Inflation and Tariff Uncertainty
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This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Right now, what we're going to do is get to the economic data, but Greg Baudel with us here to wrap around it on the mathiness and derivative moment. This weekend, all financial publications will tell the American public

give up the upside, hedge, take in a higher income when you hedge, and you'll be happy. You're the pro at this.

Should we be doing that? Should we be giving up upside potential and bringing in a premium income to goose our dividend, to goose our share buyback? That's certainly how we feel about things. In the short run, we titled our note yesterday, tariff fatigue. The market is starting to look a little bit tired. Some of the imbalances in positioning, which we think drove the extent of this

rally have started to become work through a little bit. And we think we are in an environment where it would be easier for the market to tread water. When we look at the options complex, there are places where we think it is better to extract premium and others where we think it is better to own that optionality. So if we think the markets are going to kind of tread water a little bit, am I writing options these days? Is that what?

what people are doing? So I think like one of the kind of oldest option strategies out there is the covered core. Boom. Owning the equity, selling some upside against that. What you're basically doing is giving up some of the right tail of the distribution in the short term in exchange for some income. See, I paid attention in futures and options class, Cam Harvey. Did you? Yeah, I paid attention there. Are people, what do they feel like in terms of the risk? Like I

If I want to buy some protection here, is it expensive relative to historic levels, or where are we? So it kind of depends what you're looking at. If we're talking broad U.S. indices, then it's way off the highs. Things got very expensive post-Liberation Day, but we are not back to those pre-Liberation Day levels. The equity market is within touching distance of all-time highs, but equity optionality is still a little bit

more elevated from where it was, particularly on the downside. So if you're just going and buying US index hedges, you have to be careful because it's not cheap. If you're buying individual stock hedges, do you partition it between fancy stocks where you could get crushed taking in premium or they take off like Microsoft this month of May?

And then there's 483 other stocks that you really can grab a premium. Is that how it works? Yeah, I think you have to think about what are the risks that you are worried about? What are you trying to hedge? Is it more idiosyncratic stock specific or are we looking for more macro hedges? We've been talking more about looking at macro hedges, but going a little bit

out the term structure, out to see the September expiry where we think some of the macro weakness could start to manifest a little bit more. I think the smaller mid caps, so the Russell, IWM is a part of the market which I think looks attractive to use to hedge. Greg Baudel, ready for this compliance at BNP Paribas? They don't even speak English in New York, it's in French, they're even more rigorous. Oh mon dieu, Greg Baudel on naked short selling, go.

So I think that if you want to be nakedly short the market, then you have to be willing to accept the risk that comes with it. For us, we think there is better risk reward profile in putting on hedges on the downside, owning optionality than there is naked short selling.

That was like road compliance. That was really, that was A+. He knows what he's doing. Greg Bottles answered that question before. Naked short selling folks is not to be tried. Don't do this at home. It's really, really hazardous. You'll be right four, five, six times and boom.

And it doesn't work out right. Be careful out there. Let's talk to Paul Sweeney about option, you know, how to not lose money in the option or the Nigerians. One of the two, I'm just going to make it as clear as I can. I got economic data.

with some revisions here. I got a sweet PCI year over year of 2.1% signaling some disinflation. I got a revision showing personal income is better and it doesn't care because the president just tweeted. Yep.

I mean, basically, there's no dynamic with an S&P futures. Greg Baudo, they're negative 20. They come up a little in defense. They come up negative 20 now to negative 25 up to negative 20. Do we misjudge the American economy? Is that the issue for people cautious on the equity market?

Potentially. I think the question about the data is when is it going to start to matter? At the moment, what we see is backward-looking data that maybe is starting to capture the first impacts of the tariffs. But what matters much more is when we move through June, July, does the data stay very resilient? In which case, that's going to create question marks for the bears.

I think the consensus is that the data will start to soften as we move through the summer. So I think at the moment it's very hard to get a positive risk signal or an all clear from inline data. This is really important to continuing claims breaking out yesterday. Veronica Clark mentioned that at the end of May, we don't have a clue, except we said that at the end of December last year as well. Here we go. So given that uncertainty, Greg, do you find your clients –

Are they coming to you and say, I want to have more protection around my portfolio than typically? Or are they just saying, I can't worry about this stuff? I think people are more defensively positioned. We look at this through a quantitative lens where we aggregate a lot of the flows in the equity market, and we've produced this composite equity positioning indicator. It scales from zero to 100, so it's pretty easy to read. We were at euphoric levels at the end of last year, almost 97 out of 100. Wow.

Things got very washed out post-Liberation Day. And now we've made our way back into this more neutral territory. That indicator sits in the mid-40s. So it points to a market where people are more defensively positioned, but we're not as bearish as we were from a positioning landscape a month ago. 97 reading? I can't believe it.

I kind of remember those days. It was like we have an administration that's going to be pro-growth, less regulatory, and boy, times have changed. It was six months ago, but it feels like a lot longer than that. It does. It does. What's kind of the smart trade somebody's come up to you with recently? When your clients have called you and said, hey, we'd like to do this, and you're like, really? Yeah.

I think the things that people have been doing have been more nuanced. As we were discussing earlier, it is looking at ways to fund trade. So if you're looking at the optionality complex and like I do, you think maybe there's value in owning some of that September optionality where the data starts to matter a little bit more through the summer, it's looking at smart ways to try and finance that. So one of the things that we were talking about in our tariff fatigue note yesterday was how to fund those hedges.

