Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify, or
Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business App. We begin with our
Speaker 2: top story, the S and P five hundred Snapping and
Speaker 2: eight day winnistry. As traders await payrolls, revisions and fed minutes,
Speaker 2: seem as Shaff Prince Balassa management seeing stocks grinding higher,
Speaker 2: writing this this backdrop is still constructive for risk and
Speaker 2: a six trillion dollar mountain of cash is ready to
Speaker 2: fuel risk assets. Seeman joins us now for more, so, Seama,
Speaker 2: let's go to the punchline. A six trillion dollar mountain cash?
Speaker 2: What is that match in a cash and why do
Speaker 2: you think it's going to be unlocked anytime soon?
Speaker 3: Hey? John, Well, look I think there's a couple of
Speaker 3: reasons we've seen for the last couple of years, and
Speaker 3: investor has become cautious. We know the reasons why there's
Speaker 3: been COVID, there's a regional banking crosis. But also potentially
Speaker 3: the most important is that people have been able to
Speaker 3: actually make some kind of really interest on those savings.
Speaker 3: We are on the verge of FED cuts likely to
Speaker 3: move in a slightly faster pac certainly than what people
Speaker 3: are anticipating just a few months ago. So sitting in
Speaker 3: cash is no longer going to be attractive. And I
Speaker 3: do think investors, of course, you need to take into
Speaker 3: account the entire backdrop. What are we expecting for risk assets?
Speaker 3: But we do still think there's opportunities and there's a
Speaker 3: lot of reinvestment risk Satman.
Speaker 2: This is the important question. What is the backdrop? Because
Speaker 2: you can have a situation where people pile into cash
Speaker 2: even more even as rates come down, because they're looking
Speaker 2: to de risk away from risk assets. What makes you
Speaker 2: think they're going to go in the other direction as
Speaker 2: rate cuts start to come in. What is it about
Speaker 2: the growth backdrop that tells you things are going to
Speaker 2: remain pretty strong? Yeah, and I.
Speaker 3: Would say that. I think in the last couple of
Speaker 3: weeks there, of course, there's been a lot of revisions
Speaker 3: and I think it's FED, so there's increasing uncertainty at
Speaker 3: the moment. We're still in that soft landing camp like
Speaker 3: everyone else. We've spent the last two weeks pouring over
Speaker 3: all the data, the Magro data, the consumer the labor
Speaker 3: balance sheets, et cetera, and we're not really seeing any
Speaker 3: clear signs of weakness. We know that there's an economic
Speaker 3: slowdown that should be of no surprise to anyone. It's
Speaker 3: been underway, I think since the beginning of Q two
Speaker 3: of this year, but a slowdown doesn't necessarily need to
Speaker 3: transition to recession. We think that the FED has got
Speaker 3: a lot of room to cut rates. So actually, for us,
Speaker 3: the risk of recession is fairly low, and against that backdrop,
Speaker 3: equities can still perform fairly well. We're not looking at
Speaker 3: bumper games like you saw in twenty twenty three or
Speaker 3: sethy in Q one of this year, but that's still
Speaker 3: some positive gains to be made.
Speaker 1: Sima. I love that you go here because Trason McMillian
Speaker 1: yesterday was saying of Wes Fargo that she sees the
Speaker 1: six trillion dollars in money market assets heading into equities,
Speaker 1: maybe a bit more than longer term bonds, Bob Michael
Speaker 1: of JP Morgan Asset Management saying it will flood into
Speaker 1: all sorts of core bond funds, leading ten year treasure
Speaker 1: yields at three percent are potentially lower. Do you agree
Speaker 1: with that type of assessment.
Speaker 3: So, I think there's a lot of opportunities across the
Speaker 3: equity set. You know, you just look outside the US
Speaker 3: as well, and I think there's a lot of opportunities
Speaker 3: on the bond side. You know, I don't know if
Speaker 3: we're going to see ten years quite that low. I
Speaker 3: think there's so many other factors that play at the moment,
Speaker 3: particularly in an election year, that at least for the
Speaker 3: time being, that downder pressure is probably somewhat limited. But
Speaker 3: certainly I do think there's a lot to go into
Speaker 3: those core bond funds. There are question marks around high yield,
Speaker 3: around an economic slowdown, which is why there's still so
Speaker 3: much interest in that investment grade market. So actually, we
Speaker 3: think there's an opportunity set across not just equities and
Speaker 3: not just fixed income, but even across real assets. And
Speaker 3: I so that's the reason why. You know, yes, the
Speaker 3: economic backdrop is a little bit more uncertain than it
Speaker 3: was two or three weeks ago, but it's still really
Speaker 3: important that investors do start to think they look one
Speaker 3: fed cut start cash is no longer attractive, and actually
Speaker 3: staying in cash is probably going to be your biggest risk.
