Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast.
Speaker 1: My name is Mike Creagan. I'm a senior editor at
Speaker 1: Bloomberg and then well down to Park across Acid reporter
Speaker 1: with Bloomberg. And this week on the show, well, it
Speaker 1: was sort of a monumental week with two main items
Speaker 1: dominating headlines. On Wednesday, the Federal Reserve boosted interest rates
Speaker 1: by three quarters of a percentage point. But then on
Speaker 1: Thursday we learned that the economy actually shrank for a
Speaker 1: second consecutive quarter. We're not going to get into the
Speaker 1: big debate about whether this is or isn't technically a recession,
Speaker 1: or whether it's wise for the Fed to keep jacking
Speaker 1: up rates at a time like this, But what we
Speaker 1: do want to talk about is, well, what exactly should
Speaker 1: investors do in this strange environment we're in. Our guests
Speaker 1: are an investment advisor with a strong Wall Street pedigree,
Speaker 1: as well as one of our own reporters at Bloomberg
Speaker 1: who will help us get the temperature of the sentiment
Speaker 1: among investors out there. But Phil dona Uh. First off,
Speaker 1: speaking of temperature, you know, I like to tease you
Speaker 1: city slickers who live in Manhattan for your lack of
Speaker 1: major appliances. You know, you have to do your own dishes.
Speaker 1: We have to wash our clothes in our bathtubs. Yeah,
Speaker 1: no washer dryer. That's what I do. You just like
Speaker 1: get in the shower fully dressed. Basically you've got like
Speaker 1: your your shampoo, your conditioner, and some tide in there
Speaker 1: and said, and then you hang it up outside so
Speaker 1: you can dry, you know, outside your window. Fascinating. Fascinating.
Speaker 1: Although the other night it occurred to me that in
Speaker 1: the city you are missing out on one of the biggest,
Speaker 1: most annoying headaches of suburban life, especially this summer, is
Speaker 1: it's been so hot and dry. My lawn is just toast.
Speaker 1: It's just completely burnt out. And I'm not a big
Speaker 1: lawn guy. I don't have sprinklers like it used to me.
Speaker 1: I could just go out with the hose and you know,
Speaker 1: wet it down every couple of nights and be fine.
Speaker 1: Most of my neighbors have sprinklers, and I think they
Speaker 1: programmed them to turn on as I'm walking the train. Yeah,
Speaker 1: and then they get get me on the zoom camera.
Speaker 1: I'm pretty sure sure that's what's going on. But it's
Speaker 1: like it's like the dust bowl out there. And I
Speaker 1: gotta say, if you're a suburban dad, this is a
Speaker 1: big deal. This is like, I'm worried the other dads
Speaker 1: are gonna have an intervention with me soon about my lawn.
Speaker 1: I'm it's it's getting traumatic, so looking ugly. In other words,
Speaker 1: it is it is. It's so you you, Um, you've
Speaker 1: got one up on me with that. You can always
Speaker 1: if next time I teach you about um doing your
Speaker 1: laundry in the in the shower, you can get about
Speaker 1: the lawn. I will. But it also made me realize,
Speaker 1: I do think agriculture and this drought and this heat
Speaker 1: um is a big story. And I think we need
Speaker 1: to get a agg trader on the show. Um, maybe
Speaker 1: someone who trades. We were swayed beans lean hog lear
Speaker 1: Hoggs trader on because lean Hoggs are killing it this year.
Speaker 1: They're they're up. Yeah. So if any listeners have ideas,
Speaker 1: uh for some good hog traders for us, by all means,
Speaker 1: tweeted us in the normal places and we'll try to
Speaker 1: get one on. Yes, all recommendations welcome. That's a great idea, Mike,
Speaker 1: all right, My first I think finally ever your first yes, finally,
Speaker 1: but I do want to introduce our guests for this week.
Speaker 1: We have Emily Grafo, she's a Cross Acid reporter with
Speaker 1: us joining us this week. And we also have Mimi Duff.
Speaker 1: She's the managing director and Senior Client Advisor at gen Trust.
Speaker 1: So welcome to both of you. Thank you, thank you,
Speaker 1: And maybe I want to start with you. Maybe you
Speaker 1: can just tell us a little bit about you know,
Speaker 1: Mike mentioned your your Wall Street pedige, tell us a
Speaker 1: little bit about your background, and tell us a little
Speaker 1: bit about what gen Trust is. But but me me first,
Speaker 1: most importantly, how's your law on doing right? Mike? I'm
Speaker 1: now going to be on the lookout for you because
Speaker 1: I don't know where your your property is, but I've
Speaker 1: seen some folks that are in in dire need. Um.
Speaker 1: I'm just glad that my lawn people left about ten
Speaker 1: minutes before this podcast. That's the truth, because it was
Speaker 1: a little loud no law intervention for you. I'm worried.
Speaker 1: I know all the dads in my town are gonna
Speaker 1: show up at my house one night, you know, in
Speaker 1: crisis mode, like what are we going to do about this? Guys?
Speaker 1: But carry on lines point tell us about your background
Speaker 1: and about interruest. Yeah, so your listeners can't see me today,
Speaker 1: but I'm I look a lot younger than I am.
Speaker 1: I have my start on Wall Street in ninety three UM,
Speaker 1: after studying engineering. At that time, they were hiring a
Speaker 1: lot of math and quanti people to go to Wall Street.
Speaker 1: So I was lucky enough to land at Goldman and
Speaker 1: I spent my first eleven years their, first in research
Speaker 1: and then in bond trading, where I traded most types
Speaker 1: of interest rate fixed income products. I spent four years
Speaker 1: in London there and then I joined Barclays to run
Speaker 1: their interest rate swap trading desk. I was there for
Speaker 1: for many years, and then I was at Tutor, which
Speaker 1: is a global macro shop. Then I did a bit
Speaker 1: of consulting and then rejoined some former colleagues at gen Trust.