So we think looking at things like covered calls and things like the energy space is probably an interesting way to look at that. So what's a covered call in the energy space? Translate that. So a covered call is simply if you are long the stock and you are selling optionality against that, such that you are not nakedly short that option. And in terms of the energy space, that could be one of the energy ETFs, such as XOE or XOB or some of the large energy stocks. It's a very benign strategy, but a way to eke out a little bit of yield that we think you can spend at a

on the hedges. We've got a great set of people. Robert from, I think it's, it's up, it's colder than Union College. He was upset at our Union College discussion of D1 hockey with Pat Haskell, BlackRock. Robert comes in and says Hamilton College is destined D1 hockey. He notes, Paul, the complete return of the trade deficit

It is a spring back from a negative 1.60, stunning, back to negative 9.0.

that's not i i wonder if the president will bring that up at the press conference today oh i don't know our policies are working we're getting rid of the trade deficit okay awesome that would be the problem i think you have a trade deficit with italy with the vespa purchase yeah wait a couple weeks you're going to have a trade deficit you're going to be on the spanish steps and you look on that that you look down that street a gauntlet of stores yeah

Oh, yeah. That's trade deficit right there. Lisa, what's it called? It's Avenue Tradeo Deficitio? Something like that. Greg, thank you for coming in. Thank you for the explanation there and getting through the compliance moment on Naked Puts. Thank you for having me. You nailed it. Greg Butler, don't be a stranger. Thank you. With BNP Paribas, just wonderful. Let's hear some of the slows on it. BNP Paribas has had a really, really...

uh uh excellent uh uh excellent moment there i should say um as well um again when we set this up and eric did a great job with the interns we wanted a broader view even david can give that to us uh right now she has been wonderful particularly with the transatlantic view all of that important into the president's press conference uh today even david joins us from moneta even what are you writing into the month of june

Excellent question. I think we're going to see a continuation of this type of volatility. We're obviously going to see getting close to drop-dead dates on some of these tariff-free negotiations. We'll see how the negotiations actually play out.

We're going to see more and more clarity in terms of the actual impact of tariffs on prices. We've only seen really sporadic clarity up to now. And we're probably going to see more resolution in terms of the legality of these tariffs. We're going to this day now that's been placed on

on the Court of Trade decision, there should be an appeal and we should see the outcome of that. So lots going on. It's not going to be a silly, quiet summer. Are Europeans returning to American investment, leaving American investment? Are they waiting for Paul's arrival in Rome? Which is it?

I'd say at this point, there is not a net increase in U.S. investment. There has been an overweight to the U.S. for the most part. It has played out very well. The strong dollar has worked very well for them. Right now, it seems that the U.S. investment story is losing a little bit of its charm, its cachet. The weaker dollar is, of course, affecting that. And then we're hearing just about this anti-perhaps foreign student movement, the lack of travel into the U.S., perhaps

the sense that there might be a revenge, perhaps. That was a headline today. So that all adds to the uncertainty. And I would say now there is profit-taking

I'm coming back. I mean, Paul, think about it. Any given school where kids are like, I got to get up and go to thermodynamics and I got to put up with all this protest and angst and, you know, passports and all that. Why don't I just go to Trinity College, Dublin? I mean, you know, boom, you're there. I'd be right there. They would love me there. Ethan, where do we go here? I mean, I

Tom's been long Bitcoin and just laughing all the way to the bank. But how about for the rest of us? How much risk are your clients feel like they need to take these days? Or is it just too much noise out there?

It's an excellent question. There definitely is not a sort of a satisfaction with sitting in cash right now. We know that cash is not a drag, but there's still that four, between four and five percent, it's still not great after inflation. There's a real sense that inflation is going to be with us for a very long time and that we will have to invest in growth assets. So where are clients comfortable taking risk? They're still quite comfortable in the equity markets. And that's a good thing because that will have to be their engine of growth for some time. They're increasingly more comfortable in the private segments.

private equity, equity, private credit. They're not as comfortable in real estate as before. Perhaps there's a little bit of muscle memory or even trauma around previous downturns and something like infrastructure, more income generating. That's really something for the institutions. It's not something I see a ton of interest among private wealth clients in.

I would highly recommend Trinity College, Dublin. Trinity College, Dublin is an excellent place to visit. Ethan Devitt, stay with us, please. Interesting Friday morning across the nation. Good morning from the early morning left coast out there on Android Auto, Apple CarPlay. Major good morning to Sirius XM Channel 121. Huge distribution for us. 99.1 FM in Washington, 92.9 FM in Boston, California.

And Bloomberg 1130 in New York. We say good morning on YouTube, building every month. Paul and I just dumbfounded by the success of Bloomberg podcast. Thank you so much for your attention there, particularly your global attention the evening of the Pacific at Rim. Futures are negative 25 off the president's treat. They come up a little bit off buoyant personal income trends.

spending, quiescent inflation at the margin. Futures go negative 25 up to negative 20. Paul? Ethan, you mentioned private equity, private credit. I'm surprised that at the level of exposure that a lot of family offices and their clients have to alternative investments. How

What do you think is a reasonable allocation? Because there's so many opportunities now, hedge funds, private equity, now private credit has become such a big market opportunity. What's your expertise? I would say, depending of course on the size of that family office, but we're seeing anything from 15 to 30% in alternative assets. Certainly would be lower at the dipping the toe in the water stage, 5%, 10%. I'd say less than 5%, it's not really worth the extra work and due diligence involved.

and the sacrifice of liquidity, it's important to really understand this segment. It's all about relationships. You're in there for the long haul, and it has to be a meaningful allocation. But between five and 15, absolutely normal. And if you really have high conviction, going higher than that again.

