Speaker 1: Welcome to What Goes Up a weekly markets podcast. Umbildana
Speaker 1: a cross asset reporter with Bloomberg.
Speaker 2: And I'm Katie Greifeld, also a cross asset reporter.
Speaker 1: Federal Reserve officials spooked markets recently when they signaled they
Speaker 1: were willing to hike interest rates a few more times
Speaker 1: to get inflation under control. But a new data point
Speaker 1: this week showed inflation decelerating to the slowest pace in
Speaker 1: more than two years. So what does that mean for
Speaker 1: the Fed's hiking path going forward? We're going to get
Speaker 1: into it with the chief investment officer of fixed income
Speaker 1: at the largest asset manager. I'm super excited for that conversation, Katie,
Speaker 1: But first you're filling in for Mike Reagan.
Speaker 2: I am hopefully. We're going to talk about bonds. We're
Speaker 2: going to talk about the FED, We're going to talk
Speaker 2: about inflation. We're also going to talk about exchange traded funds. Yes,
Speaker 2: I love ETF we all do.
Speaker 3: You love ETFs more than I do?
Speaker 1: Actually?
Speaker 2: Probably?
Speaker 1: Yeah? But this is like basically people getting a view
Speaker 1: into mine and your daily conversations at our desks. This
Speaker 1: is literally we sit around and these are the types
Speaker 1: of things we chat about all day long.
Speaker 2: Just to put a visual in hear Vill Doon and
Speaker 2: I sit back to back. We're constantly swinging around and saying,
Speaker 2: holy moly.
Speaker 3: Holy moly, did you see this?
Speaker 2: What yields are doing right now? Have you taken a
Speaker 2: look at the twos ten curve? Even today? This morning
Speaker 2: we were talking about real yields. They are super high
Speaker 2: right now.
Speaker 3: And I said how high?
Speaker 2: So high?
Speaker 3: And you said so high? Lol?
Speaker 2: Yeah.
Speaker 1: You know what else we should chat about? Tell me
Speaker 1: other non market stuff theoretically, So I have a question
Speaker 1: for you. Yeah, Barbie, I'm so Oppenheimer.
Speaker 2: I do love that. How do you pronounce it? Barbenheimer?
Speaker 2: The double feature of people seeing both in the same day,
Speaker 2: think that is, will you.
Speaker 3: Do that with me?
Speaker 2: I would love to.
Speaker 1: You have to say yes, I know, we'll plan it.
Speaker 1: Maybe our guest wants to come with us too, let's
Speaker 1: ask him. We can ask him. I'm so excited to
Speaker 1: have him on. He has so many accolades, Like really,
Speaker 1: we were so thrilled to be having this conversation. It's
Speaker 1: Rick Reader black Rocks, chief investment Officer of Global Fixed Income.
Speaker 1: Thank you so much for joining us. Thanks for having
Speaker 1: me I'm looking forward to Barbie or Oppenheimer for you that.
Speaker 4: I don't know that the question is all going to
Speaker 4: be this hard because that I can't.
Speaker 2: That was actually the softball question.
Speaker 3: Yeah, well, Katie. The reason I was asking is because
Speaker 3: Katie sent me an.
Speaker 1: Article that said people are double booking and so they're
Speaker 1: seeing both on the same day. But the Barbie ticket
Speaker 1: sales have been much I mean.
Speaker 2: They've marketed the heck out of it. It's crazy.
Speaker 1: Oh, I see so many ads every single basically literally
Speaker 1: every single day. Okay, just to start, like I said,
Speaker 1: you have so many accolades. You have the morning Star
Speaker 1: Award for Investing Excellence for Outstanding Portfolio Manager in twenty
Speaker 1: twenty three. Just your fixed income group at black Rock
Speaker 1: manages two point seven trillion with a T. So maybe
Speaker 1: just to start, you can lay out your market views
Speaker 1: for US.
Speaker 4: In my career, I've been doing US for over thirty years.
Speaker 4: I've never seen inflation stay so persistently high. We've lived
Speaker 4: in a world where technology aging population you've had, it's
Speaker 4: been hard to keep prices high. You know, the last
Speaker 4: couple of years post COVID posts, the dynamic around this
Speaker 4: immense fiscal and monetary stimulus that we've had to deal with.
Speaker 4: You know, this increasingly high levels of inflation. Listen, I
Speaker 4: think we're getting on the other side of it. I
Speaker 4: think we've got data on this, this recent CPI report
Speaker 4: that suggests that we're getting on the other side of
Speaker 4: this inflation trend and is throughout one stat that blew
Speaker 4: me away. We actually break it down. You know, the
Speaker 4: Fed is focused on core services X shelter for a
Speaker 4: couple of reasons. Why One, core goods inflations come down,
Speaker 4: but services have been sticky, and it's been sticky because
Speaker 4: wages have been high, but core services has been high
Speaker 4: X shelter And part of why they look at that
Speaker 4: is shelter takes a while for the inflation to come down.
