Bloomberg Audio Studios, Podcasts, radio news.

Bloomberg Audio Studios, Podcasts, radio news.

This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business App. Investors gear up for the defence big decision on Wednesday, The Central Bank expected account raids by these twenty five basis points, with some traders preparing for a larger fifty basis point move. Lori Cavicino of MBC joined us now for more. Lori, I knowber houseview is twenty five, and I just wonder if we get that twenty five, and of course welcome to the program. By the way, if we do get that twenty five, how vulnerable certain trades like the small camps actually are.

This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business App. Investors gear up for the defence big decision on Wednesday, The Central Bank expected account raids by these twenty five basis points, with some traders preparing for a larger fifty basis point move. Lori Cavicino of MBC joined us now for more. Lori, I knowber houseview is twenty five, and I just wonder if we get that twenty five, and of course welcome to the program. By the way, if we do get that twenty five, how vulnerable certain trades like the small camps actually are.

Hi, John, So thanks for having me.

Hi, John, So thanks for having me.

Look.

Look.

I think it's a great question. And we were watching the small caps just surge on Friday as the renewed optimism about the fifty basis point cut came up as well.

I think it's a great question. And we were watching the small caps just surge on Friday as the renewed optimism about the fifty basis point cut came up as well.

And look, I think small caps have a lot.

And look, I think small caps have a lot.

Going for them, but the reality is that valuations are full and positioning is also full. If you go back a few months ago, they looked under owned, they look cheap. We're just not there anymore. And now we've got a lot of FED optimism baked in. So I do think in the short term, at least if we're just thinking about the week ahead, I do worry a bit that if we get the twenty five rather than the fifty, which propelled small caps to these great heights on Friday, that there could be a bit of a reversion.

Going for them, but the reality is that valuations are full and positioning is also full. If you go back a few months ago, they looked under owned, they look cheap. We're just not there anymore. And now we've got a lot of FED optimism baked in. So I do think in the short term, at least if we're just thinking about the week ahead, I do worry a bit that if we get the twenty five rather than the fifty, which propelled small caps to these great heights on Friday, that there could be a bit of a reversion.

In the small caps.

In the small caps.

I think that we really have sort of more of the fast money crowd sort of driving that trade right now. If you look at recent flows into small cap they have been all passive driven, and that passive money does tend to be very, very fickle.

I think that we really have sort of more of the fast money crowd sort of driving that trade right now. If you look at recent flows into small cap they have been all passive driven, and that passive money does tend to be very, very fickle.

You have a nuance view here, Laurie, with respect to not only how much the FED cuts, but also the economic data behind it that needs to heap this going.

You have a nuance view here, Laurie, with respect to not only how much the FED cuts, but also the economic data behind it that needs to heap this going.

There was this.

There was this.

Feeling that the FED was on track to cut by fifty basis points without real pain visible in the US economy. How much is any kind of weakening, even if not a recession, sort of a bear case right now for small calves.

Feeling that the FED was on track to cut by fifty basis points without real pain visible in the US economy. How much is any kind of weakening, even if not a recession, sort of a bear case right now for small calves.

So I think the small caps really need the needle to be threaded. And what I mean by that is, if you go back and look at past cutting cycles, small caps do really really well and embark on a longer term out performance cycle. If you get a recession, if you break the economy, it's small cap one on one to say you sell them on the way into a recession, you buy them on the way out, and you tend to see that pivot midway through.

So I think the small caps really need the needle to be threaded. And what I mean by that is, if you go back and look at past cutting cycles, small caps do really really well and embark on a longer term out performance cycle. If you get a recession, if you break the economy, it's small cap one on one to say you sell them on the way into a recession, you buy them on the way out, and you tend to see that pivot midway through.

But if we don't get that and we.

But if we don't get that and we.

Get some sort of economy that's still growing, I do think it depends on what kind of growth we get. And if you look at the other side of the equation, we really do need a hot economy above average GDP for small caps to really keep going. If you look at recent trading data since say twenty fifteen, twenty sixteen, and if we're just you know, kind of, I guess I think it comes downly. So what do you mean by soft landing a soft landing that's looking at like one and a half percent type AVP growth, maybe even two. I don't think that quite cuts it for small cap I think you need something more like two and a half to three percent or better.

Get some sort of economy that's still growing, I do think it depends on what kind of growth we get. And if you look at the other side of the equation, we really do need a hot economy above average GDP for small caps to really keep going. If you look at recent trading data since say twenty fifteen, twenty sixteen, and if we're just you know, kind of, I guess I think it comes downly. So what do you mean by soft landing a soft landing that's looking at like one and a half percent type AVP growth, maybe even two. I don't think that quite cuts it for small cap I think you need something more like two and a half to three percent or better.

When you broaden out beyond small caps, you see you remain neutral in the S and P five hundred. As we get closer to your year end target. You talk about sentiment and how it concerns you. Can you explain why investor sentiment right now is a red flag?

When you broaden out beyond small caps, you see you remain neutral in the S and P five hundred. As we get closer to your year end target. You talk about sentiment and how it concerns you. Can you explain why investor sentiment right now is a red flag?

Sure, it's a great question, Lisa, And look, I would say if you look at aaii net bullishness, I think that's the best barometer. It's been doing the best job the last couple of years at calling short term inflections in the market, and it's really flirting with danger. If you look at where it's been recently, it's been kind of hovering right around that one standard deviation mark, poking above it on certain weeks, but not quite on the four week average. And that's very similar to what we saw back in July. That's very similar to what we saw back in August of last year. And if you look at CFTC data, which is going to give you more of.

Sure, it's a great question, Lisa, And look, I would say if you look at aaii net bullishness, I think that's the best barometer. It's been doing the best job the last couple of years at calling short term inflections in the market, and it's really flirting with danger. If you look at where it's been recently, it's been kind of hovering right around that one standard deviation mark, poking above it on certain weeks, but not quite on the four week average. And that's very similar to what we saw back in July. That's very similar to what we saw back in August of last year. And if you look at CFTC data, which is going to give you more of.

An institutional look, that data.

An institutional look, that data.