Speaker 1: Going back to where we started, John talking about a
Speaker 1: good kind of ray cut and a bad kind of
Speaker 1: ray cut in terms of what the backdrop is in
Speaker 1: terms of a good economy or a bad economy. Today
Speaker 1: we do get those payrolls revisions, the initial payrolls revisions
Speaker 1: in the year ended in March. Expectation is fuzzy, it's
Speaker 1: all over the place. But if we see a revision
Speaker 1: of say a million fewer jobs as reported initially in
Speaker 1: that period of time, does that change review.
Speaker 3: It doesn't change the view, but of course it's going
Speaker 3: to add to the impression that the third is behind
Speaker 3: the cut, and the third is going to have to
Speaker 3: accelerate its movement somewhat more. It's really tough, though, you know,
Speaker 3: you were just saying that there's a lot of difficulty,
Speaker 3: a lot of risk in focusing on one just one
Speaker 3: data point. We know that payrolls are all over the place.
Speaker 3: Even if you think back just at April of this year,
Speaker 3: where you had a revision down to I think it
Speaker 3: was a one sixteen mark, and then the next month
Speaker 3: it was back to above two hundred. So it's really
Speaker 3: that you look across a broad set of data across
Speaker 3: the consumer space, also really focusing on what is the
Speaker 3: balancie strength of households and companies, and I think that's
Speaker 3: probably going to be very important for building up that's
Speaker 3: the overall picture of the underlying strength of the economy. Bertainly,
Speaker 3: I think it will impact FED pricing.
Speaker 2: Same, let's turn to gold. Some big moves so far
Speaker 2: this year, gold up by something like twenty percent around
Speaker 2: about that. The move this morning we down about a
Speaker 2: quarter of one percent, pulling back from all time highs.
Speaker 2: CBS came out with a note recently and they're looking
Speaker 2: form a move to twenty seven hundred by the middle
Speaker 2: of twenty twenty five, the middle of next year, and
Speaker 2: they give a long list of reasons for this move,
Speaker 2: the FED shift, central bank buying, portfolio hedges. What do
Speaker 2: you think the strongest tail winds behind this move actually are?
Speaker 3: So look, I think the goal the goal movement has
Speaker 3: been it's probably been one of the more interesting areas
Speaker 3: we've had. We've actually maintained a long term exposure to
Speaker 3: that gold in expectation. Then, as you said, the number
Speaker 3: of the factors all the play You've got the FED carts,
Speaker 3: You've got the Central Bank buying, You've got a lot
Speaker 3: of bit the risk, the risky environment at the moment
Speaker 3: as well playing in for us at the moment. I
Speaker 3: think the concerns around the slowdown, they're probably not going
Speaker 3: to go away. They're not going to be cleared up
Speaker 3: in the near term. So I think that upward movement
Speaker 3: for gold is probably here to stay a little bit longer.
Speaker 2: What do you think is should substitute in a portfolio
Speaker 2: at the moment? Are you thinking about that? Where it
Speaker 2: fits in? What are you telling people the gold? Yeah?
Speaker 3: Yeah, I mean I look, I think I think having
Speaker 3: that exposure to real asss is really important. Something around
Speaker 3: the inflation mitigation. To me, that is where gold also
Speaker 3: fits in. So I think it takes a lot of
Speaker 3: different boxes somewhere along, you know, having some kind of
Speaker 3: downward protection but also focusing on what happens if inflation
Speaker 3: does turn out to be sticky. I know we talk
Speaker 3: a lot about recession risk, but to ask, one of
Speaker 3: the key concerns that we're thinking about over the next
Speaker 3: two years or so is what if actually inflation does
Speaker 3: start to take off again once you've got a number
Speaker 3: of FED cards, and then that that becomes more of
Speaker 3: a wire. So I think having that real asset exposure, commodities,
Speaker 3: anything which is a bit of inflation mitigation, still deserves
Speaker 3: to be a core part of any portfolio.
