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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Carol Masser, along

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Speaker 1: with Manis Crowny and Katie Greifeld. Join us each day

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Speaker 1: for insight from the best in economics, geopolitics, finance and investment.

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Speaker 1: Subscribe to Bloomberg Surveillance on demand at Apple, Spotify and

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Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot com,

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Speaker 1: the Bloomberg Terminal, and of course on the Bloomberg Business app.

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Speaker 2: Bcorny's more than double this year on hopes that the

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Speaker 2: SEC will approve that holy grail, the spot Bitcoin ETF

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Speaker 2: in the coming weeks.

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Speaker 3: We're waiting Beta breath.

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Speaker 1: We are all waiting, and so is Kathy Wood and

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Speaker 1: she joins us on this Thursday. Kathy Wood, of course, founder,

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Speaker 1: CEO and CIO of ARC invest. I'm Kathy. Merry Christmas,

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Speaker 1: Happy holidays, So great to have you here. Let's start

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Speaker 1: there with the news because we do have this story

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Speaker 1: on the Bloomberg tell tell us a little bit about

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Speaker 1: this overhaul and your thinking when it comes to how

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Speaker 1: you are thinking about the investment strategy for you guys,

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Speaker 1: specifically when it comes to crypto.

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Speaker 4: Sure, and Merry Christmas. Very happy to be here again Carol,

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Speaker 4: Katie and Massive. So we're as optimistic about bitcoin as

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Speaker 4: we ever have been, but there are a few regulatory

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Speaker 4: and tax uncertainties, and we had been waiting for the

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Speaker 4: discount between GBTC and NAV to narrow. It was as

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Speaker 4: high as fifty percent at one point last year when

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Speaker 4: there was great uncertainty around all of the turmoil in

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Speaker 4: crypto generally, and now it's a single digit and there

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Speaker 4: are now other products out there that we can use

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Speaker 4: to gain exposure to bitcoin in this moment, and it's

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Speaker 4: just a moment of uncertainty between now we think and

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Speaker 4: January January eighth to tenth, somewhere in that range perhaps,

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Speaker 4: but well out of an abundance of caution, didn't want

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Speaker 4: to take any risk.

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Speaker 5: And I mean, let's get a little bit specific here,

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Speaker 5: because we're talking about the ARC Next Generation Internet ETF.

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Speaker 5: The ticker there is ARC W and I think what

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Speaker 5: caught a lot of people's attentions is that you completely

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Speaker 5: sold down your remaining stake of the Grayscale Bitcoin Trust.

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Speaker 5: Instead on the same day you bought into the pro

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Speaker 5: Shares Bitcoin Strategy ETF. Of course, that tracks bitcoin futures,

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Speaker 5: it doesn't actually hold the physical bitcoin.

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Speaker 6: Can you explain that shuffle? What was the thinking there?

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Speaker 7: Sure a couple of things.

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Speaker 4: First of all, Biddo with pro shares is already approved.

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Speaker 4: There's no regulatory uncertainty having to do with it, so

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Speaker 4: we chose to maintain our exposure through biddo for the

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Speaker 4: time being. And as I mentioned before, there are some

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Speaker 4: tax and regulatory uncertainties still as part of this process.

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Speaker 4: We don't know exactly who's going to be approved and

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Speaker 4: whether they've met all the criteria that the SEC has

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Speaker 4: put before us. We know we have, but we don't

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Speaker 4: know if others, including GBTC have We just don't know.

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Speaker 4: So again, out of an abundance of caution and gbt's

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Speaker 4: discount again it was as much as fifty percent relative

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Speaker 4: to NAV. So not only have we enjoyed this year

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Speaker 4: the run in bitcoin itself, but we've had the nice

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Speaker 4: closing of that discount, so it's been double good news

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Speaker 4: for us.

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Speaker 1: But you've talked about January tenth, Kathy, I think in

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Speaker 1: another report, is that possible, whether it's you or somebody else,

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Speaker 1: in terms of the first spot Bitcoin ETF actually getting approval.

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Speaker 4: Well, we think the probabilities have gone up because the

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Speaker 4: SEC has been highly engaged compared to what was happening before.

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Speaker 7: Before it was just denying.

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Speaker 4: Approval, denying approval, and we just kept putting our filing

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Speaker 4: in again, you know, try, try.

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Speaker 7: Try, dogged and determined, and so here we are.

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Speaker 4: We think we're first in line, and that's why there

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Speaker 4: is this January tenth deadline.

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Speaker 7: But we like the idea that the.

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Speaker 4: SEC has been so engaged, and it's not just with us,

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Speaker 4: it's others as well. We think a number of a

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Speaker 4: number of funds could be approved at the same time.

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Speaker 4: And they've been asking not only one set of questions,

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Speaker 4: but follow up questions, and again that's a very good sign.

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Speaker 1: Well, speaking of engaged, Oh go ahead, please, no, no, no, no.

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Speaker 4: The last few questions have been very technical and so

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Speaker 4: more dirriger and you know, you'd expect them to be

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Speaker 4: asking these questions as we head toward an approval. Now

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Speaker 4: it's not one certain and so we want to make

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Speaker 4: that clear as well. This is the SEC, and we

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Speaker 4: never know, you know, what might happen along the way.

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Speaker 1: Regulators can be tricky, that's for sure. Hey, listen, you

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Speaker 1: mentioned engagement. Let's talk about engagement with your funds overall,

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Speaker 1: and especially the ARC Innovation Fund, up seventy two percent

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Speaker 1: year to date, easily outperforming some of the major market benchmarks,

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Speaker 1: still down sixty five percent from the high back in

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Speaker 1: February of twenty twenty one. For you, though, a lot

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Speaker 1: of critics, we bring up your name, we bring up ARC,

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Speaker 1: and you have a lot of fans, and you have

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Speaker 1: a lot of critics. There's a lot of discussion. Does

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Speaker 1: it feel though a little bit like a victory lap

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Speaker 1: this year?

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Speaker 4: Well, you know, we are very happy that a couple

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Speaker 4: of things have happened that this idea that interest rates

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Speaker 4: we're going to continue moving higher has been proven incorrect.

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Speaker 7: And I think even the.

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Speaker 4: FED, while there is that small possibility, even the FED

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Speaker 4: is now starting to talk about the other side of

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Speaker 4: the interest rate movement. So I do believe all we've

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Speaker 4: seen so far is a reaction to that macro phenomenon

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Speaker 4: or judgment call. We went through our flagship strategy, and

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Speaker 4: all of our strategies went through a very difficult time

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Speaker 4: from February twenty one through December of twenty two, as

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Speaker 4: interest rates, first of all, were presumed to move up

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Speaker 4: or forecasts move up, and then when they did move up,

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Speaker 4: so it was almost like a double discounting.

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Speaker 7: And so we've seen the first.

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Speaker 4: Installment of the.

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Speaker 7: Correction.

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Speaker 4: There to the upside for our funds with this notion,

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Speaker 4: and it's again the forecast that interest rates will come down,

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Speaker 4: and we would presume that if they do come down

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Speaker 4: for the reasons we think they're going to come down,

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Speaker 4: the most important one being deflation, then our funds will

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Speaker 4: be in good shape because we are very our companies

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Speaker 4: thrive on deflation technologically and bold innovation is deflationary.

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Speaker 2: So, Kathy, a very good morning too. It's Manus the

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Speaker 2: first time we've met on So we're going to move

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Speaker 2: to a deflationary environment. We'll come back to the big

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Speaker 2: macrocoll in a moment. Just let's square it away before

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Speaker 2: I talk to you about the flows in the funds,

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Speaker 2: which is how much interest rate cuts do you presume?

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Speaker 2: Are you forecasting? Leave the forecast of everybody else's side? Well,

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Speaker 2: what do you what do you presume what happen next year?

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Speaker 4: Well, we put up a chart in one of our

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Speaker 4: in the in the Nose, which is a YouTube video

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Speaker 4: that I do every every month Employment Friday, and in

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Speaker 4: that chart you will find.

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Speaker 7: A ratio.

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Speaker 4: It's the metals to gold ratio, so metals price to

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Speaker 4: goal price, and there has been an extremely tight correlation

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Speaker 4: between that ratio and long term interest rates. In October

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Speaker 4: we published it or early November, and what you will

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Speaker 4: see is that was a very wide gap that had developed.

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Speaker 4: The metals to gold ratio was near its low for

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Speaker 4: the past twelve fifteen years, and interest rates were at

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Speaker 4: their highs five percent.

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Speaker 7: The correlation.

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Speaker 4: If you just eyeballed that chart, the correlation suggested that

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Speaker 4: rate should go to two percent. Now, maybe they won't

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Speaker 4: go all the way to two percent, but we think

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Speaker 4: that long term interest rates are way above where they're

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Speaker 4: going to end because of deflation.

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Speaker 2: Okay, well, let's we'll come back to that and see

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Speaker 2: why that we get to the two percent level. I've

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Speaker 2: got to ask you about the flows into the funds,

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Speaker 2: which is obviously you know, as Kyl just said, you've

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Speaker 2: got a bit of a victory lap going on at

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Speaker 2: the moment. But this is the first year of outflows.

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Speaker 2: Have those outflows stopped. You've had a great performance in

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Speaker 2: the back part of this year. Have the outflows stopped

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Speaker 2: and has that bleed stopped?

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Speaker 4: Yes, Well, we were very gratified at our asset retention

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Speaker 4: in twenty one and twenty In fact, we had net

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Speaker 4: inflows if you combine both years of more than eighteen

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Speaker 4: billion dollars and this year one, what might expect that

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Speaker 4: those who average down into the very steep declines that

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Speaker 4: we were seeing in twenty two.

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Speaker 7: Especially might take some profits.

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Speaker 4: So we have had I know, for our flagship strategy,

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Speaker 4: it's roughly five hundred million dollars in outflows, maybe for

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Speaker 4: all of our strategies one point eight million, so maybe

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Speaker 4: ten percent of the inflows that we enjoyed during twenty

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Speaker 4: one and twenty two. So again, we're very gratified and

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Speaker 4: grateful to our clients for the support that we continue

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Speaker 4: to receive.

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Speaker 3: So has the iflow stopped.

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Speaker 4: We have had days of on balance very recently, yes,

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Speaker 4: And I think part of this is many people do

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Speaker 4: tax management towards the end of the year, and so

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Speaker 4: some of the outflows might have been associated with clients

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Speaker 4: who got in at a high cost base and we're

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Speaker 4: just harvesting some tax losses.

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Speaker 7: But I think we're through that.

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Speaker 1: Do you find a little surprising though, Kathy, considering the

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Speaker 1: run up or do you I'm curious about the conversations

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Speaker 1: you do have with investors considering the year that you're having,

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Speaker 1: and then to see those flows, it's got to be

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Speaker 1: a little disheartening.

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Speaker 7: Yeah, oh no, no, no, no, not at all.

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Speaker 4: Actually, we put out a piece for a resolute our

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Speaker 4: distributor who and we basically showed them, if you rebalance

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Speaker 4: our strategy when there have been big moves one way

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Speaker 4: or the other, if you rebalance regularly or based on

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Speaker 4: a rule, like when the fund's up fifteen percent relative

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Speaker 4: to everything else, take some profits.

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Speaker 7: And what it.