Speaker 1: So what is gen Trust. It was founded by my
Speaker 1: former colleague about ten years ago UM from Barclays and
Speaker 1: gen Trust is a multi family office r I A
Speaker 1: with the goal of providing sophisticated and importantly independent financial
Speaker 1: management for for wealthy families and small institutions. So the
Speaker 1: difference that we can provide our clients is that we
Speaker 1: bring an institutional approach. We have more than a hundred
Speaker 1: and fifty years of instant tutional trading experience at both
Speaker 1: the major Wall Street firms and hedge funds. And we
Speaker 1: also are transparent and accountable. So that's kind of ore
Speaker 1: the key point. And we managed three billion under management
Speaker 1: right now. Okay, Mimi. Obviously the big news this week
Speaker 1: was the FED. I'm hoping you can just lay out
Speaker 1: for our listeners what exactly we saw from Powell and
Speaker 1: then what you are expecting we see going forward. Yeah,
Speaker 1: so the FED is on the most aggressive rate path
Speaker 1: that we've seen in since easily. UM. Coming into the year,
Speaker 1: people were expecting three rate hikes or seventy five basis
Speaker 1: points for the whole year UM FED funds. We've already
Speaker 1: seen three significant rate heights, the last two seventy five clips.
Speaker 1: Those are that's three quarters of a percentage point each UM.
Speaker 1: And what we're dealing with is a very strong inflationary environment.
Speaker 1: I think most most listeners know that the groceries cost
Speaker 1: a lot more and the gas costs a lot more.
Speaker 1: And at the end of the day, the Federal Reserve,
Speaker 1: the US Federal Reserve has a dual mandate of maintaining
Speaker 1: maximum employment but also maintaining price stability, and their inflation
Speaker 1: goal is two percent. So cp I all items is
Speaker 1: running at nine point one percent UM for PC which
Speaker 1: is another key metric that they watch. And we we
Speaker 1: have that data print tomorrow. That's way you know. I
Speaker 1: think it was four point seven percent last month, but
Speaker 1: we'll we'll wait for tomorrow's data points. So inflation is
Speaker 1: is missing on the top side, so demonstrably that the
Speaker 1: FED is putting that front and foremost. And I would
Speaker 1: add also that it's not a US problem, right the
Speaker 1: Europeans are also dealing with very high inflation. European central
Speaker 1: Bank is a single mandate central bank inflation for instance. So, um,
Speaker 1: we're going through a lot out of supply constraints. Are
Speaker 1: are contributing to the problem. I don't think it's the
Speaker 1: single contribution there, But the FET is really putting this
Speaker 1: for first and foremost, and um, they're putting it first rightly.
Speaker 1: So and I think, you know, somebody asked Powell a
Speaker 1: question yesterday basically do you think it started too late?
Speaker 1: And he said he probably would have done things differently
Speaker 1: knowing what he knows. Now, Um, the you know, at
Speaker 1: the start of the year, we weren't looking at the
Speaker 1: Russia Ukraine situation. But he you know, he also added,
Speaker 1: would it have helped if he started three months earlier?
Speaker 1: Not clear. They're on the job right now. I think
Speaker 1: that markets recognize that. Yeah, maybe I wanted to lean
Speaker 1: into your background in the fixed income markets a little bit, um,
Speaker 1: because one thing that's called my attention is these break
Speaker 1: even rates UM, which for you know, the unfamiliar basically
Speaker 1: the bond market's best guests out where inflation will be
Speaker 1: over the next five or ten or or however many years.
Speaker 1: And if looking at them at least looking at five
Speaker 1: years especially UM, they've come down quite a bit um.
Speaker 1: And when you combine it with stuff like the University
Speaker 1: of Michigan uh sentiment and their question about inflation, and
Speaker 1: just you know, the price action we've seen in commodities
Speaker 1: in the last month or two UM, it does sort
Speaker 1: of all add up to the idea that maybe the
Speaker 1: fever has broken with inflation figures crossed, knock on wood,
Speaker 1: you know, and everything else. How are you thinking about that, especially,
Speaker 1: you know, viewing it through the lens of of a
Speaker 1: sort of a bond market expert, yeah, So I think
Speaker 1: your point is a good one, that the market at
Speaker 1: least is perceiving that longer term inflation is more under
Speaker 1: control and UM, just to put it in perspective, we
Speaker 1: were long something called TIPS, which is, you know, an
Speaker 1: inflationary bond UM early last year, throughout most of last year,
Speaker 1: ten year break evens got to three and we felt like, wow,
Speaker 1: that means the market is implying that the average inflation
Speaker 1: over the next ten years is going to be three percent,
Speaker 1: knowing that the Fed's mandate is two percent. So we
Speaker 1: felt like at that point the market had really woken
Speaker 1: up to the inflationary pressures. Since then, we've come way
Speaker 1: down UM to you know, lower two handles really and
Speaker 1: to your point, even the one year inflation break events
Speaker 1: show market decreases in expectations at least for UH for
Speaker 1: overall inflation. Now, these break evens, they're based off of
Speaker 1: TIPS pricing, which is an all items cp I. It
Speaker 1: does include all the volatile components of of UM, food
Speaker 1: and energy. And to your point that we are off
Speaker 1: the boil on some of the energy sectors, but food
Speaker 1: and inflation is still carrying on. So I guess on
Speaker 1: the margin, I would say that maybe even the market
Speaker 1: has almost too much confidence that everything's gonna come right
Speaker 1: back down into control in the next year. Having said that,
Speaker 1: we know that their recession risks are a little higher
Speaker 1: than any other day of the of your lifetime, let's say.
Speaker 1: And the truth is, tips don't trade so well in
Speaker 1: recessionary environments, so we don't have a strong opinion they're
Speaker 1: out of our benchmark. We had them in the portfolios
Speaker 1: for a long time, and we took them off when
Speaker 1: those tenure break events got to three percent. We felt
Speaker 1: like okay. But on the margin, I would say maybe
Speaker 1: the market perception of the Fed's ability to control inflation
Speaker 1: over the very near term one or two years is
Speaker 1: could be a little over optimistic, but there is this
Speaker 1: risk of RECESSI then out there and Emily, I want
Speaker 1: to bring you in. You and I obviously spent a
Speaker 1: lot of time talking to people like Mimi, talking to
Speaker 1: strategies and money managers, and I want to get a
Speaker 1: sense from you of the sense you're getting from them,
Speaker 1: of how how you know what they're seeing in in
Speaker 1: markets generally speaking, I mean certainly generally speaking, this has
Speaker 1: absolutely been a very tough year to navigate. But some
Speaker 1: of the portfolio managers that I speak with are now saying,
Speaker 1: you know, while we don't, we haven't hit a stock
Speaker 1: bottom yet. This is maybe a good time for investors
Speaker 1: with a longer term time horizon to start adding to
Speaker 1: some positions in names that have been beaten down so much,
Speaker 1: particularly in mega cat tech. And there's some other strategists
Speaker 1: who say maybe fixed income, now that yields are rising,
Speaker 1: there warming up to that sector just a little bit.
