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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. Can we just start with Mike Green with a good view of the Fed and economics and the system, sort of a total all-in look at what we're doing. But today we have to celebrate that is Simplify Asset Management.
High yield ETF has five stars from Morningstar. And that's what's unusual. In the category that Mike plays in the pond, 631 investments.
And I don't think I've ever seen this in umpteen years. You're single percentile. What are you doing? I mean, you're not upper decile. Year to date, you're one percentile. A year ago, 22 percentile, which is phenomenal. What are you doing different than others in the high-yield sandbox?
Well, first of all, thank you for saying that. That's really kind of you. We're doing a couple of different things. We've designed the product to take advantage of many of the theories you've heard me talk about, the impact of passive investing, the strategies that are out there. The product, the way we access the high-yield market, we're using a synthetic exposure. All sorts of credit funds short the HYG in order to amplify their single security picks.
We relieve the balance sheet from the banks when they do that. So we get the securities lending fees. So we pick up about 150 basis points of excess returns simply by doing that.
We then apply an overlay that I've used for the past decade that is designed to smooth out credit hedges, designed to smooth out credit spread widening. The impact of that in this year has been fantastic. That's really what accounts for our first percentile. Is it a one-off or is it something you can persist over three, five, or ten years? We've been using it. I've been using this strategy for about ten years. The Simplify strategy has been live now. It just hit its three-year track record, which is what was required to get that five-star rating.
And it's managed to deliver in 12 separate tightening and widening cycles now for credit. So we've actually been really fortunate. You come out of Teal Macro as well, manage the...
assets of Peter Thiel a few years ago. What did you learn there? What did you learn from him? Well, you know, Peter is incredibly famous for asking the key question, what do you believe that nobody else believes? Or what do you believe is true that nobody else believes is true? Or what do you believe is false that everybody else believes is false? And when I met Peter several years ago, I introduced him to my ideas around the impact of passive investing.
And honestly, that I think was one of the most important things that he encountered is influenced, I think, the dynamics of how he's taken his companies public and how he's behaved. When you say passive, do you mean traditional, the way that retail investors think about passive investing? S&P 500 index funds, two basis points to buy, you know, VOO.
Absolutely. So that's really what we're hitting on. Unfortunately, there are incredible flaws in the construction and understanding of this. I've actually spoken on Bloomberg with Barry Ritholtz about this dynamic. Passive is not passive. The actual definition of passive is you never trade. You always hold. That means it's impossible to get in. It means it's impossible to get out.
And around 2016, a very smart individual, Lasse Peterson at AQR, wrote a paper called Sharpening the Arithmetic of Active Management, which he noted on index reconstitution that they had to trade. And therefore, that created an opportunity. My contribution was to recognize that every time you as an individual investor are contributing to your 401 , you are creating a trading environment. So it turns out that passive is not passive at all.
It's a systematic algorithmic strategy that simply says, if you give me cash, then buy. - So translate this into what our listeners and viewers are living. When they buy a passive fund,
on a zero to 100 scale, how active is it? Is it 10% active? Well, it really depends on what you define. So the minute you're putting that money in, you're 100% active. Once you've transitioned into a position, you become passive. That in and of itself, though, creates its own dynamics because you're not really passive in the classic sense. You are hodling.
It's the same phenomenon we saw in Bitcoin. If you're not willing to sell, the next player has to pay a higher price. And because what we have seen is just an extraordinary inflow into passive strategies, which now represent about 45% of the market cap of the United States,
We've actually just seen a continual upward pressure in valuation and prices that a lot of us, unfortunately, think is the up and to the right phenomenon in markets. On your commute across the nation on this Fed Day, a lot of good voices coming up. Katie Kaminsky will be with us. The absolute best on trend investing or the shattering investor.
trends right now as tim stenevik mentioned that we've got a nice lift to the market off a bombshell switzerland announcement the united states and china will meet and they will speak futures up 37 points right now we say good morning on youtube tim does that mean we're all handling our retirement incorrectly if we're thinking about uh funds that
are based on age, based on retirement, these target date funds that are mostly passive? Unfortunately, I think that's correct. And I think that the, you know, first of all, I want to be very clear. All and incorrectly are very broad and subjective terms, right? It's a system that has worked extraordinarily well, but unfortunately, it has Ponzi characteristics.
