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Let's do this. Let's jump to Tony Consenzi right now. We're thrilled he could join us. He's been definitive of all my work over the decades. He's with the Pacific Investment Management Company. He's now an executive vice president of market strategy. I love this. What in God's name is a generalist portfolio manager? What means we can talk about everything? Well, think of the Bloomberg Aggregate Index. It's a market cap rate index. It's got mostly treasuries, 40-some more percent. It's got mortgages around 30%. It's got corporates in the mid-20s or so. So generalists will decide between moving between those sectors and perhaps also think about the world. Are you moving for coupon or for total return?
Well, today, you just think of the starting yield. And the starting yield today on the Bloomberg U.S. aggregate is 4.91%. That's the highest of the past year because yields have been rising lately. The starting yield, so think the year 2031. I could probably tell you in 2031, God willing, that the return that you had on bonds in the U.S. aggregate was 4.91%, 94% correlation since 1978. So the starting yield is really important. It's the main determinant of your future returns. And so that's the thing I would focus on most is just simply getting that return.
The rise in yields lately provides another bite at the apple. Yields have been rising on and off for about four years, fluctuating. Some investors still stuck in care, still stuck in low-yielding money market instruments in the mid-threes or so. When you could get yields between 5% and 7% in portfolios, having an average credit quality is the key of AA-, which is to say 99.98% chance of getting your money back, according to historical statistics. So the starting yield is a really important story right now. First job, I think, for this guy, Tom, trading assistant. Guess where?
Prudential Base. Prudential Base. 115 Boardway, right next to Trinity Church. It's a wonderful place to be, right near Wall Street. A room of stockbrokers, which today they call financial advisors. And I learned a lot from them, about 30 of them. And so today, these days, worldwide, I visit many financial advisors, again, that they once called stockbrokers, working for commissions. Today it's a lot different. It's actually a good thing for investors. Mike, in a fixed income world today, Tony, can I just clip coupons? That's a nice way to make it look. Yeah, and here's another statistic. In looking at this yield where it is, yields where they are today, and using the Bloomberg Aggregate, again, as a gauge, and it can be mirrored worldwide.
In a one-year period, going back to 1978, investors one year later have made money 96% of the time. In other words, the return a year from now probably will be positive. So even if yields rise further from here, and they've been rising lately, that means bond prices could fall. The coupon, the income, is potent. And the coupon of the 30-year oat in France, the gilt in the UK, even in the United States, gives pause. There's some superlatives like price back to where it was 2007, whatever. If you look at the global system, which you can do at PIMCO, bring that over to U.S. investors. Is it idiosyncratic, or are they attached?
And that's why at PIMCO, we've been suggesting sourcing duration globally, because the U.S. story isn't great necessarily on the fiscal side. We know the U.S. has a big budget deficit. It must continuously issue bonds, and that could result in yields rising. So we decided lately to source our duration globally, including in the U.K., for example, where yields are above that of the U.S., Australia, for various reasons related to the macroeconomic situation, in the emerging markets, where this year has been very fine performance, better than...
in the U.S., and it seems like the asset class is tending to fare better in the eyes of investors. So we think there are many idiosyncratic stories worth diversifying the portfolio into. Michael writes in and says he thinks the Fed's going to raise next week. What do you think? We do not think so. Of course, Walsh isn't in the business of signaling things, but I think we think it would, perhaps, if it were imminent. We're in the camp of the Fed doing nothing this year. But even if it hikes rates, I'm talking about this glorious bond market story, bond investing story.
So what? And I think of Alan Greenspan, who I met years ago, very fortunate when he was an advisor to PIMCO and worked in Newport Beach. He raised rates aggressively in 1994, battling the inflation fears of the late 70s, early 80s, late 80s. And he won. In his last two half-point hikes, the end of 1994 and then early 95, yields fell. So don't worry about hikes as a bond investor because it actually, it's medicine and it's tough love and it's a good thing. Tell me here, generalist portfolio manager, somebody with a real job at the Pacific Investment Management Company like Jerome Schneider.
