WEBVTT - Markets, Real Estate, and Homebuilding (Podcast) 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.080 --> 0:00:05.240 my co host Matt Miller. 0:00:05.640 --> 0:00:09.600 Every business day we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.600 and Bloomberg experts, along with essential market moven news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets Podcast on Apple Podcasts or wherever 0:00:17.400 --> 0:00:20.520 you listen to podcasts, and at Bloomberg dot com slash podcast. 0:00:21.120 --> 0:00:23.920 You know, the market's got a little dicey here in 0:00:23.960 --> 0:00:26.840 the last five six weeks here, people get starting to 0:00:26.840 --> 0:00:28.120 build up a little bit of a wall. We'll warr 0:00:28.160 --> 0:00:30.320 as it relates to that higher for longer type thing. 0:00:30.320 --> 0:00:32.479 And then if that's not enough, then you've got a 0:00:32.520 --> 0:00:34.519 government that might be on the verge of dysfunction. You 0:00:34.520 --> 0:00:37.160 don't have a speaker on the verge of yeah, yeah, 0:00:37.520 --> 0:00:39.600 we have a dysfunctional government. We have a dispatch on 0:00:39.840 --> 0:00:41.440 Let's just go there, Let's see how the pros are 0:00:41.479 --> 0:00:43.280 kind of putting it all together. Phil Taves joins, the 0:00:43.360 --> 0:00:47.120 CEO of Tave's Asset Management. Phil, I mean, how do 0:00:47.200 --> 0:00:50.760 you put this situation that we've got down in Washington 0:00:50.800 --> 0:00:52.479 with the House of Representatives, How does that kind of 0:00:52.520 --> 0:00:55.000 weave into your investment outlook here? 0:00:56.160 --> 0:00:59.600 Well, we've already gone defensive over the last three weeks, 0:00:59.640 --> 0:01:04.360 we've made into a fully, fully defensive posture. What you guys, well, 0:01:04.400 --> 0:01:07.360 you may remember that we actually can move fully out 0:01:07.440 --> 0:01:09.800 of equities onto the sidelines and T builds. So that 0:01:09.840 --> 0:01:12.280 for eighty five percent of our roughly a billion dollars 0:01:12.319 --> 0:01:16.679 is in T bills, but what's not a lot of 0:01:16.720 --> 0:01:20.000 it has full notional value of put hedging. So that 0:01:20.080 --> 0:01:23.880 means defensive, not just like defensive stocks. But here's what 0:01:23.920 --> 0:01:27.240 I find so interesting is that, you know, if you 0:01:27.240 --> 0:01:29.520 look at what happened with the debt ceiling negotiations and 0:01:29.520 --> 0:01:34.800 then the recent budget impass, is that the market has 0:01:34.840 --> 0:01:38.360 tended to just ignore it. Right, So we were shocked 0:01:38.400 --> 0:01:41.920 at the debt ceiling negotiations that markets weren't freaking out. 0:01:41.920 --> 0:01:45.000 We were, but the markets weren't. And I here's the 0:01:45.000 --> 0:01:47.440 way I think it looks. I think that you know, again, 0:01:47.480 --> 0:01:51.280 it's sort of a I was expecting, Wow, did disarray 0:01:51.320 --> 0:01:53.760 in the house. Markets are going to open very negative 0:01:53.800 --> 0:01:56.520 this morning. Obviously that didn't happen. And I think the 0:01:56.560 --> 0:01:59.640 way this looks in terms of a government dysfunction is 0:01:59.680 --> 0:02:05.520 that we have more that same thing until until and 0:02:05.760 --> 0:02:09.520 if we reach a point where the dysfunction really is 0:02:09.680 --> 0:02:12.360 full on and plays into the fact that, wow, we're 0:02:12.440 --> 0:02:15.440 just going to have the government be closed for you know, uh, 0:02:15.760 --> 0:02:18.400 maybe ten days, maybe thirty five days like we've have 0:02:18.520 --> 0:02:20.880 in the last twenty years, or maybe longer. And then 0:02:20.960 --> 0:02:23.959 I think, then I think, potentially you'll have some real 0:02:24.240 --> 0:02:27.480 market movement, just as we did when you know, they 0:02:27.480 --> 0:02:31.320 were trying to negotiate the debt ceiling under Obama and 0:02:31.440 --> 0:02:33.800 the leaders agreed to something and all of a sudden, 0:02:33.840 --> 0:02:35.520 the legislature said, no, we're not going to do that. 0:02:35.560 --> 0:02:38.200 So I think, yeah, the market is just going to 0:02:38.240 --> 0:02:40.840 be sanguine about this until it's obvious that things are 0:02:40.880 --> 0:02:43.600 just so broken that it's going to be very bad 0:02:43.639 --> 0:02:44.520 scene for markets. 