WEBVTT - Markets Ready for Powell 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.800 --> 0:00:14.880 This is the Bloomberg Surveillance Podcast. I'm Paul Sweeney along 0:00:14.880 --> 0:00:17.240 with Tom Keene. Join us each day for insight from 0:00:17.239 --> 0:00:20.760 the best in economics, geopolitics, finance, and investment. You can 0:00:20.800 --> 0:00:24.439 also watch the show live on YouTube. Visit the Bloomberg 0:00:24.480 --> 0:00:27.760 Podcast channel on YouTube to see the show weekday mornings 0:00:27.760 --> 0:00:30.400 from seven to ten Eastern Remark Global Headquarters in New 0:00:30.440 --> 0:00:33.720 York City. Subscribe to the podcast on Apple, Spotify, or 0:00:33.760 --> 0:00:36.760 anywhere else you listen, and as always on Bloomberg Radio, 0:00:36.840 --> 0:00:39.760 the Bloomberg Terminal, and the Bloomberg Business app. A huge 0:00:39.760 --> 0:00:43.360 issue for market investors is what is this Federal Reserve 0:00:43.400 --> 0:00:45.560 going to do? I mean, we started the year thinking 0:00:45.600 --> 0:00:48.400 six rate cuts. If you look at WRP GO, that's 0:00:48.440 --> 0:00:49.879 kind of what the market was dis Kenny. Now we're 0:00:49.960 --> 0:00:52.559 kind of like three or four, I don't know. For 0:00:52.640 --> 0:00:55.280 our next guest, he has an informed opinion. Rich Clarida, 0:00:55.600 --> 0:00:57.440 former vice chair at the Federal Reserve. Now he's got 0:00:57.480 --> 0:00:59.680 a paying job. He's a managing director of New York 0:00:59.680 --> 0:01:01.920 office in pimco's Global Economic Advisor. 0:01:02.560 --> 0:01:05.080 Rich, thanks so much for joining us here in studio. 0:01:05.120 --> 0:01:06.080 Here ch Good to see you. 0:01:06.240 --> 0:01:08.720 Yeah, what is your Federal Reserve going to do? And 0:01:08.760 --> 0:01:09.680 when are they going to do it? 0:01:10.959 --> 0:01:12.759 I've been doing other things for two years, so it's 0:01:12.800 --> 0:01:17.680 not my FED anymore. I think they think they're done. 0:01:17.760 --> 0:01:20.720 I think they think the next move is a cut, 0:01:21.480 --> 0:01:25.199 and certainly in the recent press conference that the chair 0:01:25.240 --> 0:01:28.200 did not really try to push away the idea that 0:01:28.240 --> 0:01:32.559 they would start this summer. And so I think WORP 0:01:32.720 --> 0:01:34.640 is more or less where I would be right now 0:01:34.680 --> 0:01:38.800 as well. Three cuts, But I do think and hope 0:01:38.800 --> 0:01:41.760 that they are data dependent, because the inflation data has 0:01:41.920 --> 0:01:44.959 been mixed at best. So I think it makes sense 0:01:45.000 --> 0:01:48.440 to start cutting now, but the pace and destination I 0:01:48.480 --> 0:01:52.480 think should depend on the inflation data. I hope I've. 0:01:52.360 --> 0:01:53.520 Been talking about this all morning. 0:01:53.600 --> 0:01:53.760 Rich. 0:01:53.840 --> 0:01:55.760 Great to see you, by the way, in terms of 0:01:55.800 --> 0:02:00.120 the Baltimore Bridge collapse, and I understand overall you can 0:02:00.200 --> 0:02:02.200 just go to a different port eventually, but in the 0:02:02.240 --> 0:02:06.120 short term there could be an impact on disinflation for autos, 0:02:06.520 --> 0:02:10.080 and I'm wondering if we see disinflation stop for durable 0:02:10.080 --> 0:02:14.080 goods and goods stuff, does that change the data and 0:02:14.160 --> 0:02:16.560 does it change or push back a cut? 0:02:18.240 --> 0:02:21.799 Great question I think on that the crisp answer would 0:02:21.840 --> 0:02:26.480 be no, for the simple reason that it's potentially a 0:02:26.480 --> 0:02:29.880 big shock to auto prices, although I think other folks 0:02:29.919 --> 0:02:33.680 think it could be attenuated, but I think the FED 0:02:33.800 --> 0:02:36.440 would tend to and that would be good approach to 0:02:36.480 --> 0:02:40.160 look through that. So it shouldn't