Speaker 1: Bloomberg Audio studios, podcasts, radio news.
Speaker 2: So we have a lot of ETF related things to
Speaker 2: get into. Bank of course, just had a big birthday.
Speaker 2: But given the size of the moves that we're seeing
Speaker 2: in the market right now, let's start broad the s
Speaker 2: and P five hundred higher by nearly two percent, the
Speaker 2: NASZAQ one hundred higher by more than three percent on
Speaker 2: the heels of that peace agreement announcement. Then you take
Speaker 2: a look at the bond market, still a big move.
Speaker 2: You did see yields drop across the curve coming back
Speaker 2: a little bit. Though, when you put it all together,
Speaker 2: you take a look at the different ASSA classes and
Speaker 2: you add oil in there. I mean, what's your initial
Speaker 2: read on this knee jerk?
Speaker 3: So I'd say, obviously the peace agreement, and as you said,
Speaker 3: we'll say how durable it is. My senses are moving
Speaker 3: in a direction that ultimately will be quite positive. So
Speaker 3: the thing that's amazing to me, and by the way
Speaker 3: it played out around the SpaceX transaction, there is so
Speaker 3: much cash that's sitting on the sideline, So we get
Speaker 3: to be number depend on how you measure eight or
Speaker 3: nine trillion in money market funds nineteen trillion deposits and
Speaker 3: you know what happened. You know, you go back a
Speaker 3: week ago when you think about this big SpaceX deal.
Speaker 3: People have to find room though in terms of portfolios,
Speaker 3: et cetera. So you create a little bit of that
Speaker 3: and then once once that has happened, all of a sudden,
Speaker 3: it unlocks this cash, particularly when you get a good
Speaker 3: piece of news and people say, gosh, I can get
Speaker 3: into the pool, and it's pretty explosive when you see
Speaker 3: it happen. Obviously, the move you know, after we've had
Speaker 3: a good run the equity market has been pretty impressive today.
Speaker 1: Thank you for explaining that, because sometimes it's you know,
Speaker 1: when you ask a macro guy what's going on in
Speaker 1: the equity market and the bond market, you don't often
Speaker 1: get a candid response, So I appreciate that. I'm curious
Speaker 1: when we link what's happened with the interim piece deal
Speaker 1: with the state of central bank meetings this week. I
Speaker 1: believe there's more than twenty central bank decisions this week.
Speaker 1: Was this a gift to central bankers? Maybe not in
Speaker 1: the US, where we already know that the Fed's not
Speaker 1: going to do anything one way or another, but for
Speaker 1: other central banks. This is some kind of relief for them.
Speaker 3: One hundred percent. I mean you think about obviously headline inflation,
Speaker 3: the stress is real around what those numbers end up being.
Speaker 3: I mean, we look at the core. You know, I
Speaker 3: would argue there is some transmission coming in. But it
Speaker 3: was interesting to see the CPI report last week. We
Speaker 3: look at core goods. Core goods three month moving average
Speaker 3: core goods inflation is zero point one percent and six
Speaker 3: months moving out of zero point four. You're not seeing goods.
Speaker 3: Where you're seeing this latent inflation is quite frankly in
Speaker 3: services things like it, I mean, insurance a number in CPI.
Speaker 3: You look at that number, education, et cetera. So it's
Speaker 3: definitely helpful. It definitely takes places like the ECB that
Speaker 3: are looking at multiple hikes and you say, gosh, now
Speaker 3: maybe they don't have to move in multiple forms. So
Speaker 3: it is a big deal. I mean, it is a
Speaker 3: big deal for all markets when you think about central
Speaker 3: banks may not at the hike as much, and then
Speaker 3: you think about, you know, what does it mean for
Speaker 3: overall when you think about your MPV of owning the
Speaker 3: equity market if rates aren't going to move sigamantly higher.
Speaker 3: It's yeah, it's a it's a big deal.
Speaker 4: So the last time you're on the show, you had
Speaker 4: a clip that I put out on social media because
Speaker 4: I really it opened my eyes to this. I said,
Speaker 4: why would the FED cut? And you said, well, the
Speaker 4: reason is housing. That's why the FED should cut. And
Speaker 4: then they had a contest for who's going to be
Speaker 4: the FED share. Yeah, Kevin Warsh is the FED share.
Speaker 4: And they're now in between a rock and a hard
Speaker 4: place here because you do have some of these inflation
Speaker 4: numbers going up, but you do have this housing.
Speaker 3: Pressure which you brought up.
Speaker 4: And since you're back and all that's happened, since I
Speaker 4: want to get your take on what you would do.