0:02:45.040 --> 0:02:50.480 So let's talk about holding treasuries here. How painful is 0:02:50.520 --> 0:02:53.600 it if you know, the two year goes from five 0:02:53.639 --> 0:02:56.480 to eleven to five twenty or five thirty, like, if 0:02:56.840 --> 0:02:59.079 these rates keep on rising And I will admit I 0:02:59.080 --> 0:03:01.400 didn't think they could go any higher last week or 0:03:01.400 --> 0:03:03.720 maybe even two weeks ago, but it seems like they 0:03:03.760 --> 0:03:08.200 continue to do that, not today, But you know, how 0:03:08.480 --> 0:03:11.120 how rough is it if you're holding two years and 0:03:11.160 --> 0:03:13.000 they move up twenty basis points. 0:03:13.600 --> 0:03:16.240 Yeah, so I think you need zero duration basically as 0:03:16.280 --> 0:03:18.280 close close as zero as you can get. So across 0:03:18.320 --> 0:03:20.639 our platform, we're just in one to three month, right, 0:03:20.680 --> 0:03:22.120 so you really want to be on the very very 0:03:22.120 --> 0:03:24.200 short end of the curve. There's no you know, the 0:03:24.240 --> 0:03:26.080 worst trade ever I was, you know, I was talking 0:03:26.120 --> 0:03:28.560 to a massively big advisor about two months ago and 0:03:28.560 --> 0:03:30.840 he said, I think it's time to go really long duration, 0:03:30.919 --> 0:03:32.800 and I said, maybe you should wait on that. Well, 0:03:32.840 --> 0:03:35.200 that was a really bad trade. So you need to 0:03:35.200 --> 0:03:37.640 be in T bills at this moment because the breakout 0:03:37.760 --> 0:03:41.240 is really the most important thing that's happened obviously over 0:03:41.280 --> 0:03:44.280 the over the last thirty days. And you know, I 0:03:44.280 --> 0:03:46.640 think it's just the fact that you have this relentless 0:03:46.640 --> 0:03:51.160 advancing yields that that keeps bringing the markets lower. Now 0:03:51.160 --> 0:03:52.760 we have a little bit of a reprieve today on 0:03:52.800 --> 0:03:55.600 the ten uere you know, thank goodness for that. But 0:03:56.360 --> 0:03:58.320 there's you know, if we could be at five percent, 0:03:58.480 --> 0:04:01.760 I think it'll be interesting to see though. So if 0:04:01.760 --> 0:04:04.200 we reach five and then we pause, I mean, if 0:04:04.240 --> 0:04:07.240 we can just stop increasing and stop the breakout, it'll 0:04:07.280 --> 0:04:10.440 be interesting to see if markets can sort of regain 0:04:10.520 --> 0:04:13.600 their their stability here. But as long as we're moving higher, no, 0:04:13.760 --> 0:04:15.800 not two years, not five years, not ten years, good 0:04:15.880 --> 0:04:18.680 Heaven's not like twenty years bring it into one to 0:04:18.720 --> 0:04:20.039 three months in our opinion. 0:04:19.760 --> 0:04:23.840 Although TLT has seen massive inflows. Right, that's a ETF 0:04:23.920 --> 0:04:27.719 with twenty years plus. Like everyone's been going out the curve. 0:04:28.000 --> 0:04:32.840 Everyone's been buying these elong duration bonds as we get 0:04:32.920 --> 0:04:36.680 higher and higher on the on the yield, and you expect, 0:04:36.920 --> 0:04:39.760 like if you buy the thirty year right now, you're 0:04:39.800 --> 0:04:43.280 getting four point nine percent, So you know, as long 0:04:43.279 --> 0:04:45.599 as you're holding it to maturity, that seems like a 0:04:45.600 --> 0:04:47.480 good trade. Right. 