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There was this. There was that. I sat in her room with Meredith Whitney. She was like eighteen years old out of Lawrenceville PG Brown University, and Meredith goes time, shut up, invite visa, go back and look, folks. It's one of the great calls of the last twenty years. Joining us this morning. Meredith Whitney. Meredith, why are you getting back in the game.
Well, I got back in the games a two year anniversary. I missed it. There was so much that wasn't going on in banking and financial services when I stepped away, and uh, so much has gone on and there's such an opportunity. There's such a vacuum. I thought in research that and I missed it. I mean, this really is my wheelhouse. So I love it. I you know, I haven't been this happy in a long time.
So you're founding the banks of financials.
Still I follow everything so basically I cover whatever I want to. So one interesting thing, you know, piece I wrote last week was on employment and on inflation that I see. You know a lot of people talked about inflation around Terrace. I think there's going to be major
wage inflation. So what is under discussed is the ICE raids and immigration UH policies by this administration that's putting real pressure on labor and areas management and alternative manage manage or said two weeks ago, what they see cracks in the economy because workers at low end rust restaurants are not showing up to work for fear of ice rates and small and media sized businesses are losing revenues
because of it. And by our estimates, one in four workers in the US are Latino and Hispanic, and the BLS counts non documented and documented work in its thirty two million employees that are Hispanic and Latino, and the Pew Center estimates that another eight million workers are undocumented and the bulk of those are from Mexico and Latin American companies. So that is going to be a real pressure on rates because it's clearly inflationary.
Meredith, just can you as you step back here, with your wide lens here, what's your view of this tariff policy that we've been seeing from the Trump administration. Here, we're not really sure. I guess where it's going to shake out, but there's a lot to take in.
I guess there's a lot to in.
You know, my impressions when this administration came into office in January was that they were going to focus on deregulation and that would mean bank consolidation and be very pro growth. And they've gone terrorist tariff's terrafs and you know, I was confused by the methodology of it on Liberation Day. The math didn't make sense to me. And I think that it creates a lot of unintended consequences. So the
you know, obviously unintended consequences are uncertainty. But also I think you're going to start to see insurance rates go up because the anticipation of inflation. Sorry, replacement costs are going to go up, and that's been one of the most stifling costs for homeowners and for the low end. So you know, when you move fast and break things, you have a lot of unintended consequences. I'm not one that can figure out the methodology or the reasons behind it.
I have more concerns over it than you know than I do a real understanding of them, of uh that you know the sense behind it.
So where do we go here for this economy? A lot of folks are talking about recession. As you look at you know, the broad swath of your coverage, including the big financial services companies, do you see recession kind of in the near drunk for this economy.
So all of the technical data shows no evidence of a recession, but a lot of the underlying data shows shows hints of it. And I think it's more of a stagflation recession. And I very much see a recession, a second recession for the low end in the last three years. So the low middle class and low end fifty two percent of households that live paycheck to paycheck,
you know, we're sick of inflation. Voted I think main Street voted Trump into office because they'd been through a res Their recession occurred when the stimulus money ran out, so after tax revenues went down by eighteen percent, and they're going to go through another recession because I think employment is going to be a problem in the employment at the low end and then pressure is because there's no wiggle room from income levels accrastination.
Good morning on your commute, Good morning across America and around the world. On YouTube, Subscribe to Bloomberg Podcast. That's the way Meredith Whitney listens to us each morning. Thrilled to have an extended conversation here with Meredith. Meredith, let me go to the wheelhouse. And you know, I'm very upset, Meredith about the way the street quotes yield. I believe
it's price lower. Are the major banks and particularly in the zeitgeist over the weekend Bank of America, are they at risk not so much of gloom, but just a repricing of their balance sheet because a price down and builds no in bonds.
I think the banks are in a really good place. They're very conservatively accounted for, so where I expect unemployment to go to six percent, they're all their assumptions are north of seven percent. So I feel I think the banks are in really, really good shape. I think that one of the things I'm working on right now is the FED doesn't necessarily think that banks are in very
good shape. And two thirds of the of the large banks, the twenty nine banks that are over one hundred billion dollars are deemed unsatisfactory in terms of rating, and that's going to make M and A very difficult.