Speaker 3: I mean what I would do. Well, I'm a positioned
Speaker 3: for what they will do, and I've learned in my
Speaker 3: career whatever I would do is interesting for my friends.
Speaker 3: But what I have position is what they're going to do. Listen,
Speaker 3: I think if you take that and go back to
Speaker 3: this inflation report and you're look at your break it down,
Speaker 3: the less interest sensitive sectors are experiencing healthcare, education, insurance
Speaker 3: sticky inflation, you're not really going to bring down healthcare
Speaker 3: costs by moving the funds rate. If you look at
Speaker 3: what happened that CPR port use cars, automobiles, small business,
Speaker 3: low income housing, those sectors are actually a not experiencing
Speaker 3: much inflation, if any at all, and B they're in
Speaker 3: a tough spot. So it's much more complex when you
Speaker 3: think about, particularly if you have a dual mandate, and
Speaker 3: you think about my mandate is actually employment and price stability.
Speaker 3: And today it's very hard to use the interest rate
Speaker 3: tool to manage automobile insurance. And so I think, and
Speaker 3: quite frankly, I think the new chair will use some
Speaker 3: other tools, and I think you'll look at the money supply.
Speaker 3: I'm certain he will. I'm certainly he will look at
Speaker 3: the balance sheet. This idea that the overnight funds rate
Speaker 3: is going to help modulate healthcare insurance doesn't make a
Speaker 3: lot of sense. But so I think you'll see a
Speaker 3: much more like how do we use balance sheet, how
Speaker 3: do we use money supply? And much more. And by
Speaker 3: the way, the front end of the yield curve, nobody
Speaker 3: really finances off the front end. It's all out the curve.
Speaker 3: How the chair manages long end interest rates? Particularly, you
Speaker 3: think about what does it mean for mortgages? What does
Speaker 3: it mean for other things? So listen, I wouldn't hike
Speaker 3: and but you know, we'll see you have a committee
Speaker 3: that's that's clearly hawkish.
Speaker 2: Let's keep the conversation going with Rick reader though he's
Speaker 2: still with us, he's still on set. Rick, appreciate your patience.
Speaker 2: Before we took a little bit of sound from the present.
Speaker 2: There we were talking about this upcoming Federal Reserve meeting,
Speaker 2: and you know how the news, how what we're seeing
Speaker 2: unfold in the Middle East when it comes to this
Speaker 2: MLU sort of factors into the trajectory for the FED
Speaker 2: going forward. But beyond the rate conversation, I do want
Speaker 2: to talk a little bit about the communication coming from
Speaker 2: the FED and how it might change going forward, because
Speaker 2: Kevin worsh I mean, he's made it clear he has
Speaker 2: not a lot of love for forward guidance, the dot plot.
Speaker 2: You know, all the press conferences that the FED has
Speaker 2: sort of tuned the market into. And I wonder you
Speaker 2: know whether or not you think the bond market, whether
Speaker 2: traders in general are prepared for a Federal Reserve that
Speaker 2: maybe communicates a little bit.
Speaker 3: Less you know, I mean, I'll say one thing. I'm
Speaker 3: a believer, and you don't need as much forward guidance.
Speaker 3: In fact, part of when you say as a bond
Speaker 3: mark prepared for it. If you're easing policy, you actually
Speaker 3: don't want people to be prepared for it. You want actually,
Speaker 3: I mean, one of the beauties of what the Fed
Speaker 3: has is its voice. When you're easing, it's very different
Speaker 3: than you're tightening. When you're tightening, you want to be foreshadowing.
Speaker 3: You want to be predictable in terms of how you're
Speaker 3: going to and wean people off of easier policy. When
Speaker 3: you're easing, you don't want that. You want to create
Speaker 3: animal spirits. You want to create economic velocity. And so
Speaker 3: I actually think not having forward guidance, or having less
Speaker 3: forward guidance actually a real tool that you can utilize
Speaker 3: going forward. Listen, I don't find the dot plot terrible utility.
Speaker 3: I mean for markets like to hone in on where
Speaker 3: it is to price the forwards. But listen, it's nineteen votes.
Speaker 3: You don't know who's who, you don't know. You know
Speaker 3: there are some more important ones than others. There's a
Speaker 3: there's a disparate process of how people fill out their
Speaker 3: dots among the nineteen. So I actually think it'll be
Speaker 3: a good idea. And you know, quite frankly, one of
Speaker 3: the for markets. Getting some volatility into the markets is
Speaker 3: a is a good thing. And I you know, I
Speaker 3: think I think people as long as you lay out
Speaker 3: here are the metrics that we're looking at, here are
Speaker 3: the parameters that the Fed's going to operate within, and
Speaker 3: as long as your caleer and articulate is this is
Speaker 3: what we are focused on, and then let the markets
Speaker 3: interpret it as the data presents itself. So anyway, I
Speaker 3: think it'll be I think it'll be refreshing, and I
Speaker 3: think it'll be I think it'll be helpful.