Speaker 1: But by and large, there's still uncertainty regarding what in
Speaker 1: economic recession would mean for risk assets. And if we
Speaker 1: get that recess shin, is it going to be a
Speaker 1: short lived one or is it going to be something
Speaker 1: more painful and longer. How about you, Mimi, what are
Speaker 1: what are you warming up to? I mean, it's been
Speaker 1: a year where everything's been down, stocks, bonds, credit, everything
Speaker 1: but oil obviously. Uh, when everything's down, it seems to
Speaker 1: me a trick environment to pick a bottom and anything
Speaker 1: is Is there any asset class or any sectors that
Speaker 1: are standing out to you as as the place to
Speaker 1: overweight these days? Maybe maybe you and I need to
Speaker 1: rename the podcast Mike to What Goes Down? That will
Speaker 1: be too confusing. Well, when everything's down, we see opportunity
Speaker 1: because we really, at our heart a bunch of you know,
Speaker 1: risk takers from Wall Street, although we're managing long term,
Speaker 1: long only money. So these entry points are so much
Speaker 1: better than less falls entry points for somebody with a
Speaker 1: tenure horizon, and um baskets of bonds can be bought
Speaker 1: for yields. You know, with the ten year yield just
Speaker 1: south of to seventy. Now, you know, you could probably
Speaker 1: buy a basket of diversified bonds closer to three seventy yield.
Speaker 1: That's a heck of a lot better than it was
Speaker 1: when spreads were so much tighter outright, Treasury base yields
Speaker 1: were so much lower last summer. On the equity side,
Speaker 1: these draw downs that we've seen, like we saw earlier
Speaker 1: this year, they're fairly common every three or four years, right,
Speaker 1: The bigger draw downs in the zip code of thirty
Speaker 1: or more percent, those typically come with the recession or
Speaker 1: something a bit more existential. Right, So we've squared up.
Speaker 1: We came into the year very um convicted towards higher rates.
Speaker 1: We didn't like equity valuations. We hated tech valuations because
Speaker 1: we felt like the higher both crowded positioning and higher
Speaker 1: rates really could a number on them. So uh, and
Speaker 1: long real assets overweight real assets, which we typically have
Speaker 1: some baseline percentage of real assets and everybody's portfolios, and
Speaker 1: we've really squared up to neutral across the board now. Um,
Speaker 1: in terms of pockets of really interesting stuff. Biotech got
Speaker 1: so cheap that more than of the names in the
Speaker 1: index were training they had more cash on their balance
Speaker 1: sheets than their market cap. So in terms of like
Speaker 1: cheap sectors, we really think that the biotech definitely fulfilled
Speaker 1: that that UM goal. Um, we've you know, we like
Speaker 1: some other thematic trades over a longer term, uh, like
Speaker 1: a clean energy theme. We really feel like, um, there
Speaker 1: was an energy transition going on, albeit slowly before the
Speaker 1: Russia Ukraine UM conflict, But of any thing, it's just
Speaker 1: accelerated the need for further clean energy and energy diversification.
Speaker 1: But overall, we love Entry now for putting money to
Speaker 1: work over a longer term horizon. Our job is so
Speaker 1: much easier to navigate these longer term themes. And speaking
Speaker 1: to your question about recessionary fears, yes, risk of recession
Speaker 1: is absolutely higher given that the FED is going through
Speaker 1: one of the most aggressive rate hike campaigns that we've
Speaker 1: seen in our lifetime. Having said that, you know, the
Speaker 1: labor markets coming from a super strong place, the balance
Speaker 1: sheets from households and corporates are are really short up,
Speaker 1: and so we do feel like if we get a recession,
Speaker 1: it doesn't have to necessarily be a deep one. Yeah.
Speaker 1: I'd love to unpack that idea about by O tech
Speaker 1: a little bit because it's kind of a fascinating sector,
Speaker 1: especially when you drill down to the smaller, sort of
Speaker 1: unproven experimental companies in this space. You know, I feel
Speaker 1: like you can wake up one day and and one
Speaker 1: of these random biotechs has a release out on on
Speaker 1: the phase whatever trial, and you know, the stock either
Speaker 1: goes up. So how you know is it a matter
Speaker 1: of just sort of buying them all or buying a
Speaker 1: big basket of them or there are certain names, um
Speaker 1: they stick out. You do you stick with this sort
Speaker 1: of tried and true leaders of the industry or just
Speaker 1: kind of play the lottery and buy them all at once. Yeah,
Speaker 1: So I'm glad you asked that question because I want
Speaker 1: to clear something up that we're not stock pickers um
Speaker 1: and most stock pickers don't outperform their indsease. So uh
Speaker 1: Steva has a great report on that if you want
Speaker 1: to see some interesting pie charts of like the narrow
Speaker 1: sliver of the folks that actually can outperform their in disease.
Speaker 1: So we really do believe in assets selection UM at
Speaker 1: a broad level, diversification UM, and and primarily we invest
Speaker 1: in e t s which for individual investors are so
Speaker 1: much more tax advantaged. So UM. Now I do want
Speaker 1: to add another feature to what's going on in the
Speaker 1: overall technology sector. Rates are so far off their highs, right,
Speaker 1: So ten year rates were up a three fifty. Now
Speaker 1: we're south to seventy and that's really been a global
Speaker 1: phenomenon to I want to I want to make that
Speaker 1: point as well. But more stable rates can help these
Speaker 1: kind of higher growth names stabilize as well. Right, like
Speaker 1: some of the stuff that we saw earlier in the
Speaker 1: year with some of the single name tex stocks down
Speaker 1: you know, ten to really from their peaks accelerating to
Speaker 1: the downside with the rate moves. I think that that
Speaker 1: chapter's kind of behind us right now, at least in
Speaker 1: the very near term. And then we me in the
Speaker 1: notes you had sent over before we started the podcast.
