WEBVTT - Europe, Equities, And Bonds (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:23.120 at Bloomberg dot com slash podcast. Big big day in Frankfurt, Germany. 0:00:23.200 --> 0:00:27.640 Tay and for Europe, uh, the ECB raising its benchmark 0:00:27.720 --> 0:00:30.840 R fifty basis points. So no longer negative interest rates 0:00:30.880 --> 0:00:34.520 in Europe. That's big. Um boy, it's been a long 0:00:34.680 --> 0:00:38.080 long time exactly. I'm looking at the euro here trading 0:00:38.159 --> 0:00:39.880 up just a little bit. But let's dig into it 0:00:39.920 --> 0:00:41.080 a little bit. We can do that with me. Have 0:00:41.120 --> 0:00:46.680 a cousin Euro Area economists for Bloomberg Economics, Geneva Zerk 0:00:46.800 --> 0:00:50.320 somewhere over there in Switzerland. Um, pretty cool, Mayva. Thanks 0:00:50.320 --> 0:00:53.080 so much for joining us here. Busy, busy day for 0:00:53.200 --> 0:00:56.520 Christine Lagarde. What are your takeaways from what we've seen 0:00:56.600 --> 0:01:01.240 and heard so far this uh today in Europe? Kay? Thanks? 0:01:01.400 --> 0:01:04.000 So yeah, it's a big thing. Indeed, this fifty basis 0:01:04.080 --> 0:01:08.119 points to bigger HIGs than we were expecting having plans 0:01:08.120 --> 0:01:12.600 because the judge that their TPI, their transmission protection instrument, 0:01:12.800 --> 0:01:16.920 was told enough to allow a bigger move to tame inflation, 0:01:17.000 --> 0:01:19.559 which is again surprised on the web side in June 0:01:19.560 --> 0:01:22.640 after they published their latest forecast. So the big focus 0:01:22.680 --> 0:01:25.120 at the moment in the area and at East is 0:01:25.280 --> 0:01:29.240 really on current inflation and trying to get handled on 0:01:29.360 --> 0:01:33.280 this regnant place inflation pressures. Now the big question is 0:01:33.280 --> 0:01:36.720 how good will be the anti fragmantation to these tp 0:01:36.880 --> 0:01:39.720 I uh, it's good that they've agreed on something, but 0:01:39.840 --> 0:01:44.360 of course it is all steel subject to really the 0:01:44.360 --> 0:01:47.560 discretion of the governing counties or some parts of it, 0:01:47.680 --> 0:01:51.400 in particular as taking the fiscal sustainability of the government 0:01:51.600 --> 0:01:53.640 or the country, the surf reign that would need to 0:01:53.680 --> 0:01:57.559 receive the support, and also deciding when to activate when 0:01:58.040 --> 0:02:01.400 the increasing spread on warm kids which would be subject 0:02:01.400 --> 0:02:04.120 to discrestion. And we are not sure how and when 0:02:04.240 --> 0:02:06.600 they can be activated. And I would say that a 0:02:06.640 --> 0:02:10.079 political crisis in Italy probably doesn't think figure on the 0:02:10.160 --> 0:02:14.840 list of rational or rehaysms why they could activateing wait, 0:02:14.880 --> 0:02:18.840 why we we always maybe it's like a NonStop constant 0:02:18.840 --> 0:02:21.640 political crisis in Italy that should always figure into every 0:02:21.639 --> 0:02:28.360 central bankers list. So, as Christine god said during the briefing, 0:02:28.760 --> 0:02:32.120 this is really to address unwarranted market fact notation that 0:02:32.280 --> 0:02:37.440 is not country specific, so some sort of his conversion mechanism, uh, 0:02:37.680 --> 0:02:40.080 which he said that they already have a mechanism. They 0:02:40.120 --> 0:02:43.600 already have a tool it's called OMT to adviss country 0:02:43.680 --> 0:02:47.720 specific predomination is So that's really if it's a political 0:02:47.800 --> 0:02:50.880 crisis in theory, it would be difficult for the governing 0:02:50.960 --> 0:02:54.160 country to activate the tool. So we see how that happens. 0:02:54.200 --> 0:02:56.959 But they have defined the criteria. It's quite it's still 0:02:56.960 --> 0:02:59.480 a relative debate. As I said, a lot of discussion. 