WEBVTT - Q1 GDP and a Massive Mining Takeover 0:00:00.120 --> 0:00:12.879 Bloomberg Audio Studios, Podcasts, radio News. This is the Bloomberg 0:00:12.960 --> 0:00:17.000 Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join 0:00:17.079 --> 0:00:21.000 us each day for insight from the best in economics, finance, investment, 0:00:21.239 --> 0:00:24.840 and international relations. You can also watch the show live 0:00:25.079 --> 0:00:29.400 on YouTube. Visit the Bloomberg Podcast channel on YouTube to 0:00:29.560 --> 0:00:32.960 see the show weekday mornings from seven to ten am 0:00:33.000 --> 0:00:37.000 Eastern from our global headquarters in New York City. Subscribe 0:00:37.040 --> 0:00:40.800 to the podcast on Apple, Spotify, or anywhere else you listen, 0:00:41.080 --> 0:00:44.760 and always I'm Bloomberg Radio, the Bloomberg Terminal, and the 0:00:44.760 --> 0:00:49.520 Bloomberg Business App. Here's the right guy to talk about 0:00:49.520 --> 0:00:53.519 the partial derivatives of the algebraic function, boy known as 0:00:53.600 --> 0:00:58.000 American GDP. He majors in physics for mister Peck and 0:00:58.000 --> 0:01:01.880 the crew at Morgan Stanley Portfolio Solutions Group. CEE IO 0:01:02.040 --> 0:01:05.479 Jim Carren joins us. Right now, which of the alphabet 0:01:05.600 --> 0:01:10.120 soup of the function matters? The consumption, investment, government, or NX. 0:01:11.360 --> 0:01:14.200 Thank you, Tom. Well, Look, I think all of it matters, 0:01:14.240 --> 0:01:17.120 but right now I think consumption probably matters the most 0:01:17.280 --> 0:01:22.160 sev seventy percent of GDP. It's something that what we're 0:01:22.200 --> 0:01:25.280 looking at today is really about the strength of the consumer. 0:01:25.480 --> 0:01:27.520 The jobs data, all of that stuff is going to 0:01:27.560 --> 0:01:32.039 matter quite a bit. That's been probably the most surprising 0:01:32.080 --> 0:01:35.240 element of this period of time is that we've been 0:01:35.240 --> 0:01:38.679 able to bring in point the inflation rates down, but 0:01:39.840 --> 0:01:42.240 the jobs data is actually said relatively strong, which is 0:01:42.319 --> 0:01:44.080 kept surprising the strong GDP numbers. 0:01:44.080 --> 0:01:46.559 Does the yield space Paul's on the two year five 0:01:46.560 --> 0:01:52.080 percent yield, does the yield space describe Ellen Zenner's economics? 0:01:53.200 --> 0:01:55.040 You know, I think it does. 0:01:55.360 --> 0:01:57.920 It's just really a question of, like, if we have 0:01:57.960 --> 0:02:01.440 the two year yield flirting with five percent, that makes 0:02:01.520 --> 0:02:05.320 sense in an environment where we believe the Fed may 0:02:05.640 --> 0:02:10.520 only cut possibly one time this year, and that's really 0:02:10.720 --> 0:02:12.919 indicative of the strength. And you know, we're going to 0:02:12.960 --> 0:02:16.120 see what the first quarter GDP numbers come out to 0:02:16.160 --> 0:02:19.120 look like in the next four minutes or so. But 0:02:19.280 --> 0:02:22.359 what's also very important about that, though, is really tomorrow's 0:02:22.400 --> 0:02:25.480 PCEE number, the inflation number, So good growth like two 0:02:25.520 --> 0:02:28.320 and a half percent growth potentially, you know, as potential 0:02:28.320 --> 0:02:30.880 growth or two point seven percent is what's expected on 0:02:30.960 --> 0:02:35.800 the Bloomberg surveys for for PCE and you know, for 0:02:35.880 --> 0:02:40.480 GDP it's two point five percent. If that growth number 0:02:40.520 --> 0:02:42.880 is good, that's fine as long as inflation is low. 0:02:43.360 --> 0:02:46.440 But if inflation turns out to be high with strong growth, 0:02:46.560 --> 0:02:48.320 then the FED has a problem. The FED has no 0:02:48.440 --> 0:02:52.440 problem with strong growth and low inflation, full employment, strong growth, 0:02:52.560 --> 0:02:54.959 you know, stable prices, that's what the FED wants. 