Risk Cycles Across Equities, Bonds, and Currencies

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1:47We're supposed to talk to Belsky, who's nailed this bull market with short, terse research notes. And then after that, we talk Vikings football. Let's flip it for the 4-0 Vikings. But, Grant, would he recognize his team with 12.8 points defense per game first in the NFL? He would, because if you think about the purple people eaters, Gary Larson, Alan Page, the guys that ran up front. And think about this. He had Chuck Foreman in the back field. Fran Tarkenden with the short passes. But the defense is amazing. I mean, we're not going to win a lot more games scoring six touchdowns all year long and no offense.

2:32I mean, if you look at the – for me as a non-NFL type, my favorite division is a division – it's a Dick Butkus division. It's like really ugly. The black and blue, the old black and blue. The Vikings in the modern game compete, say, with Seattle in a 52-42 football game. If they get the offense going, remember Kevin O 'Connell loves to be able to push the ball downfield. The problem is they just can't get the ball out of the quarterback's hand. So they can if they get their offense going. They need some time. One more question. New Orleans this weekend. I'll be watching. Brian Belsky, you gave a quarterback to the New York football giants, all of Bloomberg 11-3-0.

3:10want your brief on this new quarterback for the Giants who you discarded off the tragedy. J.J. McCarthy? So I'm going to take two steps back and remind everybody that I was born and raised in Minnesota. We have PTSD with respect to every single sport. This is classic Minnesota sports. We're going to trade this guy. He's going to figure it out. He's going to have the gold jacket. He's going to be in the Hall of Fame. There's the bell skewer line. Okay, let's segue over to Humulus and your new wonderful firm here. You nailed this bull market. Did you do it because you were PTSD? No. So we get accused a lot, Tom, of being Pollyanna and not looking at the facts.

3:56They don't read your research. They don't do the research. I mean, we turn bullish on this market. What I would call the current market setup in November of 2008, when I was at Merrill Lynch, I wrote my very first bullish report. Then in 2009 at Oppenheimer in 2010, we segued the call to say 25-year secular bull market. Nobody believed us. They still don't believe us. And within this big secular bull, you can have cyclical bulls, cyclical bears. We'll have another cyclical bear at some point, but we have at least 8 to 10 years left of this run. It's going to be longer than 25 years. So what's going to be the driving force with this run?

4:30Let me guess. Is it AI? Can we have another new idea? I'm going to say something controversial. I don't think the top of this bull market in the 2030s is going to have anything to do with AI. It's going to have something to do with probably a new emerging market and a commodity super cycle that nobody's talking about. And so typically and historically, you need to have so much money into the markets and so much deal flow and all this other assets chasing it. We're not doing that in AI, Alexis. Everyone's scared of AI. The thing is going to kill us, or there's not a lot of IPOs, there's not a lot of secondaries, there's not a lot of equity issuances.

5:07You need to see that to have a mass affluence with respect to chasing these AI stocks. It's not going to be AI. So in the current cycle, meaning the current cyclical bull, AI is clearly driving it. But the end of this big cycle, in 10 years or so, is not going to be AI. Can you tell us what it might be? You said a super cycle, commodity super cycle? driven by a new emerging market that no one knows what it's going to be. Could be Minot, North Dakota. Could be Wilmer, Minnesota, where I grew up. I don't know where it's going to be, but it's going to be some emerging market that no one has identified yet.

5:39It always happens this way. I've seen the movie before, and no one's talking about that. If everyone's looking at the color blue, and everyone's convinced it's blue, it's not blue. You know what I'm saying? Brian Belsky with us here this morning on the Minnesota Vikings. It's his Minnesota Vikings and also this crazy bull market. I am speaking to the Board of Governors of the CFA Institute today, and I will announce my essay of the year. I'm not going to do it here. But the basic theme of the essay is looking at price-based ratios is dangerous. You have to go deeper like Belsky does and look at the fundamentals of the three major accounting statements.