Ethan, we saw a movement of capital, investment capital, out of the U.S. earlier this year when the uncertainty was maybe at its peak around tariffs and economic impacts. Was that just a short-term trade? Or as you talk to your clients, do they feel less likely or less confident investing in the U.S. markets?

Yeah, definitely there is, I'd say, a wariness around having too much in the US right now. And our clients have always had global exposure. And that global piece was a little difficult to defend recently, especially in the last over 15 years under performance. That is definitely by definition difficult to defend. And with a strong dollar too,

that some of those movements have reversed. Our clients are taking, are quite confident now in their non-US holdings. And I would say that the non-US story, it tends to get crowded out a lot by some of the flooding of the zone that occurs in the US and the Trump administration, the US developments are on everyone's lips no matter where you are, particularly in Europe.

behind the scenes in Europe, there is by stealth, I would call it, a steady growth of investment in the sector, in the industrial complex, really coming back from rock bottom in terms of confidence and just innovation. And a lot more focus on that, I think we have to start looking

beyond some of the noise in the u.s even david thank you so much for the brief from moneta this morning here on a friday where we set up conversations to get you into uh the month of june futures negative 25 lift to negative 19 the vix 19.51 dead tape two hours ago the president with a tweet makes it more sprightly here with angst about china paul you got to believe china responds

Yeah, I'm not really sure what the president's referencing in his tweet here as it relates to discussions with China, but obviously he doesn't like what he sees and maybe hears from China, but it just kind of brings back into the discussion a little bit of heightened truth.

Trade uncertainty, which seems to be the backdrop. I'm going to go back to the Peterson Institute and the iconic work of William Klein here, the idea of bilateral or unilateral discussions. It's a multilateral world. Joining us right now on the short-term bond market where he is world acclaimed, Ira Jersey, just off testimony to, I believe, the House of Representatives joins us this morning, driving all of fixed income.

at Bloomberg Intelligence. Ira, just simple, into June, is you and your team right? Do you have like a theme or are you as confused as everyone else?

Yeah, well, I think the theme is confusion. And certainly we're going to continue to probably have these headlines, right? We're trying to, and the market is trying to find where the end game is likely to be in terms of all of these policy actions that the president's doing. And of course, when you have court decisions that seem to, might force the president to backtrack and some of these tariffs unwind because

there's an overreach of executive orders, that again puts another layer of confusion into things. So I think what that means is that you're not necessarily going to see a whole lot of directional moves in the rates market in particular, right? So the treasury market will probably just be kind of range bound, but you're going to see a lot of volatility within that range. And that's certainly what you've seen the last two months.

Ira, we got some inflation data today. Core PCE index month to month 0.1%, on an annualized basis 2.5%. That's right in line with expectations. It doesn't seem like some of these tariffs are impacting inflation yet, I guess. How's your market kind of digesting this?

Yeah, so certainly the yet is what matters in that sentence there, Paul, because if you look at the durable goods, like within the PC data, you can break out durable goods, non-durable goods, which are things like consumables and the like, and then services. What you saw is there was actually a decline in prices for both of those goods sectors, but a 3.3% increase, basically,

in prices month on month for the services sector. So you still have services driving inflation at the moment. And the continued fear is that with a significantly lower amount of imports coming in, that eventually that's going to go through prices. So as inventories are drawn down, you're going to see new prices for what the imported goods were. So look at the trade number.

I haven't heard you in the last couple of minutes anyway talk about the trade data. But a 20% drawdown, a 20% decline in imports is pretty significant, right? And this is only for one month. And the first month where tariffs were imposed, it might be even worse as we get the May data, right? Right.

So when we end up getting higher prices in the future for that. The rates market, though, you look at inflation break-evens right now, they haven't moved very much, right? Ten-year inflation break-evens, 2.33%. Even though you might have an uptick in inflation briefly, the market certainly doesn't think it's going to be very sticky. Thanks to Bob, a professor up at Hamilton College, for that mention. And the trade deficit really came back, as Mr. Jersey mentions.

the interest rates as well. Ira Jersey, did you buy, we were talking muni bonds earlier, did you take a position in the $200 million of Georgia's Fayette County Development Authority bonds to build the new headquarters for the U.S. Soccer Federation? Really?

So I did not, but I am very excited to have a home for U.S. soccer that's in a single location. I think Atlanta was an interesting place because we do have a lot of players going over to Europe. So easier to have something on the East Coast than in the Central or West Coast time zones for a lot of those players when they come back to play for their national teams. Ira, one final question. Sliding into June, July 5th,

It's called the sold out stadium. Okay. Aston Villa. I mean, it's every concert sold out there. I mean, Lamar sold out. Are you going to go to back to beginning? I mean, this is like a huge deal for the United Kingdom. This is like a massive fundraiser. Are you going to be there, Ira?

So I plan on it. Yeah, I'm going to take it. We're in the middle of our semi-pro soccer season that we're in right now, but I'm going to take that long weekend off to jet set over there and go watch some Black Sabbath and a few other bands. Can you take Lisa with you for Pantera? Sure. Okay, there you go, Lisa. There's your road trip. Aston Villa, wow. You know.