0:02:55.280 --> 0:02:56.880 So what are the good folks in Morgan Stanley, the 0:02:56.880 --> 0:03:00.160 investment management doing in terms of getting positioned here or 0:03:00.200 --> 0:03:03.160 for FED that I guess we now the market's now 0:03:03.160 --> 0:03:05.160 come to the conclusion, as you mentioned, they're not going 0:03:05.240 --> 0:03:06.639 to be cutting as much here. 0:03:06.639 --> 0:03:07.120 What do we do? 0:03:07.280 --> 0:03:07.520 Yeah? 0:03:07.600 --> 0:03:10.800 So so I think really, you know, the key element 0:03:10.880 --> 0:03:14.360 here is when we manage multi ascid portfolios across fixed 0:03:14.360 --> 0:03:16.400 income and equity, one of the things that we have 0:03:16.440 --> 0:03:19.880 to think about is how do we how do we 0:03:20.000 --> 0:03:24.560 use bonds to hedge equities. And one of the conclusions 0:03:24.600 --> 0:03:26.720 that we've come up with is that you may not 0:03:26.880 --> 0:03:29.920 want to be as long duration in periods of you know, 0:03:30.000 --> 0:03:32.440 potential turmoil like the correction that we're seeing in the 0:03:32.440 --> 0:03:36.000 markets today inequities as much as you had in the past. 0:03:36.000 --> 0:03:38.520 And the reason is is that I think that you know, 0:03:38.560 --> 0:03:40.720 the bull market and bonds, in my view, has ended 0:03:40.720 --> 0:03:43.040 we're likely to go sideways and arrange and interest rates 0:03:43.080 --> 0:03:46.240 for a long period of time, in which case having 0:03:46.360 --> 0:03:49.440 extra long duration in your portfolios these days is probably 0:03:49.440 --> 0:03:50.640 not the most. 0:03:50.400 --> 0:03:53.440 Awesome numbers on that. I mean, I'm sure many bond 0:03:53.480 --> 0:03:56.880 people short durations twenty years because they're all, yeah, now 0:03:57.160 --> 0:04:01.480 give me a year statistic. It's that of this blowney duration. 0:04:01.760 --> 0:04:04.720 Okay, yeah, now a good point, and it's good clarity 0:04:04.760 --> 0:04:08.040 to add. So the aggregate index for the US is 0:04:08.040 --> 0:04:10.440 about six and a half years of duration, so that's 0:04:10.480 --> 0:04:13.280 generally what people think of as neutral duration. What I 0:04:13.320 --> 0:04:15.720 would say is that you might want to be somewhat 0:04:15.760 --> 0:04:18.400 underweight that and have maybe somewhere on the order of 0:04:18.440 --> 0:04:20.400 like five to five and a half years of duration, 0:04:20.480 --> 0:04:23.760 so just slightly lower than index duration, I think is 0:04:23.800 --> 0:04:27.800 a more optimal hedge against the broad returns in your 0:04:27.960 --> 0:04:31.560 fixed income inequity portfolios. Now that may be financial market 0:04:31.560 --> 0:04:35.920 heresy to say go underweight duration and it reduces risk 0:04:36.080 --> 0:04:39.599 because typically people think adding bonds and adding duration is 0:04:39.640 --> 0:04:42.480 what reduces risk, and that's historically been true, but that's 0:04:42.520 --> 0:04:44.320 been true in a bond bull market. 0:04:44.400 --> 0:04:52.520 And we're ninety seconds away from a hugely anticipated GDP number. 0:04:52.600 --> 0:04:57.760 Let's review this. The quarter ends twelve thirty one, and 0:04:58.160 --> 0:05:00.480 they take a month to get it out. So now 0:05:00.480 --> 0:05:04.320 the quarter ends three thirty one, March thirty first, and 0:05:04.360 --> 0:05:06.920 get out your calendar. In four or five, six weeks along, 0:05:07.520 --> 0:05:10.520 we get the first look at GDP and I thought 0:05:10.640 --> 0:05:14.640 Veronica Clark was was good. Victoria Clark, it's city group 0:05:14.720 --> 0:05:18.320 of saying recently, the first look, the second look, the 0:05:18.320 --> 0:05:21.920 third look have been pretty smooth. You know, it hasn't 0:05:21.960 --> 0:05:24.680 been adjustment. So I think there's even more weight here. 0:05:25.160 --> 0:05:29.120 The Atlanta GDP number Paul two point seven percent, the 0:05:29.120 --> 0:05:31.680 Bloomberg survey two point five percent. Yep. 0:05:32.160 --> 0:05:35.359 So I mean this economy, the growth is slowed, but 0:05:35.480 --> 0:05:38.440 this growth is still there. Inflation is coming down. Yes, 0:05:38.480 --> 0:05:41.440 it's still sticky. But you put all that together well, 0:05:41.720 --> 0:05:44.000 and as Jim was just mentioning, it kind of suggests 0:05:44.000 --> 0:05:47.000 this FED doesn't have to and you know, get over. 0:05:46.839 --> 0:05:49.760 At skis toime. I'm glad we got the GDP price index. 