Speaker 1: Just to put a line under that seam. Are you
Speaker 1: saying on the margins real asses should replace long duration bonds?
Speaker 3: I don't think that they should replace. I think that
Speaker 3: there is an area which they are taking a box
Speaker 3: for long duration bonds are important if you know you
Speaker 3: want to have that downward or su I should say
Speaker 3: that protection against downward economic risk. Gold is a slightly
Speaker 3: different element. But I do think that across equities, across
Speaker 3: the fixed income and the alternative space, that does need
Speaker 3: to be exposure across all three because you are ticking
Speaker 3: all your boxes in terms of the risk environment in
Speaker 3: front of us.
Speaker 2: Interesting same as shaff of principle as a management stinger,
Speaker 2: thank yous and slack of apollo shaking off the weakness
Speaker 2: and focusing on the strength. Daily and weekly data shows
Speaker 2: that retail sales are strong, jobless claims are falling, restaurant
Speaker 2: bookings are strong, and their travel is strong. The bottom
Speaker 2: line is that there are no signs of a recession
Speaker 2: in the incoming data. Torson joins us now for more so.
Speaker 2: I think, good morning to here.
Speaker 4: Sir, Monday morning.
Speaker 2: Let's start with these revisions that come in a few
Speaker 2: hours time, and I'll share the estimates that come from Goldman.
Speaker 2: And the range is this wide. Okay, it's anywhere from
Speaker 2: something like three hundred thousand, six hundred thousand or a million,
Speaker 2: anywhere from fifty to eighty five thousand per month. What
Speaker 2: do you make of these numbers?
Speaker 1: JP?
Speaker 2: Morgan three hundred and some think Goldman six hundred to
Speaker 2: a million revised a little bit later this morning.
Speaker 4: I think this is important for the economist, and this
Speaker 4: is important also for the fad, but it really is
Speaker 4: not important for markets. This is looking back in history
Speaker 4: and trying to figure out how much did employment grow,
Speaker 4: and if employment grew a little bit less, then yes,
Speaker 4: of course overall that does send a little bit different
Speaker 4: signal about where we are in the business cycle. But
Speaker 4: broadly speaking, I don't think this will get much weight
Speaker 4: in financial markets.
Speaker 2: What do you think is normal? What's the normal run
Speaker 2: right now for jobs growth? Is it the one fourteen
Speaker 2: of the previous month?
Speaker 4: Well, so, there was a very important paper by Tara
Speaker 4: Watson and Wendy Eelberg from brook Or the Institute that
Speaker 4: produced some estimates that says that we will probably have
Speaker 4: employment growth for the new term at around two hundred thousand,
Speaker 4: a little bit low. So if that's the case, because
Speaker 4: of immigration playing such a big role, we should also
Speaker 4: see a boost to non fun pay rules, but that's
Speaker 4: probably going to overtime fate, so we'll probably get down
Speaker 4: to the long run estimate, which we would to be
Speaker 4: around one hundred thousand.
Speaker 2: That's the question why we took last month so seriously.
Speaker 2: If you don't think we should take the revisions, that
Speaker 2: seriously well.
Speaker 4: But that's also why jobless claims for the last few
Speaker 4: weeks have been signaling that everything is just fine. If
Speaker 4: you also look at a broad range of other indicators,
Speaker 4: as we just ran through both with travel, with the
Speaker 4: restaurant bookings hotel bookings. Also look broadly speaking at how
Speaker 4: many companies going to default as Wiki data also for that.
Speaker 4: We also have a general picture that the economy is
Speaker 4: just not slowing down. This whole narrative as you just
Speaker 4: spoke about, we'll target Walmart, TJ Max, this whole narrative
Speaker 4: that we are slowing down is just not evident in
Speaker 4: the data. So that's why I think that we should
Speaker 4: in markets think about the outdoor for the FED.
Speaker 1: With that background, you've said in the past, over the
Speaker 1: past few months that you didn't think that any rate
Speaker 1: cuts were necessary. This comes at a time, at least
Speaker 1: not this year. This comes at a time we've got
Speaker 1: one hundred basis points of ray cuts being baked into
Speaker 1: the market. You're saying that it's likely most likely that
Speaker 1: the FED is going to go next month. What do
Speaker 1: you think the consequence will be of a FED that
Speaker 1: starts cutting next month at a time when you still
Speaker 1: sounds like don't think it's necessary.
