WEBVTT - Bloomberg Wall Street Week - March 1st, 2024 0:00:00.240 --> 0:00:02.440 This is Bloomberg Wall Street Week. 0:00:02.480 --> 0:00:04.400 And we may not have an overall recession, we're having 0:00:04.400 --> 0:00:05.200 a rolling recession. 0:00:05.240 --> 0:00:07.040 To Cone rowl looks pretty strongly. It is when it 0:00:07.080 --> 0:00:09.840 comes to jobs. The financial stories that shape our work. 0:00:09.960 --> 0:00:13.640 Three major regional bank failures send shockwaves through the banking system. 0:00:13.680 --> 0:00:15.440 We're all trying to figure out what to make of 0:00:15.600 --> 0:00:17.000 generative AI. 0:00:16.920 --> 0:00:19.320 Through the eyes of the most influential voices. 0:00:19.440 --> 0:00:22.400 Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America, 0:00:22.560 --> 0:00:25.279 deebro Lair of the Paulson Institute, well then Hubbard of 0:00:25.280 --> 0:00:26.280 the Columbia Business School. 0:00:26.280 --> 0:00:30.120 Bloomberg Wall Street Week with David Weston from Bloomberg Radio 0:00:30.280 --> 0:00:31.640 show me the money. 0:00:31.520 --> 0:00:34.159 To keep the government going, to justify rate cuts, and 0:00:34.200 --> 0:00:37.360 for former President Trump to post his bond. This is 0:00:37.360 --> 0:00:41.199 Bloomberg Wall Street Week. I'm David Weston. This week, nad 0:00:41.400 --> 0:00:44.040 Meggie of Blackstone on the case for investing in real 0:00:44.159 --> 0:00:45.880 estate despite all you've. 0:00:45.600 --> 0:00:50.360 Heard, what we see is a generational investing opportunity while 0:00:50.440 --> 0:00:52.680 others are looking in the rear view mirror. 0:00:52.800 --> 0:00:55.440 And Lindsay Rosner of Golden Sachs on the risks and 0:00:55.600 --> 0:00:59.440 opportunities in fixed income when yields are high but spreads. 0:00:59.040 --> 0:01:02.280 Are tight, We're finding an interesting pocket is actually in 0:01:02.360 --> 0:01:03.400 structured products. 0:01:16.040 --> 0:01:17.880 But we start with the US economy. 0:01:18.080 --> 0:01:22.040 Calling a Goldilocks doesn't go far enough for Nobel Laureate Paul. 0:01:21.880 --> 0:01:24.400 Krugman, I've been arguing with people who say, you know, 0:01:24.480 --> 0:01:26.000 this is a Goldilock's. 0:01:25.440 --> 0:01:29.440 Economy, and that's wrong. Goldilocks found a parts. 0:01:29.200 --> 0:01:31.000 That was neither too hot nor too cold. 0:01:31.160 --> 0:01:33.039 But you've got an economy that's hot where you want 0:01:33.080 --> 0:01:35.479 it to be hot, like in GDP growth, and cold 0:01:35.520 --> 0:01:36.600 where you want it to be cold. 0:01:36.600 --> 0:01:40.520 On inflation, even as sentiment numbers lag well behind. 0:01:40.360 --> 0:01:43.880 The levels of sentiment are more like deeper session levels 0:01:44.280 --> 0:01:47.680 than sort of mildly pessimistic levels. I think a lot 0:01:47.720 --> 0:01:50.800 of that is unrelated to the economy, and a lot of. 0:01:50.720 --> 0:01:54.080 That negative sentiment is because of inflation, with some saying 0:01:54.080 --> 0:01:56.760 that the way the FED calculates it makes it seem 0:01:56.840 --> 0:01:57.600 worse than. 0:01:57.480 --> 0:01:58.080 It really is. 0:01:58.600 --> 0:02:01.760 The Fed's inflation numbers are artificially high. I think if 0:02:01.800 --> 0:02:04.360 you look at real housing costs and you talk to 0:02:04.400 --> 0:02:08.440 the people who own collectively hundreds of thousands of residential 0:02:08.520 --> 0:02:11.600 units across the country, even in the best markets, rents 0:02:11.639 --> 0:02:15.640 are basically flat. Most people aren't moving from their home 0:02:15.720 --> 0:02:18.160 because their mortgage is low, so their occupant zy costs 0:02:18.200 --> 0:02:22.320 are flat. So to say, inflation because of some metric 0:02:22.400 --> 0:02:24.760 that the FED is using, is six percent, and that's 0:02:24.760 --> 0:02:27.760 thirty percent of inflation. I think you're overstating inflation by 0:02:27.760 --> 0:02:29.880 as much as one point eight percent. So I think 0:02:29.919 --> 0:02:33.440 inflation is actually pretty pretty benign right now. The economy 0:02:33.480 --> 0:02:36.240 is doing pretty well, so why should the Fed suddenly 0:02:36.280 --> 0:02:37.000 lower rates? 