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Speaker 4: Showed that study showed that if you are disciplined that

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Speaker 4: way that over any rolling five year period, it is

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Speaker 4: highly likely almost one hundred percent, I'm not quite sure

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Speaker 4: if it's quite that high, but that you will beat

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Speaker 4: the market, meaning as measured by the Nasdaq or the

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Speaker 4: SMP over a rolling five year period. And so a

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Speaker 4: lot of our funds are with advisors who are very

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Speaker 4: sophisticated and responded somewhat perhaps in this tax management part

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Speaker 4: of the year to that message.

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Speaker 1: Kathy would founder, CEO and CIO of ARC invest She's

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Speaker 1: joining Manis, of course, and Katie and myself here on

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Speaker 1: Bloomberg Surveillance Kathy, I feel like we can't talk. We

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Speaker 1: have to talk about Tesla. An Elon Muska, I know

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Speaker 1: you just had a conversation on Twitter X. This has

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Speaker 1: been I think from day one right in terms of

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Speaker 1: you starting out that you've had this investment in Tesla,

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Speaker 1: and I remember when we first talked and you were

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Speaker 1: getting started, you talked about him being the next Thomas

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Speaker 1: Edison and how his vehicles would turn the US economy

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Speaker 1: upside down. Having said that, there's an evolution and the

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Speaker 1: eed world has changed, how are you thinking it's still

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Speaker 1: a top holding? How are you thinking about the Teslas

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Speaker 1: story right now?

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Speaker 4: Well, first of all, Carol, thank you very much for

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Speaker 4: letting me interview that time.

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Speaker 7: That was nearly ten years ago.

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Speaker 4: Arquet is about to celebrate his tenth year anniversary and

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Speaker 4: you gave us that opportunity, so thank you. The world

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Speaker 4: is evolving, actually, I think even more closely to what

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Speaker 4: we expected, because we expected a lot of traditional auto

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Speaker 4: manufacturers to see the writing on the wall and rush

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Speaker 4: as quickly as they could into scaling big time into

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Speaker 4: electric vehicles. And what has happened recently both GM and

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Speaker 4: Ford have said we're stepping back. We're not going to

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Speaker 4: do this until it's profitable. The problem with that is,

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Speaker 4: in order to be profitable, they need to scale.

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Speaker 7: That's how this works.

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Speaker 4: These are learning curves that they are writing down, and

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Speaker 4: those are expressed in cost toclines. So the fact that

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Speaker 4: they're pulling back means there's more share for Tesla and

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Speaker 4: others who choose to go for it and CAVI.

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Speaker 5: I want to keep the conversation going on Elon Musk,

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Speaker 5: but I want to bring it to the Arc Venture Fund.

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Speaker 5: Of course, it's not an ETF. You invest in private

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Speaker 5: companies etc. In there, and you take a look at

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Speaker 5: the portfolio. You have SpaceX in there, and you also

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Speaker 5: have X formerly known as Twitter. And in July you

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Speaker 5: had told the Wall Street Journal that you had written

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Speaker 5: down your Twitter steak by forty seven percent. Fill us

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Speaker 5: in on the past couple of months. Have you written

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Speaker 5: it down further or how has that changed?

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Speaker 8: No?

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Speaker 4: I think it's still there. You know, we have to

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Speaker 4: be very careful. This is an interval fund. It is

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Speaker 4: a forty act fund, and we have to mark to

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Speaker 4: market every day. The good news is our clients can

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Speaker 4: get in and have access to these amazing companies for

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Speaker 4: just five hundred dollars and they get quarterly liquidity, so

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Speaker 4: that's the good news.

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Speaker 7: The markdowns are.

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Speaker 4: Simply you know, if we see in the secondary market

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Speaker 4: employee stock trading at a steep discount, we have to

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Speaker 4: take that into account. If we see others in the

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Speaker 4: more traditional asset management work world, like Fidelity and others

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Speaker 4: marking their holdings down, we need to take that into

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Speaker 4: consideration during our daily mark to market. So it's an

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Speaker 4: abundance of caution. We have a five year investment time horizon.

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Speaker 7: Do we think that's.

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Speaker 4: Where X belongs in terms of valuations? Absolutely not, absolutely not.

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Speaker 4: A roughly twenty ish billion dollar valuation for what we

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Speaker 4: believe truly will become the everything app think we chat pay.

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Speaker 4: Elon started his entrepreneurial career in the payment's industry, and

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Speaker 4: he's been thinking about this for a long time. He

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Speaker 4: now has money transmitter licenses in more than half of

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Speaker 4: all of the states, which we've learned on Twitter spaces

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Speaker 4: or on x spaces, i should say the other day

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Speaker 4: when we had our interview with him. So that's exciting.

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Speaker 7: He's going for it.

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Speaker 6: He's going for it. We'll see if that one lands.

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Speaker 5: But let's talk a little bit more about the private markets,

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Speaker 5: because obviously the private credit market has gotten a lot

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Speaker 5: of attention. Right now, you're looking at the private markets

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Speaker 5: through this interval fund that you have, when you think

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Speaker 5: about the opportunities there on that five year horizon that

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Speaker 5: you have, do you see more so in the public

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Speaker 5: markets or in the private markets right now?

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Speaker 4: Well, now that we've had this very nice run this year,

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Speaker 4: we think the answer to that question is in the

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Speaker 4: private markets.

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Speaker 7: They're close. They're close.

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Speaker 4: What's fascinating to us is that the public markets have

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Speaker 4: been the private markets for the past three years. As

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Speaker 4: our funds were were falling in twenty one, private evaluations

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Speaker 4: were going to all time highs along with the Nasdaq.

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Speaker 4: They were taking their cues, I suppose from the Nasdaq,

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Speaker 4: but real innovation, if you looked at our portfolios, was

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Speaker 4: starting to revalue to the downside, and even more so

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Speaker 4: in twenty twenty two. We are still seeing major down

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Speaker 4: rounds taking place in the private markets. And I'm always

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Speaker 4: surprised at this sort of thing because you would think

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Speaker 4: that the private markets lead the public markets. That has

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Speaker 4: not been the case in the last few years.

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Speaker 1: Hey, Kathy, I've got to be honest with you. I

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Speaker 1: think whenever we think about Elon Musk brilliant but also erratic.

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Speaker 1: And I'm curious how you think about Elon the individuals

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Speaker 1: versus Elon the companies he's creating the things he's doing,

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Speaker 1: because I think if there is time, any other CEO

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Speaker 1: of a major publicly held company would I think it's

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Speaker 1: safe to say not be able to get away with

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Speaker 1: a lot of what he has done. So help us

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Speaker 1: educate us how you make sense of it of someone

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Speaker 1: you have followed, talked with for many years.

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Speaker 4: Well, first of all, very often we just look at

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Speaker 4: what he does, not exactly what he's saying, which can

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Speaker 4: often be a distraction, or it can be an advertisement

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Speaker 4: for his cars or for X or for SpaceX and

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Speaker 4: so forth. But we have a scoring system as we

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Speaker 4: are evaluating companies and their founders and their management teams.

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Speaker 4: And there are six metrics and one of them is

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Speaker 4: mote and barriers to entry.

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Speaker 7: And I think Eylon is a.

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Speaker 4: Maestro of raising barriers to entry with innovation, which that

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Speaker 4: is so much faster than anyone else. Why Because he's

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Speaker 4: so first principles physics driven in his analysis of how

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Speaker 4: to approach a new idea, A big idea.

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Speaker 3: So tell me this then, Kathy.

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Speaker 2: I mean, if you look at the cohort of the

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Speaker 2: CEOs that you back, Brian Armstrong, does he hit that bar?

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Speaker 3: Is he above Elon? Or is he at the money?

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Speaker 2: You've got Elon, You've got Brian, You've got Tony Wood

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Speaker 2: at Rocco.

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Speaker 3: Does anybody come close to Elon?

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Speaker 2: Or is Brian Armstrong maybe even at the money with

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Speaker 2: Elon or above?

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Speaker 4: Well, we don't actually look at the world that way,

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Speaker 4: one relative to the other.

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Speaker 7: In terms of management teams, we do look.

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Speaker 4: From our scoring system at the scores, which include mote management,

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Speaker 4: people and culture, execution of valuation that might surprise people,

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Speaker 4: and product and service.

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Speaker 7: Leadership and thesis risk.

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Speaker 4: Those are the six scores, and both well, all three

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Speaker 4: of them score very highly. Which one scores the highest.

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Speaker 4: They're actually very close to one another.

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Speaker 2: To be honest, they're very close to one another. So,

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Speaker 2: I mean, obviously Coinbase is one of your key holdings.

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Speaker 2: We've talked a little bit about that. The other feature

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Speaker 2: that we want to talk about is AI. I'm curious

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Speaker 2: to know in open AI the valuations have ranged between

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Speaker 2: eighty billion to one hundred billion. Will you take a

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Speaker 2: position in open ai. Is that going to be part

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Speaker 2: of your holdings as you explore the next development of

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Speaker 2: AI and your holdings well.

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Speaker 4: In our private portfolios, we are already exposed to Andthropic,

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Speaker 4: which has been a major beneficiary of the drama around

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Speaker 4: open ai that we all witnessed a few months ago.

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Speaker 4: But if you look at GPT four, which is the

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Speaker 4: latest large language model that open ai has published, it

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Speaker 4: is way above others in terms of performance. So there

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Speaker 4: you have it, the pros and the cons. So we

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Speaker 4: can't tell you what we're going to do in that portfolio,

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Speaker 4: but we are so impressed at how open ai has

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Speaker 4: led the industry. We're also impressed, however, at the open

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Speaker 4: source models, and we'd like to encourage.

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Speaker 7: More of that movement.

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Speaker 4: We know that Meta Platforms has with Lamaitu and it's

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Speaker 4: working on others, is moving very quickly and making great strides.

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Speaker 4: So for much lower cost open sources, free companies can

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Speaker 4: get close at GPT four, but close. So we want

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Speaker 4: to see the open source movement in the venture fund.

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Speaker 4: We also own.

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Speaker 1: Kathy Oh sorry, no, no, no, We never have enough

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Speaker 1: time with you. Can I ask you really quick question?

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Speaker 1: Five seconds? An ATF's coming our way from you guys

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Speaker 1: next year.

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Speaker 4: Well real quickly, as you may know, we bought a

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Speaker 4: company in London.

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Speaker 7: Yeah, they have some very interesting funds.

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Speaker 1: All right, Gonna leave it there. Like we said, we

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Speaker 1: always leave our audience wanting more from you. But we

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Speaker 1: so appreciate all the time you gave us. Happy New

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Speaker 1: year of course. Kathy Wood, founder CEO CIO of ARC Investigator.

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Speaker 1: Let's do what Lara Raim has to say. She's chief

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Speaker 1: US economist at FS Investments, joining us on this Thursday. Lara,

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Speaker 1: great to have you here with the team. So let's

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Speaker 1: go to jobless claims. First of all, is that significant

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Speaker 1: in terms of that uptick?

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Speaker 9: So this one month of readings is not significant. But

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Speaker 9: this indicator, to me is one of my most watched indicators.