Exquisite at the short-term market. How's his year going? Paul's talking about there's this wall of money. Is the wall of money moving out of money market funds into the Jerome Schneider space? It is. I'd say we should run from cash to core, but of course cash has its place. But another statistic would show that on a three-year rolling basis, that core investments, meaning average maturity around five, six years, or the Bloomberg aggregate around six years, three-year rolling basis, meaning three years from now, should be able to tell you with 85% confidence that core beat cash. So it tends to beat cash, especially with yields and end cash, high threes, the aggregate around five, and high-quality fixed income.
investments, 5% to 7%. So you're probably better off shifting a bit from cash to course. So I'd say run, don't walk to that idea. But here's one other point. Many Americans have, of course, locked in on the low mortgage rate. Americans should start thinking about joining what I call the double lock club. You locked in the low mortgage rate on your debt. Why not lock in a high interest rate on your fixed income investments? How much credit risk should investors be taking? I mean, the year to date, the high yield index on the Bloomberg Terminal is performing the best. It's winning. But these yields are good enough, as I mentioned, AA minus 5% to 7%. So we need to stretch out and go down in the capital. Thank you. You got a new book coming out?
I'm contemplating a seventh, a few different ideas. One is a novel called The Wall Street Tale, which will go back to my days. I worked, you mentioned Peninsula Bay. After that, I worked at Lehman Brothers, the World Trade Center, 104th floor. Some good stories from an amazing view I had up there. Thank you so much. Wonderful to have him in studio. I should mention, absolutely definitive effort and money market funds, a classic. All of 1,200 pages. No, I have not read it. Cover to cover. Stay with us. More from Bloomberg Surveillance coming up after this.
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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. Joining us now, Tina Fordham. She has been absolutely on fire out on LinkedIn, Fordham Global Foresight with all of the international relations, the fractured foreign policy that we're facing now. Tina, I've got to go to the single item overnight that I believe the president of the United States going after the nuclear efforts of Iran.
has decided to give nuclear to Saudi Arabia. What are we giving to Saudi Arabia that's any different than Iran? Well, the security pact, the nuclear sharing agreement, is normally regarded in international affairs circles as being part of a proliferation of access to weapons of mass destruction. But I think for the White House, this is seen as a way to level the playing field in the region and give a loyal ally that is also an adversary of Iran some protection and some peace of mind. And that is probably much needed.
Tina, we heard from Secretary of Defense Hexeth yesterday testifying before Congress here. I think a lot of people were trying to get a sense of how does the U.S. pursue its war with Iran with an eye on getting out of there? I mean, a lot of folks are unsure why we were there in the first place. Now we're trying to figure out how we get out of there in a positive scenario. Do you have any view of how this might play out?
I mean, this is a classic textbook escalation trap, right? And you know that I've been consistent about this from the beginning, whereby the war aims weren't clear. The strength of the adversary in the case of Iran was underestimated. With the new leverage that Iran has with the Strait of Hormuz, going back to the original objective, which was mainly around depriving Iran of nuclear weapons capability, has now moved further down the list. Iran has gamed out that it is more patient and more willing to suffer casualties than the United States. And so we're trapped. This is the most expensive war in some time, but also the most unpopular. This is the least popular war, I believe, in U.S. history. Help us just, you know, within the myriad of themes, Tina, you're an expert at this with your Decades of Citigroup as well. The Secretary of Defense is talking a $30, $40 billion war so far. I would suggest no one on the planet believes that number. What is the Tina Fordham cost of the war?