0:02:37.440 --> 0:02:40.040 This week we got the most recent numbers on inflation, 0:02:40.240 --> 0:02:43.400 the ones the FED pays attention to, and core PCEE 0:02:43.560 --> 0:02:46.960 came in just about we're expected, showing inflation growing two 0:02:47.040 --> 0:02:50.919 point four percent year over year. After the most recent numbers, 0:02:50.919 --> 0:02:53.560 we sat down with San Francisco FED President Mary Daily 0:02:53.880 --> 0:02:56.760 and asked her how she squares the strong growth and 0:02:56.880 --> 0:03:00.560 jobs numbers with the relatively weak consumer centim figures. 0:03:01.040 --> 0:03:05.440 When you think about how hard it is to work 0:03:05.440 --> 0:03:08.560 as hard as you can work multiple jobs and not 0:03:08.680 --> 0:03:11.440 be able to afford things one month to the next, 0:03:11.960 --> 0:03:16.679 that has a psychological toll that I think we can't underestimate. 0:03:16.960 --> 0:03:20.520 And as the economy continues to make gains and we 0:03:20.560 --> 0:03:23.720 bring inflation down, that scar, if you will, will. 0:03:23.600 --> 0:03:24.280 Start to heal. 0:03:24.360 --> 0:03:26.839 But people need that certainty, and that's why we keep 0:03:26.880 --> 0:03:30.320 saying we're not done until we're done. You know these 0:03:30.360 --> 0:03:33.359 good inflation data that we're seeing. That's not price stability too. 0:03:33.480 --> 0:03:36.760 Is For people in financial media and on Wall Street, 0:03:36.920 --> 0:03:38.560 the number one issue is rate cuts. 0:03:38.920 --> 0:03:40.280 Yes, that is their number one issue. 0:03:40.320 --> 0:03:43.000 But we work for the American people, not necessarily not 0:03:43.080 --> 0:03:43.680 for markets. 0:03:43.720 --> 0:03:45.440 So but explain it to it. 0:03:45.600 --> 0:03:47.760 In your summary of economic projections, the last one you 0:03:47.840 --> 0:03:49.600 have three in for the year. That's a projection. It's 0:03:49.640 --> 0:03:53.160 not a promise. But some people think you should have more. 0:03:53.240 --> 0:03:55.000 Maybe some people think you have less. Why are we 0:03:55.040 --> 0:03:56.840 talking about rade cuts at all? Given the strength of 0:03:56.840 --> 0:03:59.000 the economy and the economy scems, we're doing just fine 0:03:59.200 --> 0:04:00.600 with the rate cuts you've put in place. 0:04:00.840 --> 0:04:03.600 So we put a projection out about what we think 0:04:03.680 --> 0:04:06.560 we'll need to do if the economy evolves as we 0:04:06.680 --> 0:04:10.080 expect it to. So what's the expectation inflation continues to 0:04:10.080 --> 0:04:14.080 come down gradually the labor market and the economy slow, 0:04:14.160 --> 0:04:16.839 but don't tip over, and then it would be appropriate 0:04:16.920 --> 0:04:20.159 as inflation comes down to bring the nominal rate of 0:04:20.200 --> 0:04:22.640 interest down to make sure we're not how holding on 0:04:22.760 --> 0:04:25.560 even tighter, because we want to avoid the following. We 0:04:25.600 --> 0:04:28.160 want to avoid holding on all the way to two percent. 