WEBVTT - BlackRock Global Fixed Income CIO Rick Rieder Talks Growing Economy, Data Center Spending

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Let's get more on markets now. I'm so pleased to

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<v Speaker 2>say that. I'm joined by the black Rocks CIO of

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<v Speaker 2>Global Fixed Income, Rick Reader.

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<v Speaker 3>Rick.

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<v Speaker 2>Great to see you, I know, freshly back from Davos.

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<v Speaker 2>Hopefully the gent lag hasn't got yet. What was your

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<v Speaker 2>take on this? On this job's figure one hundred and fifteen,

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<v Speaker 2>finally we got back to back games for this jobs market.

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<v Speaker 1>Yeah, I mean there's some good things going on.

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<v Speaker 4>I mean it's healthy to see you know, that sort

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<v Speaker 4>of poweritative game. And you say back to back, I mean, listen,

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<v Speaker 4>I think I think the economy is growing. I think

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<v Speaker 4>the economy is growing quite vigorously. I think you could

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<v Speaker 4>hit six percent nomenal GDP this year. But you know,

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<v Speaker 4>I always think when we look at the top line number,

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<v Speaker 4>it's not nearly as interesting as what's happening on the surface.

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<v Speaker 4>You know, the last six month moving average jobs is

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<v Speaker 4>pretty incredible. It's fifty five thousand jobs. Fifty four thousand

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<v Speaker 4>are in healthcare, so meaning you don't really have any

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<v Speaker 4>job creation. And if you go deeper into it, you

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<v Speaker 4>have an economy that's doing really well. But the Buifer

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<v Speaker 4>case is incredible. So you think about you know, I

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<v Speaker 4>was looking at the numbers of manufacturing, as you said.

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<v Speaker 1>Is softer.

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<v Speaker 4>Real estate is negative jobs, and so if you think about, gosh,

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<v Speaker 4>the sectors that I think and this is you know,

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<v Speaker 4>we get into the interest rate tool, the sectors that

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<v Speaker 4>are sensitive interest rates are still difficult today.

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<v Speaker 1>And actually, well, the one I also think is fascinating.

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<v Speaker 4>We look at information hiring, so that's in and around technology,

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<v Speaker 4>and you look at the last four months, it's negative.

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<v Speaker 1>Why is that happening?

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<v Speaker 4>You actually have what is extraordinary capex by these companies

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<v Speaker 4>that are spending.

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<v Speaker 1>On capex but you don't need the people.

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<v Speaker 4>And you're seeing companies that are that are you know,

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<v Speaker 4>spending huge amounts of capacks and then they're announcing significant layoffs.

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<v Speaker 4>So you have an economy that, you know, the top

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<v Speaker 4>line is interesting. When you strip out healthcare, it's like,

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<v Speaker 4>you know, we need to create a little bit more hiring.

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<v Speaker 4>The supply is not that high, so the unemployment rate

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<v Speaker 4>doesn't move. But there's something underneath the surface when you

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<v Speaker 4>think about what's happening and how the economy is stratified,

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<v Speaker 4>that I think is pretty fascinating.

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<v Speaker 1>Today.

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<v Speaker 3>I think that is so interesting too, Rick.

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<v Speaker 2>And this is something that I've been looking at over

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<v Speaker 2>in the past week of Okay, we have all this

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<v Speaker 2>spending on data centers, what does that actually do to jobs?

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<v Speaker 2>Here was kind of cobbling together various studies.

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<v Speaker 3>The picture that I.

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<v Speaker 2>Got so for every one billion dollars invested in data centers,

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<v Speaker 2>it only creates fifty permanent jobs.

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<v Speaker 3>If you were to compare that to something.

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<v Speaker 2>Like a traditional automotive or pharmaceutical plant, that same spending

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<v Speaker 2>would create fifteen hundred to two thousand jobs. This idea

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<v Speaker 2>that you build the plant that requires work, but the

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<v Speaker 2>permanent people it's like, you know, a few HVACX running

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<v Speaker 2>around trying to fix things. Is it dangerous that that's

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<v Speaker 2>what we're spending on in this economy, something that doesn't

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<v Speaker 2>create as many permanent jobs that other types of CAPEX would.

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<v Speaker 4>I mean, that was pretty good describe, and I could

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<v Speaker 4>describe it better than that.

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<v Speaker 1>I mean, I think that's exactly right.

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<v Speaker 4>I mean, I think I think I think we have

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<v Speaker 4>a dynamic that we have a productivity revolution coming. And

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<v Speaker 4>if you think about you know what's fantastic is you've

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<v Speaker 4>got to get an aging demographic that supports healthcare jobs.