Speaker 4: Well, that's why, as Neil Dadna was just saying, there
Speaker 4: is this whole concept that we are way way too restrictive.
Speaker 4: But that is only if you have our star or
Speaker 4: whether the FIT is going at a much lower level,
Speaker 4: maybe say two and a half or two point eight,
Speaker 4: as the long run Dot says, then it's true that
Speaker 4: we are restrictive, then you need to see the FED
Speaker 4: cutting rates quickly. But what if our star what where
Speaker 4: we're going is more close to four four and a half,
Speaker 4: then we're not in a hurry. So the main test
Speaker 4: of the answer to your question is what is the
Speaker 4: incoming data telling us the FED last height rates in
Speaker 4: July of twenty twenty three, and still now twelve thirteen
Speaker 4: months later, we're still waiting for the data to slow down,
Speaker 4: and it's not having in any meaningful way. So if
Speaker 4: Godeau didn't arrive, here were the last that really eighteen
Speaker 4: twenty four months, why should Godo arrive in August of
Speaker 4: twenty twenty four.
Speaker 1: Some people say Goodo is leaving his sort of remnants
Speaker 1: in different places and giving us a sense that maybe
Speaker 1: he's more present than we previously thought, and more pointing
Speaker 1: to potentially some of the retail sales or some of
Speaker 1: the negative readings into the non firm payrolls that we
Speaker 1: got a couple of weeks ago. At what point do
Speaker 1: you say we still do not need rate cuts, that
Speaker 1: you have conviction based on all the strength you were
Speaker 1: just talking about that Goodou is not around, Goodou is
Speaker 1: not coming, and actually this is a very different environmental
Speaker 1: environment for the economy.
Speaker 4: Well, I think we see that reflected in speeches by
Speaker 4: different Airform C members. Some Airfirm C members, including Niga Boeman,
Speaker 4: have been saying, well, hold on, I need more evidence
Speaker 4: that we should cut interest rates. Others are more convinced.
Speaker 4: So getting the committee together for JPAL and making sure
Speaker 4: that the committee is moving gradually in the direction of
Speaker 4: interest rates moving Loah, that does take some time. So
Speaker 4: I think they have agreed now that they will cut
Speaker 4: interest rates twenty five basis points in September. But after that,
Speaker 4: I think everything is open because the data it's not
Speaker 4: slowing down. And again the retailers reporting earnings directly, the
Speaker 4: Walmart CEO said, we're not seeing broad based slow down
Speaker 4: for the consumer. We need to take that seriously when
Speaker 4: that's seventy percent of GDP. So yes, I do understand
Speaker 4: that in markets, we quote unquote want the economies to
Speaker 4: slow down, and we're so hooked on the narrative from
Speaker 4: the FIT that interest rates need to normalize. But we
Speaker 4: have plenty of time for normalizing interest rates. So that's
Speaker 4: why let's get that rate cut here on the September
Speaker 4: the eighteenth, and that's what JAPO will see here at
Speaker 4: Jackson Hall. But after that, I still think that they
Speaker 4: are open to well, let's wait and see exactly how
Speaker 4: the data plays out.
Speaker 2: It's also it just seems to me and to most people,
Speaker 2: the focus has shifted to the other side of the
Speaker 2: jill mandate. There's a focus now on the labor market.
Speaker 2: And even if you're confident constructive about the future for
Speaker 2: risk mitigation, risk management purposes, you want to achieve interest
Speaker 2: rates a little bit from here. Maybe you go twenty
Speaker 2: five and you go twenty five again. But it's the
Speaker 2: other side of the mandate that has been completely neglected
Speaker 2: over the last two months. I would say inflation. You
Speaker 2: mentioned Governor Bowmen. Governor Bowman talked about upside risk to inflation,
Speaker 2: reiterating her concerns, went through a long list of things,
Speaker 2: increasing geopolitical tensions, additional fiscal stimulus, and increased demand for
Speaker 2: housing due to integration. Do you think we should be
Speaker 2: a little bit more focused on the thing We've been
Speaker 2: ignorant for the last couple of months.