change the Fed's one 0:02:40.240 --> 0:02:44.400 or three year inflation picture materially about this tragedy in Baltimore, 0:02:44.440 --> 0:02:46.120 and I think they would they would look through that 0:02:46.200 --> 0:02:48.560 if that's the only thing going. The tricky thing, of course, 0:02:48.880 --> 0:02:53.200 is that goods goods disinflation is a big part of 0:02:53.240 --> 0:02:56.320 getting down to two percent eventually. It's been happening in 0:02:56.360 --> 0:02:59.320 the last couple of years, but they need to be 0:02:59.360 --> 0:03:01.720 looking at that more closely because there are other factors 0:03:02.120 --> 0:03:05.880 pushing up goods prices, including supply chains and all reshoring 0:03:05.880 --> 0:03:08.160 and on shoring and all that. So right now they'll 0:03:08.200 --> 0:03:10.720 be getting a lot of help with with goods disinflation, 0:03:10.840 --> 0:03:12.720 but they'll need to keep on top of that. 0:03:13.040 --> 0:03:14.920 Which a lot of folks we talked to, whether they're 0:03:15.560 --> 0:03:20.160 academics or practitioners, they say inflation is already whipped if 0:03:20.160 --> 0:03:22.600 you look at the real time data, it's done. We're done. 0:03:22.680 --> 0:03:27.400 Why isn't the Federal Reserve not moving now? And perhaps 0:03:27.480 --> 0:03:29.840 because the Federal Reserve looks at data that's. 0:03:29.639 --> 0:03:31.520 In the rear view mirror. How do you think about 0:03:31.520 --> 0:03:33.160 that argument? How do you kind of come back to that? 0:03:34.160 --> 0:03:38.960 Well, I think that if the Fed we're targeting the 0:03:39.000 --> 0:03:43.600 CPI inflation index, which is probably more well understood than 0:03:43.600 --> 0:03:47.080 the PCE. The CPI is running a point hotter now, 0:03:47.120 --> 0:03:49.320 it's somewhere in the high threes maybe low force, So 0:03:49.360 --> 0:03:52.280 we really wouldn't be talking about FED rates cut if 0:03:52.320 --> 0:03:57.000 the Fed we're targeting a different index. Also, I think 0:03:57.040 --> 0:03:59.440 the FED will tend to look at the drivers of inflation, 0:03:59.480 --> 0:04:02.240 if you will, the trend in inflation, and a big 0:04:02.280 --> 0:04:05.520 part of that is labor cost and wages. Wage inflation 0:04:05.640 --> 0:04:07.680 has come down, but it's still a little bit hot. 0:04:08.800 --> 0:04:11.160 So certainly, if I were still at the FED, which 0:04:11.200 --> 0:04:13.600 I'm not, you know, I wouldn't be in the Mission 0:04:13.640 --> 0:04:16.599 Accomplished camp. I would be encouraged by the data we 0:04:16.680 --> 0:04:19.560 got in the second half of last year. And it's 0:04:19.600 --> 0:04:24.560 been very, very great. As Governor Waller was saying two 0:04:24.640 --> 0:04:27.080 years ago, that we've been able to disinflate without really 0:04:27.160 --> 0:04:29.640 any pain in the labor market. So you know, knock 0:04:29.680 --> 0:04:32.240 on wood that that continues. But but I don't. I 0:04:32.279 --> 0:04:34.600 don't think if you look at broader measures of inflation 0:04:34.720 --> 0:04:36.159 that were there yet. 0:04:35.920 --> 0:04:38.800 Why did the FED miss the boat on inflation a 0:04:38.839 --> 0:04:41.479 few years ago? And when they missed the boat, now. 0:04:42.360 --> 0:04:44.120 Well I was I was there of course then, and 0:04:44.200 --> 0:04:48.640 O one and Charter member of team Transitory, so you. 0:04:49.000 --> 0:04:52.200 Were team transitory. Oh yeah, and everyone hated it, that 0:04:52.360 --> 0:04:54.440 was the word. But yet that was true. Well it was. 0:04:54.560 --> 0:04:57.200 It was in the FMC statement which I signed off on, 0:04:57.400 --> 0:04:59.320 So I guess I didn't hate it at the time. 0:04:59.760 --> 0:05:03.359 Up look, initially in the spring of spring and summer 0:05:03.440 --> 0:05:08.680 of twenty twenty one, headline inflation was high, but it 0:05:08.720 --> 0:05:10.640 