Just continues to make new highs, and it's above levels that we were at in early twenty eighteen, in early twenty twenty pre COVID, and it's well above the highs that we've seen mark the peak in recent years in kind of that post COVID era look.

Just continues to make new highs, and it's above levels that we were at in early twenty eighteen, in early twenty twenty pre COVID, and it's well above the highs that we've seen mark the peak in recent years in kind of that post COVID era look.

Sentiment and position are not the.

Sentiment and position are not the.

Only thing that drives stocks, and we certainly can stay overbought for quite some time. But I do think it tells me that we're really not sitting here in a position where we can absorb any kind of bad news easily.

Only thing that drives stocks, and we certainly can stay overbought for quite some time. But I do think it tells me that we're really not sitting here in a position where we can absorb any kind of bad news easily.

So those are charts, frankly.

So those are charts, frankly.

Lisa, that keep me up at night, even though we've had a more constructive view on equities overall.

Lisa, that keep me up at night, even though we've had a more constructive view on equities overall.

Lorie, do you still see a connection from a Trump win and small caps rallying?

Lorie, do you still see a connection from a Trump win and small caps rallying?

It's a great question, Anne, Marie.

It's a great question, Anne, Marie.

So you know, if we look back to twenty twenty three, twenty twenty four, we really just haven't seen that linkage right where Trump's doing well in the vetting markets and small caps are outperforming. We've really seen Trump more closely aligned with large caps with growth. Things are starting to change there a bit recently, so I would say we'll have to watch the data. One of the things we did mention in our piece this morning is that if the Harris corporate tax increases, raising the rate from twenty one percent to twenty eight percent, were to go through, I do think that's a negative sick for a small cap because if you go back into the twenty sixteen twenty seventeen period, small caps were one of the big beneficiaries of the rate cut. And that's not just to simply say the historical playbook, you know, flips on its head.

So you know, if we look back to twenty twenty three, twenty twenty four, we really just haven't seen that linkage right where Trump's doing well in the vetting markets and small caps are outperforming. We've really seen Trump more closely aligned with large caps with growth. Things are starting to change there a bit recently, so I would say we'll have to watch the data. One of the things we did mention in our piece this morning is that if the Harris corporate tax increases, raising the rate from twenty one percent to twenty eight percent, were to go through, I do think that's a negative sick for a small cap because if you go back into the twenty sixteen twenty seventeen period, small caps were one of the big beneficiaries of the rate cut. And that's not just to simply say the historical playbook, you know, flips on its head.

We have to go back to the why. And what we.

We have to go back to the why. And what we.

Found back then was that small caps were more direct payers of the headline rate. They had a tougher time managing their taxes lower than large cap companies did.

Found back then was that small caps were more direct payers of the headline rate. They had a tougher time managing their taxes lower than large cap companies did.

So I think that issue may come up if.

So I think that issue may come up if.

We end up seeing Harris whin and those corporate tax cut tax hikes rather are on the table. Of course, I think that really only happens, you know, in a democratic sweep scenario, which is not really our base case.

We end up seeing Harris whin and those corporate tax cut tax hikes rather are on the table. Of course, I think that really only happens, you know, in a democratic sweep scenario, which is not really our base case.

Laurie, you've been looking at both these candidates plans. I saw you at Trump's economic speech here in New York City. What big questions are still missing as you think about and you put these into your models.

Laurie, you've been looking at both these candidates plans. I saw you at Trump's economic speech here in New York City. What big questions are still missing as you think about and you put these into your models.

So look, I think it's really preliminary for both candidates, right, I think that they've got both taken some heat for lack of detail. From my perspective, maybe my expectations are just low all around. I think this is maybe the fifth or sixth presidential election I've covered as a strategist. But I'm really just looking for kernels of where they're leaning, of what their wish lists are, of what their impulses are. So I think, you know, when I look going forward, you know, I think maybe on the tax side, for corporate taxes, at least, we have a little bit more clarity.

So look, I think it's really preliminary for both candidates, right, I think that they've got both taken some heat for lack of detail. From my perspective, maybe my expectations are just low all around. I think this is maybe the fifth or sixth presidential election I've covered as a strategist. But I'm really just looking for kernels of where they're leaning, of what their wish lists are, of what their impulses are. So I think, you know, when I look going forward, you know, I think maybe on the tax side, for corporate taxes, at least, we have a little bit more clarity.

On the hair side.

On the hair side.

I left the speech confused about exactly what Trump wants to do in terms of further tax cuts. The commentary of linking the fifteen percent rate to domestic production, I don't exactly know how that shakes out in the S and P.

I left the speech confused about exactly what Trump wants to do in terms of further tax cuts. The commentary of linking the fifteen percent rate to domestic production, I don't exactly know how that shakes out in the S and P.

Five hundred.

Five hundred.

We have lots and lots of companies that are producing things overseas. So I think it's tough for me to sit here, when I'm looking at my earnings model, to just bake in a fifteen percent corporate tax rate. I think it's much more complicated than that.

We have lots and lots of companies that are producing things overseas. So I think it's tough for me to sit here, when I'm looking at my earnings model, to just bake in a fifteen percent corporate tax rate. I think it's much more complicated than that.

We sew you paint for policy on both sides. Lori, thank you, Lori Cavasena of Obvious. Let's continue this conversation with Robe Cannessey of Signum Colubal advice is Rope. Good mornings you, sir, morning. Another almost trying event over the weekend. Two very lucky escapes over the last two months for the former president. What is this change? Does this change anything? It's so, you know, I don't think it changes a whole lot.

We sew you paint for policy on both sides. Lori, thank you, Lori Cavasena of Obvious. Let's continue this conversation with Robe Cannessey of Signum Colubal advice is Rope. Good mornings you, sir, morning. Another almost trying event over the weekend. Two very lucky escapes over the last two months for the former president. What is this change? Does this change anything? It's so, you know, I don't think it changes a whole lot.

Certainly not as much as the first assassination of attempt where we saw, you know, photo after a photo of Donald Trump bleeding, standing raising his fist. This a little bit less interesting to the general public, but I think it points to the fact that the October surprise this year very well could be an example of political violence when you look.