Speaker 4: So let's be of course clear that inflation did peak
Speaker 4: at nine point one. Now we're two point nine, so
Speaker 4: we are a lot closer to their two percent target.
Speaker 4: But last time we look, two point nine is not two.
Speaker 4: So that's why I think she's highlighting, and several other
Speaker 4: INFORMC members are bringing up the same points and saying, well,
Speaker 4: let's wait a little bit and just make one hundred
Speaker 4: percent sure that we're still moving down towards two percent,
Speaker 4: because the risk is, of course, that if inflation does
Speaker 4: start to move either sideways or on the worst case,
Speaker 4: move higher, then they will need to go back and
Speaker 4: revise their strong just like they did in the beginning
Speaker 4: of the year they said we have three cuts. Now
Speaker 4: it was just one cut. So now the market is
Speaker 4: really getting ahead of its other imboso. During the Viks
Speaker 4: episode and the carry trade on wine from Japan, the
Speaker 4: market was prising up moday that the FED were cut
Speaker 4: six times. So that's why the roller coaster ride here.
Speaker 4: In terms of what the market is pricing, it's important
Speaker 4: to anchor your expectations around what's the incoming data actually showing.
Speaker 1: So we talked to you a couple of months ago.
Speaker 1: You were saying that you could see the strength of
Speaker 1: the market certainly continuing through the end of the year
Speaker 1: on the heels of data that continue to be more
Speaker 1: resilient and stronger than people expect, but that next year
Speaker 1: it could be a problem that you could see that
Speaker 1: fall off a cliff. Have you changed your view as
Speaker 1: you see a greater likelihood of a FED rate cut
Speaker 1: and the potential for maybe some of the pressure to
Speaker 1: be eased before.
Speaker 4: Next year, because I do think that the main reason
Speaker 4: why the economy is holding up so well at the
Speaker 4: moment is that there's a significant tailwind from broadly speaking,
Speaker 4: a higher stock market, tieder credit spreads and easy financial
Speaker 4: conditions across the board, supporting the economy in a very
Speaker 4: broad way. And because of that, that does mean that
Speaker 4: now we have had some correction in the Magnificent seven,
Speaker 4: now that stock markets are beginning to show some signs
Speaker 4: of wabbling a little bit more rallied of course here
Speaker 4: after the carricter right online. But if there is any
Speaker 4: reversal in the strong till wind from the stock market,
Speaker 4: then it would begin to have simplifications in particular for
Speaker 4: middle income and high income consumers, both those who own
Speaker 4: bas in p. Five hundred and own their home, but
Speaker 4: also those who own credit private credit included where the
Speaker 4: cash flows have been basically the best levels in decades.
Speaker 4: Anyone who owns FicT income are seeing cash flows on
Speaker 4: the consumer side that are very, very strong, and that
Speaker 4: continues to be a very important till wind to the
Speaker 4: economic outlook.
Speaker 2: Tostin, it's been far too long. Let's do this again soon.
Speaker 2: It's going to see a Torson slock there of apolloed
Speaker 2: here's the view from Ender's person over at New Vein.
Speaker 2: He writes the following, We expect the FED to cut
Speaker 2: by twenty five basis points at each meeting through mid
Speaker 2: twenty five. Larger cuts, including a fifty basis point move
Speaker 2: in September, are possible if incoming labor market data continues
Speaker 2: to deteriorate at the same pace as the July jobs report.
Speaker 2: And this joint is now for more. And it's good
Speaker 2: morning to you.
Speaker 5: Good morning.
Speaker 2: We talked a lot about the job's revisions. We get
Speaker 2: a little bit later this morning. Talston Slot came on
Speaker 2: the program from Apollo and basically cause poor threes in
Speaker 2: cold water all over the conversation, at least from I've
Speaker 2: been having all morning. I said, it won't matter to market.
Speaker 2: Do you think this is going to matter to markets
Speaker 2: at ten am.
Speaker 5: I'm actually more in tours this camp that I don't
Speaker 5: think it's going to matter a whole lot is that
Speaker 5: I think it's it's a backward looking number. Of course,
Speaker 5: it's a year today through March, so it's slightly outdated
Speaker 5: at this point. I think it's a number of economists
Speaker 5: will definitely digest and kind of take a harder look at.