Speaker 4: Rental prices take a while, but they are starting to
Speaker 4: just But anyway, long with my long preamble, core services
Speaker 4: X shelter three month annualized is now down to one
Speaker 4: point seven percent, down from nine and a half percent
Speaker 4: a couple of years ago. We're at one seven So
Speaker 4: and you know, you break down the other numbers, it's
Speaker 4: in core CPI still at four. It's still not at target,
Speaker 4: but gosh, you look at the component parts and you
Speaker 4: look at the trajectory of where we're going. That's a
Speaker 4: really big deal. So so core thesis is listen. I
Speaker 4: think I think we're on the backside of, you know,
Speaker 4: as a Fedkinna hike one more time, you know, maybe
Speaker 4: they try and get two hikes out of it. We're
Speaker 4: on the backside of what has been a bludgeoning of
Speaker 4: the interest rate market, a bludgeoning of people that have
Speaker 4: held rate related products or interest rate sensitive and I
Speaker 4: think that's a really big deal. Not that I think
Speaker 4: they're going to sit there for a while, so rates
Speaker 4: will stay stable for aeriod of time, but I think this, gosh,
Speaker 4: get out of the way because rates are going higher.
Speaker 4: I think we're on the backside of that, which is
Speaker 4: a big deal, whether you're doing debt, equity, private equity, anything.
Speaker 1: Katie, I saw a funny tweet that said it's possible
Speaker 1: services inflation stays high because of Barbie Oppenheimer.
Speaker 2: It could. That's quite a tie in. We'll see if
Speaker 2: the data bears that out. But there's about five different
Speaker 2: things I want to get to there, but I want
Speaker 2: to start with just inflation overall. Because headline CPI fell
Speaker 2: to three percent, which it feels like we haven't seen
Speaker 2: in a while. And the story that ran on the
Speaker 2: terminal immediately after the headline I thought was pretty bold.
Speaker 2: Inflation at three percent flags end of emergency, and Rick,
Speaker 2: you said, we're on the other side of it. Do
Speaker 2: you think that we're out of crisis mode? When it
Speaker 2: comes to inflation.
Speaker 4: Three percent is a very different paradigm than you know
Speaker 4: when you're at four or five six percent. By the way,
Speaker 4: not just quantitatively, but it's also been the case there's
Speaker 4: a lot of academic thought about when you're a well
Speaker 4: above three that your inflationary expectations in people and it's
Speaker 4: hard to get out from under that. When you get
Speaker 4: to three, you're at a place where you're close enough
Speaker 4: to target and it's not that scary data a piece
Speaker 4: of data, and that monetary policy doesn't have to be
Speaker 4: that concerned about it. Listen, I think it's going to
Speaker 4: You'll see inflation continue to come down. I'm much more
Speaker 4: confident that inflation is going to come down that I am.
Speaker 4: Unemployment rate is going to come up. You know, one
Speaker 4: man's opinion. I don't think the FED needs to destroy
Speaker 4: the employment paradigm today. In fact, I think it does
Speaker 4: more harm than good to try and bring that inflation down.
Speaker 4: I think there's a natural migration lower and once you
Speaker 4: reach these levels. To your question, I did a piece
Speaker 4: that I wrote about patients as a virtue, just let patients.
Speaker 4: Just let time and a restrictive interest rate do its work,
Speaker 4: and I think you'll find that it'll approach target over time.
Speaker 1: So over time approaching target, meaning by the end of
Speaker 1: the year or early next year. And then we see
Speaker 1: the very big question now is what does this mean
Speaker 1: for the Fed's future path in terms of you know,
Speaker 1: do we get a hike in July and then a
Speaker 1: pause or another hike after that, what do you foresee?
Speaker 4: Yeah, it's a great question. We're not going to get
Speaker 4: to target. By the way goods inflation we're getting to target,
Speaker 4: but in services we're we're not going to get there.
Speaker 4: We're not going to get there this year. You know,
Speaker 4: could you get there next year? Don't know? But I
Speaker 4: think you can get close, and you know, certainly within
Speaker 4: spitting distance and certainly a place that you feel comfortable with.
Speaker 4: You know, even with today's better data, you have to
Speaker 4: marry yourself to the idea that the Fed's going to
Speaker 4: hike in July. I think it would be a big credibility
Speaker 4: problem if after they paused and the reason why they're
Speaker 4: going to pause, and then everybody and then people in
Speaker 4: the Fed committee have suggested we're going to get two
Speaker 4: more hikes. He did you not go in July if
Speaker 4: that were the case. So I think you have to
Speaker 4: write that in stone that they're going to go in July.
