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All right, let's get back to McDonald's. Michael Halen is Bloomberg Intelligence senior restaurant and food service analyst and joining us on McDonald's earning sate.

All right, let's get back to McDonald's. Michael Halen is Bloomberg Intelligence senior restaurant and food service analyst and joining us on McDonald's earning sate.

Michael, what was your bigger takeaway here?

Michael, what was your bigger takeaway here?

Yeah, I guess you know, the biggest takeaway is that they still have work to do. You know, the stocks performed pretty well here. I guess results weren't as bad as expected. You know, July data that we've seen is pretty bad, so the fact that they're still negative isn't really surprising.

Yeah, I guess you know, the biggest takeaway is that they still have work to do. You know, the stocks performed pretty well here. I guess results weren't as bad as expected. You know, July data that we've seen is pretty bad, so the fact that they're still negative isn't really surprising.

But they definitely still have work to do.

But they definitely still have work to do.

The five dollars meal deal seems to be bringing in some traffic. They're hopeful that, you know, the sales will follow, but it hasn't happened yet, you know, and they talked about the US really needing a revamp of its one two three dollar value meal. But we see this stock doing well, and it's for a good reason. This company has scale that nobody else does. They can offer price points that nobody else can. You know, they have a ton of marketing might So for those reasons in this really competitive market where where chains are fighting hard to track low income consumers, you know, McDonald's definitely has the tools.

The five dollars meal deal seems to be bringing in some traffic. They're hopeful that, you know, the sales will follow, but it hasn't happened yet, you know, and they talked about the US really needing a revamp of its one two three dollar value meal. But we see this stock doing well, and it's for a good reason. This company has scale that nobody else does. They can offer price points that nobody else can. You know, they have a ton of marketing might So for those reasons in this really competitive market where where chains are fighting hard to track low income consumers, you know, McDonald's definitely has the tools.

For me.

For me.

The McDonald's experience was always an airport experience because I always say I could justified for say, hey, I'm rushed for time to gonna make my flake hits something quick. But now all the new airports and like the renovated Newark Airport, there's no fast food in those things anymore that you have to sit down and order and do all that kind of stuff.

The McDonald's experience was always an airport experience because I always say I could justified for say, hey, I'm rushed for time to gonna make my flake hits something quick. But now all the new airports and like the renovated Newark Airport, there's no fast food in those things anymore that you have to sit down and order and do all that kind of stuff.

So that's why that's interesting.

So that's why that's interesting.

Isn't there fast food? But you it's like nice stuff like wraps.

Isn't there fast food? But you it's like nice stuff like wraps.

Well you get that stuff to go, But I mean you could always get like some fast food, serious fast food.

Well you get that stuff to go, But I mean you could always get like some fast food, serious fast food.

All right.

All right.

So, Mike, so what's the story for McDonald's here.

So, Mike, so what's the story for McDonald's here.

Do they open stores, do they rationalize their footprint, what's kind of the strategy there in terms of managing their footprint these days?

Do they open stores, do they rationalize their footprint, what's kind of the strategy there in terms of managing their footprint these days?

Yeah, well they're there and they're investedtily late last year they pushed for more aggressive store openings, right, and so that's going to continue to be the focus. They're they're gonna push hard to grow internationally. China obviously is a big point of focus for them. But yeah, it's gonna be it's going to be to open stores. But in order to motivate their franchisees to open stores, they're going to have to, you know, have a strong marketing program that's going to pull people into the into the restaurants, the existing restaurants, grow same store sales, improve profitability, and make it just a more attractive proposition for their international and US franchisees to open new stores.

Yeah, well they're there and they're investedtily late last year they pushed for more aggressive store openings, right, and so that's going to continue to be the focus. They're they're gonna push hard to grow internationally. China obviously is a big point of focus for them. But yeah, it's gonna be it's going to be to open stores. But in order to motivate their franchisees to open stores, they're going to have to, you know, have a strong marketing program that's going to pull people into the into the restaurants, the existing restaurants, grow same store sales, improve profitability, and make it just a more attractive proposition for their international and US franchisees to open new stores.

Didn't They unveil like a five dollars meal thingy, But that was at the end of the quarter, right, so we don't really know the full impact of that for McDonald's.

Didn't They unveil like a five dollars meal thingy, But that was at the end of the quarter, right, so we don't really know the full impact of that for McDonald's.

Yes, yes, so on on on the call, management said that it it's driving traffic but not price, but not sales yet. So it seems like there's some trade down from current customers saying, you know, well five dollars, I get a lot of food for that five dollars, So maybe instead of getting a big mcnial, I'll get this five dollars meal deal, but so it hasn't really impacted results yet, but they said that, you know, historically traffic comes before the sales boost, and so they seem positive on it in this near term. You know, they said ninety three percent of franchisees in the US have agreed to extend this offer deeper into the summer.

Yes, yes, so on on on the call, management said that it it's driving traffic but not price, but not sales yet. So it seems like there's some trade down from current customers saying, you know, well five dollars, I get a lot of food for that five dollars, So maybe instead of getting a big mcnial, I'll get this five dollars meal deal, but so it hasn't really impacted results yet, but they said that, you know, historically traffic comes before the sales boost, and so they seem positive on it in this near term. You know, they said ninety three percent of franchisees in the US have agreed to extend this offer deeper into the summer.

So they seem positive on it. But it's their real focus is going to have to be on the one two three dollars value menu.

So they seem positive on it. But it's their real focus is going to have to be on the one two three dollars value menu.

That menu isn't resonating with customers, right, and it seems like a full revamp is in the cards. You know, they've they've been They've received a lot of shade on social media that you can't find anything on that menu for a buck, right, and so some reengineering is going to be necessary necessary here in the United States.

That menu isn't resonating with customers, right, and it seems like a full revamp is in the cards. You know, they've they've been They've received a lot of shade on social media that you can't find anything on that menu for a buck, right, and so some reengineering is going to be necessary necessary here in the United States.

All right, dumb question of the day comes from me.

All right, dumb question of the day comes from me.

Never at McDonald's, Burger King, even Starbucks the drive through line or they're like twenty cars deep. I walk inside, I walk right up to the counter and boom, I'm served. What is it about Americans that they into this drive through thing? And if I'm a McDonald's, isn't that a source of opportunity for me to figure out how to get them through faster.

Never at McDonald's, Burger King, even Starbucks the drive through line or they're like twenty cars deep. I walk inside, I walk right up to the counter and boom, I'm served. What is it about Americans that they into this drive through thing? And if I'm a McDonald's, isn't that a source of opportunity for me to figure out how to get them through faster.

Yeah, well, I guess we're lazy, that's the problem, right, But uh no, to your point, you know, a big percentage. You know, historically that the counter was like say fifteen percent of a drive through restaurant sales, and historically that's really just been used when the drive through line is too long and people say, you know, I don't want to wait that long. I'm gonna I'm gonna, I'm gonna go inside and pick up my stuff. So there is an opportunity, there's and it's a it's a point of focus for all of the quick service restaurants we cover. Everybody is constantly trying to improve their throughput, you know, decrease the time waiting in line because they know, if there's you know, at a certain number of cars for McDonald's, historically it's been you know, say five or six cars in the drive through, people will draw either you know, drive past the restaurant or maybe they'll say, you know what, I'll park and come in. But uh that's that's potentially business loss, right, So you know, improving throughput at the drive through, in at the counter is constantly a point.