0:05:49.880 --> 0:05:53.480 One point six percent was a prior and it explodes 0:05:53.600 --> 0:05:55.480 up to a three percent number. Here we're going to 0:05:55.520 --> 0:06:00.839 see in fifteen seconds there's also course PCEE price But 0:06:00.920 --> 0:06:03.440 then don't confuse that with the inflation data that we 0:06:03.520 --> 0:06:06.480 see tomorrow. Gets a little confusing. Jim Carron will explain 0:06:06.560 --> 0:06:10.479 that if he stays around here, it's Bloomberg's surveillance. Here 0:06:10.560 --> 0:06:12.800 is the data coming out. We get trade data first. 0:06:12.800 --> 0:06:16.000 It's pretty much a little bit larger deficit. But I'm 0:06:16.040 --> 0:06:18.760 not going to go we're wholesale inventories. I don't understand. 0:06:19.040 --> 0:06:22.000 Claims is a terrible number? Are you kidding me? Two 0:06:22.080 --> 0:06:25.039 hundred and seven thousand, and now we get the GDP 0:06:25.200 --> 0:06:29.720 statistics and this will be market moving two point five 0:06:29.760 --> 0:06:34.280 percent the survey. It comes in diminished Jim Carron one 0:06:34.320 --> 0:06:40.440 point six percent, personal consumption lighter, GDP price index three 0:06:40.480 --> 0:06:45.839 percent is three point one percent, and core PCEE price index, 0:06:46.680 --> 0:06:49.320 I guess I'm gonna say explodes. Maybe that's too large, 0:06:49.320 --> 0:06:55.000 three point four up to a three point seven percent statistic, 0:06:55.360 --> 0:06:58.760 and the VIX launches here the two year yield of 0:06:58.920 --> 0:07:02.440 four point ninety two percent. I think there's enough wow 0:07:02.560 --> 0:07:05.880 here just in the headline numbers, where there's almost confusion 0:07:05.920 --> 0:07:07.880 in the market. I think there is collosally in the market. 0:07:07.880 --> 0:07:09.920 I'm seeing we're seeing the S and P futures weaken 0:07:09.960 --> 0:07:11.880 a little bit here, down about one percent on the 0:07:11.960 --> 0:07:14.000 S and P and just looking at the short term 0:07:14.040 --> 0:07:17.160 of the yield curve to your treasures up one basis 0:07:17.160 --> 0:07:19.760 point four point nine to four percent. But again the 0:07:19.920 --> 0:07:22.560 GDP annualized the quarter on quarter, the kind of the 0:07:22.560 --> 0:07:25.800 headline number, one point six percent growth there in the 0:07:25.800 --> 0:07:29.080 first quarter consensus was two point five percent, as Thomas Minchek, 0:07:29.080 --> 0:07:32.640 and I'll also highlight prior period was three point four percent. 0:07:32.680 --> 0:07:33.480 So if you're looking for. 0:07:34.160 --> 0:07:38.600 A deceleration in the economy now, this data certainly kind 0:07:38.600 --> 0:07:39.040 of bears it. 0:07:39.160 --> 0:07:42.400 Chris Antsy driving our coverage for Top Live and he says, 0:07:42.400 --> 0:07:45.000 simply one point six percent growth rate is lower than 0:07:45.040 --> 0:07:48.280 any of the fifty nine estimates of the Bloomberg Service, 0:07:48.320 --> 0:07:51.040 of course except Jim Caron, he nailed it. But what 0:07:51.080 --> 0:07:55.080 we've got is a deterroring market nasiaka Facebook. One point 0:07:55.560 --> 0:07:59.080 three percent is well, I'm watching the two year yield 0:07:59.120 --> 0:08:01.160 four point nine four. Yes, it's gone green. We got 0:08:01.200 --> 0:08:05.280 a higher yield. They are four point ninety five percent. Yeah, 0:08:05.400 --> 0:08:08.040 really starting to move like there was almost a thirty 0:08:08.080 --> 0:08:10.920 second to lay there when the data came out, Paul. 0:08:11.160 --> 0:08:12.920 I mean he was just trying to grasp it here, 0:08:12.960 --> 0:08:16.400 but again is Bloomberg Live. We're just finding the reporting 0:08:16.720 --> 0:08:20.440 Bloomberg Live. You know, really talking about a significant underperformance 0:08:20.440 --> 0:08:23.320 there in the US economy finally starting to slow and 0:08:23.360 --> 0:08:24.080 you think about. 