Speaker 4: But I think you've got to listen. I think they're
Speaker 4: going to still try and get another hike done, probably
Speaker 4: you know, November, but I think it's ambiguous now as
Speaker 4: to whether you know, ah, are you going to do
Speaker 4: any more hikes? And quite frankly, the people don't understand
Speaker 4: these rates are restrictive. I think you talked about earlier
Speaker 4: real rates at these levels like these are restrictive levels,
Speaker 4: and if you know, let them marinate through the system,
Speaker 4: you know, you see the impact that has in the
Speaker 4: banking system, You see the impact that has on commercial
Speaker 4: real estate. I think we're going to move to a
Speaker 4: form which I think is right, a form of patients
Speaker 4: versus impatience with how restrictive rates are to try and
Speaker 4: achieve target.
Speaker 2: Well to the idea that we should just let things marinate.
Speaker 2: Here in letting things marinate, should the conversation shift to
Speaker 2: not how many more hikes are left, but how long
Speaker 2: it takes them to cut how long they're on hold
Speaker 2: for Listen.
Speaker 4: I think you know, we went through this period where
Speaker 4: the market was anticipating, particularly around the banking crisis, that
Speaker 4: you're going to have this cliff event, You're going to
Speaker 4: hike and then you're going to have to ease quickly,
Speaker 4: and that when the FED starts easing, when you have
Speaker 4: a crisis, they don't move twenty five base one increments.
Speaker 4: You move quickly. Listen, unless you have some form of crisis,
Speaker 4: which are are hard to anticipate, and I don't see
Speaker 4: one that's out there. You know, you have to assume
Speaker 4: that this Fed stays on hold for at least the
Speaker 4: year and then starts to bring it down. But I
Speaker 4: think they have to bring these rates down. And you know,
Speaker 4: we know the issue around it's not just the deposits
Speaker 4: of the banks. It's a cost of funding those deposits
Speaker 4: are so painful, but it's also people don't talk about
Speaker 4: the debt burden on the country today. When you talk
Speaker 4: about you know, we spend time on the debt ceiling.
Speaker 4: But when you have an economy that's sitting with thirty
Speaker 4: trillion of debt, the longer you keep that rate up,
Speaker 4: the more you impair your fiscal flexibility. And you think
Speaker 4: about debt to GDP, you know what happens is not
Speaker 4: only is your debt service becoming expensive, but you want
Speaker 4: to bring rate down so nominal GDP can can continue
Speaker 4: to be high, so that your debt to GDP is
Speaker 4: not that scary. So I think you got to bring
Speaker 4: these rates down. I don't think you can sit here
Speaker 4: for that long because of the damage it does to
Speaker 4: the economy in multiple forms.
Speaker 1: Is there anything that could happen that would make the
Speaker 1: Fed not hike at the end of July, or as
Speaker 1: you say, is it more credibility issue where they would
Speaker 1: just have.
Speaker 4: To go by the way, not a zero probability, but
Speaker 4: the markets are pricing it as a remote probability. If
Speaker 4: you had some of the bank earnings that were so
Speaker 4: horrible that suggested that gosh, you know, the FED is
Speaker 4: creating its own damage, not just the damage of raising rates,
Speaker 4: but keeping rates too low for too long. Funding you know,
Speaker 4: having banks fund purchase assets at aggressively low yields and
Speaker 4: then all of a sudden shock interest rates higher. Boy,
Speaker 4: it'd be pretty hard if those numbers, those bank earnings
Speaker 4: numbers were dramatically worse than anticipated. You know. Other than that,
Speaker 4: it's hard to see something else that would take them
Speaker 4: off a trajectory that would be you know, I think
Speaker 4: the more likely outcome is you get the July hike in,
Speaker 4: but you do a quote unquote dubbish hike and suggests that, gosh,
Speaker 4: we're nearing the end of what has been a long
Speaker 4: and arduous period to get rates to a very restrictive level.
Speaker 2: So we would go from a hawkish hold to a
Speaker 2: dubbish hike, which would be fun and find out pretty soon.
Speaker 2: But to the idea of it being a credibility issue
Speaker 2: if they didn't go in July, I mean, listening to you,
Speaker 2: it kind of sounds like they've forced their own hand here.
Speaker 4: And by the way, I've throwing one other thing. They're
Speaker 4: also reducing the size of the balance sheet training the
Speaker 4: money supply, and so you know, the policy is not
Speaker 4: just restrictive on the rate. We go back to what
Speaker 4: the most popular with the popular thing to watch is.
Speaker 4: But liquidity is a really big deal Uh huh, it doesn't.
Speaker 4: It doesn't get enough airtime relative to rate. When you
Speaker 4: bring down the money supply, you reduce the balance sheet.