You know.
From my perspective, the banks look very well positioned, you know, and they are very well hedged. So Bank America does an incredible job hedging job. And I think the big banks that have hundreds of people hedging their portfolio are in better positions than some of the regional banks that have smaller staffs. So I don't think that's that's a concern for the banks.
I want to go to the regional banks, Meredith, because a lot of folks felt that, you know, we had some some of the smaller banks over the last several years run into some problems SVB and so on, and maybe people said, maybe there should be some consolidation of the regional banking business in the United States. Do we really need five thousand regional banks? How do you view that part of the financial system.
I think there should definitely be consolidation, and I think there should be consolidation. And some of the twenty nine banks that are you know, twenty nine of which are in the penalty box that are not allowed to do M and A should be also allowed to do M and A. You know, they're not above the ten percent deposit threshold. They're well below the ten percent deposit threshold.
So you need healthy banks. And yeah, I mean this has been something that I've been working on since twenty ten when the big banks, when the regulators wanted the big banks to get smaller the small banks to get bigger, and that just hasn't happened. And so it's like waiting for good too, for bank consolidation.
I mean, to put things in perspective, folks. And Meredith knows that she lived in I mean, she's big, you know. Forget about all the uproar and bonds and that in Meredith Whitney, Notoriety, Visa the symbols v. Paul in case I didn't know that, Meredith Whitney on fifty seventh Street with me with a beverage of our choice and Meredith goes time, shut up and buy Visa. It's up one thousand, eight hundred percent, twenty three percent per year. Meredith, does
your vision for the next fifteen years? The next fourteen years give you the same uplift in American financial capitalism?
Yeah, I think there's a lot of really interesting things going on in financial services, some scary, some really good. A lot of it's going on in the private market. I think the Klarna deal will be a really interesting IPO to watch. I'm pretty in all of that company. I think a firm's been a great a great company. There's a there's a lot of innovation in financial services in the in the US, and the banks are incredibly well positioned, I'd say also, but you know, in fairness,
like the European banks look pretty good too. They're incredibly well capitalized. So the banking system at large, I think looks so much better than it did, you know, fifteen years ago.
In fifteen years ago, Paul, we didn't have private equity or private capital.
Well, that's where I want to go, Tom, I mean a Meredith.
How do you kind of think about this private credit business, which has really grown so dramatically over the last you know, ten years, roughly as an alternative source of capital.
How do you view private credit?
Well, I view it uniquely because over the summer or since September, forty billion of private credit has been focused on consumer lending, and so this has been like a fire of credit within the industry, and a lot of it is private equity backed companies that are getting for purchase agreements with private credit, but also public companies. You know, so far has over twelve billion dollars for purchase agreements from private credit. What that means then is they basically
get on a treadmill of gain on sale accounting. So they're out aggressively originating personal loans and home equity loans. And originally I would have thought that that would have pumped in a ton of liquidity for the lower end and sustained the lower end. But I think you see fractures within the lower end. That is a that is a potential benefit that could come in and provide liquidity relief.
But private credit is interestingly never before so interested in consumer finance, and I think that's a real game changer.
Single best party right now, Meredith Money for old Time, let's your single best buy right now.
I love Rocket Mortgage. It's counterintuitive because of rates, but they are the largest home equity closed down home equity originator. And interestingly, so I watch, you know, I download the fed's home equity data every Saturday morning, and what you see, I know, I love it. So what you see is in the summer, home equity went from helocks went from seventeen years of decline to expanding and helocks now have
accelerated every week since the summer. And what's important about that is that the bulk of heelocks are being taken out by seniors. So seniors. This is the FED data the month May Month, May Fed data, New York Fed data. Forty percent of home equity products are seniors, which is counterintuitive because two thousand and four it was nineteen percent. So more seniors are stretched and they're turning to products that come equity, and Rocket's going to be you know, the one stop shopping.