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Speaker 9: The fact that it's been low really Carol uninterruptedly for

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Speaker 9: months and months now to me says that while their

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Speaker 9: concerns about you know, the labor market renormalizing or people

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Speaker 9: are starting to talk about tracks in the labor market,

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Speaker 9: when I look at this indicator, I see companies still

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Speaker 9: really eager to hold on to workers. They may be

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Speaker 9: taking more time to rehire if somebody's lost. They may be,

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Speaker 9: you know, a little more rational about job openings, but

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Speaker 9: when it comes to layoffs, companies are very closely guarding

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Speaker 9: their workers, and I think that has big implications. It

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Speaker 9: has had throughout this last year and going into next

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Speaker 9: year means that it's one of the reasons why the

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Speaker 9: economy has been a lot stronger than and a lot

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Speaker 9: of us expected.

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Speaker 1: So the labor hoarding continues. I want to ask you

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Speaker 1: about Joemo replacing Fomo, what exactly are we talking about.

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Speaker 9: My idea for the coming year is that, you know,

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Speaker 9: the business cycle lives and dies around the consumer, and

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Speaker 9: the consumer has just been surprising with spending strength throughout

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Speaker 9: this expansion that is still a very young expansion. The FOMO,

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Speaker 9: you know, we have to now's the time to spend.

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Speaker 9: We put it off, we have to go take the trip,

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Speaker 9: buy the car, whatever it is. We're going to find

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Speaker 9: a way to do it. That is going to be

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Speaker 9: replaced by a more moderate sort of Joe Moo joy

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Speaker 9: of missing out. It's just a way of saying that

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Speaker 9: people may choose to have more staycations, they may start

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Speaker 9: to be a little more budget conscious. That's not to

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Speaker 9: say that household budgets are in trouble, but we know

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Speaker 9: that credit card debt is high now and interest rates

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Speaker 9: on credit cards are unlike home mortgages, they're not fixed right,

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00:23:43,080 --> 00:23:46,159
Speaker 9: they are moving up fast. So it's this idea that

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Speaker 9: over the next year, we're still going to have a

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Speaker 9: healthy consumer. We have a healthy jobs market. We are

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Speaker 9: not going to get the consumer in contraction, but you're

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Speaker 9: going to have a consumer that's maybe a little more

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Speaker 9: moderate and maybe decides that they can wait a little

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Speaker 9: bit or defer some joy instead of taking it all.

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Speaker 1: Right now, I think we have a new T shirt

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Speaker 1: and hat and a coat.

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Speaker 2: Joe needs to make itize weaponized fomo.

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Speaker 3: This is our guest the other day.

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Speaker 2: By the way, our guests the other day said that

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Speaker 2: we all had weaponized. We have weaponized formo. But now

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Speaker 2: you've christened you on Joe, mo.

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Speaker 3: I love it.

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Speaker 2: It's almost like it can be a boy band or

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Speaker 2: or a band of a band of many.

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Speaker 3: I want to know.

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Speaker 7: Catch on by midyear.

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Speaker 9: You won't believe it.

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Speaker 2: You are in the camp of uncomfortably high inflation in

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Speaker 2: twenty twenty four. Now does that just mean we get

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Speaker 2: stuck where we are because the disinflation has been really

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Speaker 2: quite quite aggressive. One could say, but you say we're

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Speaker 2: going to get persistently high inflation, what is that going

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Speaker 2: to do?

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Speaker 3: Is that going to mar the sort of.

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Speaker 2: The clarion call for multi rate cuts of one hundred

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Speaker 2: and fifty basis points in the US?

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Speaker 9: I think, I think we do get stuck where we are,

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Speaker 9: and I would argue that where we is uncomfortably high.

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Speaker 9: And I think it does three big things. The first

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00:25:04,440 --> 00:25:08,400
Speaker 9: one is that it keeps this wet blanket on consumer sentiment.

442
00:25:09,080 --> 00:25:13,919
Speaker 9: You know, we've seen this trend of households spending a lot,

443
00:25:14,119 --> 00:25:18,080
Speaker 9: but also in surveys being very downbeat about the economy.

444
00:25:18,119 --> 00:25:20,800
Speaker 9: I think that gap has to close, and I think

445
00:25:20,840 --> 00:25:25,520
Speaker 9: it closes more towards spending decelerating, and part of that

446
00:25:25,640 --> 00:25:29,440
Speaker 9: is the inflation picture and partly the housing affordability picture too.

447
00:25:29,680 --> 00:25:32,480
Speaker 9: The second thing it does is give the FED less

448
00:25:32,680 --> 00:25:37,359
Speaker 9: room to maneuver. I don't think that, you know, six

449
00:25:37,480 --> 00:25:42,080
Speaker 9: rate hikes in a non recessionary economy is a likely outcome.

450
00:25:42,480 --> 00:25:45,840
Speaker 9: I could see them strategically trying to cut rates, but

451
00:25:46,119 --> 00:25:49,280
Speaker 9: the reality is that with inflation where it is today,

452
00:25:49,760 --> 00:25:52,639
Speaker 9: it's very hard for me to see them just making

453
00:25:52,680 --> 00:25:55,480
Speaker 9: the deep sort of programmatic costs that they do when

454
00:25:55,480 --> 00:25:58,080
Speaker 9: we're seeing a recession. And the third thing it does

455
00:25:58,200 --> 00:26:02,560
Speaker 9: is really challenge fixed income investors. I think everybody looks

456
00:26:02,600 --> 00:26:05,400
Speaker 9: at you know, the two year four and a quarter,

457
00:26:05,960 --> 00:26:07,560
Speaker 9: they think that this is a you know, it is

458
00:26:07,600 --> 00:26:10,800
Speaker 9: a multi decade high, is right? It seems like a

459
00:26:10,960 --> 00:26:13,760
Speaker 9: very good investment. When you think about inflation at four

460
00:26:13,800 --> 00:26:17,120
Speaker 9: percent versus two percent, your real return is much smaller

461
00:26:17,119 --> 00:26:17,800
Speaker 9: than you'd think.

462
00:26:18,280 --> 00:26:20,960
Speaker 5: Should we be talking about the possibility of another rate

463
00:26:21,040 --> 00:26:24,440
Speaker 5: hike here? You mentioned that against this sticky inflation backdrop,

464
00:26:24,520 --> 00:26:28,000
Speaker 5: six rate cuts maybe looks unrealistic. Is there a possibility

465
00:26:28,040 --> 00:26:30,080
Speaker 5: that the Fed has to hike rates again in twenty

466
00:26:30,119 --> 00:26:30,640
Speaker 5: twenty four?

467
00:26:31,560 --> 00:26:33,960
Speaker 9: You know, I was one of the last holdouts saying

468
00:26:33,960 --> 00:26:37,280
Speaker 9: that they would raise rates in the fourth quarter. Obviously

469
00:26:37,320 --> 00:26:40,040
Speaker 9: that didn't happen. I think from here, they're messaging has

470
00:26:40,080 --> 00:26:45,600
Speaker 9: really changed. They've talked about rate cuts being not an if,

471
00:26:45,640 --> 00:26:49,679
Speaker 9: but a when. So the more likely scenario to me

472
00:26:49,800 --> 00:26:52,560
Speaker 9: is if data really surprised the upside, or we get

473
00:26:52,840 --> 00:26:57,320
Speaker 9: you know, inflation data that really harms their you know,

474
00:26:57,440 --> 00:27:01,480
Speaker 9: goals to cut rates, they would instead just hold rates steady. Here,

475
00:27:02,000 --> 00:27:05,280
Speaker 9: I think it's important to harken back to the mid nineties,

476
00:27:05,720 --> 00:27:07,760
Speaker 9: and this is something that I really cover a lot

477
00:27:07,840 --> 00:27:11,159
Speaker 9: in my outlook for next year. Over forty years, we

478
00:27:11,280 --> 00:27:16,840
Speaker 9: do not have a good roadmap for non recessionary rate

479
00:27:16,880 --> 00:27:20,359
Speaker 9: cut scenarios, and the mid nineties is one of the

480
00:27:20,400 --> 00:27:25,320
Speaker 9: only episodes they cut three times over eight months, and

481
00:27:25,359 --> 00:27:28,200
Speaker 9: then they waited almost a year and they raised again.

482
00:27:28,760 --> 00:27:31,639
Speaker 9: So we have to be really, I think careful. We

483
00:27:32,040 --> 00:27:34,880
Speaker 9: just do not have a good roadmap. History is never

484
00:27:34,960 --> 00:27:38,080
Speaker 9: a perfect guide, but in this case, we are really,

485
00:27:38,240 --> 00:27:42,480
Speaker 9: i would say, in much more unchartered territory than markets believe.

486
00:27:42,240 --> 00:27:46,159
Speaker 5: Today, flying blind to some extent. There so clearly a

487
00:27:46,200 --> 00:27:50,440
Speaker 5: communication challenge for the Fed. Let's talk about the balance sheet, though,

488
00:27:50,440 --> 00:27:52,600
Speaker 5: because that's one of the big questions, and Paul did

489
00:27:52,640 --> 00:27:55,720
Speaker 5: get asked about this at this month's meeting. What happens

490
00:27:55,760 --> 00:27:57,359
Speaker 5: to the balance sheet if they do try to do

491
00:27:57,400 --> 00:28:01,280
Speaker 5: those sort of fine tuning rate cut and continue to

492
00:28:01,359 --> 00:28:04,800
Speaker 5: roll off the balance sheet on the you know, from

493
00:28:05,040 --> 00:28:07,200
Speaker 5: the outside looking in, that appears that the Fed is

494
00:28:07,240 --> 00:28:09,919
Speaker 5: working at cross purposes. How are you thinking about the

495
00:28:09,960 --> 00:28:13,560
Speaker 5: balance sheet in relation to their primary tool of interest rates?

496
00:28:14,880 --> 00:28:17,000
Speaker 9: I think you bring up an important point, which is

497
00:28:17,480 --> 00:28:22,200
Speaker 9: again speaks to the unique nature of easing monetary policy.

498
00:28:22,240 --> 00:28:25,520
Speaker 9: When we don't have a recession, it looks really different.

499
00:28:25,720 --> 00:28:27,840
Speaker 9: And I think, first of all, the FED would like

500
00:28:27,880 --> 00:28:30,320
Speaker 9: to get out of the balance sheet manipulation game. I

501
00:28:30,359 --> 00:28:33,480
Speaker 9: don't think it's a place where they've been comfortable, so

502
00:28:33,840 --> 00:28:36,000
Speaker 9: I think, to the best exset that they can, they'd

503
00:28:36,040 --> 00:28:38,720
Speaker 9: like to de emphasize that as a policy tool, and

504
00:28:38,760 --> 00:28:41,160
Speaker 9: I think that's what they're trying to do right now.

505
00:28:41,720 --> 00:28:46,120
Speaker 9: But I also look at the broader treasury landscape, because

506
00:28:46,240 --> 00:28:50,640
Speaker 9: over the coming year we need to roll to almost

507
00:28:50,840 --> 00:28:55,360
Speaker 9: ten trillion nine point seven trillion dollars of treasury debt

508
00:28:55,520 --> 00:28:58,800
Speaker 9: the matures within the next twelve months. Three years ago

509
00:28:59,040 --> 00:29:02,080
Speaker 9: that was only five trillion. So when I look at

510
00:29:02,280 --> 00:29:05,760
Speaker 9: long term interest rates, my expectation is that we will

511
00:29:05,800 --> 00:29:10,080
Speaker 9: continue to hold or this drift up pattern throughout the

512
00:29:10,120 --> 00:29:12,959
Speaker 9: next year, sort of holding the same three fifty to

513
00:29:13,000 --> 00:29:16,840
Speaker 9: five percent range that we held this last year. And

514
00:29:17,040 --> 00:29:19,720
Speaker 9: the reason for that is because you know, we think

515
00:29:19,760 --> 00:29:23,040
Speaker 9: about the YO curve today deeply inverted, but if we

516
00:29:23,080 --> 00:29:24,720
Speaker 9: do get a soft landing.