0:02:59.520 --> 0:03:02.560 We would you know, um pretty GUPTO was just in 0:03:02.760 --> 0:03:06.680 here talking about the possibility of another sovereign debt crisis 0:03:06.720 --> 0:03:08.480 because of the blo out and spreads. I think we're 0:03:08.520 --> 0:03:13.400 probably well, we're currently pretty pretty pretty safe in that respect, 0:03:13.440 --> 0:03:16.600 but we could get there. That's the trajectory. Is this 0:03:16.800 --> 0:03:21.880 ECB equipped to deal with that kind of thing? It's 0:03:22.120 --> 0:03:24.680 it's one more tool than they didn't have before. It's 0:03:24.760 --> 0:03:27.680 just much more difficult than it was when they first 0:03:27.720 --> 0:03:30.079 launched to empty and when they first because at that 0:03:30.120 --> 0:03:32.040 time it was easy for them to buy a lot 0:03:32.080 --> 0:03:34.399 of government debt because it was serving at the same 0:03:34.440 --> 0:03:39.080 time the support like the monetary podity direction to increase 0:03:39.160 --> 0:03:43.320 in fation on the market fragmentation aspects. So it's much 0:03:43.320 --> 0:03:46.440 more challenging now. It's good that they are in producing 0:03:46.440 --> 0:03:49.880 a new a new tool, but it will it will 0:03:49.960 --> 0:03:52.160 still be subject to a lot of debates on the government. 0:03:52.440 --> 0:03:54.440 But they could have raised rates much. They could have 0:03:54.520 --> 0:03:57.680 raised rates a long time ago. And I realized that, 0:03:57.800 --> 0:04:02.119 you know, um, the FED also out inflation to get 0:04:02.160 --> 0:04:05.000 ahead of it, and and so did um the Bank 0:04:05.040 --> 0:04:09.720 of England. You used to advise Her Majesty's Treasury there. 0:04:10.680 --> 0:04:14.000 Why why is the ECB, you know, the last to 0:04:14.120 --> 0:04:18.400 raise Why why didn't they act sooner? They had a 0:04:18.440 --> 0:04:22.000 different inflation problems. They still have a different inflation problem. Uh, 0:04:22.320 --> 0:04:24.640 most of the inflation in et needs to due to 0:04:25.120 --> 0:04:28.640 energy and food crisis, so out of their control to 0:04:28.839 --> 0:04:31.760 a large extent. It's also that actually we've seen a 0:04:31.760 --> 0:04:36.120 lot of stating in market conditions at the market rates 0:04:36.120 --> 0:04:40.200 for your area, actually more so than in the US, 0:04:40.400 --> 0:04:44.919 at least initially, um, just without changing the rates. So 0:04:45.080 --> 0:04:46.919 they have already. There has been already a lot of 0:04:46.920 --> 0:04:50.120 stating they didn't pace sooner because they had to exhibit 0:04:50.160 --> 0:04:53.400 the asset purchases. Um, they had to make sure actually 0:04:53.480 --> 0:04:56.480 they had the high schools in place. But it doesn't 0:04:56.520 --> 0:04:59.200 mean that they are. They don't need to do as 0:04:59.279 --> 0:05:03.960 much as the just said. All right, maybe thank you 0:05:03.960 --> 0:05:06.040 so much for joining us. May have a cousin euro 0:05:06.160 --> 0:05:12.719 Area economist for Bloomberg Economics. I want to bring our 0:05:12.800 --> 0:05:15.920 good friend, Ed Price. He's a senior fellow, a former bidtish, 0:05:16.000 --> 0:05:18.559 a trade official, senior fellow at n y U. Lots 0:05:18.600 --> 0:05:20.760 going on in Europe. We've been covering it all day. 0:05:20.800 --> 0:05:23.279 Matt's been up since the before the crack of dawn. 0:05:23.400 --> 0:05:26.240 Lot's going on with the e c B. Let's start there. 0:05:26.240 --> 0:05:31.920 ECB raising their benchmarks, connected all connected, fifty basis points um. 0:05:32.160 --> 0:05:36.679 That's in the face of slowing European economic growth, energy crises. 0:05:36.920 --> 0:05:39.360 There are so many cross currents for our friends over 0:05:39.400 --> 0:05:42.080 in Europe. I think that's right. And um, you know 0:05:42.440 --> 0:05:44.560 what does the ECB want to do? It kind of 0:05:44.560 --> 0:05:47.080 wants to do two things. It wants to kill inflation 0:05:47.320 --> 0:05:50.400 and it wants to not kill the European economy. Right, 0:05:50.440 --> 0:05:52.159 so if you if you say, well, look, you know, 0:05:52.320 --> 0:05:54.600 fifty is quite a lot. It's not enough if you 0:05:54.640 --> 0:05:58.160 want to stop inflation. And again we talked about this 0:05:58.200 --> 0:05:59.880 a lot, but I don't know what you do, like 0:06:00.000 --> 0:06:02.080 what is the answer to that? But fifty also can't 0:06:02.120 --> 0:06:05.599 kill an economy, right, they they're just fifty basis points. 