It's too much. Meredith Whitney, thank you so much for joining us this one. She was a nerd when she was Big Red at Lawrenceville.
Sure make a complete nerd, absolutely, Meredith Whitney.
She once she reads Saturday morning. I don't know the FEDS some morning.
Yeah, she probably.
Reads the minutes of the FED. Meredith Whitney, thank you so much for being with us today.
You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Atto with the Bloomberg Business app, or watch US live on YouTube.
This is the interview of the day, folks, for those of you looking at price down. George Bury joins US chief investment strategists all Spring Global Investments. I'm going mental the acclaim Liz Goldenberg, who sold thousands of Bloomberg terminals with the YA function. The media does yield yield yield yield yield yield yield and what Liz Goldenberg would say,
shut up, Tom, it's about price. I read a point now, George, where there's a price decline enough out in the year where it's really starting to hurt people in institutions.
Yeah, price has become very volatile over the last couple of years. And as you point out, you know those bonds that were issued you know five ten years ago went down quite a bit in price. And when yield is low, you have a lot of sensitivity to changes in price. That's the bad news. The good news is
yields or high and that is the good news. And so when we have days like today, when we have more volatility in the market because Moody's downgrades the US not new news, but of a reminder, yields go up and income is your friend.
So for I get what you just said, but for our audience out there, they are like me, less sophisticated. Are there going to be losses in fixed income or do you downplay that versus the yield opportunity?
The gield dominates in this environment. And even if bond yields, so if the thirty year were to go up to say five and a half percent, which is not out of the realm of possibility, you're still looking at positive returns in bonds. And that's why year to date bonds have done exactly what they're supposed to do. That income
is carrying the day. Your sort of average bond performance is up about two percent year to date, not wildly exciting, but enough to beat cash and certainly enough to beat equities in a market where the market's trying to figure out what the growth trajectory is going to be on the back of tariffs. So what I tell investors, I tell our investors is two things. One, income is your friend. Number two, diversify that duration, and then let the bonds
do their job. They're doing exactly what they're supposed to do. Income coupon compound through time. If I can compound my portfolio today at say five to eight percent, depending on what kind of bond I buy, But if it's five and a half to six, I'm doing just fine and just sort of You can't ignore price changes in bonds. The price change only matters if you decide to sell it. If you hold onto the bond and you continue to compound your performance and the return improves as you move
through time. And that's the very powerful message in bonds.
Sounds like religious experience.
It is, I mean, this is these guys actually now people want to talk to them a COPTA parties because they actually have yields and returns before they're ignored for so long thirty year US Treasury.
North of five percent. What does that tell you?
Yeah, it tells you a couple things. It tells you that you know the market's clearly you know it clearly
sort of pricing in more term premium. You know on the notion that inflation is uncertain, as you guys have discussed with many guests earlier today, that the fiscal position of the federal government is still sort of stretched and getting stretched even thinner, and that there will be a tremendous amount of government supply over the coming weeks, months, and years, and so as a bond investor, I want
extra premium to be able to protect against that. In the extreme, you know, you could sort of talk about vigilanteism. I don't think we're quite at that point yet, but but bond investors are voting with their feet and they're saying, I need more premium to lend long and I think that makes a lot of sense given the quality of the lender.
But as you get up.
Into that, say five five and a half, maybe as high as six, we don't think that's likely in the near term. But five five and a half percent with a two year pegged YEP at about four does actually make a lot of sense in a very steep yield curve, you know, gives both the economy and opportunity to sort of continue to migrate through tariffs and for investors to make money.
Sweeny's been a lecturing on as folks, you don't see this, we're on commercial break. Sweeney gets out for BOSI and lectures mate. We're in a two ten spread for Global Wall Street of fifty two beeps. What's normal? One hundred? Normal?
