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Joining us right now for a brief I believe she isn't shut down right now, She's started to trace data questions. Joined us as well in the blur of all this, in the articles, the rumors, the gossip, Henrietta, what are you focused on today?
Coome Oneing guys, I really am focused on the two senators, Leader thone and Leader Schumer. The reality is, of all the operators in DC right now, they're the only ones that actually have the physical requirement to be Bipartisanan's going to anywhere between ten and twenty Democratic votes to keep his chamber open and the government open. And I think that means those two are the most important people in the room.
I look forward to them getting together at some point.
The Shoomer have the Democrats behind him or does they need to watch us back?
I mean, to the extent that Democrats can line up behind anybody. Right now, I think Schumer is moving forward knowing that we're he to divert course and just cave right now.
That would be disastrous.
So the base of the party is pushing him towards his shutdown. Same especially with the House side. There's a real disparity between House and Senate staff right now, where House members are gung ho on a shutdown and the Senators are more hopeful that we can keep things open. But that's the usual dynamic. The House is a more rebel rouse sea bunch.
Your odds right now are seventy percent that the government will shut down in midnight September thirtieth. If that happens, Henriette, is it worth ascribing blamed one party? Does any party care?
I think that will play the blame game.
You can see the polling shows that Republicans are going to blame Democrats, Diesel blame ours.
Independents are relatively split.
But the bottom line is the majority party is the Republican Conference. They own the House, the Senate, and the White House. So shutting down is going to require bipartisanship. Out of the Senate, that means that the senators are the ones that are most important.
I think Democrats are.
Going to be really upset unless they get some sort of a concession. And this time Schumer's illustrating that they're not going to fold the way that they usually do, and they're deciding that healthcare subsidies are really the fight
to stand on right now. What's interesting to me is that they're not migrating to any of the broader issues with the Trump administration, especially the one that's most impactful in polling data to the American public, which is opposition to the tariffs, that is widespread inflation prices, the economy, or where Trump is now polling materially underwater, which is a face from his election win. And I think that's something that the Democratic Party could very easily seize upon.
But they're not doing that. They're focusing solely on healthcare.
So if we get a shutdown, is there expectation how long it may last? Is this going to be something that people are going to really feel?
Yeah, that's a good question, I would say.
As a former staffer, I know that you get paid every other Friday, and so there is a seven hundred and fifty thousand person furlough announcement that's going to go out and a lot of those folks are paid every other Friday, so it might sound trite, but for a lot of these members, these are there individual staffers, and if they're going to miss a pace cycle on Friday, October tenth, that becomes a problem, especially Saturday, Sunday, Monday, when they've now gone three days without a pay stump.
And we're not high paid workers up on the hills. So it's not just those guys, it's people across the country.
You know, it's national Henry.
This came up this weekend. Let me just ask it, with great respect for your encyclopedic knowledge of Capital Hill. Are we running a parliamentary government? Is it really? Prime Minister Trump?
Yeah, I mean I think the president we if and when we shut down. The difference here is that he has demonstrated a clear willingness to use his authority to any extreme that he can come up with, and Russ Bott is reportedly having the time of his life right now. I think the shutdown, the fact that Congress has ceded
control and authority over taxation is wild. And indeed, the Trump administration even made the argument to the Supreme Court recently that by not voting to repeal the president's International Economic Emergency power tariffs. They were actually giving him the authority to tariff or to tax the American public and correct me if I'm wrong, but I'm pretty sure we fought the British over this one.
Phil.
Yeah.
Yeah, it started in Brooklyn andreetta give us some sense of admirals and generals flying in to meet, and I guess now the President is going to show up as well, discuss it.
Seems like a pretty good campaign video to me.
My understanding is that it's going to be recorded.
It's going to be you know, workshops, photoshopped, photop set out.
I saw one report that said it's a photo app. You agree with that? Yes, all right, I guess this is I feel like angry beaversa Nickelodeon. This is nuts. This is not a trace. Thank you so much, greatly appreciate it. Stay with us. More from Bloomberg Surveillance coming up after this.
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Conversation of the Day for those clipping coupons, James karen Cio, process of solutions, More Stanley. Okay, you walk in, you say, hey, stupid, look at the five year total return on bonds. I took a big index like bond fun flat. But if you come in even three years you get a legit
six point eight percent total return. Where we're going to be in twelve months if the marketing machine of Wall Street, not including Morgan Stanley, is going to be saying, OMG, bonds are great, do we need to get out in front of that?
Bonds have always been great.