I'm not playing Pantera today. I just never got into metal. It's up north. It's up north. Okay. It's the land of metal. Okay. Yeah.

Yeah, it's a huge deal. It's called Back to the Beginning Villa Park. Ira Jersey will be there, and this is in support of huge causes for Birmingham, including the Birmingham Children's Hospital and the Acorn Children's Hospice as well. Serious stuff by Black Sabbath and all the metalheads up there. Futures go to negative 25 to negative 17 as well. I never would have pegged them as Ira Jersey metalhead. I never would have pegged them. Oh, you know, I mean...

That's what happens when you read Fibozzi. If this government spending in defense goes towards things like R&D that have dual use civilian purposes, you could get spillovers that actually end up enhancing productivity in Europe and so have a more long lasting impact on growth.

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You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. Seema Shah, Chief Global Strategist at Principal. She has been wonderful about a persistent view on the market. Seema, do you have to rewrite your view this weekend or is it even possible?

Hi, Tom. No, I think, look, yesterday's news, it didn't change anything for us. The tariff story, this is absolutely not the end of the road. I don't think President Trump would permit it to be the end of the road. So I think it's been really important for investors, for everyone to really try and look away from some of that noise. Some of it is meaningful. Some of it is going to be sustained. But certainly the news from this week is not something that is changing our views. You know, Jess Minton out with a note. She's up at 3 a.m. this morning. She's so productive. All nighter. Right.

Seema Shah, S&P 500 up 6.2% if we close out the month on this huge advance. What do people do who didn't participate? What do you do with cash with an equity outlook right now?

Yes, we have still a slightly positive view for the rest of the year. The reason is that we're not anticipating recession. And so even if you just have slightly modest positive growth, so we're expecting 1.5% growth for this year, that is still a scenario where you can get positive earnings growth. And if you've got positive earnings growth, you should see the equity market still get positive returns. The thing is, they're not going to be significant positive gains, nothing like what we've seen in previous years.

And it's important for investors to remember there will be a ton of noise. We're expecting volatility to stay fairly high over the coming months. And so it's going to be important that if you aren't invested, get invested. But also once you're invested, stop looking at every single headline because that can be very, very disruptive. So Seema, just looking back on year to date, I mean, it's been a glass half full, glass half empty. I mean, we had that 20% sell off in the marketplace, but then we retraced most of that coming year

back higher what are the markers that you're looking at to to really give you a sense of how this market might perform for the rest of the year what should we be focusing on yeah this is a really important question so when we're talking about horizons we're seeing that there is a bit of a difference coming through so

Over a three-month horizon, there is a lot of concerns. We do think there are a number of potholes that are coming that you could start to see a couple of market pullbacks come through. If you're looking at a 12-month horizon, it's a slightly more positive outlook where we do see those positive returns coming through. So within the next three months, the things that we're going to be looking out for is, of course, going to be the economic data.

At the moment, the market has been, I think, inspired by the fact that the hard data has remained really strong. It will likely slow down in Q3. So that's a potential pothole. And the other thing is, of course, going to be inflation. We're anticipating a spike in inflation again in Q3. And I think at that point, there'll be some discussions around

the Fed is going to do. And that's where you start to see a few potential disturbances to the market. The heart of the matter, and Seema, we're hearing this from a lot of people, is if we get this redo in inflation, PCE today, folks, on a Friday, a lot of economic data for you at 8.30 and at 10 o'clock as well. But Seema, if we get it, then we get a nominal GDP pop. Do you just pull that into sustained earnings surprises to the upside?

I mean, I think so. I mean, I think to some extent there was so much negativity about a month ago. So there's still some upgrades to go in terms of where I think a lot of people are pricing in for earnings.

And, you know, inflation, it can be positive, of course, you talk about the normal growth side, but it can have its negative impact in terms of margins. So when we're thinking about earnings, when we're thinking about forward guidance, that's really the key thing that we're looking at is how much pricing power do these companies have? Are they able to pass on those price increases or are they having to absorb themselves? And that, to me, I think is one of the key things that we're going to be looking out for over the coming months and quarters.

SEMA, we just kind of got through earnings share. We've kind of finished up the earnings season on a pretty high note with NVIDIA giving some good numbers out. But still, I think there are concerns out there in the marketplace that earnings estimates out there still may be too high. How do you think about the earnings story out there?

Well, I think it's also worth keeping in mind that on a general annual basis, you do see this continuous downgrade to earnings forecast as the year progresses. This is going to be no different for this year. The question is, are even from that perspective, are earnings still a little bit too optimistic, even if you kind of think through the downgrades that are likely in a normal seasonal fashion?

I think there is still some negativity to come, but I don't want to exaggerate that. And I think it's going to be really important that you think about in terms of which are the pockets, which are the sectors which are going to be most exposed, because there will be areas of opportunity. I mean, the ones that we like from a sectoral perspective are going to be the financials. We're going to like utilities and we like energy. So there's still a lot of good news from a deregulation perspective. It's just that maybe in the near term, there could be some disappointment there.

which could then ideally be reversed as you get through to the second half of the year. Joining us this morning, Seema Shah. We do continue with her with Principal Asset Manager. We welcome all of you across the nation on your commute. I was wrong again. I had a driver yesterday. The Bentley was in the garage. Yep. Sirius XM is ginormous. It is. It's huge. Like, Cy, help me out in the control room. Cy, wake up. I know you're up with the Knicks late. Sirius XM is a big deal.