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<v Speaker 4>You know, you've had job creation education that's great, but

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<v Speaker 4>you know, you have a dynamic that if you if

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<v Speaker 4>you know, and I think from a fed's perspective, otherwise,

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<v Speaker 4>if your perspective about where we're going, real productivity, Real

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<v Speaker 4>productivity means gosh, you don't need to use as much labor.

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<v Speaker 1>And today you.

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<v Speaker 4>Look at you know, you look at the average hourly

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<v Speaker 4>earnings number today and like, you know, you know, there

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<v Speaker 4>seems to be a bit more slack than that top

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<v Speaker 4>line number would suggest.

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<v Speaker 1>I think today numbers.

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<v Speaker 4>Are pretty good. You would think always I say, the

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<v Speaker 4>numbers are okay. If you think that, you know, the

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<v Speaker 4>next month you could have also decent jobs because you're

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<v Speaker 4>hiring some people in healthcare, maybe a little bit of

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<v Speaker 4>infrastructure build. But the perspective I think is a bit

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<v Speaker 4>more concerning. And uh, you know, I think the training,

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<v Speaker 4>the retraining, how the economy transitions people, I think is

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<v Speaker 4>going to be a really big deal going forward. As

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<v Speaker 4>part of why I believe we got to get housing moving,

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<v Speaker 4>You got to get real estate moving because it creates

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<v Speaker 4>so much velocity in areas that are not AI as

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<v Speaker 4>AI sensitive.

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<v Speaker 2>Well, what about beyond housing, Rick, And it's a point

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<v Speaker 2>that you made while on this program any times before

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<v Speaker 2>on what's necessary to get this economy going. But I

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<v Speaker 2>just wonder if this is the future that we're heading to.

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<v Speaker 2>I mean, things are advancing so fast. Anthropics growth is

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<v Speaker 2>like bigger than Zoom during the pandemic, bigger than Google

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<v Speaker 2>during the dot com run up to the dot com bubble.

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<v Speaker 2>I mean, what do we do when these things are

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<v Speaker 2>growing so fast? I mean, part of me, just being

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<v Speaker 2>a pessimist and maybe a skeptical journalist, just feels like

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<v Speaker 2>we're in a world, in an economy that's not fully

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<v Speaker 2>prepared for that future.

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<v Speaker 1>I say, that's right as well, I think the world.

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<v Speaker 4>I mean, I listen, I feel every day I come

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<v Speaker 4>in and I like, Okay, I'm prepared for the day,

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<v Speaker 4>and then by the end of the day, I feel

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<v Speaker 4>like I'm behind because it's just happening so fast, in

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<v Speaker 4>the transition of things so fast. Listen, we're building and

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<v Speaker 4>using a load of these tools, and I think it's

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<v Speaker 4>incredibly exciting. And then you look at the equity market,

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<v Speaker 4>what's driving the equity and people say, gosh, there's a

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<v Speaker 4>bubble in the equity market. It's actually not because you're

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<v Speaker 4>seeing this sort of spend and expenditure and earnings growth

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<v Speaker 4>and cash flow alongside of it.

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<v Speaker 1>It's just happening so fast.

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<v Speaker 4>Frankly, it's just creating a greater and greater stratification of

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<v Speaker 4>the economy's I mean, it's it's one of the most

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<v Speaker 4>interesting times I've ever been around to try and think

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<v Speaker 4>about investing relative this. But it's not all good news,

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<v Speaker 4>but in some areas it's I mean, it's explosive and

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<v Speaker 4>from a growth perspective.

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<v Speaker 3>True.

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<v Speaker 2>Okay, So what is the positioning you do according to

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<v Speaker 2>this rick, Because again, a lot of what we're talking

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<v Speaker 2>about our longer term consequences. It's kind of the big

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<v Speaker 2>left tail for now. As we were just talking, the

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<v Speaker 2>jobs picture today is incredibly stable, if not strong, So.