Speaker 1: And I think that's what a lot of people are
Speaker 1: counting on this meeting or this press conference this Wednesday
Speaker 1: to do for Kevin Wosh to kind of lay out
Speaker 1: his vision. One thing that we have heard from him
Speaker 1: in the past is that he is not a fan
Speaker 1: of the fed's balance sheet the size that it is
Speaker 1: right now. He wants to reduce that talk through what
Speaker 1: the implications of that is. There some concern that it
Speaker 1: could push up long term rates by forcing the market
Speaker 1: to absorb more bonds.
Speaker 3: So I mean that, I mean it's going to be
Speaker 3: a big deal. I mean, I think one of the
Speaker 3: things listen, I think he'll be very deliberate in reducing
Speaker 3: the balance sheet. I think one of the things the
Speaker 3: way financing works today it's very different in the past.
Speaker 3: You think about that, can the banks use to borrow short,
Speaker 3: lend long? And today it's very much. Financing is tranched
Speaker 3: the way we finance commercial real estate or residents or
Speaker 3: real estate or buy or credit, So it is very much.
Speaker 3: What is important is liquidity in the system, meaning if
Speaker 3: you reduce a balancet too quickly, it can be very disruptive.
Speaker 3: I am certain he's not going to go down that path.
Speaker 3: And the other thing that is really important is the
Speaker 3: shape of the yield curve. And I think how you
Speaker 3: utilize the balance sheet, and by the way, you can
Speaker 3: reduce the size of it. Because so much of our
Speaker 3: eighty nine percent of the dot in the United States
Speaker 3: is in zero to two years, it's actually not that much.
Speaker 3: None of what's on the Fed's balanchie today there's actually
Speaker 3: not much exposure duration, interest rate exposure out the yield curve.
Speaker 3: If you were thoughtful about how you use the balance sheet.
Speaker 3: In my senses they will be. You can actually keep
Speaker 3: long rates tethered and less volatile. Where you don't want
Speaker 3: to see the volatility is if you can keep longer
Speaker 3: in interest rates stable, we can get the mortgage rate
Speaker 3: down in this country, you can get housing velocity moving.
Speaker 3: That is going to be something really important, and I
Speaker 3: think the balance sheet is a big part of how
Speaker 3: you do that.
Speaker 4: I want to ask you about consumer sentiment. So stock
Speaker 4: market doing great, up thirteen percent since April.
Speaker 3: When you start to see these.
Speaker 4: Sentiment numbers from the University of Michigan come in as
Speaker 4: the worst since COVID and the Great Financial Crisis, it's
Speaker 4: tough for me to believe this.
Speaker 3: What do you make of that disparity?
Speaker 4: Because if this data were accurate and people were just
Speaker 4: going to stop spending, you'd think the market would pick
Speaker 4: up on it and not go bananas. So where's the
Speaker 4: disconnect there? What's going on?
Speaker 1: So?
Speaker 3: You know, I think, I said Matt Millane Show the
Speaker 3: other day, I don't really believe in the K shaped economy.
Speaker 3: I actually think it's I think I called it the
Speaker 3: three month old birthday cake. Like the icing is doing
Speaker 3: is still okay, it's underneath it's not, and what's underneath
Speaker 3: is much money, bigger. Seventy five percent of the economy
Speaker 3: I think is having a hard time. And so if
Speaker 3: you take part of what we talked about low income
Speaker 3: young people, you know, the housing market, I think most
Speaker 3: people are having a hard time when particularly when you
Speaker 3: get higher fuel prices, higher food prices, it does pressure
Speaker 3: consumer sentiment. And by the way, you see this in
Speaker 3: the earnings reports. I mean it's incredibly dichotomous in terms
Speaker 3: of where high end is doing, whether it's hotels, retailers, restaurants,
Speaker 3: and then where And by the way, I wouldn't just
Speaker 3: say it's low end. I say it's low to middle
Speaker 3: even a bit higher than that. So I think you
Speaker 3: have that dynamic and economy. The one the one thing
Speaker 3: I will say that's a travesty is actually most of
Speaker 3: what driving consumption in aggregate today is actually the top
Speaker 3: ten percent. So even though the consumer sentiment amongst the
Speaker 3: broad populace is not in great shape to share aggregates,
Speaker 3: spend there is not that large. So you can actually
Speaker 3: have an economy when you look at it tips of
Speaker 3: the waves and say, gosh, economy is doing pretty well
Speaker 3: in aggregate, but where most are actually having a hard time.
