This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along with Jonathan Farrell and Lisa Abramowitz. Join us each day for insight from the best and economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot Com, the Bloomberg Terminal and the Bloomberg Business app. A hugely popular guests, and I don't mean popular in terms of
fun and games, I mean insight and intellect. Peter Cher joins now at a macro strategy at Academy Securities. Peter, you were on fire last time. It was just really brilliant about the dovetail of all these narratives. How is your narrative changed, say, in ten days.
Well, we're all having to process what's going on with Israel Hamas in the Middle East. So that's probably been the biggest change. It's been clearly of very sensitive issue. We think it's playing out right now kind of as it should. That Israel will eventually, you know, secure their borders. They will make sure that it is safe for their citizens, but they'll do it in such a way that it doesn't escalate this conflict beyond relatively small borders.
Localized p is that the word that comes up with clients a again and again. Is there a belief that this can remain localized?
Yeah, I think that is the belief, and I think that's what the market is pricing in right now, and it's rightfully so. Israel certainly has the capacity to eliminate the threat. They said they will eliminate the threat, but I think it's very positive that they are doing this carefully and cautiously to minimize civilian casualties. The two risks kind of that aren't priced in as an escalation with Iran.
It seems like we're trying to take some backdoor channels to keep that threat low, or that something spurs the change in sentiment in Saudi Arabia. Saudi Arabia has been making a ton of progress in terms of westernizing their economy in terms of the Abraham Accords, so we're watching that very carefully and that's probably the main reason Israel is being very cautious as well.
I think, do you believe America has the capacity to support two military conflicts simultaneously.
We do, But.
As some of our General, General Taptool has been very on top of this for a while. We have been underfunding parts of the military, so we're going to be a little bit stretched two fronts. I think is fine. It does leave us a little bit vulnerable. We are going to have to see a massive replenishment of our weapon systems as we've been providing weapons to Ukraine. It looks like we're going to help Israel in terms of
refilling the Iron Dome weapons. So there's going to be a lot going on on the defense side for the next years to come.
At this point, when it comes to refilling all of these supplies, it does take money. And something we've been talking about is there an appetite to expand defense spending at a time where borrowing has gone up and interest payments are going up as well. How does that factor into your calculus at a time where a lot of people are not fully understanding some of the gyrations, the long end of the yield curve.
You know.
The one thing. So we've got the at retire General's admirals and two astronauts to get to work with. The unified message we get is that in terms of national security issues, DC is actually very bipartisan, very smart. Right, You do not get to sit on these high level national security committees unless you've demonstrated intelligence bipartisanship. So I'm actually very comfortable that when we have these real threats,
we will put together and do the right thing. So there will be spending, it will be well done, and it's necessary, and we have to kind of reinstate our influence in the globe which has been waiting.
One thing that you do really well is you game out what is priced in and what isn't priced in. You said earlier that some sort of escalation with Iran is not being priced into the market. How would it be priced How do you see it percolating out in the market. Should there be some sort of expansion in the region with either RAN's, some of its proxy fighters, or just the nation itself.
I think then you definitely see oil hit above one hundred, and they're more importantly, it wouldn't just be a short term spike. I think you'd start seeing futures build out that a much higher price for a year or two years. And that had given us some comfort on some of these recent spikes. It was much more consolidating the front end of the futures contract, not some of the longer
data contracts. But if we really are going to impose sanctions on Iran, if they are going to potentially disrupt oil flow in the Middle East, that would have a much more serious impact. And I think the bond markets can kind of shake off what's currently going on, but that would probably push yields higher as we would be facing much higher oil prices for much longer.
Peter with an economics, finance and investment, you are a student of history. Amid war is a general rule. What do stocks do?
You know? I think they get volatile and they are fluctuating when there's a lot of uncertainty. But once it looks like the path has come through, we generally tend to rally. I think we had that just recently with Russian Ukraine. There's that initial fear factor and then as people say, Okay, this is what it looks like, this is how it's controlled, this is what we do about it,
we can rally. And again, the position was fairly light I think coming into this, so I'm not surprised that we can get a nice rally if we maintain the status quo and Saudi keeps making the right signals and Iran doesn't escalate this.