0:04:49.520 --> 0:04:51.920 But yeah, right, so like hold that hold that thirty 0:04:51.960 --> 0:04:53.800 year two maturity, that would be a that would be 0:04:53.839 --> 0:04:54.520 a great plan. 0:04:55.040 --> 0:04:57.919 Well look, well I wonder I mean if it turns 0:04:57.960 --> 0:05:00.240 around now, if this is the peak, But what do 0:05:00.240 --> 0:05:01.200 you think the peak is? 0:05:02.960 --> 0:05:04.880 I just I just don't know. But I don't think 0:05:04.960 --> 0:05:08.640 you know, you know, you've got the acronym BFF. I 0:05:08.680 --> 0:05:10.160 don't think you want the long gone to be your 0:05:10.600 --> 0:05:12.240 I think you went the short term, very short term 0:05:12.279 --> 0:05:15.440 to be or BFT, which is your best friend temporarily right, 0:05:15.920 --> 0:05:20.240 and and you just you just can't work against a 0:05:20.279 --> 0:05:24.200 trend like we see happening right now. You know, look 0:05:24.240 --> 0:05:27.239 at look at the stock market for the last three years, inexplicable. 0:05:27.360 --> 0:05:30.920 All of the moves have been inexplicable, like the advance 0:05:31.000 --> 0:05:34.560 this year, the advance during the pandemic. You know, So 0:05:34.839 --> 0:05:36.839 it's just not possible to call the market. So why 0:05:36.839 --> 0:05:38.479 would you make that trade? Why would you make that 0:05:38.560 --> 0:05:42.400 trade until until a trend comes along where you've got 0:05:42.400 --> 0:05:45.520 an opportunity. And look, so in terms of the long 0:05:45.600 --> 0:05:49.480 gone what we're you know, salivating at the possibility about 0:05:49.520 --> 0:05:51.680 because we're defensive now and we're in t bills. But 0:05:51.760 --> 0:05:54.480 if the trend changes and all of a sudden things 0:05:54.520 --> 0:05:56.760 fall off a cliff in terms of stock market, things 0:05:56.800 --> 0:05:59.359 look very bad and you actually see a change in 0:05:59.400 --> 0:06:01.880 direction of yields, there are going to be that's an 0:06:01.920 --> 0:06:05.599 amazing opportunity, and not just long bonds, but in just 0:06:05.640 --> 0:06:09.000 even conventional bonds like aggregate bonds. So we're waiting for that, 0:06:09.480 --> 0:06:10.919 but it's not right now, and I don't think you 0:06:10.960 --> 0:06:11.919 make the trade at this moment. 0:06:12.240 --> 0:06:14.400 Do you have to wait for the FED? Actually the 0:06:14.520 --> 0:06:16.360 signal rate cuts are coming. 0:06:17.000 --> 0:06:18.359 No, I think what you do is you watch the 0:06:18.400 --> 0:06:20.400 trend of yields and you watch the trend of just 0:06:20.440 --> 0:06:23.400 the price of these of these bonds. That's what we do. 0:06:23.600 --> 0:06:26.279 So we just really ignore everything else and so that 0:06:26.440 --> 0:06:29.240 you know, typically what you see is the market. You know, 0:06:29.279 --> 0:06:32.840 this bond market will about a month before you see 0:06:32.880 --> 0:06:34.880 any FED movement or you hit actual peak rates, you 0:06:34.880 --> 0:06:36.719 start to see a change in direction of those bonds. 0:06:36.720 --> 0:06:40.159 So watch the price of these bonds more than anything else. 0:06:41.480 --> 0:06:45.080 So in terms of you know, I guess you got 0:06:45.200 --> 0:06:46.760 to wait until you see the whites of its eyes. 0:06:46.880 --> 0:06:47.040 Right. 0:06:47.160 --> 0:06:50.560 That's been the same thing with any government shutdowns. If 0:06:50.560 --> 0:06:51.080 you think that's going. 0:06:51.080 --> 0:06:53.800 To be horrible for markets, well it doesn't seem to 0:06:53.800 --> 0:06:56.919 be until things go overboard. 0:06:57.320 --> 0:06:57.479 Is that? 0:06:57.560 --> 0:07:00.120 Do you feel the same way about the broader you know, 0:07:00.200 --> 0:07:04.080 government debt picture, because right now, you know, thirty three 0:07:04.839 --> 0:07:10.080 trillion and counting, we know entitlements like won't be funded 0:07:10.120 --> 0:07:13.640 for probably more than another decade. Does that not matter 0:07:13.680 --> 0:07:17.720 to markets until we get to you know, pass the deadline. 