Yeah, well, I guess we're lazy, that's the problem, right, But uh no, to your point, you know, a big percentage. You know, historically that the counter was like say fifteen percent of a drive through restaurant sales, and historically that's really just been used when the drive through line is too long and people say, you know, I don't want to wait that long. I'm gonna I'm gonna, I'm gonna go inside and pick up my stuff. So there is an opportunity, there's and it's a it's a point of focus for all of the quick service restaurants we cover. Everybody is constantly trying to improve their throughput, you know, decrease the time waiting in line because they know, if there's you know, at a certain number of cars for McDonald's, historically it's been you know, say five or six cars in the drive through, people will draw either you know, drive past the restaurant or maybe they'll say, you know what, I'll park and come in. But uh that's that's potentially business loss, right, So you know, improving throughput at the drive through, in at the counter is constantly a point.

I mean in theory, right, you get like an I thing to do the drive through, right, but that has been really tough to manage right now, right, it's not really the best.

I mean in theory, right, you get like an I thing to do the drive through, right, but that has been really tough to manage right now, right, it's not really the best.

It's not working. I mean, people have they're having a lot of trouble with with accents not only from you know, international customers, but also dialects across the United States, so voice ordering and a lot of these AI initiatives. You know, there's a lot of potential with them, but they haven't been able to really pay dividends just yet.

It's not working. I mean, people have they're having a lot of trouble with with accents not only from you know, international customers, but also dialects across the United States, so voice ordering and a lot of these AI initiatives. You know, there's a lot of potential with them, but they haven't been able to really pay dividends just yet.

All right, So what is the investment call here, Mike for some of these you know, fast service, McDonald's, Burger King, what's the investment call here for these names?

All right, So what is the investment call here, Mike for some of these you know, fast service, McDonald's, Burger King, what's the investment call here for these names?

Well, they're looking at you know, it's interesting because the year over your comparisons, base effects get easier into the second half, but the consumer's weakening, right and so you know, McDonald said they expect you know, more consumer weakness over the next few quarters, right, And so there's definitely concern about about restaurants spending here in the second half. You know, I think I mentioned it at the top. McDonald's is well positioned though in uh in you know periods of distress. You know, during the Great Recession, they outperform by offering value that competitors couldn't match, right, And so it's a very tough environment. But we think McDonald's is positioned pretty well for such a tough environment.

Well, they're looking at you know, it's interesting because the year over your comparisons, base effects get easier into the second half, but the consumer's weakening, right and so you know, McDonald said they expect you know, more consumer weakness over the next few quarters, right, And so there's definitely concern about about restaurants spending here in the second half. You know, I think I mentioned it at the top. McDonald's is well positioned though in uh in you know periods of distress. You know, during the Great Recession, they outperform by offering value that competitors couldn't match, right, And so it's a very tough environment. But we think McDonald's is positioned pretty well for such a tough environment.

In the value war where everyone's chasing a smaller part of everyone's wallet. How do these guys remain profitable? I'm not just saying McDonald's, but like all its competitors too, Like it's sort of a race to the bottom to some perspective, how does that play out?

In the value war where everyone's chasing a smaller part of everyone's wallet. How do these guys remain profitable? I'm not just saying McDonald's, but like all its competitors too, Like it's sort of a race to the bottom to some perspective, how does that play out?

It's not just a race to the bottom.

It's not just a race to the bottom.

So so in terms of the low and they're trying hard to keep that low income consumer business, and there's no doubt that that's a big focus right now, but they're also bringing in you know, middle income and higher income consumers into the fold. Right, so you also get this traded down effect where you know, yeah, sure, low income consumers are trading down into grocery store. But McDonald's and some of their competitors, Jack in the Box being one, you know, Chipotle, have been able to attract these higher income consumers that actually come in and buy premium items and spend more when they come the problem is they're just a much lower percentage of the overall traffic. But that's been that's what we've seen over the last year and a half or so. It's chains that have been able to attract these higher income consumers are definitely outperforming.

So so in terms of the low and they're trying hard to keep that low income consumer business, and there's no doubt that that's a big focus right now, but they're also bringing in you know, middle income and higher income consumers into the fold. Right, so you also get this traded down effect where you know, yeah, sure, low income consumers are trading down into grocery store. But McDonald's and some of their competitors, Jack in the Box being one, you know, Chipotle, have been able to attract these higher income consumers that actually come in and buy premium items and spend more when they come the problem is they're just a much lower percentage of the overall traffic. But that's been that's what we've seen over the last year and a half or so. It's chains that have been able to attract these higher income consumers are definitely outperforming.

So we're in your overall space there, MIC on the restaurant side, is the best place to be these days?

So we're in your overall space there, MIC on the restaurant side, is the best place to be these days?

Uh, you know it's it's it's companies that provide a lot of value and a and a very good price point, right, And so you know, like like most earning seasons and industries, you know, a lot of the top performers end up reporting earnings first.

Uh, you know it's it's it's companies that provide a lot of value and a and a very good price point, right, And so you know, like like most earning seasons and industries, you know, a lot of the top performers end up reporting earnings first.

And we've seen that Chipotle, UH.

And we've seen that Chipotle, UH.

And Texas Roadhouse or two, they outperform everybody on seamsore sales over the last five years and it's not even there's not even a close second. And a big reason why they've outperformed so by so much is that customers see a lot of value on that plate for the price that they pay, right, and they're and they're provided a pretty good customer experience, and that's what's bringing people in the door. If you're providing very strong everyday value and and a good in restaurant experience. You know, clean restaurants, good service, whatever that you know and everything that that entails.

And Texas Roadhouse or two, they outperform everybody on seamsore sales over the last five years and it's not even there's not even a close second. And a big reason why they've outperformed so by so much is that customers see a lot of value on that plate for the price that they pay, right, and they're and they're provided a pretty good customer experience, and that's what's bringing people in the door. If you're providing very strong everyday value and and a good in restaurant experience. You know, clean restaurants, good service, whatever that you know and everything that that entails.

Then you're winning.

Then you're winning.

Got it eat civil business, but a tough business, that's for sure. Michael Halen, Seniors, running food service analysts for Bloomberg Intelligence. Bring us up to date on You're good friends at McDonald's.

Got it eat civil business, but a tough business, that's for sure. Michael Halen, Seniors, running food service analysts for Bloomberg Intelligence. Bring us up to date on You're good friends at McDonald's.

Here.

Here.

You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple car Playing and broud Otto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.

You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple car Playing and broud Otto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.

Busy week here.

Busy week here.

Economic data of plenting including the FED on Wednesday. Lots of earnings, particularly for some of the big tech names which you think.

Economic data of plenting including the FED on Wednesday. Lots of earnings, particularly for some of the big tech names which you think.

Are going to be critical for this market.

Are going to be critical for this market.

Let's check in with a professional who does this stuff for living, Marion Bartel's, chief investment strategist at Sanctuary Wealth. Marian, thanks so much for joining us here. What's your just your thirty thousand foot market call that you have to your clients? What are you telling your clients that they should be thinking about here as we head into the back half of this year.

Let's check in with a professional who does this stuff for living, Marion Bartel's, chief investment strategist at Sanctuary Wealth. Marian, thanks so much for joining us here. What's your just your thirty thousand foot market call that you have to your clients? What are you telling your clients that they should be thinking about here as we head into the back half of this year.

