Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Let's get more on markets now. I'm so pleased to
Speaker 2: say that. I'm joined by the black Rocks CIO of
Speaker 2: Global Fixed Income, Rick Reader.
Speaker 3: Rick.
Speaker 2: Great to see you, I know, freshly back from Davos.
Speaker 2: Hopefully the gent lag hasn't got yet. What was your
Speaker 2: take on this? On this job's figure one hundred and fifteen,
Speaker 2: finally we got back to back games for this jobs market.
Speaker 1: Yeah, I mean there's some good things going on.
Speaker 4: I mean it's healthy to see you know, that sort
Speaker 4: of poweritative game. And you say back to back, I mean, listen,
Speaker 4: I think I think the economy is growing. I think
Speaker 4: the economy is growing quite vigorously. I think you could
Speaker 4: hit six percent nomenal GDP this year. But you know,
Speaker 4: I always think when we look at the top line number,
Speaker 4: it's not nearly as interesting as what's happening on the surface.
Speaker 4: You know, the last six month moving average jobs is
Speaker 4: pretty incredible. It's fifty five thousand jobs. Fifty four thousand
Speaker 4: are in healthcare, so meaning you don't really have any
Speaker 4: job creation. And if you go deeper into it, you
Speaker 4: have an economy that's doing really well. But the Buifer
Speaker 4: case is incredible. So you think about you know, I
Speaker 4: was looking at the numbers of manufacturing, as you said.
Speaker 1: Is softer.
Speaker 4: Real estate is negative jobs, and so if you think about, gosh,
Speaker 4: the sectors that I think and this is you know,
Speaker 4: we get into the interest rate tool, the sectors that
Speaker 4: are sensitive interest rates are still difficult today.
Speaker 1: And actually, well, the one I also think is fascinating.
Speaker 4: We look at information hiring, so that's in and around technology,
Speaker 4: and you look at the last four months, it's negative.
Speaker 1: Why is that happening?
Speaker 4: You actually have what is extraordinary capex by these companies
Speaker 4: that are spending.
Speaker 1: On capex but you don't need the people.
Speaker 4: And you're seeing companies that are that are you know,
Speaker 4: spending huge amounts of capacks and then they're announcing significant layoffs.
Speaker 4: So you have an economy that, you know, the top
Speaker 4: line is interesting. When you strip out healthcare, it's like,
Speaker 4: you know, we need to create a little bit more hiring.
Speaker 4: The supply is not that high, so the unemployment rate
Speaker 4: doesn't move. But there's something underneath the surface when you
Speaker 4: think about what's happening and how the economy is stratified,
Speaker 4: that I think is pretty fascinating.
Speaker 1: Today.
Speaker 3: I think that is so interesting too, Rick.
Speaker 2: And this is something that I've been looking at over
Speaker 2: in the past week of Okay, we have all this
Speaker 2: spending on data centers, what does that actually do to jobs?
Speaker 2: Here was kind of cobbling together various studies.
Speaker 3: The picture that I.
Speaker 2: Got so for every one billion dollars invested in data centers,
Speaker 2: it only creates fifty permanent jobs.
Speaker 3: If you were to compare that to something.
Speaker 2: Like a traditional automotive or pharmaceutical plant, that same spending
Speaker 2: would create fifteen hundred to two thousand jobs. This idea
Speaker 2: that you build the plant that requires work, but the
Speaker 2: permanent people it's like, you know, a few HVACX running
Speaker 2: around trying to fix things. Is it dangerous that that's
Speaker 2: what we're spending on in this economy, something that doesn't
Speaker 2: create as many permanent jobs that other types of CAPEX would.
Speaker 4: I mean, that was pretty good describe, and I could
Speaker 4: describe it better than that.
Speaker 1: I mean, I think that's exactly right.
Speaker 4: I mean, I think I think I think we have
Speaker 4: a dynamic that we have a productivity revolution coming. And
Speaker 4: if you think about you know what's fantastic is you've
Speaker 4: got to get an aging demographic that supports healthcare jobs.
Speaker 4: You know, you've had job creation education that's great, but
Speaker 4: you know, you have a dynamic that if you if
Speaker 4: you know, and I think from a fed's perspective, otherwise,
Speaker 4: if your perspective about where we're going, real productivity, Real
Speaker 4: productivity means gosh, you don't need to use as much labor.
Speaker 1: And today you.
Speaker 4: Look at you know, you look at the average hourly
Speaker 4: earnings number today and like, you know, you know, there
Speaker 4: seems to be a bit more slack than that top
Speaker 4: line number would suggest.
Speaker 1: I think today numbers.