was not really broad based. In fact, I remember at 0:05:10.640 --> 0:05:12.680 one point saying to one of my colleagues, you know, 0:05:13.160 --> 0:05:15.720 I'm not prepared to raise rates because used car prices 0:05:15.720 --> 0:05:18.520 are up forty percent. But by the second half of 0:05:18.560 --> 0:05:22.719 twenty twenty one, it didn't matter. Every inflation index was 0:05:22.760 --> 0:05:25.080 going up and was very broad based. And so I 0:05:25.200 --> 0:05:30.240 think I think the transitory story had had a confrontation 0:05:30.360 --> 0:05:33.880 with reality, and the power fed pretty quickly, beginning in 0:05:34.480 --> 0:05:36.520 the fall of twenty twenty one began to pivot to 0:05:36.560 --> 0:05:39.880 tighter policy. So team Transitory was really in play, you know, 0:05:39.960 --> 0:05:42.840 for maybe six or nine months, but the Fed moved 0:05:42.880 --> 0:05:44.599 pretty quickly once the data changed. 0:05:45.080 --> 0:05:47.440 And do you feel like the economy is in such 0:05:47.440 --> 0:05:50.159 a position now that, again, we had some inflation data 0:05:50.160 --> 0:05:52.280 over the last month or so that kind of suggested 0:05:52.360 --> 0:05:53.760 to some people that. 0:05:53.720 --> 0:05:55.960 Maybe inflation's not beaten down here. 0:05:56.040 --> 0:05:59.480 So does it suggest that the Fed can in fact 0:05:59.720 --> 0:06:02.640 way here and just kind of let the long and 0:06:02.960 --> 0:06:04.080 variable lags play out. 0:06:05.839 --> 0:06:08.200 I think that's I think that is certainly an option, 0:06:08.320 --> 0:06:10.719 and I think that is a message the Chair was 0:06:10.800 --> 0:06:15.080 conveying at the press conference at the last meeting. They 0:06:15.240 --> 0:06:18.560 they think their policy is restrictive. So one option if 0:06:18.600 --> 0:06:21.280 you think policy is restrictive, is just to delay the cuts. 0:06:21.279 --> 0:06:24.080 And the longer you keep policy restrictive, the more the 0:06:24.160 --> 0:06:27.039 lags will tend to will tend to kick in. But 0:06:27.080 --> 0:06:29.599 they're also very cognizant of the fact that they're getting 0:06:29.640 --> 0:06:33.400 some good news on the supply side. Labor force participations up, 0:06:33.440 --> 0:06:37.440 productivity growth is up, and appropriately they don't want to 0:06:37.480 --> 0:06:40.200 lean against that. So if more people are working and 0:06:40.279 --> 0:06:43.640 they're more productive, you don't want to try to lean against. 0:06:43.240 --> 0:06:47.600 That, rich What would be a word that you would 0:06:47.640 --> 0:06:51.200 use to describe inflation now, like if it was because 0:06:51.240 --> 0:06:54.359 you know, to some extent, transitory wasn't wrong, like for 0:06:54.440 --> 0:06:57.520 goods prices, it was transitory, just the time frame of 0:06:57.520 --> 0:06:59.880 transitory was challenging. 0:07:00.400 --> 0:07:01.599 What's the word you would use? 0:07:03.440 --> 0:07:05.000 I don't know if I have a word, I'd say 0:07:05.000 --> 0:07:07.560 we're on the right path, but there is a rick 0:07:07.839 --> 0:07:10.920 that the progress could stall. Maybe and the next time 0:07:10.960 --> 0:07:13.160 I come, I can come condense that to one word. 0:07:13.200 --> 0:07:17.480 Okay, Yeah, I'm gonna thinking about that too. Risky, risky, nerve. 0:07:17.320 --> 0:07:21.560 Raggings, sticky, and stubborn is a possibility. 0:07:22.480 --> 0:07:25.000 Yeah, all right, Richie, you got your some advanced degrees. 0:07:25.040 --> 0:07:27.760 It's someplace in Cambridge, Massachusetts. But the bottom line is 0:07:27.840 --> 0:07:32.160 your University of Illinois, sweet sixteen and proud of it. 0:07:32.200 --> 0:07:33.840 How do you feel about your Sweet sixteen? 0:07:33.880 --> 0:07:34.160 A line? 0:07:34.400 --> 0:07:36.880 Well, you know, I looked it up. It's been a 0:07:36.920 --> 0:07:39.760 long time since my line I made the Sweet sixteen. 