The new entrants into the system are inflating the wealth of the existing holders. What we don't know yet, and unfortunately you mentioned when I worked for Peter Thiel, the trade that gave me notoriety was the Volmageddon events, the XIV. What became very clear there was that was a systematic algorithmic strategy that had become too large for the market. We're seeing similar characteristics in the broader market with the S&P today.
The way that that manifested itself is when a significant outflow occurred, we had a crash. Where's the shadow right now? I mean, those of us of a certain vintage understand we learned how to spell portfolio insurance in October of 1987. There was a leverage of LTCM and that. Where's the shadow in the system now? Is it just simply the, and I'm speaking folks on a physics basis, the mass of the passive market?
That has a huge component to it. So when I did the XIV trade, the Volmageddon event, I had done the analysis that basically suggested that the passive or systematic algorithmic strategies had risen to about 70% of the daily trading volume. If we look at the impact of passive today in the broader market, it's very, very similar. Once you factor in the way market making is done, which is effectively index arbitrage,
We're trying to make ETFs work. We're trying to keep prices tight. All of that trading is tied around many of the same phenomenon. And so, unfortunately, my work suggests that we're getting closer and closer to a point at which it becomes an inevitability rather than a probability. Well, I would say, as you set yourself up for not a three standard deviation, but a four or six standard deviation surprise,
some form of shock, and that's a trigger. Is it as simple as that? There will be a trigger point outside our beliefs and certitudes that will allow for a magnitude move? Well, you hit on a really key phase, a belief. And I would argue that a key component of what we're experiencing right now is that belief.
So the up and to the right phenomenon encourages people to put money in when it's down. Now they're putting it into the indices. We saw this very specifically in the events coming after April 8th when the market made its recent low. A trigger was hit, what's called a threshold trigger within many target date funds that forced them to rebalance. When they rebalance, what do they do? They have to sell bonds, buy equities. And unfortunately, when that coincides with Trump making a speech, President Trump making a speech saying, it's a good time to buy, it's a
It's a force. Lisa, would you get the surveillance cork and put it in my mouth so I don't get in trouble here? Tim, save me. I can't say enough, folks, how I agree with Mr. Green on rebail. It's like death to me. Go. Mike, you have just a fascinating post out from your newsletter earlier this week. It talks about President Trump in the historic context of other leaders in the past, Franklin Roosevelt.
You even bring up Roman leaders in there in the context of where we are as a country, where we are as perhaps an empire. Where do you see it? What do you see this moment as? Well, I've been talking about this for a long time. And as you know, I think all American men think about Rome at least five times a day. So there's nothing particularly unique about my insights there. Look, we often talk about the fall of the Roman Empire.
We're not an empire, we're a republic. And where we seem to sit, unfortunately, is towards the fall of the republic. And if anyone really wants to dig into it, I would strongly encourage them to read Mike Duncan's book, The Storm Before the Storm, which is about that transition period
between the Roman Republic and the Roman Empire, I draw analogies to the idea that Trump could be viewed as a Gracchus, could be viewed as the Gracchi brothers, et cetera, as a reformer. Unfortunately, I just think he lacks the mental plasticity at the advanced stage that he's at that a Franklin Roosevelt had. Franklin Roosevelt was not a communist and was not a socialist and was not a redistributionist in his early stage.
It was only after he saw the effects of the Great Depression in the late 1920s, early 1930s, that he saw a different path. And he redefined the relationship. Now, I'm not suggesting that the answer to this is more government. The answer is more effective government.