So the coupon on bonds today, what people talk about as the all in yield, is actually reasonably decent today. So you're getting about an investment grade credit. You're getting about a five little bit more than a five percent yield. If you put a portfolio together correctly, and if you pick the right bonds, you might actually get a little bit of total return on top of that. You could be getting somewhere around six percent returns. What's wrong with that? In the investment grade credit space?
Right?
If you add some high yield to that, you can even get a little bit more.
So.
The bottom line is is that we do think that default risks are going to be relatively low because we do not have a very strong view for a recession. We think recesion probabilities are low, so we're happy to clip the all in coupon yield. But people will argue that spreads are very tight, and they're right.
Spreads are tight, but they've been tight for a while here, and the best performer in US fixed to come has been US high yield. So what does that say about I guess the markets wanting to take that credit risk.
So I always like to say that just because spreads are tight is not a reason for them to widen. There has to be a catalyst for these spreads to widen. Spreads are going to naturally tighten as long as there's not some bad news or recession or some geopolitical event that comes through into the markets. But just because they're tight, they can stay tight for a long period of time, and I think sometimes that's what people mistake.
If they're tight, the yield of caring garbage to the full faith in credit US can the US yields come down, so that spreads indirectly widen.
So we would think that both happen at the same time. As us.
They both come down, right, So I don't think there's a lot more room for spreads to tighten. And when we say spreads tightening, what we're meaning is that you're getting the additional.
Total return out of your corporate.
Bonds relative to US treasuries, what we call the excess return. We think that both are going to come down together. So I think within fixed income, what you're looking to get is the coupon these.
Days, Federal Reserve they cut rates once here, how do you think the cadence is going to be here going forward for them?
So I think it's two more times this year. January is a possibility.
I think we end with the Fed funds policy rate upper end of the band at three and a half percent. I think there are a couple of things going on. It's beyond just an insurance cut for labor. I think some of it too, is also to address liquidity concerns and the balance sheet.
The Fed's balance.
Sheet through quantitative tightening has been coming down quite a bit. It's about six point six trillion right now, which is low relative in the past few years. The overnight repo rates are actually starting to come up, go up in price because bank reserves are starting to falter a bit, so if there is a shock event to the markets, you need to have these overnight rates lower. And I think that's partially the story here as well, not just the labor market.
Jim, what are your team, What are you guys seeing in terms of best value out there? Where do you see some value out there?
So within the fixed income space, we've been tilted.
York bets that.
Within the fixed income space, we've been looking primarily at the high yield space and also bank loans. So bank loans are it's almost like floating rate high yield, and in some ways it's a shorter term reset on that.
What I would say is that despite the fact that.
We think rates are coming down, we think that short term high yield credit bank loans in particular actually have more room to appreciate in price value over time as default risks stay relatively low.
A lot of people like yield.
We do too, but we also like the bank loan debt, and we also like to barbel that by owning some short term, high quality government bonds too.
I don't want to get you in trouble, but there's just so much respect from Karen for your application of physics to our coupon market. Jim Karen on private credit in the liquidity premium, help me here with the lock up that's going on in private equity and particularly your world private credit.
Yeah, so in the private credit space, this has been an area that's become i'd say a lot more democratized, so a lot more entrants have come in. So we have a lot of you know, non bank players in the markets right now trying to accumulate a lot of these assets to basically create funds so that people can invest in these things. This has created a bit of an overcrowding in that space, like.
A bit of a two thousand and five over time.
I wouldn't necessarily say a two thousand and five overcrowding, but it is basically the valuations I think at this point are getting a little bit stretched. So you do have to be very specific and very particular, and be very picky about what you're putting into your private credit portfolios.
If your people, the Rocket scient is working with you, they are a lot of kel tech. He only hires that. Well, Harvey Muddy's got some token Harvey mud guys is well, good morning, West Coast listening early early morning. So you do a trench analysis. I'm going to go to David Goldbin the Giant Bank of America years ago on the private credit tranches. Is the risk the garbage or is the real risk the premium tranches where they come down five points.
So it's a really good question because you get the yield by owning the lower quality credit stuff what.
You refer to as garbage.
It's French and it's French, but you also need to balance that with some of the higher the higher quality credit stuff is actually really good. I mean that's actually very very solid. So you are taking the risk on the lower quality credit, but you're not going to get the yield that's attractive for people to.
Buy unless you have some of that.
So it's really about managing that portfolio and doing the bottoms up analysis on every individual company that you're putting in. So private credit is a broad term, but per manager, per fund, that's what we have to talk about, and that's what we have to be very very idiosyncratic when we think about this.
Jim Keron, thank you so much. She's the Mortgan Stanley investment process of solutions. With some terse comments there, stay with us. More from Bloomberg Surveillance coming up after this.