Yeah, I look at the catharsis required and I'll let somebody else smarter than me determine if we've had bond catharsis. But I think we can certainly say we have not seen equity catharsis. Is that required?
You know, we saw so much equity catharsis last time around, you know, the last year, So I'm not sure how much catharsis there is left to have. So it's hard to get super bullish. You know, Forty forty six hundred SMP seems tops. Maybe forty two hundred I think seems to be a bottom right now, unless something happens in the the least.
What are you hoping to hear from all of the FED speakers? Do you think that they are that important at this point with such heightened uncertainty as we get the last gasp before the quiet period, I.
Think they're going to make it very clear that the day has not been consistently strong enough to hike, that they really don't want to hike. I like the fact that they're talking about real yields. We've been talking about that for a couple of months of how important that is. We are starting to see this filter into the economy.
Were hearing more and more. I don't want to say horror stories, but you know stories of companies that we're borrowing at seven percent that are now facing fourteen percent as their debt matures. So I think they're supposed to pause and let this play out, especially now with the global uncertainty.
Now, well, the global uncertainty is there, but then it's by straw hats and winter. What are you acquiring today? I mean, I'm assuming you're not one hundred percent in cash, So what do you buy?
You know, I like bonds. Again, We've been trying to raytrange this. As you know, we got to four eighty, you want to buy a lot of tens. As you get back to four fifty, you sell some same on the stocks. Right, It's kind of that range. As you start pushing towards forty five hundred, you want to be reducing risk on the S and p. As you get below forty three hundred, you want to be adding. So I think it's a trader's market, and you do want
some hedges. My favorite hedges right now, I think are buying calls on treasuries because if we get this geopolitical escalation, although oil is going to go high on fed Canton Nord at the front end, I think the back end is going to start pricing in a true flight to safety trade.
How are you getting a raid on the potential for escalation if there's one particular voice you're following at the moment, whose voice is it?
There's not one particular voice. So we're searching around and again I've got the luxury that we've got sixteen specifically generals and admirals who retired who are talking to people across the US, across the world to the IDF. So we're trying to distill this information that we get and that's what we're trying to look for, these tiny little signals that aren't on the radar screen. So it's a little bit tricky, but I think we're trying to manage it pretty well.
Pity chaer managing it very well. Thanks for being with a acountby Securities. Pete appreciate it as a wiemke.
What's really great about this is our next guest, Lisa. I said to him, Ike said, you know what do you think? He says, I'm not coming on again until the tots are in first place, so you know, as it worked out well.
Well, fantastic congratulations Steven Major, Global head of Fixed Income Research at HSBC, And really I am. I'm so glad to speak with you. We're at a time of an incredible bond bear market. You've been bullish. How can you reconfirm that? Reaffirm that at a time we don't really understand why the cell off has been so severe.
Yeah, there's been a capitulation, so there'll be people like me, but people with skin in the game, people who are actually long with bonds who have had to cut the position. That could be for risk management considerations, it could be because clients are taking their money out and they're having to respond to that. So I think there's a capitulation. There's evidence of capitulation in the way the term premium moved.
So it's the back end that's where the action is, and I think there's a lot more safety in the front end.
Right now.
You can see twos are behaving differently. Maybe for the first time this year, twos have become safe, and I think the mantra has been don't touch the twos all year because you would have been going against the FED. If the Fed's done now more or less, then you're fairly safe entering twos. And that's how the bomb market can start to perform better. Money will creep up from the front. That's why people are leaving the back end alone at the moment.
There's a lot there to unpack. I just want to go to the whole capitulation story. You said there are signs of capitulation where who is selling so aggressively at a time when a lot of people are saying it's a buyer strike.