Certainly not as much as the first assassination of attempt where we saw, you know, photo after a photo of Donald Trump bleeding, standing raising his fist. This a little bit less interesting to the general public, but I think it points to the fact that the October surprise this year very well could be an example of political violence when you look.

At the timeline to November fifth. Does Trump need to change how he campaigns now?

At the timeline to November fifth. Does Trump need to change how he campaigns now?

I don't think he needs to change how he campaigns Now. Maybe we'll see him play a little bit less golf, but probably not. I mean, as the sitting president, you know, he likes to travel to his golf courses. As a candidate, he's certainly done the same thing now how he campaigns. I think this really only plays to his advantage. Now, obviously we're all very grateful that he's safe, but up until that point where he's not safe, I think this riles up his base and ensures that Republicans will turn out in November.

I don't think he needs to change how he campaigns Now. Maybe we'll see him play a little bit less golf, but probably not. I mean, as the sitting president, you know, he likes to travel to his golf courses. As a candidate, he's certainly done the same thing now how he campaigns. I think this really only plays to his advantage. Now, obviously we're all very grateful that he's safe, but up until that point where he's not safe, I think this riles up his base and ensures that Republicans will turn out in November.

Jack was just talking about what's going on with this task force. They're still investigating what happened two months ago. How quickly can Congress move and potentially beaming up his protection. We heard from the Palm Beach County sheriff yesterday saying if it was the sitting president, potentially there would be a bigger perimeter around the West Palm Beach golf course.

Jack was just talking about what's going on with this task force. They're still investigating what happened two months ago. How quickly can Congress move and potentially beaming up his protection. We heard from the Palm Beach County sheriff yesterday saying if it was the sitting president, potentially there would be a bigger perimeter around the West Palm Beach golf course.

Yeah, you know, unfortunately or fortunately, it's not really up to Congress how good Trump's protection is, right, it's a question of Secret Service. President Joe Biden vice President Kamala Harris have assured us over the weekend that Trump's protection is good. Right, It's as much as a candidate needs to have. But that being said, I wouldn't be surprised if beefed it up pretty close to essentially what the sitting president receives. Now, Donald Trump is not the sitting president, but he's six weeks away from potentially being re elected, so I would not be surprised if President Biden, frankly came out and said we're going to give Donald Trump more.

Yeah, you know, unfortunately or fortunately, it's not really up to Congress how good Trump's protection is, right, it's a question of Secret Service. President Joe Biden vice President Kamala Harris have assured us over the weekend that Trump's protection is good. Right, It's as much as a candidate needs to have. But that being said, I wouldn't be surprised if beefed it up pretty close to essentially what the sitting president receives. Now, Donald Trump is not the sitting president, but he's six weeks away from potentially being re elected, so I would not be surprised if President Biden, frankly came out and said we're going to give Donald Trump more.

Rob you said something that I want to pick up on. You said that the October surprise that we may see could be an act of political violence.

Rob you said something that I want to pick up on. You said that the October surprise that we may see could be an act of political violence.

What makes you say that, Well.

What makes you say that, Well.

Of course, We've seen two attempts on formal President Donald Trump's life, So that's the first. The second is, you know, our country is horribly divided, and I think to a certain extent, politicians are playing into that, and we'll play into that between now and November. I think the example of sort of coming from the other side is Trump and vice presidential candidate Jade Vance, you know, talking about these these illegal immigrants in Ohio, you know, Haitians eating dogs and cats, things of that nature. They're actually legal immigrants, but it's rhetoric like that that I think, you know, Frankly, could incite this kind of lone wolf violence that is so hard to defend against.

Of course, We've seen two attempts on formal President Donald Trump's life, So that's the first. The second is, you know, our country is horribly divided, and I think to a certain extent, politicians are playing into that, and we'll play into that between now and November. I think the example of sort of coming from the other side is Trump and vice presidential candidate Jade Vance, you know, talking about these these illegal immigrants in Ohio, you know, Haitians eating dogs and cats, things of that nature. They're actually legal immigrants, but it's rhetoric like that that I think, you know, Frankly, could incite this kind of lone wolf violence that is so hard to defend against.

So what's your.

So what's your.

Sort of analogy, I mean, is there has there ever been a time or any other election cycle that you can think of, had this type of risk or is this a new and heightened risk that requires a very different type of security and different type of campaigning.

Sort of analogy, I mean, is there has there ever been a time or any other election cycle that you can think of, had this type of risk or is this a new and heightened risk that requires a very different type of security and different type of campaigning.

You know, I think it's a it's a at least in the modern American era, this is new. Right. We haven't seen attempted assassinations like this in my lifetime and in all of our lifetimes. You know, you can go back to probably the Civil War to see when our country was most divided. I don't think we get there. And the whole bus Secret Service is able to protect obviously the sitting president, the former president Trump and Kamal Harrison, and they're doing their best. And it's important to say that none of these attempted assassinations have been successful. Now, obviously the first one was very close and very scary. Yes, second one not so much.

You know, I think it's a it's a at least in the modern American era, this is new. Right. We haven't seen attempted assassinations like this in my lifetime and in all of our lifetimes. You know, you can go back to probably the Civil War to see when our country was most divided. I don't think we get there. And the whole bus Secret Service is able to protect obviously the sitting president, the former president Trump and Kamal Harrison, and they're doing their best. And it's important to say that none of these attempted assassinations have been successful. Now, obviously the first one was very close and very scary. Yes, second one not so much.

Let's talk about the Harris campaign. The first time we had the Biden campaign, and the criticism at the time was that it was a one dimensional campaign centered around characterizing Trump as an existential threat to democracy. There's a lot of criticism about that. In the middle of July. Does the Harris campaign have enough facets too?

Let's talk about the Harris campaign. The first time we had the Biden campaign, and the criticism at the time was that it was a one dimensional campaign centered around characterizing Trump as an existential threat to democracy. There's a lot of criticism about that. In the middle of July. Does the Harris campaign have enough facets too?

It?

It?

Is it a multi faceted campaign that they're not relying on this single issue that they can back away from talking about this a little bit more.