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<v Speaker 4>You know, I still think of the job market is okay,

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<v Speaker 4>But so I mean, I think my view is if

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<v Speaker 4>you take today and say, gosh, what is more attractive

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<v Speaker 4>equities or interest rates? Listen, equities have upside to it,

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<v Speaker 4>and you're watching the convexity of equities, and by the way,

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<v Speaker 4>you don't create any new ones, even though you get

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<v Speaker 4>some IPO calendar. The buybacks are much much, much bigger,

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<v Speaker 4>so the technicals and equities are great. So I still

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<v Speaker 4>like equities versus interest rates, and I like equities married

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<v Speaker 4>to income. And because you have an economy that's growing

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<v Speaker 4>like this, and you think about some of the yielding markets,

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<v Speaker 4>in securitization markets, high yield markets pretty hard to have

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<v Speaker 4>a default cycle of significance other than parts of the

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<v Speaker 4>securitization market that are tethered to lower income. So you

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<v Speaker 4>think about subprime auto, you think about some parts of

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<v Speaker 4>credit card. So I think this is like take income

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<v Speaker 4>tech equities, marry in together, manage your volatility, and that's

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<v Speaker 4>you know, it's been working. And I don't know why

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<v Speaker 4>that would change, you know, to buy long term interest

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<v Speaker 4>rates and say, gosh, you know, you know, let's see

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<v Speaker 4>where rates go. I think you have a FED that's Unstable's.

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<v Speaker 1>That's on hold, I should say.

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<v Speaker 4>And then, by the way, there's some really interesting things

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<v Speaker 4>to do around the world in fixed income as yields

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<v Speaker 4>have gotten higher in place like Europe where growth is

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<v Speaker 4>not nearly as robusts and probably slows from here.

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<v Speaker 2>Rick, I want to talk more about that, but just

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<v Speaker 2>on the other side of this break, because we have

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<v Speaker 2>to talk about bink and we need a bigger chunk

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<v Speaker 2>for that because it is the fastest growing fixed income

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<v Speaker 2>easy if there is. But just before the Open Eye,

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<v Speaker 2>am curious you talked about sort of bets that be

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<v Speaker 2>around the lower income stratum of the US. Only a

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<v Speaker 2>minute here, but there's been a lot of CEUs from

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<v Speaker 2>Craft and Whirlpool to McDonald saying that can confidence among shoppers.

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<v Speaker 3>And consumers is slipping.

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<v Speaker 2>Is that just confined to the lower income stratum or

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<v Speaker 2>is there anything in there that's making you worry for

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<v Speaker 2>more widespread weakness.

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<v Speaker 1>I mean, yesterday was incredible.

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<v Speaker 4>I mean, look at you know, what were some of

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<v Speaker 4>the stocks at a client fit and shakeshat. I mean,

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<v Speaker 4>you know, it's incredible. In terms of the divergence. It

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<v Speaker 4>is generally not ubiquitous to broad consumption overall, but it

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<v Speaker 4>tends to be very much lower to middle income. And

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<v Speaker 4>I think there's a cumulative effect from the gas prices that.

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<v Speaker 1>You got to be sensitive to.

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<v Speaker 4>Listen, the aggregate consumer is still spending, but it's largely

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<v Speaker 4>older net savers, wealthier people that are keeping consumption and

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<v Speaker 4>pretty good shape in aggregate.

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<v Speaker 2>I'm going to be honest. My message is just blew

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<v Speaker 2>up with questions from you. I've actually gotten multiple questions

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<v Speaker 2>on this, So I just want to start with here

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<v Speaker 2>on where on this curve you'd be position and in

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<v Speaker 2>what geographies.

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<v Speaker 4>So I mean, I you know, quite frankly recently I

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<v Speaker 4>found Europe to be to be pretty interesting.

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<v Speaker 1>So so just put in perspective.

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<v Speaker 4>So today I was looking at if you're a dollar investor,

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<v Speaker 4>you know, you could buy things like Spain and Italy,

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<v Speaker 4>and I was looking at the cave. You know, if

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<v Speaker 4>you assume you move on the yield curve, not to

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<v Speaker 4>get too technical, you get a cross currency swap, you

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<v Speaker 4>get close to seven percent in Italy. You know, mid

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<v Speaker 4>six is Spain Italy, and you say, gosh, I'm buying

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<v Speaker 4>single be high yield at those levels like that seems

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<v Speaker 4>okay to me. You know, it is ECB going to

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<v Speaker 4>hike probably they'll try, but then the economy is going

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<v Speaker 4>to slow. That's been really interesting. So you know, do

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<v Speaker 4>you go a bit further out the curve to take

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<v Speaker 4>advantage of that? That's been pretty interesting. You know today listen,

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<v Speaker 4>I don't think I don't think we're gonna make any

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<v Speaker 4>real money an interest rate exposure.

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<v Speaker 1>Today.

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<v Speaker 4>You know, so we're you know, hanging in the front

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<v Speaker 4>to the belly of the curve generally in the US.

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<v Speaker 4>And I mean, honestly, what I'm trying to do today.