Yeah, I think it's probably real money. And there's this game in fixed income about discussing the marginal buyer and seller. The truth is you never know to it afterwards. Right, The bomb market is fairly sophisticated, but you don't know the buyers until after it happened. You can see the supply coming because it's published, but you don't know who actually bought.
There's a lot of gaming of who's going to buy. Right.
It seems to me the marginal buyer has to be domestic, so it has to be here in the US because the official sector overseas is not sponsoring the market as it was before the private sector isn't picking up enough, so it has to be inside here. Now seventy percent of treasuries are held in the US. Of course the Fed's a big part of that. But the story is it has to be here. It's probably not the banks. Real money has already taken long positions and maybe adjusting,
So it has to go into retail. It has to go to small investors. It has to go to those who are inequities, so big investors on a multi asset basis, so people coming out of stocks into bonds, people going from cash into bonds.
That's where the marginal bone is.
The great furyre Steve Major is what I call the Whalen silence. Chris Whalen, with this wonderful one volume of America financial history. We're in the buyer amerket. You're trying to do something, and all of a sudden, on the other end of the phone, whether it's the eighteenth and nineteen twentieth century, there's silence. Are we anywhere near that?
Yeah?
Well, that's a really good point because it does seem that there's been a bit of a buyer strike, and so the evidence for that is in the auctions, So you look at the cover ratios, so how many people showed up to buy the bonds at the auction. There's less there, especially in the long end of the ten and the thirty year vapor. But it gets to the
point where the value is just too obvious. You've mentioned a real yield several times in the on the show, and but when when the But you know, when the real yield is comfortably above the trend GDP rate, the actual trenched DP and the projected trendy DP, then you're pretty covered. So the inflation piece is locked. When the real yield is above the trenched DP, you're not going to go too far wrong.
Now.
I'm not saying that today it's free money. It's just that you'll look back in six months time and you should be happy with the investment you made today.
Seven hundred pages at the imfter bluebook, the Green Book, the Red Book. Gergiev says she's going to print a copy just for me so I can read it. The one appendix I read was Tobius Adrian Fiscal Instability, Liquidity and Solvency. Does Steve Major have liquidity and solvency issues? Is written in his appendix.
Get the solvency, the US is going to pay its bonds. So the the idea that you have a ratings issue, and the ratings explain the yould shift.
So what about liquidity.
Now, this is the price of getting stuff done in plain English, right, that's what liquidity is. So when the market is illiquid, it's more difficult to get a big trade done, so you have to pay a bigger bid office spread. That's my simplistic, plain English explanation. There is a liquidity issue right now because the banks aren't prepared to hold big inventory.
The intermediariesm are just not there.
And liquidity and risk premium tend to move together. So if we have an ill liquid market, then the risk premium goes up, and that's your term premium and the higher yield in the long end.
That's what's happening right now. I look back at this and.
I think you've got record moves in the term premium, even back to twenty thirteen. And don't forget the context is important here, Tom and Lisa. Back in twenty thirteen, the taper tantrum was like the main thing that happened. Now you've had a two year bear market going into a three year bear market, So rates moved up a lot. Then the term premium flipped. You didn't have that back in twenty thirteen, So you really are entering a good level of yield.
At the moment.
Given the fact that you think that we're at a good level of yield, how do you sort of lean into the front end and not the back end?
Right?
Why aren't you just going all in on the ten years?
Let me be absolutely clear.
I think that investors who want to buy bonds for the first time, who rather shy, can creep into the two years out of a money market product, and they're not going to lose a lot of money. If any, you're safe in the two. So if you're shy and you're going into bonds for the first time, you're safe
in twos. Then you creep up to threes. Now, for me, if I'm making a call for the next six months, of course i'd buy tens or thirties, because I'm going to look back in six months time and think that the yield's fallen one hundred bases.
Where's it going though at the end of the year.
Well, our forecast is three and a half. We're running out of weeks and months of course, but three and a half could be the right number in six months time. So I don't think we've got the directional call wrong here. I think yields will be lower. It's just that maybe our timing could be off.