Is it a multi faceted campaign that they're not relying on this single issue that they can back away from talking about this a little bit more.

Yeah, I think they can. The issue with the question of democracy as a campaign issue is that it's you know, one hundred percent of people are worried about it, but it's fifty to fifty right Republicans are worried about how Democrats are a threat to democracy. Same thing vice versa. So a, did it insight the first attempted assassination against Donald Trump? We're not really sure who knows. The motives of that should have remain unclear. But you know, as a question of you know, can the Harris campaign do more? They better, right, because I'm not sure they're going to win on this single question of democracy. They have to win on abortion. You know, there's more messaging around a middle class economy and opportunity economy than we saw from Biden, who didn't want to talk about the economy at all. So Harris is doing more. I think she has to do more.

Yeah, I think they can. The issue with the question of democracy as a campaign issue is that it's you know, one hundred percent of people are worried about it, but it's fifty to fifty right Republicans are worried about how Democrats are a threat to democracy. Same thing vice versa. So a, did it insight the first attempted assassination against Donald Trump? We're not really sure who knows. The motives of that should have remain unclear. But you know, as a question of you know, can the Harris campaign do more? They better, right, because I'm not sure they're going to win on this single question of democracy. They have to win on abortion. You know, there's more messaging around a middle class economy and opportunity economy than we saw from Biden, who didn't want to talk about the economy at all. So Harris is doing more. I think she has to do more.

To win total us about Harris is addressed in the US economy. Because we also had that interview gangainso the weekend, it wasn't impressive. Some very simple questions that weren't ready onswer it what is the opportunity economy? What are the policies behind it?

To win total us about Harris is addressed in the US economy. Because we also had that interview gangainso the weekend, it wasn't impressive. Some very simple questions that weren't ready onswer it what is the opportunity economy? What are the policies behind it?

You know, I think the policies that she wants to highlight first and foremost are the housing policies. You know, After that, it sort of falls off right, And I think what's important about these policies, What many of us know is that not a lot is going to get through Congress. So it's not as though she can promise, you know, huge reforms, huge changes, because if she sits in the seat, if she wins the election, she's very likely going to have a divide in Congress. And I would agree John that the interview on Friday not all that impressive. I think it's probably why we haven't seen her do a whole lot of interviews, why we probably won't see her do a whole lot of interviews between now and November. On the one hand, she's a candidate who absolutely turns out the base. On the other hand, maybe that they want to do their best to insulate her and just maintain the momentum that they have. Certainly that they she won in the debate on Tuesday.

You know, I think the policies that she wants to highlight first and foremost are the housing policies. You know, After that, it sort of falls off right, And I think what's important about these policies, What many of us know is that not a lot is going to get through Congress. So it's not as though she can promise, you know, huge reforms, huge changes, because if she sits in the seat, if she wins the election, she's very likely going to have a divide in Congress. And I would agree John that the interview on Friday not all that impressive. I think it's probably why we haven't seen her do a whole lot of interviews, why we probably won't see her do a whole lot of interviews between now and November. On the one hand, she's a candidate who absolutely turns out the base. On the other hand, maybe that they want to do their best to insulate her and just maintain the momentum that they have. Certainly that they she won in the debate on Tuesday.

Night, Just quickly, just to wrap things up, base case for you and the team, what is it does it.

Night, Just quickly, just to wrap things up, base case for you and the team, what is it does it.

Remain the same. It remains the same sixty five percent chance Harris win. So we think that's base case. With the divided government, the Senate goes red, the House goes blue, and that really limits what Harris is able to do at least until the midterm.

Remain the same. It remains the same sixty five percent chance Harris win. So we think that's base case. With the divided government, the Senate goes red, the House goes blue, and that really limits what Harris is able to do at least until the midterm.

Okay, Robbie's going to see you. Thank you, sir, appreciate the input. Rope case that signam, I'm pretty excited. The boss over at Pinco, Manny Ratherman, joins us. Now for the next thirty minutes or so, Maney, it's going to see you, sir.

Okay, Robbie's going to see you. Thank you, sir, appreciate the input. Rope case that signam, I'm pretty excited. The boss over at Pinco, Manny Ratherman, joins us. Now for the next thirty minutes or so, Maney, it's going to see you, sir.

Good to see you. Thank you for having me put.

Good to see you. Thank you for having me put.

Us out of our misery.

Us out of our misery.

Twenty five or fifty tomorrow. What's it going. Well, we're in the camp of twenty five.

Twenty five or fifty tomorrow. What's it going. Well, we're in the camp of twenty five.

But you know, I always say we have a crystal ball and at the end of the day, we'll see what the market does. You know, it may very well be that it doesn't make that much of a difference. And our view is that there will be three cuts of twenty five and at the end of the day, what matters is where we are at the end.

But you know, I always say we have a crystal ball and at the end of the day, we'll see what the market does. You know, it may very well be that it doesn't make that much of a difference. And our view is that there will be three cuts of twenty five and at the end of the day, what matters is where we are at the end.

Of the year.

Of the year.

Well, let's talk about the destination. This is a three pount act on Wednesday. As you know, it's a decision, it's a set of forecasts and a news conference and a big conversation around this table for the last several months. What's the destination, what are they aiming for, what are they shooting for? Where does this land in the next eighteen months.

Well, let's talk about the destination. This is a three pount act on Wednesday. As you know, it's a decision, it's a set of forecasts and a news conference and a big conversation around this table for the last several months. What's the destination, what are they aiming for, what are they shooting for? Where does this land in the next eighteen months.

Well, I think you can say that there's less inflation right now, and that in the absence of new data, the destination will be to have lower rates, and the FED would be very data dependent, and I think I think sometimes one under estimate how careful they are about new data and how they want to be able to change their opinion. And so if you kind of use this framework, you sort of said, let's do twenty five and then let's see what we are, and then probably do twenty five and twenty five. But I think the total sum of the rate cuts may matter more than how they do it, which is the.

