Risk Cycles Across Equities, Bonds, and Currencies

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0:27 Because we're going to flip it on its head right now. We're supposed to talk to Belsky, who's nailed this bull market with short, terse research notes. And then after that, we talk, you know, 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.

0:49 In the NFL?

0:50 He would, because if you think about the Purple People leaders, Gary Larson, Alan Page— The guys that ran up front.

0:59 And think about this.

1:00 You had Chuck Foreman in the back field. Fran Tarkin didn't 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.

1:13 I 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.

1:23 It's like really ugly.

1:23 The black and blue, the old black and blue.

1:25 Can the Vikings in the modern game compete, say, with Seattle in a 52 to 42 football game?

1:32 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.

1:44 One more question. New Orleans this weekend, I'll be watching.

1:47 Brian Belsky, you gave a quarterback to the New York football Giants, all of Bloomberg 11-3-0. What's your brief on this new quarterback for the Giants who you discarded off the treasury?

1:59 J.J.

1:59 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.

2:16 As a Giants fan, I hope he figures it out.

2:18 There's the Belsky.

2:18 We're like, okay, let's take you over here to take.

2:21 You and listen to your new wonderful firm here. You nailed this bull market. Did you do it because you were PTSD?

2:30 No. No. No.

2:33 So we get accused a lot, Tom, of being Pollyanna and not looking at the facts.

2:37 They don't read your research. They don't do the research. I mean, we turn bullish on this market.

2:43 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 and Ten. 2010, we segued the call to say 25-year secular bull market.

2:57 Nobody believed us. They still don't believe us.

2:59 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 eight to 10 years left of this run. It's going to be longer than 25 years.

3:09 So what's going to be the driving force with this run? Let me guess. Is it AI? Can we have another new idea?

3:15 I'm going to say something controversial.

3:17 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.

3:42 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. You need to see that to have a mass affluence with respect to chasing these AI stocks.

3:54 It's not going to be AI.

3:55 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.

4:05 Can you tell us what it might be? You said a commodity super cycle?

4:09 Commodity super cycle driven by a new emerging market that no one knows what it's going to be.

4:13 Could be Minot, North Dakota. Could be Wilmer, Minnesota, where I grew up.

4:16 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. It 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.

4:28 Right. And everyone's convinced it's blue. It's not blue. You know what I'm saying?

4:33 Brian Belsky with us here this morning on the Minnesota Vikings, 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.

4:48 I'm not going to do it here.

4:49 But the basic theme of the essay is looking at price-based ratios and is dangerous. You have to go deeper like Belsky does and look at the fundamentals of the three major accounting statements. Do you see excess there? We had a guest on moments ago that said with this earning growth, the market's not overpriced.

5:12 Do you agree?

5:13 It isn't.

5:14 And we just published a piece last week talking about how higher interest rates actually can.

5:18 Bode very well for stocks.

5:19 Why?

5:20 Because it's about.

5:21 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 ever seen.

5:29 the.

5:29 Amount of upward earnings revisions on an annual basis for the second quarter, and now we've been matching it for the third quarter.

5:35 What does that mean? When analysts come in and revise their numbers higher, I've never seen that type of number.

5:40 That'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

6:20 earnings can continue to go up.

6:21 Maybe because they're sitting on so much cash still?

6:23 Yeah.

6:23 Yes.

6:24 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.

6:37 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?

6:45 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 a on an institutional basis. Private 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.

7:05 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.

7:24 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.

7:49 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.

8:07 Is this still a.

8:08 Pick and choose market, though? Do you have to carefully decide and intentionally decide where you're putting the money?

8:14 Very much so.

8:15 So we have the very good fortune of running nine different portfolios, five in the U.S. And our U.S.-focused portfolio, which is benchmarked to the S & P 500, is.

8:22 Outperforming the market. We don't own Meta and we don't own Micron.

8:25 And the reason 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.

8:35 One final question. There's an AI frenzy out there. Is it a constructive investment or 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?