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Joins us right now, It's real she could be with us today on this booming equity market. Laurie, lots of back and forth here as you write for RBC Capital Markets. What is the distinction of the debate right now on owning equities?
Well, thanks for having me, Tom. Look, I think that you know, I probably have the best color for you this morning from what folks in the UK are thinking. That's where I spent last week, and there was, you know, sort of a discussion about funds flows, right and if you want to sort of fade the US, where do you go? And what I told folks was that if you look at the EPFR data, what we're seeing verily clearly is that there's kind of a lack of conviction
on what the alternatives are. So whether you're looking at Latin or China or Japan or even Europe. Frankly, you've had all these sort of attempts for flows to turn positive and then they tend to peter out. The European ones and the German ones lasted longer than everything else. What's funny to me, too, is if you look at the global x US category that's had the best flows this year, over the last no SA six months or so, but even that looks like it's starting to fade.
So what we see is just sort of a real.
Kind of lack of lack of conviction on exactly where to focus geographically.
So that trade we saw in early in the year to rest of world has that in fact faded?
Do you think?
So?
If you look, we have one chart in our weekly and we tend to put the weekly out on Mondays, and we look at US relative to non US on the MSCI data, and it's just been tracking, you know, sort of sideways over the last few months. There's been a little bit of strength in the US recently, you know. I think what's interesting is that global x US trade,
even there, the flows have been faltering. I mean, it's a time of year when seasonally equities tend to be weak, and we actually did a seasonality of fundslow data earlier this year, and you tend to see the flows fade at this point as well. So maybe this is just a market frankly that's getting a little bit tired.
Our friends in the UK and London, are they concerned about valuations here in this US market? Yeah?
That would I would say, you know, the number one question that I felt like I heard from people is just kind of what's sentiment like in the US. People just kind of wanted to know what investors are thinking over here, and you know, kind of how that compared. By the end of the week. I got a good sense of that, which is the UK investors seemed to be a bit more cautious than the US investors. But I would say number one issue people were proactively bringing up was valuation.
And you know, my.
UK clients are are fantastic macro thinker, so this is not a knock on them. But there was kind of no one specific thing beyond that that they were pointing at. It was just things seem really elevated, things seem really high. Was kind of how the conversation started.
Are there certain sectors that when you go over to the UK or that your clients want to speak about, whether it's tech or financials or healthy. I mean, is there certain sectors they want to focus on?
You know, It's funny, Paul, usually financials, but I can't even remember one meeting where the client's proactively brought it up. You know, I think I took it there eventually because it's a sector I like. Normally, I would say, as a general rule, it's always tech, it's always consumer, and healthcare often tends to be in focus as well. I think for technology, you know, it just has to do with where the global opportunity set sits, so that's a
big part of it. Obviously tech is a big sort of workhourse, but healthcare was really in focus.
Lest I do to be sure I'm talking from a technical analyst standpoint, is a fundamental type? What is your setup where you say I have to get off this bull market? Is it's not fed chat? I'm pretty negative on that. Is it like earnings? Miss?
I think earnings is huge, you know, I do think if you related to earnings is the fundamental economic backdrop. Whereas if you look at you know, that's a feeder, right, revenues really matter a great deal for earning.
There's a second time. Let's stop there. This is the second time we've heard this in like six days. How do you analyze revenue dynamics? Starting with JP Moregan October fourteenth.
So you know, I can't say on that company specifically, but when I do sort of my modeling, Tom and in my earnings model, the revenue line is very much a quant driven model. So we have kind of five different components, and with revenues, the two most impactful macro variables are GDP and CPI, and so we're looking at real GDP and then CPI. We break them out separately, and both of the if you take the assumptions up, it's going to goose your revenue number.
I mean, I can't emphasize, folks, which you just heard there, how important it is. This goes back to Tom Gelvin and DLJ, and I'm sure Tom would say people before him, but revenue It's one of the first things I did when I came to Bloomberg. Revenue analysis is really important. Susie Welcher that essay in the Wall Street Journal or her former husband, Jack Welch, was brilliant on unit price dynamics of revenue, Paul.
So, Laurie, Tom and I've been talking about it this morning. We might have a government shutdown tomorrow night at twelve oh one am.
What does that mean historically for market?