0:07:39.760 --> 0:07:43.560 In fact, it was twenty years ago, which in itself 0:07:43.640 --> 0:07:46.120 is pretty sad. Yeah, you got a root form. I 0:07:46.160 --> 0:07:47.920 think when they did make it to the final four, 0:07:47.960 --> 0:07:50.440 they played in North Carolina team that was better. So yeah, 0:07:50.520 --> 0:07:54.440 Hope Springs Eternal. I graduated in nineteen seventy nine, so 0:07:54.520 --> 0:07:57.040 it's been a long time since the line I have 0:07:57.120 --> 0:07:59.320 been the center of attention in basketball. 0:07:59.440 --> 0:08:01.800 You'll be rooting the on against Iowa State this time, right, 0:08:01.840 --> 0:08:03.880 Oh yeah, all right, good stuff, all right, Richard Claiter, 0:08:03.880 --> 0:08:04.880 I thank you so much for joining us. 0:08:04.920 --> 0:08:06.760 Richer Clarter, a former vice shared in the Federal Reserve. 0:08:17.120 --> 0:08:19.560 Let's go to market Ptelgi as the senior portfolio manager 0:08:19.600 --> 0:08:20.960 Offspring Global Investments. 0:08:21.120 --> 0:08:22.840 Margie, thanks so much for joining us here. 0:08:23.480 --> 0:08:25.080 You know, I've got a market that on the S 0:08:25.120 --> 0:08:27.080 and P five hundred's up, you know, kind of ten. 0:08:26.880 --> 0:08:27.600 Percent this year. 0:08:27.640 --> 0:08:30.720 We had this big, big move off of the October 0:08:30.960 --> 0:08:32.199 lows of last year. 0:08:32.960 --> 0:08:33.760 What do I do here? 0:08:33.800 --> 0:08:35.800 Do I jump into this market? Do I just stick 0:08:35.800 --> 0:08:39.120 with my two year treasury at four point six percent? 0:08:39.200 --> 0:08:40.000 What do I do here? 0:08:40.559 --> 0:08:42.520 Well? I think the main thing is to say, the 0:08:42.559 --> 0:08:45.760 economies in great shape, and it looks as if it's 0:08:45.840 --> 0:08:50.079 actually on the verge of slightly reaccelerating. A number of 0:08:50.120 --> 0:08:52.200 other countries in the world also look as if they're 0:08:52.240 --> 0:08:54.760 modestly accelerating. So that says you have to really stick 0:08:54.800 --> 0:08:57.880 with equities and you know, look for the best sectors 0:08:57.880 --> 0:09:01.079 and the best companies and not this garried off by 0:09:01.120 --> 0:09:02.600 another recession scare. 0:09:02.880 --> 0:09:05.560 So if the scenario that you just set up, Marguie 0:09:05.600 --> 0:09:08.079 means that the FED maybe won't cut, does that then 0:09:08.160 --> 0:09:12.560 weirdly disrupt the bullet scenario it just laid out well. 0:09:12.640 --> 0:09:14.840 I think when you've looked at the economy, you've looked 0:09:14.840 --> 0:09:18.200 at corporate profits now forever two years, and there are 0:09:18.320 --> 0:09:21.840 very few companies that actually been sensitive to the changes 0:09:21.880 --> 0:09:25.240 in the Federal reserve. Profit margins weren't squeezed when the 0:09:25.240 --> 0:09:28.720 FED raise short rates by five percent points. And I 0:09:28.720 --> 0:09:30.760 think if they cut by a quarter or don't cut 0:09:30.800 --> 0:09:32.880 by a quarter or half, whatever, I think the I 0:09:32.880 --> 0:09:35.040 wouldn't say the economy is impervious to it, but I 0:09:35.080 --> 0:09:38.840 think the whole economy is much less sensitive to changes 0:09:38.880 --> 0:09:41.120 on the part of federal reserve policy. I think that's 0:09:41.120 --> 0:09:44.720 why the Feds are little flummis, because their actions don't 0:09:44.720 --> 0:09:46.800 really seem to have the effects the effects in the 0:09:46.880 --> 0:09:49.000 real economy that they thought they would see. 0:09:49.360 --> 0:09:51.720 All right, So, given that backdrob Margie, are there certain 0:09:51.840 --> 0:09:55.280 sectors that you think are attractive here. I mean, of course, 0:09:55.400 --> 0:09:58.520 you know alex Steel has been long the Magnix's Magnificent 0:09:58.559 --> 0:10:00.960 seven all along, so Jesus, Clip and Coupont here. But 0:10:01.000 --> 0:10:02.920 how about the rest of us, So maybe are still 0:10:02.920 --> 0:10:04.079 looking for some opportunities. 