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<v Speaker 4>You think about, you know, diversify, diversified, diversifying equities, you

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<v Speaker 4>can't really diverse like tech is just going to keep

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<v Speaker 4>driving it high, is you know, driving high, It's pretty unbelievable.

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<v Speaker 4>I'm just trying to create diversification stability income so people

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<v Speaker 4>can marry it to their equity portfolio because equities are

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<v Speaker 4>harder to diversify. If I can keep stable income using

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<v Speaker 4>the securitization market, that to me is like I'm trying

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<v Speaker 4>to do, you know, you know what it used to

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<v Speaker 4>be sixty forty. Just give me stability with volatility that's

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<v Speaker 4>got some upside convexity to it, and you know, and

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<v Speaker 4>marry diversification to what is harder to diversify. And that's

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<v Speaker 4>what that's what I'm trying to create in fixed income today.

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<v Speaker 4>Just keep clipping coupon and marry that to your equity beta.

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<v Speaker 1>Rick.

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<v Speaker 2>I have heard the argument that a thirty year you'll

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<v Speaker 2>just hovering under five percent is an attractive level, that

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<v Speaker 2>it's cheap it looks good with a FED that for

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<v Speaker 2>structural reasons won't see sustained inflation and we'll need to

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<v Speaker 2>continue to cut.

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<v Speaker 3>What are you thinking about duration at this point?

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<v Speaker 1>So I think it matters who you are a lot today.

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<v Speaker 4>So if I was a pension fund, if I was

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<v Speaker 4>a life insurance company, I had a lot ability, and

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<v Speaker 4>I say, gus, this real rate over time, particularly if

0:10:03.160 --> 0:10:05.280
<v Speaker 4>you're a pension If you think, gosh, that real rate

0:10:05.800 --> 0:10:08.440
<v Speaker 4>is pretty darn attractive. And equities have carried me to

0:10:08.480 --> 0:10:11.559
<v Speaker 4>a full funded status. Boy, you know, maybe I take

0:10:11.640 --> 0:10:14.319
<v Speaker 4>some long end at these levels, and five seems.

0:10:14.000 --> 0:10:16.559
<v Speaker 1>Like a pretty good level. The real rate particularly seems

0:10:16.559 --> 0:10:16.839
<v Speaker 1>like a.

0:10:16.760 --> 0:10:19.400
<v Speaker 4>Good level if I am, if I am not, if

0:10:19.440 --> 0:10:21.560
<v Speaker 4>I don't have a liability against me, I'm an individual

0:10:21.720 --> 0:10:24.120
<v Speaker 4>or an endowment, et cetera. And I said, okay, I

0:10:24.120 --> 0:10:27.240
<v Speaker 4>can buy two long derated assets that have some volatility,

0:10:27.240 --> 0:10:29.439
<v Speaker 4>and by the way, they seem to correlate exactly one

0:10:29.520 --> 0:10:32.079
<v Speaker 4>for one these days based on inflation. If I could

0:10:32.080 --> 0:10:35.200
<v Speaker 4>buy a long duration asset that's a treasury getting me,

0:10:35.480 --> 0:10:37.320
<v Speaker 4>you know, what's my return going to be? Yes, I

0:10:37.320 --> 0:10:39.480
<v Speaker 4>think you can have some positive return and will when

0:10:39.520 --> 0:10:41.240
<v Speaker 4>when inflation comes down, or.

0:10:41.160 --> 0:10:42.520
<v Speaker 1>I could buy a long rated asset.

0:10:42.559 --> 0:10:46.160
<v Speaker 4>It's equities and that's that's compounding return on equity of

0:10:46.320 --> 0:10:48.960
<v Speaker 4>over twenty percent. It's like a no I mean to me,

0:10:49.000 --> 0:10:50.559
<v Speaker 4>it's a no brainer, Like why would I take the

0:10:50.640 --> 0:10:53.080
<v Speaker 4>volatility out in the back end of the curve if

0:10:53.080 --> 0:10:53.800
<v Speaker 4>don't make any sense?

0:10:53.840 --> 0:10:54.440
<v Speaker 1>Just right, equities?

0:10:54.480 --> 0:10:57.760
<v Speaker 4>You think about since the blow in the you know,

0:10:57.840 --> 0:11:00.959
<v Speaker 4>since the war. You know the bottom mar it's not okay,

0:11:01.040 --> 0:11:02.640
<v Speaker 4>But you know, what's your return in the back end?

0:11:02.760 --> 0:11:05.679
<v Speaker 4>Not really much of anything. Equities have killed it for you.

0:11:05.920 --> 0:11:06.600
<v Speaker 4>I mean, what was it?