And that is a very hard challenge in this current environment. I just put out on Twitter, The Storm Before the Storm, the book by Mike Green, Robert T. Kaplan with a book somewhat equivalent to that written last year off of Yale University Press. I'll try to get that out as well. My answer is watch the, what was it like 15, 20 years ago? They had a whole, it was like when they invented streaming serials and they had a TV show called Rome. Hmm.
that you know i i don't have to read the book do i can just watch you just just now you just open chat gpt and ask it whatever you want and then it'll do it for you well yeah that's a whole separate story you know mike i i think this is really really interesting i want you to fold it over to how people should prosecute something as boring as a retirement plan how do you bring this over to the mundane
But Tom, we could have an hour-long discussion before I get to get started there. Lisa, can we clear the deck here? Are you willing to give up newspapers for Mike Green? Never. There we go. That's the right answer. That is the right answer. How do we bring this over to we mere mortals trying to decide what percentage to be in the market? The quick answer is there is no right percentage, right? It's going to depend on everyone's individual component. The key thing that I would highlight
is that when you think about investing for retirement, when you think about those, focus on what you need, not what your neighbor wants.
And this is a really key component. We tend to get ourselves caught up in the FOMO-type framework. We're in an environment in which you can, if you're worried about inflation, you can buy real yielding tips with a positive yield for the first time in over a decade. That is something that I would argue people are ignoring. I would broadly suggest that fixed income, in a lot of ways, because it has what I refer to as endogenous liquidity, significant coupon payments and an ultimate payment at maturity,
has very different characteristics than the Ponzi-like characteristics associated with equities, where you are always getting your value from what somebody else pays. And so those are ways that you can separate yourselves. They're not immune. I have to be clear. This is a systemic issue. But they are a better way to think about the opportunities. That's been brilliant. Mike Green, thank you so much. He's Chief Strategist at Simplify Asset Management.
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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. We continue forward with some huge academics from the London Business School. Her doctorate, Crystal Rondeau. Delint stops by when she is in America. She's a Vontabel asset management consultant.
of Europe. You walked in the room and you said, I don't want to talk about it as Fed stuff. I want to talk about allocation, which is great because I don't talk enough about allocation. What's the biggest mistake given chaos, given day-to-day uncertainty? What's the biggest mistake people make in allocation?
to think that they know, to be honest, having been an active investment manager for all my career before becoming the CEO. - Let me translate that into English, 'cause it wasn't there. Having been an active manager and enjoying losing money and getting to the end of the career. - Not at all, not at all, actually. Not at all. My fund should still be on your Bloomberg platform. No, but very seriously, there's a lot of uncertainty, and what it means is
There's a lot that we don't know and you need to recognize that and not go for extreme allocation. So neither extreme bullish, which nobody's tempted, nor extreme bearish. That is the number one mistake is to actually go on the limb. Are we past a little bit of the chaos, a little bit of the uncertainty, given what we found out late yesterday, a US-China meeting will take place this weekend in Switzerland. It will center on de-escalation?
No, I don't think we passed the uncertainty. More ahead. Yeah, more ahead. I think so. I think it will continue because this is not a straight path to a deal, nor is it a straight path economically with the political environment. So uncertainty is here to stay. Are you breathing a sigh of relief that the conversations are at least happening? Yes.
Definitely. Definitely. For growth and for inflation. The one thing that we do know, so let's start with what we do know now, is everything else equal, if you put on tariff, however low they are, but on a large scale, you will get lower growth and higher inflation. So that is one part we know. And that, again, has implication for asset allocation. 99.825% of our audience, particularly here in America, good morning around the world, on YouTube,
looks at Europe and has basically mentally discarded it for I'll say five years or 10 years. In investment, is there a new Europe?
I hope I can answer yes. Europe has certainly gotten a wake-up call. I think the proof is in the pudding. Europe has disappointed for quite a long time. So what's changing is the fiscal spending. I do believe it will happen indeed in Germany. So that's a positive in relative terms for growth.