I haven't made an estimate, but it certainly is going to cost more than it's going to deliver in terms of geopolitical or economic benefits. In normal circumstances, and I was talking to Bill Burns in London here yesterday, former pressure of the CIA, you'd be looking for off ramps in diplomatic terms. Trump tells us that the talks aren't happening, that there aren't even discussions going on. And so what is most likely is. episodic use of violence and expansion of the target set. One of the risks is, you know, that the United States decides to make Iran uninhabitable without putting boots on the ground, which I think would be too high costs, unbearable costs for the United States to contemplate. And Tina, you know this geography, folks. Here's an anecdote. I'm in London at Finsbury Square. It's where Bruckner wrote many of his symphonies at the Bloomberg headquarters. It was just famed, famed headquarters. And Tina, I was absolutely thunderstruck how the United Kingdom media followed a soldier who died in Afghanistan.
and followed the casket home the entire way. Now, I'm not saying we're doing that right now with the dead and injured of America, but our reaction to these soldiers and sailors in harm's way doesn't seem to be like other American wars. Has there been a shift in America to the agony of war? Yeah, it's a very deep question. And as you shared that anecdote, I would just add for your viewers and listeners that not only is the casket followed here, but people line the streets, strangers, people line the streets in a sign of respect. And it's a puzzle, really, isn't it? I mean, the U.S. casualties currently are around 18. You know, my father was a war orphan in World War II. I know how these are all tragedies. And yet, are we inured to the human costs of war, the economic costs of war? There is some...
pretty significant cognitive dissonance going on. But to bring it back to the markets, in a way, the markets are letting it happen by not reacting, if you like. We're still only at, what, $90 a barrel. Yeah. Do you have a price in your head, Tina? One final question. Do you have a Brent crude price in your head where things unravel for the West?
I don't think that the hostilities will continue at a sustained clip to get over 100. I think that's the kind of magic number. Having said that, the White House didn't expect this war to be going on for as long as it has. And for the regime in Iran to still be in place and for the people of Iran not to have risen up, it's the law of unintended consequences. And you can never plan the perfect ideal scenario. Just wonderfully valuable. Tina Fordham, thank you so much. Fordham Global Foresight with that $100 mark on oil.
Stay with us. More from Bloomberg Surveillance coming up after this. 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. Joining us right now, Raphael Thun, is that correct? I want to get it right. That was good. Raphael Thun joins us here. TKO? TKO Capital. TKO Capital. Hugely added, massively prestigious derivatives in capital markets at StockGen years ago. Fact. I read every word of the pre-election in Le Monde two days ago.
into the chaos of 2027, I got to back up price down yield up in French paper. Is it an opportunity or do you really see stress in the fixed income market in France? Yeah, if you take the front page of the newspapers in France, it's a lot of anxiety. We don't know what's going to happen. We know the deep left and the deep right are potentially contenders there. And what's going to happen with deficits that yields on government debt is obviously a high anxiety. If you look back, though, and take a broader picture of what's happening, you're seeing actually deficits trending down in France from 6% starting point, probably going to be nearing 5% very soon.
So that's good news. And there is somewhat of consensus building now around the fact that, yes, it's time to act, that it's probably gone too far, that people have to rein in spending and make sure that deficits can be manageable going forward. So obviously a lot of uncertainty, but maybe not as scary as it seems. Howard, just... You know, when the tariffs came in, a lot of money left the U.S. markets and went to other parts of the world, including Europe in particular. I'm not sure that trade's still there. How do you think about investing in Europe versus maybe the U.S. or Asia? So it's interesting. The big picture in Europe now is that we're entering, as well as in the U.S., a massive capex cycle for the years to come. When you look at the list of things we need to finance in Europe, it's endless. We need to finance defense after decades of underspending. We need to finance data centers, and we are far behind compared to where we are in the U.S. We need to finance electrification, decarbonation, digitalization, you name it.
And so against this backdrop of massive investment needed, when you look at the capacity of capital markets in Europe to sustain and finance those needs, those are extremely narrow, extremely stretched. Liquidity is very poor on capital markets in Europe. And here is really an opportunity. It's an opportunity for people with capital to bring capital, take part of what are oftentimes mega trends in the making. And so that's what we're doing at TKO. But guess what? This is what a lot of money managers across the world are doing.