Speaker 4: It has a real impact. I mean, you track the
Speaker 4: stock market over time relative to the growth or shrinkage
Speaker 4: of the money supply. It is very sincere. So listen,
Speaker 4: I think I think this idea of of you know,
Speaker 4: you leave it there, let it marinate, reduce the balance sheet,
Speaker 4: you know, just watch watch the system do what it's
Speaker 4: going to do. On the back side of it.
Speaker 2: I want to go back to what you were saying.
Speaker 2: That policy is restrictive right now. You can see that
Speaker 2: in real rates and just the level of where we
Speaker 2: are right now. So you have to bring rates down
Speaker 2: at some point. But where do you think neutral is
Speaker 2: after what we've been through.
Speaker 4: Wow, it's a great question. That is a great question.
Speaker 2: So that was the softball.
Speaker 4: Yeah, Oh my god, I would say, hopefully the question
Speaker 4: is gonna get easier for that. Yeah. The uh so,
Speaker 4: you know, it's real rates and nominal rates. And so
Speaker 4: let me say, from a real rate perspective, and the
Speaker 4: way you guys started this, some may not you know,
Speaker 4: should real rates be closer to you know, depending on
Speaker 4: where on the curve you think about it closer to
Speaker 4: fifty base points to one hundred bases points. I think
Speaker 4: that is. You know, we're way above that today, particularly
Speaker 4: out you know, we think about where the ten yure
Speaker 4: point is today, and so you know that I think
Speaker 4: can come closer to what is the neutral long term rate.
Speaker 4: And then if you said, and I have I have
Speaker 4: a very non consensus view about this. I think the
Speaker 4: FED should leave the funds rate at somewhere between two
Speaker 4: and three percent for a long period of time. Once
Speaker 4: you get on the other side of inflation, you know,
Speaker 4: why not two percent? Think that? I think the idea
Speaker 4: being that we're going to have because of deglobalization, you're
Speaker 4: going to have because of the demographic you know, shortage
Speaker 4: of labor, you're going to have a higher inflation, structurally
Speaker 4: higher inflation. So should it be two and a half?
Speaker 4: I don't know, should it be two? But I think
Speaker 4: they should leave the funds right there for a long time.
Speaker 4: I think the Fed, no, I know, I've talked about
Speaker 4: it before. If you take the last seventy five meetings
Speaker 4: of the Federal Reserve, sixty five of them, they've kept
Speaker 4: rate successively low or changed it. I just don't think
Speaker 4: you need to spend that much time tweaking it. I
Speaker 4: think they should. They should leave it at a reasonable
Speaker 4: level and that the system recalibrate because the system US
Speaker 4: economy is the most flexible, adaptive, technology oriented economy in
Speaker 4: the world, and it will adapt.
Speaker 1: What about their two percent inflation goal, because I think
Speaker 1: one of the Fed officials this week was asked, like,
Speaker 1: are you willing to sacrifice the economy just to stick
Speaker 1: to that two percent goal? Like the alter of the
Speaker 1: two percent? Is it worth sacrificing the economy just to
Speaker 1: get to that point that you have been telling people
Speaker 1: you would get.
Speaker 2: Is it a false god?
Speaker 3: Is it wow? A Taylor Swift reference.
Speaker 4: Yes, one man's opinion. I think there is. You just
Speaker 4: had massive monetary and physical stimulus. You've got to give
Speaker 4: it a little bit of time. Like this whole idea
Speaker 4: like there's a magic to two doesn't make any sense
Speaker 4: to me that you just had immense stimulus. Let it plan.
Speaker 4: By the way, two percent over the intermediate term, I
Speaker 4: get two percent over any short period of time. It
Speaker 4: doesn't make any sense, particularly defense raise interest rates five
Speaker 4: hunderd base once the unemployment rate is three point six percent.
Speaker 4: How much do you have interest rates? How much would
Speaker 4: you have to move them to get the unemployment rate
Speaker 4: to a level to slow wages and get it to
Speaker 4: a level that you're coming it's not worth it. Why
Speaker 4: would you take why would you take millions of people
Speaker 4: out of work because you need to go from two
Speaker 4: point seven to two? It's like, why do it? And
Speaker 4: I want to talk about this too much, but the
Speaker 4: people that get hurt by the higher levels of inflation
Speaker 4: are the people you're going to take out of work.
Speaker 4: And I think there is you know you think about
Speaker 4: when you raise rates to these levels, you're actually creating
Speaker 4: an income benefit to people. They're wealthier people who are savers,
Speaker 4: and you're hurting the people that just love to borrow.
Speaker 4: And I just don't think that trade off makes any sense.
Speaker 4: You know, this too is some magical, mystical perfection. It
Speaker 4: doesn't make it. It doesn't. It's illogical to me.