517
00:29:24,800 --> 00:29:27,120
Speaker 10: That will probably correct at some.

518
00:29:27,200 --> 00:29:29,960
Speaker 7: Point through some rate cuts.

519
00:29:30,000 --> 00:29:32,640
Speaker 9: But also some drift higher and long term interstrates a

520
00:29:32,920 --> 00:29:34,160
Speaker 9: very different outlook.

521
00:29:34,400 --> 00:29:37,240
Speaker 1: Twenty seconds really quickly. Are you rolling out a recession

522
00:29:37,440 --> 00:29:39,240
Speaker 1: for the US next year completely?

523
00:29:40,440 --> 00:29:42,920
Speaker 9: I'm not completely rolling out a recession, Carol. I think

524
00:29:42,960 --> 00:29:45,280
Speaker 9: so many of us tripped on the landmine and now

525
00:29:45,320 --> 00:29:48,440
Speaker 9: feel a little bit shy to come out and talk

526
00:29:48,480 --> 00:29:51,480
Speaker 9: about a recession next year. I think the risks are

527
00:29:51,520 --> 00:29:54,560
Speaker 9: still elevated. We need to look at traditional bank lending,

528
00:29:54,600 --> 00:29:56,720
Speaker 9: We need to look at the lagged defects of higher

529
00:29:56,720 --> 00:30:00,280
Speaker 9: interest rates. My forecast, though, is for slower growth, not

530
00:30:00,400 --> 00:30:00,960
Speaker 9: a recession.

531
00:30:01,160 --> 00:30:03,240
Speaker 1: All right, On that note, we're going to say happy

532
00:30:03,280 --> 00:30:06,800
Speaker 1: New Year, Lara. Always appreciate all the time you give Bloomberg,

533
00:30:06,840 --> 00:30:09,400
Speaker 1: Lara Raim, of course, of FS Investments.

534
00:30:12,840 --> 00:30:16,000
Speaker 2: Mona Maha jan is standing by senior investment strategist over

535
00:30:16,520 --> 00:30:17,240
Speaker 2: Edward Jones.

536
00:30:17,240 --> 00:30:18,120
Speaker 3: A very good morning to you.

537
00:30:18,160 --> 00:30:20,200
Speaker 2: The nasdag's up fifty five percent, The S and P

538
00:30:21,000 --> 00:30:26,160
Speaker 2: is desperately trying to make a new record high. Do

539
00:30:26,200 --> 00:30:29,400
Speaker 2: you think we're going to shift a little bit more

540
00:30:29,400 --> 00:30:32,440
Speaker 2: aggressively into the new year to a full bull mode

541
00:30:32,640 --> 00:30:34,400
Speaker 2: or will there be you know, a bit of pulling

542
00:30:34,480 --> 00:30:37,600
Speaker 2: back Once Pole and the other fed members get into

543
00:30:37,720 --> 00:30:39,160
Speaker 2: jawbony mode in January.

544
00:30:39,160 --> 00:30:43,440
Speaker 8: Good morning, Yes, thanks Manas, And certainly you've brought up

545
00:30:43,640 --> 00:30:45,280
Speaker 8: probably one of the key points that we've been thinking

546
00:30:45,280 --> 00:30:47,440
Speaker 8: about in recent weeks. Now, Look, certainly this has been

547
00:30:47,480 --> 00:30:50,680
Speaker 8: a phenomenal probably eight weeks or so for the S

548
00:30:50,680 --> 00:30:52,719
Speaker 8: and P five hundred, and you have to kind of

549
00:30:53,000 --> 00:30:54,800
Speaker 8: you can't ignore the fact that the nature of this

550
00:30:54,920 --> 00:30:57,280
Speaker 8: rally has shifted a bit. You know, we started the

551
00:30:57,320 --> 00:31:01,160
Speaker 8: year really driven by that Magnificent seven, a large technology trade,

552
00:31:01,240 --> 00:31:03,080
Speaker 8: and over the last few weeks we have seen a

553
00:31:03,120 --> 00:31:06,600
Speaker 8: broadening of participation, whether it's value cyclical parts of the market,

554
00:31:06,600 --> 00:31:08,880
Speaker 8: whether it's small and MidCap parts of the market, whether

555
00:31:08,920 --> 00:31:11,640
Speaker 8: it's bond markets, all of which have played some catch

556
00:31:11,720 --> 00:31:14,560
Speaker 8: up in recent weeks. We think that's a healthy sign. Certainly,

557
00:31:14,560 --> 00:31:17,840
Speaker 8: a lot of ingredients came together to kind of drive

558
00:31:17,880 --> 00:31:21,240
Speaker 8: this rally forward, and that included not only inflation moving lower,

559
00:31:21,240 --> 00:31:23,520
Speaker 8: but a FED that told us they're likely to pivot

560
00:31:23,560 --> 00:31:26,520
Speaker 8: next year, and of course bond markets and bond yields

561
00:31:26,560 --> 00:31:29,560
Speaker 8: that moved substantially lower. Now, to your point, as we

562
00:31:29,640 --> 00:31:31,920
Speaker 8: head into the new year, one we know markets can't

563
00:31:31,920 --> 00:31:35,560
Speaker 8: move up in a straight line. Indefinitely. And two, you know,

564
00:31:35,600 --> 00:31:37,920
Speaker 8: you give the markets an inch. FED talked about three

565
00:31:38,040 --> 00:31:40,560
Speaker 8: rate cuts, they take a mile. Markets are now pricing

566
00:31:40,560 --> 00:31:42,720
Speaker 8: in about six rate cuts for next year. So we

567
00:31:42,800 --> 00:31:45,200
Speaker 8: do think as we head into the new year there

568
00:31:45,240 --> 00:31:49,080
Speaker 8: could be some sparks and bounts of volatility, especially as

569
00:31:49,720 --> 00:31:52,000
Speaker 8: the markets and Fed FED go head to head on this,

570
00:31:52,040 --> 00:31:54,760
Speaker 8: and we do think the FED will push back. Keep

571
00:31:54,760 --> 00:31:57,440
Speaker 8: in mind, the first FED meeting is January thirty first,

572
00:31:57,680 --> 00:31:59,880
Speaker 8: there will be speakers between now and then as well.

573
00:32:00,120 --> 00:32:02,440
Speaker 8: We think they do take that opportunity to push back

574
00:32:02,440 --> 00:32:04,640
Speaker 8: on the six rate cuts that have been priced into

575
00:32:04,720 --> 00:32:07,720
Speaker 8: the market. Our view is we probably still get three

576
00:32:07,760 --> 00:32:10,440
Speaker 8: to four rate cuts next year, but they don't start

577
00:32:10,480 --> 00:32:13,080
Speaker 8: until later in the year, especially as a FED does

578
00:32:13,120 --> 00:32:15,440
Speaker 8: want to see that core inflation number move lower from

579
00:32:15,480 --> 00:32:17,760
Speaker 8: four percent to probably sub three percent.

580
00:32:17,840 --> 00:32:19,960
Speaker 1: A lot can happen in a month before that first

581
00:32:20,040 --> 00:32:22,680
Speaker 1: FED meeting. Having said that, I do undermoona how we've

582
00:32:22,720 --> 00:32:24,600
Speaker 1: been spending so much time this week. It's kind of

583
00:32:24,640 --> 00:32:27,240
Speaker 1: quieted down, but we've been watching very much what's going

584
00:32:27,240 --> 00:32:31,000
Speaker 1: on geopolitically. How does that potentially complicate what the FED

585
00:32:31,040 --> 00:32:31,760
Speaker 1: needs to do here?

586
00:32:32,920 --> 00:32:36,400
Speaker 8: Yeah, you know, look It's been an interesting year in geopolitics,

587
00:32:36,840 --> 00:32:39,720
Speaker 8: and certainly one way that that has manifested is through

588
00:32:39,720 --> 00:32:42,600
Speaker 8: the oil and energy markets. And certainly, when the Israeli

589
00:32:42,600 --> 00:32:46,440
Speaker 8: Gaza conflict first hit, we saw an immediate move higher

590
00:32:46,480 --> 00:32:49,600
Speaker 8: in oil prices, and we've seen since then a real

591
00:32:49,680 --> 00:32:52,920
Speaker 8: cooling in oil and energy. And perhaps part of the

592
00:32:52,920 --> 00:32:56,880
Speaker 8: reason is one that those players alone are not substantial

593
00:32:57,000 --> 00:33:00,520
Speaker 8: oil producers, but two, maybe there was this whole building

594
00:33:00,640 --> 00:33:03,400
Speaker 8: that the conflict would not escalate, and so we did

595
00:33:03,400 --> 00:33:06,479
Speaker 8: see an easing and oil and energy prices now that

596
00:33:06,600 --> 00:33:10,720
Speaker 8: is probably the closest asset class we're watching as geopolitics

597
00:33:10,800 --> 00:33:13,960
Speaker 8: unfolds in twenty twenty four. Our hope is that the

598
00:33:14,000 --> 00:33:17,320
Speaker 8: direction of travel does continue to go towards de escalation

599
00:33:17,480 --> 00:33:21,000
Speaker 8: rather than re escalation, and that would be positive for

600
00:33:21,080 --> 00:33:23,640
Speaker 8: stability in the oil and energy markets. So it's something

601
00:33:23,640 --> 00:33:26,080
Speaker 8: we're watching closely. Certainly the FED, we'll be watching it

602
00:33:26,080 --> 00:33:29,840
Speaker 8: from an inflationary perspective, especially as oil and energy plays

603
00:33:29,840 --> 00:33:34,280
Speaker 8: a key component of headline inflation. But as we think

604
00:33:34,280 --> 00:33:38,160
Speaker 8: about volatility heading into the new year, for those investors

605
00:33:38,160 --> 00:33:40,960
Speaker 8: that hadn't quite participated in this last few weeks, we

606
00:33:41,000 --> 00:33:45,240
Speaker 8: would say any volatility really provides an opportunity for investors

607
00:33:45,240 --> 00:33:48,120
Speaker 8: to get involved and position for potentially a continuation of

608
00:33:48,120 --> 00:33:49,680
Speaker 8: this broadening of market participation.

609
00:33:49,960 --> 00:33:52,120
Speaker 1: Also important to the economy is, of course, what the

610
00:33:52,120 --> 00:33:55,560
Speaker 1: consumer does. Ultimately, we still see a relatively tight labor market.

611
00:33:56,240 --> 00:33:57,880
Speaker 1: Having said that, we got to read on weekly job

612
00:33:57,920 --> 00:34:00,560
Speaker 1: list a little bit of an uptick, certainly today's. But

613
00:34:00,600 --> 00:34:02,760
Speaker 1: we talked with Larra Raim earlier who talked about companies

614
00:34:02,800 --> 00:34:05,040
Speaker 1: still holding on to their workers. They want to do that.

615
00:34:05,480 --> 00:34:09,400
Speaker 1: Can the consumer, as we talked earlier, moving from FOMO

616
00:34:09,480 --> 00:34:12,879
Speaker 1: fear of moving out to JOMO joy of missing out.