Speaker 1: I think you also said you like commodities, and I'm
Speaker 1: hoping you can tell us a little bit more about that. Yeah,
Speaker 1: so we like real assets and commodities in general and
Speaker 1: portfolios just because we think it provides a longer term
Speaker 1: inflation hedge. Again back to the thematic, were long term
Speaker 1: long only investors. UM. We did take off. We had
Speaker 1: overweights on coming into the year because we think that
Speaker 1: in addition to this Russia Ukraine crisis and addition to
Speaker 1: the some of the supply constraints that are going on,
Speaker 1: there's some other factors under the surface, UM shifts in
Speaker 1: labor supply, UM, that sort of thing that really are
Speaker 1: driving kind of a more longer term inflationary backdrop. So
Speaker 1: we had those on. Prices got to pretty crazy levels.
Speaker 1: We've taken overweights off. We're not prepared to go underweight
Speaker 1: here because some of these structural factors, like is the
Speaker 1: workforce going all the folks that left the workforce, are
Speaker 1: they coming back? I don't know. Like the market, the
Speaker 1: labor market is super super tight right now, and you'd
Speaker 1: think with payrolls with with UM employment cost index also
Speaker 1: has been continuing to rise. We'll see that data point tomorrow.
Speaker 1: But are these folks coming back? We have we need
Speaker 1: time defend needs time to I'll add right like the chair,
Speaker 1: Powell made it really clear that he's got eight weeks
Speaker 1: of data in between this meeting and the next meeting
Speaker 1: and he doesn't want to commit to anything. So that's
Speaker 1: on back to your actual question that you asked. We
Speaker 1: do think that real assets are an important part of
Speaker 1: long term portfolios. Having said that, we don't UM. We
Speaker 1: don't go and buy a bunch of front month oil
Speaker 1: for our clients. It's just not the business that in
Speaker 1: We're choosing some investments in agrabusiness, in precious metals, in UM,
Speaker 1: in the producers of energy. Uh, just a broader set
Speaker 1: of um of assets that frankly don't exhibit the volatility
Speaker 1: of say the G s c I, which is the
Speaker 1: primary index in the commodities, but is heavily driven to
Speaker 1: front month oil contracts and massive swings. So it's more
Speaker 1: of an appropriateness to hedge against longer term inflation MENI.
Speaker 1: On the commodities front, I know one of the commodities
Speaker 1: you like is uranium, and I'd love for you to
Speaker 1: talk a little bit more about why you like uranium
Speaker 1: and then how you're allocating to it. Is it through
Speaker 1: uranium linked equities or some of these vehicles out there
Speaker 1: that are a little bit more directly tied to the
Speaker 1: price of the commodity itself. Yea. So we're in a
Speaker 1: uranium E TA and UM and the idea behind that
Speaker 1: is it goes along the lines of the energy independence theme.
Speaker 1: Uranium is UM is an important in uh instrument in
Speaker 1: nuclear energy and UM. We also we sort of picked
Speaker 1: it up on the cheap, I'll tell you that, Like
Speaker 1: we've it's been in our portfolios for some time. But
Speaker 1: we like the clean energy and energy independence themes and
Speaker 1: that really ties in there. And in terms of how
Speaker 1: we're allocating, like we're just again going back to the
Speaker 1: idea of diversification. We don't really bet the farm on
Speaker 1: any one thing. It's just not the business we're in.
Speaker 1: So what we will try to do is express a
Speaker 1: theme through several different ways. And like for instance, in
Speaker 1: the higher rates theme, we were long regional banks as
Speaker 1: one of the as one of the ways to express
Speaker 1: that theme. And while if you look at a chart
Speaker 1: of reasonal banks doesn't look also grand, it actually has
Speaker 1: been outperforming some of the broader in disease. So it's
Speaker 1: done less poorly, if you will. So what we try
Speaker 1: to try to pick up a theme in several ways.
Speaker 1: Yeah wait, So so you're telling me you're not willing
Speaker 1: to take except physical delivery of uranium, that that would
Speaker 1: really be bad for your law And I think I
Speaker 1: was going to suggest we dropped some off for you, Mike, Well,
Speaker 1: thank you, a little thank you. Note. Well, I, you know,
Speaker 1: energy is such an important theme this year, and energy independence. Um,
Speaker 1: I guess part of the thesis there's that maybe countries
Speaker 1: like Germany will will restart those those power plants that
Speaker 1: they shut down years ago, and maybe other countries as
Speaker 1: will too. But I can't help thinking there's sort of
Speaker 1: this race against the clock right now in Europe. Um
Speaker 1: as far as uh you know, winner is approaching, uh,
Speaker 1: you know, very quickly. Vladimir Putin basically can turn the
Speaker 1: spec ITTs on and off with the natural gas. How
Speaker 1: big of a risk, um is an intensifying energy crunch
Speaker 1: in Europe? Do you think to to not just Europe,
Speaker 1: to our own economy, in the US and really the
Speaker 1: entire world. It's a big risk. It's a big risk.
Speaker 1: I mean, we've just seen what a hot summer looks like.
Speaker 1: What if we see what a really cold winter looks like? Um?
Speaker 1: And uh, the Europeans reliance on natural gas is massive
Speaker 1: and putin is unpredictable, so UM, I know, I think
Speaker 1: that's a it is a bit of a race against time.
Speaker 1: But there's the short term, near term pressures, and then
Speaker 1: I think that there's the longer term um thesis as well,
Speaker 1: with summers continuing to get hotter and natural disasters, you know,
Speaker 1: popping up more and more often forest fires. So I
Speaker 1: think I think we have both a short term and
Speaker 1: a longer term dynamic at play here, and I think
Speaker 1: the risk is real that we're not So that's what
Speaker 1: I'm saying, We're not ready to call call it done.
Speaker 1: On the inflation theme, I do think that at some
Speaker 1: point we're gonna look, I mean, at some point we're
Speaker 1: going to come off these peak levels because base effects
Speaker 1: come in. Right. If we're just holding these very high
Speaker 1: prices or just going up a little bit and not
Speaker 1: nine percent a year, it's gonna look like we're coming down.
Speaker 1: But under the surface, I think that we've had a
Speaker 1: lot of inflationary pressures uncovered here, both on the energy
Speaker 1: side the labor side. Um oh, kind of aggrab business.