0:10:05.400 --> 0:10:07.520 Well, I think if you look at what companies have 0:10:07.640 --> 0:10:11.120 sustainable growth, and that's still is technology. That still is 0:10:11.160 --> 0:10:13.599 some of the very largest tech firms, I think they 0:10:13.720 --> 0:10:17.439 still have their momentum place and they'll continue to be winners. 0:10:17.760 --> 0:10:19.679 I think that we see a number of companies in 0:10:19.720 --> 0:10:23.360 the industrial space that are benefiting from higher capital expenditures 0:10:23.600 --> 0:10:27.520 from shoring. What just happened in Baltimore is I think 0:10:27.559 --> 0:10:30.440 one more straw on the camel's back that says companies 0:10:30.480 --> 0:10:35.640 may be rethinking having overseas operations and bring more production home. 0:10:35.960 --> 0:10:38.319 And we also have a lot of capital expenditures for 0:10:38.400 --> 0:10:43.600 the whole economy to improve the power grid, to improve infrastructure, 0:10:43.840 --> 0:10:46.840 and I think those too will also help to keep 0:10:46.880 --> 0:10:49.600 the economy going. In the industrial space, we think in 0:10:49.679 --> 0:10:52.079 healthcare it's mixed, but we think some companies have gotten 0:10:52.120 --> 0:10:55.480 through COVID aren't too dependent on China for sales, and 0:10:55.520 --> 0:10:58.679 they should also do well. They can continue to think 0:10:58.760 --> 0:11:01.120 up new products that will benefit the healthcare system. 0:11:01.480 --> 0:11:03.360 I love that you brought up the industrial story and 0:11:03.400 --> 0:11:06.600 all the public money kind of flowing in. The getting 0:11:06.640 --> 0:11:10.080 private capital in has been increasingly difficult and sort of 0:11:10.080 --> 0:11:13.600 squaring that squaring that gap, I don't know sure filling 0:11:13.640 --> 0:11:16.760 that hole, it can be very tricky. Plus, companies that 0:11:16.800 --> 0:11:19.800 seem to have order books, they're not booking the revenue 0:11:19.840 --> 0:11:21.679 like it's not as fast as we think it is. 0:11:22.160 --> 0:11:24.000 How do you play something like that. You're in like 0:11:24.040 --> 0:11:27.760 a structural shift, but it's still in a cyclical sector. 0:11:29.280 --> 0:11:31.720 Yes, well, that's right, because I think companies aren't just 0:11:31.800 --> 0:11:34.959 madly spending money on hope they'll get a return. I 0:11:35.000 --> 0:11:38.559 think they're being very prudent in where they make capital expenditures. 0:11:38.600 --> 0:11:42.240 And it's not the whole economy. It's particularly those sectors 0:11:42.480 --> 0:11:45.360 that we all put together a good return again, such 0:11:45.360 --> 0:11:49.200 as technology. Certain parts of the power market looks as 0:11:49.200 --> 0:11:52.200 if suddenly people realize that the whole economy is rather 0:11:52.280 --> 0:11:57.400 short on power to run the economy. And also in 0:11:57.440 --> 0:11:59.720 the energy space. I think we've seen tom be pretty 0:11:59.720 --> 0:12:02.920 dis plinned on capital expenditures. But I think we'll continue 0:12:02.920 --> 0:12:07.080 to see energy capbax and so for those sectors that 0:12:07.840 --> 0:12:11.040 need capacs that can justify good return, I think we'll 0:12:11.080 --> 0:12:12.880 continue to see capital expenditures. 0:12:13.000 --> 0:12:15.360 And Paul to your to this point, do you know 0:12:15.400 --> 0:12:17.600 what the third best performing stock in the S and 0:12:17.600 --> 0:12:20.800 P is this quarter? No Constellation Energy, and it's a 0:12:20.840 --> 0:12:24.520 power company behind super Micro and in Nvidia. I like 0:12:24.640 --> 0:12:26.160 that fifty eight percent. 