617
00:34:12,960 --> 00:34:14,480
Speaker 1: Maybe they've got bills to pay and they're going to

618
00:34:14,480 --> 00:34:18,799
Speaker 1: hold back. Can the consumer continue spending in the new year.

619
00:34:19,560 --> 00:34:21,880
Speaker 8: Yeah, it's a critical question. And I did hear the

620
00:34:21,960 --> 00:34:25,040
Speaker 8: Joemo phrase and I loved it. You know, we we

621
00:34:25,200 --> 00:34:27,840
Speaker 8: also are in the camp that the consumer is facing

622
00:34:27,880 --> 00:34:29,960
Speaker 8: some headwinds heading into the new year. And you know,

623
00:34:30,040 --> 00:34:33,320
Speaker 8: keep in mind we are coming from a very strong

624
00:34:33,640 --> 00:34:36,359
Speaker 8: position of strength from Q three of this year where

625
00:34:36,440 --> 00:34:39,640
Speaker 8: GDP growth was five percent nearly in consumption was four

626
00:34:39,680 --> 00:34:43,120
Speaker 8: percent roughly, and so from that high level, do we

627
00:34:43,160 --> 00:34:46,080
Speaker 8: think there could be a potential for a slowdown. Yes,

628
00:34:46,440 --> 00:34:49,560
Speaker 8: keep in mind for the consumer, excess savings have been

629
00:34:49,600 --> 00:34:54,120
Speaker 8: worked down. We are seeing still elevated interest rates, mortgage rates,

630
00:34:54,160 --> 00:34:56,520
Speaker 8: you know, despite the recent cooling, and of course bank

631
00:34:56,600 --> 00:34:59,440
Speaker 8: lending standards remain tight. Credit card debt, as we know,

632
00:34:59,600 --> 00:35:02,719
Speaker 8: is mo higher, and we're seeing some early signs of

633
00:35:02,960 --> 00:35:06,200
Speaker 8: delinquencies as well. So, all that being said, some challenges

634
00:35:06,239 --> 00:35:08,799
Speaker 8: facing the consumer as we're heading into the new year.

635
00:35:09,120 --> 00:35:12,120
Speaker 8: But we know the US consumer likes to spend and

636
00:35:12,200 --> 00:35:14,640
Speaker 8: does you know, does and can remain resilient in the

637
00:35:14,640 --> 00:35:15,960
Speaker 8: face of some challenges.

638
00:35:16,000 --> 00:35:19,520
Speaker 2: Consumer right to the very end, the last consumer to

639
00:35:19,520 --> 00:35:20,439
Speaker 2: put their credit card away.

640
00:35:20,640 --> 00:35:22,840
Speaker 6: Hard to bet against the US consumer.

641
00:35:22,880 --> 00:35:24,520
Speaker 5: But I want to bring this conversation back to the

642
00:35:24,520 --> 00:35:28,400
Speaker 5: markets because you mentioned participation, and something that we've been

643
00:35:28,400 --> 00:35:31,160
Speaker 5: talking about all week is that six trillion dollars that's

644
00:35:31,160 --> 00:35:33,960
Speaker 5: sitting in money market funds right now, and many a

645
00:35:34,040 --> 00:35:36,880
Speaker 5: bowl case has been built on the idea that basically

646
00:35:36,960 --> 00:35:39,480
Speaker 5: you'll see that cash come out of money market funds

647
00:35:39,520 --> 00:35:44,080
Speaker 5: and venture into risk assets, venture into equities and fixed income.

648
00:35:44,440 --> 00:35:47,200
Speaker 5: Is that your view as well, or maybe a little

649
00:35:47,200 --> 00:35:48,600
Speaker 5: bit of caution around that one.

650
00:35:49,160 --> 00:35:52,040
Speaker 8: Yeah, you know, we do think that part of the

651
00:35:52,440 --> 00:35:55,640
Speaker 8: money that has flown and it's been a tremendous inflow,

652
00:35:55,719 --> 00:35:58,400
Speaker 8: and you mentioned the six trillion dollar figure into CDs

653
00:35:58,440 --> 00:36:01,239
Speaker 8: and money markets. We think some of that money now

654
00:36:01,360 --> 00:36:05,080
Speaker 8: is starting, you know, as CD money comes due, as

655
00:36:05,200 --> 00:36:08,120
Speaker 8: investors are thinking about reinvestment risk, we think there is

656
00:36:08,200 --> 00:36:10,080
Speaker 8: a case to be made that the money that maybe

657
00:36:10,080 --> 00:36:12,680
Speaker 8: would have flown into your CD in money markets will

658
00:36:12,719 --> 00:36:15,520
Speaker 8: now start to flow into more traditional asset classes like

659
00:36:15,560 --> 00:36:18,640
Speaker 8: equities and bonds. And certainly there's a couple of reasons

660
00:36:18,680 --> 00:36:21,600
Speaker 8: for that. One of course, as a FED is potentially

661
00:36:21,920 --> 00:36:25,080
Speaker 8: embarking on a rate cutting path, we will have reinvestment

662
00:36:25,160 --> 00:36:28,360
Speaker 8: risk too. There is an opportunity cost to sitting in cash,

663
00:36:28,360 --> 00:36:31,360
Speaker 8: and hopefully investors are starting to see with the SMP

664
00:36:31,520 --> 00:36:34,800
Speaker 8: up twenty five percent, but even the bond market rallying

665
00:36:35,040 --> 00:36:38,160
Speaker 8: close to five percent in recent weeks gives you a

666
00:36:38,239 --> 00:36:41,280
Speaker 8: run for your money for traditional cash assets. And then thirdly,

667
00:36:41,560 --> 00:36:44,560
Speaker 8: you know, over time, over any thirty year period, we

668
00:36:44,760 --> 00:36:48,400
Speaker 8: have seen historically that cash has been a lot class.

669
00:36:48,520 --> 00:36:52,960
Speaker 8: So sure as we are thinking about our portfolios that

670
00:36:53,000 --> 00:36:56,080
Speaker 8: we're not too overweight cash and cash like instruments, and

671
00:36:56,440 --> 00:37:00,480
Speaker 8: we're strategically you know, allocated so that you can kind

672
00:37:00,480 --> 00:37:03,239
Speaker 8: of meet and exceed long term investment returns. And we

673
00:37:03,280 --> 00:37:05,680
Speaker 8: do think this year in particular will be a great

674
00:37:05,719 --> 00:37:08,799
Speaker 8: one to compliment. You know, we understand the reasoning to

675
00:37:08,800 --> 00:37:11,200
Speaker 8: get into these CDs rates are higher than we've seen

676
00:37:11,200 --> 00:37:14,360
Speaker 8: in recent history, but that could start to be trending

677
00:37:14,400 --> 00:37:17,200
Speaker 8: downwards and good time to start thinking about complementing CD

678
00:37:17,320 --> 00:37:19,760
Speaker 8: money with traditional equities and bonds.

679
00:37:20,160 --> 00:37:22,160
Speaker 6: Well, just to sit with this thought a little bit longer.

680
00:37:22,200 --> 00:37:25,160
Speaker 5: The pushback to that argument, basically that you're going to

681
00:37:25,160 --> 00:37:28,239
Speaker 5: see cash come off the sidelines that we've gotten is

682
00:37:28,239 --> 00:37:31,480
Speaker 5: that you think about that one trillion dollars that's come

683
00:37:31,480 --> 00:37:34,239
Speaker 5: into money market funds just from March, of course, and

684
00:37:34,280 --> 00:37:36,960
Speaker 5: the banking struggles that we had, then maybe that's going

685
00:37:37,000 --> 00:37:40,160
Speaker 5: to be stickier than usual, that it won't be you know,

686
00:37:40,239 --> 00:37:43,560
Speaker 5: this additional fuel that for equity markets and risk assets

687
00:37:43,600 --> 00:37:46,320
Speaker 5: that maybe we've seen in the past. What's you're thinking,

688
00:37:46,400 --> 00:37:47,759
Speaker 5: Does that hold water with you at all?

689
00:37:48,880 --> 00:37:51,400
Speaker 8: Yeah, you know, I do think we are going to

690
00:37:51,520 --> 00:37:55,719
Speaker 8: see a different portfolio construction in the next you know,

691
00:37:55,760 --> 00:37:58,759
Speaker 8: call it five to ten years. Even given that FED

692
00:37:58,760 --> 00:38:01,400
Speaker 8: funds rate are likely not move back to the zero bounds,

693
00:38:01,400 --> 00:38:03,680
Speaker 8: so you're probably looking at a FED funds rate over

694
00:38:03,719 --> 00:38:06,920
Speaker 8: time of three percent, and so in that environment, treasury

695
00:38:07,000 --> 00:38:10,080
Speaker 8: yields are probably somewhere between three and four percent themselves.

696
00:38:10,160 --> 00:38:13,319
Speaker 8: And so this idea that you had to be all

697
00:38:13,360 --> 00:38:16,640
Speaker 8: in inequities or all in in growth even probably doesn't

698
00:38:16,640 --> 00:38:19,040
Speaker 8: hold over the next several years. So we think there's

699
00:38:19,080 --> 00:38:22,680
Speaker 8: better balance between your equity and bond portfolio, and there

700
00:38:22,760 --> 00:38:26,480
Speaker 8: is more room for cash like instruments that are yielding

701
00:38:26,880 --> 00:38:30,040
Speaker 8: attractive values. And so you know we'd say is make

702
00:38:30,080 --> 00:38:33,480
Speaker 8: sure that you are thinking about not only equities, but

703
00:38:33,520 --> 00:38:36,520
Speaker 8: think about investment grade bonds to complement some of that

704
00:38:36,600 --> 00:38:39,879
Speaker 8: money market cash like instruments. So we do think there

705
00:38:39,960 --> 00:38:42,960
Speaker 8: is a place for cash and CDs, but we think

706
00:38:43,000 --> 00:38:45,960
Speaker 8: that it's important to think about investment grade bonds. Not

707
00:38:46,040 --> 00:38:48,520
Speaker 8: only are you locking in some of those longer, better

708
00:38:48,640 --> 00:38:51,240
Speaker 8: yields for a longer period, but you get the potential

709
00:38:51,280 --> 00:38:54,239
Speaker 8: for appreciation if fields continue to move lower as well.

710
00:38:54,280 --> 00:38:56,359
Speaker 8: So just some kind of alternative.

711
00:38:56,040 --> 00:38:58,920
Speaker 2: Just on those investment grade bonds, just briefly here before

712
00:38:58,960 --> 00:39:04,279
Speaker 2: we go, is perhaps an alternative to equity exposure in

713
00:39:04,360 --> 00:39:06,640
Speaker 2: the mag seven if you want to diversify more broadly

714
00:39:06,800 --> 00:39:09,120
Speaker 2: away from MAG seven on the equity side, Can I

715
00:39:09,160 --> 00:39:12,000
Speaker 2: look at the IG bond side off the MAG seven

716
00:39:12,160 --> 00:39:16,040
Speaker 2: as perhaps a slot on the board that the IG

717
00:39:16,239 --> 00:39:17,160
Speaker 2: component makes up.