Speaker 2: I mean listening to you talk. And you also made
Speaker 2: the point that the FED probably doesn't have to murder
Speaker 2: the labor market here. Just to tie a bow on
Speaker 2: that thought, do you need to get the unemployment rate
Speaker 2: above four percent to get back to two percent or
Speaker 2: can we have this sort of happy balance.
Speaker 4: So I think the system will reach calibrate itself, and
Speaker 4: I think technology. I mean, first of all, we're about
Speaker 4: to go through the most extraordinary productivity growth. I think,
Speaker 4: you know, certainly since the Internet, and maybe even more so,
Speaker 4: we really don't know how many job functions are going
Speaker 4: to be eliminated through AI. We don't know how many
Speaker 4: how much true efficiency is going to be created, and
Speaker 4: so this whole concept of gosh, there's a number that
Speaker 4: we need to get to in payroll. And I'm not
Speaker 4: convinced that wages is that sincere to serve it to
Speaker 4: service inflation. I think it's an indicator and I think
Speaker 4: it can be representative. But you think about it, we
Speaker 4: went for a long period of time where you had
Speaker 4: low levels of inflation. I think it is it is
Speaker 4: an academic exercise, and only that that suggests there's a
Speaker 4: level of employment that creates this level of inflation. You know,
Speaker 4: particularly when you don't know how much efficiency you're going
Speaker 4: to get off of AI, how much technology, how much
Speaker 4: substitution effect that you're going to see play through. I mean,
Speaker 4: the world is changing so quickly, so many ways, But
Speaker 4: I just think those historic calculations and what was a
Speaker 4: simple economy, cyclical goods oriented economy, or do just don't
Speaker 4: hold anymore?
Speaker 1: I want to ask you about that, broadly speaking, and
Speaker 1: about what we've seen so far in twenty twenty three,
Speaker 1: because everything has gone basically not in any way that
Speaker 1: anybody predicted. Like the stuff that's up is stuff that
Speaker 1: nobody thought would be up this year. What is it
Speaker 1: about this year that's been so difficult to make sense of?
Speaker 1: Or is it just the reality of the post pandemic
Speaker 1: world where people are just having a more difficult time
Speaker 1: making some of these forecasts.
Speaker 4: I mean, I'll go back to the first point on AI.
Speaker 4: I mean seven stocks drive in the market. I mean,
Speaker 4: if you take you eliminate those seven stocks of the
Speaker 4: equity market and you look at it and saying, it
Speaker 4: doesn't seem like a market's not up that much, it
Speaker 4: doesn't seem that aberrational. And there by the way, there
Speaker 4: are a lot of equities now they traded three, four
Speaker 4: or five multiple of cash flow that are pretty reasonable.
Speaker 4: So that is, but I think the advent of AI
Speaker 4: coming in and the true explosive opportunity set on that
Speaker 4: has certainly impacted a number of equities on the backside
Speaker 4: of it. I think that has been a surprising dynamic.
Speaker 4: Second being, you know, nobody in this generation has ever
Speaker 4: seen inflation stay as high for as long as it
Speaker 4: had and continue to surprise to the upside. And that
Speaker 4: has been you know, has put the central banks. You know,
Speaker 4: we've had these false starts of inflation, particularly in places
Speaker 4: like the UK, that it feels like it's coming down
Speaker 4: and then all of a sudden it is not, and
Speaker 4: it is not. So I think I think those have
Speaker 4: been the things that have been the most surprising. I
Speaker 4: would say one thing I've learned over the years of investing,
Speaker 4: too is the markets do what hurts the most people,
Speaker 4: and the technicals. So I just give a presentation the
Speaker 4: other day about, you know, some of the things I've
Speaker 4: learned over the years and investing, which I feel like
Speaker 4: I'm still learning more than I did when I first started.
Speaker 4: But you know, one of them is the technicals are
Speaker 4: more important than the fundamentals, and fundamentals win out over
Speaker 4: long periods of time. The technicals went out much more
Speaker 4: so in the short term. And you realize what happened
Speaker 4: at the beginning of this year is people got out
Speaker 4: of equities and had reduced some of it, you know,
Speaker 4: for obviously the pressure that was on it. All of
Speaker 4: a sudden you have this, you know, people need to
Speaker 4: get in the tech stocks, they'd reduce a lot of it.
Speaker 4: This year has been more than any of what I've seen,
Speaker 4: has been driven by technicals in an incredible way, in
Speaker 4: violent ways at times.