It's a big deal. It's like very ginormous. Channel 121, good morning. That's Sirius XM for June. That's going to be my focus here and our wonderful distribution. You mentioned we're on Bloomberg Originals. Yeah, absolutely. This is TV. Like Roku, if you've got like a Samsung smart, the smart TVs time where you don't even need cable or anything like that.

They just got the software. Seema Shah can watch us in the United Kingdom. You just search Bloomberg Originals. Look at that. It's amazing. On YouTube, good morning. Subscribe to Bloomberg Podcast. Growing each and every day. Really excited. Can we do a shout out, Tracy and Joe? Sure. They're killing it on AdLots. I know. They are. They're really helping out. Great guest. Bloomberg Podcast. Thank you to AdLots for all your support there. Seema Shah with us with futures at negative three. Seema, in the fixed income market here, I look at the two-year treasury. I'm getting close to 4% here. That's a...

That's not a bad way to make a living there. Do I take credit risk on top of that? How do you guys think about that? Yeah, I think you could take a bit of credit risk, certainly. As long as we're not anticipating recession, then defaults, they're going to rise likely, but they're not going to spike. We would be focused a bit more on the high quality part of the market because we are expecting an economic slowdown. And if you're looking across the treasury curve, like where do you want to be focused? It's probably the short duration side.

You know, the long side is where you're continuing to see, and I don't think it's going to disappear, some of those fiscal concerns continuing to come through. And we think that's going to be a persistent narrative. So for us, it's that short duration and the high quality segments that we're most interested in from a credit and from a treasury curve perspective.

Seema, what does big tech look like from London? I mean, I think it's just like this American thing. We're all mental about Apple. And Paul and I drive by the Apple store at Central Park South every day. Central Park and Fifth Avenue every day. But Seema, what does Mag7 look like from London? You've got a nice distance to it. I think we're just as obsessed with it as the U.S. is.

When we're talking to investors in the UK, it's the same kind of questions. They're obsessed with the big tech trade. They want to know which is going to persist or is it something which has maybe run its course. But if you're looking at it again, over a longer term perspective, you don't see that investors are losing much interest. They're just looking for what is the buying opportunity? When can we really buy the dip if there is going to be another dip?

So Seema, earlier in this year when we had the, you know, maybe the peak volatility in the U.S. markets around the tariffs, we saw a pronounced shift of capital out of the U.S. to other parts of the world, most notably European equity markets. Is that still the trade here? Do people feel like Europe is a good place to move money vis-a-vis the U.S.?

Well, I think that trade has lost a bit of its shine in the last couple of weeks. What we're seeing is that investors are really questioning. They know that there is maybe a potential upside, but they're saying, show us the money.

When is Europe really going to start to outperform? When is it really going to start talking about deregulation? And only at that point can they start to think about the increase in potential growth rate for Europe. So it is a discussion. It's certainly more of a discussion than it was in prior years. But I think in the last couple of weeks, you are starting to get to that point where investors are becoming a little bit more sceptical. And they want to see that Europe is realistically going to come through on some of the plans that people have been talking about. To me, the great divide of May, Seema Shah,

has been the mood of retail in America versus institutional Wall Street. Do you see the same thing in the city?

Yeah, I think so. And in a way, it's been interesting because the retail money is the money that's been really smart. They stayed invested through the last couple of months. They didn't come out of their trades when things got a little bit rocky. So I think there is a divide in the behavior. And certainly if, you know, for institutions that they're trying to get back into the market, if they did exit, it was retail just stayed invested. Seema, nicks or pacers? Yeah.

I'm going to say next. Look at that right on top of it. Thank you, Seema Shah. Really appreciate it. This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at 7 a.m. Eastern on Apple CarPlay 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 1130. We really wanted the tax-a-brain folks. We went through the Rolodex and said, okay, who can spell Schenectady? Pat Askell joins us right now. Municipal bonds, we really, Paul's been on fire about this, taking advantage of tax-free bonds right now. Our airport bond, you were at Union College in Schenectady years ago before. A lot of years. A few years ago before. Help me here.

with airports. Is there an opportunity with all the gloom about airports, aviation? Are municipal bonds of LaGuardia or O'Hare of value now? - Yes, we like the airport sector.

You know, the financials, the planes are full, the off-body contracts, like there's a lot of opportunity there. I mean, you look at LaGuardia, it's a beautiful project now that it's done. JFK is going through the construction. You know, other airports in the country are going to continue to be opportunities for us. Can a little guy buy those bonds? Can I go out and say, hey, the Uber pickup at LaGuardia was actually pretty good?

I want to buy $10,000 at LaGuardia. Yeah. You can do that. Yeah, sure. You can definitely do it. It's easier to do it during the new issue process because the bonds tend to get put away. But sure, mom and pop can still buy muni bonds. It's easier to buy managed products on those kind of denominations, but certainly you can do it.

Pat, the Minnesota bottom, just looking at the Bloomberg INGO function, Bloomberg Index Browser, underperforming the U.S. ag pretty substantially this year. Underperforming this year, outperforming the last month. So, you know, pretty good relative value coming into April. When we had vol kick up in the beginning of April based on the post-liberation day market moves,

munis underperformed since then have done very well. And I think there's really three things. The relative value that you pointed out to other fixed income asset classes, the technicals, we're going into a positive technical as we go into the summer as supply wanes. And some of the policy concerns we had out there as we have the tax bill was first come out of committee in Congress, it looks like munis are relatively unscathed.