718
00:39:18,239 --> 00:39:20,480
Speaker 8: Yeah, you know, that is a very interesting call out,

719
00:39:20,480 --> 00:39:21,840
Speaker 8: and I do think that's a way to play it

720
00:39:21,880 --> 00:39:24,120
Speaker 8: as well, if you're thinking about some of the growth

721
00:39:24,120 --> 00:39:25,640
Speaker 8: parts of the market and want to play it from

722
00:39:25,680 --> 00:39:29,280
Speaker 8: the bond perspective that you know, these are the companies

723
00:39:29,320 --> 00:39:32,920
Speaker 8: that are very cash rich, that will probably make good

724
00:39:32,960 --> 00:39:35,960
Speaker 8: on their investment grade bonds, and you know they will

725
00:39:36,520 --> 00:39:40,280
Speaker 8: likely not often need the bond market to raise cash,

726
00:39:40,320 --> 00:39:43,000
Speaker 8: so when they do, it's a great opportunity for investors.

727
00:39:43,080 --> 00:39:46,560
Speaker 8: So we would say, you know, investment grade bonds in

728
00:39:46,600 --> 00:39:50,880
Speaker 8: the Magnificent seven or broadly in the technology space is

729
00:39:50,880 --> 00:39:52,759
Speaker 8: a great way to complement your portfolio as well.

730
00:39:52,880 --> 00:39:54,920
Speaker 3: ownA thank you so much for being with us point.

731
00:40:04,480 --> 00:40:06,800
Speaker 1: Jeff You is senior market strategist of it B and

732
00:40:06,920 --> 00:40:08,480
Speaker 1: Y Mel and we do want to talk about what

733
00:40:08,520 --> 00:40:13,640
Speaker 1: we're seeing when it comes to this global bond market rally. Jeff,

734
00:40:13,680 --> 00:40:15,839
Speaker 1: does it continue into twenty twenty four?

735
00:40:17,239 --> 00:40:21,000
Speaker 11: Well, broadly, looking at the easing cycle, I guess bonds

736
00:40:21,000 --> 00:40:23,080
Speaker 11: will do well. You know, we're seeing that our underlying flows,

737
00:40:23,120 --> 00:40:25,359
Speaker 11: the people are going into duration that has too much

738
00:40:25,400 --> 00:40:27,440
Speaker 11: been priced in too soon. I would say for the

739
00:40:27,480 --> 00:40:30,480
Speaker 11: Fed yes, I would say for the ECB no. So

740
00:40:30,640 --> 00:40:33,120
Speaker 11: going back to your point by Madam Leguard about Chair

741
00:40:33,239 --> 00:40:36,040
Speaker 11: Powell that all pushing it back against easing right now,

742
00:40:36,200 --> 00:40:38,040
Speaker 11: I would just say these pushbacks, some are a bit

743
00:40:38,080 --> 00:40:39,080
Speaker 11: more credible than others.

744
00:40:39,640 --> 00:40:42,960
Speaker 2: So the pushing back Leguard is desperately pushing back. We're

745
00:40:43,000 --> 00:40:45,239
Speaker 2: just showing some treasury yields at the moment. Across the world,

746
00:40:45,239 --> 00:40:47,960
Speaker 2: we have this global bond market rally. So you say

747
00:40:49,000 --> 00:40:51,480
Speaker 2: we're going to get more easing from the ECB than

748
00:40:51,520 --> 00:40:53,319
Speaker 2: the market expects, because right now it's pricing in one

749
00:40:53,360 --> 00:40:55,000
Speaker 2: hundred and seventy five basis points. So what do we

750
00:40:55,000 --> 00:40:57,680
Speaker 2: get and what does that do to duration in Europe?

751
00:40:58,719 --> 00:41:01,160
Speaker 11: I don't think it's about the amount of easing. It's

752
00:41:01,200 --> 00:41:03,560
Speaker 11: more about timing. So they're pushing it back out when

753
00:41:03,640 --> 00:41:07,040
Speaker 11: they are easing. I think market pricing of starting around

754
00:41:07,080 --> 00:41:09,279
Speaker 11: March and or the meeting after that, so the second

755
00:41:09,400 --> 00:41:12,319
Speaker 11: or the third meeting, I think that is a credible view.

756
00:41:12,560 --> 00:41:14,840
Speaker 11: And then we just go from there. That's sticking with

757
00:41:14,880 --> 00:41:16,719
Speaker 11: the ECB. In know, one other thing to look at

758
00:41:16,960 --> 00:41:20,560
Speaker 11: in the context of duration. They announced more QT you know,

759
00:41:20,880 --> 00:41:24,399
Speaker 11: unminding the PEPP starting the second half of next year.

760
00:41:24,680 --> 00:41:27,360
Speaker 11: Will they be in a position to actually execute that

761
00:41:27,760 --> 00:41:29,560
Speaker 11: is the mark at going to be ready for supply

762
00:41:29,600 --> 00:41:32,439
Speaker 11: even though they do want duration right now. So quite

763
00:41:32,440 --> 00:41:34,919
Speaker 11: a few moving parts at this point. So yes, there

764
00:41:34,960 --> 00:41:36,960
Speaker 11: is a duration plan they're heading into next year. But

765
00:41:37,040 --> 00:41:39,719
Speaker 11: just to put things in context, so we saw like

766
00:41:39,800 --> 00:41:43,600
Speaker 11: standard three four standard deviation moves throughout December. It's going

767
00:41:43,640 --> 00:41:47,040
Speaker 11: to be very hard to repeat that heading into January.

768
00:41:47,120 --> 00:41:49,480
Speaker 11: So after a correction, yes, I think flows thin head

769
00:41:49,520 --> 00:41:51,759
Speaker 11: back in. But then the race that you mentioned it

770
00:41:51,840 --> 00:41:53,600
Speaker 11: truly begins, and I do think the FED is going

771
00:41:53,640 --> 00:41:55,960
Speaker 11: to be losing that race in terms of who cuts first.

772
00:41:56,160 --> 00:41:58,759
Speaker 2: Okay, so they're possibly going to have to go first

773
00:41:58,760 --> 00:42:01,320
Speaker 2: and go earlier. Does that say something more malevolent about

774
00:42:01,400 --> 00:42:03,480
Speaker 2: the scale of recession here in the United States of America?

775
00:42:03,680 --> 00:42:08,120
Speaker 2: Thankfully you've studied the PSALM rule. I haven't got the

776
00:42:08,160 --> 00:42:09,960
Speaker 2: depth of quant knowledge, Jeff.

777
00:42:10,000 --> 00:42:10,600
Speaker 7: It does for us.

778
00:42:10,640 --> 00:42:13,719
Speaker 1: Can you quiz manas because that would be a lot

779
00:42:13,760 --> 00:42:14,040
Speaker 1: of fun.

780
00:42:14,800 --> 00:42:19,520
Speaker 2: Actually, it indicates when global recessions. Yes it does look Jeff,

781
00:42:19,560 --> 00:42:20,120
Speaker 2: you're on.

782
00:42:20,160 --> 00:42:23,440
Speaker 3: Nescient in this regard. Just run us through for our viewers.

783
00:42:23,719 --> 00:42:25,280
Speaker 3: What is the sum rule? What does it matter?

784
00:42:25,360 --> 00:42:28,640
Speaker 2: And where is the worst shirt globally recession wise?

785
00:42:29,640 --> 00:42:32,440
Speaker 11: So looking at the strict definition, the three month moving

786
00:42:32,440 --> 00:42:35,240
Speaker 11: average of the three unemployment rates in the US rises

787
00:42:35,280 --> 00:42:38,799
Speaker 11: by zero point five percentage points or more relative to

788
00:42:38,840 --> 00:42:41,319
Speaker 11: the low during the last twelve months, right, So that's

789
00:42:41,400 --> 00:42:44,440
Speaker 11: explicit definition there. So applying it to Europe, you know,

790
00:42:44,520 --> 00:42:47,600
Speaker 11: which is what we're really focused on right now. Oddly enough,

791
00:42:47,760 --> 00:42:50,920
Speaker 11: UK and Sweden really are not doing too well in

792
00:42:50,920 --> 00:42:53,560
Speaker 11: that respect. The UK, I'm quite poorly. But just to

793
00:42:53,560 --> 00:42:56,880
Speaker 11: put things into context, so this rule can also be

794
00:42:57,000 --> 00:43:00,720
Speaker 11: satisfied if the prior employment levels or the an important

795
00:43:00,840 --> 00:43:03,160
Speaker 11: rate was far too low, so the labor market was

796
00:43:03,239 --> 00:43:06,080
Speaker 11: excessively tight, which in fairness that had been in certain

797
00:43:06,080 --> 00:43:09,040
Speaker 11: European economies, then you could have that push up them

798
00:43:09,080 --> 00:43:11,680
Speaker 11: as well. But overall, going back to the hard landing

799
00:43:11,760 --> 00:43:13,880
Speaker 11: soft landing push, I think the US definitely in the

800
00:43:13,920 --> 00:43:16,320
Speaker 11: soft landing camp, but for Europe is a bit mixed

801
00:43:16,320 --> 00:43:18,720
Speaker 11: match right now. Overall, I think we need to focus

802
00:43:18,760 --> 00:43:21,680
Speaker 11: on the fiscal side in Europe, can journey get past

803
00:43:22,000 --> 00:43:24,920
Speaker 11: this constitutional wrangle with regard to the budget, because what

804
00:43:24,960 --> 00:43:29,520
Speaker 11: you don't want is fiscal contraction into a cyclical downturn.

805
00:43:29,719 --> 00:43:32,120
Speaker 11: But that, to be honest, is what Germany is looking

806
00:43:32,120 --> 00:43:33,439
Speaker 11: at right now and they really need.

807
00:43:33,360 --> 00:43:34,520
Speaker 10: To resolve it. All right.

808
00:43:34,560 --> 00:43:36,279
Speaker 5: I hope you guys wrote all that down because there

809
00:43:36,360 --> 00:43:38,240
Speaker 5: is going to be a connected I've.

810
00:43:38,080 --> 00:43:40,440
Speaker 3: Got the print I here with the highlights on it.

811
00:43:40,800 --> 00:43:43,319
Speaker 1: You know, don't on the phone right now.

812
00:43:44,320 --> 00:43:47,600
Speaker 5: We'll awquise each other. But Jeff, let's stay in Europe.

813
00:43:47,880 --> 00:43:49,440
Speaker 5: I want to go back to what you said about

814
00:43:49,760 --> 00:43:53,720
Speaker 5: basically the ECB's credibility because obviously the market is pushing

815
00:43:53,800 --> 00:43:56,000
Speaker 5: rate cuts and just today I thought it was interesting

816
00:43:56,040 --> 00:43:59,680
Speaker 5: you had Government Council member Robert Holsman coming out and

817
00:43:59,680 --> 00:44:02,880
Speaker 5: saying rate cuts in twenty twenty four they aren't guaranteed.

818
00:44:02,960 --> 00:44:06,280
Speaker 5: Of course, he's one of the most hawkish members there.

819
00:44:06,320 --> 00:44:10,480
Speaker 5: But still this pushback that you're seeing from the ECB,

820
00:44:10,640 --> 00:44:13,120
Speaker 5: it's just not landing. What does that say about the

821
00:44:13,120 --> 00:44:14,520
Speaker 5: ECB's credibility here?