8:53 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 healthcare, what it means to financials, and then have representation with respect to your portfolio accordingly.

9:11 This has been wonderful. Thank you for the Vikings brief. I mean, seriously, New Orleans.

9:15 I would take New Orleans. I mean, you know, listen to you.

9:19 I would.

9:19 I mean, I just, come on. They're going to break my heart.

9:21 Just like my twins, Tom, 26 consecutive years of season tickets.

9:25 They don't do anything for me.

9:26 It's called doing a Toronto Maple Leafs. Brian Belsky, thank you so much. Greatly appreciate it.

9:32 Stay with us.

9:32 More from Bloomberg Surveillance coming up after this.

9:43 You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m.

9:49 Eastern.

9:49 Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube.

9:55 I've really been looking forward to this.

9:57 I was on tarman joins us now vice chair global macro at deutsche bank and all i got to 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. Do you see a contagion to Deutsche Bank in Europe from the troubles of France?

10:26 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. Even in my smaller, big macro dinners in U.S., people seem to be more focused on OATs than U.S.

10:51 Treasuries.

10:52 But despite that, at the end, everybody, maybe in a cute way, expecting that TPI, that intervention to come if things get worse.

10:59 How do they clear the problem? Don't tell me it's the election a million months out. They have to clear this some way. And Lionel Laurent yesterday said he's unsure how that process happens.

11:11 What does Deutsche Bank say?

11:13 I'm with you. It's not that easy to clear the process. Now, Le Pen is acting like the responsible one. The Iran budget today seemed more liberal.

11:24 But I don't think it's going away.

11:26 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.

11:44 This is worldwide.

11:45 Last night in Quebec, they had their elections and it was a truly stunning result. It's not like early Trudeau. first Trudeau, Justin Trudeau, Katy Perry's father-in-law. Okay, I got that right.

11:59 But it's not like early Trudeau where there's a true separatist.

12:03 Idea, but it was a shock election of populism, Alexis, last night in Montreal and Quebec.

12:10 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, is this more a France problem than anything else?

12:31 I 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.

12:45 etc.

12:46 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.

13:06 Somebody has to be accountable. And people also are revolting for a right reason. Because throughout the world, we're talking about being global. Middle income, the poor is just being... Erase them. I got to make.

13:18 Some news this morning. We can do this with Deutsche Bank Research. George Cervelo, who I know you're not speaking terms with.

13:24 I was with him last night.

13:25 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?

13:37 I hear you.

13:38 If anything, my George, and again, he was with me on this dinner last night. His official forecast still 117, but I think that's under strain a little bit. On 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 109 before 115. And even if this TPI happens, right thing for Europe, etc., 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.

14:09 Now, bring it over to U.S.

14:10 Equities because Alexis is looking at it like talk America. You have the advantage of Binkrum Chata, glass half full, an optimist at Deutsche Bank. And boy, has he nailed it on a call on Standard & Poor's 500.

14:23 Let's start with a why. Why are equities in America.

14:27 So exceptional versus the madness that's out there.

14:30 You got to love 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 percent in the next earning season to come right binky dropped the ball with saying 34 percent ice popped up like this But the guy has nailed it before if he's anywhere right about those earning process beyond take by the way Not just take not just seven eight names then yeah, whether you like the term or not us exceptionalism continues red at over

15:10 blue hat and U.S. 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.

15:33 So do you stick with EM? Do you take more risk with EM?

15:38 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. Overall, long Latam, short Asia, sometimes consensus is right. I think the people believe in that trade and it will continue to deliver.

15:59 Is the U.S. so exceptional because of AI? Is that really what it boils down to? And what do you do with the AI trade right now?

16:08 Tom'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.

16:30 Literally.

16:31 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, gone to my head, I think we see 8,200 before 7,400. I want to.

16:48 Talk about, you know, this is your history at Harvard of political economy and political history as well. Is a general statement, do investors reward a more conservative government?

17:02 In Latin America, we.

17:03 Have a whole string of 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?

17:26 If we get split in the Congress, you mean?