Speaker 1: I mean, the food prices is really hitting everybody in
Speaker 1: the wallet. I mean, we just to take us back
Speaker 1: to what we heard from Powell this week. One of
Speaker 1: the big things was that he reiterated that they were
Speaker 1: going to be data depends endant. And I want to
Speaker 1: ask you if data dependence means that they back away
Speaker 1: once the data actually starts to get ugly, and how
Speaker 1: much weakness in the economy you think that the FED
Speaker 1: is willing to tolerate. Yeah, those are great questions. I mean, uh,
Speaker 1: they will be data dependent. I think the mistake of
Speaker 1: the seventies is that the FED kept backing off two
Speaker 1: aggressively backing off, and then had to restart the hike cycle,
Speaker 1: back off, restart the hike cycle, and then finally they
Speaker 1: hiked and really through the economy into a recession. I
Speaker 1: don't think that's going to happen this time. I think
Speaker 1: that they've learned from that cycle. I think they're happy
Speaker 1: to do more earlier and then wait, Uh, FED policy
Speaker 1: takes about six months to filter through, so they think
Speaker 1: at least and I think too, I'll share that opinion
Speaker 1: that they've got three tools at their disposal. They've got communications,
Speaker 1: which they were heavy communicators very early on in the year.
Speaker 1: They've got the interest rate, the front end interest rate tool,
Speaker 1: which they've been using handily. And they've got the balance
Speaker 1: sheet which is now you know, north of eight trillion
Speaker 1: dollars and they're starting to roll that balance sheet off
Speaker 1: and that pace will go up to a pretty significant
Speaker 1: pace of ninety billion securities a month starting in September.
Speaker 1: So those are their three tools, and we have to
Speaker 1: just if you just believe in the thesis that it
Speaker 1: takes about six months to filter through, some of these
Speaker 1: things can go through straight away. If you raise rates
Speaker 1: immediately there go to mortgage rates up, they go um.
Speaker 1: But I do think that coming from such a tight
Speaker 1: labor market, they're gonna they're gonna be willing to tolerate
Speaker 1: some pain on the recessionary type, you know, slower growth.
Speaker 1: Another point that I want to add for those listeners
Speaker 1: that aren't looking at GDP every day of their life.
Speaker 1: Howell made the point it's very very heavily revised. It's
Speaker 1: really heavily revised, and so by the time you get
Speaker 1: a clear picture on what the economy was six months ago.
Speaker 1: It's backward looking, so you know, he wants to take
Speaker 1: that with a grain of salt. I would take it
Speaker 1: with a grain of salt as well. And in the
Speaker 1: past when we've had some serious revisions, UM, the FED
Speaker 1: has acted because they realized, oh wait a second, the
Speaker 1: economy actually wasn't coming from that level, it was coming
Speaker 1: from this other level. Um. So there's there's that too,
Speaker 1: But I think they're going to be willing to tolerate
Speaker 1: some pain on the on the low growth side. Another thing, sorry,
Speaker 1: just to keep adding, but GDP is reported in real
Speaker 1: terms net of inflation, so not that many economic data
Speaker 1: points are expressed in real terms, like when you go
Speaker 1: to work and you get a raise because he did
Speaker 1: a great job nobody sent you. But in real terms
Speaker 1: you're actually down. But GDP is in fact, uh measured
Speaker 1: and reported after inflation. So keep in mind minus one
Speaker 1: UM GDP uh print is you know, pretty steamy in
Speaker 1: nominal terms right now with inflation where it's at. Mimi,
Speaker 1: I wanted to ask you about how you've been managing
Speaker 1: just the change in FED the FEDS tightening cycle. You
Speaker 1: had mentioned it a little bit earlier, Um, in the
Speaker 1: podcast that when we started the year, we were looking
Speaker 1: at maybe three rate hikes of twenty five basis points
Speaker 1: and now we're well north of that. So what has
Speaker 1: it been like? Um at jan Trust just managing how
Speaker 1: quickly everything has changed. Yeah, So we were, uh, we
Speaker 1: were in the camp that this market has it all
Speaker 1: wrong back in December. And I was actually on Bloomberg
Speaker 1: News being interviewed by your colleagues in December and they're like,
Speaker 1: how many rate hikes do you think? And I thought
Speaker 1: to myself, you know, I kind of think seven, but
Speaker 1: I don't know if I should say that. So I
Speaker 1: was like five, I don't know five, and they're like
Speaker 1: five and I was like, well not three. My colleagues
Speaker 1: afterwards like, well, okay. Now this was before all the
Speaker 1: Russia um Ukraine crisis had come out, So I mean
Speaker 1: the way that the economy has evolved and the inflationary
Speaker 1: pressures have like basically Russia Ukraine just pushed back. It
Speaker 1: made worse anything that was going to get back to
Speaker 1: normal on on its own. So um And at the
Speaker 1: at the time also I was thinking that, and then
Speaker 1: I was staying at too. But the podcast to stop
Speaker 1: easing first Remember they were buying a lot of securities
Speaker 1: every month fall, and I'm like, why are they still easing.
Speaker 1: That's their view of easing the same way that their
Speaker 1: view of letting these securities roll off, the portfolio will
Speaker 1: be tightening. So they've started that in baby steps this summer,
Speaker 1: this fall, starting in September, it's going to be a
Speaker 1: more forceful letting those securities roll off. The actual impact
Speaker 1: is then natural buyers like you and me, or economic
Speaker 1: buyers will say, oh do I think that's a decent
Speaker 1: yield to buy a new tenure? Because before the fet
Speaker 1: was like oh it's it's eleven am, time to buy
Speaker 1: another five billion. There was no economic thought behind it.
Speaker 1: So how we were navigating it. We came into the
Speaker 1: year underweight fixed income, underweight equities, no tech long rates,
Speaker 1: uh sorry, long real assets. We saw the big rate
Speaker 1: backup at two and a half percent ten years. We thought,
Speaker 1: you know, um, at this point we can start buying
Speaker 1: some some more fixed income and the front end of
Speaker 1: the curve really repriced very heavily, two year notes and
Speaker 1: around there. I mean, at one point the peak Fed
Speaker 1: funds rate was closer to four percent. We're not there now,
Speaker 1: but there was quite a lot christ in so we
Speaker 1: sort of took some baby steps and covered the underweight
Speaker 1: and bought very front end securities around the one year
Speaker 1: and two year parts of the curve. And since then
Speaker 1: we've actually closed out the underweight, and so we were
Speaker 1: both short duration, meaning we were owning less risky or
Speaker 1: or less yield sensitive bonds, but also had cash on
Speaker 1: the books. So we've closed all that out. And you know,
Speaker 1: it's hard to say that there's so much value at
Speaker 1: these yield levels, especially in ten years. I think it's
Speaker 1: uh it becomes a real conundrum for people don't know
Speaker 1: what to do with ten years at to seventy when
Speaker 1: the Fed's supposed to hike so much higher than that.