0:04:28.640 --> 0:04:32.200 They're putting policy very tight and then cause an unnecessary 0:04:32.680 --> 0:04:36.359 downturn that you give people lower inflation, but you cost 0:04:36.400 --> 0:04:39.240 them their jobs. So that's a balancing act. That means 0:04:39.240 --> 0:04:41.880 we have to be calibrating. So I want to just 0:04:41.920 --> 0:04:45.279 be clear. Though you don't see many FED officials, including myself, 0:04:45.520 --> 0:04:48.760 talking about rate cuts. You see us talking about restoring 0:04:48.800 --> 0:04:52.480 price stability, bringing inflation down, being data dependent, looking at 0:04:52.480 --> 0:04:56.520 the full balance, being patient and methodical. So I do 0:04:56.600 --> 0:05:00.000 think that message is clear. It's not always what peoples 0:05:00.000 --> 0:05:02.120 necessarily want to hear, but it is a clear message 0:05:02.160 --> 0:05:02.760 that we've been on. 0:05:03.080 --> 0:05:04.440 I'm not expecting you to tell us one you're going 0:05:04.480 --> 0:05:06.279 to cut rates. But let me ask a different question. 0:05:06.960 --> 0:05:08.880 I'm old enough to remember when Potter student in the Supreme 0:05:08.880 --> 0:05:11.200 Court said about obersentity, you'll know it when you see it. 0:05:11.440 --> 0:05:13.440 How will you know it when you see it? That's 0:05:13.640 --> 0:05:15.400 the time we should start cutting rates. 0:05:15.600 --> 0:05:16.520 That's a great question. 0:05:17.120 --> 0:05:19.880 So what I look at is what I think of 0:05:19.880 --> 0:05:23.440 as a dashboard of indicators and The dashboard of indicators 0:05:23.480 --> 0:05:27.480 has the published data, which everybody focuses on, but those 0:05:27.520 --> 0:05:30.200 tend to be data points, and you don't want to 0:05:30.200 --> 0:05:31.160 be data point dependent. 0:05:31.200 --> 0:05:33.040 You want to be data dependent, So you have to. 0:05:33.080 --> 0:05:35.880 Look underneath the hood of those data and really see 0:05:35.880 --> 0:05:38.760 what's driving them. And also you have to talk to people. 0:05:38.920 --> 0:05:41.400 And what I'm looking for right now is for the 0:05:41.400 --> 0:05:45.320 published data continue to gradually slow and inflation to gradually 0:05:45.320 --> 0:05:49.280 come down, but for the behavior when I talk to firms, 0:05:49.279 --> 0:05:49.880 when I talk. 0:05:49.800 --> 0:05:50.760 To businesses, etc. 0:05:51.160 --> 0:05:53.640 That they're saying, oh, yes, we're not going to continue 0:05:53.720 --> 0:05:57.200 to raise prices. Oh yes, we see input costs coming down. 0:05:57.279 --> 0:06:00.640 Workers saying we see jobs, we want to stick. 0:06:00.320 --> 0:06:03.360 With our employer. We are not worried about. 0:06:03.120 --> 0:06:06.120 Five percent wage growth because we don't feel inflation's going 0:06:06.160 --> 0:06:08.920 to continue. I'm looking for those things to all come 0:06:08.960 --> 0:06:12.400 together and form a collage of evidence, if you will, 0:06:12.480 --> 0:06:15.279 that we are on the path to price stability sustainably. 0:06:15.440 --> 0:06:16.360 I'm seeing parts of that. 0:06:16.400 --> 0:06:18.800 I see a lot of green shoots, as we like 0:06:18.880 --> 0:06:20.719 to say, but we're not there yet. 0:06:20.960 --> 0:06:22.120 You talked about your dashboard. 0:06:22.279 --> 0:06:25.200 Let me ask about one specific figure on your dashboard, 0:06:25.320 --> 0:06:26.120 and that is inflation. 0:06:26.240 --> 0:06:26.600 Numbers. 0:06:26.720 --> 0:06:29.560 There's some concern now that maybe inflation's overstated. I've talked 0:06:29.560 --> 0:06:31.279 to a couple of people who are pretty active in 0:06:31.279 --> 0:06:33.919 real estate, commercial real estate in recent days who said 0:06:34.120 --> 0:06:37.880 the owner equivalent ret is overstating inflation. As pactic matter, 0:06:38.040 --> 0:06:40.680 somebody said, actually recently on this program as much as 0:06:40.680 --> 0:06:42.960 one point seven to one point eight percent, are you 0:06:43.040 --> 0:06:45.919 concerned that maybe we're overstating inflation right now? 0:06:46.000 --> 0:06:49.040 So that's a really terrific question, and it might help 0:06:49.160 --> 0:06:50.840 for me to just talk about how I look at 0:06:50.839 --> 0:06:54.279 the data. So there are multiple inflation indicators, and you 0:06:54.279 --> 0:06:57.240 can unpack all of them into what's driving them. But 0:06:57.320 --> 0:07:00.040 we can't