0:07:18.080 --> 0:07:20.280 Yeah, So that's the most important thing that we think 0:07:20.360 --> 0:07:22.600 is going on in the markets. I'm here in Austin, Texas, 0:07:22.600 --> 0:07:24.360 you're getting ready to fly out back to New York. 0:07:24.680 --> 0:07:26.960 And yesterday I spoke again at a broker dealer conference, 0:07:26.960 --> 0:07:29.320 and I talked about the hidden implications of global debt. 0:07:29.640 --> 0:07:32.840 So you've got this situation where the lender of last 0:07:32.880 --> 0:07:35.560 resort right always saves the day, and so over and 0:07:35.600 --> 0:07:38.160 over again we go through these market crises and then 0:07:38.240 --> 0:07:39.720 and then the FED comes in. Well, we all know 0:07:39.720 --> 0:07:41.280 the FED over the short term isn't going to come 0:07:41.320 --> 0:07:43.240 in and save the markets. But I think what you 0:07:43.280 --> 0:07:45.160 have to ask a question about is is if you 0:07:45.200 --> 0:07:47.960 actually tip into a recession, if it's a hard landing, 0:07:48.880 --> 0:07:52.120 then you've got the potential for decreased GDP at a 0:07:52.160 --> 0:07:55.480 time when death of GDP is already high, the possibility 0:07:55.520 --> 0:07:58.520 for increased need for fiscal stimulus, which gets you to 0:07:58.560 --> 0:08:01.880 the point where all of a sudden, this all maybe 0:08:01.920 --> 0:08:05.240 looks unsustainable. And so the giant wave that we are 0:08:05.360 --> 0:08:07.560 ignoring right now that could be upon us at some 0:08:07.720 --> 0:08:10.560 point is the fact that you know, just as we 0:08:10.600 --> 0:08:12.360 saw in the UK last year, that was the most 0:08:12.520 --> 0:08:16.200 most I think like poignant data point to look at 0:08:16.200 --> 0:08:19.120 when treasuries collapsed last year, when when all they did, 0:08:19.480 --> 0:08:23.120 guys is they they they passed a bill that decreased 0:08:23.120 --> 0:08:25.960 taxes and increased spending. So who cares about that, right 0:08:26.040 --> 0:08:29.320 normally in the US. But but you know, it start 0:08:29.400 --> 0:08:31.360 to you know, if you ever have a situation where 0:08:31.360 --> 0:08:34.400 you've got to start to have soft auctions or treasuries. Now, 0:08:34.400 --> 0:08:37.600 I know it sounds like conspiracy, crazy stuff, but really 0:08:37.880 --> 0:08:40.160 it's just you're kind of not there and then you 0:08:40.160 --> 0:08:42.480 all of a sudden are But if you get to 0:08:42.520 --> 0:08:44.240 the point where instead of one hundred percent or GDP 0:08:44.360 --> 0:08:46.280 or one and ten hundred and twenty hundred and thirty, 0:08:46.840 --> 0:08:49.120 that's the big questions like what do you do with 0:08:49.679 --> 0:08:52.800 this lender of last result resort all of a sudden 0:08:53.320 --> 0:08:56.400 not being an effective tool anymore. That no one really 0:08:56.440 --> 0:08:59.200 talks about that, No one thinks about that. But that's 0:08:59.320 --> 0:09:00.920 if you look out five or ten years from now, 0:09:00.960 --> 0:09:03.079 I think we'll look back and say, wow, what were 0:09:03.080 --> 0:09:04.240 we thinking of We were. 0:09:04.040 --> 0:09:04.640 Already you know. 0:09:04.679 --> 0:09:07.000 That's this is dwarfs the mortgage crisis dwarfs it. 0:09:07.920 --> 0:09:10.000 Hey, yeah, yeah, on that note, Okay, there you go, 0:09:11.600 --> 0:09:13.560 leave you right there, Phil Taves, thanks so much for 0:09:13.640 --> 0:09:17.439 joining us. As always, Phil Tave's CEO, Tave's Asset management 0:09:17.960 --> 0:09:22.080 eighty five percent of their portfolio in T bills T bills, 0:09:22.080 --> 0:09:24.640 not even eaten like notes or T bonds T bills, 0:09:24.800 --> 0:09:29.720 so ultimate short term there, that is a cautious portfolio. 