You're seeing, for instance, from the U.S., a lot of alternative asset managers flocking to Europe, opening offices to bring that capital to Europe. Your heritage out of Sakjian, with your immense derivative in mathematics background, is to always be aware of what is the bet. What is the bet right now on France? Not in France, in Europe, excuse me. What's the bet that's being placed by finance in Europe right now? So the idea here is to say, well, it's a pretty good setup to invest in Europe. If you take the broader picture, earnings will be strong this year. Global digit earnings growth, which in Europe is quite something.
you will have potentially the impact of fiscal stimulus coming from Germany. You know, that's a pretty sizable stimulus coming. It was a bit on the disappointing side in H1, some delays in implementing this stimulus. And there is a bet and a case to be made that in H2, you will see the effect of this stimulus. You will start to see this effect in infra, in defense, and so on. That inflation compared to what we get in the US is somewhat a bit more contained. I'm not talking about energy, but ex-energy, co-inflation, wage growth, service inflation. All of that is a bit more manageable. I got 20 seconds. Mrs. King, thank you, dear, for listening today. Emails in and she says, would you ask Raphael, what in God's name happened to France and the world?
Oh, please don't stop with that. You know, we had a nice conversation and here we are together with soccer. I'm sorry. They thought they were going to win it. I mean, it was like a layup and oops. But really, that was sort of like the World Cup was France and Spain was like the best team won. I think we can say that. I don't know beans about soccer, but it was magical to say the way Spain played. Can you come back? I wish I can. I'm going to work on my friendship. We're just trying to get a remote here. We want to go get a remote with you as we can. Raphael is doing with us here from TKO Capital of Paris.
Stay with us. More from Bloomberg Surveillance coming up after this. 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. This is incredibly well-timed. Mona Majin does wonderful work at Edward Jones, tearing apart the market, piecing it back together. She has really abrupt, terse notes, which I love as part of it. Into earnings season, and I saw this today with Philip Morris of Switzerland, not Altria, but PMI. A shocking revenue number. Are we going into this ballet where we don't understand the linkage of nominal GDP over to revenue pop?
You know, look, I think, to your point, the consumer economy has held up really well, and that is showing up in revenues across sectors. So, yes, we are expecting tech to have an amazing pop this earnings season, but we are also seeing this revenue gain across consumer discretionary, across stables. I'm not hearing enough about this. I hear earnings this, you know, a lot of navel-gazing and that. But, Paul, I remember Honeywell years ago, like 4% revenue growth, and all of a sudden they were doing 6% because of a spirited economy. So we've seen some rotation in markets here. Maybe add some of the tech names into...
I don't know, cyclicals, defensives. Is that a short term trade or is that the market telling me something? You know, it is interesting. I do like to see some of the most parabolic moves in the market. Take a breather here. So an area like semiconductors was up close to 100 percent before we saw a little bit of a pullback at 20 percent type of correction. But we thought that was healthy. It was a good reset. Semis are still up 60, 70 percent this year. So not a concerning year to date number by any means. The rotation, though, we like to see it. We think it's a healthy sign as well in terms of running a market leadership. This year four of a bull market.
Does it have legs? Well, I think earnings season will drive that. We're going to get Alphabet tonight. That'll set the tone. And we think tech could potentially get some legs again here. So what is the AI story from your perspective these days? I mean, you just buy the chips. Do you try to buy what people call the picks and shovels on utilities?