But look, some of the weakness of Europe has been the inability at times to act together. But then on a micro basis at the company level, are the CEOs thinking differently, whether it's two boards in Germany or one board wherever, that they have supported the board to be, you know, the stereotype is to be more Anglo-centric. Are we seeing that now?
I'm not sure I understood your question. I know you didn't because you don't want to hear it. No, no, no, no, I do. But I mean, Europe has always been quite looking towards the West, right? So Anglo-centric, if you wish. I'll go with that. But the stereotype of our global Wall Street audience is there's a...
A lock-in individual take on CEOs, let's go at Disney, at Uber this morning, Tim, they're out there, they're like, let's go, let's fix this, let's fix our margins, let's go, let's go, let's go. And everybody in Europe is going at a slower speed. Is there a change there or is it business as usual?
No, I think there is a change. I think there is a change. Whether it delivers, I don't know. That's why I said proof is in the pudding is that we now need to go get it in Europe, in a sense, align. The other day I fell off my chair. Royal Dutch is once again looking at British petroleum? Talk about dinosaurs. What's old is new again. You know, I wonder to what extent this idea of Europe being pushed close together or becoming closer...
is a result of the US and this America first policy. Is that what's happening here? The US is saying essentially, okay, America first is not America alone. Investors don't necessarily agree with that, but it makes Europe say, okay, we have to rely on each other more for defense spending. We have to become closer together and we have to unite more. Is that what's happening? - I think that's part of it. That's definitely part of it. It's just like, I mean, that's with everything in life. You get adversity and that pulls you together, right?
The adversity, the first thing that brought Europe together was COVID. That, in a sense, really helped from that perspective in bringing the countries closer together. And I think, yes, there's a reckoning that they better pull together. It didn't happen, though, from a fiscal perspective during COVID. That was a huge issue. I mean, you saw Europe as a whole
recover in a more slow way than the US did. The US sort of stood out over the last three years in its quote unquote exceptionalism compared to the rest of the world. Is that era behind us?
No, I think there's a few things that are impacting right now. I don't think it's... I mean, let's say I've been structurally bullish on the U.S. economy. I continue to believe it's the strongest economy. But a few things are denting or impacting U.S. assets right now. The pressure that we're seeing on the dollar, I think, is a structural downward pressure. Europe has a chance to pick itself together by uniting.
They see the need and that's why I come back to we need to see the proof in the pudding. Is it happening and is it delivering? With us from Vontable this morning, thrilled to have with us Christel Ronde de Lint. All I've lived, and I was in Switzerland when I was 15 years old, it was magical, is an appreciation of the Swiss franc.
Tell us how Switzerland adapts to the new strength of Swiss franc. Will there be a different approach among the cantons and among the federal government? Well, look, I mean, as a Swiss, it's almost like you're born with it, with the chocolates in the mountains. You're born with a strong Swiss franc, so it's part of it. So the SNB, it's the, I mean, it's a headache for the SNB, for the companies.
They've learned to be competitive, to be honest. So this is one aspect because it's part of it. Nominally, it appreciates because inflation is lower. And for the foreseeable future, that's still going to be happening. On the real level, you see less of an appreciation trend. But, you know, in the end, nominally is a lot of what matters. Can you get to an imputed deflation in Switzerland because of the appreciation of the franc? Yes, we could. Yes, we could.
We could. Apple did a coupon a couple years ago, three quarters of a percent for like a zillion years.
It's pretty much free. Are you seeing travel to Switzerland changing with the trade wars, with the tariff wars? Well, I mean, I'm not, let's say I'm not on a line post to see people coming in and out, but we do read, including from esteemed Bloomberg, that yes, we do see more, you know, more asks for Switzerland, for people looking to come over, whether it's traveling, whether it's relocating. So let's wait for numbers. Yeah, Roto Keeper of the Amex. Yeah.