Speaker 1: Um My own take is one treasuries are owned by
Speaker 1: overseas buyers and they're looking at what's on the menu,
Speaker 1: and on the menu on their menu is German buns
Speaker 1: and Japanese tenures and uh so in that regard, there's
Speaker 1: this a big international component too, and if you look
Speaker 1: at German yields for instance, they've rallied a whole lot
Speaker 1: off the highs as well. Um So that's how we've
Speaker 1: navigated that, and we're like I said, neutral, if we
Speaker 1: were to um, if we were to back up, if
Speaker 1: the FED has a more persistent campaign, because right now,
Speaker 1: I think people perceive that the FED will slow their
Speaker 1: hiking and then you know, stop their hiking by say
Speaker 1: early next year. But if they have a more persistent
Speaker 1: campaign and we think that over the longer term they
Speaker 1: will be more successful in controlling inflation, then I think
Speaker 1: bonds will be a great buye UM back in I'm
Speaker 1: aging myself a little, but not too much. But back
Speaker 1: in two thousand and six, I think there was a point,
Speaker 1: there was a day in the markets where the entire
Speaker 1: curve was flat as a pancake, and I think that
Speaker 1: all the yields were at five seventeen five point one
Speaker 1: in two spives, tens and bonds, and I think, you know,
Speaker 1: if we were to see I don't think we'll see
Speaker 1: those type yields again because there are so many buyers,
Speaker 1: pension funds and long dated UH liability type companies like
Speaker 1: insurers and the like that would have so much interest
Speaker 1: way below those levels right now, And those actors were
Speaker 1: just getting started in terms of UM, in terms of
Speaker 1: immunizing some of their risks at that time, and the
Speaker 1: cats out of the bag right now. So I don't
Speaker 1: think we'll get that high. But as as rates back up,
Speaker 1: I think it presents an opportunity for longer term UM
Speaker 1: buyers to to really have I don't know better feelings
Speaker 1: about buying bonds, because nobody had good feelings about buying tenure.
Speaker 1: Not it's at that one percent or anything near that,
Speaker 1: it sounds like a bad idea, maybe. I that was
Speaker 1: an excellent point you made about how GDP is reported
Speaker 1: in real terms rather than nominal terms. I think a
Speaker 1: lot of people don't realize that it doesn't get as
Speaker 1: much focus as it should. If I was Joe Biden,
Speaker 1: I think I'd be tweeting out GDP and in purely
Speaker 1: nominal terms, and and you know, get a lot of
Speaker 1: the heat off of his fact. But one thing we
Speaker 1: talked about incessantly here almost every day is the earnings
Speaker 1: growth of companies in the SMP five, which obviously is
Speaker 1: reported in nominal terms. And you know, say we get
Speaker 1: eight nine earnings growth this year, well that's almost nothing
Speaker 1: and maybe negative depending on whatever the latest inflation figure
Speaker 1: is when you look at it in real terms. Do
Speaker 1: you think that explains the valuation compression that we've seen
Speaker 1: this year, and does it set us up for sort
Speaker 1: of if we do get a sort of reversion back
Speaker 1: to normal inflation levels? Um, does it set us up
Speaker 1: to go right back to those valuations we saw before
Speaker 1: everything went haywire? Or do you think that is? Those
Speaker 1: days are gone? Those days of you know and the
Speaker 1: SMP are are are for the history books. I never
Speaker 1: want to say never, but I do think that after
Speaker 1: these things happen, people learn and they behave differently over
Speaker 1: some period of time. And if we were, for instance,
Speaker 1: to uh, if we had the FED in a situation
Speaker 1: where inflation is controlled, where's the base rate? Right? Like
Speaker 1: Powell yesterday said, he thinks now the base rates at
Speaker 1: normal or sorry neutral? To you know that that's neutral?
Speaker 1: People think for the most part that's between two and
Speaker 1: two and a half percent, although I heard one fair
Speaker 1: Fed person say it was closer to three I think
Speaker 1: last week or the week before, and I thought, oh, geez,
Speaker 1: are they're going to redefine neutral? Okay? Um? So taking
Speaker 1: to your point though, like okay, FED hikes a bunch
Speaker 1: they get the inflation under control, it's still not going
Speaker 1: to give the boost to those um, those kind of
Speaker 1: crazy tech companies that they had when rates were so low,
Speaker 1: So the valuations were really benefiting from that. Um. So,
Speaker 1: I don't know. I'm not in the camp that we're
Speaker 1: going to go straight right back to those valuations. I
Speaker 1: don't think so. I think the cats out of the bag.
Speaker 1: Speaking of cats out of the bag, did you keep
Speaker 1: your cat in the bag? Never? Oh my gosh, wouldn't
Speaker 1: up torture? I don't know you. No, my cat can.
Speaker 1: She can roam around anywhere. She treat her like a princess.
Speaker 1: So you constantly let the cat out of the bag
Speaker 1: all the time. Yes, Yeah, Well I'm gonna let some
Speaker 1: crazy things out of the bag. I think it's that
Speaker 1: time to let the crazy things out of the bag.
Speaker 1: I hope our guests came prepared with some crazy things. Uh,
Speaker 1: but we do. You go first, what's your crazy thing
Speaker 1: of the week. I initially was going to go with
Speaker 1: some story about how mushroom leather is supposed to upend
Speaker 1: the leather industry, which apparently is a seventy eight billion
Speaker 1: dollars I thought you might like that story. So us
Speaker 1: mushroom leather. Yes, yes, it's made out of mushrooms. Mushrooms. Yeah,
Speaker 1: apparently it's it's a pretty good fake, but I'm going
Speaker 1: with something else instead. There's a skeleton of a Gorgasaurus.
Speaker 1: I hope I'm saying that right. It's a relative of
Speaker 1: the t X, and it's going up for auction. It's
Speaker 1: smaller than a t REX would be, but it's much faster,
Speaker 1: and this skeleton is ten ft tall and twenty two
Speaker 1: ft long. So maybe it's perfect for your dry yard.
Speaker 1: I'm not sure, but I'm wondering how much you think
Speaker 1: it's supposed to fetch at auction. Eighteen million US dollars.