Well, as you pointed out, it is the alphabet soup of news this week. You know, the markets can go either way. But how we're telling clients to position is we actually think that we can actually rally this week. Markets are as over sold as they were back in April. Well, we commit to this year. We called it the Year of the Bucking Bull. And we've seen some bucks and we just got through some Bucks. But we don't think we're done with that yet. We think we can rally one more time and then I think the market bucks again in the fall in September and October, the traditional seasonal very week period for the market, but then having a year in rally, we're still expecting markets by the S and P five hundred to be up about twenty percent this year. We still think the leadership of the market is intact. That's the Magnificent seven, it's technology and that semis are still the leaders. Remember, if we're going to go towards AI, you can't have AI without semiconductor chips.

Well, as you pointed out, it is the alphabet soup of news this week. You know, the markets can go either way. But how we're telling clients to position is we actually think that we can actually rally this week. Markets are as over sold as they were back in April. Well, we commit to this year. We called it the Year of the Bucking Bull. And we've seen some bucks and we just got through some Bucks. But we don't think we're done with that yet. We think we can rally one more time and then I think the market bucks again in the fall in September and October, the traditional seasonal very week period for the market, but then having a year in rally, we're still expecting markets by the S and P five hundred to be up about twenty percent this year. We still think the leadership of the market is intact. That's the Magnificent seven, it's technology and that semis are still the leaders. Remember, if we're going to go towards AI, you can't have AI without semiconductor chips.

So if the AI trade is still in place, the tech trade is still in place, how do you get comfortable with valuation in some of those names are just within SMP five hundred.

So if the AI trade is still in place, the tech trade is still in place, how do you get comfortable with valuation in some of those names are just within SMP five hundred.

In general, you know.

In general, you know.

That's a great question. I mean, obviously, the valuations were very high. You know, the markets were up by Nasdaq's representation twenty percent, where a lot of the tech names are. So between the market being extremely overbought, valuations extended, it was time for like a mean reversion kind of trade. Let's bring part of that in. But the reason why these tech names have such high valuation is because they have the strongest growth within the market. Although we're expecting good earnings this year, the market is not abundant with earnings. And when you don't have an abundance of earnings, you have a growth market. Fund managers and investors are willing to pay up for those earnings, So those stocks have higher multiples. So I'm comfortable with higher valuations. But maybe they just got a little bit too stretched. They've corrected and we're still buyers of this market.

That's a great question. I mean, obviously, the valuations were very high. You know, the markets were up by Nasdaq's representation twenty percent, where a lot of the tech names are. So between the market being extremely overbought, valuations extended, it was time for like a mean reversion kind of trade. Let's bring part of that in. But the reason why these tech names have such high valuation is because they have the strongest growth within the market. Although we're expecting good earnings this year, the market is not abundant with earnings. And when you don't have an abundance of earnings, you have a growth market. Fund managers and investors are willing to pay up for those earnings, So those stocks have higher multiples. So I'm comfortable with higher valuations. But maybe they just got a little bit too stretched. They've corrected and we're still buyers of this market.

So how do you think about sectors outside of technology? Where do you see opportunities there outside of this big tech names.

So how do you think about sectors outside of technology? Where do you see opportunities there outside of this big tech names.

Well, there's a couple of spaces we like infrastructure. You know, Biden has passed a lot of pieces of legislation that are really supporting the growth of the infrastructure of our economy. You're really going to see a lot of stocks within the industrial sector. Defense is also in their defense is behaving well. With interest rates coming down and with the FED expected to cut rates in September, which we also anticipate by twenty five basis points. You're starting to see some of the intrasensitive parts of the market that have not done well, like utilities and rets we think have bottomed. Pockets of healthcare are doing better, Biotech has broken out. The breadth of the market has expanded, especially with that rally in July, and we actually hit a new high with breath indicators and the volume confirmed that. That's what really gives us confidence that we're still in a bull market and that we still want to be buying stocks here.

Well, there's a couple of spaces we like infrastructure. You know, Biden has passed a lot of pieces of legislation that are really supporting the growth of the infrastructure of our economy. You're really going to see a lot of stocks within the industrial sector. Defense is also in their defense is behaving well. With interest rates coming down and with the FED expected to cut rates in September, which we also anticipate by twenty five basis points. You're starting to see some of the intrasensitive parts of the market that have not done well, like utilities and rets we think have bottomed. Pockets of healthcare are doing better, Biotech has broken out. The breadth of the market has expanded, especially with that rally in July, and we actually hit a new high with breath indicators and the volume confirmed that. That's what really gives us confidence that we're still in a bull market and that we still want to be buying stocks here.

Well, that's kind of where I wanted to go, Marian. We had, as you mentioned, kind of over the last several weeks, kind of a little bit of a rotation, maybe out of some of those magnificent seven names, maybe into some other areas of market, like small caps. We saw the Russell two thousand outperformed the S and P by the most on.

Well, that's kind of where I wanted to go, Marian. We had, as you mentioned, kind of over the last several weeks, kind of a little bit of a rotation, maybe out of some of those magnificent seven names, maybe into some other areas of market, like small caps. We saw the Russell two thousand outperformed the S and P by the most on.

Record over a two or three week period. Is that trade? Is that for real? Is it a flash in a pan? How do you think about that?

Record over a two or three week period. Is that trade? Is that for real? Is it a flash in a pan? How do you think about that?

So we're not fans of small cap. It has been a very impressive rally, and we think the reason why it was so impressive is that fast money typically called hedge fund CTAs, many of them had short positions within small cap. But we think some of those positions were covered, not all of them, but some. We just don't think the earnings power is there for small cap to take over leadership. So we think it's impressive. If you've been there, it's it's been great, but it's not where we really want to be positioning our clients right now.

So we're not fans of small cap. It has been a very impressive rally, and we think the reason why it was so impressive is that fast money typically called hedge fund CTAs, many of them had short positions within small cap. But we think some of those positions were covered, not all of them, but some. We just don't think the earnings power is there for small cap to take over leadership. So we think it's impressive. If you've been there, it's it's been great, but it's not where we really want to be positioning our clients right now.

How about the fix income here? You know you can see here into your treasure and get four point four percent. It's not a bad way to make a living here, and if I want to maybe take some credit risk, I can do better than that.

How about the fix income here? You know you can see here into your treasure and get four point four percent. It's not a bad way to make a living here, and if I want to maybe take some credit risk, I can do better than that.

How do you think about fix income?

How do you think about fix income?

Yes, what we've been saying for a while is that interest rates have peaked, both at the short end and the long end of the curve. We think they're going to continue to come down. For clients that are in cash that are getting five percent or even above five percent, we're warning them that can go away, especially if the FED begins a rate cutting cycle. So we've been telling clients to come out of short duration assets and take a little bit more duration risk, go a little bit more in the middle of the curve, which is called the belly of the curve. And as you pointed out, you can take credit risk, but we are stressing to stay with quality.

Yes, what we've been saying for a while is that interest rates have peaked, both at the short end and the long end of the curve. We think they're going to continue to come down. For clients that are in cash that are getting five percent or even above five percent, we're warning them that can go away, especially if the FED begins a rate cutting cycle. So we've been telling clients to come out of short duration assets and take a little bit more duration risk, go a little bit more in the middle of the curve, which is called the belly of the curve. And as you pointed out, you can take credit risk, but we are stressing to stay with quality.