is very big on switzerland he wants me there you know 24 7. what's the one more question i want to start end where we started and that has to do with asset allocation tom asked about the number one mistake people are making if people are saying okay i should go look at my
portfolio right now think about its construction yes where should people look closely is it in the equity side is in the fixed income side is in the alternative side i think it's uh it's across everything i think you do want to be diversified if you don't know what you don't know and how things are going to pan out again don't lean out of the window so you do want to make sure that you're diversified that you're sticking to what you are trying to achieve you obviously go for stuff that is less cyclical
sectors that have more pricing power because if you all things equal, lower growth, higher inflation. Infrastructure to me is a segment that stands out, right? Less cyclical, has cash flows that are normally indexed to inflation. And you want to think about the dollar, in particular in the asset classes that have lower volatility. If you unhedged,
I'd look at a hedge, to be honest. So these are the things that are on my mind. Thank you. Thank you so much for visiting. Crystal Rondon-Deline with us with Vandabelle Zurich. And today with this whole new view of Europe. 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.
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Who was that? Who's she with? With RBC Capital Markets, Frances Donald on the economics of the moment of America. Frances, into this Fed meeting, do we have, looking at the dual mandate, looking at growth, do you have vectors in place? Is there a Frances Donald inflation vector, an unemployment rate vector, a real GDP vector? Do they exist?
I mean, sure, they just look very different than they have historically. But I got to tell you, Tom, listening to you come into this segment, you said it's Fed Day. And I had to say, oh, yes, it's Fed Day, which is not because I'm sleeping at the wheel. It's because I spent the morning doing things I've never done on Fed Days before, which is scan geographic photos for ships on the West Coast to see if we're still getting supply to come in. I'm looking at some old school pandemic charts.
open table restaurant reservations are we seeing any week-to-week change in the data there and of course reading every headline we can see for insights into are we going to see some trade de-escalation from China and um my sense is that probably the Federal Reserve is doing very similar things this morning and that is because they are trying to determine their own vectors for inflation and employment and they just don't have enough data or insights just like most
economists don't right now to determine the path ahead. So extraordinary uncertainty heading into this meeting. It is going to be a hold. Of course, we're always looking for any type of insight from Fed Chair Powell as to how they would react to certain situations and what they think will happen next. But the data is going to leave the Fed, as it always does. And we have very limited visibility from traditional data points right now.
I hear you talking about the alternative data, such as open table reservations, looking at satellite images of ships that are coming into port. It sounds like we're talking in 2021, save for the China comment that you made about potential progress on a trade deal. The Federal Reserve has a very limited toolbox when it comes to what it can do to achieve its dual mandate. How does it navigate a situation of uncertainty such as this?
Well, it doesn't or waits for the data to turn. And for that reason, they will by necessity be late. I think their issue is going to be a sequencing issue, which is that the inflation data is likely to pop much earlier than the labor data. And I've been on the show many times to talk about how even though we see a very weak economic environment, we only have the unemployment rate rising to about four, eight or high fours.
Traditionally, that would be a very strong labor market. That would be something we associate with a boom time, not a recessionary type period. And that's because this labor market, well, America does not need jobs. America needs workers. It's going to keep this labor market very tight. That's very different than what we saw in 2018, the first time that we saw tariffs coming through.
And it's going to make the Fed's job a lot harder because I don't think they're going to see a material weakness in traditional indicators of unemployment over the course of 2025, even as the economy softens. So here's a core question, Francis. Back at Queens University, I mean, you were 14 or whatever, taking your undergraduate there. But Francis, back at Queens University,
Then was a 6% unemployment rate the same as a 6% unemployment rate now? I don't think they're the same. Am I wrong? 100%. And just a little plug here, Queen's University in Canada, we call it the Harvard of the North, just so you know, just caliber of that. I thought Harvard was the Queens of the South.
we'll go with that one too um so that's exactly right the nature of this job market is changing we have the most amount of those over the age of 65 the us has ever seen over one in five americans is over the age of 65 most amount of retirees ever and so economists are scratching their head why are higher rates down but also fire rates down and quit rates down this is a job market that is
to a demographic bust that's occurring in real time. The demographics are traditionally something that you look at when you're five or 10 year forecast, when you're forced to do something that difficult. They're not something we take the here and now. And this is why when I talk about uncertainty, a lot of folks are saying, we're gonna get more certainty on trade in the coming week. But a lot of the customers, a lot of the folks that we talk to in the United States are also paying very close attention to immigration policies that come through and how this government is going to support
or not support what is a very shifting labor dynamic. Now, Federal Reserve is gonna have to talk about this at some point, probably not today, when they're looking at something like a high fours unemployment rate, and that's gonna be enough for them to start cutting. - Well, you just heard their folks bottle it.