just look at those published inflation data to 0:07:00.120 --> 0:07:03.520 see the story. We have to actually go into communities 0:07:03.600 --> 0:07:06.560 and look at what's happening with local house price appreciation, 0:07:06.680 --> 0:07:09.760 what's happening with rental price appreciation, and there you do 0:07:09.920 --> 0:07:11.920 see the elements of the slowing you. 0:07:11.840 --> 0:07:12.960 Would expect to see. 0:07:13.040 --> 0:07:17.880 So I actually am growing more confident that housing inflation, 0:07:18.080 --> 0:07:22.640 shelter inflation, and rental inflation are coming down. The speed 0:07:22.640 --> 0:07:24.800 at which they come down is still unknown, but I'm 0:07:24.800 --> 0:07:27.760 not seeing signs that they're picking back up yet. 0:07:27.920 --> 0:07:30.240 What is the reason why you have such a concentration 0:07:30.280 --> 0:07:31.880 of tech in your district. I mean, we tend to 0:07:31.880 --> 0:07:34.000 think about Silicon Valley as being close to Stanford and 0:07:34.280 --> 0:07:37.800 Berkeley and some universities. Is it the educational system there, 0:07:37.960 --> 0:07:40.120 is it some other factors? Is just critical mass? 0:07:40.640 --> 0:07:42.360 I think there is a bit of critical mass, and 0:07:42.400 --> 0:07:44.720 there's a number of research studies that say, you know, 0:07:44.760 --> 0:07:47.440 these network effects are large. So one of the things 0:07:47.440 --> 0:07:50.280 we've seen is, and you see this anywhere in the country, 0:07:50.280 --> 0:07:53.800 really is that people might start in Silicon Valley, they 0:07:53.840 --> 0:07:56.480 might start in Austin, Texas, they might start in Boston, 0:07:56.680 --> 0:07:58.960 but then they move, you know, family things take them 0:07:59.000 --> 0:08:01.800 other places. We have a lot of lovely states to 0:08:01.880 --> 0:08:05.040 live in, so people go other places, and then they 0:08:05.600 --> 0:08:09.000 build those tech centers around them because they have the expertise. 0:08:09.640 --> 0:08:12.360 As strong as the tech sector is in Mary Daily's region, 0:08:12.400 --> 0:08:15.560 commercial real estate has been struggling a bit, as it 0:08:15.600 --> 0:08:18.160 has in some other major urban areas. 0:08:19.000 --> 0:08:21.280 I was just in New York recently and it seemed 0:08:21.280 --> 0:08:24.880 a lot more animated than certainly parts of downtown San Francisco. 0:08:25.600 --> 0:08:29.440 But again, I think the venture money is here, and 0:08:29.480 --> 0:08:34.600 we have a highly educated population, so as a labor market. Literally, 0:08:34.960 --> 0:08:38.000 no one can compete with a Bay area and that 0:08:38.320 --> 0:08:41.000 force for what the future is with some of this 0:08:41.120 --> 0:08:45.640 new technology is what's going to animate these large agglomerations 0:08:45.679 --> 0:08:51.199 San Francisco, Boston, New York and Los Angeles, Houston and 0:08:51.200 --> 0:08:55.360 Miami because of what's going on in financial services and 0:08:55.400 --> 0:09:00.320 the relocations in Miami. So I'm a I'm not a 0:09:00.360 --> 0:09:04.000 doom low person at all for these cities. I think 0:09:04.040 --> 0:09:06.800 they are going to recover. There is going to be pain, 0:09:06.920 --> 0:09:10.040 as I just said, there are defaults, there are losses, 0:09:10.120 --> 0:09:14.000 there is retail closure, and I think the mix of 0:09:14.640 --> 0:09:18.360 real estate, especially in downtown San Francisco, where we have 0:09:18.559 --> 0:09:22.400 very little housing, so it's very dependent on the workforce 0:09:22.559 --> 0:09:27.240 for animation, and without that workforce, without a return to work, 0:09:28.160 --> 0:09:31.080 San francisc is going to be challenged, Whereas New York 0:09:31.160 --> 0:09:36.120 has a good mix of housing and office space within 0:09:36.160 --> 0:09:40.760 the urban core. Boston to the same degree, and San 0:09:40.760 --> 0:09:42.800 Francisco is going to have to figure this out with 0:09:42.960 --> 0:09:46.719 housing and to reanimate parts of its downtown. 