When you take a look at quality, though, does it matter, like why the is cutting as in ooh, the economy is getting a lot weaker, we're looking ahead to the jobs number. Everyone's worried about the Kaldiasom rule being triggered versus inflation coming down.

When you take a look at quality, though, does it matter, like why the is cutting as in ooh, the economy is getting a lot weaker, we're looking ahead to the jobs number. Everyone's worried about the Kaldiasom rule being triggered versus inflation coming down.

I think it is. You know, the market thinks that cutting rates can be a negative, and historically it is a negative because we're cutting for the wrong reasons. The economy is still growing a little bit slower. The consumer is still spending, but a lot slower. We're seeing manufacturing slow down. So I think in order to balance like unemployment, which as you pointed out, the unemployment rate is going out, it's important to actually try not to have a recession. And with these warning signs that the economy is slowing, I think it would be very appropriate for the Fed to cut rates, But the market's not to negatively react, because there's really nothing negatively wrong. In fact, what most people are not talking about is that the FED has already started easing. They change their position on their balance sheet, They started to have less run off their balance sheet, which is actually a form of easing. So I think the FED has already been in easing mode. Now it will be official with them cutting rates if they do in September.

I think it is. You know, the market thinks that cutting rates can be a negative, and historically it is a negative because we're cutting for the wrong reasons. The economy is still growing a little bit slower. The consumer is still spending, but a lot slower. We're seeing manufacturing slow down. So I think in order to balance like unemployment, which as you pointed out, the unemployment rate is going out, it's important to actually try not to have a recession. And with these warning signs that the economy is slowing, I think it would be very appropriate for the Fed to cut rates, But the market's not to negatively react, because there's really nothing negatively wrong. In fact, what most people are not talking about is that the FED has already started easing. They change their position on their balance sheet, They started to have less run off their balance sheet, which is actually a form of easing. So I think the FED has already been in easing mode. Now it will be official with them cutting rates if they do in September.

Would it be a problem for this market if they surprised us and did not cut in twenty twenty four.

Would it be a problem for this market if they surprised us and did not cut in twenty twenty four.

Yes, absolutely, that'd be huge.

Yes, absolutely, that'd be huge.

That would be a big surprise, both for equities and fixing. Come talk about a buck and bull, it's going to be buck and running the wrong way. So I don't think you'd want to do that to the markets. I know people have been speculating that maybe they'll cut at this meeting, but that would be a surprise as well, and I think that would be interpreted as negative as the FED is panicking over some of the recent data. So I don't think they'll be cutting here. Pal has been pretty traditional in telling markets what he's going to be doing, and he pretty much sticks to that, so I think he's kind of hinted pretty strong that it's September.

That would be a big surprise, both for equities and fixing. Come talk about a buck and bull, it's going to be buck and running the wrong way. So I don't think you'd want to do that to the markets. I know people have been speculating that maybe they'll cut at this meeting, but that would be a surprise as well, and I think that would be interpreted as negative as the FED is panicking over some of the recent data. So I don't think they'll be cutting here. Pal has been pretty traditional in telling markets what he's going to be doing, and he pretty much sticks to that, so I think he's kind of hinted pretty strong that it's September.

It's going to be.

It's going to be.

Very interesting, uh, to see what they say in the meeting this week, But I'm still betting that it's twenty five basis points in September.

Very interesting, uh, to see what they say in the meeting this week, But I'm still betting that it's twenty five basis points in September.

Well, before you for we let you go, what language are you looking at to sort of firm that up? Because You're right, if Poll doesn't want us to surprise the market, it either has to be clear in the statement in some way or clear in the press conference in some way.

Well, before you for we let you go, what language are you looking at to sort of firm that up? Because You're right, if Poll doesn't want us to surprise the market, it either has to be clear in the statement in some way or clear in the press conference in some way.

Yes, so I you know the fact, I mean, Pal has sounded a little bit more dubvish, that's kind of the tone, not as hawkish as his words and language have been a little bit softer and a little bit more open that things are potentially weakening. So it'll be interesting to see exactly what they say. And I think what I'm going to be looking for. Are they so dubbish that the market really starts pricing in a rate cut also for either November or December. Right now, it looks like one hundred percent for September. Some are estimating it could happen in November and December. But that's what I'm really focused on. Do they hint that they cut more than once.

Yes, so I you know the fact, I mean, Pal has sounded a little bit more dubvish, that's kind of the tone, not as hawkish as his words and language have been a little bit softer and a little bit more open that things are potentially weakening. So it'll be interesting to see exactly what they say. And I think what I'm going to be looking for. Are they so dubbish that the market really starts pricing in a rate cut also for either November or December. Right now, it looks like one hundred percent for September. Some are estimating it could happen in November and December. But that's what I'm really focused on. Do they hint that they cut more than once.

All right, Mary, and thank you so much for joining us.

All right, Mary, and thank you so much for joining us.

Marion Bartel's she's a chief investment strategist as Sanctuary Wealth, joining us from New York via that Zoom thing.

Marion Bartel's she's a chief investment strategist as Sanctuary Wealth, joining us from New York via that Zoom thing.

Appreciate it. There's another bull for you. I'm still out there.

Appreciate it. There's another bull for you. I'm still out there.

She was talking about a twenty percent total move in the S and P five hundred for twenty twenty four, so still got some work to do. Although she's one of those folks which I'm in that camp as well, which is you know, you've been in the market so long, you really get a sense of seasonality during the year, and I don't want to be anywhere.

She was talking about a twenty percent total move in the S and P five hundred for twenty twenty four, so still got some work to do. Although she's one of those folks which I'm in that camp as well, which is you know, you've been in the market so long, you really get a sense of seasonality during the year, and I don't want to be anywhere.

Near these markets in September or October.

Near these markets in September or October.

But that's just because my first year on Wall Street I was September nineteen eighty seven, and that was October nineteen eighty seven.

But that's just because my first year on Wall Street I was September nineteen eighty seven, and that was October nineteen eighty seven.

Oh my, that was grim.

Oh my, that was grim.

So it's a traumatizing since.

So it's a traumatizing since.

You know you don't want to be anywhere near these markets.

You know you don't want to be anywhere near these markets.

You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple car Play and androyd Outo with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say, Alexa, playing Bloomberg eleven thirty.

You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple car Play and androyd Outo with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say, Alexa, playing Bloomberg eleven thirty.

One of the things to look at in the market is Bitcoin up by just one point two percent, but it's actually up eight hundred and twenty six dollars. That's the highest level earlier today since mid June. In the latest catalyst was Donald Trump expanding his pro crypto agenda. Plus you got those expectations that affet's going to be inching its way towards a cut probably in the fall, and that's also helping investor sentiment. So we needed to get the read on that as well as other commodities. With Mike mcloon, Bloomberg Intelligence Senior Commodity strategist, do you buy the theory that President Trump comes out and says he's going to fire Gary Gensler and he loves all crypto things. It's going to be number one in the US. Therefore, thus bitcoin goes up.

One of the things to look at in the market is Bitcoin up by just one point two percent, but it's actually up eight hundred and twenty six dollars. That's the highest level earlier today since mid June. In the latest catalyst was Donald Trump expanding his pro crypto agenda. Plus you got those expectations that affet's going to be inching its way towards a cut probably in the fall, and that's also helping investor sentiment. So we needed to get the read on that as well as other commodities. With Mike mcloon, Bloomberg Intelligence Senior Commodity strategist, do you buy the theory that President Trump comes out and says he's going to fire Gary Gensler and he loves all crypto things. It's going to be number one in the US. Therefore, thus bitcoin goes up.