Because that's the discussion of the next 18 months. I'm sorry, when I look at the kids having trouble getting jobs on and on and on, this is a new unemployment rate where it's not equivalent to our memory of what that number is. Yeah, I think Tom brings up a good point, which is who is having trouble getting jobs right now. And given in the context of the president's immigration policy, this administration's immigration policy,
How are you looking at the job market, given that we've heard anecdotally challenges from new graduates and those folks looking for jobs versus some emptiness in the pipeline when it comes to folks in the trade, for example?
You got to go sector by sector more than we have in the past. So think about three sectors that have driven a lot of job growth. Healthcare, well, there's a skills matching issue happening there. Government, we know that's going to be declined. That's the one area where you will see shedding of activity.
And then retail and accommodation, that's where traditionally you would see what economists call new entrants or immigrants being more impactful there. So sector by sector stories are going to become incredibly important. But underlying the surface here, a lot of folks will say, well, the labor force participation rate is quite low. It's been falling since 2001. But look at productivity.
prime age workers in the United States, 25 to 54, they have one of the highest labor force participation rates we've ever seen. So the labor market is very tight. This is very different than 2018. It's even different than 2022. It's going to change the dynamic of this recessionary conversation.
We don't have a formal recession in our outlook, although I really begrudge that recession or no recession call. It's still a very problematic outlook for the U.S. And part of that is we think the labor market is actually going to, in old school terms, stay strong. But it's not strong in the traditional ways, Tom. That's the problem. This is a labor market that we're going to have to reassess and measure with different types of instruments than we have historically.
We got to get you on again soon, soon, soon. Francis Donald, thank you so much. I got like eight more questions as well. With RBC Capital Markets, Francis Donald. Trading at Schwab is now powered by Ameritrade. Unlocking the power of think or swim. The award-winning trading platforms loaded with features that let you dive deeper into the market. Visualize your trades in a
We'll be right back.
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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. We start strong, strong, strong. Vishal Kanjooja joins us now from Morgan Stanley, head of Broad Markets Fixed Income. I love the first sentence of your note.
Jobs Day stole the thunder from the Fed. - Completely. - What did we learn in the buoyant Jobs Day that adjusts this meeting this afternoon?
Morning, Tom. Thanks for having me on. Completely stole the thunder. Hot data is not at all anywhere close to the soft data, which we've been talking about, you guys have been talking about very clearly as well. The Fed knows this very clearly. I think today the market is going to be very clearly looking for a repeat from the Fed for their reaction function. They are still focused on growth downsides and they are
willing to take less of a deeper look into the inflation upsides that we are talking about. Synthesize this with Seth Carpenter's team, Ellen Zentner over at Wealth Management, and the others. I guess we got a nominal GDP. It's actually pretty good because of stagflation. But then do you see nominal and real GDP coming out through the year? Exactly. So I think that is where we think that the demand destruction on the back half
And we are talking about quite a bit of uncertainty. We've seen it in the Bayes report. We've seen it from all the earnings that we've seen through the corporations as well. But the persistence of uncertainty, the time period that we are going to sustain here is going to definitely show up with that demand destruction in the back half of the year. So then what does the Fed do?
if it knows demand destruction is coming, given its dual mandate? I think it has two precedents that it has laid out in the past of whether it intervenes or comes in. One, very clearly their dual mandate is at risk and data shows it. They step in. Or the second is that the financial market functionality is breaking down, that they have to intervene. None of that is happening right now. So they need to be patient, look through the data, and they have quite a bit in the toolkit to act. What's in the toolkit to act?