Speaker 4: Are pretty good. You would think always I say, the
Speaker 4: numbers are okay. If you think that, you know, the
Speaker 4: next month you could have also decent jobs because you're
Speaker 4: hiring some people in healthcare, maybe a little bit of
Speaker 4: infrastructure build. But the perspective I think is a bit
Speaker 4: more concerning. And uh, you know, I think the training,
Speaker 4: the retraining, how the economy transitions people, I think is
Speaker 4: going to be a really big deal going forward. As
Speaker 4: part of why I believe we got to get housing moving,
Speaker 4: You got to get real estate moving because it creates
Speaker 4: so much velocity in areas that are not AI as
Speaker 4: AI sensitive.
Speaker 2: Well, what about beyond housing, Rick, And it's a point
Speaker 2: that you made while on this program any times before
Speaker 2: on what's necessary to get this economy going. But I
Speaker 2: just wonder if this is the future that we're heading to.
Speaker 2: I mean, things are advancing so fast. Anthropics growth is
Speaker 2: like bigger than Zoom during the pandemic, bigger than Google
Speaker 2: during the dot com run up to the dot com bubble.
Speaker 2: I mean, what do we do when these things are
Speaker 2: growing so fast? I mean, part of me, just being
Speaker 2: a pessimist and maybe a skeptical journalist, just feels like
Speaker 2: we're in a world, in an economy that's not fully
Speaker 2: prepared for that future.
Speaker 1: I say, that's right as well, I think the world.
Speaker 4: I mean, I listen, I feel every day I come
Speaker 4: in and I like, Okay, I'm prepared for the day,
Speaker 4: and then by the end of the day, I feel
Speaker 4: like I'm behind because it's just happening so fast, in
Speaker 4: the transition of things so fast. Listen, we're building and
Speaker 4: using a load of these tools, and I think it's
Speaker 4: incredibly exciting. And then you look at the equity market,
Speaker 4: what's driving the equity and people say, gosh, there's a
Speaker 4: bubble in the equity market. It's actually not because you're
Speaker 4: seeing this sort of spend and expenditure and earnings growth
Speaker 4: and cash flow alongside of it.
Speaker 1: It's just happening so fast.
Speaker 4: Frankly, it's just creating a greater and greater stratification of
Speaker 4: the economy's I mean, it's it's one of the most
Speaker 4: interesting times I've ever been around to try and think
Speaker 4: about investing relative this. But it's not all good news,
Speaker 4: but in some areas it's I mean, it's explosive and
Speaker 4: from a growth perspective.
Speaker 3: True.
Speaker 2: Okay, So what is the positioning you do according to
Speaker 2: this rick, Because again, a lot of what we're talking
Speaker 2: about our longer term consequences. It's kind of the big
Speaker 2: left tail for now. As we were just talking, the
Speaker 2: jobs picture today is incredibly stable, if not strong, So.
Speaker 4: You know, I still think of the job market is okay,
Speaker 4: But so I mean, I think my view is if
Speaker 4: you take today and say, gosh, what is more attractive
Speaker 4: equities or interest rates? Listen, equities have upside to it,
Speaker 4: and you're watching the convexity of equities, and by the way,
Speaker 4: you don't create any new ones, even though you get
Speaker 4: some IPO calendar. The buybacks are much much, much bigger,
Speaker 4: so the technicals and equities are great. So I still
Speaker 4: like equities versus interest rates, and I like equities married
Speaker 4: to income. And because you have an economy that's growing
Speaker 4: like this, and you think about some of the yielding markets,
Speaker 4: in securitization markets, high yield markets pretty hard to have
Speaker 4: a default cycle of significance other than parts of the
Speaker 4: securitization market that are tethered to lower income. So you
Speaker 4: think about subprime auto, you think about some parts of
Speaker 4: credit card. So I think this is like take income
Speaker 4: tech equities, marry in together, manage your volatility, and that's
Speaker 4: you know, it's been working. And I don't know why
Speaker 4: that would change, you know, to buy long term interest
Speaker 4: rates and say, gosh, you know, you know, let's see
Speaker 4: where rates go. I think you have a FED that's Unstable's.
Speaker 1: That's on hold, I should say.
Speaker 4: And then, by the way, there's some really interesting things
Speaker 4: to do around the world in fixed income as yields
Speaker 4: have gotten higher in place like Europe where growth is
Speaker 4: not nearly as robusts and probably slows from here.
Speaker 2: Rick, I want to talk more about that, but just
Speaker 2: on the other side of this break, because we have
Speaker 2: to talk about bink and we need a bigger chunk
Speaker 2: for that because it is the fastest growing fixed income
Speaker 2: easy if there is. But just before the Open Eye,
Speaker 2: am curious you talked about sort of bets that be
Speaker 2: around the lower income stratum of the US. Only a
Speaker 2: minute here, but there's been a lot of CEUs from
Speaker 2: Craft and Whirlpool to McDonald saying that can confidence among shoppers.