0:08:23.840 --> 0:08:26.280 The long and variable lags of the higher rates. 0:08:26.280 --> 0:08:28.640 Maybe we were seeing it fascinating. We'll get to Jim 0:08:28.720 --> 0:08:31.320 Karron here in a moment. Our economic indicators each and 0:08:31.360 --> 0:08:35.240 every day, seven days a week, but particularly important days 0:08:35.320 --> 0:08:39.080 like this brought to you by Commonwealth, supporting more than 0:08:39.120 --> 0:08:43.199 two thousand independent financial advisors with the solutions they need 0:08:43.200 --> 0:08:46.720 to grow a thriving business. Commonwealth Go where you grow. 0:08:46.840 --> 0:08:51.679 Visit Commonwealth dot com to learn more. Jim Carren, the 0:08:51.800 --> 0:08:55.240 numbers I think had enough shock factor. And you know 0:08:55.360 --> 0:08:57.640 I've been doing this a few years. The markets didn't 0:08:57.640 --> 0:09:00.800 move for thirty seconds, stunned. 0:09:01.679 --> 0:09:04.880 Well, you know this is a big miss. And like 0:09:04.920 --> 0:09:07.920 you said, you know many economists nobody really had this number. 0:09:07.920 --> 0:09:11.199 I mean, this is Look. One of the big positives 0:09:11.200 --> 0:09:13.640 to the first quarter was that there was a narrative 0:09:13.679 --> 0:09:16.640 that we were just growing very, very strong, and this 0:09:16.720 --> 0:09:19.679 is unwinding a lot of that narrative. So now this 0:09:19.760 --> 0:09:22.440 is actually a very friendly number for the FED because 0:09:22.440 --> 0:09:25.680 what the Fed has been saying is that we're going 0:09:25.720 --> 0:09:28.640 to get this economic cooling and we don't have to 0:09:28.640 --> 0:09:31.800 worry about potentially these inflation numbers that have been coming 0:09:31.800 --> 0:09:34.080 out hotter than you know, hotter than expected, that it's 0:09:34.120 --> 0:09:36.679 all going to correct itself. This is a major step 0:09:36.679 --> 0:09:37.440 in the right direction. 0:09:37.880 --> 0:09:38.559 It starts to. 0:09:38.520 --> 0:09:42.600 Put June back on the table. Potentially, it puts June 0:09:42.679 --> 0:09:44.520 back on the table. Now now we're not seeing that 0:09:44.600 --> 0:09:48.520 right now in terms of the price action of treasuries. Now, 0:09:48.559 --> 0:09:50.920 of course, everything's going to depend on is there a 0:09:51.080 --> 0:09:53.319 vision to this. Was there some type of an anomaly. 0:09:53.640 --> 0:09:55.160 We've got to go through the numbers, we have to 0:09:55.160 --> 0:09:58.960 go through the math of this whole thing. But effectively, 0:09:59.440 --> 0:10:02.440 a slow like this is going to bring down some 0:10:02.559 --> 0:10:04.959 of the inflation angst that's been in the markets. 0:10:05.160 --> 0:10:06.800 Yeah, I mean, I think it's really interesting. 0:10:06.840 --> 0:10:09.120 I'm looking at the WRP function to see how that's 0:10:09.160 --> 0:10:12.920 going to start reflecting any changes in the market's expectations 0:10:13.120 --> 0:10:13.680 for the FED. 0:10:13.720 --> 0:10:15.480 And you're right, it seemed like the. 0:10:15.360 --> 0:10:18.040 Market we started the year with six cuts. Potentially we 0:10:18.160 --> 0:10:21.360 got down to boy two or even fewer than two, 0:10:21.480 --> 0:10:24.320 just as recently as yesterday, and maybe this will cause 0:10:24.360 --> 0:10:27.360 the FED to maybe think about being a little more dubbish. 