I impressed how you phrased the question, Alex is most people seem to be believing that, but I look at it as there's no and then the lesson you'll learn is Nozell like a convert. Obviously he's converted because he ate the crypto before, but I think he's finally realizing things we wrote five years ago. This space is nothing but good for America. It's most widely track crypto is not Bitcoin. It's actually tether. The US dollar trades more than bitcoin double on a daily basis. But it's impressive what he's doing insane to get elected, and I think that's the number one thing. He's saying, whatever you can to get get elected, and that's what's happened. The crypto people have picked up onto it. But at this rally sounds it's a little suspicious because it happened right during the conference. The bitcoin conference that's in Tennessee. Now that used to be in Miami.

I impressed how you phrased the question, Alex is most people seem to be believing that, but I look at it as there's no and then the lesson you'll learn is Nozell like a convert. Obviously he's converted because he ate the crypto before, but I think he's finally realizing things we wrote five years ago. This space is nothing but good for America. It's most widely track crypto is not Bitcoin. It's actually tether. The US dollar trades more than bitcoin double on a daily basis. But it's impressive what he's doing insane to get elected, and I think that's the number one thing. He's saying, whatever you can to get get elected, and that's what's happened. The crypto people have picked up onto it. But at this rally sounds it's a little suspicious because it happened right during the conference. The bitcoin conference that's in Tennessee. Now that used to be in Miami.

Why isn't it in Miami anymore?

Why isn't it in Miami anymore?

Well, I hear that some handsome issues.

Well, I hear that some handsome issues.

I don't really dig into that, but it's kind of nice to see it move on because there's I just was on a couple of calls this morning with people were there. There's so much enthusiasm, as you expect in crowds and people getting together and all trying to as they sat as space pump their bags. But it it puts on my radars. This is when you want to be really careful with an asset that's basically three times of Altilia betas and B five hundred basically has been trading together with Beta for ten years, and I think the risks are that it leads away lower.

I don't really dig into that, but it's kind of nice to see it move on because there's I just was on a couple of calls this morning with people were there. There's so much enthusiasm, as you expect in crowds and people getting together and all trying to as they sat as space pump their bags. But it it puts on my radars. This is when you want to be really careful with an asset that's basically three times of Altilia betas and B five hundred basically has been trading together with Beta for ten years, and I think the risks are that it leads away lower.

So I'm very so skeptical.

So I'm very so skeptical.

The key thing I like can say about bitcoin is a lot of the easy money has been made. We had the GBTC discount that's gone. That's a great scale bitcoin trust. We had the ETH discount that's gone, and things like micro Strategy have performed so well. I think I'm quite skeptical now at these levels.

The key thing I like can say about bitcoin is a lot of the easy money has been made. We had the GBTC discount that's gone. That's a great scale bitcoin trust. We had the ETH discount that's gone, and things like micro Strategy have performed so well. I think I'm quite skeptical now at these levels.

Well, when we go back to the fundamental part that President Trump was talking about in terms of wants to make the US the bitcoin hub and not say China or other countries, is that something that the US could actually.

Well, when we go back to the fundamental part that President Trump was talking about in terms of wants to make the US the bitcoin hub and not say China or other countries, is that something that the US could actually.

Do what it already is.

Do what it already is.

I mean most of them trade in the US. Most likely traded crypto in the planet is tethered the US dollar. We did launch the ETFs in this country, but it went through that normal US discourse that they don't have in China. China and it's been banned, so it already has.

I mean most of them trade in the US. Most likely traded crypto in the planet is tethered the US dollar. We did launch the ETFs in this country, but it went through that normal US discourse that they don't have in China. China and it's been banned, so it already has.

It's just.

It's just.

I think people just have to remember how the system in this country works. There is a rule of law, we fight it out become the proper conclusion. And that's what's happened with bitcoin. We do have ets now, it was our bias in very beginning. We launched a Bloomberg Galaxy crypto index in twenty eighteen. At some point ETFs will track this in next and track broad in disease.

I think people just have to remember how the system in this country works. There is a rule of law, we fight it out become the proper conclusion. And that's what's happened with bitcoin. We do have ets now, it was our bias in very beginning. We launched a Bloomberg Galaxy crypto index in twenty eighteen. At some point ETFs will track this in next and track broad in disease.

It's all heading that way.

It's all heading that way.

I guess mister Trump is trying to say it's going to head that way faster. But to me, what he's saying is very much just out to get votes, and is the questions will he do it? And what can he do it?

I guess mister Trump is trying to say it's going to head that way faster. But to me, what he's saying is very much just out to get votes, and is the questions will he do it? And what can he do it?

Hey, Mike, for as long as I can remember, you've been telling us to just shut up and buy gold. It just recently hit an all time a nice way. It recently hit an all time high. Can you just refresh us on why gold continues to go higher?

Hey, Mike, for as long as I can remember, you've been telling us to just shut up and buy gold. It just recently hit an all time a nice way. It recently hit an all time high. Can you just refresh us on why gold continues to go higher?

Well, the number one reason, I think started with the unlimited friendship between President Z and President President Putin, and it changed the world dynamic. Now you know, top central banks of what are buying. Gold is becoming the second reserve acid next to the euro according to the World Gold Council, And that to me is an under overwhelming force. But what's most significant lately is we have had major outflows in ETFs, which likes like they're just starting to turn back upwards. So gold to me is the most enduring commodity I think is continue to perform. And I do like mentioning in the same space as crypto because the way I see it, with equities getting very expensive, I've been like saying for a while you can't hold gold without some bitcoin in that space, the digital version, But at some point I think on a risk adjusted basis, you're better off overweight in the metal and the analog metal. I think that's what's happening now that's starting to get a sentiment shift. The way I see it, deflation in the commodities is propelling inflation and goals.

Well, the number one reason, I think started with the unlimited friendship between President Z and President President Putin, and it changed the world dynamic. Now you know, top central banks of what are buying. Gold is becoming the second reserve acid next to the euro according to the World Gold Council, And that to me is an under overwhelming force. But what's most significant lately is we have had major outflows in ETFs, which likes like they're just starting to turn back upwards. So gold to me is the most enduring commodity I think is continue to perform. And I do like mentioning in the same space as crypto because the way I see it, with equities getting very expensive, I've been like saying for a while you can't hold gold without some bitcoin in that space, the digital version, But at some point I think on a risk adjusted basis, you're better off overweight in the metal and the analog metal. I think that's what's happening now that's starting to get a sentiment shift. The way I see it, deflation in the commodities is propelling inflation and goals.

I'll end with this.

I'll end with this.

The Bloomberg Commodity Index SPOT indexes right now down on the year. It was up twelve percent in May, and gold keeps marching along. I think those trends are going to continue.

The Bloomberg Commodity Index SPOT indexes right now down on the year. It was up twelve percent in May, and gold keeps marching along. I think those trends are going to continue.

So to that point, and this also goes to I think the crypto move as well. Is there an idea that if the FED actually cuts that inflation comes back, and then that's another reason why we're seeing say gold and a crypto rallying.

So to that point, and this also goes to I think the crypto move as well. Is there an idea that if the FED actually cuts that inflation comes back, and then that's another reason why we're seeing say gold and a crypto rallying.