So it's interesting. I did run over the weekend. I looked at the betting market data on I think it's WSL predict that you guys all run, and it's this great little widget. You know, you can go and see what betting markets are pricing on all these you know, kind of stock market sensitive issues. And I noticed that the betting market data was starting to reflect higher probability of a shut down last week, right around when the market was wobbling. Now, I don't want you to over
extrapolate there. I didn't get a single question from clients on it last week. I got a question from one trader, and some of us macro folks at RBC have been writing about it right because it is in the headlines a bit. This is a really, really tough thing to analyze and parse out exactly how it's impacted stocks in the past. If you just look at when the days when the government's actually been shut and what stocks have done the two words you want to remembered are mixed
and mild. In the seventies they tended to go down more recently up, but it's been very mild overall.
Laurie, thank you so much, greatly appreciate it. You the Herod's in London.
I didn't make it there, no fun. I was just working the whole time and went to sleep early.
I've done that. There's like key throw hotel work, no hotel U key throw lub and they go, how was London? What did you love? And I'm like, you threw hotel work?
The client lunches were the highlight because then I actually got to have you know, local food.
Your full engless breakfast. Come on.
No, my hotel had a nice buffet though, but I had I had peas at lunch and I had some somefish and chaw.
You have a smash it with your knife, yeah, Lurri Kelvison, thank you so much, greatly appreciate it. With RBC stay with us, more from Bloomberg Surveillance coming up after this.
This is the Bloomberg Surveillance podcast. Listen live each weekday starting at seven am Eastern on Apple, Cocklay and Android Auto with the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.
The newspapers, Lisa Matayo, what do you have? This one least?
Okay?
This one's in the Wall Street Journal has to look into credit markets, which it says is running hot. But they're saying that some on Wall Streets say it's too hot. I mean, this is something you've talked with a lot of guests on the show about. They say, Wall Streets on edge. Any bad news is kind of touching a nerve. They gave the example of kind of what's triggering some conversations around bond investors, analysts. They talked about the two set in bankruptcys.
And the auto world. Do you have one of a lender the other auto parts supplier.
They say, so far, there's no sign of this bigger fallout, but when you combine that with other challenges like versus in inflation, rising defaults and credit and private credit which is a huge it's kind of making them take a step back.
So it has this whole look into it.
But the new issue market is they're just ripping the last few weeks, companies raising capital all over the place. So I think, I think, if you're a good credit, I mean at the market, we get the first.
Brand's news over the weekend, which you know, I'm not at the speed on. But nevertheless, there's these little to Lisa's point, these little little data points, little data points dat next week.
Okay, So Hollywood studios, right, they know the power of online creative creators. We've heard different stories about that, but Bloomberg screen Time they actually take a look into why only a few of them on YouTube? These creators are really having success raising money, selling projects for streaming services.
Yeah, lukas Shaw. So he kind of gets into it.
I mean, you have like Amazon, Netflix, Disney, Dave's License shows that live on YouTube, like Miss Rachel and Coco Mellon. But there's there's some creators who are just having a hard time.
So he kind of digs into it.
He's saying, there's this this disconnect between traditional financial institutions, this new breed of digital media companies. All a few YouTube channels, they build companies with real scale. He says, a lot of times it's problems with valuation and that's why they can't get the money they need. But it was this really kind of deep dive into it as to why they can't you know, us.
Sell it's interesting. I mean, I mean Lucas wrote this Bloomberg BusinessWeek cover story last week about mister Beast. Yeah, the biggest YouTube star in the world. It gets more than two hundred and fifty million views on every video, but his company lost more than a one hundred million dollars last year.
So yeah, I don't know.
His show did lost a lot of money, but I don't know how that all works exactly. That's kind of what it gets into, which is pretty interesting. And then finally we have some big news here in Times Square. Something big is coming. It's not the casino, No, you know that's not happening. It's Laboo Boo owner Pop Marty is coming to Times Square. Yes, this is according to the New York Posts.
So instead of the ball coming down, New Year's.
Head a ten year lease for seven thousand square foot store fifteen forty the Broadway store. Yeah, Broadway in forty fourth, expected to open twenty twenty six in the second half.
But it's it's a big building.
Disney stores in there forever twenty one US Polo associations in there.
So it's just.
Going to show how big this brand is becoming.
Are all the dolls creepy or or can there be nice la boo boo?
They're all kind of like creepy, like little monster toothy dolls. But the celebrities love them and that's what makes the kids want to get them.
And they've been they go on. They very expensive bags.
So yes, we had one floating around the house. Vent Bill was chewing on it.
There's a worth a lot of money.
There's still like going. I mean, they're still popular and all that.
They're still I mean they pushed you know, pop marks. They searched twentyure and thirteen percent this year over twenty twenty four, so it's a big, big push for them. They started to slow back a little, but I mean, if a store comes to Times Square, people are gonna come.
Lisa Montereya, thanks so much. It is a newspaper. It's hugely popular.
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