Speaker 5: But from a market perspective, I think we're really more
Speaker 5: focused on what's happening here going forward, and obviously the
Speaker 5: most recent data was more interesting, and we're more focused
Speaker 5: on what's coming here going forward. So I would say
Speaker 5: historically this has not been a number has been all
Speaker 5: our market driven. I don't anticipate it to be today.
Speaker 2: Don't you think what we've been in films where we're going?
Speaker 2: And the reason I asked that question. If Goldman's right
Speaker 2: and we get revision low of anywhere between fifty to
Speaker 2: eighty five thousand jobs per month, wouldn't we have traded
Speaker 2: on that data a little bit differently over the last
Speaker 2: twelve months.
Speaker 1: Yeah?
Speaker 5: I mean I think today this year, given the job marks,
Speaker 5: this very much front and center in terms of focus
Speaker 5: and I think the markets shifted from an inflation focus
Speaker 5: to more of a job market is focused right now,
Speaker 5: So I do think this year, at this time around,
Speaker 5: it's more of a more interesting data point. But at
Speaker 5: the same time, I think the numbers, if you look
Speaker 5: from like three hundred thousand and two million, that the
Speaker 5: estimates are very very wide, So economists can't even kind
Speaker 5: of agree on what the numbers should be here. So yeah,
Speaker 5: it's a data point. I think we have to digest it.
Speaker 5: But you know, quite frankly, I think the mark is
Speaker 5: going to be looking more forward and to certainly the
Speaker 5: NFP number coming in September.
Speaker 1: Part of the problem is that we've talked about the
Speaker 1: importance of data dependency, and then person after person comes
Speaker 1: on and says, but does the data actually matter? And
Speaker 1: we're left scratching our heads with our wibside next and
Speaker 1: looking at all the data between Macy's and TJ max
Speaker 1: and TJ max and wondering what matters to anyone. You're
Speaker 1: talking about the idea of ten year yields being in
Speaker 1: fair value around four percent, Bob michael is talking about
Speaker 1: three percent, and you both don't see the economy falling
Speaker 1: off a Cliff, So why are you not in the
Speaker 1: three percent camp?
Speaker 5: Right? Well, I think Bob is referring to three percent
Speaker 5: some time out right, like I think you mentioned twelve
Speaker 5: to eighteen months out. I think that that's much more realistic.
Speaker 5: Right now. We're talking fair value around four percent as
Speaker 5: we're sitting here today. From our perspective, we think the
Speaker 5: tenure has run a little bit too quickly here. It
Speaker 5: is sort of a slower kind of top month. I
Speaker 5: think there's some investors out there probably using that as
Speaker 5: a cheap option versus equity sort of say so if
Speaker 5: we have a hearted landing, they can use that part
Speaker 5: of the market to kind of hedge their bet a bit.
Speaker 5: So we are expecting the tenure to start moving lower
Speaker 5: in twenty twenty five. We're not expecting as low as that,
Speaker 5: but you know, three and a quarter is possible by
Speaker 5: year in twenty twenty five. But that's a long timeout,
Speaker 5: and the volatility has been quite severe, so to say,
Speaker 5: to day, as we're sitting here, it feels like we've
Speaker 5: gone a little bit too far too quickly. So that's
Speaker 5: that four percent that we think is more closely to
Speaker 5: fair value.
Speaker 1: That said, if you truly believe that the FED was
Speaker 1: entering into a rate cutting cycle. And if you truly
Speaker 1: believe that the newtral rate wasn't that different than it
Speaker 1: has been historically, that really we just saw distortions from
Speaker 1: the pandemic. Why wouldn't je hoover up as much ten
Speaker 1: year bonds you possibly could right now ahead of twenty
Speaker 1: twenty five? Wait, why be cute about it?
Speaker 5: Well, I mean, I think the trend is lower for sure,
Speaker 5: So that that is, you know, the backdrop that we've
Speaker 5: been saying for some time their rates should start moving lower.
Speaker 5: I think the two year is going to be a
Speaker 5: lot more quicker to move, and we're expecting the two
Speaker 5: year to start moving lower, and you know we're expecting
Speaker 5: a flat yield curve by year end. We're actually seeing
Speaker 5: also an upward sloping yield curve going into next year,
Speaker 5: so you know, probably more comfort around the two year
Speaker 5: moving lower, and that's going to be more correlated to
Speaker 5: FED cuts as we move into next year the ten
Speaker 5: year again, yeah, I think the backdrop will be lower
Speaker 5: for next year. But moving pieces here is we've seen
Speaker 5: a lot of volatility. We have actually found more opportunity
Speaker 5: in the spread markets in general, and I felt more
Speaker 5: comfortable putting bets on that side, less so on the
Speaker 5: treasure market at this went around.