0:09:29.760 --> 0:09:33.480 That's almost like a doomsday portfolio. But I appreciate getting 0:09:33.520 --> 0:09:34.680 his thoughts as well. 0:09:35.760 --> 0:09:39.160 You're listening to the team Ken's are Live program Bloomberg 0:09:39.240 --> 0:09:42.600 Markets weekdays at ten am Eastern on Bloomberg dot com, 0:09:42.679 --> 0:09:45.800 the iHeartRadio app and the Bloomberg Business app, or listen 0:09:45.880 --> 0:09:48.000 on demand wherever you get your podcasts. 0:09:50.320 --> 0:09:52.719 Jamie Patten joins us, she's some TCW. They know what 0:09:52.720 --> 0:09:56.720 they're doing over there when it comes to the markets. Uh, Jamie, 0:09:56.760 --> 0:09:58.880 the last time we talked, we were talking about or 0:09:58.920 --> 0:10:01.079 maybe the discussion of the market a place with soft landing, 0:10:01.120 --> 0:10:04.560 hard landing, no landing. But boy, you took it another 0:10:04.600 --> 0:10:08.880 step forward with your aviation knowledge. Where are we now? 0:10:09.400 --> 0:10:11.640 Do you think as we kind of feel a little 0:10:11.679 --> 0:10:16.000 bit more comfortable with higher for longer, I guess, and 0:10:16.040 --> 0:10:16.960 we our. 0:10:16.880 --> 0:10:19.960 Views are unchanged, so we understand how the markets have 0:10:20.240 --> 0:10:22.840 been willing to give into this no landing view. And 0:10:22.920 --> 0:10:25.400 just as a reminder, I think it's a really terrible 0:10:25.440 --> 0:10:28.200 analogy because it defies the laws of physics airplanes run 0:10:28.200 --> 0:10:28.800 out of gas. 0:10:28.920 --> 0:10:31.400 I'll keep saying that until people stop using the analogy. 0:10:31.960 --> 0:10:34.160 But this kind of things are different this time. 0:10:36.480 --> 0:10:39.520 It speaks to the underlying optimism that higher rates will 0:10:39.520 --> 0:10:43.040 simply just be absorbed without any effort. Things are different. 0:10:43.480 --> 0:10:46.079 The economy is no longer leverage, is no longer rate sensitive, 0:10:46.080 --> 0:10:49.920 and at TCW we completely disagree with that. We understand 0:10:49.920 --> 0:10:52.959 that it's exasperating to wait for the proverbial shoe to drop. 0:10:53.200 --> 0:10:56.360 Market participants are tired, they're impatient. It's been almost nineteen 0:10:56.360 --> 0:10:59.280 months since the fed's first rate hike. Nothing has gone 0:10:59.320 --> 0:11:02.959 around yet, but we still think it's early. It's only 0:11:03.160 --> 0:11:05.760 not even nineteen months from the fed's first rate hike, 0:11:05.800 --> 0:11:09.240 and of the prior thirteen hiking cycles, only one has 0:11:09.280 --> 0:11:12.400 turned into recession less than nineteen months after the start 0:11:12.440 --> 0:11:14.880 of a hiking cycle, so a recession today would still 0:11:14.880 --> 0:11:17.920 be early. We're still relatively early in the cycle. Even 0:11:17.920 --> 0:11:20.120 though we're approaching the end of the FED hiking cycle, 0:11:20.320 --> 0:11:23.920 we're still relatively early in the economic cycle. And we 0:11:24.000 --> 0:11:25.880 talked about it last time, but we still have the 0:11:25.960 --> 0:11:30.079 view that lags between the fed's interest rate hikes and 0:11:30.360 --> 0:11:33.440 the impact of the economy are longer now for many reasons. 0:11:33.840 --> 0:11:36.439 So while nineteen months is early historically, we think it's 0:11:36.440 --> 0:11:39.959 even earlier from the perspective of lags are longer. 0:11:40.320 --> 0:11:41.760 Yeah, Jamie, with all that in mind, where are you 0:11:41.760 --> 0:11:44.080 guys putting money to work? Then, just given if you're 0:11:44.480 --> 0:11:46.880 kind of taking that point of view, that it's still 0:11:46.920 --> 0:11:47.800 early in the cycle. 0:11:49.040 --> 0:11:52.720 So at TCW, we really like duration longs. We've been 0:11:52.760 --> 0:11:55.160 adding to them. We don't claim to know exactly when 0:11:55.160 --> 0:11:56.839 the top or the bottom of the yield range is 0:11:56.880 --> 0:11:58.720 going to hit. So we dollar cost average in and 0:11:58.760 --> 0:12:00.880 we like them the last time we talked, we like 0:12:00.920 --> 0:12:02.800 them even more now, so we've been adding to our 0:12:02.840 --> 0:12:06.200 long positions. We also think that the curve will be steeper. 