Speaker 3: And consumers is slipping.
Speaker 2: Is that just confined to the lower income stratum or
Speaker 2: is there anything in there that's making you worry for
Speaker 2: more widespread weakness.
Speaker 1: I mean, yesterday was incredible.
Speaker 4: I mean, look at you know, what were some of
Speaker 4: the stocks at a client fit and shakeshat. I mean,
Speaker 4: you know, it's incredible. In terms of the divergence. It
Speaker 4: is generally not ubiquitous to broad consumption overall, but it
Speaker 4: tends to be very much lower to middle income. And
Speaker 4: I think there's a cumulative effect from the gas prices that.
Speaker 1: You got to be sensitive to.
Speaker 4: Listen, the aggregate consumer is still spending, but it's largely
Speaker 4: older net savers, wealthier people that are keeping consumption and
Speaker 4: pretty good shape in aggregate.
Speaker 2: I'm going to be honest. My message is just blew
Speaker 2: up with questions from you. I've actually gotten multiple questions
Speaker 2: on this, So I just want to start with here
Speaker 2: on where on this curve you'd be position and in
Speaker 2: what geographies.
Speaker 4: So I mean, I you know, quite frankly recently I
Speaker 4: found Europe to be to be pretty interesting.
Speaker 1: So so just put in perspective.
Speaker 4: So today I was looking at if you're a dollar investor,
Speaker 4: you know, you could buy things like Spain and Italy,
Speaker 4: and I was looking at the cave. You know, if
Speaker 4: you assume you move on the yield curve, not to
Speaker 4: get too technical, you get a cross currency swap, you
Speaker 4: get close to seven percent in Italy. You know, mid
Speaker 4: six is Spain Italy, and you say, gosh, I'm buying
Speaker 4: single be high yield at those levels like that seems
Speaker 4: okay to me. You know, it is ECB going to
Speaker 4: hike probably they'll try, but then the economy is going
Speaker 4: to slow. That's been really interesting. So you know, do
Speaker 4: you go a bit further out the curve to take
Speaker 4: advantage of that? That's been pretty interesting. You know today listen,
Speaker 4: I don't think I don't think we're gonna make any
Speaker 4: real money an interest rate exposure.
Speaker 1: Today.
Speaker 4: You know, so we're you know, hanging in the front
Speaker 4: to the belly of the curve generally in the US.
Speaker 4: And I mean, honestly, what I'm trying to do today.
Speaker 4: You think about, you know, diversify, diversified, diversifying equities, you
Speaker 4: can't really diverse like tech is just going to keep
Speaker 4: driving it high, is you know, driving high, It's pretty unbelievable.
Speaker 4: I'm just trying to create diversification stability income so people
Speaker 4: can marry it to their equity portfolio because equities are
Speaker 4: harder to diversify. If I can keep stable income using
Speaker 4: the securitization market, that to me is like I'm trying
Speaker 4: to do, you know, you know what it used to
Speaker 4: be sixty forty. Just give me stability with volatility that's
Speaker 4: got some upside convexity to it, and you know, and
Speaker 4: marry diversification to what is harder to diversify. And that's
Speaker 4: what that's what I'm trying to create in fixed income today.
Speaker 4: Just keep clipping coupon and marry that to your equity beta.
Speaker 1: Rick.
Speaker 2: I have heard the argument that a thirty year you'll
Speaker 2: just hovering under five percent is an attractive level, that
Speaker 2: it's cheap it looks good with a FED that for
Speaker 2: structural reasons won't see sustained inflation and we'll need to
Speaker 2: continue to cut.
Speaker 3: What are you thinking about duration at this point?
Speaker 1: So I think it matters who you are a lot today.
Speaker 4: So if I was a pension fund, if I was
Speaker 4: a life insurance company, I had a lot ability, and
Speaker 4: I say, gus, this real rate over time, particularly if
Speaker 4: you're a pension If you think, gosh, that real rate
Speaker 4: is pretty darn attractive. And equities have carried me to
Speaker 4: a full funded status. Boy, you know, maybe I take
Speaker 4: some long end at these levels, and five seems.
Speaker 1: Like a pretty good level. The real rate particularly seems
Speaker 1: like a.