0:09:48.000 --> 0:09:50.360 Commercial real estate's a big name for a lot of 0:09:50.400 --> 0:09:53.640 different segments. So if you're an industrial and warehousing space, 0:09:54.120 --> 0:09:55.520 you're feeling very good. 0:09:55.400 --> 0:09:56.440 About things right now. 0:09:56.600 --> 0:10:00.480 If you're in retail space or even multi family housing 0:10:00.559 --> 0:10:03.880 out in suburban areas, then you're feeling really good. 0:10:04.000 --> 0:10:04.720 You're confident. 0:10:05.360 --> 0:10:09.520 The place where you're seeing weakness and everybody knows it 0:10:09.600 --> 0:10:14.760 is in the urban cores of particularly cities like Seattle, Portland, 0:10:14.880 --> 0:10:17.200 San Francisco. LA is doing a little bit better, but 0:10:17.280 --> 0:10:19.559 you can find pockets of this in LA and that 0:10:19.600 --> 0:10:21.000 has to do with the fact that a lot of 0:10:21.000 --> 0:10:23.760 people are still working from home in those communities. Those 0:10:23.800 --> 0:10:26.959 big office complexes that were built up for those individuals 0:10:27.040 --> 0:10:30.760 to work in, they just aren't They're not filled, and 0:10:30.800 --> 0:10:34.080 so there will be a repricing and a resettlement. The 0:10:34.120 --> 0:10:36.520 thing is, we've known it's coming for a while, and 0:10:36.600 --> 0:10:41.400 I see private equity money, venture money sitting on the sidelines, 0:10:41.640 --> 0:10:43.480 ready to come in when the price is right. 0:10:43.760 --> 0:10:45.400 So there'll be some repricing, there'll be. 0:10:45.360 --> 0:10:50.200 Some loss of valuations, for sure, but it doesn't seem 0:10:50.240 --> 0:10:53.599 today to be the kind of disorderly adjustment that you 0:10:53.640 --> 0:10:56.640 would worry about. It's something that is more orderly, even 0:10:56.640 --> 0:10:59.000 though it might be certainly going to be painful for 0:10:59.040 --> 0:11:03.120 those involved, is not going as likely to be as disruptive. 0:11:03.240 --> 0:11:05.600 One of the concerns is about regional banks, which tend 0:11:05.679 --> 0:11:08.440 to be more exposed to really commercial real estate. And 0:11:08.440 --> 0:11:10.840 then we've heard about that from the FED in Washington, 0:11:10.920 --> 0:11:12.000 absolutely sure about that. 0:11:12.520 --> 0:11:13.600 How do you assess it out there? 0:11:13.640 --> 0:11:16.120 You have a little experience with this with Silicon Valley 0:11:16.120 --> 0:11:18.240 Bank and things like that. Well, how do you assess 0:11:18.240 --> 0:11:20.000 the risk for the banks, the regional banks? 0:11:20.200 --> 0:11:23.520 So I would separate the failure of Silicon Valley Bank, 0:11:23.679 --> 0:11:27.320 Signature Bank, and First Republic, which really they all three 0:11:27.400 --> 0:11:31.040 had the same experience, which is depositors who were uninsured 0:11:31.559 --> 0:11:35.400 ran and that's a different situation than the commercial real estate. 0:11:35.400 --> 0:11:36.160 But what they did. 0:11:36.240 --> 0:11:40.800 What that situation did is it alerted all investors and 0:11:40.840 --> 0:11:45.360 depositors to the fact that there's a portfolio underlying the 0:11:45.440 --> 0:11:48.040 health of a bank, and we should focus on that portfolio. 0:11:48.200 --> 0:11:49.720 I think it's useful to remind people too. 0:11:49.760 --> 0:11:51.559 We have over forty five hundred banks in the United 0:11:51.600 --> 0:11:54.720 States and only three failed. So the banking system is 0:11:54.760 --> 0:11:57.640 safe and sound and resilient, but there will be adjustments. 0:11:57.920 --> 0:12:00.319 And one of the things that you've heard the Chair 0:12:00.360 --> 0:12:04.200 of Supervision Michael Barr speak about and other the FDIC 0:12:04.559 --> 0:12:09.600 chair and occ is really focusing their efforts on ensuring 0:12:09.640 --> 0:12:14.319 that banks are preparing for those adjustments, So it's certainly there. 