6:23Do you see excess there? we had a guest on moments ago that said with this earning growth, the market's not overpriced. Do you agree? It isn't. And we just published a piece last week talking about how higher interest rates actually can bode very well for stocks. Higher interest rates is about in a reaction to the strong earnings growth. And no other time in my 36 and a half year career have I've ever seen the amount of upward earnings revisions on an annual basis for the second quarter. And now Now we've been matching it for the third quarter. What does that mean? When analysts come in and revise their numbers higher, I've never seen that type of number.

6:58That's number one. Number two, what does the Fed raise rates for? Fed raises rates because they're worried about inflation. Let's talk about the 1970s or maybe 2022. But growth is strong. And I think that's why rates are going up. Number three, this is an economy that nobody saw coming. And we still think that there's a tremendous amount of skepticism with respect to that. So we do think that this market can go higher, driven by fundamentals. Lastly, I'll say this on the PEs and stuff like that. What people are missing is companies have massive amounts of cash flow, debt to equity is down. If debt to equity is down across the board, they can continue to grow their company through the means that they need to, and the earnings can continue to go up.

7:39Maybe because they're sitting on so much cash still? Yes. And think about, like, what about NVIDIA? People don't talk about NVIDIA buying back all this stock. Think about all the stock that's being bought back. No one talks about that. We all just talk about data centers and worried about that and how we're going to get through the midterm election. NVIDIA now is about to be the first$6 trillion company in the world. Is there more room to run for a stock like that? Sure there is, because I think there's a lot more room for the market to run. I mean, again, people are still, I believe that there's still a lot of cash on an institutional basis.

8:13Private Wealth has done a wonderful job with this market in terms of diversifying it out. It has typically and historically been another one of those years where the majority of institutions are underperforming. My great theme here is we have, after multiple stimuli, a nominal GDP of a banana republic. What's the path you see of nominal GDP, the animal spirit, the boom economy we have, coming down that is constructive for long-term investors? Well, I think if we don't have some sort of a mass correction in GDP, if we don't cut it in half, if we cut it into a third and we have this kind of path the way that the markets and earnings are going, what you're going to be seeing and hearing about, ladies and gentlemen, is that you're going to hear now from all the negative Nellies and all the economists and all the quants and all the bears that here comes the rate of change in terms of GDP and here comes the rate of change in earnings growth.

9:07So positive growth in GDP and positive earnings growth is still positive growth, period. It's when we start to see a massive deceleration with respect to overall orders, and we start to see from an operating performance, which is part of the financial statement, return on equity, return on invested capital beginning to turn negative. Is this still a pick-and-choose market, though? Do you have to carefully decide and intentionally decide where you're putting the money? Very much so. So we have the very good fortune of running nine different portfolios, five in the U.S. in our U.S. focused portfolio, which is benchmarked to the S &P 500 is outperforming the market.

9:41We don't own Meta and we don't own Micron. And the reason is, is that we pick stocks and we're more concentrated in certain areas. And that's how you're going to not only deliver alpha, but deliver differentiation relative to our competitors. One final question. There's an AI frenzy out there. Is it a constructive investment? Do you see a workout, say, with token prices coming down when you see the hopes and prayers, the glide paths of those hopes and prayers? Does it get to a successful outcome? I think it does if you have some common sense that you're not all your eggs in one basket. Think about AI, how it works within the construct of the entire market, the entire economy, not just tech stocks, not just software, not just hardware, what it means to health care, what it means to financials, and then have representation with respect to your portfolio accordingly.

10:30This has been wonderful. Thank you for the Vikings brief. I mean, seriously, New Orleans. I would take New Orleans. I mean, I'll listen to you. I would. I mean, come on. They're going to break my heart. Just like my twins, Tom, 26 consecutive years of season tickets. They don't do anything for me. It's called doing a Toronto Maple. Brian Belsky, thank you so much. Greatly appreciate it. Stay with us. More from Bloomberg Surveillance coming up after this. If you invest or lead a business, one-sided views aren't enough. Join me, Brad Rogoff, and my team at Barclays Research as we debate what's driving markets on the Flipside podcast.