Speaker 2: That's interesting because a conversation I've had with a lot
Speaker 2: of investors at this point is that you're just seeing
Speaker 2: a massive gain game of catchup, particularly when it comes
Speaker 2: to equities because coming into the year, you know, this
Speaker 2: was the year of fixed income. Maybe it's still is
Speaker 2: rick I don't know, but you had a lot of
Speaker 2: people underweight. Now they've been forced to chase that rally
Speaker 2: and now we are where we are. But bringing it
Speaker 2: to fixed income, obviously you have a perch. You're looking
Speaker 2: across all the different asset classes within fixed income, where
Speaker 2: do you see the most opportunity right now?
Speaker 4: And I can said one last thing about course. The
Speaker 4: other thing that the other thing that I think is
Speaker 4: surprising and which is pretty profound statement. You know the
Speaker 4: world has talked about like the federis rates. We got
Speaker 4: to we have to go in a recession. I just
Speaker 4: don't know why a modern financial economy like the US
Speaker 4: goes in a recession anymore other than some quantitative can
Speaker 4: you have a negative one percent in twenty twenty, nominal
Speaker 4: GDP was twelve, and twenty one it was seven, nominal
Speaker 4: GDP was seven. You know, these numbers are pretty impressive,
Speaker 4: And unless you have a pandemic or unless you have
Speaker 4: some exogyshock financial crisis, when you have a consumer oriented,
Speaker 4: service oriented economy, it's much more stable than people give
Speaker 4: credit to. And I think if we had a negative
Speaker 4: one percent recession after these massive nominal GDP numbers, I
Speaker 4: think you'd have to like wake people up to tell them, like,
Speaker 4: you know, we're in a recession now. Like I think
Speaker 4: it's a really different paradigm. China is different because it's
Speaker 4: a debt finance. But I just think recession is grossly
Speaker 4: overstated as a phenomena today without some massive shock to
Speaker 4: the system. So it's just so different than when I
Speaker 4: first started the business. Yeah, you had a recession, you
Speaker 4: had food lines, you had gas line, mean, it was
Speaker 4: like bad stuff.
Speaker 2: We've already seen a lot of these recession calls for
Speaker 2: twenty twenty three get pushed into twenty twenty four. But
Speaker 2: if we don't get a recession, I mean, how do
Speaker 2: you invest along that. Are there any markets where you
Speaker 2: can see that a recession is mistakenly priced in?
Speaker 4: Yeah? So by the way, it gets to this point
Speaker 4: about you know why things have been surprising and why
Speaker 4: the equity market. So, I mean people were like, get out.
Speaker 4: You know, earnings estimates. You know, we saw earnings estements
Speaker 4: that almost were quantitatively impossible to hit unless the big
Speaker 4: tech stocks get devastated for some reason. And I think
Speaker 4: now people are realizing it, even if you had a
Speaker 4: moderate recession, if you had one of these two quarters
Speaker 4: of negative small size, is it really going to change
Speaker 4: you know, what your asset mix is going to be
Speaker 4: in terms of your portfolio. And I think that's been
Speaker 4: a big adjustment. So what do you do with that?
Speaker 4: How do you invest around it? Listen, I still think
Speaker 4: you got to own your own equities as part of
Speaker 4: a bar bell and a portfolio. One of the beautiful
Speaker 4: things today in investing you can own front end yielding assets.
Speaker 4: I bought some commercial paper the other day at six
Speaker 4: and a half percent one year CPE six and a
Speaker 4: half percent. It's like, I don't I just want to
Speaker 4: go home at six and a half. I just sit
Speaker 4: and sit of saying to tell clients, sos, I'm going
Speaker 4: to get you six and a half and I'll be
Speaker 4: taking the rest of the year off. But that's pretty
Speaker 4: I mean, that's pretty attractive. But if you ran let's
Speaker 4: say you ran a lot of carry, a lot of
Speaker 4: front end yield, you know, in high quality assets, investment
Speaker 4: in great credit, maybe go a little longer, and some
Speaker 4: things like agency mortgages. And then I'm going to own
Speaker 4: some of these equities. And you know, we assume that
Speaker 4: the equity market of companies can throw off ten twelve
Speaker 4: percent return on equity. You could generate a nice return
Speaker 4: in a portfolio and frankly more stable than you have
Speaker 4: historically because you're getting a lot of carry from your
Speaker 4: fixed income quality assets and fixing it doesn't mean you
Speaker 4: have to stretch for fixed income.
Speaker 2: I thought you were a bond guy. Here you are talking.
Speaker 4: I move around global allocation, all right, all right?
Speaker 1: Fair?
Speaker 4: So no we do? We do all asset classes.
Speaker 3: Do you know what else he runs?
Speaker 2: I do, but tell me his own ETF launched in May.
Speaker 2: We're talking about the ticker is bank. I believe it's
Speaker 2: black Rock Flexible Income. Did I get that right?
Speaker 4: Right? Yeah? Yeah?
Speaker 2: What's about long lit?