Is one hundred, Yes, and we could get there if you look at the you with two tens fives thirties, you know, fives thirties is at like ninety, and we think you could get up to one hundred and fifty. So one hundred to two tens one fifty fives thirties not unreasonable. And I and we think that as we sort of migrate, as the FED stays kind of stuck in neutral, the weight and see uh sort of mantra is going to hold for the foreseeable future and the end, the long end is pricing in both the supply story,
inflation uncertainty. And at the end of the day, we're not the US is not the only country out there sort of borrowing lots of money. We know that the Europeans are going to be borrowing more money, the Japanese already borrow lots of money. And so as a lender, we're in a good spot. I want to lend at higher yields. These yields are now attractive. The real yield, as we've talked about many times before, is strongly positive.
And again another central message to bond investors is that your objective as a bond investor is to beat inflation over time, and you have two tools to do that. One is income and then other is duration. The price change on the bonds. Right now, price change is kind of working against you, but income, income, and yield is working for you. And so again another sign, another message is that you buy fixed income for the income and that's what works.
Are you telling your clients to take credit risk.
We are taking some credit risk. You know, credit quality is pretty good, particularly in the world of investment cread. We want to manage that duration pretty cautiously. So lower quality, much shorter in duration, closer to the front end of the curve. Longer duration and higher quality investment create When you divide the corporate market like that, you have very generous income at the front end and a nice diversified
pool of duration at the long end. And when you diversify that duration both domestically in the US as well as internationally by pulling some German bonds, some UK bonds, some guilts, and I attach that to some corporate bonds, that de emphasizes the need to hold lots and lots of treasuries, and as we know, the Treasury's got a lot of pressure on it so there's a lot to do in bonds.
Absolute Clinic George Bory, thank you so much, Chief investment strategists all Spring Global Investments on their fixed income pat chain.
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, our flagship New York station, Just say Alexa Play Bloomberg eleven thirty.
Dean Current joins US MACROSK Advisors MRA. Dean, I'm just going to cut to it with a bomb turmoil that we see. You have a beautiful, really interesting sentence where the market creates the risk for the system. The internal dynamics that you look at MRA every day. Do you see that internal system? Is it fragile? Yeah?
I think you know, Scott Bessen recently called the US markets antifragile, and I would really disagree with that. You know, there's two certainties in life, death and taxes, but I think we have to add a third, which is just ongoing and extremely large auctions of US treasuries.
The world is a wash of.
Them, and there's no obvious solution at hand, and I do think tom market prices are kind of blaring here and telling us something. And you know, the thing about market prices is there both a response, they react to what investors do, but they also create risk. And I think with respect to the back end of the bond market, you know this now we're above five percent on the thirty year. You know, we're doing this amidst a lot
of discussion about a FED easing cycle. Right Treasury bond yields were rising in twenty twenty two, but that was a tightening cycle. The FED was well behind the curve, and you knew the short rate was going up quite a bit and long end followed. Here you have you know, if you look at the Bloomberg WRP page, you'll see the market's handicapping easing. But the back end is its own thing. Right now, there's a risk premium there and
I think we're coming out of this tariff uncertainty. The downgrade doesn't feel good, and so I think that, to me becomes one of the bigger risks for the stock market is frankly the bond market itself.
So talk to us about the the state of the bond market, because we saw it kind of freeze up in April when we got some of that around Liberation Day. Really unusual trading there that you don't normally associate with the US treasury market.
What does that tell you?
Right, So, if we look at that chaos from April second, Liberation Day to April ninth, which is the never mind day where Trump basically undid those you know, five days of big risk off you had a rising vix into the fifties, got US high as almost sixty intra day, and rising treasure yields. That's not a combination you see
very often. And you know, I think over time, as John was referencing, this gigantic supply of treasuries has sort of reduced the risk offness, meaning the ability for the treasury market to serve as a flight to safety asset. It's no longer doing that. So I think that's what we have to appreciate.
Let's go off of last week's single sentence Kenneth Rogoff from my book of the summer, you're our dollar year problem. Fabulous foreign exchange linking it into you know, this time is different in the system. The fact is, Professor Rogoff modeled out a five and a half to six percent ten year yield. Is that even in the Dean current frame of reference?