0:12:26.280 --> 0:12:28.760 You're all over this theme. That is for sure. Hey, 0:12:28.800 --> 0:12:31.160 marg we've had the stock market rally twenty five percent 0:12:31.200 --> 0:12:32.760 off of those late October lows. 0:12:32.800 --> 0:12:35.280 Here do I have to start making I to start 0:12:35.280 --> 0:12:37.960 calling in the question valuation in this market? 0:12:39.840 --> 0:12:41.560 Well, you know, it's hard to say how do you 0:12:41.640 --> 0:12:45.160 value something. Typically people look at say the price earnings 0:12:45.240 --> 0:12:48.400 ratio compared to say the ten year treasuries or something 0:12:48.480 --> 0:12:51.359 like that for whether something's overvalued or undervalued. 0:12:51.720 --> 0:12:53.000 But I think two things. 0:12:53.040 --> 0:12:56.120 I think that there's really no connection of the stock 0:12:56.240 --> 0:12:59.520 price and its price earnings ratio. It really comes down 0:12:59.559 --> 0:13:03.080 doing the expectations of future earnings. And secondly, if you 0:13:03.120 --> 0:13:06.640 look at say the average price earnings ratio or digit 0:13:06.679 --> 0:13:09.280 in yield to treasuries, I think you may be taking 0:13:09.280 --> 0:13:12.280 a little off course because I think that with so 0:13:12.400 --> 0:13:15.560 much treasure to supply, we're likely to see treasure yields 0:13:15.640 --> 0:13:18.240 be somewhat higher than we might have thought. For where 0:13:18.240 --> 0:13:20.800 inflation is where the growth of the economy is. So 0:13:20.840 --> 0:13:22.880 that's why I think it's better to just look companies 0:13:22.880 --> 0:13:26.240 that have sustainable earnings and say, let the market figure 0:13:26.240 --> 0:13:27.960 out if it should be a pe of twenty five 0:13:28.040 --> 0:13:30.760 or thirty or thirty five, and just buy where we 0:13:30.800 --> 0:13:32.040 see sustainable growth. 0:13:32.480 --> 0:13:33.880 Mark you before I let you go. We need to 0:13:33.920 --> 0:13:36.240 channel Tom Keene because you probably been in love with 0:13:36.240 --> 0:13:39.600 this anyway, dollar yen one fifty one, spot oh nine. 0:13:40.280 --> 0:13:42.000 What is the trade here? 0:13:43.400 --> 0:13:46.920 Well, we all have our biases. I think US is best. 0:13:47.080 --> 0:13:50.120 I continue to see US based companies that have tremendous 0:13:50.120 --> 0:13:53.880 growth opportunities that really are greater than what I see 0:13:53.920 --> 0:13:57.240 in other parts of the world. So I really couldn't 0:13:57.240 --> 0:14:01.240 comment on Japan. I'm glad to see their creeping into 0:14:01.280 --> 0:14:04.120 positive interest rate territory. I think it's a great country, 0:14:04.160 --> 0:14:08.080 a very terrific economy, But I think US has just 0:14:08.120 --> 0:14:09.239 as many opportunities. 0:14:09.240 --> 0:14:11.760 Saw stick with us, all right, Margie, thank you so 0:14:11.840 --> 0:14:12.600 much for joining us. 0:14:12.640 --> 0:14:17.400 As always, margare Vittel senior portfolio manager Offspring Global Investments. 0:14:17.480 --> 0:14:18.319 I appreciate that. 0:14:22.440 --> 0:14:24.880 Joining us here in our Bloomberg Interactive Broker studios. Marvin Low, 0:14:24.920 --> 0:14:28.640 he's a senior strategist Global Macro for this little shop 0:14:28.720 --> 0:14:31.320 up in Baltimore known as State Street, which was a 0:14:31.320 --> 0:14:33.400 go to meeting for me when I was a Seales 0:14:33.440 --> 0:14:35.360 sign anles had to go to the good folks Larry 0:14:35.400 --> 0:14:38.200 Haveerty at State Street and all the good folks there, Marvin, 0:14:38.800 --> 0:14:42.160 I guess the Fitter Reserve over the last week or 0:14:42.200 --> 0:14:45.160 so and other central banks have kind of said, yeah, 0:14:45.200 --> 0:14:47.960 we're mindful of inflation out there, but we still think 0:14:48.000 --> 0:14:49.760 we can cut rates. 0:14:49.800 --> 0:14:51.600 Is that kind of your view here as we look forward? 