Speaker 4: I mean, I think the advent of ETFs has been
Speaker 4: you know, largely, I mean, the size of the ETF
Speaker 4: market has been in the passive space. I mean, I use,
Speaker 4: I've been trading managing ETFs for years in some of
Speaker 4: the big indices, and the advent of you know, running
Speaker 4: now active ETFs, the growth of active ecfs is really accelerated,
Speaker 4: and quite frankly, now the ability to use different tools
Speaker 4: to run an active ETF in a sufficient way as
Speaker 4: you can as a mutual fund is now there. So,
Speaker 4: like I say, I use things like HyG or LQD
Speaker 4: or obviously SBY or so many different tools that allow
Speaker 4: me to run in an open architecture, transparent portfolio. You
Speaker 4: can run it and create similar returns you run in
Speaker 4: a mutual fund. And I feel like you've hit that
Speaker 4: inflection point today around the scale of the ETF market.
Speaker 4: They're running an active ETF, you can do it effectively.
Speaker 4: So anyway, I'm super excited about it. Hey, it's been
Speaker 4: a obviously well manage and traded gazillions of them for
Speaker 4: years and be able to manage that type of portfolio
Speaker 4: has been a lot of fun and it's been a
Speaker 4: lot of excitement around it, which has been great.
Speaker 1: Well. I think the most interesting part to me is
Speaker 1: that there's a person behind the ETF, like you're kicking
Speaker 1: off this trend of people basically attaching their names to
Speaker 1: the exchange traded fund. I really think you were the first,
Speaker 1: and now we're seeing sort.
Speaker 2: Of Dan Iverson from Pimco launchuria first ETF this year
Speaker 2: who was it. Ed Perks also came out with his
Speaker 2: own ETF, So there's definitely a migration of some of
Speaker 2: these star managers such as yourself coming over to the
Speaker 2: wrapper officially, even though to your point you've been using
Speaker 2: them for a while in portfolios.
Speaker 4: Yeah, I know it's been I don't know there's star category,
Speaker 4: but I definitely humble.
Speaker 1: Yeah.
Speaker 4: I think it's you know, meeting with a lot of
Speaker 4: clients which I haven't heretofore, who are in the ETF
Speaker 4: that do models and what have you. You realize the
Speaker 4: efficiency of the tax efficiency, the transparency, you can build
Speaker 4: models around it. I mean, that's an innovation that's going
Speaker 4: to be continue to grow and so it's been a
Speaker 4: lot of fun. I've met a lot of new people
Speaker 4: in new areas around doing it, so it'll be exciting.
Speaker 4: But I say that technology allows you to do it
Speaker 4: pretty efficiently.
Speaker 1: Today, Rick, I have a million more questions for you,
Speaker 1: so we'll have to bring you back on. But Rick
Speaker 1: Reader black Rocks, chief investment officer of Global Fixed Incomers,
Speaker 1: so happy you could join us, we can't let you
Speaker 1: go yet. Okay, we have to play a quick round
Speaker 1: of craziest things we've all seen in markets this week,
Speaker 1: and I think Katie promised me a really good one.
Speaker 2: I actually came completely unprepared.
Speaker 3: You'll have to do it on the fly.
Speaker 2: If I had to do it on the fly, I
Speaker 2: have no idea. I would just say real rates at
Speaker 2: a fifteen year high, that's pretty amazing. Real rates at
Speaker 2: a fifteen year high, and equities don't care at all.
Speaker 2: I remember, like two years ago, we were writing a
Speaker 2: bunch of bearish takes about the equity market that once
Speaker 2: real yield started to move significantly higher, it was going
Speaker 2: to be lights out for risk assets and we were
Speaker 2: completely wrong.
Speaker 3: So I was about to say we were so right, Rick,
Speaker 3: what about you? Anything interesting? You've seen in markets anything crazy, crazy, weird.
Speaker 4: So similar thing the volatility equity markets. The price of
Speaker 4: volatility is insane. We did the treade yesterday where I mean,
Speaker 4: you know, people fall the VIX index, but you can
Speaker 4: price option volatility at nine ten fold his crazy people
Speaker 4: are giving. You can buy equities without paying for them
Speaker 4: in terms of downside in terms of downside risk. We
Speaker 4: did a one day which I don't do a lot of,
Speaker 4: in fact very rarely in my portfolios. But you can
Speaker 4: do a one day option for a one percent move
Speaker 4: in the equity marketing get it? It was actually ten to
Speaker 4: one odds. Like it's all because volatility is so low
Speaker 4: in the equity market. People don't think the market can move.
Speaker 4: But while rate volatility is really high. You know, it's
Speaker 4: interesting my career, Like equity people in bond, people work
Speaker 4: in different buildings, and so are times that there are
Speaker 4: aberrations between the two of these. I still do both,
Speaker 4: but most people work in different We're working different buildings,
Speaker 4: and like this has been an amazing one, like equity
Speaker 4: of all, Like I keep looking at those markets singing,
Speaker 4: why are things why are they giving that nobody's buying
Speaker 4: insurance to the downside to dias a vault trade super cheap.