0:06:05.720 --> 0:06:09.520 That's now, Let's remember they're very very low. There's still 0:06:09.560 --> 0:06:12.120 below whatever our star it is, whatever you think it is, 0:06:12.200 --> 0:06:14.440 it's definitely more than fifty, right, it's definitely one fifty. 0:06:14.480 --> 0:06:16.160 I mean I would personally say there's no such thing 0:06:16.200 --> 0:06:19.680 as our star because you've got that m just our 0:06:19.720 --> 0:06:22.600 star the natural rate of interest right, So like yeah, right, 0:06:22.600 --> 0:06:25.360 so like this is this is one of the more 0:06:25.440 --> 0:06:29.480 voodoo aspects of economy. But it's basically whatever your guess is, 0:06:29.600 --> 0:06:32.120 and it's probably better equipped to make a guess than 0:06:32.160 --> 0:06:35.960 you or I at a level of level of interest 0:06:36.080 --> 0:06:39.560 rates that is not enough to not high enough to 0:06:39.600 --> 0:06:42.680 slow the economy, but not low enough to spur it forward. 0:06:42.720 --> 0:06:45.560 So just neutral. Yeah, And you're like, you know, you're 0:06:45.560 --> 0:06:47.840 doing things like searching for what the output gap is, 0:06:47.880 --> 0:06:50.440 and you've got your army of economists, and it's a guess. 0:06:50.560 --> 0:06:53.000 And I'd go further than let's say it probably doesn't exist, 0:06:53.120 --> 0:06:56.200 because if you want to look after financial markets, whatever 0:06:56.240 --> 0:06:58.240 our star is, it's probably quite low. And then if 0:06:58.279 --> 0:07:00.640 you want to look after inflation get rid of that problem, 0:07:00.680 --> 0:07:03.680 it's probably higher. Um. So there's probably no such thing 0:07:03.720 --> 0:07:05.359 as all start. I'm going to look at my Twitter 0:07:05.440 --> 0:07:09.720 later to see what happens to me after saying that. Um. Right, 0:07:09.760 --> 0:07:12.640 so here here in the States, fed trum of Powell 0:07:12.720 --> 0:07:17.200 raises rates sevent five basis points. It's a New York, Kuai, California, 0:07:17.280 --> 0:07:22.480 doesn't really matter um vs VI those different states. But 0:07:22.560 --> 0:07:24.800 it's not the same thing in the East New York, 0:07:25.280 --> 0:07:28.040 Hawaii and California. I'll make a ton of money. Yes, 0:07:28.400 --> 0:07:30.160 how about our good friend. Maybe maybe it matters to 0:07:30.200 --> 0:07:32.200 the states that take all of our money all of 0:07:32.200 --> 0:07:36.680 our money. So let's bring that analogy to Europe and Italy. 0:07:37.040 --> 0:07:41.040 So talk to us about how, you know how what 0:07:41.040 --> 0:07:43.840 it's the what Christine the Guard has to balance when 0:07:43.880 --> 0:07:49.040 she's in this rate moving scenario when you have different countries, 0:07:49.120 --> 0:07:53.240 different economic development. So it's a really good point. So okay, 0:07:53.280 --> 0:07:56.520 so borrowing costs You're right, in the US don't matter 0:07:56.640 --> 0:08:00.280 as much as in the your area, and they don't 0:08:00.280 --> 0:08:02.400 matter as much because the spread in the area between 0:08:02.560 --> 0:08:04.760 you know, Tenia borring costs in Italy and Germany is 0:08:04.800 --> 0:08:07.440 as we've said before, essentially an indicator of whether the 0:08:07.520 --> 0:08:11.600 Euro can exist. So the e CBS obviously sitting there thinking, 0:08:12.360 --> 0:08:16.200 we don't want to introduce a an X upper bound 0:08:16.400 --> 0:08:18.920 for Italy, at which point it won't be able to 0:08:19.000 --> 0:08:20.760 function as a government, won't be able to function as 0:08:20.800 --> 0:08:22.720 a state, and we'll have to leave the Euro Area 0:08:23.480 --> 0:08:26.520 because that would be extremely bad. So, by the way, 0:08:26.560 --> 0:08:28.520 you've also got this threat that Russia is going to 0:08:28.560 --> 