0:14:51.760 --> 0:14:54.200 Yeah, yeah, for sure. I mean the signaling couldn't have 0:14:54.240 --> 0:14:58.320 been stronger. Everyone's lining up to begin in June, and 0:14:58.400 --> 0:15:01.760 you know that's a fairly aggressive Dubvish impulse for the 0:15:01.800 --> 0:15:02.640 market to absorb. 0:15:03.200 --> 0:15:05.600 So I mentioned this in the last hour, but Boomberg 0:15:05.600 --> 0:15:08.400 Economics talked about the bridge and the FED and inflation, 0:15:08.880 --> 0:15:11.400 and their hypothesis is that not that necessarily if the 0:15:11.400 --> 0:15:13.600 bridge is closed for a while, it will affect inflation. 0:15:14.040 --> 0:15:17.200 But then in terms of auto disinflation that will slow 0:15:17.440 --> 0:15:20.360 and that that could actually push back the timing of 0:15:20.400 --> 0:15:22.960 a beed cut. I guess the question is do you agree? 0:15:23.400 --> 0:15:24.320 And doesn't matter? 0:15:24.680 --> 0:15:27.400 You know what. It ultimately doesn't matter because it will 0:15:27.440 --> 0:15:30.680 be temporary, but it does make data at a very 0:15:30.720 --> 0:15:34.960 important part of the process a little bit harder to analyze. 0:15:35.480 --> 0:15:38.760 Goods disinflation has been so important for this inflation story over. 0:15:39.040 --> 0:15:40.960 You know, let's say the last four months where the 0:15:41.080 --> 0:15:43.800 end of last year drove a lot of the optimism 0:15:43.880 --> 0:15:45.440 and then all of a sudden when we get when 0:15:45.440 --> 0:15:49.000 we got less goods disinflation in January and February, all 0:15:49.000 --> 0:15:51.560 of a sudden, everyone's worried about inflation again. So you know, 0:15:51.600 --> 0:15:56.000 we've got access to some online indicators around inflation, and 0:15:56.040 --> 0:15:59.080 they're showing a little bit more of a little bit 0:15:59.120 --> 0:16:02.280 more perkiness as we go even into March into the 0:16:02.280 --> 0:16:03.000 beginning of April. 0:16:03.600 --> 0:16:07.320 So given that background, again we have inflation is still there, 0:16:07.480 --> 0:16:09.920 although it's come down significantly from its peaks. We all 0:16:09.960 --> 0:16:12.160 know that what do we do in a fixed income 0:16:12.200 --> 0:16:12.640 space here? 0:16:12.680 --> 0:16:13.680 I mean, I don't know. 0:16:13.720 --> 0:16:15.360 I can just go buy a tow year treasury four 0:16:15.400 --> 0:16:18.200 point six percent and go kick back and maybe go 0:16:18.440 --> 0:16:20.880 skiing here. Forget some spring skiing in here. What do 0:16:20.960 --> 0:16:22.320 I do here in a fixed income space? 0:16:22.520 --> 0:16:25.560 Yeah, for sure. I mean I continue to like the 0:16:25.600 --> 0:16:28.320 shorter end of the curve exactly based on the reason 0:16:28.440 --> 0:16:31.160 that that you mentioned. You could lock in those yields 0:16:31.200 --> 0:16:34.200 if that's within that's within your time horizon. We want 0:16:34.240 --> 0:16:35.840 to go skiing for a lot more than two years, though, 0:16:35.880 --> 0:16:37.160 so we got to figure out. So we got to 0:16:37.160 --> 0:16:38.840 figure out what to do a little bit further out 0:16:38.880 --> 0:16:41.240 the curve. You know, kind of locking in some of 0:16:41.240 --> 0:16:44.480 the yields, particularly in the corporate space, has been a 0:16:44.640 --> 0:16:48.240 very attractive trade. Spreads are tight, you know, that makes 0:16:48.240 --> 0:16:50.960 a challenge. But if you're just clipping those coupons, you know, 0:16:51.040 --> 0:16:53.000 you could lock in those yields for a five to 0:16:53.040 --> 0:16:54.920 seven year period and let's hope we're still skiing after 0:16:54.920 --> 0:16:55.280 that too. 0:16:55.440 --> 0:16:57.800 So that's a yield plate, not a price appreciation play 0:16:57.880 --> 0:16:58.800 or anything like that. It is. 0:16:59.160 --> 0:17:01.640 It definitely is more of a total return type of environment. 