Well, I think you can say that there's less inflation right now, and that in the absence of new data, the destination will be to have lower rates, and the FED would be very data dependent, and I think I think sometimes one under estimate how careful they are about new data and how they want to be able to change their opinion. And so if you kind of use this framework, you sort of said, let's do twenty five and then let's see what we are, and then probably do twenty five and twenty five. But I think the total sum of the rate cuts may matter more than how they do it, which is the.

Reason why people are looking forward and saying maybe the neutral rates three and a half percent, and oh yeah, look at that the two year yield right now, it's about three and a half percent. Back in June, when you put out the outlook for PIMCO, there was a feeling that intermediate bonds really had a fantastic investment proposal proposition just simply because there was yield. Do they still after the rally we've seen, We still.

Reason why people are looking forward and saying maybe the neutral rates three and a half percent, and oh yeah, look at that the two year yield right now, it's about three and a half percent. Back in June, when you put out the outlook for PIMCO, there was a feeling that intermediate bonds really had a fantastic investment proposal proposition just simply because there was yield. Do they still after the rally we've seen, We still.

Do think so.

Do think so.

And listen, the exciting thing about being at PIMCO right now is that fixed income is quite attractive. And you know we we we are in the business of fist and family, right so when rates are very, very low, it's harder to be that excited about fixed income. And when you can build portfolio and get a yell of sixty six and a half, you become very excited.

And listen, the exciting thing about being at PIMCO right now is that fixed income is quite attractive. And you know we we we are in the business of fist and family, right so when rates are very, very low, it's harder to be that excited about fixed income. And when you can build portfolio and get a yell of sixty six and a half, you become very excited.

And you know, we very focused on treasury, but.

And you know, we very focused on treasury, but.

They're really is there is a lot of value in other part of the segment, a set back being one of them. And you know, we're excited about what we see. And at the end of the day, the yield on the portfolio is a good predictor of the return.

They're really is there is a lot of value in other part of the segment, a set back being one of them. And you know, we're excited about what we see. And at the end of the day, the yield on the portfolio is a good predictor of the return.

That the investor will experience.

That the investor will experience.

And so what I think is exciting about fixed income right now is you can build a portfolio and get a return of sixty six and a half percent with a seria of different instruments.

And so what I think is exciting about fixed income right now is you can build a portfolio and get a return of sixty six and a half percent with a seria of different instruments.

It used to be the bonds did better in bad times and worse in good times. Are we heading into a worse time where people go to bonds for safety or is this on just an absolute basis, yields are higher.

It used to be the bonds did better in bad times and worse in good times. Are we heading into a worse time where people go to bonds for safety or is this on just an absolute basis, yields are higher.

My partner Dan ivesid and I'm going to quod him because because actually he has a very good line, bonds may be the most attractive asset class. And I think that there's an absolute argument and then there's a relative argument.

My partner Dan ivesid and I'm going to quod him because because actually he has a very good line, bonds may be the most attractive asset class. And I think that there's an absolute argument and then there's a relative argument.

And I think the relative.

And I think the relative.

Argument is to say you need to build a portfolio, you need equity, you need fixed income, you need some real estate.

Argument is to say you need to build a portfolio, you need equity, you need fixed income, you need some real estate.

You need some private asset.

You need some private asset.

And at the end of the day, fixed income is much more attractive than equity, given the earning yield and given the evaluation of the equity market. And I think that's one of the arguments for owning a larger part of fixed income. And I think when I travel the world, I think that people are under invested in fixed income and a lot of them are looking at putting more money into fixed income. And whether they do it tomorrow, whether they do it two weeks from now or two months.

And at the end of the day, fixed income is much more attractive than equity, given the earning yield and given the evaluation of the equity market. And I think that's one of the arguments for owning a larger part of fixed income. And I think when I travel the world, I think that people are under invested in fixed income and a lot of them are looking at putting more money into fixed income. And whether they do it tomorrow, whether they do it two weeks from now or two months.

From that, I don't know.

From that, I don't know.

But the reality is people were under invested values part of the fixed income market, and they're looking to readjust their allocation.

But the reality is people were under invested values part of the fixed income market, and they're looking to readjust their allocation.

Have you got confidence we've re established the invest coralinction between bounds and stocks.

Have you got confidence we've re established the invest coralinction between bounds and stocks.

I don't know what I don't know, and I think I think correlation fictrate over time. I think that fixed income have a role in the portfolio construction, and I think they're there for a reason. But of course credit spread on the high market are correlation to equity prices. So once again, I think one needs to be careful about how you frame the question and how you conclude.

I don't know what I don't know, and I think I think correlation fictrate over time. I think that fixed income have a role in the portfolio construction, and I think they're there for a reason. But of course credit spread on the high market are correlation to equity prices. So once again, I think one needs to be careful about how you frame the question and how you conclude.

Well, like I said, I mean more specific by saying do treasuries? Have treasuries re established an inverse correlation with equities? Because one of the reasts that we've seen established over the last few years, particularly given the central focus was inflation, is that when bombs sold off, equities did too. Have we changed that story if we left that Hopefully.

Well, like I said, I mean more specific by saying do treasuries? Have treasuries re established an inverse correlation with equities? Because one of the reasts that we've seen established over the last few years, particularly given the central focus was inflation, is that when bombs sold off, equities did too. Have we changed that story if we left that Hopefully.

Hopefully we have.

Hopefully we have.

But I think remember that we also saw with the pandemic, really an unprecent, debted program of money creation, which sort of threw everything and our economic textbook in terms of how we thought about the correlation. And so I'm careful about what I said because the data are just so skewed in terms of what we sew and I think, you know, you can make the argument, for example, that part of the reason why the US economy has done so much better than any other places is that the package in terms of the pandemic has been so much bigger than another country. And at the end of the day, all you can do is cross sectional analysis and try to compare a different country. But there's so many other valuable that comes into the picture that you don't want to understate the enormous creation of great company in the US versus Europe, for example, and so and so. I think we try to always be careful about making definitive conclusion when it comes to correlation and when it comes to cross sectional comparison between different country.