0:08:30.960 cut off the gas, and you know, there's projections that 0:08:31.040 --> 0:08:33.160 Italy would have a five percent contraction and so on. 0:08:33.679 --> 0:08:36.120 So I think the CBS thinking about these really deep 0:08:36.280 --> 0:08:40.000 structural currency related issues at the same time as in 0:08:40.160 --> 0:08:42.599 public and on the surface of things, talking in the 0:08:42.720 --> 0:08:46.800 normal language of macroeconomics, and it's so tough to deal 0:08:46.840 --> 0:08:49.720 with the gas issues at the same time as they're 0:08:49.760 --> 0:08:54.440 dealing with their persistent lack of a government. Again, they've 0:08:54.480 --> 0:08:57.559 had sixty seven governments and seventy five years. Is that 0:08:57.600 --> 0:09:01.760 the number? Good Lord it's nuts. So but that's just 0:09:01.920 --> 0:09:04.800 how it is in Italy, and frankly, the ECB should 0:09:04.840 --> 0:09:08.240 be prepared for that, um, you know, because it happens 0:09:08.280 --> 0:09:11.640 so often. But it's a very difficult time to see 0:09:11.679 --> 0:09:15.200 spreads widen, and I wonder how far the spread could 0:09:15.280 --> 0:09:19.920 go before it causes, um, a sovereign debt crisis. The 0:09:20.000 --> 0:09:22.480 last one we saw was pretty difficult. That took Mario 0:09:22.600 --> 0:09:25.280 drag to get out of. He's kicking off this one. 0:09:25.400 --> 0:09:27.440 He's kicking off this one. That's very good. You need 0:09:27.480 --> 0:09:30.440 that on a T shirt. Um, whatever, it doesn't take. Yeah, 0:09:30.480 --> 0:09:32.199 I mean, I think the problem is that we don't know. 0:09:32.360 --> 0:09:35.080 But we don't know what that level is. We've been 0:09:35.120 --> 0:09:38.040 obsessed for years as policy makers and economists with this 0:09:38.160 --> 0:09:41.920 thing called the lower bound, which apparently zero. It's not 0:09:42.080 --> 0:09:45.280 wink wink, but apparently zero. Right. Um, But then there's 0:09:45.280 --> 0:09:47.600 there's obviously to your point, that there's this upper bound 0:09:47.720 --> 0:09:51.239 somewhere at which at which point sovereigns and and presumably 0:09:51.640 --> 0:09:53.800 corporates and others are going to hit the wall. So 0:09:53.960 --> 0:09:57.640 we don't know. Um, could be three hundred, fifty, could 0:09:57.720 --> 0:10:01.000 be four hundred, It could be But then of course 0:10:01.000 --> 0:10:03.480 the only way to find out is to get there, right, 0:10:03.600 --> 0:10:05.400 So do you really want to get there? No? And 0:10:05.520 --> 0:10:09.080 that and that's something that's that's my question is if 0:10:09.360 --> 0:10:12.400 we have another crisis, or maybe I say, when we 0:10:12.480 --> 0:10:17.040 have another euro crisis, does that push the European Union 0:10:17.240 --> 0:10:19.800 towards a breakup as it looked like was going to 0:10:19.840 --> 0:10:21.599 happen in two thousand eleven, or does it bring the 0:10:21.640 --> 0:10:24.160 European Union closer together? Did they say enough of this? 0:10:24.720 --> 0:10:26.320 You are to what paulse when he said about how 0:10:26.360 --> 0:10:28.640 the USA hands it, Let's do it like that and 0:10:28.760 --> 0:10:31.520 federalize everything. I think we are. I think you're absolutely 0:10:31.600 --> 0:10:34.360 right federalized. I think that right now we're in the 0:10:34.559 --> 0:10:37.559 articles of confederation stage. If you're making the analogy with 0:10:37.600 --> 0:10:40.720 the US, and my money is on the European Union 0:10:40.760 --> 0:10:44.480 in your area becoming the same thing, getting serious, getting 0:10:44.520 --> 0:10:48.440 that German money into some sort of fiscal mechanism whatever 0:10:48.520 --> 0:10:50.920 it is. Um And by the way, there are a 0:10:50.960 --> 0:10:53.079 lot of indicators that this is kind of happening due 0:10:53.120 --> 0:10:55.280 to external pressures anyway. I mean, we said last time 0:10:55.280 --> 0:10:57.760 I was on the Germans are rearming. That's incredible. So 0:10:58.080 --> 0:11:01.319 my my suggestion to you is that within ten years 0:11:01.360 --> 0:11:03.559 we'll see the United States of Europe de facto, if 0:11:03.600 --> 0:11:05.880 not the jury, if they put together a bill of rights. 