17:28 Gridlock and the idea that maybe the Republicans aren't as beleaguered as so many are predicting?

17:34 If we do, my Tom, if we do, yes. But at the moment, most think tanks, most polls are, you know, leaning towards the president losing both houses. So 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?

18:08 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.

18:17 Treasury Secretary Scott Besson out with some comments. And it looks like Wall Street is split. in essence, ignoring them. But he basically said the government would start bending that curve, his words, of U.S. government 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.

18:38 No, no, no, not necessarily. 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 issues in November. I 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 6 billion buybacks on his own. He needed,

19:17 whether they admit it or not, he needed a bit more team play from Fed and the Hawks. They didn't necessarily get that.

19:24 Ozan, thank you so much.

19:24 Ozan Tarman, always a pleasure for dipping into the research capabilities of his Deutsche Bank, where he is vice chair.

19:34 Stay with us.

19:35 More from Bloomberg Surveillance coming up after this.

19:45 You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoon. from 7 to 10 a.m.

19:51 Eastern.

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19:57 We were talking about Tiffany Wilding earlier here in her wonderful economics at the Pacific Investment Management Company, PIMCO, which we all know.

20:07 In Newport Beach.

20:08 Tiffany, are you using conventional economics to guess forward where we're going to be the first quarter, second quarter of 2027?

20:22 Yeah, well, you know, when we look out, we think we're pretty constructive on the growth outlook. We 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.

21:07 You say that we should be selective within credit as part of this essay. What do you like in credit right now?

21:17 Well, you know, certainly we are seeing one of the biggest investment booms since the 90s associated with the AI infrastructure build out. You know, 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. And the opportunities that we like are from businesses that have intrinsic value outside of AI and just the models themselves. And because we think those businesses are going to be the ones that are the most resilient

22:00 throughout this investment cycle.

22:02 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 AI boom, but what are the other two?

22:14 Yeah.

22:15 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. And 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 AI sort of wealth effects continuing to support the equity market. So that's why, you know, we see all of this is more connected now. And

23:02 if you see, start to see sputtering or weakness, you know, in either the AI investment story, the equity wealth story, you know, that can create a very different macro environment than what we're in today.

23:14 You know, I see the price of given bond portfolios, Tiffany, and I understand this is outside your, I mean, Alexis, 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, priced 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? Sure.

23:50 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. So 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.

24:20 So what does that.

24:21 Do from where you sit as an economist, but with your quantitative background at Stern, what does that do to the textbook 60-40 portfolio? Because we're getting a lot of people saying, I mean, Jim Bianco saying buy bonds for the first time in eight years. I mean, are you guys uber bulls on bonds like Jim Bianco?

24:42 Yeah, I mean, we would agree that the bond market is offering investors an incredible opportunity right now.

24:48 Yeah, and that's absolutely right.

24:49 PIMCO has also argued that the 60-40 bond portfolio, equity bond portfolio, may be 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. Right. You know, you can build a lot of resilience despite the uncertain economic outlook by just focusing on on on the bond market here.

25:16 Across America to her Newport Beach to Tiffany Wilding with us. We'll continue with Miss Wilding with PIMCO. Can't say enough about her work. Stephen Englander in this aisle for in this hour, I should say, for Global Wall Street will be with us on foreign exchange and the signals.

25:32 From a resilient U.S. dollar. Alexis Christophorus and Tiffany Wilder.

25:37 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?

25:51 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 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. that you have higher yields. We can build portfolios, you know, that are 6 to 7 percent yielding that, you know, that are highly diversified globally. You know, that looks like an incredible opportunity.

26:25 You know, that kind of returns historically. have been average equity-like returns. So when you can do that with your bond portfolio, you can do it in a diversified way, that's what we argue that investors should be focused on. Many investors, as a result of just the outperformance of the equity market over the last decade, number of years, passive investors, you know, are finding themselves over allocated. And this is a good time to start to to rebalance, start to build that balance within your portfolio, increase the resiliency because you can lock in these higher yields here.