Yeah, I think so. So Ken reached out to me on this book as well. I had him speak post the twenty eleven Eurozone crisis at a couple of events I hosted, you know, our dollar year problem, our debt our problem, and I think so that's a little bit of a different take on it. I would say, you know, up at five and a half six percent, the math of running the interest costs through that debt structure is
just remarkably different. You know, there's really no resemblance to the current structure of US interest rates relative to when we took on all the debt in twenty twenty, which look was an emergency we were trying to push back against COVID. But I think the tenuere traded as low as fifty five basis points into twenty twenty one. The ten yere yield was one point two percent at the lows, and so this there's no resemblance to that, and these
interest costs are punishing. You know, Tom, you have me on here to talk about the VIX and you know, whenever we talk about volatility, we talk about things like nonlinearity, and with regard to treasuries, I think that's a facet of the market that we typically wouldn't characterize as having a risk of. But you know, things gradually then suddenly, as as.
Paul wants to jump in, I'm sorry, I got to interrupt. This is really important. Where's the suddenly click it? Give me a ten year level.
Well I wouldn't. I would just say not to hundreds of exactly, let me give it to you within three basis points.
Well, here's what I would say.
We should be watching certain markers. I think you can learn a lot from correlations. And I think when we observe a daylight today, which is a stocks down, rates up day, and that's not amidst a FED tightening cycle. So twenty twenty two we had plenty of those days, stocks down, rates up. The tight cycle was unwelcome. The dollar was tightening. Today we have a very different mix. We have a weaker dollar, we have higher rates, higher vix and lower stock prices.
So that combination is new.
I think it's a little dangerous, and so Tom not to you know, duck the question. I think it's a difficult one, but I think we can learn a lot about the reaction of the stock market and stock market volatility, things like the VIX to higher yield. So let's watch correlations. Let's look for days like today when rates are going up and the VIX is rising as well.
What do you make of the US dollar.
We've seen stocks and other risk assets kind of rebound to a certain degree, but we have not seen the dollar really a rally.
Here. What's that tell you here?
And that's again that's that goes back to what's different. You know, in the rates going up period of twenty twenty two, rates and the dollar we're traveling together higher, and that posed a certain risk. You know, this this last round of dollar weakness, especially the one that occurred in that again chaotic period between April second and ninth, it kind of tells us something. There's a lot of discussion about, you know, a negative branding exercise for the dollar.
It's probably too much, too soon. I think the reserve currency is not going away. You know, I read with great interest the Moody's downgrade. You know, they talk a lot about the debt stack and the you know, unsustainability of it, but they also do mention that the US is an economic superpower with with the reserve currency, So I don't know that that's going away anything.
Do you see a legislative path like it came up but not once, maybe twice this weekend, a social security reform? Can there be some drama of debt and deficit maturity? I don't mean duration maturity, I mean behavioral maturity, Like can we find a debt and deficit adult out there? I don't think there's much evidence we can, right.
I mean one we can find is Michael Bloomberg himself, who posted that I thought very well crafted up ed on the terminal yesterday, and I think you know, the commentary there is that the deck shares, the deck chairs are being shuffled, but really ineffectively. The horse trading around, you know, salt versus medicaid, work requirements and EV credits. It's just moving things around a little bit. But there's
not a lot of impact, you know. I just think these things are intractable problems, and there are other intractable problems out there as well, things like climate change. You have a lot of agency cost with this, and what I mean by that is there's a short term pain for a potential longer term gain, and it's difficult to convince people to take that on. So from a from a hedging standpoint, from a defensive standpoint, you know, I think you have to keep your eye on assets like gold.
Bitcoin is a lot of things. It's obviously very speculative. I think it has to have a little bit of a place in the portfolio to hedge against this. And then we got to really think about things like volatility, which to me is the only antifragile asset. It benefits from uncertainty in shocks.
Is a stock market about being careful of acquiring certain companies? Do you just avoid the stock market given the bond turmoil?