That's the key point because that was a, I guess it's always a point. I guess what I've learned from you municipal guys is every administration comes in, you always have the risk that the tax deductibility of municipal bonds may be reduced or eliminated. And that's true in this administration. It's true in the Obama administration, true in Trump 1.0, true in Trump 2.0, that at least it gets discussed. And I think at the end of the day, we get back to the same thing at all times. There's very few things that pull well on both sides of the aisle in our country. One of them is infrastructure.

This is the market that we build most of our infrastructure in our country and the exemption to keep the borrowing costs or state and local governments stays in place to keep that borrowing cost lower. Why would anyone, Paul, by full faith in credit taxable over a certain income level?

I just don't get it. I mean, the yield pickup in your world. I mean, at BlackRock, there's no debate. The yield pickup is stunning. When you think about investment grade in municipals on a tax equivalent yield basis behind 6% and a high yield municipal basis behind 9%,

They offer incredible value. I mean, this is the first time we think about it since pre-financial crisis when we were able to get this level of yields embedded in portfolios, with the exception of a few times of crisis. You go back to 07. Yeah. What's the credit outlook out there for municipalities? Because I know during the...

Coming out of the, during the pandemic, I thought, oh my goodness, we're gonna have defaults left and right, but there's so much liquidity pumped in by the government that that did not happen. - The rough numbers are, you know, state and local governments came out of the pandemic short about 140 billion through a variety of federal programs to airports, universities, local governments, the feds gave the muni sector about 300 billion. So that, we really came out of the pandemic in very good stead and that continues to be the case.

I mean, some of the noise you have around universities right now, on some of these flagship universities, even if they were downgraded, they're triple A to double A.

They're going to have instead of seven times coverage, they're going to have 4.7 times coverage. And I think we'd all agree on most of the universities that are in the press, the demand from a student perspective is pretty inelastic. I'm looking at the BlackRock New York State Municipal Bond Fund. It's had a really rocky one year, two year. 2020, it was like world class performing 95th percentile. Is that how your world rolls?

where there's a challenge and a churn and you know you make your coupon and reinvest it or whatever and then there's one big year where you really get the total return no i actually think most people buy our products for income i would take it the other way they take the coupon yeah where they want they want the coupon i mean i you know in general terms i always say when the fixed and fixed income is larger it's more attractive makes better balance in the portfolio um so we we don't try to hit home runs in terms of total return in any one given year

What's the new issue market look like? What's the calendar look like in the new space? It's busy. We're going to have another- Because last year was a record year. Yeah, last year was a record year. This year could be slightly larger. Yeah, last year was north of $500 billion. It looks like we're going to come in around $5.25 to $5.30 this year. That's what it's looking like right now.

And it's being absorbed in a better orderly fashion. Again, with the exception of the two weeks, you know, kind of following Liberation Day when markets all over the globe were on Fuego. But it's been relatively well received. So to get back to airlines, say Atlanta, Hartsfield, they're doing a big building project.

it's umpteen million. Do they make four phone calls to BlackRock Fidelity and the rest? Or is it distributed like the old days? - It's distributed, you know, look, the retail order period is not as dominant as it was in the old days. If we're gonna go back kind of 70s and 80s, however,

There still is a retail war period, and it's an issue like Hartfield, for example, that would be out there. They would be doing a retro for two or three weeks, and they'd have 100 investors in the book. You're committed to one of the great schools in America. Full disclosure, my uncle was a professor there years ago. Union College is connected in New York. It's rated top 40 schools in the nation for value as well. They do math there.

Yeah, it's cool. They do engineering. It's like RPI. One of Afterthought's friends got into RPI, and it's great. How'd the admission season go? You guys prospering amid all this education turmoil? You know, look, smaller upstate universities are,

are, you know, in New England universities, are in intense competition for students. Union is doing well, but it's just like all of its counterparts. You know, you bring up RPI, RIT, a lot of the schools that we know about that are excellent institutions, but because there's that demographic waste they're going through right now where there's a few less students out there, there's a lot of competition, and they don't have, you know, the really, really significant endowments at some of the colleges.

So your selling point is Schenectady is warmer than Rochester. Is that the selling point? We're warmer than Rochester. We're getting a new hockey rink. We're excited about that. I'm shocked. The Haskell rink? Not the Haskell rink, but the—might be involved a little bit, but we're excited. I'm afraid to ask, how many seats? Are you keeping it under 10,000? We're keeping it under 10,000. This is going to be a really cool addition. Downtown Schenectady has gone through a real boom in the last 20 years as GE has come back.

Very cool. I didn't know that. It's exciting to watch. We should do a remote up there. That would be fun. In the fall? I promise I'd learn how to spell. D1 hockey is like an addiction, isn't it? College hockey, these smaller 5 to 8 dozen rakes, and you're right on top of the ice. It's exciting. It really is. Pat Haskell, thank you so much. From Union College, also by way of BlackRock as well.

If this government spending in defense goes towards things like R&D that have dual-use civilian purposes, you could get spillovers that actually end up enhancing productivity in Europe and so have a more long-lasting impact on growth.