0:11:06.000 --> 0:11:08.040 They got to be careful when writing the Second Amendment. 0:11:08.200 --> 0:11:12.040 You watch your punctuation, try and make yourself clear. What 0:11:12.280 --> 0:11:16.920 do you mean, right, A well regulated militia, Right, I mean, 0:11:16.960 --> 0:11:19.200 there's aspects of the Second Amendment that are pretty awesome. 0:11:19.240 --> 0:11:21.120 Come on, so maybe we should we should send them 0:11:21.120 --> 0:11:25.000 over a suggested draft with a fewer commas, maybe real 0:11:25.120 --> 0:11:27.599 quicked the UK? I know it's hot over there. I 0:11:27.640 --> 0:11:29.640 know the folks are you know, really dealing with that. 0:11:29.760 --> 0:11:32.280 But just from an economic perspective, how are things in 0:11:32.280 --> 0:11:34.480 the UK these days? Well, I mean, if you if 0:11:34.520 --> 0:11:38.280 you look at some of the projections, three GDP growth 0:11:38.360 --> 0:11:41.440 goes down to zero, so you guys know about finance, 0:11:41.600 --> 0:11:44.199 zero is a bad number. So there's definitely some sort 0:11:44.240 --> 0:11:46.320 of head winds going on there. But look, I'm hopeful 0:11:46.400 --> 0:11:48.800 that there's going to be a period of structural reform 0:11:49.080 --> 0:11:51.319 and that Britain will essentially do what it did in 0:11:51.360 --> 0:11:53.880 the eighties under Thatcher and go through some sort of 0:11:54.000 --> 0:11:57.959 self inflicted shock but then come out, you know, past 0:11:58.000 --> 0:12:00.360 the curve ahead of the curve on globalization as a result. 0:12:00.840 --> 0:12:02.439 Um so we'll have to see. I don't know, but 0:12:02.920 --> 0:12:06.920 the headline is bad, but medium term good, alright, good stuff. 0:12:06.960 --> 0:12:08.760 I mean, lots of news coming out of Europe. We've 0:12:08.800 --> 0:12:12.000 been uh trying to stay on top of it today 0:12:12.040 --> 0:12:14.599 at Price senior fellow at n y U and a 0:12:14.679 --> 0:12:17.800 former British trade of Fisher. We love getting his thoughts 0:12:17.920 --> 0:12:20.839 on economics, particularly coming out of Europe, coming out of 0:12:20.880 --> 0:12:23.640 the UK and again today the e C B uh, 0:12:24.200 --> 0:12:25.920 you know, being a little bit surprised in the market 0:12:25.960 --> 0:12:29.079 a little bit clearly with a fifty point increase in 0:12:29.320 --> 0:12:34.000 their base borrowing rate uh FED coming up July. That's 0:12:34.040 --> 0:12:36.160 kind of where all eyes are now as we think 0:12:36.160 --> 0:12:38.599 about these markets and where rates are going visa v 0:12:39.040 --> 0:12:46.440 this economy, this this Bloomberg. All right, we got rates rising. 0:12:46.640 --> 0:12:49.600 We've had a brutal first half of the year across 0:12:49.679 --> 0:12:52.920 the fixed income specter spectrum, and that includes high yield. 0:12:53.120 --> 0:12:55.360 And we talked high yield. We talk Ken Monahan, co 0:12:55.520 --> 0:12:58.440 director of high Yield at a munday US. He joins 0:12:58.559 --> 0:13:01.320 us in our Bloomberg Interact a broker studio. Ken, thanks 0:13:01.360 --> 0:13:06.480 so much for joining us. Declining corporate bond index first 0:13:06.559 --> 0:13:08.520 half of the year. We've never seen that, have we. 0:13:08.880 --> 0:13:11.360 You know, it's been a miserable, miserable year thus far 0:13:11.440 --> 0:13:13.679 in ext income And it's not just how yield but 0:13:13.720 --> 0:13:16.600 how you'll certainly take it on the chin. So uh, 0:13:17.280 --> 0:13:20.319 If from an equities perspective, and obviously Paul and I 0:13:20.440 --> 0:13:22.360 have grown up kind of plain ventil equities, I would 0:13:22.440 --> 0:13:24.960 say that's time to go in there and buy. I mean, 0:13:25.000 --> 0:13:28.959 there is legit blood in the streets, to paraphrase possibly 0:13:29.040 --> 0:13:33.920 Benjamin Graham. Um, is that not the case for everybody else? Well? 0:13:33.960 --> 0:13:36.120 I