11:07Find the Flipside wherever you get your podcasts. With ChatGPT, you can do more than get answers. You can get things done. When you're running a business and looking to expand, you need a clear view of the landscape before making any decisions. ChatGPT can help you prepare. Connect your Google Drive, point to relevant files and reports, and ask chat to research competitors, industry forecasts, and market signals. It can turn the findings into a strategic deck in your team's template that you can review before presenting to your leadership team. Growing a business is ambitious, and ChatGPT can help you do it with confidence.

11:46Get started at chatgpt.com.

11:53you'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 i've really been looking forward to this i was on term and joined the south vice chair global macro at deutsche bank and all i gotta do and i'm sorry i was an unlike you i can't look at le monde in french i have to look at le monde in english what students are saying during high school blockades. I'm worried about my future and for all students in France. Right now, and we had Lionel Laurent from Paris yesterday, who was brilliant.

12:30Do you see a contagion to Deutsche Bank in Europe from the troubles of France? Tom, always a pleasure to see you. This French storm was brewing for a while. It got a lot messy last week because finally it started spreading into European credit. to germany and beyond no i do not see yet uh even in my smaller big macro dinners in u.s people seem to be more focused on oates than u.s treasuries but despite that right at the end everybody maybe in acute way expecting that tpi that intervention to come if things get worse how do they clear the problem don't tell me it's the election and million months out they have to clear this some way.

13:17And Lionel Laurent yesterday said he's unsure how that process happens. What does Deutsche Bank say? I'm with you. It's not that easy to clear the process. Now Le Pen is acting like the responsible one. The RN budget today seemed more liberal, but I don't think it's going away. She's going to try to soothe the markets, dance with the 1%, if you will. But if she does enact that budget, protests will continue. So the ache will be with us, but at the same time, ECB won't let it become too systemic. This is worldwide. Last night in Quebec, they had their elections, and it was a truly stunning result.

14:02It's not like early Trudeau, first Trudeau, Justin Trudeau, Katy Perry's father-in-law. Okay, I got that right. But it's not like early Trudeau where there's a true separatist idea but it was a shock election of populism, Alexis, last night in Montreal and Quebec. Yeah, interesting vote. And they're saying that, you know, nothing would happen while Trump is in office, I think for obvious reasons with the tariffs and what have you. But I want to get back to France for a moment and French debt. Does it still look more like a repricing of country-specific fiscal risk than contagion? I guess what I'm asking is this more a France problem than anything else?

14:41I don't think it's over yet. I think, if anything, again, last night, quite big players in discussing trying to save the world. People almost looked at France as when will the opportunity come? When can we time ECB, etc., etc.? I think that's a bit cute way of looking at it. We may have more days like last Thursday, Friday. What do I mean by that? It may spread into European credit. It may spread into European banks. Because people do hear Tom. I mean, you cannot just get rid of this by putting a plaster on top of it. Spanish early elections on November 29. Somebody has to pay for all this. Somebody has to be accountable.

15:18And people also are revolting for a right reason, because throughout the world, talking about being global, middle income, the poor is just being erased, and people are revolting. I'm going to make some news this morning. We can do this with Deutsche Bank research. George Cervelo, so I know you're not speaking terms with. I wasn't from last night. Is his solution that weak euro gets it done, that currency is the leakage, the valve, if you will, from all this fiscal irresponsibility, and we get 0.99 euro? I hear you. If anything, my George, and again, he was with me on this dinner last night, his official forecast is still 1.17, but I think that's under strain a little bit.

15:56On days like this, when euro tries to squeeze, I think people will use that as a selling euro opportunity. Most people do see it going to 1.09 before 1.15. And even if this TPI happens right thing for europe etc right first europe squeezes if it happens tomorrow but then i think people take that as a selling opportunity so what i'm trying to say is at the moment the wind is with short euro now bring it over to u.s equities because alexis is looking at it like talk america you have the advantage of binkham chata glass half full an optimist at deutsche bank and boy has he nailed it oh yeah on a call on standard of course 500 let's start with a why Why are equities in America so exceptional versus the madness that's out there?