But I think remember that we also saw with the pandemic, really an unprecent, debted program of money creation, which sort of threw everything and our economic textbook in terms of how we thought about the correlation. And so I'm careful about what I said because the data are just so skewed in terms of what we sew and I think, you know, you can make the argument, for example, that part of the reason why the US economy has done so much better than any other places is that the package in terms of the pandemic has been so much bigger than another country. And at the end of the day, all you can do is cross sectional analysis and try to compare a different country. But there's so many other valuable that comes into the picture that you don't want to understate the enormous creation of great company in the US versus Europe, for example, and so and so. I think we try to always be careful about making definitive conclusion when it comes to correlation and when it comes to cross sectional comparison between different country.

Another way to frame this question is when you travel the world and you talk to international clients who are under invested in fixed and come in the United States, how many of them turn to you and say, what about the US deficit?

Another way to frame this question is when you travel the world and you talk to international clients who are under invested in fixed and come in the United States, how many of them turn to you and say, what about the US deficit?

Well, my my friend and partner, Richard Clarida, I used this very American expression and says, the US is.

Well, my my friend and partner, Richard Clarida, I used this very American expression and says, the US is.

Let make sure to make sure I get that right. Carry the cleanness dirty. And you know, we have.

Let make sure to make sure I get that right. Carry the cleanness dirty. And you know, we have.

Debated quite a bit at a forum about deficit and you know, deficit do matter, and they do matter, and at some one in them there's a tipping point, but we're not there. And the reality is it's a huge competitive advantage to be the reserve currency. People need to own dollars. And the reality is we don't think there's a crisis coming and that the LEVEL and the US can have suddenly a high level of debt versus historical precedent and be able to function just fine.

Debated quite a bit at a forum about deficit and you know, deficit do matter, and they do matter, and at some one in them there's a tipping point, but we're not there. And the reality is it's a huge competitive advantage to be the reserve currency. People need to own dollars. And the reality is we don't think there's a crisis coming and that the LEVEL and the US can have suddenly a high level of debt versus historical precedent and be able to function just fine.

When will the US get there?

When will the US get there?

And do you see either party have any impetus to try to reign in spending, so to.

And do you see either party have any impetus to try to reign in spending, so to.

Quote my partner once again, leave the Countrell, who comes often here on the show. No, we see no impetus to try to deal with the budget deficit. The only real example we have is the United Kingdom. And I think that the United Kingdom was actually quite interesting because you saw a situation where the bond market reacted so violently to the least trust proposal that all of a sudden they had to change and had to change really really quickly. And I think, I think that this example of what happened in a very developed country and how the Bank of England reacted and reacted really quickly with the LEDI situation and the pressure in the guilt market and in the pension market will be a textbook example of why markets react quite strongly when something outrageous come.

Quote my partner once again, leave the Countrell, who comes often here on the show. No, we see no impetus to try to deal with the budget deficit. The only real example we have is the United Kingdom. And I think that the United Kingdom was actually quite interesting because you saw a situation where the bond market reacted so violently to the least trust proposal that all of a sudden they had to change and had to change really really quickly. And I think, I think that this example of what happened in a very developed country and how the Bank of England reacted and reacted really quickly with the LEDI situation and the pressure in the guilt market and in the pension market will be a textbook example of why markets react quite strongly when something outrageous come.

Well, we have a Bloomberg survey to that point that says Kamala Harris her a victory for her in the White House would be better for treasuries and worse for stocks, vice versa for the foreign president.

Well, we have a Bloomberg survey to that point that says Kamala Harris her a victory for her in the White House would be better for treasuries and worse for stocks, vice versa for the foreign president.

Would you agree with that scenario.

Would you agree with that scenario.

I think, I think there's so many unknown you know, it depends, it depends on what happened in the House.

I think, I think there's so many unknown you know, it depends, it depends on what happened in the House.

It depends on what.

It depends on what.

The winner can do in terms of program how this is all going to pan out. I would be very careful about making any any prognosis on this on this matter, I think, you know, when we when we think about the world, you know, I realized politics is really important. Yeah, but at the end of the day, that's now how we invest. We invest because we find value and we find opportunity, and we try to bat cheap and we try to manage portfolio and think about risk carefully and ride different cycle and deal with many other factor than politics. And you know, there's a few exceptions. If you talk to my partner Promoda one in emerging market all of a sudden in emerging market sometimes, but its do really matter because they are very big changes and very big different outcomes.

The winner can do in terms of program how this is all going to pan out. I would be very careful about making any any prognosis on this on this matter, I think, you know, when we when we think about the world, you know, I realized politics is really important. Yeah, but at the end of the day, that's now how we invest. We invest because we find value and we find opportunity, and we try to bat cheap and we try to manage portfolio and think about risk carefully and ride different cycle and deal with many other factor than politics. And you know, there's a few exceptions. If you talk to my partner Promoda one in emerging market all of a sudden in emerging market sometimes, but its do really matter because they are very big changes and very big different outcomes.

The struggle, man, is you notice that some dms have treated like ems over the last few years. And you mentioned the UK. So I won't put words in your mouth, I do want your views. Well, it does feel like a self imposed debt break in the United Kingdom, and I'm wondering whether from your perspective or even the team that actually makes UK government a little bit more attractive here.

The struggle, man, is you notice that some dms have treated like ems over the last few years. And you mentioned the UK. So I won't put words in your mouth, I do want your views. Well, it does feel like a self imposed debt break in the United Kingdom, and I'm wondering whether from your perspective or even the team that actually makes UK government a little bit more attractive here.

We think it's very attractive. We like the UK, We like Australia.

We think it's very attractive. We like the UK, We like Australia.

We think that the UK fits very well in the portfolio, and then we'll need to cut and cut rates significantly.

We think that the UK fits very well in the portfolio, and then we'll need to cut and cut rates significantly.

And so when you think of.

And so when you think of.

A global outlook, the UK looks good for a fixed income investment.

A global outlook, the UK looks good for a fixed income investment.

Relative to the United States, say in terms of duration risk.

Relative to the United States, say in terms of duration risk.

Relative to other countries in Europe, certainly compared to European bonds. We also like the US, So you know, if I want to kind of sum up things, you know, we like the US, we like the UK, We like Australia.