0:12:07.520 --> 0:12:09.960 Monetary policy will continue to be the big driver for 0:12:10.080 --> 0:12:12.560 rates in the economy, especially at this point towards the 0:12:12.640 --> 0:12:15.760 end of the FED high type the FED hike cycle, 0:12:16.400 --> 0:12:18.800 the FED is likely to overtighten. That gives us even 0:12:18.840 --> 0:12:21.440 more confidence in our long duration positions. If you want 0:12:21.480 --> 0:12:23.520 to keep going with the flying analogies that can give 0:12:23.559 --> 0:12:27.760 you one comparing the economy today, and it gives us 0:12:27.760 --> 0:12:31.360 more confidence in our long duration position. But the National 0:12:31.440 --> 0:12:35.120 Transportation Safety Board always writes these crash reports after every 0:12:35.120 --> 0:12:38.280 airplane flying accident. And as a side note, and I 0:12:38.280 --> 0:12:40.200 promise I'll connect this to the markets and the second 0:12:40.240 --> 0:12:44.120 books amazing. They read like a novel, So JFK. Junior's 0:12:44.120 --> 0:12:48.800 infamous flight crash into the Atlantic Ocean. The NTSB report 0:12:48.920 --> 0:12:51.360 starts twenty years prior to the crash. It talks about 0:12:51.360 --> 0:12:53.319 when he got his license, he had a broken ankle 0:12:53.320 --> 0:12:55.640 from a hang gliding accident, why he left for the 0:12:55.640 --> 0:12:57.760 airport late, the traffic he got stuck in, he didn't 0:12:57.760 --> 0:13:00.840 get a weather briefing. The point is that the accidents 0:13:00.960 --> 0:13:04.520 aren't caused by just one thing, and it's a confluence 0:13:04.520 --> 0:13:08.280 of everything combined, one thing you can recover from. So 0:13:08.320 --> 0:13:10.440 when we look at the markets today, it's beginning to 0:13:10.520 --> 0:13:13.319 read just like a crash report. If you were going 0:13:13.360 --> 0:13:16.000 to write an NTSP crash report about today's economy, it 0:13:16.000 --> 0:13:19.240 would probably start back in the nineteen seventies when Arthur 0:13:19.280 --> 0:13:21.040 Burns reverse course on. 0:13:21.040 --> 0:13:22.160 Rate hikes too early. 0:13:22.640 --> 0:13:26.440 That resulted in this conventional wisdom that cas Burns is 0:13:26.440 --> 0:13:29.719 not wise or strong enough to keep rates as high 0:13:29.720 --> 0:13:32.640 as they needed to be. Then Vulgar is glorified for 0:13:32.720 --> 0:13:35.280 having the courage to relentlessly keep rate hikes. 0:13:35.640 --> 0:13:37.120 And then you have paul A. 0:13:37.120 --> 0:13:40.560 Powell, four decades later, carrying around the Vulgar Memoirs talking 0:13:40.559 --> 0:13:42.960 about how that's a great lesson it should be required reading. 0:13:43.280 --> 0:13:48.520 Combine that with a global pandemic, fiscal policies arguably helicopter money, 0:13:48.760 --> 0:13:52.120 a surging deficit, increased treasury supply. So now you have 0:13:52.360 --> 0:13:55.360 global central banks raising rates in the front end in 0:13:55.559 --> 0:13:59.200 uniform almost across the whole world. Meanwhile, you have longer 0:13:59.280 --> 0:14:02.160 rates going high for all the aforementioned reasons. All of 0:14:02.200 --> 0:14:05.120 a sudden, you're like, you know, oh, don't forget about 0:14:05.520 --> 0:14:07.520 a leadership vacuum in the house, raising the ads of 0:14:07.559 --> 0:14:10.400 a government shut down. So you can kind of see 0:14:10.440 --> 0:14:13.400 how these things are all coming together and creating a 0:14:13.440 --> 0:14:17.880 really hazardous environment for financial markets in the economy. 