16:41You got a lot, Tom, our biggest advertiser. Yes, he's been right for three years in a row now, 22 being an exception. And he's, again, being even conservative at 8 ,000. Let me break some news to you. I wouldn't be surprised if he upgrades that 8 ,000 year-end forecast soon. Earnings, earnings, earnings. Again, breaking news. bottom up, I think market expects more or less 27 % in the next earning season to come. Binky dropped the ball with saying 34%. Eyes popped up like this, but the guy has nailed it before. If he's anywhere right about those earning process, beyond tech, by the way, not just tech, not just seven, eight names, then yeah, whether you like the term or not, US exceptionalism continues.

17:20Red hat over blue hat. US continues to do better than Europe at least. Now, emerging markets are a different matter. Let me sneak my terroir emerging markets as well. You see what Brazil is doing, Tom. Despite two great years, emerging markets bus is quite empty. People love the Flavio result from Sunday night. So I think that has legs to go, Latin America. So do you stick with EM? Do you take more risk with EM? I do. A bit EM generalization is the world is too complex for now. Asia, again, even Asia, generalizing Asia is a bit too much. But I think the consensus trade that will work, for example, Long Brazil, short India, software, et cetera, et cetera.

18:02Overall, long Latam, short Asia. Sometimes consensus is right. I think the people believe in that trade and it will continue to deliver. Is the US so exceptional because of AI? Is that really what it boils down to? And what do you do with the AI trade right now?

18:20Tom's Boston baseball analogy, I'm not sure we're at eighth or ninth inning. I think that bubble first needs to get a bit higher. People will still buy their 7 % Google bond. So I think we have more room to run. Is it just AI? I'm not sure, but a big part of it is AI. And at the moment, America has put all its chips on that. And the big, big, big bet, big races with China, the verdict is also out on who's winning. But at the moment, America is certainly not losing. So that's why, gun to my head, I think we see 8 ,200 before 7 ,400. I want to talk about, you know, this is your history at Harvard of political economy and political history as well.

19:05Is a general statement, do investors reward a more conservative government? In Latin America, we have a whole string of more conservative wins. Perhaps we'll see that. We believe so in Brazil as well. cook political report aaron over there comes out and basically replicates beautifully what terry haynes has talked about yeah the democrats will win but it may not be that big a win that's market friendly right if we get split in the congress you mean gridlock and the idea that maybe the republicans aren't as beleaguered as i'm with so many if we do my tom if we do yes but But at the moment, most think tanks, most polls are leaning towards the president losing both houses.

19:54So then even Binky hedges a bit because 21 out of 23 out of the midterms, we rallied. What is one of the one that was an exception? Trump 1.0 2018. You remember what happened then? He really took on Powell. So, you know, checks and balances. how do you check dear Mr. President Trump? If there is a big loss on that midterms, that's one risk that even Binky sees. If we get your splits, I think market would love it. Treasury Secretary Scott Besson out with some comments. And it looks like Wall Street is, in essence, ignoring them. But he basically said the government would start bending that curve, his words, of U.S.

20:38government borrowing with a mix of economic growth and spending restraints. Is this really just talk from the White House? And is it just nothing they can do or say at this moment is going to move this market? No, no, no, not necessarily, Alexis. I'm coming from EM. I do have some belief in financial repression as well. So this whole fiscal dominance versus financial repression fight. He may have, I mean, let's see how the House analogy goes. But he may have a strong hand in Japan. He may have a strong hand on the long end of the U.S. So I would still watch out the QRA, the issuance in November.