How are you guys thinking about it? Yeah. You know, certainly what we've seen this year, interestingly, the hyperscalers and the Magnificent Seven have actually led the broader market. So they're up, you know, 1-2% while the broader S&P is up 9-10%. And so could we see an opportunity there, especially if we do hear that not only are they spending more, but that spending is yielding some results. They're seeing better revenue growth, cloud revenue growth. Potentially, they talk about return on this investment. I think all of that would be a good signal that the AI trade.
not at its last innings, but maybe in the middle innings of the cycle. And so we're hopeful that's the direction of travel and you get some opportunities in those lagging parts of the market. You have a wonderful vista, radically different folks. And this is all going back to the Edward Jones, who I've never met. I regret they never met him. He lived to be a ripe old 89, dying in the early 80s. You have 15,000-ish.
branch offices managing umpteen gazillion dollars the phrase here folks were tnt brokers this is back to before world war ii which is they traveled the countryside out of missouri st louis uh tuesday through thursday used to be the heritage okay so now you're not tnt but you people have a handle on the nation like nobody else what's the mood out there yeah and it's a great call out look we have a client in every county in the u.s so yeah to your point the retail investor base, we have a strong handle on. And look, this investor base has been leading the way, actually. It used to be institutions that led markets. It's the retail audience we think is getting more savvy. And by the way, they're pretty optimistic. Now, are there worries out there? Yes, we're seeing a re-acceleration or re-escalation in the Iran war. Geopolitics never sits well with this audience. But there's some optimism that the end goal here is that neither side of this aisle will want, you know, it's not great for either side of the aisle. And so we want to make sure that there's some de-escalation over time on the geopolitics. And by the way,
innovation has been something that's captivating the retail audience. So the U.S. has been a hotbed for innovation. All the Mag-7 are housed here. I think there's a lot of optimism around that. This year, we're getting a lot of big IPOs. SpaceX, obviously, the largest. What is your client base, the Edward Jones client base in every county in the country? Are they ringing up their advisor saying, you got to get me into SpaceX? Or how do they do those? Yeah. You know, there was a lot of enthusiasm around SpaceX. The space economy over time could be exciting here.
We were very mindful that the IPO cycle tends to look very similar. And it almost happened again this time identically in that there tends to be a pop up front. But over a 12 month period, IPOs tend to lag the broader S&P 500. And so certainly SpaceX in particular is probably back at its near its IPO levels. There's ways to play it. If you have any sort of NASDAQ index exposure or Russell index exposure, MSCI, you're getting exposure to SpaceX. And so I think that's the basket approach is still the right one there. Let's talk reversion to mean. We've had a lot of fancy people in today like you. And it's fine. It's an easy pet phrase to say. But for Mauna Mahajan, what is reversion to mean?
after a great bull market? Yeah. You know, look, I think bull markets tend to be longer and stronger than bear markets. And that's what we know. So on average, bull markets are five and a half years. We're probably four, four and a half years into this bull market. They tend to be up over 120 percent versus bear markets tend to be shorter lived. So, you know, one, one and a half years, maybe down 20 to 30 percent. But they really present opportunities. So, you know, from our perspective, you want to think long term. You want to think you're 20 to 30 year horizon. And so while there could be some mean reversion after a bull market.
If you're young enough, if you still have that horizon in front of you, there's your opportunity. I think it's something that's new in your career, my career, ETFs. It becomes such a big part. How does Edward Jones, what's a typical Edward Jones client? do with ETFs? Yeah, you know, look, ETFs are a great low cost way to access a broad set of stocks, a broad set of sectors. And we think at index exposure. And so, you know, I think it was Warren Buffett who said there's not been any individual fund manager that has beat the S&P 500 over a 10 year period. And so getting that ETF and index exposure, in our view, is a great way to. With the ETFs, I'm running out of time. With the ETFs, are we over diversified today?
You know, I think there's ways even in ETFs to have sector ETFs, to have thematic ETFs. So you could focus your investing. But in our in our mind, the only free lunch an investor will get is diversification. So there's no such thing as over diversification. Speaking of free lunch, stop the food court on your way. Thank you so much with Edward D. Jones. 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.
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