0:10:27.559 --> 0:10:29.400 And there's one other thing that I really want to 0:10:29.400 --> 0:10:31.720 bring these I think it's very, very important, is that 0:10:31.880 --> 0:10:36.160 earnings expectations are highly linked to GDP growth. So I 0:10:36.200 --> 0:10:37.880 know we're talking about the bond market a lot, let's 0:10:37.880 --> 0:10:39.800 talk about the equity market just for a second here. 0:10:40.320 --> 0:10:43.360 If earnings growth is slower in the first quarter, that's 0:10:43.360 --> 0:10:45.600 going to change a lot of people's full year earnings 0:10:45.720 --> 0:10:50.200 estimates for twenty twenty four and potentially even going forward. 0:10:50.240 --> 0:10:54.200 So the equity markets are actually responding more strongly on 0:10:54.280 --> 0:10:57.960 this because it's basically making many analysts take down some 0:10:58.000 --> 0:10:59.560 of their robust earnings expectation. 0:11:00.000 --> 0:11:01.680 We've got eight ways to go here, but let me 0:11:01.760 --> 0:11:05.960 go to what I learned in school. You know the textbooks. Yeah, 0:11:06.120 --> 0:11:09.000 you have physics envy, which is why Karen's here. And 0:11:09.040 --> 0:11:11.040 the answer is, you got to hang your hat on 0:11:11.040 --> 0:11:14.000 one thing, and to me, it's a ten year inflation 0:11:14.120 --> 0:11:17.360 adjust yield and forget about the math. And let's not 0:11:17.400 --> 0:11:20.000 impress people with a log And I'll semi log basis, 0:11:20.200 --> 0:11:22.840 I'm getting out to a real stress point at two 0:11:22.880 --> 0:11:24.040 point twenty six percent. 0:11:24.480 --> 0:11:27.400 Yeah, the real yields are certainly moving higher and into 0:11:27.440 --> 0:11:30.960 the point where this has historically demarked a bit of 0:11:30.960 --> 0:11:34.440 a slowing of economic activity. But none of this is 0:11:34.480 --> 0:11:38.600 happening in synchronicity to the extent that one of the 0:11:38.600 --> 0:11:40.360 things that we're also seeing is the price is paid 0:11:40.360 --> 0:11:43.680 components and the pricing components of the internals of the 0:11:43.679 --> 0:11:48.200 GDP number are actually causing the bond market a little 0:11:48.200 --> 0:11:50.320 bit of angst here. So on one hand, we have 0:11:50.360 --> 0:11:52.480 a weak headline print. On the other hand, we have 0:11:52.559 --> 0:11:56.960 some inflation and pricing pressures. So in theory, inflation is 0:11:56.960 --> 0:12:00.680 a lagging indicator, so inflation should fall on these things. 0:12:00.720 --> 0:12:02.880 But unless there's something that's just going, well. 0:12:02.800 --> 0:12:04.960 What's Ellen's saying? Stop? I mean, you got a team 0:12:04.960 --> 0:12:08.360 of fourteen people. Karen's there with two interns. Well they're 0:12:08.360 --> 0:12:11.480 from Voden, but Ellen Xander's got like twenty five people. 0:12:11.520 --> 0:12:15.280 What do they say about the disinflation vector in Morgan Stanley? 0:12:15.400 --> 0:12:18.280 Yeah, so look, I mean, it's, as Ellen likes to 0:12:18.280 --> 0:12:21.080 put it, it's going to be a slow, bumpy path lower. 0:12:21.160 --> 0:12:24.720 So you know inflation is likely to come down. It's 0:12:24.760 --> 0:12:26.640 just a question of does it come down in a 0:12:26.679 --> 0:12:29.760 linear fashion where people are comfortable with the pace but 0:12:29.800 --> 0:12:33.960 the trajectory. Nobody's really disagreeing with the direction of inflation. 0:12:34.120 --> 0:12:34.720 Everybody is. 0:12:34.880 --> 0:12:37.600 Most people agree that it's coming down. It's just a 0:12:37.679 --> 0:12:40.200 question of is it coming down fast enough for the 0:12:40.200 --> 0:12:44.000 FED to start their rate cutting cycle? And that's the debate. 0:12:44.080 --> 0:12:46.880 So what Ellen pushed out in terms of her FED 0:12:46.920 --> 0:12:49.960 forecast was from June to July that the first rate 0:12:50.000 --> 0:12:53.200 cut would start to come in July. And I don't 0:12:53.200 --> 0:12:57.520 think that this number might not change that in many ways. 0:12:57.640 --> 0:13:00.719 Okay, is there an inertial force here right now? Are 0:13:00.720 --> 0:13:02.520 we getting at where there's enough yields? We're on a 0:13:02.880 --> 0:13:05.199 truly on a physics basis. I make jokes about it, 0:13:05.640 --> 0:13:09.200 but seriously, are we getting a weight towards an inertial 0:13:09.320 --> 0:13:12.040 force of higher yields? Yeah? 0:13:12.120 --> 0:13:15.160 So, I think as you were saying earlier, you know, 0:13:15.200 --> 0:13:19.400 many people came into this year overweight fixed income, long duration, 0:13:19.920 --> 0:13:22.200 and this has been correcting. 