Well, I think, Listen, there's very few benchmarks as amazing as the S and P five hundred. This index delivers the goods year after year, and so I think it's very difficult not to continue to be invested. I do think, you know, having a little bit more cash on hand makes more sense. Having these other alternative assets like bitcoin and gold, I think makes sense. And then again I'm speaking my own book here because I specialize in hedging
and volatility. But investors have got to understand how to use things like options, because when you have the potential for the bond market to misbehave as it appears to be doing, that could spell this eruption for the stock market.
So how do you think about I mean, again, we've got the vics here still below twenty nineteen and change here.
Is that a.
Healthy level of volatility in the equity markets? Is that something we should be concerned about?
I think it's that's I think that's right about the long term average, it's right around twenty. And of course you've had these periods of ten you had an eighty in the GFC and eighty in COVID. You know, you're coming off something that was very high. And this was a very interesting risk event because it was created by Trump and then undone by Trump. You know, I think the tariffs are a little bit less of a risk now. I'm a little more concerned about the bond market, Paul.
I think the question is is the cost of hedging a good deal? And I think it's pretty fair, you know, markets to sustain a twenty vix you need the market to move around at kind of a percent a day, which we got today, And you know that to me, that's a couple of small moves and then one big move every you know, every two weeks or so.
David Gura, thanks for listening to the program this morning. Mister gur emails in, says, ask Dean about the cost of summer camp. Let's get an update right now, we're sliding into the beginning of the acquisition of summer camp. Merch to take the camp.
It's out of control, summer camp, summer camp. Thankfully, my kids are at a summer camp sum I have a summer intern working for me, my son Liam.
That control whoa more than Pete's.
I hope he gets free lunch included in his in his internship.
So I got out of a booth school, you know, booth school like you did you throw Sheldon Naytenberg with him? Is he reading about option and all the Greek letters?
You know, we're starting with rich Yamarone's book on Economic Indicators.
Amaron's Giant at Bloomberg. Yes, missed every day. Yes, that's good. So you start with Richie Amarone and you got to get to the Greek letters. Maybe maybe next summer. Oh, come on, toughen up, excuse me. Is the intern doing work from home?
Now he's coming to the office show.
Yeah, that's how you do it.
Teene Kernan, thank you so much. Macroworsk Advisors. We protect the copyright of all of our guests. His work is hugely valued on Wall Street.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple, Corplay and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.
Gina Fordham with this Fordham Global Foresight, thrilled as she could be with us this morning. Tina, I don't even know where to spot start other than in watching the incredible emotion at Vadakan city yesterday. The one nation that represented, it seemed, was Russia and Putin. How removed is mister Putin from the Western dialogue on this Monday morning?
Well, I mean Putin has created his own reality, hasn't he? And I think what we if we look at the last week, we can see Putin's sidestepping just about every opportunity to do what He's always said he wanted for what Russia, which is to restore it to being a superpower as it was during during Soviet times and indeed during the Russian Empire. But he was absent from Miss Dumbull and absent, as you said, at the at the Vatican, so he's lying low.
Where does mister Rubio fit into this? Has that one, not two, but three people asked me? This is weekend, the President will have a phone call with mister Putin today? Fine, okay, But where is the Secretary of State in this debate? Or is he just removed aside? And is mister Trump his own secretary of state?
Well, it's it's a very good question that I think we can link back to the conversation with your last guest as well, that we are trying to read the tea leaves and understand who has what brief or is President Trump kind of, you know, acting as his own counsel. And the meeting with his Special ENVOYE. Steve Whitcoff, the subsequent meeting that he was supposed to have at the
Kremlin was canceled. So I wonder if Trump is going to end up being frustrated after this conversation because you know, in dating terms, what Putin is doing is called bread crumbing.
And what does that mean.
A little trail just enough to keep you going, but no lunch.
So no sandwich exactly.
So if you're President Trump, how do you approach this here? Because you on a campaign trail. Obviously, he was speaking very confidently about his ability to end this warning.
He's kind of maintained that commitment here. Where where does he go?