I think that's the potential if they cut too fast. But it's the lessons of human nature and history else are playing out here. We all know that we created too much liquid eating and too much inflation. Now we had a good reason. We all thought we're going to die four years ago. Now we're at this space now that I think the Feds can't cut yet because the stock markets strong and such a relevant part of GDP two times DDP. It looks like they're going to be behind the curve. The way I see gold, though it's the most enduring, it's the alternatives to treasuries. I think it's the risk off trade where you look at what's been the most beat up asset for the last three years long bond US treasuries, and I think that trade's going to be happening together where gold goes up and treasury bond yields decline, and good indication is what's happening in China two point why two point that's ten year note yield in China right now.

I think that's the potential if they cut too fast. But it's the lessons of human nature and history else are playing out here. We all know that we created too much liquid eating and too much inflation. Now we had a good reason. We all thought we're going to die four years ago. Now we're at this space now that I think the Feds can't cut yet because the stock markets strong and such a relevant part of GDP two times DDP. It looks like they're going to be behind the curve. The way I see gold, though it's the most enduring, it's the alternatives to treasuries. I think it's the risk off trade where you look at what's been the most beat up asset for the last three years long bond US treasuries, and I think that trade's going to be happening together where gold goes up and treasury bond yields decline, and good indication is what's happening in China two point why two point that's ten year note yield in China right now.

It's the lowest in our database. It's two thousand and six.

It's the lowest in our database. It's two thousand and six.

Mike, I'm going to take you back to your roots, back on the great American farm. Boy, I'm looking at some of these agricultural things, corn, cotton, soybeans, I mean all down, kind of fifteen twenty percent.

Mike, I'm going to take you back to your roots, back on the great American farm. Boy, I'm looking at some of these agricultural things, corn, cotton, soybeans, I mean all down, kind of fifteen twenty percent.

Tough time to be an American farmer.

Tough time to be an American farmer.

So how did you know I was there last week? I'm all my family is in the Midwest. I always do my crop tours, and I have to admit I meet with family and friends and people who farm the land. I've never seen a more luscious situation. The crop is huge, the weather's been wonderful. Barrel the hurricane. It put us loth of rain right in the middle of the corn bed right during castling. Core needs it the most in July, so supplies mass. And the problem is we still have supply left over from last year. So I'll end with this.

So how did you know I was there last week? I'm all my family is in the Midwest. I always do my crop tours, and I have to admit I meet with family and friends and people who farm the land. I've never seen a more luscious situation. The crop is huge, the weather's been wonderful. Barrel the hurricane. It put us loth of rain right in the middle of the corn bed right during castling. Core needs it the most in July, so supplies mass. And the problem is we still have supply left over from last year. So I'll end with this.

It's the key fact of price. The high priced cure. Prices got too high.

It's the key fact of price. The high priced cure. Prices got too high.

Supplies massive because prices got high, and now we have to get to the low price cure, and I don't know where that's going to be. And we're going to the harvest with oversupplying a good crop, which means lower prices.

Supplies massive because prices got high, and now we have to get to the low price cure, and I don't know where that's going to be. And we're going to the harvest with oversupplying a good crop, which means lower prices.

How volatile is the weather for farmers.

How volatile is the weather for farmers.

Right Now that's the key thing that's been happening Alex is you have more volatile minor events like dur ratio and like spot droughts. But what's happening this year is we have more moisture than normal in the corn belt. I hear that's related to sun spots and things like that, and it's actually been a little bit cooler, so it's almost perfect for grain production, somewhat of a greenhouse effect. But the thing is, I think it's the quote I heard in the Midwest. They always say Brazil nineteen years in a row of increasing production the soybeans out of Brazil. Its just prices are high, and it's a global competitive situation. And here's the quote I like not is you know the whole thing that Mark Twain. You just say you might as well buy land because they don't create it anymore. But the farmers in in West say, well, they are creating it in Brazil.

Right Now that's the key thing that's been happening Alex is you have more volatile minor events like dur ratio and like spot droughts. But what's happening this year is we have more moisture than normal in the corn belt. I hear that's related to sun spots and things like that, and it's actually been a little bit cooler, so it's almost perfect for grain production, somewhat of a greenhouse effect. But the thing is, I think it's the quote I heard in the Midwest. They always say Brazil nineteen years in a row of increasing production the soybeans out of Brazil. Its just prices are high, and it's a global competitive situation. And here's the quote I like not is you know the whole thing that Mark Twain. You just say you might as well buy land because they don't create it anymore. But the farmers in in West say, well, they are creating it in Brazil.

All right, Hey, we appreciate you all the time, Mike, thanks a lot, Mike mcglon and Bloomberg Intelligence Senior Commodity Strategies.

All right, Hey, we appreciate you all the time, Mike, thanks a lot, Mike mcglon and Bloomberg Intelligence Senior Commodity Strategies.

When an't we going to Miami sometime in October?

When an't we going to Miami sometime in October?

Right?

Right?

Potentially?

Potentially?

Yeah?

Yeah?

Okay, potentially if you are, we're gonna go knock on Mike's door. Yeah, we'll just invite ourselves in.

Okay, potentially if you are, we're gonna go knock on Mike's door. Yeah, we'll just invite ourselves in.

Yeah, yep, we're going to be there, So look for us. We will keep you posting.

Yeah, yep, we're going to be there, So look for us. We will keep you posting.

You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple car Play and Android Auto with the Bloomberg Business. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa Play Bloomberg eleven.

You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple car Play and Android Auto with the Bloomberg Business. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa Play Bloomberg eleven.

Thirty, Alex Steel, Paul Sweney're live here in our Bloomberg Interactive Brokers studio in New York City, and we're also streaming live on YouTube, so you can go there and search Bloomberg Podcast, and that's where you'll find its busy economic data week This week, I think cap off we got jobs at the end of the week, but also we got the Fed decision coming up on Wednesday two pm will be the decision two thirty press conference all Wall Street Time, bloom will be covering it for you. Michael McKee taking the Oscella train down the DC and he'll be all set to go there.

Thirty, Alex Steel, Paul Sweney're live here in our Bloomberg Interactive Brokers studio in New York City, and we're also streaming live on YouTube, so you can go there and search Bloomberg Podcast, and that's where you'll find its busy economic data week This week, I think cap off we got jobs at the end of the week, but also we got the Fed decision coming up on Wednesday two pm will be the decision two thirty press conference all Wall Street Time, bloom will be covering it for you. Michael McKee taking the Oscella train down the DC and he'll be all set to go there.

What do they do? That's the question here.

What do they do? That's the question here.

R J.

R J.

Gallow He's a senior portfolio manager for fixed income at FEDERATEDT Hermes On Zoom from one of my favorite towns in the US, Pittsburgh, Big Fin. I think they punched away above their weight and Pittsburgh r JA. Talk to us about what you expect to hear from your Federal Reserve on Wednesday.

Gallow He's a senior portfolio manager for fixed income at FEDERATEDT Hermes On Zoom from one of my favorite towns in the US, Pittsburgh, Big Fin. I think they punched away above their weight and Pittsburgh r JA. Talk to us about what you expect to hear from your Federal Reserve on Wednesday.

Good morning, glad to hear you're fond of my hometown.

Good morning, glad to hear you're fond of my hometown.

Love.

Love.