0:13:22.280 --> 0:13:22.600 Now. 0:13:22.880 --> 0:13:26.320 The positives around this is that at this backup and yield, 0:13:26.520 --> 0:13:29.480 if you're looking at a multi ASSEID portfolio, you can 0:13:29.520 --> 0:13:32.400 start to think about owning US treasuries, You can think 0:13:32.440 --> 0:13:35.679 about owning bonds, high quality bonds now as a reasonable 0:13:35.720 --> 0:13:38.400 hedge against your equity, and you can actually potentially get 0:13:38.400 --> 0:13:39.760 some return from these levels. 0:13:39.800 --> 0:13:42.480 Sweet's gonna get us five percent to your you'd you 0:13:42.600 --> 0:13:45.480 a cup of coffee out on YouTube live chat James 0:13:45.480 --> 0:13:50.200 with a real smart insight stagflation. Jamie Diamond nails it, yep. 0:13:50.360 --> 0:13:52.280 I mean that's really what we're talking about. I mean, 0:13:52.520 --> 0:13:54.520 you know you mentioned David Weston. He's going to be 0:13:54.520 --> 0:13:56.600 with Professor Summers and Larry's going to pick it up 0:13:56.640 --> 0:13:58.600 and go here we are. But I mean that's what 0:13:58.640 --> 0:14:01.719 the research paper's paul to look like. Jim Careen, one 0:14:01.720 --> 0:14:03.760 more question. We're gonna go to doctor Wong and we're 0:14:03.760 --> 0:14:06.560 gonna bring Jim Karen back after doctor Wong. 0:14:06.640 --> 0:14:08.640 Hey, Jim, I'm looking at the two year just today 0:14:08.720 --> 0:14:10.640 up six basis points, as Tom said, for four point 0:14:10.720 --> 0:14:14.600 nine to nine percent, and you've mentioned fixing them as 0:14:14.600 --> 0:14:16.959 a hedge for equities that did not work in twenty 0:14:16.960 --> 0:14:20.000 twenty two, that sixty to forty portfolio did not work 0:14:20.040 --> 0:14:23.760 for anybody. Is that still something you guys think about? 0:14:23.840 --> 0:14:25.600 Is that still something we should keep in our toolbox. 0:14:25.840 --> 0:14:26.320 Yeah, you know. 0:14:26.480 --> 0:14:28.560 I mean we have to think about how we use 0:14:28.600 --> 0:14:31.720 bonds to hedge. And in the in the idea was 0:14:31.720 --> 0:14:34.520 that you could passively buy fixed income and it would 0:14:34.520 --> 0:14:36.840 just represent a great hedge. And this is one of 0:14:36.840 --> 0:14:40.440 the reasons why I think you should hold less fixed 0:14:40.480 --> 0:14:43.760 income exposure in terms of duration to hedge against your 0:14:44.320 --> 0:14:47.600 hedge against your equity portfolio. So to have slightly less 0:14:47.600 --> 0:14:48.760 like you know, I was saying six and a half 0:14:48.840 --> 0:14:51.800 years of duration is the is the index average, that's 0:14:52.040 --> 0:14:54.080 you know, that's what's considered neutral. I'm saying you should 0:14:54.160 --> 0:14:56.920 have maybe five or five and a half years of duration. 0:14:57.320 --> 0:14:59.520 So I do think we need to think differently about this. 0:15:00.480 --> 0:15:02.960 We have to remember that for forty years from nineteen 0:15:03.000 --> 0:15:04.720 eighty one to twenty twenty one, bonds are in a 0:15:04.760 --> 0:15:08.000 bull market. Today I think they're largely going to move sideways. 0:15:08.400 --> 0:15:10.120 So you're expected returns from the coupon. 