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This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at 7 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal. Bank Economist of the Year last year, Lindsay Peix, joins us on Chief Economist at Stiefel. And Lindsay, with great respect, let's go short term. My head is spinning looking at the ECO Co. screen.

All the different things. Michigan, come on, one year inflation, 7.1%, five to 10 year inflation, 4.6%. How are you framing out a Q3, Q4 call at Stiefel? Can you count up the American economy right now?

Well, we have to be careful when we're looking at the soft data. The soft data seems to be pricing in more of a worst case scenario, consumers vocalizing all of this concern. But as we saw this morning in the hard data, the consumer is still out in the marketplace spending. So there seems to be, again, more of this erosion of confidence than an actual change in behavior. We see that on the corporate side as well. So what's your number forward? I'm sorry? What's your number forward here? Real GDP.

I think GDP in the second half of the year is going to recover to about a one and a half, 1.7% pace. So positive, we're back in positive territory, but certainly nothing to write home about. But again, I think against that backdrop of almost 2% growth,

upside risk to inflation. The conversation for the Fed is going to shift dramatically from where it is right now as Fed officials are saying we're well positioned or they're looking for potential justification for additional policy easing.

So do we have, have we taken recession off the table, Lindsay? Because earlier in the year when people were trying to run their models and they were thinking about 100 plus percent tariffs on various countries, that was very much the talk of the town. But is that off the table now?

Well, remember, recession was never in our base case scenario. We were looking for a slowdown in momentum, and we certainly saw that come to fruition in the first quarter. But by Q2, we are looking for a return to minimal positive growth. So, yes, that does remove the near-term fear of a recession. Now, again, things can change, so recession is not necessarily off the table. But our base case says that the worst of, the brunt of recession

That anticipation, that concern around tariffs has already been felt January to March. Lindsay, we've seen a lot of risk assets, particularly the U.S. equity markets, bounce back nicely. Big exception is the U.S. dollar. What's your view there?

Well, there's going to continue to be a lot of volatility, I think, as the currency market is trying to gauge, just like investors broadly are trying to gauge what the end game for tariffs is going to be. Now, of course, this back and forth, the most recent disappointing news in terms of trade talks with China, this is going to continue to put pressure or at least volatility on the U.S. dollar. And I think this is going to be a storyline that we're not going to be able to shake maybe through the year end.

Help me here with the asset move we're going to see. If we have tariffs up, and Lisa Mateo's reporting the gap is having some challenges. They go from 28 to 23 right now on stock price. Do we just see, Lindsay, in your world an asset erosion due to stagflation sense?

I think stagflation is the biggest concern because again, as we talk about our forecast for growth in the second half of the year, while moving back into positive territory, a 1.5% growth rate is well below the bare minimum, let's say, that you should expect for a developed economy. 1% from productivity gains, 1% from population growth. So 2% is really the minimum. And we're expected to fall below that. So it's

It's essentially a non-accelerating economy. Then you layer on the upside risks of price pressures, which I do think will fill back in as tariffs become more solidified in terms of their implementation. And stagflation is going to be a very real scenario. When you think about what keeps you up at night, it's not the recessionary scenario. There we get the recovery boom, but the stagflation scenario limits the impact of money.

on either side and could be a lingering scenario for years to come. This is a major May insight, folks, is this new reweighting of modest or if you're gloomy, tangible stagflation. She's recovering from proms right now with the market opening here. Don't stop believing in Lisa Mateo. Lisa, what do you have? You've got it.

got a lower open that's what we have right now this is the last trading day of the month S&P 500 down two tenths of percent 14 points 5897 the Dow off two tenths of percent 85 points 42 123 and the Nasdaq uh down about two tenths percent 55 points and 19 120. taking it to the two-year yield 3.94 percent that's little change and the yield on the 10-year 4.42 percent that is little change

We'll check in with commodities. We have spot gold down about six tenths of percent, $3,295 an ounce. Over to oil, Brent crude down three tenths of percent, $63 a barrel. WTI crude, $60 a barrel. The Bloomberg dollar spot index up about a tenth of percent. And Bitcoin down half a percent at just above $105,000. That is your Bloomberg opening bell report.

Paul and Tom? Thanks so much, Lisa. Greatly appreciate that. Again, negative 126 on the Dow. Vic's not out to a 20, but getting there again. The presidential press conference with Mr. I guess I'm calling it a press conference. I think so. It's OK. We'll see. With Elon Musk. We'll see that at 130. An important tweet here on China. Oh, an hour, an hour and a half ago. Maybe we'll get more. Lindsay Piggs are with us here. Lindsay, a lot of and I sort of like the chart. It's an elegant chart.

continuing claims reach out to a new worser going back to the pandemic going back to 2022 2021 is there a significance at once twice three four five on the sixth try we break through 1900 on claims

I think the claims data, while very volatile, has been more indicative of this slow loss of momentum in the labor market. The second part of the labor equation, fears about losing one's job, is not overly robust at this point. And when we look at the job creation component, that's still relatively positive as well. Again, down from

earlier, more robust pace. We're talking about second derivative decline here. But overall, the labor market picture is still very solid. And that's the component that continues to support the momentum of the consumer out in the marketplace. This thesis of resilience on the part of the consumer, it's coming from these ongoing solid conditions in the labor market. So I'm not overly concerned about the volatility of the continuing or initial jobless claims data.