I think it is, and it's gonna be at 0:13:36.200 --> 0:13:38.040 some point. But I think right now what people are 0:13:38.120 --> 0:13:41.000 concerned about is is the FED gonna tip us over 0:13:41.120 --> 0:13:43.719 into a recession or we're gonna eke this through with 0:13:43.840 --> 0:13:46.959 the maybe modest growth that probably is subpar. And I 0:13:47.000 --> 0:13:49.920 think that that's the big question. If we go into recession, 0:13:49.960 --> 0:13:52.240 people are concerned that spreads will back out further and 0:13:52.440 --> 0:13:55.360 bond prizes will drop further. If we don't, then maybe 0:13:55.559 --> 0:13:59.040 it's an attractive by right now. All right, So if 0:13:59.120 --> 0:14:02.280 we wanted to dip bar tow in the high yield space, 0:14:02.640 --> 0:14:04.400 I still have a specter that I might have a 0:14:04.520 --> 0:14:08.079 recession sometimes in my investment outlook of the next couple 0:14:08.120 --> 0:14:10.720 of years. So does that suggests that I really try 0:14:10.800 --> 0:14:13.800 to just focus on the highest quality or do I 0:14:13.840 --> 0:14:16.280 still try to reach for some better yield. You know, 0:14:16.360 --> 0:14:18.319 it's interesting if you look, Paul, at the beginning of 0:14:18.440 --> 0:14:22.960 this year, when people's major concern with rates duration was 0:14:23.080 --> 0:14:26.440 driving the market, so double bees underperformed and single bees 0:14:26.440 --> 0:14:29.520 and triple c's outperformed. That shifted in May when it 0:14:29.600 --> 0:14:34.040 became clear that the concerns about inflation were more significant 0:14:34.080 --> 0:14:35.760 and the Fed really had to get its act together. 0:14:36.160 --> 0:14:38.360 Then we started to see double bees fade and single 0:14:38.440 --> 0:14:40.920 bees and triple c is underperformed. And that's where we 0:14:41.000 --> 0:14:42.840 are right now. Single bees are a little under the 0:14:42.880 --> 0:14:45.840 double b sector. We would suggest you're probably pretty safe 0:14:45.880 --> 0:14:48.640 and most double bees right now. If you type in 0:14:48.800 --> 0:14:54.000 D I S go and then UM, you click the 0:14:54.040 --> 0:14:58.240 button historical charts instead of just the spaghetti of numbers 0:14:58.280 --> 0:15:00.920 that you see there UM number of distress bonds traded 0:15:01.040 --> 0:15:04.000 distress issuers. We've spiked up again, not as high as 0:15:04.080 --> 0:15:07.560 we were in March of UM. But where are we going? 0:15:08.400 --> 0:15:10.480 Where are we going on? This chart. Well, I think 0:15:10.560 --> 0:15:12.920 from our perspective, the good news is if we have 0:15:13.040 --> 0:15:15.600 a recession, it's likely to be a pretty mild one. 0:15:15.640 --> 0:15:17.440 And and I'm not sure we're going to have a recession, 0:15:17.720 --> 0:15:19.520 but you know, there are some out there suggesting that 0:15:19.600 --> 0:15:22.880 defaults could hit ten percent by twenty four, which is 0:15:22.960 --> 0:15:25.240 like a great financial crisis level. Correct. And I think 0:15:25.280 --> 0:15:27.480 that's a ridiculous number if you're looking at it from 0:15:27.520 --> 0:15:29.640 a bottom up basis, and you're looking at the individual 0:15:29.720 --> 0:15:31.880 sectors and trying to figure out what's going to hit 0:15:31.960 --> 0:15:33.760 the fan. It's kind of hard to get to that 0:15:33.920 --> 0:15:36.520 kind of number when you do look at uh, look 0:15:36.560 --> 0:15:38.520 at it from bottoms up and and and study the 0:15:38.560 --> 0:15:40.840 individual sectors. What do you like? Well, I think you 0:15:40.880 --> 0:15:43.000 know that there are sectors out there that are pretty safe. 0:15:43.080 --> 0:15:46.360 Cable is largely safe. We would suggest that you've got 0:15:46.440 --> 0:15:49.920 sectors money, the healthcare sector is safe. Um, we would 0:15:49.960 --> 0:15:53.160 suggest that much of telecom is pretty safe. And energy, 0:15:53.320 --> 0:15:56.360 which has really been you know, a big bankruptcy candidate, 0:15:56.480 --> 0:15:59.040 and in previous years particularly, a lot of them got 0:15:59.120 --> 0:16:02.240 pulled down in each twenty that's obviously got the winded. 