It's the same as I guess in West Ham's going to do well. We're running out of time. Steve Major One final question, a really just change. JP Morgan on stage in Morocco says she's modeling out of two and a half percent inflation adjusted yield. That took me back that Seeman was elevated. Take your nominal lower yield call and squeeze it into a real rate call.
Yeah, so the two percent inflation is locked. If there's one thing that's come through all of this is that inflation target targeting is credible. The two percent inflation has not been been challenged in the break even forwards. So for me, it's all about real yield. Two and a half is just way above trend. Therefore we can take
one hundred basis points off of that. I think that a fairer level for the real yield would be one and a half, not the two and a half that we're trading at at the moment, and by the way, that would still be above one hundred over the Fed's are star measures. So so you people are saying that the real rate needs to be higher, Well, it's priced as a lot higher.
We're going to go Stephen Major, a joint US for the Hong Kong Shanghai Banking Corporation. We get expertise now as we've done it. Thanks to our team for really going internationally to get this done. Julie Norman is at the University College London UCL Center on US Politics, but also is weaned out of a PhD program and truly one of the world's experts on terrorism. Julie, what an honor to speak to you this morning. How is this terrorism?
How is this as the President mentions narrow stridency of Hamas, how is it different this time?
Yeah, Tom, this is a very different tactic than we see from Hamas obviously last weekend, and that's why the response that's being considered right now I was also expected to be very different, very different in scale, very different in tactic and operation. And also AUSTI has the end goal of quote unquote eliminating Hamas. That's I think going to be a difficult endgame that's going to be tactically difficult over these upcoming days weeks in Gaza and just
on a broader level. Also, you know, Hamas has a lot of regional dispersal and they represent a certain type of resistance and I think a lot of Israel's choices in these next few days we have a lot of both moral and pragmatic implications in terms of as we see civilian casualties rise and whatnot, that will in some ways galvanize much of what Hemas's goals have been. And I think there are many who will step into their place. So it's a very difficult needle to thread right now.
I think that's part of why we see Biden maybe considering a trip there as to seeing how can Israel respond to this but also try and avoid just a longer term security security risk and to.
Play off one of your papers from a more peaceful time beyond hunger Strikes, a Palestinian prisoner's movement and every day resistance. Julie, you're as close to an expert on this as we're going to get. How do you perceive a military exercise from north to south in Gaza?
Yeah, so, as it has been noted many times Gaza is an extremely difficult place to live but also to
carry out a military operation. We've obviously seen already the evacuation, the movement of up to upwards of one million people from the north to the south, but there's really nowhere for people to go at this point, and so even if the operations stay mostly in the north, we're still looking at a very difficult humanitarian situation really throughout the strip, as well as just a likely devastation of infrastructure that I think makes an endgame very difficult to foresee here.
We heard Biden speaking yesterday about, you know, trying to preclude a possible reoccupation of Gaza. It's very difficult to see what what governing or administration look like in Gaza after this. And again, most of the civilians where they are not going to have anywhere to go, and it's going to be very likely a very difficult situation for anyone stepping into that space.
It's been incredibly difficult to understand what's going on, Julie, not only because a lot of the conversations are going down behind back channel discussions, but also because of a vast slew of misinformation intentionally being put out from a number of different sides. I'm wondering from your perspective, if you have a better sense of where the red lines are.
We heard conflicting reports of Iran not wanting to get involved, then saying as soon as the ground operation starts, so ready to go in What have you gleaned over the weekend.
Yeah, well, you're absolutely right, Lisa, there's been a lot of misinformation and I think all of us should be kind of careful and double checking many of the sources and whatnot. I would say in terms of Iran's movements that I think will really be the deciding factor into
if and when and how this conflx escalates. Iran has much closer ties with has the Law in to the north and border of Israel than even to Hamas, and I think it's really the question of if they would activate Hasbelah open up a northern front that would that would really change the contours of this war and make it a much more of a regional conflict. We are
not at that point yet. Obviously, served to a state blinkn has been a massive diplomacy run through the Arab world this week to try and deter Iran or Hezbollah
or their proxies from further escalating this. But I think that's not a given, and that's one reason again why these conversations are going to keep continuing to see, Okay, there's the operation on the ground, but also what can we be doing simultaneously to try and deter other actors and especially around or Hasblah from getting involved even further.