0:12:14.760 --> 0:12:17.400 The final thing, though, that I think is really often 0:12:18.559 --> 0:12:22.160 not known, is that regional banks don't have a lot 0:12:22.320 --> 0:12:26.680 in these big urban core office buildings. Those are really 0:12:26.720 --> 0:12:32.480 investor owned, and so it's useful to separate the concerns 0:12:32.480 --> 0:12:35.000 you might have about regional banks on commercial real estate 0:12:35.080 --> 0:12:40.679 from those big, monolithic empty buildings that everybody's worried won't 0:12:40.720 --> 0:12:41.280 get filled. 0:12:42.080 --> 0:12:45.280 Many thanks to Mary Daily, president of the San Francisco Fed. 0:12:47.040 --> 0:12:48.880 Coming up, we go over the week in the markets 0:12:48.880 --> 0:12:50.520 with Barbara Reinhardt of VOYE. 0:12:52.200 --> 0:12:54.360 That's next on Wall Street Week on Bloomberg. 0:12:55.480 --> 0:12:59.680 This is Bloomberg Wall Street Week with David Weston from 0:12:59.800 --> 0:13:05.640 the Blomberg Radio. 0:13:07.160 --> 0:13:08.840 This is all straight week. I'm David Weston. 0:13:08.960 --> 0:13:12.040 Most equity markets continue their upward climb this week, with 0:13:12.080 --> 0:13:14.440 the S and P five hundred closing it another record 0:13:14.520 --> 0:13:17.720 high of fifty one thirty seven, up just under one 0:13:17.760 --> 0:13:20.960 percent for the week and still nicely over the median 0:13:21.080 --> 0:13:23.920 year end number of five thousand from our Bloomberg Elves. 0:13:24.000 --> 0:13:26.640 Despite the Elves continuing to raise their estimates every week, 0:13:26.880 --> 0:13:29.719 the Nasdaq had an even stronger week, adding one point 0:13:29.800 --> 0:13:32.280 seven four percent, while the yield on the tenure was 0:13:32.360 --> 0:13:34.920 down just under seven basis points to end the week 0:13:34.920 --> 0:13:36.280 at four point one eight. 0:13:36.520 --> 0:13:37.440 To take us through the week. 0:13:37.280 --> 0:13:39.479 Of the markets, we welcome back now with Barbara Reinhardt, 0:13:39.559 --> 0:13:44.040 Voya Investment Management, CIO of Multi Assets Strategies and Solutions. 0:13:44.120 --> 0:13:45.840 Great to have you back with his barber. So, so, 0:13:45.960 --> 0:13:47.960 what's causing this form reporting of the markets? Is it 0:13:48.000 --> 0:13:49.800 that strong economy Mary Daily. 0:13:49.640 --> 0:13:50.120 Just talked about. 0:13:50.240 --> 0:13:52.199 Well, I think there's a couple of things, David. Number 0:13:52.200 --> 0:13:55.880 one is you have to remember the Fed pivot rally 0:13:55.920 --> 0:13:57.840 that's been in place for the past two months has 0:13:57.880 --> 0:14:01.040 been pretty powerful, and it's been driven by a lot 0:14:01.040 --> 0:14:04.880 of multiple expansions. Specifically, since the end of October, multiples 0:14:04.920 --> 0:14:07.040 have driven about eighty seven percent of the S and 0:14:07.040 --> 0:14:09.800 P five hundreds run. But you've had a relatively good 0:14:09.840 --> 0:14:14.240 earning season as well, right, so earning's estimates continue to 0:14:14.559 --> 0:14:16.760 kind of bottom out and hook back up. The US 0:14:16.840 --> 0:14:19.480 seems to be leading the way in this charge, and 0:14:19.680 --> 0:14:22.680 it seems as though the markets digesting that the federal 0:14:22.680 --> 0:14:25.640 Reserve may not cut or may not cut as much 0:14:25.640 --> 0:14:27.880 as they expect this year, and they're taking it pretty 0:14:27.920 --> 0:14:28.480 much in stride. 0:14:28.480 --> 0:14:30.240 Well, that's one of the things I'm interested because where 0:14:30.280 --> 0:14:32.120 the market was on how many cuts and where it 0:14:32.120 --> 0:14:34.000 is today is quite different. So then cut it like 0:14:34.080 --> 0:14:36.160 in half the number of cuts, and yet the markets 0:14:36.160 --> 0:14:37.600 didn't seem to take that to adversly. 