0:14:18.040 --> 0:14:20.680 Jamie, you mentioned a potential government shutdown. It seems like 0:14:21.000 --> 0:14:23.960 the chatter is back about a potential downgrade on the 0:14:24.000 --> 0:14:26.440 back of that. Given right now, it seems like all 0:14:27.400 --> 0:14:30.480 signs indicate a shutdown in mid November. How are you 0:14:30.520 --> 0:14:32.640 positioning that and what are you thinking about in terms 0:14:32.680 --> 0:14:35.480 of a potential government shutdown and what would happen if 0:14:35.560 --> 0:14:37.800 we were to see the US get downgraded. 0:14:39.080 --> 0:14:42.320 We think that's a very high possibility. We expect the 0:14:42.360 --> 0:14:44.400 government is much more likely to shut down now than 0:14:44.440 --> 0:14:47.480 it was before yesterday's events, and Moody's already came out 0:14:47.480 --> 0:14:50.960 on Monday and said they're considering it. Seems like it's 0:14:51.040 --> 0:14:53.600 more likely that they'll downgrade. US treasuries are a little 0:14:53.600 --> 0:14:57.360 bit strange in this aspect, where yields tend to go lower, 0:14:57.560 --> 0:15:00.520 not higher, when the treasury gets down great, so it's 0:15:00.520 --> 0:15:03.600 the opposite of a more of a credit risk asset, 0:15:03.880 --> 0:15:06.000 where it's a flight to quality. In terms of the 0:15:06.080 --> 0:15:09.680 economic impact, we don't think that it will be We'll 0:15:09.720 --> 0:15:13.760 see a contraction with that quarter's GDP growth, but typically 0:15:13.800 --> 0:15:16.600 we get that back the following quarter, so we don't 0:15:16.640 --> 0:15:19.600 see it as as big of an economic impact as 0:15:19.600 --> 0:15:25.680 we do just more uncertainty, more spending. More markets just 0:15:25.720 --> 0:15:28.800 don't like this kind of like lack of organization, lack 0:15:28.840 --> 0:15:32.320 of structure, lack of getting anything done, more spending. So 0:15:32.520 --> 0:15:34.640 on the margin, we think it's bad for risk, but 0:15:35.000 --> 0:15:37.800 from our long duration position perspective, we actually think on 0:15:37.840 --> 0:15:40.080 the margin it would be a positive for that. 0:15:40.920 --> 0:15:45.080 So do you expect the FED next year to cut rates? 0:15:45.120 --> 0:15:46.440 And if so, when. 0:15:48.040 --> 0:15:49.920 We do, the. 0:15:49.880 --> 0:15:54.280 Fed's own forecast only has them cutting rates maybe two 0:15:54.320 --> 0:15:59.840 times next year. That's assuming this perfect soft, immaculate disinflation landing, 0:16:00.120 --> 0:16:02.200 and that's not necessarily our view. We think that they're 0:16:02.240 --> 0:16:06.040 going to have to cut harder and more than expected, 0:16:06.400 --> 0:16:10.040 But the timing is relatively uncertain. Maybe at some point 0:16:10.200 --> 0:16:12.400 in the second half of twenty twenty four when we 0:16:12.440 --> 0:16:17.600 see this sort of financial accident or a bigger hit 0:16:17.640 --> 0:16:20.440 to growth, a bigger hit to risk assets because it 0:16:20.520 --> 0:16:24.240 comes in the form of more of a bigger accident, 0:16:24.280 --> 0:16:25.480 a bigger slow down in growth. 0:16:25.520 --> 0:16:26.400 It's harder to. 0:16:26.400 --> 0:16:29.480 Predict the exact timing, but we do think, I mean, 0:16:29.520 --> 0:16:32.160 even just if you take out everything else, just the 0:16:32.160 --> 0:16:36.000 fact that we have such higher, flatter inverted curves that 0:16:36.040 --> 0:16:39.600 in and out of itself is a negative impact for investment, 0:16:39.600 --> 0:16:43.120 consumption and employment, which just by itself can lead to 0:16:43.160 --> 0:16:46.840 this negative self reinforcing downturn. So they're kind of all 0:16:46.880 --> 0:16:49.040 these aspects that are combining together. And we don't claim 0:16:49.080 --> 0:16:51.520 to predict the future, but we see all these reasons 0:16:51.800 --> 0:16:54.280 why the economy could take a turn, and yet another 0:16:54.320 --> 0:16:57.440 reason we like buying duration and being long bonds in 0:16:57.480 --> 0:16:58.200 this environment. 