In terms of the FED, you know, there's no dots. There's always a press conference, and there's always a statement. I feel like Powell and company have laid the groundwork for the further embrace of the idea that the dual mandate has returned. For much of the last twelve to eighteen months, to FED, it operated almost as if they were a single mandate central bank fighting inflation full stop. Of course, that's not their case. Their charge is a dual mand aid its maximum employment, stable prices, fighting inflation, and the maximum employment element of the dual mandate is very much back on the table. Now that you've got inflation in a range that's tolerable and it appears to be likely to continue to decelerate, the FED has laid the groundwork to focus on jobs again. The unemployment rate is up as a four point one percent, it's up a little over four tenths from its lows. That's enough to get the Fed to pivot. I think back in towards this easing mode. Remember the market outran the Fed at the end of last year. We spent all of the winter and spring pushing back on the market. You had negative total returns for bonds. But since April thirtieth, you've gotten more constructive returns to bonds. So the Treasury indexes up almost four percent since then, as the inflation is cooperated and the FED has reopened the door to easing, and I think they're going to address that at this coming meeting without actually changing rates.

In terms of the FED, you know, there's no dots. There's always a press conference, and there's always a statement. I feel like Powell and company have laid the groundwork for the further embrace of the idea that the dual mandate has returned. For much of the last twelve to eighteen months, to FED, it operated almost as if they were a single mandate central bank fighting inflation full stop. Of course, that's not their case. Their charge is a dual mand aid its maximum employment, stable prices, fighting inflation, and the maximum employment element of the dual mandate is very much back on the table. Now that you've got inflation in a range that's tolerable and it appears to be likely to continue to decelerate, the FED has laid the groundwork to focus on jobs again. The unemployment rate is up as a four point one percent, it's up a little over four tenths from its lows. That's enough to get the Fed to pivot. I think back in towards this easing mode. Remember the market outran the Fed at the end of last year. We spent all of the winter and spring pushing back on the market. You had negative total returns for bonds. But since April thirtieth, you've gotten more constructive returns to bonds. So the Treasury indexes up almost four percent since then, as the inflation is cooperated and the FED has reopened the door to easing, and I think they're going to address that at this coming meeting without actually changing rates.

So why not just cut now, that's a great question.

So why not just cut now, that's a great question.

I think that the Fed it all comes down to that word confidence, which you've heard them uttering quite a bit lately. You know, Recall, wasn't that long ago that the FED had high confidence that inflation was going to be transitory. That obviously wasn't the case. I think that they feel now they would like to see yet more data. There's a risk there, of course, if the market expects you to cut in September. You're at a meeting, you know, this week, and you're anticipating that the data will cooperate between now and September. You know, there's a lot of uncertainty here that the risk that they're taking is that the inflation data will continue to moderate, but the jobs data won't fall off some sort of cliff. Probably a reasonable risk. The economy seems to have decent momentum. Q two GDP data turned out to be stronger than anticipated. It's true that the jaws market has lost some of its verve, but it's still very much, you know, expanding in the sense that jobs keep getting created at a pretty reasonable pace. So it's a bet they're willing to take. If they were to ease this week, I think that would telegraph to markets that the Fed has gotten much more concerned about the employment part of their mandate, and it might sort of backfire. Bond yields would would probably rally, you know, collapse much more rapidly, maybe you know, twenty five thirty basis points, because people would be concerned that the Fed is anticipating greater economic weakness. In so doing, it could actually blow back in the other direction. Keep the economy buoyant and then inflation doesn't cooperate. There's not a pure science here. There's a lot of judgment, and in their judgment, they think waiting is a reasonable risk.

I think that the Fed it all comes down to that word confidence, which you've heard them uttering quite a bit lately. You know, Recall, wasn't that long ago that the FED had high confidence that inflation was going to be transitory. That obviously wasn't the case. I think that they feel now they would like to see yet more data. There's a risk there, of course, if the market expects you to cut in September. You're at a meeting, you know, this week, and you're anticipating that the data will cooperate between now and September. You know, there's a lot of uncertainty here that the risk that they're taking is that the inflation data will continue to moderate, but the jobs data won't fall off some sort of cliff. Probably a reasonable risk. The economy seems to have decent momentum. Q two GDP data turned out to be stronger than anticipated. It's true that the jaws market has lost some of its verve, but it's still very much, you know, expanding in the sense that jobs keep getting created at a pretty reasonable pace. So it's a bet they're willing to take. If they were to ease this week, I think that would telegraph to markets that the Fed has gotten much more concerned about the employment part of their mandate, and it might sort of backfire. Bond yields would would probably rally, you know, collapse much more rapidly, maybe you know, twenty five thirty basis points, because people would be concerned that the Fed is anticipating greater economic weakness. In so doing, it could actually blow back in the other direction. Keep the economy buoyant and then inflation doesn't cooperate. There's not a pure science here. There's a lot of judgment, and in their judgment, they think waiting is a reasonable risk.

Are Jay, I'm a big fan of municipal bonds. I like to think of myself as one of the larger private creditors to the State of New Jersey through my municipal bond holdings. What do you think about the community market here?

Are Jay, I'm a big fan of municipal bonds. I like to think of myself as one of the larger private creditors to the State of New Jersey through my municipal bond holdings. What do you think about the community market here?

Well, yeah, the community market. Yeah. If you look back, there's very very strong correlations in total returns between munis and treasuries. If you look at monthly total returns for twenty five years, the correlation of returns is around sixty percent. It's not one hundred, but it's still high. So interest rates are the driving theme that linked the muni market to the tax will market. That is very clear. Beyond that, you worry a lot about muni specific dynamics, for example, expected changes in tax rates or changes in the supply of munis coming into the marketplace. This year's supply has been heavy, but demand has been buoyant, and muni ratios have remained relatively rich, sort of below long term averages. Why is that? I think there's some concern that tax rates might be rising as we move forward down the calendar here. You know, the Trump tax cuts basically sunset with respective personal income tax rates. Investors are I think motivated to lock in some still relatively high muni yields, in part because the interest rate cycle has pushed yields up, and in part because they think taxes might be going up in the future. If Trump gets re elected, he'll probably try to extend all those personal tax rates, and UNI returns might actually sort of be a little vulnerable. Even if interest rates are coming down, unis might not keep up and rally quite as hard. In short, we think muni's are still a pretty safe place to be from credit standpoint. The rates scenario is probably getting more constructive. The tax policy scenario and the related supply dynamic have been the greater questions, but those are sort of tolerable risks in the near term. I think muni's are a pretty good place to be for you and for many others.

Well, yeah, the community market. Yeah. If you look back, there's very very strong correlations in total returns between munis and treasuries. If you look at monthly total returns for twenty five years, the correlation of returns is around sixty percent. It's not one hundred, but it's still high. So interest rates are the driving theme that linked the muni market to the tax will market. That is very clear. Beyond that, you worry a lot about muni specific dynamics, for example, expected changes in tax rates or changes in the supply of munis coming into the marketplace. This year's supply has been heavy, but demand has been buoyant, and muni ratios have remained relatively rich, sort of below long term averages. Why is that? I think there's some concern that tax rates might be rising as we move forward down the calendar here. You know, the Trump tax cuts basically sunset with respective personal income tax rates. Investors are I think motivated to lock in some still relatively high muni yields, in part because the interest rate cycle has pushed yields up, and in part because they think taxes might be going up in the future. If Trump gets re elected, he'll probably try to extend all those personal tax rates, and UNI returns might actually sort of be a little vulnerable. Even if interest rates are coming down, unis might not keep up and rally quite as hard. In short, we think muni's are still a pretty safe place to be from credit standpoint. The rates scenario is probably getting more constructive. The tax policy scenario and the related supply dynamic have been the greater questions, but those are sort of tolerable risks in the near term. I think muni's are a pretty good place to be for you and for many others.