Speaker 4: Good level if I am, if I am not, if
Speaker 4: I don't have a liability against me, I'm an individual
Speaker 4: or an endowment, et cetera. And I said, okay, I
Speaker 4: can buy two long derated assets that have some volatility,
Speaker 4: and by the way, they seem to correlate exactly one
Speaker 4: for one these days based on inflation. If I could
Speaker 4: buy a long duration asset that's a treasury getting me,
Speaker 4: you know, what's my return going to be? Yes, I
Speaker 4: think you can have some positive return and will when
Speaker 4: when inflation comes down, or.
Speaker 1: I could buy a long rated asset.
Speaker 4: It's equities and that's that's compounding return on equity of
Speaker 4: over twenty percent. It's like a no I mean to me,
Speaker 4: it's a no brainer, Like why would I take the
Speaker 4: volatility out in the back end of the curve if
Speaker 4: don't make any sense?
Speaker 1: Just right, equities?
Speaker 4: You think about since the blow in the you know,
Speaker 4: since the war. You know the bottom mar it's not okay,
Speaker 4: But you know, what's your return in the back end?
Speaker 4: Not really much of anything. Equities have killed it for you.
Speaker 4: I mean, what was it?
Speaker 1: Low mid teens type of return?
Speaker 4: So I can if I can own two assets as
Speaker 4: an individual agnostic to a liability like I think it's
Speaker 4: I think the answer becomes pretty pretty pretty clear.
Speaker 2: Well, just on the stellar run for equities, Rick looking
Speaker 2: at earnings has been remarkable, despite again some of those
Speaker 2: wabbles we talked about, the shakeshack the planet, fitnesses of
Speaker 2: the world.
Speaker 3: Just looking at where earnings.
Speaker 2: Growth is projected to go, it's projected to accelerate to
Speaker 2: twenty four point six percent in the fourth quarter. That
Speaker 2: is a four year high, and it's a level that's
Speaker 2: rarely seen.
Speaker 3: Out of post shock recoveries. I had a viewer right.
Speaker 2: In and I think this is relevant, especially just given
Speaker 2: that acceleration that we've seen, is just where are we
Speaker 2: in this overall cycle right now?
Speaker 3: Rick?
Speaker 4: So I think today, I mean, if you've got an
Speaker 4: economy that's going well, and you've got cap I suspended here,
Speaker 4: so one person's cap X is another person's revenues and
Speaker 4: another person since cash flow. So you got a lot
Speaker 4: of cap acts flowing in the revenues, earnings cash flow,
Speaker 4: and you've got an economy with it that's promoting a
Speaker 4: top line revenue. So I mean, this is pretty much
Speaker 4: nirvana in terms of where you are. I think as
Speaker 4: you get in the back half of the year, you'll
Speaker 4: probably start moderating a bit. You got a big fiscal
Speaker 4: tail wind that it becomes obviously less intense and with
Speaker 4: transitions to a bit of a headwind. So I think
Speaker 4: you got a pretty good environment today. My sense is
Speaker 4: this is this is as good as it gets. But
Speaker 4: I don't you know, I don't think it's you know,
Speaker 4: people love to say, including last year, including of the war,
Speaker 4: we're going to recession. I still think you get real
Speaker 4: rate of growth. It's still for the year mid to
Speaker 4: high twos. So it's still pretty good. My sense is
Speaker 4: the trajectory of that euphoria is probably cresting here, but
Speaker 4: not like it's got to turn.
Speaker 1: It's got to turn grossly the other way.
Speaker 2: Right, So is that kind of just like a muddling
Speaker 2: along type of economy then, Rick, what does that look like?
Speaker 4: It's I mean, it's good, it's still pretty good. I mean,
Speaker 4: it's still pretty good. At the cap is still going
Speaker 4: to be robust. You know, got a high end consumer
Speaker 4: that's in pretty good shape. You know, I would argue
Speaker 4: they are parts of the economy though that you could
Speaker 4: argue are in recession. You know, we talked about traditional manufacturing,
Speaker 4: we talked about housing, we talked about small business, lower income, so,
Speaker 4: you know, but in aggregate, it's still pretty good. It's
Speaker 4: just you know what what I think, and we go
Speaker 4: back to the interest rate tool. The interestrate tool doesn't
Speaker 4: really work on you know, it doesn't cut capex for
Speaker 4: the big you know, the big hyperscalers. But you know,
Speaker 4: they're parts of the economy. They just aren't great, but
Speaker 4: they're not large enough and impactful enough today to really
Speaker 4: create an economy. That's that's anywhere close to talking about recession.
Speaker 4: But I would argue with you know today it's very good,
Speaker 4: maybe transitioning to good.
Speaker 2: Hey Rick, it is always such a pleasure to have you.
Speaker 2: Thank you for joining us on another jobs today that
Speaker 2: is a black Rocks CIO of Global Fixed Income RIC
Speaker 2: reader