21:09I think he will do a Yellen, even though he kept criticizing Yellen and issue less on the long end. But he needed a bit more help from Walsh and the Hawks. At the end of the day, if Walsh and the Hawks continue to lead the rhetoric, then it's very hard for him to control the long end by just six billion buybacks on his own. He needed, whether they admit it or not, he needed a bit more team play from Fed and the Hawks. They didn't necessarily get that. Ozan, thank you so much. Joe's on term of the trip. Always a pleasure. Dipping into the research capabilities of his Deutsche Bank, where he is vice chair.

21:44Stay with us. More from Bloomberg Surveillance coming up after this.

21:55You'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 were talking about Tiffany Wilding earlier here in her wonderful economics at the Pacific Investment Management Company, PIMCO, which we all know, in Newport Beach. Tiffany, are you using conventional economics to guess forward where we're going to be the first quarter, second quarter of 2027? Yeah, well, you know, when we look out, we think we're pretty constructive on the growth outlook.

22:37We just released our essay on the outlook this morning. We think growth looks pretty resilient, inflation coming down. And ultimately, the central banks will deliver less than what's priced into markets. But the interesting thing about today and the paradox that we see is just that the buffers that have contributed to this resilience, AI investment boom being the biggest one, they also create other risks. And we think as a result of that, investors should want to participate in that resilience, but they also should hedge some of that risk and fragility under the surface. You say that we should be selective within credit as part of this essay.

23:23What do you like in credit right now? Well, certainly we are seeing one of the biggest investment booms since the 90s associated with the AI infrastructure build out. And so as a result, we certainly participating in some of the investment opportunities associated with that build out. But because there is so much investment that needs to happen, there's so much financing that needs to happen. You don't have to race to pick up everything that you see. There's going to be opportunities that continue, you know, and the opportunities that we like are, you know, from businesses that have intrinsic value outside of of A.I.

24:04and just the models themselves. And because we think those businesses are going to be the ones that are the most resilient throughout this investment cycle. Tiffany, a moment ago, you said there were three buffers to support the resilience we've been seeing in equities. We know one of them is the A.I. boom. But what are the other two? Yeah, so we've also seen households, and this is not only in the United States, but this is elsewhere, households have been incredibly resilient despite a pretty big real income shock. After the pandemic, household balance sheets were better than where they were going into it, so that has been helpful.

24:44And we've had this incredible wealth effect from equity gains over the last several years. But in this ability of households to draw on savings to smooth through the energy price shock, again, is very dependent on the financial conditions, pretty easy and stable. The A.I. sort of wealth effects continuing to support the equity market. So that's why we see all of this is is more connected now. And if you start to see sputtering or weakness in either the AI investment story, the equity wealth story, that can create a very different macro environment than what we're in today. You know, I see the price of given bond portfolios, Tiffany, and I understand this is outside your way.

25:31Alexis, let's be clear. Jerome Schneider has never lost money. Okay. It's a true. This is known. But I looked, Tiffany, it yielded up price down. And I guess there's a 4%, 6%, 8 % hit to a lot of portfolios this year. Does your team at PIMCO, with your enthusiasm about a benign, robust economy, just think that price will recover? Well, the good news is, in your bond portfolio right now, price doesn't have to recover. So the fact that yields have reset not only this year, but in the last several years has just created an incredible opportunity within the bond market. You're basically getting paid to diversify.

26:15So although you want to participate in the resilience, the bond market is giving you yield, elevated yield levels to hedge against that fragility. So you don't need prices to recover in order to have pretty good income and returns within your bond portfolio. So what does that do from where you sit as an economist, but with your quantitative background at Stern, what does that do to the textbook 6040 portfolio? Because we're getting a lot of people saying, I mean, Jim Bianco saying buy bonds. Right. For the first time in eight years. I mean, are you guys uber bulls on bonds like Jim Bianco? Yeah, I mean, we would agree that the bond market is offering investors an incredible opportunity right now.