0:16:02.240 --> 0:16:04.480 It's back right now. Is a T T A high 0:16:04.520 --> 0:16:08.720 yield spiritus at investment grade. Well I noticed the A T. Yeah, hard, 0:16:08.840 --> 0:16:11.400 but it's it's still investment grade. And they've been very 0:16:11.520 --> 0:16:14.440 protective of that investment grade rating because they've got a 0:16:14.480 --> 0:16:16.080 lot of financing to do, because I know they took 0:16:16.120 --> 0:16:18.160 their free cash flow down a couple of billion dollars 0:16:18.240 --> 0:16:20.480 their outlook and I'm just I'm just reaching out to 0:16:20.600 --> 0:16:23.240 some you know, bond and als saying how bad is this? 0:16:23.600 --> 0:16:25.480 Is this for A T T? But it certainly was unexpected. 0:16:25.560 --> 0:16:27.520 That's the type of thing when you think about telecommon cable. 0:16:27.800 --> 0:16:31.000 They're good free cash flow stories until they're not because 0:16:31.000 --> 0:16:32.880 there's a lot of operating leverage there right there is. 0:16:32.960 --> 0:16:34.600 And I think but I think we've been we've been 0:16:34.640 --> 0:16:36.800 thinking that they're going to maintain that investment grade rating. 0:16:37.400 --> 0:16:40.080 I gotta talk with my colleagues post todays, obviously, but 0:16:40.360 --> 0:16:42.200 I think that our our our thought with that would 0:16:42.240 --> 0:16:44.560 remain the same. Yeah, boy, A T and T big 0:16:44.640 --> 0:16:47.320 big news out of their stocks down a big. Ken Monahan, 0:16:47.760 --> 0:16:49.600 thanks so much for joining us. Ken Monahan's a co 0:16:49.800 --> 0:16:54.080 director of High Yield for a Mundi US and like me, 0:16:54.280 --> 0:16:57.960 a former UH player at Solomon Brothers. Where you are 0:16:58.000 --> 0:17:01.000 Solomon Brothers alumni along with some other guy. Yeah, yeah, 0:17:01.160 --> 0:17:02.760 is he's sitting right over there. I think he's sitting 0:17:02.880 --> 0:17:06.639 right over there in the good seats. So we appreciate it. 0:17:11.040 --> 0:17:12.920 All right, Let's check in with Barry red Holt's post 0:17:13.000 --> 0:17:16.680 of Masters in Business, uh Chairman and chief investment Officer 0:17:16.760 --> 0:17:19.720 Red Holts Wealth Management. Barry, let's start with if you 0:17:19.720 --> 0:17:22.720 don't mind Europe, we've kind of had a European focused today, 0:17:22.800 --> 0:17:27.840 the ECB, Mario draggy stepping down. Um, we've got you know, 0:17:28.119 --> 0:17:30.960 gas coming back on or not so coming back on, 0:17:31.200 --> 0:17:34.800 lots of issues coming out of Europe today. As a 0:17:34.920 --> 0:17:37.639 fund manager here in the US, how do you kind 0:17:37.680 --> 0:17:41.600 of put that into perspective? Well, I'm excited. I'm excited 0:17:41.600 --> 0:17:45.800 about the euro parody and do some traveling overseas with 0:17:45.920 --> 0:17:50.920 a very strong dollar. That's that's pretty uh impressive. But look, 0:17:51.800 --> 0:17:56.120 you know, Europe is following the United States and they're 0:17:56.240 --> 0:18:00.680 raising rates because we're raising rates. They have inflation of inflation. 0:18:02.359 --> 0:18:07.520 It's a global economy. It's very challenging to treat one 0:18:07.760 --> 0:18:12.199 part of the developed world very differently from another. Uh. 0:18:12.520 --> 0:18:16.160 So you know, we We've just finished a ten year 0:18:16.359 --> 0:18:20.320 or twelve year period of US out performance versus Europe. 