0:15:10.200 --> 0:15:10.800 How to fix it up? 0:15:11.000 --> 0:15:12.760 Him, let's finish up with you so you can go 0:15:12.840 --> 0:15:16.480 back and publish what part of the yield curve will 0:15:16.520 --> 0:15:20.840 be most affected by sub two percent GDP, so. 0:15:21.120 --> 0:15:24.040 You know, look in theory, what it should be is 0:15:24.560 --> 0:15:27.560 the ten year yield. So in theory, the curve should 0:15:27.600 --> 0:15:30.720 start to flatten down because if you have a weaker 0:15:30.760 --> 0:15:33.040 growth economy and it shows that you're going into a 0:15:33.080 --> 0:15:36.760 slow period and a slow patch, longer duration actually will 0:15:36.800 --> 0:15:40.760 be a reasonable hedge in that particular environment. So the 0:15:40.760 --> 0:15:43.200 front end right now, and I think the bond market 0:15:43.240 --> 0:15:45.720 is looking at one thing, that's the consumer side, that's 0:15:45.720 --> 0:15:48.520 the price aside. The equity market is looking at the 0:15:48.520 --> 0:15:51.000 whole picture, and it's looking at that one point six 0:15:51.080 --> 0:15:54.040 versus the two point five, and I think that is 0:15:54.160 --> 0:15:58.160 the I think that's the mismatch right now in the market. 0:15:58.200 --> 0:16:00.880 So right now we have bonds on returns in equity 0:16:00.880 --> 0:16:05.200 returns highly correlated. That's dangerous. High correlation is dangerous. So 0:16:05.280 --> 0:16:07.360 there's no place to hide, right So if you bought 0:16:07.400 --> 0:16:10.520 bonds to hedge this number, you lost at least right 0:16:10.560 --> 0:16:13.160 now at this point. But like Anna was saying, I 0:16:13.200 --> 0:16:15.360 do think that some of this bond sell off will 0:16:15.400 --> 0:16:18.560 start to get reversed once it gets digest. Yes, it's 0:16:18.600 --> 0:16:20.400 you know, imports are very important component. 0:16:20.400 --> 0:16:22.160 Well, all, I got to make some news here today. 0:16:22.520 --> 0:16:24.120 I mean, there's no quret. We got to make some 0:16:24.200 --> 0:16:27.040 News Ian Lingoenn, and we're sorry, we can't get Ian 0:16:27.120 --> 0:16:29.400 Lingen in from BEMO. He's got to go into a 0:16:29.440 --> 0:16:33.320 Bank of Montreal at conference call. But Ian Lingen has said, 0:16:33.400 --> 0:16:37.080 at some point the ten year goes price up, yield down. 0:16:37.600 --> 0:16:40.880 Is this the moment where we finally get a catalyst 0:16:40.960 --> 0:16:44.440 for a lower ten year yield that, just as one example, 0:16:44.480 --> 0:16:47.120 brings mortgage relief across America. 0:16:47.520 --> 0:16:49.680 So in my opinion, the answer is yes. I do 0:16:49.760 --> 0:16:52.000 think that you know, four to seventy five and the 0:16:52.080 --> 0:16:54.000 ten year yield. I know we're kind of close to 0:16:54.000 --> 0:16:56.320 that right now. So let's call us let's say that 0:16:56.360 --> 0:16:58.840 we're let's say that we're just about there. I think 0:16:58.880 --> 0:17:00.880 that's a reasonable line in the sand to draw, and 0:17:00.920 --> 0:17:02.720 it's it's a place where I would start to take 0:17:03.000 --> 0:17:03.920 some bond risk. 0:17:04.040 --> 0:17:05.879 Paul rounded up four digits. I know you want to 0:17:05.960 --> 0:17:08.919 jump in and rounded up Paul four digits five percent 0:17:09.040 --> 0:17:09.880 in a two year yield. 0:17:10.000 --> 0:17:11.679 Exactly right, Hey, Jim, as you go back to your 0:17:11.720 --> 0:17:14.440 offices at Morgan Stanley Investment Management, you sit down with 0:17:14.480 --> 0:17:17.000 your pms this morning, are you guys going to change 0:17:17.000 --> 0:17:20.360 anything in your portfolios? Change your outBut change your allocations. 0:17:21.160 --> 0:17:23.320 So about it maybe a world that maybe stagflation is 0:17:23.359 --> 0:17:24.200 something we have to think about it. 0:17:24.240 --> 0:17:26.000 Well, I don't know. I mean, I think it's a 0:17:26.040 --> 0:17:28.359 little early to call for stackflation. But you know, so 0:17:28.880 --> 0:17:31.560 we've moved more towards a neutral posture at this point. 