Speaker 3: It's part of why I have a different view on
Speaker 3: where I don't think rates have to go higher.
Speaker 2: So don't eat the cake, is what I'm saying. Say
Speaker 2: here and here it would no case that no exactly,
Speaker 2: So that's amazing. Maybe what's underneath doesn't look so good.
Speaker 2: I do want to get your thoughts on credit though,
Speaker 2: because there was a really interesting headline this morning coming
Speaker 2: from in Video with plans for a bond sale targeting
Speaker 2: twenty billion dollars. That would be in Video's first bond
Speaker 2: sale since twenty twenty one. And you sort of combined
Speaker 2: that idea with the fact that you're seeing the hyperscoes
Speaker 2: come out hit the bond market in a big way.
Speaker 2: You also have big equity issuance going on as well,
Speaker 2: especially not just in IPOs, you also have the likes
Speaker 2: of Alphabet raising equity as well. How are you thinking
Speaker 2: about that dynamic that when you look across bonds, you
Speaker 2: look across equities, you're seeing these big raises. How are
Speaker 2: you thinking about it in the context of portfolios such
Speaker 2: as bank It's.
Speaker 3: A great question. So first of all, you know I'm
Speaker 3: doing this. I'm not saying many decades now I've been
Speaker 3: doing this, but it's the most exciting time I've ever
Speaker 3: been around investing because you're seeing dead issuance, equity issuance,
Speaker 3: conferg loans with warrants, all sorts of funny because the
Speaker 3: truth is, they have to come in every market, by
Speaker 3: the way, they're coming us, coming in euro upcoming anywhere
Speaker 3: that they'll take it. There's a lot of financing coming.
Speaker 3: How do we think about it? Listen. I think some
Speaker 3: of it is, you know, some of the high quality
Speaker 3: paper that comes investment grade market is just okay. And
Speaker 3: by the way, there's more to come, as you said,
Speaker 3: including today. I think some more of the interesting converts
Speaker 3: of some of the structured financing that's coming, where you
Speaker 3: can really add some yield, maybe for a bit further
Speaker 3: down the capsack. Maybe some of these new companies that
Speaker 3: are coming. That's where I find it more interesting. Listen.
Speaker 3: I mean, they're you know, because the size is so big,
Speaker 3: there's some tactical opportunities to go in and then maybe
Speaker 3: reduce your exposure. But I think, like I said, doing
Speaker 3: some things that are a bit off the beaten path
Speaker 3: where you get some more yield, has been great for
Speaker 3: the portfolios.
Speaker 4: Okay, I have two quick lightning ground questions okay, and
Speaker 4: we have one minute okay, TLT it lures so many
Speaker 4: sailors to shipwreck. It's been going like this for about
Speaker 4: a year.
Speaker 3: Buy it or sell it? I don't think. I don't
Speaker 3: think long rates are going very far. So that's a
Speaker 3: terrible boring answer, but I think it's right by the way.
Speaker 3: I think the best expression is sell volatility against it,
Speaker 3: and that's been Volatility has been high, and that's been
Speaker 3: the best trade to selve all against it.
Speaker 4: One of your mutual funds, I believe, still loans a
Speaker 4: little bit of bitcoin, and you were one of the
Speaker 4: early people inside black Rock to get into it. It's
Speaker 4: now sold off fifty percent. Is it a buy now
Speaker 4: or are you going to wait more?
Speaker 3: Wow? These are specific questions, so listen. I think it's
Speaker 3: ultimately going considerably higher. I think the technicals there are
Speaker 3: some technical condition around it that goes as it to
Speaker 3: chop around. I think it's ultimately going higher. We're keeping
Speaker 3: it a pretty moderate exposure, quite frankly, because I think
Speaker 3: there's some other things that we are already we talked
Speaker 3: about in technology and some of the growth engines. By
Speaker 3: the way, there are places to get yield and things
Speaker 3: like some parts of the credit markets em that I
Speaker 3: felt like it's just so hey today and so we've
Speaker 3: reduced exposure. Ultimately, I think it's going higher, all.
Speaker 1: Right, Rick Reader, thank you so much for joining us today.
Speaker 4: Thanks.
Speaker 1: I appreciate the global fixed income at Blackrock and also
Speaker 1: head of the Blackrock Global Allocation Team.