Speaker 1: Maybe Emily can correct you a little bit, three million
Speaker 1: US dollars, Mimi, Oh, I think eight million or something
Speaker 1: five to eight million. I'm gonna I'm going to acknowledge
Speaker 1: that I was cheating. No, no, I heard it. I'm
Speaker 1: eating about that at five in the morning, So I
Speaker 1: earned that's not cheating. That's preparation. Then, yeah, luck favors
Speaker 1: the prepared. Okay, that's not what Matt David says. But
Speaker 1: I couldn't believe that that thing was found at a
Speaker 1: private person's home in Montana in two thousand eight. It
Speaker 1: was excavated in two in there, Okay, in there, I
Speaker 1: thought you met in their home. Like talking about a
Speaker 1: skeleton in the ground. I did a little bit more
Speaker 1: research because I thought I had no idea you could
Speaker 1: buy a dinosaur skeleton. There's a lot of that stuff
Speaker 1: actually that they're going to be auctioning off. I think
Speaker 1: it's Southby's auction house. But um, it's wild and a
Speaker 1: lot of it has been excavated in Montana, Wyoming and um, Colorado.
Speaker 1: So if you have a spare five to eight mil,
Speaker 1: there's a lot to look at in a nice dry
Speaker 1: yard to display it. Maybe it's not kidding when she
Speaker 1: talks about real assets, she's really uh on the curve
Speaker 1: there on that I'm putting my money, but we can't
Speaker 1: recommend that and actual portfolios. But I did find it
Speaker 1: fascinating and and and that is crazy, all right. I'd
Speaker 1: still like the mushroom leather. That's a good one, but
Speaker 1: maybe tough tough competition this week, What's what's your craziest
Speaker 1: thing that is like so crazy? I'm now at a
Speaker 1: loss for words. Um did come a little prepared, but
Speaker 1: I thought it was a longer term horizon at the
Speaker 1: crazy things that were And I came up with like
Speaker 1: twenty and so easily. All right, we'll have to bring
Speaker 1: you back then maybe we'll do it all special crazy things.
Speaker 1: I mean, they were all finance features because I feel
Speaker 1: like the timeline for crazy is like accelerated massively over
Speaker 1: over the past year. Yeah, so I'll just I'll be
Speaker 1: quick because I want to hear your crazies. But um one,
Speaker 1: I think it's a little crazy that the current FED
Speaker 1: path is like a hurry up and hike and then
Speaker 1: hurry up and ease, Like I just don't think that's
Speaker 1: not consistent with what I've seen out of these guys
Speaker 1: for my lifetime. Uh, nor do I think it would
Speaker 1: be the right thing to do. The crypto landscape, I
Speaker 1: think is crazy, just like the fact that everybody came
Speaker 1: in with this long held narrative that this stuff was
Speaker 1: going to be inflation protection and it's gone the opposite way.
Speaker 1: And I think that, um, the you know, so many
Speaker 1: bankruptcies and how quickly things could go to zero definitely
Speaker 1: has highlighted the need for regulation in the space. And
Speaker 1: the mother of all crazy for me was when the
Speaker 1: Nickel was going haywire that the Elmy actually broke those trades.
Speaker 1: I was like floored as a as a vond trader
Speaker 1: at heart, and I've seen other crazy situations where the
Speaker 1: trades were held, so that was crazy for me. But
Speaker 1: I can't beat the dinosaur. I'm happy to the billion
Speaker 1: dollar lottery. That's pretty that's pretty crazy, meem it's good
Speaker 1: at this. We'll have to she's gotta we gotta bring
Speaker 1: her back for more crazy things. But now, Emily, the
Speaker 1: pressure is on you to top any of this. Okay, well,
Speaker 1: I have so you guys like sitting pool side of course,
Speaker 1: right of course. So I still an article in the
Speaker 1: Wall Street Journal that at the Bellaggio Resort in Las Vegas,
Speaker 1: if you want to sit in a pool side lounge chair,
Speaker 1: you now have to pay for it. So I'm wondering,
Speaker 1: Bill Donna, how much do you think you have to
Speaker 1: pay as a hotel guest to sit in a chair
Speaker 1: and it includes a side table and umbrella and towels
Speaker 1: in this fee fifty dollars a day? Okay, Mike, I'll
Speaker 1: go on a day. Mami, what do you think? I
Speaker 1: don't know, because I think like nine inflation, I'm going
Speaker 1: higher because it's the Bellagio. I'll say one a day.
Speaker 1: You guys were all too low. It's two hundred dollars,
Speaker 1: so MENI was closest. But and this is on This
Speaker 1: is for the Friday of Labor Day weekend, so I'm
Speaker 1: not sure if it's every single day, but definitely do
Speaker 1: not go to that pool on the Friday of Labor
Speaker 1: Day weekend. All right, maybe you're you're two for two
Speaker 1: on the price is right here. I gotta say you, guys,
Speaker 1: I'm the game show host here. Okay. I don't know
Speaker 1: why everyone thinks they get to be the prices right
Speaker 1: game show host? That's my role, but I'll allow it.
Speaker 1: And I got a good one for you, uh vill
Speaker 1: Donna as a proud native of New Jersey. When I
Speaker 1: say the boss, who who do you think I'm talking about? Bruce? Okay,
Speaker 1: good good. I thought you were gonna say, like and
Speaker 1: crown and your boss or something setting you up to
Speaker 1: fail there. But to me, it's crazy and I'm a
Speaker 1: I'm a Bruce fan. Back from MENI I think you
Speaker 1: and I did you cred Way College and ninety three?
Speaker 1: Is that the class ninety three? What's up? Me too?
Speaker 1: Just just not not too long ago. We're recent grads,
Speaker 1: so I go back to Bruce yesterday. I go back Bruce.
Speaker 1: Bruce stantson in the dark days. My my first Bruce
Speaker 1: show was in like eight seven, and I remember people
Speaker 1: back then talking about, Oh, it's so hard to get
Speaker 1: a ticket, how outrageous the ticket costs are. But it's
Speaker 1: really gone off the rails this year with ticket masters
Speaker 1: dynamic pricing UH strategy. It's basically ticket Master has turned.