Okay, yeah, so you love muni's, but then you take every Friday off and then I'm at the muni segment, I know, and I'm literally prepping all week to make it through. My Muni segment are talking about the curve. Do we get that steepener? Finally, what does this deepener look like? Is it going to because buying in the front end or a selloff in the long end? And what does all that wind up?

Okay, yeah, so you love muni's, but then you take every Friday off and then I'm at the muni segment, I know, and I'm literally prepping all week to make it through. My Muni segment are talking about the curve. Do we get that steepener? Finally, what does this deepener look like? Is it going to because buying in the front end or a selloff in the long end? And what does all that wind up?

Meaning great questions on the month. So in July is almost over right. So the twos tens and the five thirties treasuries curves steep in fifteen and seventeen basis points, and the two thirty, you know, a very long curve has steepened twenty three basis points. The steepener is working at federating hermes. We sort of look at the top down drivers of fixing income portfolios, duration, curve, credit, and we assemble some of our top people in what we call alpha pods or investment committees. Our curve committee has been very successful positioning for the steepening that has occurred. We think there's still more to come. The steepening typically is resulting from a couple of things. One, even though inflation has come down, which would make you feel like the curve shuld flatten, the curve has been inverted for so long that the fact that the Fed has opened the door to easing, as we were talking about a few moments ago. That has helped the curve to steepen back out. The curve that steep in so long as the FED continues in that easing direction Number one, number two, so long as the economy doesn't sort of stumble rapidly or inflation researches. So we think that the old curve is working for us. We still like the bet. In the Muni space, the curve has been strangely U shaped, heavily driven by expectations for a softer FED, and as the Fed's moved in that direction, the U is hollowing out. It hasn't fully become an upper sloping curve just yet, but the same dynamic that manifested in treasuries is now working in terms of sort of making a more reasonable shape for the Muni curve as well.

Meaning great questions on the month. So in July is almost over right. So the twos tens and the five thirties treasuries curves steep in fifteen and seventeen basis points, and the two thirty, you know, a very long curve has steepened twenty three basis points. The steepener is working at federating hermes. We sort of look at the top down drivers of fixing income portfolios, duration, curve, credit, and we assemble some of our top people in what we call alpha pods or investment committees. Our curve committee has been very successful positioning for the steepening that has occurred. We think there's still more to come. The steepening typically is resulting from a couple of things. One, even though inflation has come down, which would make you feel like the curve shuld flatten, the curve has been inverted for so long that the fact that the Fed has opened the door to easing, as we were talking about a few moments ago. That has helped the curve to steepen back out. The curve that steep in so long as the FED continues in that easing direction Number one, number two, so long as the economy doesn't sort of stumble rapidly or inflation researches. So we think that the old curve is working for us. We still like the bet. In the Muni space, the curve has been strangely U shaped, heavily driven by expectations for a softer FED, and as the Fed's moved in that direction, the U is hollowing out. It hasn't fully become an upper sloping curve just yet, but the same dynamic that manifested in treasuries is now working in terms of sort of making a more reasonable shape for the Muni curve as well.

How much credit risk are you guys willing to take these days?

How much credit risk are you guys willing to take these days?

So the Munich credit scenario has been very favorable. The long economic expansion post pandemic, which has outpaced most people's expectations in terms of job creation and in terms of outright GDP growth, that has you know, that's a rising tide that lifts all muni boats. State governments are doing well. You mentioned the state of New Jersey. They've been upgraded into the single A range. You even had the state of Illinois, which at one point a number of years ago we were debating whether they should be a junk bond. They've been upgraded into the single A range we've had. I don't know if it's been a golden era, but it's been a strong period for uni credit, both at the state level and the local level. The local levels benefited sharply from rising property valuations. We all worry about commercial real estate, specifically offices, but when you consider that residential real estate has surged, and many municipalities in this country have more residential than office in their tax base. Generally speaking, local governments are also doing relatively well in a world like that. So long as we anticipate the economy still growing and the Feds moving towards an ease, we're still happy to take mid and low quality credit risk in our muni portfolios. So we've been overweight a's and overweight in the high yield space, and it's work that's been the best performing part of the meuning market. On a year to day basis. By far, going forward spreads are a little tighter. It's probably a little less compelling, but we still like the carry idea. And so long as the fed's easy and the economy is not tanking, taking some credit risk, communis is probably the right place to be.

So the Munich credit scenario has been very favorable. The long economic expansion post pandemic, which has outpaced most people's expectations in terms of job creation and in terms of outright GDP growth, that has you know, that's a rising tide that lifts all muni boats. State governments are doing well. You mentioned the state of New Jersey. They've been upgraded into the single A range. You even had the state of Illinois, which at one point a number of years ago we were debating whether they should be a junk bond. They've been upgraded into the single A range we've had. I don't know if it's been a golden era, but it's been a strong period for uni credit, both at the state level and the local level. The local levels benefited sharply from rising property valuations. We all worry about commercial real estate, specifically offices, but when you consider that residential real estate has surged, and many municipalities in this country have more residential than office in their tax base. Generally speaking, local governments are also doing relatively well in a world like that. So long as we anticipate the economy still growing and the Feds moving towards an ease, we're still happy to take mid and low quality credit risk in our muni portfolios. So we've been overweight a's and overweight in the high yield space, and it's work that's been the best performing part of the meuning market. On a year to day basis. By far, going forward spreads are a little tighter. It's probably a little less compelling, but we still like the carry idea. And so long as the fed's easy and the economy is not tanking, taking some credit risk, communis is probably the right place to be.

Really appreciate you.

Really appreciate you.

Thank you very much.

Thank you very much.

Our J.

Our J.

Gallow, Senior portfolio manager, Great Insight There fixed Income over at federid Hermes.

Gallow, Senior portfolio manager, Great Insight There fixed Income over at federid Hermes.

Joining us, you're listening to.

Joining us, you're listening to.

The Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.

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Let's get back to the markets. Nor was just talking about this, but a hein again. Those shares are down almost ten percent over in. Europe's taking about a nine hundred and forty nine million dollar hit from China, giving a cautious outlook, and it wasn't just China, it's also US and Europe as well. So we want to get more on that and head to our Bloomberg Intelligence folks. A Duncan Fox's Bloomberg Intelligence consumer staples analyst is joining us. Hey duncan, what can you run us through the laundry? List of the things that were a problem for Heinegan this quarter.

Let's get back to the markets. Nor was just talking about this, but a hein again. Those shares are down almost ten percent over in. Europe's taking about a nine hundred and forty nine million dollar hit from China, giving a cautious outlook, and it wasn't just China, it's also US and Europe as well. So we want to get more on that and head to our Bloomberg Intelligence folks. A Duncan Fox's Bloomberg Intelligence consumer staples analyst is joining us. Hey duncan, what can you run us through the laundry? List of the things that were a problem for Heinegan this quarter.

Well, I suppose the main one was consumer sentiment was still quite weak. So what they were hoping for was a bit of a bounce back in Europe for volume with the Europe twenty twenty four, but unfortunately the weather was just again or in northern Europe, so that was a hit.