450 basis points. We are still away. - Yeah, but if we're in a stagflationary environment, then what do we do? What do they do? - I think in principle, tariffs are gonna be one-time price increases.
consumers and corporations are going to adjust i know we've already seen that uh supply and demand shock play out in 2022 this is the opposite of that that is happening here he almost said transitory tom but he didn't say transitory you said one time price increases what makes you confident that that will be the case yeah and i i should i should look actually i'm going to change my question i don't think we don't do that in the morning i don't think consumers i don't think consumers understand
how inflation is measured. I think they understand inflation in the context of gas prices going up and then coming back down. They'd understand that it's change in price over a period of time. They think high prices come down. They don't come down.
I think that's what it is. This time, I think the balance sheets, yes, are very, very strong in terms of consumer and corporates. But I think the moment you start to see margin compression in corporates, meaning consumers pushing back on services or small business pushing back on prices,
That's where I think you start to see the hit on labor. That's when you start to see the demand destruction show up. And that's where we have quite high degree of confidence. But we've covered our underweights in credit. We've covered some of our underweights in duration during this time, but we are not long. We still think that spreads could be widening out as that tax inflationary free air could go through in the next two months. I'm sorry. I mean, I go back to Mary Poppins and the famous bank scene with Dick Van Dyke and the tuxedos. We're always to India, but-
You know, I go back to LIBOR OIS. I don't know why we got rid of LIBOR. I thought it was great. Now I got something fancy called SOFR, S-O-F-R. When you look at SOFR swaps, which is what Ira Jersey tells me to look at,
I'm looking at a little bit of deterioration the last five days. Is the short-term market getting out front of the joy and saying at some point this becomes difficult? It does. Absolutely it does. I think we are less focused. I think our conviction level with the amount of information that we are getting at the moment is much lower to call the exact date that these guys can cut, the Fed.
but our conviction level increases as we go out the next 18 months and that's why i think our focal point of duration is still that three to five year mark so what does full faith and credit 10-year yield do out 18 months i think it's lower i think we breached that four percent three point six five percent is my recollection
for the 10-year yield can you get a nicely under four percent nicely under four percent i think we were four to five percent when we wrote our outlooks in november and we thought that it will travel that range and it did almost travel that entire dynamic let's go for bozzy 101 on a dynamic basis if i get price up yield down does that signal a good or bad event for our listeners or viewers that means the fixed income has
served its dual mandate, price total return and negative correlation to risky assets. And it will be poised to deliver. How much of what you're saying depends on the U.S. successfully negotiating trade deals in the next 18 months? Quite a bit of the long end depends on that, the 20 and the 30 year. We need a sustainable, credible, bought into deficit reduction plan. And then that will decide the demand and supply of the 20 and 30 year part of the market as well. I think that is one part of the market that we are
nauseous about to be very honest and staying away from on that part. Coming back to your question on demand destruction, quite a bit depends on the next probably 90 to 100 days, maybe this weekend as well. Does things get funded? We're going to move on now to the airport, the airline catastrophe in America. But does infrastructure get funded? Does Morgan Stanley see business as usual for the issuance of mega paper?
businesses are getting funded very comfortably. Throughout this entire April volatility that we had seen, the markers that we see for liquidity, for funding for corporations and healthy balance sheets were still in the green.
Treasuries were getting issued very clearly. Concessions were building up, but then getting bought into. Yesterday also we had one of them. And then IG Corporate, we exceeded the supply marker, oversubscribed books, and deals went really well. When Tim Cook issues bonds, does he call you? Do you get a phone call from Tim Cook? Definitely our traders are getting the phone call from the dealers. Thank you so much. Rochelle Kenjuta with us with Morgan Stanley today, driving all of their fixed income. Learned a lot there. That was very...