0:17:32.240 --> 0:17:35.359 So we've taken our equity from overweight to underweight end 0:17:35.359 --> 0:17:38.679 of the first quarter. But I think in bonds we 0:17:38.720 --> 0:17:40.280 are going to start to take our duration up a 0:17:40.280 --> 0:17:43.080 little bit higher because these yields are appetizing, so that 0:17:43.080 --> 0:17:44.760 that's likely the next move for us. 0:17:46.200 --> 0:17:47.960 Go ahead, Paul. Now this is one more question to 0:17:48.040 --> 0:17:52.120 Karen Jerseys having a tantrum. It's take your daughter to work? 0:17:52.160 --> 0:17:53.520 Did you bring any kids in? Now? 0:17:53.840 --> 0:17:54.160 My kids? 0:17:55.840 --> 0:17:57.959 I got afterthought today? I go you want to come 0:17:57.960 --> 0:18:00.439 into work with dad? She's looking at I mean, like, 0:18:00.680 --> 0:18:02.679 you know, is it that? Or go to Eli's on 0:18:02.760 --> 0:18:06.240 Madison Avenue and chat on twenty five dollars at cheeseburgers? Exactly? 0:18:06.440 --> 0:18:08.359 You know? I mean, what you know what you're gonna do? 0:18:08.600 --> 0:18:10.800 Elayne's waiting, Paul, get a question real quick. 0:18:10.840 --> 0:18:12.520 What do you think this the Fed's gonna do? Looking 0:18:12.560 --> 0:18:13.440 at this data today? 0:18:14.000 --> 0:18:17.520 So I still think it's Powell's remarks from from from 0:18:17.560 --> 0:18:20.320 a week ago still hold. I think he's still waiting 0:18:20.320 --> 0:18:22.320 to see more confidence. We still have to see those 0:18:22.320 --> 0:18:25.320 inflation numbers come out softer consistently. 0:18:25.400 --> 0:18:28.080 Yep. Yeah, this has been great. I really look forward 0:18:28.119 --> 0:18:30.960 to to talk about triangulation. I'm gonna blame Steve Roach 0:18:31.000 --> 0:18:33.679 for this. Maybe there's somebody else. They fight like cats 0:18:33.680 --> 0:18:37.000 and dogs at Morgan Stanley. They've got my greatest respect. 0:18:37.200 --> 0:18:40.920 The next meeting of Karen Zettner and Mike Wilson, that's 0:18:40.920 --> 0:18:41.359 gonna be it. 0:18:41.480 --> 0:18:43.400 It's gonna be We should have a remote broadcast. 0:18:43.400 --> 0:18:45.359 We should we should do a live broadcast. It's like 0:18:45.400 --> 0:18:48.040 the NFL draft. We'll have to see Jim. Karen, thank 0:18:48.080 --> 0:18:51.320 you so much, particularly for coming in today. Greatly appreciate 0:18:51.359 --> 0:19:05.800 that perfect person, perfect time. Constant Hunter joins us, working 0:19:05.800 --> 0:19:10.040 with Julia cornetto at micropolicy perspectives. Constant, I want to 0:19:10.080 --> 0:19:12.320 go to the eye. I want to go to the 0:19:12.359 --> 0:19:17.480 business spirit. Given sub two percent GDP with an inflation impulse, 0:19:17.840 --> 0:19:21.320 I have a ten year real yield back to two 0:19:21.440 --> 0:19:25.240 thousand and nine levels where it pretty much sustain two 0:19:25.280 --> 0:19:28.760 thousand and four to the crisis, and then two thousand 0:19:28.800 --> 0:19:33.359 and nine. Does the higher inflation adjusted yield does that 0:19:33.480 --> 0:19:36.360 begin to impinge now on American business? 0:19:37.920 --> 0:19:40.959 Well, that is the question Tom, and I think it 0:19:41.080 --> 0:19:44.160 has been impinging on American business right. When we look 0:19:44.200 --> 0:19:48.080 at financial conditions for those who can access the capital markets, 0:19:48.320 --> 0:19:51.040 financial conditions look fairly accommodated. 0:19:51.160 --> 0:19:51.280 Right. 0:19:51.320 --> 0:19:54.280 We have higher equity markets, people are going to the 0:19:54.960 --> 0:19:57.960 bond market and issuing debt. When you look at financial 0:19:58.000 --> 0:20:01.000 conditions for households. When you look at financial conditions for 0:20:01.080 --> 0:20:04.760 small and medium sized businesses, they are tighter. However, with 0:20:04.880 --> 0:20:08.760 that said, we are still seeing record new business formations. 0:20:08.800 --> 0:20:11.439 So there is something happening under the hood of this 0:20:11.560 --> 0:20:15.439 economy that is different than previous cycles. And as we know, 0:20:15.600 --> 0:20:20.640 history rhymes, it doesn't repeat very good constant. 0:20:20.960 --> 0:20:23.760 Obviously, the market was looking for if you look at consensus, 0:20:23.840 --> 0:20:26.760