It's a tragedy and we all are seeing the tragedy unfold, humanitarian tragedy on both Israeli families as well as in Gaza, with people fleeing the north. I'm curious why, if we're hearing this there are a hundred trucks backed up ready to live our humanitarian aid to gasins that have gone south, why they're not being let through.
Yeah, So my understanding on this is that Israel wants to be able to check any of the trucks that are coming through for security reasons, so they will not give a guarantee that some of those trucks would not potentially be that they would not be immune from targeting and whatnot. So that's where the impast seems to be. There is a lot of aid waiting on the other side of the border to come in. There are a
lot of people in need waiting to come out. And I think where a lot of Blincoln and Biden's conversations with Israel will be is trying to negotiate some kind of opening on that border to allow that passage.
Professor Norman, We're all falling back on our memories on this and our knowledge. If you look at the present day horror, and you look at Albert Harani's history of the Arabs people, or Frompkins A peace to end all peace? Are we now beyond the chain and linkage out of World War Two? Of are we onto something new here?
I think we are, tom and this has been obviously coming for a while. You know, this is a broader regional question. I think the airp uprisings of the Arab Spring that we saw ten years ago, you many thought that would be a new direction. There was one, a slightly different direction than many hoped or thought they would. But we are seeing now, I think is a resetting. And again a lot of this is in a context
of you know, steps forward and steps back. I think there was a lot of hope this year around some normalization between Arab states and Israel and you know, many see this attacks as trying to be a spoiler to that which it obviously has been. So there's been again a lot of shifts in this region, and I think this war will be very definitive of where the region goes after this.
Judi Noilman of you, Siah, Jenny, thank you as so wise.
Joining us now to say the show Erica and Jerry and large cap banks and consumer for Dance Equity Research at UBS. She is not wearing a cast on one of her ankles this morning. Erica, I do you know I just said I did. Thank you.
You know.
I look, Erica, at where we are right now, and if I look at the Keith Pride Index, we're down forty eight percent from the nirvana that we did in twenty twenty two, twenty one, and we've only got twenty six percent down to go on a blended bank basis to get to COVID lows what do they do to turn the ship around.
So it's pretty simple, and I think that they essentially have to disprove the negative, which is that higher rates is only bad for banks, or higher rates are only bad for banks, as you could see in the earnings results so far, that's not actually the case. You know, a lot of these banks have the raw material to make more money in a higher interest rate environment, which is a good deposit base. But what we've seen early this year with the three bank failures is the dark
side to higher rates. What happens when you're off sides and rates go up faster than you think. And so what the market really needs to see is you're not seeing massive capital losses. You're seeing deposit stability, and you're seeing net interest income progress in the right you know, in the right direction as they earn more on their assets and their liabilities.
I mean, correct me if I'm wrong, But Erica, the history to me is called synergies or cost cuts or moving things. Are they gonna are they just the bone now where they can't cut anymore? Are they going to choose which divisions to participate in into twenty twenty four or is it just going to be, you know, cut four percent, let's go.
That might not be the right question to ask unless it's someone like City Group that has a very specific expense cutting plan. You know, keep in mind that these banks are actually making a lot of money right now. They're making a lot more in uninterest income than they did last year. Trading has been resilient. Investment banking is cyclic. Cyclically depress, but could bounce back, and so, you know, a lot of these banks understand that you can't necessarily
cut your way to glory. And so while we think they're going to be mindful of expense growth next year, I think that the question really is, how do they, you know, think about revenue resilience next year? How do they, you know, maintain deposit costs at a certain level if the FED does pause in order to enjoy fixed asset repricing.
I think the question is more about keeping deposit costs, or rather keeping operating costs at a lower growth rate than revenue growth, rather than outright expense cuts.