Speaker 1: I saw a note that said, I forget how many
Speaker 1: days we've gone, like weeks without even a three percent
Speaker 1: drot bela stock market.
Speaker 4: So yeah, but a lot of updates. I mean you
Speaker 4: buy Upside. I mean that's the beauty of it. You
Speaker 4: can buy Upside convex to. They pretty cheap today.
Speaker 3: Okay, my craziest thing has nothing to do with any
Speaker 3: of these things.
Speaker 2: Great, hit me.
Speaker 1: I'm going to tie it back to this. I promise
Speaker 1: there's this Bloomberg story out that there's this new trend
Speaker 1: of restaurants providing stools for people's purses.
Speaker 5: Okay, have you seen this? No, I don't go anywhere
Speaker 5: me neither. I only go to the movie theater with you. Basically, yeah,
Speaker 5: when I forced you to come with me. But if
Speaker 5: you go to a fancy restaurant and you have a
Speaker 5: super fancy purse, they'll bring you a little stool, huh,
Speaker 5: and then you can like, your purse will sit there
Speaker 5: with you and it will eat dinner with you.
Speaker 2: What a crazy thing in markets?
Speaker 3: What a crazy thing in markets? That's not it. I'm
Speaker 3: tying it back.
Speaker 1: I promise there actually is a handbag that's sold for
Speaker 1: a crazy amount of money in recent weeks. It is
Speaker 1: so tiny that you need a microscope.
Speaker 2: To see it. I've seen this.
Speaker 1: It's a Louis Vuitton inspired Neon Green miniature purse created
Speaker 1: by an arts collective in Brooklyn. It's smaller than a
Speaker 1: grain of salt.
Speaker 2: Rick, have you seen this?
Speaker 3: Have you seen this story? Yes, it's cute. It's small.
Speaker 3: It's so tiny, it's narrow enough to pass through the
Speaker 3: eye of a needle. They used it.
Speaker 1: They made it using three D printing, and then the
Speaker 1: person who won the auction got microscope for viewing it
Speaker 1: because it's so small. Anyway, it's time to play. I
Speaker 1: have so much trouble saying this. The price is precise.
Speaker 1: I'm going to have you, guys, guess what the auction
Speaker 1: went for.
Speaker 3: What was the winning bid?
Speaker 2: Okay, four hundred thousand dollars?
Speaker 4: Rick, come on, I med thirty thousand dollars.
Speaker 2: Wow. Wow, that's quite a spread, Delta. Who won?
Speaker 5: Not you? Oh?
Speaker 4: Really?
Speaker 2: What did it sell for?
Speaker 4: What was in the prices? Right? You're supposed to be
Speaker 4: low anyway, so I forget right?
Speaker 3: Oh jeez, can't go over not the price is right?
Speaker 3: We can't call it that. We can call it. The
Speaker 3: price is precise, I understand. Okay.
Speaker 1: The winning bid for this tiny thing that nobody can
Speaker 1: use or carry anywhere sixty three thousand, seven hundred and
Speaker 1: fifty dollars.
Speaker 2: I'm really surprised.
Speaker 3: I got it for you for your birthday.
Speaker 2: Oh my god, thank you. Welcome so excessive, but thank you.
Speaker 3: You can bring it to the movie theater when we
Speaker 3: go see Barbie.
Speaker 2: I don't like inhale it by when you eat popcorn.
Speaker 3: Rick Reader, thank you so so much for joining us. Katie.
Speaker 3: I'm so happy to have you on the podcast too.
Speaker 3: I don't miss Mike at all.
Speaker 2: Yeah, I don't even I don't even remember that man.
Speaker 3: What's his last name?
Speaker 4: Right?
Speaker 3: That was great though, Thank you, Rick, Thank you both
Speaker 3: so much.
Speaker 4: Thanks for having Meil. That was awesome.
Speaker 3: What goes app We'll be back next week.
Speaker 1: Until then, you can find us on the Bloomberg Terminal
Speaker 1: website and app, or wherever you get your podcasts. We'd
Speaker 1: love it if you took the time to rate and
Speaker 1: review the show so more listeners can find us.
Speaker 3: You can find us on Twitter, follow me at Wildona Hirich.
Speaker 3: Mike Reagan is at Reaganonymous. You can also follow Bloomer
Speaker 3: Podcasts at podcasts.
Speaker 1: What Goes Up is produced by Stacy Wong, and our
Speaker 1: head of podcasts is Sage Pauman.
Speaker 3: Thanks for listening and we'll see you next week.