Very informative. 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're going to do the newspaper. I had to shout out Mrs. Keene all over it last night. She said Lisa Mateo nailed it.
by getting Zendaya front and center in the Met Gala. Mrs. Keene agreed with you. Zendaya just was the most elegant of elegant. That's why I wore my full white yesterday. But with the hat and everything, I mean, topped it off. It was very good. Congratulations again to all, to Anna Wintour and all at the Metropolitan Museum of Art. Spectacular event.
in New York City. What do you got this morning? Okay, we've heard a lot of stories about the tough job market out there, right? But the Wall Street Journal has this article saying that high school juniors are getting close to $70,000 a year job offers. And you ask, okay, in what? Well, it's the skilled trades.
It's companies looking to shop class to find new hires because the baby boomers are retiring. So that's the issue. So they're looking to these kids and these kids say they feel like top athletes, like being recruited by pro teams. They feel like rock stars. - It's a huge deal. - It's a huge deal. And the high school you're noticing because they're investing more money into their shop classes. They're teaming up with companies to offer, to come in the classroom and talk with the kids too, offer them part-time work.
credits? I grew up in a house hugely supportive. It was called vocational or something. I can't remember back a million years ago, but Ian Wyatt yesterday with Huntington National Bank Shares was brilliant.
about how the younger cohort, there's no skilled workers. And they're going to really incentivize it quickly. Right. They don't have a choice. Right. They're going to need them. How much are they incentivizing? About 70,000 starting. But you have Consolation Energy, which we all know. They offer high school graduates without four-year degrees as much as six figures starting.
I love this. I mean, I think this is also something that's lost in the conversation about immigration. When you think about the skilled trades and who's coming in and doing these jobs. We haven't had a pipeline here in the US to these careers because so much emphasis has been placed over the past couple generations on college. I think we're starting to have that conversation now.
I love it. That's an amazing point. Next. I didn't even think about that one. Okay, so we've met as Mark Zuckerberg. He's been making the rounds, podcasts, interviews, conferences, and there seems to be a theme when he looks into the future. So he says that most of your friends will be AI. Hey, come on. Okay? Speak for yourself, Mark. Most of your friends will be AI. Most of his friends, maybe. But you'll also have AI therapists and AI business agents. So we're going to be talking to real people less. I just...
- I know he hates this, he hates this. - Okay, I'm gonna be the contrarian here. I've been using Duolingo a lot, which is the language learning app. There's an AI agent in there, Lily, and you can practice conversation with her.
And it makes sense. What language are you doing? Well, I'm doing Spanish with my son. Very cool. And because he's only six, he thinks that Lily's a real person, which is weird to me. Well, that's what the next generation is going to think? I think so. I'm using AI, but the idea that AI is going to replace a business agent? Yes.
Nuts. Next. It can source all this information and it knows you so well. Yeah. Next. Okay. So after 17 years underground, the annual cicada cousin says brood 14, they are ready to emerge. Yes. These are the cicadas. The Boston Globe says they started making their way out of the ground in April from down South. They've started coming out of Massachusetts, Cape Cod, Plymouth County, and
A few fun facts if you didn't know about this specific group of cicadas. They come out in the thousands, right? They come out in the evening after dark. They don't sting or bite, so you don't have to be scared of them. Even though they look a little bit scary, they do. They're not dangerous to plants and trees, and they die about three to four weeks after they come out of the ground. I feel like we hear this story every three or four years. Yes, but those are the annual ones. These are the cousins. Okay.
The brood X that comes after like about 17, 15 to 17 years. So they emerge. So they've been underground like burning. And they're going to be like in Central Park? Eventually, yes. But they're in Massachusetts right now. They went down south. Now they're in Massachusetts. So yeah, they'll start to make, at nighttime, they'll start to like...
out. They summer in New York. Okay. Sounds like. Okay. You've been warned. Wild Kingdom with Lisa Mateo. Ari, look at the videos Ari's got going. Oh no, the cicadas. They're not the cutest looking things. Lisa Mateo, thank you so much for the newspapers as well. 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.
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