At this point, Erica, they're making bank. Let's be honest, right, they just had record quarter as John as mentioning for net interest income. If they're doing so well and they have surprised the upside and they're not putting as much to the side to cover loan losses as many people expected, why aren't the shares doing better?
Because a lot of investors are still really fearful of what could be the consequence of higher rates, you know, and the you know, the rapid increase in rates, which is a recession. And at the end of the day, a lot of these banks are, like you say, making bank from a revenue perspective, especially on net interest income. But a lot of investors are fearful that we'll see higher credit losses, whether it's on the commercial real estate books or corporate books or you know, the consumer weakening.
So right now, the valuations are staying cheap because a lot of investors are essentially saying, well, I'm going to wait till I really understand the complexion of the downturn before I really step in, and you know, really call these stocks inexpensive.
So how much are you getting pushed back? How much you're recommending to investors to buy certain bank stocks and making the argument they're undervalued because of its uncertainty, and yet they're increasingly acting like utilities because of how much capital they've put aside and how regulated they've become.
Look, I think the reality is is that the banks are in a little bit of a trading range at this point. So you know, you brought up two points. One is macro and one is regulation. Near term, we do think that the rubber band has stretched a little bit too far, and they're at the low end of their trading range, and they are a little bit too inexpensive, you know, relative to the reality of their earnings power today. That being said, you know, you bring up a good point.
Not only is the uncertainty over the economy really tamping down what their multiples could be, right, but also you have a lot of new rules that are coming down the pipeline, you know. That being said, I like to describe the new rules in terms of what's coming down the pipeline as tough, but not nearly as you know, game changing as it was coming out of the financial crisis.
Is if for money center banks, you know, the regulatory landscape went from zero to ten, I feel like Basil three endgame and the upcoming liquidity rules, it's going from ten to twelve, and perhaps from regional banks it's going
from eight to eleven and a half. But either way, I think what I'm recommending to investor is, look, you know, take advantage of these prices at the low end of the trading range, but valuations are not really going to be able to regrate meaningfully to normal levels relative to the broad market until we get more certainty, more clarity on what the economy looks like over the next twelve months.
Eric, I good to hear from you again. Let's do it again soon, Eric and ajerin that of ups.
For anybody linked in to his valuable Twitter account. It has been a visceral and direct week for Douglas pet cast with family members and business associates in Israel. Doug to take a broader view on this in a less personal view. You are a nerd with the heritage of Israel from nineteen forty eight to what I remember in
sixty seven and seventy three. I don't see how we prosecute forward, whatever anyone's view, with the immediacy of the media today, the immediacy of social media and the rest, how would you suggest, with the damage your friends and your family have had over the last week, how does this work progress with the immediacy of the modern media.
You know, it's a heavyweight. To me, the most astonishing thing is that the spiders closed it under four p thirty on Friday, the day before the Hamas attack on Israel. It's now trading four thirty three, and we can add during the internim interval some unpleasant PPI and CPI releases the market's extraordinaryly resilient look. I admire people that are a confident of view, but I don't see, and I've said this to you, for you and John and Paul
for about eighteen months. I don't see a backdrop that can make one confident either being excessively bearish like Morgan Stanley's Mike Wilson or Morgan Jack Morgan's Marco, or excessively bullish like most of the commentators on the desk store or Tom Lee at Funstratt. To me, the range of outcomes is we've witnessed nine days ago in Israel as wide and the events are unexpected. So the question really is what is a hedge fund manager to do to deliver superior investment returns?
How do you filter geopolitics? If we go back to the desk at Kidder Peabody and you're doing cell side security analysis, I mean, you know we're too young to go back to Vietnam. But the answer is, how does Doug Cass filter geopolitics or do you observe it while you're discreet and separate in investment?
I think it.