26:58Yeah, and that's absolutely right. PIMCO has also argued that the 60-40 bond portfolio, equity bond portfolio, you know, may be, you know, something of a little bit of the past. Given the yields that you can get in the bond market right now and tilting towards the bond portion of your portfolio makes a lot of sense. You know, you can build a lot of resilience despite the uncertain economic outlook by just focusing on the bond market here. Across America to her, Newport Beach, to Tiffany Wilding with us. We'll continue with Ms. Wilding with PIMCO. Can't say enough about her work. Stephen Englinder in this hour, I should say, for Global Wall Street will be with us on foreign exchange and the signals from a resilient U.S.

27:44dollar. Alexis Christophorus with Tiffany Wilding. I'm intrigued by your talk of bonds, and I just want to dig a little deeper. For people who want to take advantage of that opportunity, drill down municipal bonds, corporate bonds. Where within bonds would you be putting more money to work? Yeah, I mean, so we like a highly diversified portfolio. And the argument that we would make is just that you don't have to reach for a lot of risk here. You can build an incredibly resilient portfolio without giving up a lot of yield. And you don't have to focus just in the United States either. So when we look around the world, it's not just the U.S.

28:21that you have higher yields. We can build portfolios that are six to seven percent yielding that that are highly diversified globally. you know, that that looks like an incredible opportunity. You know, that kind of returns historically have been, you know, average equity like returns. So when you can do that with your bond portfolio, you can do it in a diversified way. You know, that is what that's what we argue that investors should be focused on. You know, many investors as a result of just the outperformance of the equity market over the last number of years, passive investors, you know, are finding themselves over allocated.

29:02And this is a good time to start to rebalance, start to build that balance within your portfolio, increase the resiliency, because you can lock in these higher yields here. Tiffany Milding, thanks so much with PIMCO this morning. Greatly appreciate that. Stay with us. More from Bloomberg Surveillance coming up after this. with chat gpt you can do more than get answers you can get things done when you're running a business and looking to expand you need a clear view of the landscape before making any decisions chat gpt can help you prepare connect your google drive point to relevant files and reports and ask chat to research competitors industry forecasts and market signals it can turn the findings into a strategic deck in your team's template that you can review before presenting to your leadership team.

29:56Growing a business is ambitious, and ChatGPT can help you do it with confidence. Get started at ChatGPT.com. The world of business is constantly evolving. Every day, new challenges, new opportunities, new ways of working. Comcast Business keeps you totally in step with secure AI-backed networking built to power the way modern business gets things done today in more than 100 countries around the world. That's some serious muscle. And get this, Comcast business powers over 90 % of the Fortune 500 and millions of small businesses. Behind it all, network engineers, cybersecurity specialists, support teams, thousands of experts answering your call at 2 a.m.

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31:01You'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. This is our interview of the day for Global Wall Street. Stephen Englander is brilliant academics out of Yale University. He was absolutely definitive in Manhattan and now holds court at the Standard Charter Bank as well on cross rates on the dollar, but in the zoo that we're living so much more. Stephen, I look at where we are and I wonder if we see movements of euro under 112, yen 158, Are these movements where you say we're nearing breakpoints or are things operating smoothly within the dynamics of foreign exchange?

31:55You know, in the past, everything looks smooth and in real time, everything is chaotic. You know, and I think that the last week is mostly a euro story. If you take a look at how it's performed relative to other currencies, it's really very weak. and it's not a dollar move, it's a Euro move. And we see the concerns on French debt and French elections that are coming up and so on. Now, it's recovered a bit today, but I think the market is still focused on the politics here and seeing that the middle is shrinking and that's the issue for the Euro. The yen, actually, we think it's a different story.

32:40that the, you know, normally, say, dollar going up, you know, U.S. rates going up, yen should be under pressure. It's held in pretty well. We're beginning to be a little bit more optimistic that maybe we've seen the top of dollar-yen and certainly the top of euro-yen. So you're suggesting yen weakness may be ebbing away and finally we get strong yen? And if we get that, I mean, with the rate structure in Japan, which is unique this morning, all the money flows back to Japan, doesn't it? That could be part of it. That would be part of the story. And for the first time in a couple of generations, in some ways, yen yields, certainly at the long end, are kind of attractive.