822
00:44:15,440 --> 00:44:18,080
Speaker 11: Well, if in facial data keeps on surprising to the downside,

823
00:44:18,080 --> 00:44:20,120
Speaker 11: which it really has been over last them two or

824
00:44:20,160 --> 00:44:23,560
Speaker 11: three prints. Then your credibility is damaged. We saw it

825
00:44:23,600 --> 00:44:26,400
Speaker 11: on the way up, right, Transitory is transitory, transitory all

826
00:44:26,400 --> 00:44:28,520
Speaker 11: the time, and it turns out it wasn't transitory. So

827
00:44:28,560 --> 00:44:30,680
Speaker 11: that's when you use credibility. So the last thing central

828
00:44:30,680 --> 00:44:33,000
Speaker 11: bank is anywhere right now? What is to have lost

829
00:44:33,000 --> 00:44:34,719
Speaker 11: some credibility on the way off and you lose it

830
00:44:34,760 --> 00:44:36,319
Speaker 11: on the way down as well. So this is where

831
00:44:36,320 --> 00:44:38,719
Speaker 11: they need to be reattuned to right now. So I

832
00:44:38,760 --> 00:44:41,239
Speaker 11: just questioned, what is euro dollar doing up here? Yes

833
00:44:41,280 --> 00:44:43,600
Speaker 11: it is a fed story, but can you justify having

834
00:44:43,600 --> 00:44:47,040
Speaker 11: a very strong euro right now with the exports environment

835
00:44:47,120 --> 00:44:49,960
Speaker 11: very weak? Mentioned China being quite weak as well, and

836
00:44:50,000 --> 00:44:53,319
Speaker 11: also we've seen a downturn in the labor market as well.

837
00:44:53,360 --> 00:44:55,600
Speaker 11: You look at job openings in France and Germany, they

838
00:44:55,680 --> 00:44:59,000
Speaker 11: finally started to soften heading into December. So that services

839
00:44:59,000 --> 00:45:01,240
Speaker 11: element in Europe, which and logata that have been holding

840
00:45:01,400 --> 00:45:04,280
Speaker 11: European wages up, that seems to be coming off as well.

841
00:45:04,280 --> 00:45:07,160
Speaker 11: Look at the PMIS, so again it's really difficult to

842
00:45:07,280 --> 00:45:10,440
Speaker 11: justify based on the data the hawkish retric at this point.

843
00:45:10,560 --> 00:45:12,720
Speaker 1: All right, Jeff, So I'm going to go into Japan

844
00:45:12,800 --> 00:45:15,160
Speaker 1: Bank of Japan. Right, We had some comments from the

845
00:45:15,200 --> 00:45:18,240
Speaker 1: governor saying that that the BFJ can reach a judgment

846
00:45:18,280 --> 00:45:21,960
Speaker 1: on policy before complete wage figures from small and medium

847
00:45:22,040 --> 00:45:25,279
Speaker 1: sized figures come out. He did an interview with NHK. So,

848
00:45:25,320 --> 00:45:28,360
Speaker 1: how are you thinking about Japan this policy of negative

849
00:45:28,440 --> 00:45:30,960
Speaker 1: rates that has been in existence for so long. Do

850
00:45:31,080 --> 00:45:33,160
Speaker 1: we start to see some kind of shift in twenty

851
00:45:33,200 --> 00:45:33,719
Speaker 1: twenty four?

852
00:45:33,960 --> 00:45:35,600
Speaker 7: Can they actually do the shift?

853
00:45:36,440 --> 00:45:38,239
Speaker 11: Will absolutely have to shift, and the end is going

854
00:45:38,280 --> 00:45:40,480
Speaker 11: to be very much on part of that equation. We

855
00:45:40,560 --> 00:45:43,200
Speaker 11: do see a material drop in dolly en, so the

856
00:45:43,360 --> 00:45:44,800
Speaker 11: end is going to be one of the best performing

857
00:45:44,840 --> 00:45:49,279
Speaker 11: currencies heading into a next year. And also, let's just

858
00:45:49,320 --> 00:45:51,520
Speaker 11: go back to what they're actually doing, so leaving the

859
00:45:51,640 --> 00:45:55,240
Speaker 11: rectric aside, they're tweaking their bond purchases as well, leaving

860
00:45:55,280 --> 00:45:57,279
Speaker 11: more scope and for yields to go higher. So it

861
00:45:57,400 --> 00:45:59,240
Speaker 11: is happening. They will do it at their own pace.

862
00:45:59,560 --> 00:46:03,040
Speaker 11: Judge it on data, judget on wages, as you mentioned,

863
00:46:03,520 --> 00:46:07,680
Speaker 11: but they know that importing inflation via weakergain that doesn't

864
00:46:07,719 --> 00:46:10,080
Speaker 11: work anymore. It is a problem and it is going

865
00:46:10,120 --> 00:46:12,520
Speaker 11: to be one of the tweaks. Well, the major shifts

866
00:46:12,680 --> 00:46:16,560
Speaker 11: heading into next year, and to be frank, Asia needs

867
00:46:16,560 --> 00:46:18,480
Speaker 11: it as well. So on top of that, if the

868
00:46:18,560 --> 00:46:21,200
Speaker 11: yen is allowed to strengthen, I think it will allow

869
00:46:21,280 --> 00:46:23,160
Speaker 11: a lot of other central banks in Asia to let

870
00:46:23,160 --> 00:46:27,000
Speaker 11: their currencies move a bit more as well, especially on

871
00:46:27,040 --> 00:46:29,200
Speaker 11: the strengthening side, especially those still with a bit more

872
00:46:29,200 --> 00:46:31,279
Speaker 11: inflation to worry about. But now that's going to be

873
00:46:31,320 --> 00:46:34,000
Speaker 11: the central story in a pack of course, on top

874
00:46:34,040 --> 00:46:36,200
Speaker 11: of whatever China does with respect or growth, the.

875
00:46:36,120 --> 00:46:37,880
Speaker 2: Two hours are going to define what happens to the

876
00:46:37,920 --> 00:46:41,040
Speaker 2: dollar recession and rates. Your call is a soft landing,

877
00:46:41,560 --> 00:46:43,200
Speaker 2: and the market has one hundred and fifty hundred and

878
00:46:43,200 --> 00:46:46,560
Speaker 2: sixty basis points of rates cuts. The question I have

879
00:46:46,640 --> 00:46:48,839
Speaker 2: for you then, is soft landing in the United States

880
00:46:48,840 --> 00:46:51,480
Speaker 2: of America? Is that short the dollars sell the dollar

881
00:46:51,560 --> 00:46:55,319
Speaker 2: on the rates at and a risk on narrative? Does

882
00:46:55,320 --> 00:46:58,960
Speaker 2: that define a lower dollar twenty twenty four So on

883
00:46:59,000 --> 00:46:59,520
Speaker 2: a trade.

884
00:46:59,360 --> 00:47:03,080
Speaker 11: Weata basis dollars absolutely peak right, But pick your dollar

885
00:47:03,440 --> 00:47:06,160
Speaker 11: shorts carefully, and there's still plenty of opportunities for dollar

886
00:47:06,239 --> 00:47:08,480
Speaker 11: long So like euro dollar, I think she'd be heading

887
00:47:08,520 --> 00:47:10,160
Speaker 11: back to parity. You know, given what I've just said

888
00:47:10,200 --> 00:47:13,920
Speaker 11: about PCB easing timing cuts and then the Fed's going

889
00:47:13,960 --> 00:47:15,880
Speaker 11: to be later than that. So I certainly will not

890
00:47:15,960 --> 00:47:19,280
Speaker 11: be short the dollar on the euro leg dollar versus Asia.

891
00:47:19,520 --> 00:47:21,440
Speaker 11: Just mentioned, you're probably the dollar's going to soften a

892
00:47:21,440 --> 00:47:23,799
Speaker 11: bit as well. Also on a trade data basis. One

893
00:47:23,800 --> 00:47:26,560
Speaker 11: of the two most important trading partners for the US

894
00:47:26,680 --> 00:47:29,080
Speaker 11: closer to home Canada and Mechs and those are going

895
00:47:29,120 --> 00:47:31,239
Speaker 11: to be very very interesting pairs as well. And I

896
00:47:31,280 --> 00:47:34,120
Speaker 11: do think Latin American carry trades, they run their course.

897
00:47:34,160 --> 00:47:36,040
Speaker 11: Bank of Mexico going to start easing rapes, so the

898
00:47:36,040 --> 00:47:38,640
Speaker 11: dollar can pretty much hold its own maybe against Canadian

899
00:47:38,640 --> 00:47:40,560
Speaker 11: dollar and the Mexican pace. So and that is going

900
00:47:40,600 --> 00:47:43,160
Speaker 11: to be material for US financial conditions as well, especially

901
00:47:43,200 --> 00:47:43,880
Speaker 11: for the exporters.

902
00:47:44,120 --> 00:47:46,200
Speaker 1: Jeff, you're a rock star. Thank you so much, really

903
00:47:46,200 --> 00:47:48,239
Speaker 1: appreciate it. And happy New Year, Jeff, You and b

904
00:47:48,320 --> 00:47:54,680
Speaker 1: and Y Melan joining us. Ellen Wall she follows the

905
00:47:54,800 --> 00:47:56,960
Speaker 1: energy markets, has for a long time. She's senior fellow

906
00:47:57,200 --> 00:47:59,680
Speaker 1: at the Atlantic Council and author of Saudi Inc.

907
00:47:59,760 --> 00:47:59,960
Speaker 12: Ellen.

908
00:48:00,120 --> 00:48:02,879
Speaker 1: Great to have you back here on Bloomberg. So how

909
00:48:02,920 --> 00:48:06,160
Speaker 1: are you kind of adding up some of the tensions

910
00:48:06,200 --> 00:48:08,399
Speaker 1: that are happening in the Middle East. We're talking about

911
00:48:08,440 --> 00:48:11,160
Speaker 1: stockpiles here in the United States. What does it mean

912
00:48:11,200 --> 00:48:12,440
Speaker 1: for the energy markets.

913
00:48:13,440 --> 00:48:16,600
Speaker 12: One of the important things, at least that I'm taking

914
00:48:16,640 --> 00:48:19,760
Speaker 12: in is to kind of pull back and look at

915
00:48:19,800 --> 00:48:23,440
Speaker 12: the larger Middle East geopolitical picture here.

916
00:48:23,480 --> 00:48:26,080
Speaker 10: And if you kind of step back, you'll.

917
00:48:25,880 --> 00:48:28,759
Speaker 12: Notice that there have been apparently one hundred and three

918
00:48:28,960 --> 00:48:32,759
Speaker 12: separate attacks on US troops across the Middle East, even

919
00:48:32,760 --> 00:48:35,439
Speaker 12: in places where at least I wasn't aware we even

920
00:48:35,520 --> 00:48:38,440
Speaker 12: had any troops, and that's a very large number. Then

921
00:48:38,520 --> 00:48:42,360
Speaker 12: that's been since I think October seventeenth, and to me,

922
00:48:42,600 --> 00:48:46,280
Speaker 12: that says that things are kind of bubbling under the surface,

923
00:48:46,360 --> 00:48:50,400
Speaker 12: potentially escalating. And then on top of that, you've got

924
00:48:50,600 --> 00:48:54,680
Speaker 12: iraniant drone attacks on chemical tankers in the Indian Ocean,

925
00:48:55,040 --> 00:48:58,319
Speaker 12: and you've got this Red Sea situation which is just.

926
00:48:58,320 --> 00:49:00,480
Speaker 10: Getting more and more tense by the day.