Builds in Sir Thomas degree of uncertainty that it suggests that, at least to us, the clear ramifications is that the recent events support the message I just said that it underscores why you should be managing your capital conservatively and unfortunately without the confidence that is typical. And you superimpose that with what Howard Marx has called a sea change, specifically as it relates to higher interest rates, that the
fundamental investment environment has been altered. You don't assume the investment strategies that have served you best since two thousand and nine will do so in the years ahead. Most hedge fund managers have really sought beta leverage long portfolios
in the last fourteen years. I think it's time to seek alpha and to develop strategies perhaps more like and we invoke, of course Alfred Winslow Jones, the father of the hedged fund industry, who ran a true long short book, and that's what we do on those Unlike most of the right, this.
Is yeah, yeah, I don't mean interrupt, I want you to jump in here. But what mister Cash just said, folks, for those of you who aren't sophistic kids, is absolutely critical and that people in the fancy world are talking long short, but they're really not. They're not taking Jay and Jay against pick A Stock, Pfizer or whatever.
They're not long short guys. Basically, Paul in the last fourteen years have been leveraged long.
Yep.
You know I am very comfortable on the short side at Sea Breeze. Short selling requires or mandates a degree of creativity time concept of it requires a lot of primary research because the cell research staffs our geared towards lungs and importantly is I've often discussed in my past lectures in doctor Shila's course in Yale School of Management, short selling mandate strong risk management.
Skills, like you'd want to go Paul long, Diamondbacks, short Dodgers just exactly well.
What you want to do in fantasy baseball is be long curshore erlander and short everyone else. But you know, you know typic where where we've moved from being that short to being market neutral on the decline right before Hamas. But you know, there's so many great opportunities because people aren't really dealing in selecting, selecting stocks and making broad market decisions like for vet bill, your two vet bills and my two long can be long fresh pet and short.
This missus Keen sent me an email. The two of them are set up for dog grooming.
Sure.
Mayor Adams team just emailed me he wanted to call and thank me for moving the Leeds. New York City's economy.
So, Doug, I mean, as you think about geopolitical risk is just one of the many things that investors have to deal with. Are we kind of in a new normal now? Because it feels like, at least in the Middle East, we're gonna have a number of years where it's just going to be very unstable. And I'm not even sure about Europe, but certainly in the Middle East.
Right. Look, we start by saying that on a historical basis, valuations are elevated, and we remain of the view that credit is more It's not just the Mid East, it's credit is more attractive in equities. Slugflation lies ahead, sluggish growth, prickly inflation. Political and geopolitical problems are intensifying. I mean, the lack of physical of partisanship and physical discipline reminds me of that sketch with Laurrel Hardy. That's another fine
mess we're in it. Interest rates are going to be higher for much longer earnings for share expectations of high single digit load double digit growth next year. I was listening to Jay at TPW Plaski and I mentioned that my grandma Calfax had a phrase about his optimism, but I can't repeat it on the radio. The upbeat economic forecast within the context of rising real interest rates seem fanciful to us that US dollar strength portends corporate profits vulnerability.
I think it's important to recognize that we're moving away from globalization and towards nationalizations for obvious reasons. It holds a future of lower than expected corporate profit and margins, as well as producing more inflationary impulses. Finally, the yields available and fixed income, you know, the one your Treasury bill yields five point four percent. That's an equity like return with little volatility of risk and premium, and risk
premium is paper thin and at multi decades low. I think that the SMP dividend yield is only one point sixty two percent. That compares to the one year yield to five point four percent. And now we're getting the same old crap that we got in twenty twenty one. The end of twenty twenty one. Market leadership is narrowing, but there are a lot of stocks now that are starting to make new lows, that are starting to be attractive away from the magnificent cent seven on a reward
versus risk opportunity. So we expect to see change, and we believe that the successful strategies of being met long since the Great Financial Crisis is not the desirable strategy.
Doug, We're out of time, but Paul Sween and I say thank you to you for your wisdom here on the market, right or wrong, and also heartfelt thank you to your reporting of your family and your business associates f MI Israel. It's really been of immense value. Douglas Cast the Seabreeze Partners. Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify and anywhere else you get your podcasts.
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