Speaker 1: It's kind of like the stock market, you know. There
Speaker 1: there they are upping the face value of the tickets
Speaker 1: depending on demand for the tickets, and the Bruce fans
Speaker 1: are outraged. I've never seen such loyal, die hard, passionate
Speaker 1: fans turn on Bruce like this. It's it's really it's
Speaker 1: it's quite something. Everyone's outraged about how high these ticket
Speaker 1: prices are because of this new ticket Master's system. So
Speaker 1: I looked up the ticket prices for the Tampa show.
Speaker 1: That's the first show of the tour in the US
Speaker 1: at least February one. And I know Valdonna has read
Speaker 1: every news story published in the last week. So I'm
Speaker 1: not gonna ask you what the highest price ticket is,
Speaker 1: but what do you think the lowest price ticket is
Speaker 1: for Bruce and Tampa, February one, first tour stop. Lowest
Speaker 1: price ticket for fifty for fifty Mimi wow, um three
Speaker 1: three family, how about you? I'm gonna go higher seven hundred.
Speaker 1: I if I hadn't looked, I would have gone on
Speaker 1: the high end to I do. The lowest price ticket
Speaker 1: in an arena like this is like you get a
Speaker 1: good you know, I view a Bruce's back of Bruce's head,
Speaker 1: and you know probably probably don't even get to see
Speaker 1: the drums or anything. To one in fourteen bucks for
Speaker 1: the lowest price Tampa ticket. So I'm like, what are
Speaker 1: you all these complaining about Bucks? Is not bad to
Speaker 1: see the Boss. I'm sorry, but guess who's three for three?
Speaker 1: We got to get you. We got to get you
Speaker 1: on prices right. Sometimes me stump the chump. I think
Speaker 1: that three D bucks. I'd rather just like sit in
Speaker 1: my house and listen to the Come on, have you
Speaker 1: ever been to Have you ever seen the Boss? Yeah?
Speaker 1: I like, I like, but I don't want to like sit.
Speaker 1: You know where those tickets are there behind the state
Speaker 1: They are terrible. Behind the stage. You can't see the Boss.
Speaker 1: They're pretty bad. Back of a screen. That's true, you
Speaker 1: with all your peeps. There you go, Mike, you're with
Speaker 1: your peeks for that, you get the tailgate and everything.
Speaker 1: I would pay two hundred bucks to look at the
Speaker 1: back of Bruce's head for sure. I'm up paying that.
Speaker 1: Did you look at how much like the highest ones
Speaker 1: were or the median? Because this was news to me.
Speaker 1: I didn't read that five am that ticket Master is
Speaker 1: doing all that jazz, and I'm kind of with the
Speaker 1: Bruce fans, I'm kind of saddened by it. It's it's yeah,
Speaker 1: dynamic pricing they call it, where you know, they have
Speaker 1: some algorithm and the algorithms rule our our life now
Speaker 1: apparently even when it comes to trying to see the boss.
Speaker 1: But depending on how many people are logging in and
Speaker 1: signed up for the pre sale, and yeah, all their
Speaker 1: data employees inputs, they they jack up the prices or
Speaker 1: lower than to try to sell it out. And uh yeah,
Speaker 1: the goal is that the artist and ticketmaster makes the
Speaker 1: money rather than a bunch of scalpers um because the
Speaker 1: guy hasn't towards in like seven six seven years, so
Speaker 1: of course the tickets are gonna be hard to get.
Speaker 1: They're gonna be you know, you're gonna have to pay
Speaker 1: through the nose them the highest ones. I think they're
Speaker 1: like five six thousand for for floor seats right in
Speaker 1: front of the of the stage. So I would not
Speaker 1: be I would not be paying that, uh, but to
Speaker 1: tight to go see the pot. See that makes the
Speaker 1: two high? Do? It looks so cheap? That's right, right,
Speaker 1: exactly exactly. But the other thing is, you know he's
Speaker 1: gonna add like ten twenty dates in the summer at stadiums,
Speaker 1: big hundred thousand seeds stadiums. So there, you know, I
Speaker 1: don't know. I think it's a much to do about nothing.
Speaker 1: Everyone should get off. The Boss is back, That's what
Speaker 1: I'm saying right now, you mami, I think Memi's outraged
Speaker 1: though True Value Investors is not going to pay two
Speaker 1: to see the Boss. But with that said, good stuff.
Speaker 1: I think maybe it's time for you to uh take
Speaker 1: a sabbatical from work and go on the prices right
Speaker 1: uh and win a new car that was really good. Well,
Speaker 1: I'm running down to get some lottery tickets. Yeah, that's so.
Speaker 1: I know you don't like one billion uh for the
Speaker 1: pay out of it? What is it the mega millions? One?
Speaker 1: That's that high. We thought me, someone should start a
Speaker 1: mutual fund that just buys lottery tickets, like in every state,
Speaker 1: every everyone. What do you think do you think we
Speaker 1: could get that off the ground. Yeah, maybe like an
Speaker 1: e t F to make it a bit more tax efficient.
Speaker 1: I'm gonna work on that, like like only it should
Speaker 1: be only the big ones right where you actually have
Speaker 1: an increased odd Yeah. I like this idea, you know.
Speaker 1: Or you can tell a micro cap scratch off strategy too.
Speaker 1: You can have a few of them, you know, work
Speaker 1: on that. That's a free idea. Yeah, free idea for
Speaker 1: you there, new business line, free idea with that, said
Speaker 1: me me, very impressive. I don't think I've ever seen prices, right,
Speaker 1: contestant on the show do this well? Uh, you know,
Speaker 1: we'll try to stop calling it prices writer, we'll get sued,
Speaker 1: but we'll take to something else. But very impressive. Your
Speaker 1: clients are gonna be very rest I think you went
Speaker 1: three for three on the Crazy Things this week. We
Speaker 1: can call it prices correct prices, Yes, totally different, totally different.
Speaker 1: The lawsuit there, good, all right, but I think that
Speaker 1: is all our time. Maybe great stuff. Really appreciate your
Speaker 1: insights Emily. Great to catch up with you as well,
Speaker 1: and I hope we can have you guys back sometime.
Speaker 1: Thank you so much, Thank you both. What Goes Up.
Speaker 1: We'll be back next week and so then you can
Speaker 1: find us on the Bloomberg Terminal website and app or
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Speaker 1: Apple Podcasts, so more listeners can find us. And you
Speaker 1: can find us on Twitter follow me at Rea Anonymous. Well,
Speaker 1: Donna Hirich is at bil Donna Hirach. You can also
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Speaker 1: by Stacy Wang. Thanks for listening, See you next time.