Relative to other countries in Europe, certainly compared to European bonds. We also like the US, So you know, if I want to kind of sum up things, you know, we like the US, we like the UK, We like Australia.

The two year ten year segment of the yield curve things just starting to normalize, but the stepness almost back to double figures this morning as we get that curve normalization. Can you walk me through how much things change in fixed income whether you're starting to see that cash deployed a little bit more.

The two year ten year segment of the yield curve things just starting to normalize, but the stepness almost back to double figures this morning as we get that curve normalization. Can you walk me through how much things change in fixed income whether you're starting to see that cash deployed a little bit more.

Well, I think there's that, And of course people kind of look at the cash they have on the sideline, and there's about ten trillion dollars of money in cash where they will think to reinvested, either by extending duration or by going longer, or by taking a bit more credit risk. So there is a wall of money out there, and I keep on saying this, and of course some of it is cash corporate and will remain cash corporate. But I think people have been very much on the sideline rolling short term treasury bill and this money will get redeployed, and how fast and how remains to be seen. The other thing which I think you may find interesting is there are a lot of opportunity in relative value in the fixed inker market, and in particular think of Japan. You know, nothing happened in Japan for fifteen years and then all of a sudden, we now have positive rates in Japan, and there's a lot of arbitrush to be done. It's across the curve, it's with swamp, it's with different instruments, and all of a sudden, they are sources of alpha, as we tend to call them, where basically they didn't exist two years ago, which have come back to the market in Spain. How long it lasts, we'll find out, but it should be a very exciting opportunity in terms of the whole market, in terms of delivering better performance.

Well, I think there's that, And of course people kind of look at the cash they have on the sideline, and there's about ten trillion dollars of money in cash where they will think to reinvested, either by extending duration or by going longer, or by taking a bit more credit risk. So there is a wall of money out there, and I keep on saying this, and of course some of it is cash corporate and will remain cash corporate. But I think people have been very much on the sideline rolling short term treasury bill and this money will get redeployed, and how fast and how remains to be seen. The other thing which I think you may find interesting is there are a lot of opportunity in relative value in the fixed inker market, and in particular think of Japan. You know, nothing happened in Japan for fifteen years and then all of a sudden, we now have positive rates in Japan, and there's a lot of arbitrush to be done. It's across the curve, it's with swamp, it's with different instruments, and all of a sudden, they are sources of alpha, as we tend to call them, where basically they didn't exist two years ago, which have come back to the market in Spain. How long it lasts, we'll find out, but it should be a very exciting opportunity in terms of the whole market, in terms of delivering better performance.

How difficult is it to pry that cash out of people's cold hands, given the fact that people really do like what they're getting. And oh, by the way, there are fifteen other fund managers out there also trying to get them to pry that cash out of their hands.

How difficult is it to pry that cash out of people's cold hands, given the fact that people really do like what they're getting. And oh, by the way, there are fifteen other fund managers out there also trying to get them to pry that cash out of their hands.

Well, I will tell your competition is good. Is good for everybody. And at the end of the day, there's two.

Well, I will tell your competition is good. Is good for everybody. And at the end of the day, there's two.

Things there is.

Things there is.

When the FED cuts rate, eventually the short end of the curve becomes less attractive, and I think you'll see cash moving.

When the FED cuts rate, eventually the short end of the curve becomes less attractive, and I think you'll see cash moving.

And from a competitive standpoint, we want to.

And from a competitive standpoint, we want to.

Do the best possible job in terms of big and fiduciary and doing a good job in terms of performance and being there for our clients. And we compete every single day and hopefully we'll win more than we lose.

Do the best possible job in terms of big and fiduciary and doing a good job in terms of performance and being there for our clients. And we compete every single day and hopefully we'll win more than we lose.

But all we can do is trial best and were trying very hard.

But all we can do is trial best and were trying very hard.

Where's the edge, where's sort of growth concentrated in or trying to be concentrated with respect to PIMCO in the say five years ahead.

Where's the edge, where's sort of growth concentrated in or trying to be concentrated with respect to PIMCO in the say five years ahead.

Well, Asia has been quite exciting lately, and there's a lot of things happening in Asia, and you can sort of think of our business as being linked to GDP in terms of the saving rate and people when they save more, invest more. And so Asia has been quite exciting. And the US is an absolutely wonderful place. I mean, it's a big market and there's a lot to be done. We have a very good Canadian business, we have a very good Latin American business. There's a lot of good things happening. But the one valuable we don't control is of course, make the macroeconomic situation. And so if you have a real reversal, and you have, for example of a session, and let me just say it's not our scenario, but if you have a real recession, people look at more discoversed and take.

Well, Asia has been quite exciting lately, and there's a lot of things happening in Asia, and you can sort of think of our business as being linked to GDP in terms of the saving rate and people when they save more, invest more. And so Asia has been quite exciting. And the US is an absolutely wonderful place. I mean, it's a big market and there's a lot to be done. We have a very good Canadian business, we have a very good Latin American business. There's a lot of good things happening. But the one valuable we don't control is of course, make the macroeconomic situation. And so if you have a real reversal, and you have, for example of a session, and let me just say it's not our scenario, but if you have a real recession, people look at more discoversed and take.

Some money away, and at the end of the day, you know, we.

Some money away, and at the end of the day, you know, we.

Here for the next twenty years, not for the next twenty minutes. And so you know, we have very liquid portfolio. People can take the money whenever they feel like, and we invest and so on, and we understand that people need money for all sorts of reason.

Here for the next twenty years, not for the next twenty minutes. And so you know, we have very liquid portfolio. People can take the money whenever they feel like, and we invest and so on, and we understand that people need money for all sorts of reason.

There are a number of behemoth asset managers. PIMCO overseas one point eight trillion dollars. How much bigger could you see it getting?

There are a number of behemoth asset managers. PIMCO overseas one point eight trillion dollars. How much bigger could you see it getting?

It's all about performance.

It's all about performance.

And I always say the great thing about not being public and not having two give quality earnings is you focus on what matter. The circle of truth is if you perform, they will come.

And I always say the great thing about not being public and not having two give quality earnings is you focus on what matter. The circle of truth is if you perform, they will come.