So the consumer's resilient, but we keep hearing about a bifurcated view of the consumer. The higher end's doing fine, maybe even better than fine, and the lower end's really facing the challenges out there. How sustainable is that?

- Well, we are facing challenges. I don't want to oversell the strength of the consumer. The average American, the average household is feeling pain from higher prices over the past years, higher borrowing costs, the resumption of student debt payments. And now you layer on the fear of changes to trade policy or additional tariffs. There absolutely is pain being felt. And we see that in that loss of momentum.

But nominally across the board, consumers are still spending. Now you're right, in the middle, in the upper end of the income spectrum, we see consumers benefiting more from this massive run up in household net worth, thanks to an accumulation of asset prices, which the lower end is largely precluded from enjoying. Just statistically speaking, they're less likely to have a stake in the equity market, less likely to own property.

And so, again, haven't enjoyed this run up in household net worth that many Americans have. But when we look where consumers are spending, even those at the lower end are still benefiting from that more organic growth in income, from the access to additional short term spending options such as buy now, pay later, 401k hardship withdrawals.

and intergenerational wealth transfer. So there are still a number of inorganic factors supporting consumers, but even at the lower end, I think income growth component is really a positive notion. - I hate you, I've got eight more questions in no time. Lindsay Piegs, thank you so much. Chief Economist at Stifel, my economist of the year last year, her optimism on the economy really measured. She just threw a really, really good job

day-to-day grinding out the view for the crystal ball on this American economy. This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at 7 a.m. Eastern on Apple CarPlay 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 1130. Something different right now. Philip Deal joins us, president of the U.S. Money Reserve. Also tour duty at the U.S. Men as public service to the nation. Shorty could join us here. It's on gold and, you know, the usual Krugerrands. Yeah. You know that. Yeah.

Philip Deal, just to cut to the chase, what's the biggest misconception Lisa Mateo and Tom Keene have about the U.S. Mint? About the U.S. Mint? Well, it's a Fortune 500-sized company. It has a...

marketing and manufacturing component, but it also protects the gold at Fort Knox. So that's one of its major claims to fame. Is a penny going away? Excuse me. Yeah, that's a good question. I think it is. Phil, what do you think about, I mean, come on, I had a coin collection. Did you have a coin collection, Phil? Did you have the little punch in blue things on the floor? I became a director of United States Mint. Then I did. Yeah, then you had a big coin collection.

What is happening with the U.S. penny? Do we have a conclusion there? Yes. U.S. penny is going away. By executive order, the president has ordered the penny production to stop. The penny is going to continue in circulation. It's not being demonetized. But I think for a period of a few years, it's going to –

It's going to wind its way out of the economy and be an item of the past, just like the half penny is. Phil, I'm going to cut to the chase. The whole thing with gold, the perception is, well, it's a bunch of flakes. You're not a flake. You're like an actual adult with real world experience with this. What's the most efficacious way to acquire tangible gold now, like my mother bought Krugerrands a million years ago?

Well, of course, being a former director of the United States meant I like American Eagles, the gold coin of the United States. And it has been, you know, it dates back to the mid-1980s. And my company, U.S. Money Reserve, sells Eagles, and that's our biggest seller. But we have a wide range of products as well. But the Eagle is legal tender of the United States, and it's back

by the full faith and credit of the United States for its purity of gold. Philip, why has gold been on such a tear recently? Well, there's a lot of history behind gold, of course, about 3,000 years history of it being wealth insurance, essentially. And the story begins the day after the Hamas attack on Israel. And that really, that really

illustrates one of the main drivers of gold prices over decades, hundreds of years, and that is war and great economic uncertainty. And as the war spread through the Middle East, then gold really began its ascent. The second major factor was in November of 2023, about a month later,

We got the first report, good inflation report from the Department of Commerce. And with that report, speculation began that the Fed would begin lowering interest rates and gold immediately responded to that. And I'd say there are other factors, but the other major factor is central banks have buying gold hand over fist for the last three years. And that has been a major driver.

Phil, one more question that I think is really important. And Paul's been much better at this than I am. I go mental, Phil Deal, like Texas A&M mental. He said, we got another long horn on. I don't know what that's about. Yeah.

Phil, I go Texas A&M mental when people tell me Bitcoin is a gold equivalent. How do you respond? As a former head of the Mint, you're actually an adult in the gold coin business when somebody tells you Bitcoin is a gold eagle equivalent.

Yeah, I try to be more civil about it, but my reaction, my reaction is much like yours. I mean, it's sort of ridiculous because gold is, you know, for hundreds, thousands of years has been held and today is being held by central banks and individuals as a store of value, which means you can count on its value.

Can you do that with Bitcoin? I mean, what, over the last several months, it's gone up and down 25%, 30%. So, no, it's not competition for gold at all. And people who would put it in, I mean, you can't put it in your IRA, but it's not included in federal government policy, but

Even if you could, I mean, you'd have mighty disappointments to unlike with gold. I mean, it's what we've had with gold is sort of the best of both worlds gold. Right. And seen for forever as bad news investment.

But it's been performing extraordinarily well in good times, too. You're a political hitter down there in Texas. Phil Deal, I need A&M Longhorns Thanksgiving Day. That's what we need to return here. Philip Deal with U.S. Money Reserve Austin, Texas. Thank you for the time there. This is the Bloomberg Surveillance Podcast, available on Apple, Spotify and anywhere else you get your podcasts.

Listen live each weekday, 7 to 10 a.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

Thank you.

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