27:01 Tiffany Milding, thanks so much with PIMCO this morning.

27:05 Greatly appreciate that. Stay with us.

27:10 More from Bloomberg Surveillance coming up after this.

27:21 You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m.

27:27 Eastern.

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27:33 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 Chartered 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?

28:16 In the past, everything looked smooth. In the real time, everything is chaotic.

28:22 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.

28:31 It's not a dollar move. It's a euro move. And we see the concerns on French debt.

28:41 And how and french elections that are coming up and so on now the you know it's recovered a bit today but i think the market is still focused on um the politics here and seeing that right you know the the middle is shrinking and and that's the issue for the euro the end i actually we think it's a different story that the um Normally, you'd say dollar going up, US rates going up, yen should be under pressure.

29:06 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.

29:15 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?

29:30 That would be, you know, that could be part of it. That would be part of the story.

29:34 And, for the first time in a couple of generations, in some ways, yen yields, certainly at the long end, are kind of attractive. So that would be– that's a possibility that we're entertaining.

29:48 And it's kind of a very recent possibility.

29:51 It's not the– it just– It looks like things are changing, and we were much more bearish on the yen a few months ago.

30:02 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're off the 10-year today at around 5.29 percent, the 30-year at 5.66. If there is a definitive peak for Treasury yields, does the floor fall out from under a dollar rally?

30:25 Not necessarily, because I think treasury yields are kind of attractive.

30:29 And the other part of the dollar rally is what's happening in equities, what's reflecting the strength of the U.S.

30:34 Economy.

30:35 So, yes, if treasury yields peak here, which we think they'll go higher, but if they did peak here, maybe the fixed income slows would sort of slow down a bit. But you look at how the equity market has reacted here. to a little bit of good news on PCE, a little bit of softer labor markets, and we're back hitting record highs, it would be the equity capital flow, the private equity capital flow that we would need to 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.

31:21 So a pause is very reasonable, but it doesn't mean it's the end of the rally.

31:26 Stephen Englander with us today with our question, our global Wall Street conversation of the day with the Standard Chartered Bank. Stephen, at Yale University, you looked at the holistic view of finance. We have Secretary Besant, talking about he's the house. That has been crushed over the arc of two weeks, three weeks, whatever.

31:49 Discuss the Secretary's certitude that he is the house, that the government, the Treasury's in charge.

32:00 Well, it might yet be true, and we'll find out soon enough.

32:06 One comment I'd make is 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.

32:34 But we do see sort of the possibility that we're, you know, 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.

32:53 Is there a bet you can make here?

32:54 I don't mean like the specific morning bet of the Standard Chartered Bank or late afternoon bet. on the Pacific Rim. But are things so distorted, Dr. Englander, that you say this is a point of entry in a given major pair?

33:10 You know, it's possible.

33:11 Look, Europe looks pretty weak, notwithstanding, you know, the euro rallied half a percent today, but it's 112.65. Nobody expected it to be here ever, you know, six months ago. UK has its own economic and political problems. Swiss has the lowest yields in the planet right now. There's a lot of reasons to sort of say, look, maybe if the yen is at the end of its decline, European currencies are looking vulnerable. It's not the end of France's political issues. It's just people got tired of selling, but they'll come back. So I think that that contemplating the possibility that maybe this move in Europe against the yen, European currencies against the yen, which has been so, so dramatic over a period of years, even if it's reversed

34:09 a quarter, that would be a massive move.

34:13 So I just want to take a macro look at the economy with the midterms on the horizon. Is growth the answer here, strong productivity-led growth? Is that going to help our deficit problem?

34:26 Well, you know, strong productivity growth is great for a lot of reasons.

34:31 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 capital gains.

35:13 And the problem is that we're not going to see the revenues from that.

35:17 We have to see stronger real wages and stronger employment growth before that becomes a deficit saver.

35:24 And that's not on the horizon yet.

35:26 Stephen Englander, thank you so much for the time under some duress. Greatly appreciate it with the Standard Chartered Bank today.

35:32 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.

35:58 Thank you.