Speaker 2: You want credit spreads right now because they're certainly tightened
Speaker 2: to come in over the last week. What are you
Speaker 2: waiting for?
Speaker 5: Yeah, credit spreads we think are you know, probably fair
Speaker 5: value to a bit rich now. We have been waiting
Speaker 5: for spreads to start widening out as the economy starts slowing.
Speaker 5: It had a very quick move you know, two weeks
Speaker 5: ago or so on Uttle Bass points exactly, so very
Speaker 5: quick movement, came back very quickly at this point where
Speaker 5: you know, we're expecting that to start widening out a
Speaker 5: little bit, so high yelled around three twenty. We could
Speaker 5: see that going out to maybe three point fifty again,
Speaker 5: as you know, economies starts slowing down, and we're more
Speaker 5: focused on that.
Speaker 2: So you walk us through your process just a little bit,
Speaker 2: because I hear this a lot in stocks. We both
Speaker 2: hear this when it comes to stock markets. People come
Speaker 2: on the program and say they want to buy the dip.
Speaker 2: Then the dip happens and they keep running away because
Speaker 2: things get scary. You start to wander where the next
Speaker 2: five percent is coming from. And you start to worry
Speaker 2: that it's lower. The same thing happens with credit spread.
Speaker 2: You get a hundred basis points of widening, people start
Speaker 2: to freak out. There's another hundred basis point around the corner.
Speaker 2: How do you know when to buy? What's the process
Speaker 2: for you and the team?
Speaker 5: Yeah? No, I mean we debate that all the time.
Speaker 5: And I will say the credit widening we saw a
Speaker 5: couple of weeks ago was really quite tricky, given that
Speaker 5: you have the job stayed on Friday, you had the
Speaker 5: carrier trade unwined, and some of the geopolitical uncertainties going
Speaker 5: on all at the same time. So dissecting exactly what
Speaker 5: was driving what and how much was technical versus fundamental
Speaker 5: was quite tricky from that perspective. I think if it
Speaker 5: was job s date are driven only, we would have
Speaker 5: had more comfort stepping in and saying, listen, this looks
Speaker 5: cheap and this is an interesting opportunity we did step
Speaker 5: in for, you know, basically buying credit and bonds that
Speaker 5: we particularly like take advantage of that way. But you know, generally,
Speaker 5: I think it's it's an assessment that gets you know,
Speaker 5: quite convoluted. You have to basically take it in totality.
Speaker 5: So from that perspective, at times we've seen in the past,
Speaker 5: if you have a big, big move like we did
Speaker 5: two weeks ago, it can be more coming behind it,
Speaker 5: and that is the tricky part at this point. So
Speaker 5: we're trying to be dollar cost average, so to say
Speaker 5: a bit here with the assumption that we're going to
Speaker 5: see spreads moving a bit higher in the rest of
Speaker 5: the year.
Speaker 1: Just real quick. The six point two trillion dollars in
Speaker 1: money markets, which asset do you think will benefit the
Speaker 1: most if people start to move it out?
Speaker 5: Clearly I'm a bit biased here, but I do think
Speaker 5: fixed income is going to be the natural next step here,
Speaker 5: taxable fixed income and Muni's overall, I do think it's
Speaker 5: a pretty big step step for someone who is concerned
Speaker 5: about what their views are and economy and the markets
Speaker 5: to jump all the way into equity, so all the
Speaker 5: way into real estate or even private credit. So it
Speaker 5: does feel like the natural next step would be muni's
Speaker 5: and fixed income, and we're starting to see and hear
Speaker 5: that more and more, and quite frankly, I think a
Speaker 5: FED cut would probably be a nice psychological kind of
Speaker 5: step towards that, where it's reinforcing tosts. It's time to
Speaker 5: make a shift here and that's where we're anticipating.
Speaker 2: At least you're honest about where the bus comes from
Speaker 2: and us thank you, sir, good to see it and
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