927
00:49:01,040 --> 00:49:03,720
Speaker 12: Like you said, you've got half of all container shipping

928
00:49:03,800 --> 00:49:07,080
Speaker 12: is avoiding the Red Sea. And then when you look

929
00:49:07,080 --> 00:49:10,000
Speaker 12: at the oil situation and the oil product situation on

930
00:49:10,080 --> 00:49:12,680
Speaker 12: top of that, I think there is a real risk

931
00:49:12,800 --> 00:49:15,640
Speaker 12: for Europe here, not that they won't get the.

932
00:49:15,560 --> 00:49:17,920
Speaker 10: Products and the frude oil they need, but since.

933
00:49:17,800 --> 00:49:21,719
Speaker 12: They're no longer buying from Russia, they're basically either importing

934
00:49:21,760 --> 00:49:24,000
Speaker 12: from the Middle East, so now that a lot of

935
00:49:24,000 --> 00:49:27,920
Speaker 12: that's got to go around Africa, or they're importing products,

936
00:49:28,000 --> 00:49:30,959
Speaker 12: say that are made maybe in India from Russian oil,

937
00:49:31,080 --> 00:49:33,920
Speaker 12: that's also got to go either through the sus Canal

938
00:49:34,080 --> 00:49:37,920
Speaker 12: or around Africa. Now, so we're talking about longer transport times,

939
00:49:38,680 --> 00:49:43,000
Speaker 12: higher costs, higher insurance costs, and just a general higher

940
00:49:43,120 --> 00:49:46,080
Speaker 12: risk And to me, like you said, that sends.

941
00:49:45,960 --> 00:49:48,920
Speaker 10: The idea of inflated prices, though.

942
00:49:48,800 --> 00:49:51,920
Speaker 12: Of course we've got to balance that with these higher stockpiles.

943
00:49:52,000 --> 00:49:54,600
Speaker 2: Well, let's just focus in on the Red Sea. We

944
00:49:54,640 --> 00:49:57,920
Speaker 2: have this coalition and a hefty coalition of defense trying

945
00:49:57,920 --> 00:50:02,800
Speaker 2: to help shippers return there. You flag a concern about

946
00:50:03,000 --> 00:50:06,640
Speaker 2: to what extent will this coalition actually be prepared to

947
00:50:06,760 --> 00:50:09,680
Speaker 2: protect the maritime fleets going in there, because the last

948
00:50:09,680 --> 00:50:13,440
Speaker 2: thing the Coalition of the West wants is a deep escalation,

949
00:50:13,560 --> 00:50:18,840
Speaker 2: So you dite the teeth of this coalition of protection exactly.

950
00:50:18,920 --> 00:50:21,680
Speaker 12: I think that the fact that it's been assembled does

951
00:50:21,719 --> 00:50:25,120
Speaker 12: not necessarily mean that it's going to do anything. I

952
00:50:25,120 --> 00:50:27,440
Speaker 12: think there's been a lot of hype about kind of

953
00:50:27,440 --> 00:50:30,160
Speaker 12: the coming together of this coalition. But to me that

954
00:50:30,200 --> 00:50:33,800
Speaker 12: says too little, too late. Where was this coalition last

955
00:50:33,920 --> 00:50:38,440
Speaker 12: month when container ships and tankers were being attacked, And

956
00:50:38,800 --> 00:50:41,200
Speaker 12: it doesn't seem you know, it's one thing for the

957
00:50:41,200 --> 00:50:43,840
Speaker 12: who this to say, Okay, we're going to attack Israelly

958
00:50:43,960 --> 00:50:47,720
Speaker 12: linked ships. Now they're just basically attacking anyone. A tanker

959
00:50:47,760 --> 00:50:52,480
Speaker 12: that was going from Pakistan to Saudi Arabia was recently

960
00:50:52,520 --> 00:50:55,760
Speaker 12: attacked and had no links to Israel or anyone else.

961
00:50:55,800 --> 00:50:59,279
Speaker 10: So to me, this says that they're going to continue

962
00:50:59,360 --> 00:51:01,400
Speaker 10: to be They're going to continue.

963
00:51:01,120 --> 00:51:04,759
Speaker 12: To step up these attacks and at defensive positions. We've

964
00:51:04,760 --> 00:51:09,360
Speaker 12: got US destroyers in the Red Sea trying to basically

965
00:51:09,440 --> 00:51:12,160
Speaker 12: intercept these attacks as they're happening.

966
00:51:13,560 --> 00:51:14,960
Speaker 10: That may not be enough.

967
00:51:15,040 --> 00:51:17,840
Speaker 12: In fact, it's looking like it's not enough for most

968
00:51:17,960 --> 00:51:19,200
Speaker 12: of the shipping industry.

969
00:51:19,640 --> 00:51:23,960
Speaker 2: And Ellen you lay a very febrile image in my

970
00:51:24,080 --> 00:51:27,200
Speaker 2: mind in terms of what's actually going on, and I

971
00:51:27,200 --> 00:51:29,840
Speaker 2: think we're so physically far away from it. Sometimes we

972
00:51:29,880 --> 00:51:32,040
Speaker 2: don't really understand the level of risk. Why such a

973
00:51:32,040 --> 00:51:36,480
Speaker 2: phlegmatic response from the energy markets in that case? Is

974
00:51:36,520 --> 00:51:39,879
Speaker 2: it just thin volumes? As Carol said, or is it

975
00:51:40,200 --> 00:51:42,520
Speaker 2: now this will pass. We've seen these flashes in the

976
00:51:42,520 --> 00:51:45,560
Speaker 2: pan before. We don't need to worry that much. Why

977
00:51:45,640 --> 00:51:47,680
Speaker 2: such phlegmatic response in the energy.

978
00:51:47,440 --> 00:51:49,719
Speaker 12: Market, That's a really great question, And I think it's

979
00:51:49,760 --> 00:51:55,480
Speaker 12: a combination of the high production levels from the United States.

980
00:51:55,560 --> 00:51:58,760
Speaker 12: There's a sense that this, you know, thirteen plus million

981
00:51:58,760 --> 00:52:02,040
Speaker 12: barrel a day production is just going to offset risk,

982
00:52:02,360 --> 00:52:05,759
Speaker 12: which I think is a bit of an oversight. Then

983
00:52:06,000 --> 00:52:09,920
Speaker 12: you've got you've got the fact that nothing has happened before.

984
00:52:10,880 --> 00:52:12,640
Speaker 12: And then you've got the fact that I think it's

985
00:52:12,680 --> 00:52:16,239
Speaker 12: in the interests of the Biden administration to avoid a

986
00:52:16,320 --> 00:52:20,200
Speaker 12: larger conflagration at all costs. But on the other hand,

987
00:52:20,280 --> 00:52:22,360
Speaker 12: they may not be able to do this, and the

988
00:52:22,480 --> 00:52:27,160
Speaker 12: risk of a conflict, while still low, is not zero

989
00:52:27,239 --> 00:52:30,040
Speaker 12: at this point, and I do believe that that number

990
00:52:30,160 --> 00:52:34,000
Speaker 12: is getting higher the longer that these attacks on international

991
00:52:34,000 --> 00:52:35,200
Speaker 12: shipping are allowed to go on.

992
00:52:35,640 --> 00:52:38,200
Speaker 5: Well, Ellen, given that that is a non zero risk

993
00:52:38,280 --> 00:52:40,839
Speaker 5: in your view, I mean, you think about the war

994
00:52:40,960 --> 00:52:43,880
Speaker 5: premium to borrow phrase from manas that's priced into oil

995
00:52:44,000 --> 00:52:46,760
Speaker 5: right now. Should there be more of a premium priced

996
00:52:46,800 --> 00:52:47,759
Speaker 5: in I do.

997
00:52:47,760 --> 00:52:50,239
Speaker 12: Think that there should be, particularly as we go on

998
00:52:50,960 --> 00:52:53,200
Speaker 12: in the year. We're at a period now of generally

999
00:52:53,800 --> 00:52:57,840
Speaker 12: seasonally low demand. But as we head into say April May,

1000
00:52:58,560 --> 00:53:01,280
Speaker 12: when things pick up, do you think that that premium

1001
00:53:01,560 --> 00:53:04,040
Speaker 12: unless if this conflict has not been resolved by then,

1002
00:53:04,800 --> 00:53:08,360
Speaker 12: you know that premium should definitely be much higher, particularly

1003
00:53:08,600 --> 00:53:11,160
Speaker 12: if OPEK plus is going to continue to hold barrels

1004
00:53:11,160 --> 00:53:11,880
Speaker 12: off the market.

1005
00:53:12,000 --> 00:53:14,080
Speaker 1: How much higher? Ellen give us a quote.

1006
00:53:14,840 --> 00:53:15,960
Speaker 10: That's a good question.

1007
00:53:16,200 --> 00:53:19,440
Speaker 12: I don't like to predict oil prices, but I wouldn't

1008
00:53:19,440 --> 00:53:22,400
Speaker 12: be surprised if it's if it's more than several dollars

1009
00:53:22,400 --> 00:53:22,880
Speaker 12: a barrel.

1010
00:53:23,320 --> 00:53:24,520
Speaker 10: I do think that it's that.

1011
00:53:24,520 --> 00:53:28,200
Speaker 12: This risk is being underestimated now, and I think that

1012
00:53:28,280 --> 00:53:31,440
Speaker 12: the fact that that US supply and the fact that

1013
00:53:31,480 --> 00:53:33,719
Speaker 12: we know OPEK is holding so much oil off the

1014
00:53:33,760 --> 00:53:37,560
Speaker 12: market is kind of negating that geopolitical risk.

1015
00:53:37,400 --> 00:53:40,920
Speaker 1: At the moment above eighty she's bushin.

1016
00:53:42,320 --> 00:53:43,200
Speaker 10: I'm not going to say no.

1017
00:53:43,960 --> 00:53:46,760
Speaker 1: All right, wow, that would be a very different trade

1018
00:53:46,920 --> 00:53:47,720
Speaker 1: than We'll change.

1019
00:53:47,600 --> 00:53:49,239
Speaker 2: The dynamics for the White House as well, in terms

1020
00:53:49,280 --> 00:53:51,120
Speaker 2: of refilling the SPOR can tell you that on the

1021
00:53:51,120 --> 00:53:52,560
Speaker 2: price comp Ellen.

1022
00:53:52,320 --> 00:53:55,040
Speaker 1: Wall, thank you so much of the Atlantic Council. Subscribe

1023
00:53:55,040 --> 00:53:58,240
Speaker 1: to the Bloomberg Surveillance podcast on Apple, Spotify, and anywhere

1024
00:53:58,280 --> 00:54:01,680
Speaker 1: else you get your podcasts. Listen live every weekday, starting

1025
00:54:01,719 --> 00:54:05,040
Speaker 1: at seven am Eastern, on Bloomberg dot com, the iHeartRadio

1026
00:54:05,080 --> 00:54:08,000
Speaker 1: app tune In, and the Bloomberg Business app. You can

1027
00:54:08,040 --> 00:54:10,560
Speaker 1: watch us live on Bloomberg Television and always on the

1028
00:54:10,560 --> 00:54:13,479
Speaker 1: Bloomberg Terminal. Thanks so much for listening. I'm Carol Master,

1029
00:54:13,640 --> 00:54:14,880
Speaker 1: and this is Bloomberg