds, I think face.
Headwards, Patrick, what do you when you see the tenure year old moving as it is. What is that telling you? What would you suggest to it to a novice who is watching this with some stupefication.
Well, it's it's not moved enough yet. We do think we get above five percent by your end. And the market's too complacent on inflation. If you look at the tenure inflation swamps, you're at two point three percent today and that's just pricing the FED for a perfect decade. And there's so many forces protectionism, nationalism, running deficits, stoking demand. All of those forces are inflationary. So there's going to be periods where inflation looks in line with the FED targets,
but there's going to be intermittent spikes. So you've got a yield curve historically which is steep one and a half whatever the Fed funds rate one and a half percent above that typically where the tenure yield is.
So if you've got.
The Fed cutting once maybe twice this year, and a normal yield curve, you do get a ten year rate about five percent.
So it's the market was too complacent on inflation.
It's starting to get less complacent, but it's still in a phase where it's too complacent in my opinion.
To someone who sees that and feels worried, is your counsel, this is a return to something close to normal. Don't be as don't be as spooked as you as you might feel like you should be, or is it telling you something that is potentially worrisome.
So there's potential drivers of the tenure yield and if it's stagflation meaning weakening growth but higher prices, that.
Would be a terrible environment for equities.
If there's normal yield curves and buying that we are getting back to an environment where there's growth. We think the US economy is going to grow at almost two and a half percent this year, which is above its long term potential.
Equities can move higher in that environment because you.
Are getting earnings growth, you're getting economic growth, and the normalization of the yield curve is something you shouldn't be worried about. So in our base case, it's based on a now landing scenario in the United States is a big part of it, combined with some inflationary pressures, and we do.
Think equities move higher for the year.
But because the yields have moved so quickly and so sharply you're getting out of the weakness right now.
Patrick a couple more questions. How do currencies play into this?
I mean, I got a dollar fact running away, dollar stronger. Is it like equities? You know, like the short throw the towel in? Does the week dollar crew throw the towel in and we get a convexity and an acceleration in strong dollar.
It's hard to see the dollar weakening right now because you're getting the safe haven metaphit of it. You've got a FED that's going to cut less than the ECB. We think the ECB cuts four or five times this year, and we think the Fed's only cutting once. Higher economic growth based on real deregulation out of the Trump administration, fiscal stimulus continues. So all of those factors do lead
to dollar strength in twenty twenty five. In our opinion, I think a big chunk of the move has happened already. But I do think you see the dollar continue to ground higher, and the rest of the world is going to use their currencies to combat potential tariffs that will be coming in. So I think wee currencies for the rest of the world to combat potential US tariffs is going to be part of the currency wards that have worked this year.
Patrick, thank you thrilled day.
If you start us out on this Monday morning, mister Armstrong, Cio Plurimi Wealth Management in London.
You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Apple Corplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
Repped around the market opening here, we're gonna get to that in four minutes. We have Mark Zandy with us out on Twitter. There's a lot of mediocrity led by me. There's people worth following like de Gurra, follow David Gurra, Jason Furman.
I think up at Harvard.
Whether they agree or disagree with him, Professor Furman's really engaging the brain. And someone else, whether you agree or disagree with them, is Mark Zandy. We're thrilled to join us right now from Moodies Marketing. You're on fire out on Twitter, and you're of course saying all I should be on the bond market. Do you link bond market to stock market future?
I do you know?
I think as long term interest rates push up. That puts pressure on multiples, particularly for previously high flying or currently high flying stocks, technology stocks that are valued based on earnings way out into the future. So as long term rates rise, that puts pressure on multiples and puts pressure.
On the equity market. So yeah, I think they're very closely linked.
Tom, Have we lost a disinflationary vector? Have we just given up on some form of error, whether it's a John Williams two percent or something higher. Have we given up on that vector?
Well, it's going to get tricky here. You know, it was tricky even before tarriffs and deportation and deficit finance tax cuts. But you know, with the prospects of that debt ahead, those are inflationary. I mean how inflationary obviously depends on the policies that are ultimately implemented, and at least there's of course a lot of uncertainty around that. But you know, I think directionally, yeah, it's going to be a lot more difficult to get to the FEDS
two percent target and stay there. So I don't know we should give up on it forever, but at least in the foreseeable future, I think it's going to be much more difficult to I think, get back in the bottle completely.
Mark, How are you and your colleagues finding your way through that uncertainty? So as you say, we don't know a whole lot of detail here about these three kind of marquee proposals from the president elect when it comes to the tariffs and deportations and tax policy, what he and his colleagues intend to do at this point, How are you beginning to forecast that? How are you thinking about the potential the effect it's going to have on inflation going forward?
Yeah, that's through scenarios.