Well, I mean, I don't know that President Trump feels that he does have to maintain the commitment. He's expressed frustration with Putin. He had previously, you know, to to a great effect, expressed frustration with Ukrainian President Zelenski. Putin will be hoping that the United States moves on, loses patients and leaves this to Europe. And so I expect that, you know, we'll get what diplomats used to call it
a candid conversation. Putin might agree to something, you know, the Istanbul meeting yielded a prisoner exchange, but he just needs to keep President and Trump feeling like he's listening. And I think his appetite to continue at this stalemate level is almost indefinite.
So again, if you're President Trump, do you have any leverage here to kind of move this forward, because again, it seems like one of the issues he's certainly campaigned on.
So yes, I mean President Trump has threatened secondary sanctions in a you know, kind of out loud musings, so he does have further sticks. I'm not sure that the President will want to go that far just yet. And remember, of course that President Trump has just come off the back of what was a very successful trip to the Gulf where he was received with the kind of tribute and deal bonanza that he likes to see, so his patients might be a bit thin today.
For this conversation.
Years ago, Tina four I was sitting in an overpriced Mayfair restaurant with Jonathan Farrell, and he from the Midlands of England, explained to me that fishing rights between and the North Sea is like religion. So I guess we had an agreement overnight that nudges back to pre Brexit over point oh four percent of the British economy. Explain to our American audience the religion of fishing rights between France, Netherlands, Belgium, I don't know, Norway, I don't know what in the
United Kingdom. Explain the importance of that.
Well, fishing rights and you know, agriculture are so often the kind of electrified third rail on these agreements between EU member states and now, you know, nine years after Brexit, the UK trying to find ways too, frankly make up lost ground. The figure that you get about the tiny percentage of the of the British economy that's dependent upon fishing is accurate, but like farming in the United States, is very emotional, and especially for those you know, really
quite marginalized communities in the Northeast and elsewhere. We're fishing adders. But I think we have good news this morning. Generally again, the economic toll from Brexit and that attempt to unscramble the egg between the UK and its largest trading partner, the European Union, has hit this country hard.
So there's a lot of effort in.
The media to say this is, you know, kind of rejoining by the back door. You know, I think it's good news for slow growth Europe. And call me old school, but I think more trade is better than less.
Tina Fordham, thank you and someone Tina's too young to remember. Captain's courageous Spencer Tracy nineteen thirty seven. Every kid had to watch the movie. Ordered a gunpoint to watch the movie. If you don't behave. You're gonna end up on a fishing boat off Nova Scotia. Tina Fordum, thank you so much, really appreciate it.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android Auto with the Bloomberg Business Up. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa Play Bloomberg eleven thirty.
Joining us right now to get to the market open Jenny Patten, Co head of Global Rates TCWS Way, Jamie, is it a global lift in longer term yields and priced down?
What we think is really interesting.
That's obviously what we've seen, especially if you look at the change in the market since April second, Liberation Day.
But what if you came into the market on April second and.
We didn't have all this wild volatility, rates, biking equities getting crushed, Trump listing a list of tariffs that was out of this world. What if you just came in and said, here's the deal, and you and Trump had listed the tariffs that we see today. So the average effective tariff right is up over ten percent, fourteen to eighteen percent. That's up from two point three percent. We have this kind of sixty to ninety day rolling volatility. Would stocks have rallied and now be less than four
percent from the all time highs? Would rates have bear steepened by twenty to fifty basis points. It's hard to imagine that would be the market reaction. Had this just been the simple announcement, the average, the average investor prior to April second expected tariffs to only go up to like ten percent average effective rate. And we're much higher than that right now. And this is the this is the bottom. We're still dealing with sixty to ninety days
of uncertainty. So what we think is really interesting about this rate move is that it seems like the result of wild volatility and sequencing that really matters, rather than a reaction to actually what we have in this macro environment today.
So, Jamie, we look today at the thirty year US treasury north of five percent.
Does that mean anything to you guys?
Do you guys just have internal emails saying, oh my goodness, did you see where the thirty years today?
We certainly talk about it.
It's we don't see a ton of value in five percent thirty years. We see a ton of value in the front end of the curve. And that's because in this environment with fatter tails, rising volatility, we expect term premium. And when I say term premium sounds fancy, all that means is how much should you get paid to take incremental risk?