0:18:21.600 --> 0:18:25.439 I'm waiting for that wheel, that cycle to change. So far, 0:18:25.560 --> 0:18:30.320 we're seeing no signs it's gonna happen anytime soon. UM. 0:18:30.840 --> 0:18:33.359 As a US investor or, your clients, who are I 0:18:33.720 --> 0:18:38.320 assume mostly investors with US, how much how important is 0:18:38.359 --> 0:18:41.320 it to follow you know, the latest new government in 0:18:41.440 --> 0:18:45.800 Italy or Rischi Sunac versus liz Trust and the UK 0:18:46.480 --> 0:18:51.080 or UM, you know the Russian gas situation. How much 0:18:51.080 --> 0:18:54.040 does it matter to to U S investors? Well, if 0:18:54.119 --> 0:18:58.280 you want to be an informed individual, it certainly doesn't 0:18:58.359 --> 0:19:00.200 hurt to know what's going on in the con tent 0:19:01.200 --> 0:19:05.520 in the continent. But generally speaking, as an investor, all 0:19:05.600 --> 0:19:10.600 that stuff is noise and meaningless. You're buying broad assets, 0:19:10.680 --> 0:19:14.440 so you have a diversified portfolio and you're really just 0:19:14.840 --> 0:19:18.479 not paying attention to the day to day stuff. How 0:19:18.560 --> 0:19:22.200 many governments has Italy had and since World War Two? 0:19:23.840 --> 0:19:28.240 I mean, it's a full time job tracking Italian politics. 0:19:28.680 --> 0:19:34.360 So why does does any US based investor, other than 0:19:34.480 --> 0:19:38.920 to be a well rounded, wealth informed individual have to 0:19:39.080 --> 0:19:41.840 track the specifics of what's happening there. It's it's not 0:19:42.040 --> 0:19:45.320 crucial to them, all right. What I thought was interesting 0:19:45.359 --> 0:19:48.440 out of the earnings news flow today it was a 0:19:48.680 --> 0:19:52.439 T and T stuck getting crushed. Now they Barry called 0:19:52.440 --> 0:19:57.800 out some of their clients not paying their phone bill. Man, 0:19:57.920 --> 0:20:03.360 that says something about the consumer. I well, those kinds 0:20:03.400 --> 0:20:07.240 of things. We've seen some credit card delinquencies tick up. 0:20:07.520 --> 0:20:11.080 We've seen it always starts in the worst of the 0:20:11.400 --> 0:20:16.280 automobile loans. So like housing, there's subprime loans and there's 0:20:16.359 --> 0:20:21.639 sub subprime loans. The differences. If you have the weakest credit, 0:20:22.640 --> 0:20:26.480 a car company is going to install literally a kill switch, 0:20:26.560 --> 0:20:29.480 and if you stop making payments, they shut the car 0:20:29.600 --> 0:20:31.720 and they go get it. They know exactly where it is. 0:20:31.840 --> 0:20:35.800 So around the edges we're seeing these things tick up. 0:20:36.760 --> 0:20:40.200 It's not significant yet. It's certainly not a weight oh nine. 0:20:40.640 --> 0:20:42.600 But you pay attention to the ebbs and flows of 0:20:42.680 --> 0:20:46.440 these because you want to know is the household in 0:20:46.640 --> 0:20:50.800 good shape or are they dealing with financial pressures that 0:20:51.480 --> 0:20:55.280 could affect consumer spending, corporate revenues and profits. And the 0:20:55.359 --> 0:21:00.359 other question is, um how are companies deploying capital or 0:21:00.800 --> 0:21:03.840 are they starting to put up barriers as well. We've 0:21:04.080 --> 0:21:09.360 had a number of concerning uh job cut stories, starting 0:21:09.440 --> 0:21:12.040 with the kind of Apple may cut jobs in some 0:21:12.280 --> 0:21:14.320 units next year Scoop at the beginning of the week. 0:21:14.600 --> 0:21:19.719 But now we've got Um, Microsoft, Google, Lift, even Ford 0:21:20.440 --> 0:21:24.800 plans to cut eight thousand jobs. I mean, I'm desperately 0:21:25.119 --> 0:21:27.880 trying to buy any car I see on the lot. 0:21:28.400 --> 0:21:31.000 Why are they cutting jobs now? So Ford is a 0:21:31.240 --> 0:21:35.520 different case and the technology companies. Ford specifically said they're 0:21:35.520 --> 0:21:38.080 going to reduce some headcount in order to be able 0:21:38.119 --> 0:21:42.760 to fund further expansion of their ev production and sales. 0:21:43.760 --> 0:21:46.959 So Ford is moving into the future as aggressively as 0:21:47.000 --> 0:21:51.000 they can. When you look at Google, Apple, Microsoft, Amazon, 0:21:51.119 --> 0:21:54.680 go town the list six months ago, they were desperate 0:21:54.720 --> 0:22:00.320 to hire people, and arguably we're over hiring people. We're 0:22:00.400 --> 0:22:03.520 basically anybody who could father a Mira and and had 0:22:03.600 --> 0:22:08.080 the qualifications was offered a job at a certain point. 0:22:08.840 --> 0:22:12.280