You know, we have like everyone else, that kind of a bit what we call a baseline scenario, kind of in the middle of the distribution of possible outcomes, and that's our best guess as to what policy is going to be. You know, economic policy is going to be here around the tariffs and deportation and fiscal policy, the tax cuts, how much of that's going to be deficit financed and all the other things that are going on here with regard to fed independence and regulation, less regulation,
what does that mean for growth? All those But because of the high degree of uncertainty, we run different scenarios scenarios where the tariffs aren't quite as significant. They're not on as many countries, across as many products, they don't remain in place for very long. But this goes to a very important point, and that is the uncertainty itself is a weight on economic growth. And that's one of the I think underappreciated downsides of things like tariffs, because
they are so complex and opaque. There's gonna be a lot of changes here that it's moving around all over the place. Business people are going to have a hard time with that. They're not going to be able to make predecisions around that, they're not going to invest, and that's a significant weight on economic growth.
Board.
I take great, great issue with the fear about applaza accord doctor Zandy Greg Yep with a spectacular essay in the Wall Street Journal like put it out on Twitter and linked in, really going after doctor Mirron, who will be the economic advisor for mister Trump. Mister Mirran suggesting that dollar adjustment like a plaza accord where we would force a weaker dollar is one outlet for America. How
do you force a weaker dollar? Mark, Sandy, I don't know, Tom, It's a setup, because I know Zandy had smoke coming out of his ears. A wise one from Pennsylvania, please discuss the gentleman from Cambridge.
Yeah, I don't get that one, especially if you be independence.
I mean, I suppose you could capture the Fed and get them to do whatever you want, and.
You know, maybe that pushes down the value of the dollar. I don't know. I mean, you know, if you.
Have broad based tariffs buckle in, it means a higher value the dollar. I mean, I can't imagine the Chinese not using their currency as a way to exact right, I mean, so in the US, you know, given where the US economy is, I just don't say it.
So, I don't know. I'm perplexed by that.
Well, you know, there's a lot of policy proposals out there there, you know we're hearing about that I'm perplexed about.
But that's that's at the top of the list. Don't get it.
Mark, We got to leave you there. We got to get you back soon.
Here.
On tariff analysis, Sandy on fire out on Twitter a huge value add whether you agree with doctor Sandy or not. Of course, with Moody's analytics.
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 listen live on Amazon Alexa from our flagship New York station. Just say Alexa, play Bloomberg eleven thirty and.
We migrate over with really a continuation of the discussion where Gina Mayer joins US Global Head of Markets KPMG. Is Well, Regina, how does KPMG on a first stab assess the California fires.
Well, I think everyone's still just trying to come to grips with what it will all mean. And I think right now a lot of folks are simply focused on the human tragedy that we're watching unfold in front of
our eyes. You know, obviously, we have folks that look at what's the potential damages, what what might this mean for the insurance agency agencies or the insurance market itself, And of course I pay attention to what does this mean about the future of utilities and electrical provisions and infrastructure from my seat at the table.
So what do you see about utilities besides you know, the litigation and the snarkiness and all that that's the modern age. Maybe it happened in the San Francisco earthquake, I don't know. But what do the new utilities look like after this shock?
Well, I think I think the utility systems will continue to look in large part the same. I think what I've been paying attention to is obviously the investor reaction.
If you look at some of the stock performance of the local utility, just to give you one example, they've already lost four point three billion dollars in market cap, and that's probably greater than what the potential liability would be even if they were to be found liable, which no one understands where the source of these fires have come from yet, So I'm not implying at all that there's any culpability, but the investor responses is quite out
of whack. So I do think that we need to look at what other options we have, you know, can we transition more to small scale nuclear reactors. I do like the move toward maintaining our base load nuclear infrastructure, making sure that we have more options to provide electricity. And then, of course the other thing was water pressure, because water pressure is a lot of times driven by electricity and even the local Water and Electrical group is LA was saying that they did not proactively shut off
electricity for the reasons of keeping water pressure on. So I don't think we have any sense yet of exactly what is transpiring, and I do think there will be some lessons learned, like there have been for multiple fires that have happened in California, and it will continue to affect the landscape of utilities across the country.
Well, let's go down that path that you just kind of let us down, and that is the future of nuclear energy in this country, and it's something that's had a lot of currency lately. I think in the context of the surge and growth we've seen in AI and the demand that that's placed on the power gridges to power the data centers they're being built to sustain it. Do you sense that there is a change in appetite or appreciation for the role that nuclear power could play here in the US.
It's definitely experiencing a renaissance, which I find quite encouraging because personally, a decade or so ago, I was quite distressed that we were prematurely shutting down nuclear assets, and now I see us getting tax credits and incentives for keeping these assets more in play. You've seen some of the recent announcements with some of the large tech players
partnering with utility providers to restart nuclear facilities. This is strong baseload infrastructure that's already connected to the transmission grid, and you wouldn't have to provide necessarily new infrastructure. Building new ones though prohibitively expensive, as we've seen from some of the new reactors that are coming that are coming online. But I do think that there's more of an appetite, and it's driven by the tech companies that know that
they need this. A recent survey that KPMG did, we found that fifty five percent of our tech buyers were willing to pay fifty percent or more for electricity to ensure that it's reliable and sustainable.
I've been thinking a lot about this time in the context of Jimmy Carter, who marinating on what he did in the Navy when he was working in the nuclear subprogram, and it was something that kind of frustrated him throughout his life, was this kind of popular opinion turning against the nuclear industry when he was someone who actually thought that it was quite safe and executed in such in such a safe way.