0:14:37.640 --> 0:14:40.040 Why is that, Well, the bond market certainly did, right, 0:14:40.120 --> 0:14:43.480 so you had the long long data. Treasuries had backed 0:14:43.520 --> 0:14:46.480 up pretty significantly, but the equity market was pretty much 0:14:46.560 --> 0:14:48.560 able to power through it. And we think one of 0:14:48.560 --> 0:14:51.200 the reasons that this is the case is that many 0:14:51.320 --> 0:14:55.560 companies US companies, specifically large cap companies have termed out 0:14:55.600 --> 0:14:58.680 their debt so they don't have big refinancing risks coming 0:14:58.760 --> 0:15:01.360 up in twenty three, twenty four or twenty five. They're 0:15:01.400 --> 0:15:03.760 looking to later dates more like twenty twenty seven and 0:15:03.800 --> 0:15:06.560 twenty twenty eight before they have to worry about refinancing. 0:15:06.680 --> 0:15:09.280 And we think that's a big reason that the equity 0:15:09.320 --> 0:15:12.800 market can look through some of the noise of pricing 0:15:12.840 --> 0:15:13.520 in FED cuts. 0:15:13.680 --> 0:15:15.440 One of the concerns you hear a lot about is 0:15:15.480 --> 0:15:18.440 concentration in the equity markets, particularly there's magnificent seven or 0:15:18.480 --> 0:15:21.440 help many our count it. How concerns should we be 0:15:21.560 --> 0:15:24.000 about that concentration that is not broad enough in the 0:15:24.000 --> 0:15:24.800 equity markets. 0:15:25.000 --> 0:15:27.840 Well, the concentration is indeed going global. You see it 0:15:27.880 --> 0:15:30.320 in the US markets, you see it in the international 0:15:30.400 --> 0:15:33.000 markets as well, specifically in Europe and also in Japan. 0:15:33.600 --> 0:15:36.680 In the US, though, I think there's a really interesting point. 0:15:36.400 --> 0:15:38.320 To look at this. So if you take go back 0:15:38.320 --> 0:15:39.080 to the dot. 0:15:38.880 --> 0:15:43.200 Com period in the early two thousands, right, the top 0:15:43.240 --> 0:15:48.120 five companies, they had a net income margin of about 0:15:48.160 --> 0:15:51.160 twenty percent. Right, if you take a look at the 0:15:51.160 --> 0:15:53.360 top five companies in the S and P five hundred 0:15:53.360 --> 0:15:56.880 this year, their margin is closer to thirty to thirty 0:15:56.920 --> 0:16:00.600 one percent. I think you cannot strip out the operational 0:16:00.640 --> 0:16:03.640 dominance of these large companies and the high free cash 0:16:03.640 --> 0:16:07.040 flow that they are indeed throwing off every year. And 0:16:07.080 --> 0:16:08.440 I think when you take a look at it on 0:16:08.440 --> 0:16:11.920 a pe basis, no question the market's expensive, But when 0:16:11.960 --> 0:16:14.720 you drill down on some of those other metrics, some 0:16:14.840 --> 0:16:16.920 of the frost starts to come out of it, and 0:16:16.960 --> 0:16:21.480 it's being supported by relatively strong earnings and relatively good 0:16:21.520 --> 0:16:22.880 free cash flow as well. 0:16:23.080 --> 0:16:24.920 One of the things you hear about is evaluation. I mean, 0:16:25.480 --> 0:16:27.800 does it make sense to buy more at these valuations 0:16:27.800 --> 0:16:29.880 because it seems to be a lot is where they 0:16:29.880 --> 0:16:30.480 say price. 0:16:30.320 --> 0:16:32.080 To perfection and price of perfection. 0:16:32.200 --> 0:16:34.520 Short there's not many places that you can find great 0:16:34.600 --> 0:16:38.080 value at this point, along with improving fundamentals. But we 0:16:38.240 --> 0:16:40.840 do think that the US is going to have another 0:16:41.000 --> 0:16:44.000 relatively strong year relative to the rest of the world. 0:16:44.360 --> 0:16:46.120 I know there's a lot of chatter going on in 0:16:46.120 --> 0:16:48.840 the markets right now about maybe buying Europe, maybe buying 0:16:48.880 --> 0:16:52.280 the emerging markets. China may do a big fiscal stimulus. 