That should be higher. You should get paid a lot.
More money to take thirty years of US treasury risk than you should two years of US Treasury risk. So where we see value as the front end of the curve, where you're not taking as much risk two to five year sector. The fedslong term DOT it implies a neutral rate of three percent, and the market doesn't have rates getting anywhere near that. Even over a year and a half from now, the market has FED rates bottoming more like three thirty six.
So just in twenty seconds there going to get to the market open and we'll come back with Jamie Patton. Jamie does TCW just say the Fed's going to sit in the sidelines.
We think they will sit on the sidelines, but we think that's a mistake. The bar for a FED cut feels pretty high right now. They just told us that the bar is higher than it wasn't twenty nineteen when the inflation was lower. But we're seeing in the hard data, just this month's CPI and PPI, we're seeing that inflation was coming down towards their target before this teriff related vault.
Their mandate is twofold inflation and growth. On the inflation side, it's coming back down to their mandate, and we're going to have this volatility on teriff related On the growth side, we know that there's going to be okay.
So Jamie here talk to us about I don't know, it just seems like we've got a lot of volatility in the bond market.
I'm thinking it back to April.
A lot of people are even suggesting that the bond market a little bit broken here in a treasure market, how do you think about the volteling the treasury market? Is it functioning well at this point?
For you?
It's definitely functioning, and it makes a lot of sense. A steeper curve, higher term premium. As we discussed prior, you should get paid more to take more risk in this environment, whether that's credit spreads, whether it's the shape of the yield curve. It's definitely functioning, and it's definitely orderly. It's definitely liquid, and we don't really see any problems there. Even everyone's talking about the US downgrade, that feels like
old news. We agree with Besson's comments over the weekend that it's the third of three rating agencies. It's backwards looking. We started talking about this in twenty eleven. I heard you guys talking earlier that we've been talking about the deficits since what nineteen eighty, probably prior to that.
There's no real new news here.
What's new is that investors might be realizing that they are globally over allocated to US assets. That's a very different story than the US dollar losing its losing its exceptional status as the reserve currency. Those are two totally
different topics. And even what's kind of amazing is that it's one of those situations where even if we're we have high conviction in this, but even if we're wrong, the FED has tools that it can use if the bond market ever stops functioning that they're really comfortable with after rate cuts. Quantitative easing is a tool that the Fed's been most comfortable with and been employing for over
fifteen years. So we really like trades where we have strong conviction and even if we're wrong, someone like the FED could come in and fix it. So we're not worried about treasuries. We're not worried about bondom market functioning.
So what is the key issue for you guys here going forward in next three to six months?
The Fed? We see the Fed.
The FED is in a really precarious position, but they have a dual manding on one side of their maindate.
They can actually impact change.
So we know from all of the soft data that growth is really in trouble uncertainty. If you're sitting here with maximum uncertainty and you're leaving a company, you're probably not like, let's open four new facilities and increase our inventory and come out with these big growth blends. You're kind of just frozen waiting to see what happens. On the other side, you have inflation. We see inflation coming
down prior to the teriffs. We know that there's going to be a lot of ball and headline and noise and all that stuff once the tariff hit the data, which is probably this and next month, but the FED.
Can't really impact that.
Even if FED rates were at fifteen percent terrafts are still going to raise prices.
So if you have to, if you have a.
Dual mandate and you can impact one side of it, you can't really help the other side. I would probably be more tuned to the side that I can actually impact.
The FED, on the other hand, has.
Told us very clearly there and holding it. They're waiting and seeing what's interesting. Everyone loves flying analogies, but they don't really make a ton of sense here. The FED is sitting here in very restrictive territory. You are one hundred and thirty basis points into restrictive territory according to their own forecast, and you're in an airpase and you're in a holding pattern. You're not accelerating, you're not decelerating, you're.
Not coming in for a landing.
So they have they're decelerating, their speed breaks are on, yet they think they're in a holding pattern, James, because that's where the potential for a policymaused got und.
Jimmie Patton, thank you so much for TCW this morning.
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