Regina.
We were talking earlier just about oil and where it's headed. We were talking with Havier Blush just about sort of the rhetoric that we're hearing from the President elect about this drive to produce more oil here in the US
and how that will affect the global oil market. From your advantage and with your experience in the world of energy, how do you see that playing out here over the next year eighteen months, that the pressure that presumably this new president will will put in place to increase production here in the US. As we're seeing prices where.
They are, well, I think that the industry is producing as great an amount as they possibly can, and you see that continuing to inch up. We've continued to have record amounts of US production vers it's thirteen point two, then a thirteen point three, then a thirteen point four million barrels per day. So I do think the industry
is producing more because the price environment is positive. What could happen with the new administration that would be positive from the industry perspective is more leasing opportunities in the Gulf of Mexico, and what the industry is asked for is improvements in the permitting process that end the end permitting process when you even look at popeline writing way, it's not just drilling is a bone of contention, and I think there's a lot of optimism that the current
the new administration, we'll be able to help with that when you think about other things like drilling in the Arctic. If you'll notice the Department of Interior got zero bids for the latest round of potential and war drilling opportunities, and all of the leases that were taken in twenty twenty one have all fallen into forfeiture. So I don't
think it's going to be expansive into new areas. But if you ease the opportunity to drill in the places where the industry is very comfortable, and you create more opportunity than the golf which is quite prolific, I think those could have some longer term impacts. It's not a twelve to eighteen month story though.
Brilliant, Regina Mayor, I thank you so much. Affiliated with Rice University, Houston, Global Head of Clients at Markets KPMG is Well.
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You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.
The Daily look at the front pages, the Lisa Matteo moment Lisa.
A busy week it.
Is, and a busy news flow too. We're still talking about the Los Angeles fires. This just coming in from the Daily Mail that the mega mansion that was featured in the hit show Succession that is gone. It's been reduced to rubble. It's the most expensive home in the Pacific Palisades. If you remember, if you're a fan of the show, it appeared in season four Succession twenty twenty three. It was the home of the Roy siblings. You saw the patios views, like those extensive views of the area
that was a backdrop for a lot of areas. It was Coursey fire pit, fire pit exactly exactly, so everything out of there. But they're saying that it has collapsed. It was a four story building. It was owned by Luminar Technology chief Austin Russell. He actually bought it in twenty twenty one for eighty three million dollars. It was valued around one hundred and twenty five million before the fires,
and he actually wasn't even living there. He was it was being rented out when the fires, before the fire started for about four hundred and fifty thousand dollars a month. But that now is gone. It's been reduced to rubble till.
We were talking about this before the show, just the way in which people, yes, in Los Angeles, but outside of Los Angeles, trying to piece together if these properties still exist, to a lot of kind of forensic work, just trying to figure that out.
Yeah, we're all touched by it.
And you know, I thought this the security overlayer hed Yesterday's great, but the real story is the fires aren't over. That's you know, on this Monday. The story is Rob Carolyn's on total watch through at least Wednesday, if not of a Thursday of next year.
And also a Lucas shadow. He has a great insight in his screen time Newslayer about the effect of Hollywood Yes on the fire sea that yes, all right, we'll take you from California. We're moving over to Colorado. It's a different kind of look. If you've been to Aspen lately, used to have like the North faced puffers and jeans. Well a spin is going a little more country chic cowboy hats, but like with diamonds in them. So I think we need a road track.
Street.
I really think we do. We have to go to Gucci Prada because they're all like starting to go in the area. Now, this is the Wall Street journalist saying, like Max Maarra opened the store where you can get a four thousand dollars you know, fuzzy teddy coat. Max Maara, sorry.
To check it out.
You have no idea, but it's changing. You know, the snowbodies are wearing like Prada puffers and.
What if they fall down?
Okay, they got a if you fall down, is it you fall down with any more grace?
Guess it's not.
But you look good. Do you spend some time Centennial State? Tom, you go to Aspen? When you were there, I mean when you were.
I went through it. Yeah.
The one I really did was steamboat to the West, but that was ancient history. And you know they're having a rough time of it between ski patrol on strike at parts.
That's right, that's right.
Just the sheer to me, there's the demand for champagne, I guess and Aspen.
Yeah, it's you know.
It's it's a lot of.
A lot of celebrities going there were I carrying Jenn Filoba's, Jeff Bezos, okay, Tommy, baby boomers and users of weight loss drugs giving this boost to injectable esthetic treatments. This was in the Financial Times. It's because quick explanation, people losing weight. Right, your face begins to sag and they call it o zembic face.
Huh.
So now they are needing these injectibles to help give a little plump, give it.
That neuromodulators, Tom, with that little plump.
That you need.
And they say baby boomers are starting over sixty plus and it's not just women, it's men too, to let you know, but they're seeing this significant uptick in the use of it. So these are injectables. They make you reduce wrinkles, but also give your skin that little plumpness to kind of help it out after.
You lose weight.
Now you're doing you gotta go check it out.
Tom, Lisa Mateo, thank you so much.
After Proudy and guccin askemen you go.
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