You said this last one, we spoke success by assets. We measure our success by the returns we provide. Does it disappoint you? Is it slightly upsetting that people do measure your success by assets because they've been pretty stable now for the last decade, black Rock over the same period has multiplied. Is that disappointing to you that people junctually have that.

You said this last one, we spoke success by assets. We measure our success by the returns we provide. Does it disappoint you? Is it slightly upsetting that people do measure your success by assets because they've been pretty stable now for the last decade, black Rock over the same period has multiplied. Is that disappointing to you that people junctually have that.

I think we have a very different business model. And you know we were talking about Onemart. We don't want to be Walmart. Onemar is a fantastic company, but we have an opportunity set where we very carefully think about capacity and how much money we can put to work and what the right target return are for investors. And I think that by definition means that we won't be the largest asset manager, and so be it.

I think we have a very different business model. And you know we were talking about Onemart. We don't want to be Walmart. Onemar is a fantastic company, but we have an opportunity set where we very carefully think about capacity and how much money we can put to work and what the right target return are for investors. And I think that by definition means that we won't be the largest asset manager, and so be it.

When it comes to asset management, private markets comes up all the time, and everyone's trying to make their own push pin cut fit into that big push at the moment into private markets.

When it comes to asset management, private markets comes up all the time, and everyone's trying to make their own push pin cut fit into that big push at the moment into private markets.

So we.

So we.

Try to focus on what we know how to do, and what we know how to do is fixed income, and so that includes as a matter of fact, everything which has to do with private market and fixed income, and it also involves real estate and there's a big REALI state cycle that should be exciting. There will be pieces to pick and there will be cheap investment, both in debt and inequity and in the private credit market. There's quite a unique opportunity in asset backed lending. That's where my friend Dan Iverson grew up in. We have been doing this for twenty years and the one thing which has changed, so to speak, is the banks need to free up capital, and so they need to sell large portfolio of many different assets and do it fairly quickly. That's an opportunity for us. And so if they are good entry points and good asset to pick, we should be able to do quite well.

Try to focus on what we know how to do, and what we know how to do is fixed income, and so that includes as a matter of fact, everything which has to do with private market and fixed income, and it also involves real estate and there's a big REALI state cycle that should be exciting. There will be pieces to pick and there will be cheap investment, both in debt and inequity and in the private credit market. There's quite a unique opportunity in asset backed lending. That's where my friend Dan Iverson grew up in. We have been doing this for twenty years and the one thing which has changed, so to speak, is the banks need to free up capital, and so they need to sell large portfolio of many different assets and do it fairly quickly. That's an opportunity for us. And so if they are good entry points and good asset to pick, we should be able to do quite well.

What types of assets you're talking about commercial, you're going to be on residential.

What types of assets you're talking about commercial, you're going to be on residential.

Swatch all bonds banks.

Swatch all bonds banks.

Let me just focus first on fixed income. You know, I think in fixed income there's a lot to buy, and there's a lot to buy because the banks need to deliver. And so the banks, you can think about what they have on the balance sheet.

Let me just focus first on fixed income. You know, I think in fixed income there's a lot to buy, and there's a lot to buy because the banks need to deliver. And so the banks, you can think about what they have on the balance sheet.

They have loans that they've.

They have loans that they've.

Given to company and they want to get rid of it, and so they sell it to us, and that I think is fairly straightforward. In real estate, you have a real estate cycle, and there will be different things you can do. There will be some will need pref equity, some will need debts, some will need to buy equity, and we need.

Given to company and they want to get rid of it, and so they sell it to us, and that I think is fairly straightforward. In real estate, you have a real estate cycle, and there will be different things you can do. There will be some will need pref equity, some will need debts, some will need to buy equity, and we need.

Just need to make sure that it's cheap enough.

Just need to make sure that it's cheap enough.

And that we think carefully about what happens and make sure we have an expected return which company set for the risk and it needs to be high because it's a lot of risk in commercial really State, for example. But we had a pretty fast cycle and hopefully we're going to be on the right side of the of the trade coming.

And that we think carefully about what happens and make sure we have an expected return which company set for the risk and it needs to be high because it's a lot of risk in commercial really State, for example. But we had a pretty fast cycle and hopefully we're going to be on the right side of the of the trade coming.

Out of it.

Out of it.

We've only got sixty seconds left with you. So the hardest question of the morning. What's more likely Arsenal winning the title or the Federal Reserve engineering a soft landing Arsenal winning the title. Arsenal winning the title? Should I read into when I think about your real views on the economy, then, based on now, you just think Arsenal is not good?

We've only got sixty seconds left with you. So the hardest question of the morning. What's more likely Arsenal winning the title or the Federal Reserve engineering a soft landing Arsenal winning the title. Arsenal winning the title? Should I read into when I think about your real views on the economy, then, based on now, you just think Arsenal is not good?

No, you should, you should think about Arsenal. No. I think.

No, you should, you should think about Arsenal. No. I think.

Look, Look, I think I think people are very people are very sometimes criticized the FED. I think they do a really really good job with a very difficult hand to play, and.

Look, Look, I think I think people are very people are very sometimes criticized the FED. I think they do a really really good job with a very difficult hand to play, and.

You know, they don't know what they don't know at the end of the day.

You know, they don't know what they don't know at the end of the day.

And I think, I think it has been a tremendously complicated market to navigate for everybody. Over the past four years. None of us, none of us have so thought we would see a pandemic. And you know, from an investment standpoint and from a regulatory standpoint, and from the FED standpoint, I think we have to learn a new playbook.

And I think, I think it has been a tremendously complicated market to navigate for everybody. Over the past four years. None of us, none of us have so thought we would see a pandemic. And you know, from an investment standpoint and from a regulatory standpoint, and from the FED standpoint, I think we have to learn a new playbook.

It's been humbling for so Maney's good to say you a great winning for the weekend. Thank you, sir, appreciating Money Roman, there of film Code. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business app.

It's been humbling for so Maney's good to say you a great winning for the weekend. Thank you, sir, appreciating Money Roman, there of film Code. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business app.