0:16:52.760 --> 0:16:57.160 We think that the relative valuation and the premium that 0:16:57.200 --> 0:17:00.480 the US commands is for a relatively good reason. We're 0:17:00.480 --> 0:17:03.640 sticking closer to home. We're sticking in US large cap stocks. 0:17:04.080 --> 0:17:07.280 If the FED were to aggressively start cutting interest rates, 0:17:07.359 --> 0:17:09.760 it may make sense to go down and cap size. 0:17:09.880 --> 0:17:11.840 But right now, I think you're better off being in 0:17:11.840 --> 0:17:14.880 the US. And because the rest of the world isn't 0:17:14.920 --> 0:17:18.359 feeling particularly well, it's kind of the somewhat reminiscence of 0:17:18.359 --> 0:17:21.080 the mid nineteen nineties. US was doing well, rest of 0:17:21.080 --> 0:17:23.960 the world was on its back. Relative strengths for the 0:17:24.040 --> 0:17:26.560 US dollar is another one to consider as well, when 0:17:26.600 --> 0:17:27.800 you're going global. 0:17:27.600 --> 0:17:30.320 On its back, but Japan is not quite the way 0:17:30.320 --> 0:17:32.400 it was on its back as before. Is that sort 0:17:32.440 --> 0:17:34.160 of coming up a little bit? I hear some talk 0:17:34.200 --> 0:17:34.800 about Japan. 0:17:35.040 --> 0:17:37.840 It only took thirty four years for it to recapture 0:17:37.880 --> 0:17:41.639 it's nineteen eighty nine high. So look, Japan is a 0:17:41.680 --> 0:17:44.320 really interesting market to US. I think that if you're 0:17:44.320 --> 0:17:45.960 going to go out to Japan, you have to head 0:17:46.000 --> 0:17:47.719 your currency back into US dollars. 0:17:48.400 --> 0:17:49.679 Japan, because they've been. 0:17:49.560 --> 0:17:52.880 Through so much over the past really three decades, they 0:17:52.960 --> 0:17:56.080 don't the market doesn't tend to respond much to recessions 0:17:56.160 --> 0:17:58.280 as you do, say in the US or in Europe. 0:17:58.440 --> 0:18:02.400 But Germany right now is in a middling recession. Emerging 0:18:02.400 --> 0:18:04.760 markets don't feel particularly good. If I had to be 0:18:04.800 --> 0:18:07.040 any place, i'd probaly stick in US large caps. 0:18:07.160 --> 0:18:09.040 US A large cap, not medium and small. 0:18:09.320 --> 0:18:10.320 No US large. 0:18:10.400 --> 0:18:12.239 Yeah, it's too hard to pick those stocks in as 0:18:12.240 --> 0:18:13.000 small as the large. 0:18:13.000 --> 0:18:15.920 As a probate, you need a fed rate cutting cycle 0:18:15.960 --> 0:18:17.879 to really get that smaller cap size of the market. 0:18:17.920 --> 0:18:20.400 Going one last quick one, what about terming out debt 0:18:20.520 --> 0:18:22.479 and fixed income because you might want to lock in 0:18:22.480 --> 0:18:23.560 some of these rates. 0:18:23.560 --> 0:18:26.760 Look, we think that there's a lot of money sitting 0:18:26.760 --> 0:18:28.840 in money market funds. At this point, everyone says I 0:18:28.840 --> 0:18:30.960 can get five percent in money market funds, Why do 0:18:31.000 --> 0:18:33.800 I want to do anything else? Even if the Federal 0:18:33.840 --> 0:18:37.680 Reserve doesn't cut interest rates this year, five percent won't 0:18:37.720 --> 0:18:40.840 be there forever. There's a reason that cash is generally 0:18:40.880 --> 0:18:45.040 not part of an asset allocation portfolio. I would say 0:18:45.080 --> 0:18:47.600 that the most interesting piece right now to us looks 0:18:47.600 --> 0:18:50.360 like longer data treasuries. We think that they're good insulation 0:18:50.480 --> 0:18:53.399 against economic slowdown and you're getting that positive real yield. 0:18:53.560 --> 0:18:55.239 Robert's always a true to have you. Thank you so much, 0:18:55.440 --> 0:18:56.919 Barbert Reinhardt a voya. 0:18:57.760 --> 0:19:00.760 Commercial real estate has taken something of a bading recently, 0:19:00.880 --> 0:19:03.680