0:16:58.480 --> 0:17:00.720 I'm looking at it soft right now that odds are 0:17:01.000 --> 0:17:03.360 slowly dropping about another hike. Do you think we could 0:17:03.400 --> 0:17:04.400 get another hike this year? 0:17:05.440 --> 0:17:10.159 Our base cases probably we don't need it. It probably not, 0:17:10.400 --> 0:17:12.240 but we still think it's fifty to fifty. The FED 0:17:12.280 --> 0:17:14.600 told us that they're data dependent. The data between now 0:17:14.640 --> 0:17:17.399 and the end of the year could shift on the 0:17:17.480 --> 0:17:20.760 margin towards one more hike. The FED zone forecast is 0:17:20.800 --> 0:17:22.800 that they have one more hike, so we could definitely 0:17:22.840 --> 0:17:24.520 see it, although it's not our base case. 0:17:25.320 --> 0:17:29.480 Jamie, you're a pilot in the Los Angeles area, Yes, 0:17:29.800 --> 0:17:32.000 how find an airspace and not get like run over 0:17:32.040 --> 0:17:33.920 by these jumbo jets coming into LAX. 0:17:35.200 --> 0:17:37.639 You stay away from the LAX airspace, So there's actually 0:17:37.680 --> 0:17:41.479 a corridor through LAX that you can fly just visual 0:17:41.520 --> 0:17:44.320 flight rules as a private pilot, and you're kind of 0:17:44.359 --> 0:17:45.679 guaranteed to avoid all that. 0:17:45.720 --> 0:17:46.879 But yeah, it's pretty busy. 0:17:47.200 --> 0:17:48.880 And I would just also like to say, while we're 0:17:48.880 --> 0:17:51.239 talking about my personal life, that all of this, like 0:17:51.520 --> 0:17:53.960 Jamie knows all about hard landings, because she's a pilot. 0:17:54.000 --> 0:17:56.200 It hasn't been great for my pilot brand. 0:17:56.520 --> 0:17:59.479 So I want to emphasize that I know about this 0:17:59.520 --> 0:18:02.400 from reading things like NTSB crash reports. In my own 0:18:02.840 --> 0:18:06.600 pilot record is perfect. So just to put that out there. 0:18:07.240 --> 0:18:09.600 Excellent. No, I know I need you've got this. You 0:18:09.640 --> 0:18:11.320 know you've got this hobby. You like to read these 0:18:11.520 --> 0:18:13.560 accent reports. But that's a great way to learn what 0:18:13.640 --> 0:18:14.000 not to do. 0:18:14.080 --> 0:18:17.280 I guess yeah, in financial markets as well. 0:18:17.600 --> 0:18:19.480 Very good, Jamie. Always great to talk with you. A 0:18:19.520 --> 0:18:21.600 lot of interesting stuff, a lot of fun along the 0:18:21.600 --> 0:18:25.840 way as well. And good luck with your flight instruction, 0:18:25.960 --> 0:18:27.600 I mean flight career. 0:18:28.040 --> 0:18:31.160 You're listening to the tape cans are live program Bloomberg 0:18:31.240 --> 0:18:34.800 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:18:34.880 --> 0:18:36.960 tune in app, Bloomberg dot Com. 0:18:36.680 --> 0:18:38.120 And the Bloomberg Business App. 0:18:38.160 --> 0:18:40.959 You can also listen live on Amazon Alexa from our 0:18:41.000 --> 0:18:46.040 flagship New York station. Just say Alexa play Bloomberg eleven thirty. 0:18:46.400 --> 0:18:49.080 I'm looking at the Bloomberg Index browser. 0:18:49.400 --> 0:18:51.880 I d go, well, I was just looking at that too. 0:18:52.040 --> 0:18:54.560 Wow, great minds think to like, I mean, the only 0:18:54.600 --> 0:18:56.000 thing I'm looking at, you know, look at the bond 0:18:56.040 --> 0:18:58.720 market here. The indices here in Nexus. 0:18:58.400 --> 0:19:02.320 Sorry is official Bloomberg style, I understand. 0:19:02.400 --> 0:19:04.719 And the only one that's positive for the year is 0:19:04.760 --> 0:19:07.639 the high yield corporate Corporate high Yield index. 0:19:07.680 --> 0:19:09.760 So I was looking and I saw so US treasure 0:19:09.800 --> 0:19:14.160 or treasuries in general, right, Ye, that index is down 0:19:14.200 --> 0:19:16.720 four point seven percent this year. And remember it was 0:19:16.800 --> 0:19:20.119 down seventeen and a half percent last year, and the 0:19:20.200 --> 0:19:23.200 year before that it was down six and a half percent. Yeah, 0:19:23.560 --> 0:19:28.120 so if your long treasuries into the pandemic, you got 0:19:28.400 --> 0:19:29.280