33:24So that's a possibility that we're entertaining. And it's kind of a very recent possibility. It looks like things are changing. And we're kind of we were much more bearish on the end a few months ago. So, Stephen, what does all this mean for the U.S. dollar and the rally that we've been seeing lately? And I'm just wondering if there is a peak for Treasury yields at where we're at. I mean, we have the 10 year today at around five point two nine percent, the 30 year at five point six six. If there is a definitive peak for Treasury yields, does the floor fall out from under a dollar rally? um not necessarily because i think treasury yields are kind of attractive and the the other part of the dollar rally is what's happening in equities what's reflecting the strength of the u.s economy so um yes if treasury yields peak here which we think they'll go higher but if they did peak here um you know maybe the fixed income slows would sort of slow down a bit but you look at how the equity market has reacted to, you know, sort of a little bit of good news on PCE, a little bit of, you know, softer labor markets, and we're back hitting record highs.

34:43It would be the equity capital flow, the private equity capital flow that we would support the dollar. I'll just make a comment. We're all like kids in a sandbox. Like, you know, the dollar goes up half a percent every day. We expect it to go up forever. I mean, that's not the way it works. So a pause is very reasonable, but it doesn't mean it's the end of the rally. Stephen Englund are with us today without question, our global Wall Street conversation of the day with the Standard Charter Bank. Stephen, at Yale University, you looked at the holistic view of finance. We have Secretary Besant talking about he's the house.

35:24that has been crushed over the arc of two weeks, three weeks, whatever. Discuss the secretary's certitude that he is the house, that the government, the treasuries in charge. Well, it might yet be true. And we'll find out soon enough. You know, one comment I'd make is, you know, there's no point to saying you're the house if you're not the house, because everybody will know it fast enough. So he may have some insight into shifting BOJ policy. We'll see over time. I think that they did sound somewhat hawkish at the last meeting. It's possible that he, again, it's possible that he knows something.

36:14But we do see sort of the possibility that we're, In the sense that the private sector outflows, which have been very yield driven in the case of Japan, that those might begin to slow down, which in many ways is more important than what the policy is. Is there a bet you can make here? I don't mean like the specific morning bet of the Standard Charter Bank or late afternoon bet on the Pacific Rim. But are things so distorted, Dr. Englinder, that you say this is a point of entry in a given major pair? You know, it's possible. Look, Europe looks pretty weak, notwithstanding the euro rallied half a percent today, but it's 112.65.

36:58Nobody expected it to be here ever, you know, six months ago. you know the UK has its own economic and political problems Swiss has the lowest yields you know in the planet right now you know there's a lot of reasons say to sort of say look maybe if the yen is at the end of its decline you know European currencies are looking vulnerable you know it's not the end of France's political issues it's just you know people got tired of selling and but they'll come back so i i think that that sort of you know contemplating the possibility that maybe this you know you know sort of this move in in europe against the yen european currencies against the yen which has been so so dramatic over a period of years you know even if it's reversed a quarter um that would be a massive move so i just want to take a macro look at the economy with the midterms on the horizon.

37:58Is growth the answer here, strong productivity-led growth? Is that going to help our deficit problem? Well, you know, strong productivity growth is great for a lot of reasons. And it will help our deficit problem, but not nearly as much as it did, say, in the late 90s and not nearly as much as we had thought. I mean, my colleague Dan Pan and I, did some analysis on this. The problem is that we collect tax revenues from personal income, from wages, salaries, social security deductions, all sorts of things like that. Corporate earnings and capital gains do not get taxed very much. And so far, the growth is concentrated in corporate earnings, profits, which is great because it leads to further investment and, you know, capital gains.

38:53And we're going, you know, the problem is that we're not going to see the revenues from that. We have to see stronger real wages and stronger employment growth before that becomes a deficit saver. And that's not on the horizon yet. Stephen Englinder, thank you so much for the time under some duress. Greatly appreciate it with the Standard Charter Bank today. 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.

39:29You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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