0:17:01.760 --> 0:17:05.359 If you're a fund manager and you're managing to benchmarks 0:17:05.359 --> 0:17:07.520 and you're trying to look for spread compression, that becomes 0:17:07.560 --> 0:17:08.159 a bit harder. 0:17:08.240 --> 0:17:09.879 So for me, I think we've talked about this, that 0:17:10.119 --> 0:17:12.400 I had money sitting in a money market fund. I'm 0:17:12.400 --> 0:17:14.680 the kind of gallon at a mattress. I'm the kind 0:17:14.680 --> 0:17:16.960 of gall that would have like gold and soup cans 0:17:17.040 --> 0:17:19.600 under her bed. Just deffice it to say, I'm very 0:17:19.680 --> 0:17:22.760 risk averse, and I'm wondering, like what I do with 0:17:22.880 --> 0:17:25.480 that money market fund and that money under the bed, 0:17:25.640 --> 0:17:28.320 Like do I just keep it there? But does that 0:17:28.359 --> 0:17:30.639 belong to somewhere else? And I sort of feel like 0:17:30.760 --> 0:17:33.000 we don't know yet. We thought it was a stock thing. 0:17:33.080 --> 0:17:33.479 Maybe not. 0:17:34.080 --> 0:17:36.239 You know, it depends on how much money you've got 0:17:36.280 --> 0:17:38.520 on the mattress. For sure. It shouldn't all be there, 0:17:39.359 --> 0:17:43.600 all of it. You know, I still like the short 0:17:43.680 --> 0:17:45.760 end of the curve. You know, I haven't extended that 0:17:45.840 --> 0:17:48.679 much because higher for longer means that we're probably going 0:17:48.720 --> 0:17:51.159 to be able to collect, you know, a decent money 0:17:51.160 --> 0:17:54.920 market rate, you know, potentially to the end of this year, 0:17:54.960 --> 0:17:57.199 which is what a lot of experts did not expect. 0:17:57.560 --> 0:17:59.280 I'm kind of having said that, you know, you do 0:17:59.400 --> 0:18:01.800 have to get to some of the riskier parts of 0:18:01.840 --> 0:18:04.320 the curve. Things are expensive, But you know, I still 0:18:04.320 --> 0:18:06.920 think that there's tailwind for those risks for those risk assets. 0:18:07.080 --> 0:18:09.760 You know, we look at the fixed income space in 0:18:10.000 --> 0:18:12.199 twenty twenty three, that kind of surprised me that the 0:18:12.200 --> 0:18:14.320 best performing fixed income. 0:18:14.760 --> 0:18:15.720 Market was a high yield. 0:18:16.400 --> 0:18:18.560 Double digit gains in the highield market last year, and 0:18:18.560 --> 0:18:20.919 with all the talk of recession, I was surprised that 0:18:21.040 --> 0:18:23.960 hyield did so well. What do you think about taking 0:18:24.000 --> 0:18:25.520 some of that type of credit. 0:18:25.400 --> 0:18:26.120 Risk these days? 0:18:26.200 --> 0:18:29.320 You know what highield is expensive for sure. It is 0:18:29.440 --> 0:18:32.760 a credit market. So you know, if you're comfortable picking 0:18:32.840 --> 0:18:36.440 those credits within the double B space, you know, the 0:18:36.440 --> 0:18:40.760 default rates around that type of environment are not overly penal, 0:18:41.119 --> 0:18:43.400 but you have to pick those credits overall. If you're 0:18:43.440 --> 0:18:45.879 kind of buying the broader index, you know, be aware 0:18:45.960 --> 0:18:48.920 that there's still is risk that lurks with this inverted 0:18:49.000 --> 0:18:51.480 yield curve and a higher for longer kind of fed 0:18:51.520 --> 0:18:52.520 as we go into next year. 0:18:52.720 --> 0:18:54.359 Okay, So if I take some of that money out 0:18:54.359 --> 0:18:56.080 of the money market fund, and I don't want to 0:18:56.080 --> 0:18:57.359 put it in the two year but I want to 0:18:57.359 --> 0:18:58.960 put it in the equity market. Am I putting it 0:18:58.960 --> 0:19:00.840 in a video? Or am I putting in energy? Or 0:19:00.840 --> 0:19:03.720 am I putting it in utilities. When do you need it? 0:19:03.720 --> 0:19:06.480 That's that that's the first question I do like, I. 0:19:06.440 --> 0:19:09.120 Don't know, forty fifty years when I retire. 0:19:08.840 --> 0:19:13.680