0:11:06.679 --> 0:11:08.160
<v Speaker 1>Low mid teens type of return?

0:11:08.280 --> 0:11:10.480
<v Speaker 4>So I can if I can own two assets as

0:11:10.520 --> 0:11:13.880
<v Speaker 4>an individual agnostic to a liability like I think it's

0:11:13.920 --> 0:11:16.760
<v Speaker 4>I think the answer becomes pretty pretty pretty clear.

0:11:17.040 --> 0:11:21.079
<v Speaker 2>Well, just on the stellar run for equities, Rick looking

0:11:21.120 --> 0:11:23.840
<v Speaker 2>at earnings has been remarkable, despite again some of those

0:11:23.880 --> 0:11:27.559
<v Speaker 2>wabbles we talked about, the shakeshack the planet, fitnesses of

0:11:27.600 --> 0:11:28.000
<v Speaker 2>the world.

0:11:28.040 --> 0:11:29.360
<v Speaker 3>Just looking at where earnings.

0:11:29.040 --> 0:11:32.400
<v Speaker 2>Growth is projected to go, it's projected to accelerate to

0:11:32.559 --> 0:11:35.240
<v Speaker 2>twenty four point six percent in the fourth quarter. That

0:11:35.360 --> 0:11:37.760
<v Speaker 2>is a four year high, and it's a level that's

0:11:37.880 --> 0:11:38.880
<v Speaker 2>rarely seen.

0:11:39.040 --> 0:11:42.040
<v Speaker 3>Out of post shock recoveries. I had a viewer right.

0:11:42.000 --> 0:11:44.640
<v Speaker 2>In and I think this is relevant, especially just given

0:11:44.760 --> 0:11:47.680
<v Speaker 2>that acceleration that we've seen, is just where are we

0:11:47.920 --> 0:11:49.319
<v Speaker 2>in this overall cycle right now?

0:11:49.360 --> 0:11:49.560
<v Speaker 3>Rick?

0:11:51.600 --> 0:11:53.600
<v Speaker 4>So I think today, I mean, if you've got an

0:11:53.640 --> 0:11:56.319
<v Speaker 4>economy that's going well, and you've got cap I suspended here,

0:11:56.360 --> 0:11:59.520
<v Speaker 4>so one person's cap X is another person's revenues and

0:11:59.559 --> 0:12:01.400
<v Speaker 4>another person since cash flow. So you got a lot

0:12:01.440 --> 0:12:04.600
<v Speaker 4>of cap acts flowing in the revenues, earnings cash flow,

0:12:05.080 --> 0:12:07.160
<v Speaker 4>and you've got an economy with it that's promoting a

0:12:07.200 --> 0:12:10.040
<v Speaker 4>top line revenue. So I mean, this is pretty much

0:12:10.120 --> 0:12:12.760
<v Speaker 4>nirvana in terms of where you are. I think as

0:12:12.760 --> 0:12:14.920
<v Speaker 4>you get in the back half of the year, you'll

0:12:14.960 --> 0:12:17.559
<v Speaker 4>probably start moderating a bit. You got a big fiscal

0:12:17.640 --> 0:12:21.080
<v Speaker 4>tail wind that it becomes obviously less intense and with

0:12:21.240 --> 0:12:24.079
<v Speaker 4>transitions to a bit of a headwind. So I think

0:12:24.120 --> 0:12:26.960
<v Speaker 4>you got a pretty good environment today. My sense is

0:12:27.480 --> 0:12:29.839
<v Speaker 4>this is this is as good as it gets. But

0:12:30.360 --> 0:12:31.600
<v Speaker 4>I don't you know, I don't think it's you know,

0:12:31.600 --> 0:12:34.560
<v Speaker 4>people love to say, including last year, including of the war,

0:12:34.760 --> 0:12:37.400
<v Speaker 4>we're going to recession. I still think you get real

0:12:37.480 --> 0:12:39.800
<v Speaker 4>rate of growth. It's still for the year mid to

0:12:39.880 --> 0:12:42.840
<v Speaker 4>high twos. So it's still pretty good. My sense is

0:12:42.880 --> 0:12:47.160
<v Speaker 4>the trajectory of that euphoria is probably cresting here, but

0:12:47.640 --> 0:12:48.720
<v Speaker 4>not like it's got to turn.

0:12:48.960 --> 0:12:50.959
<v Speaker 1>It's got to turn grossly the other way.

0:12:51.040 --> 0:12:53.200
<v Speaker 2>Right, So is that kind of just like a muddling

0:12:53.440 --> 0:12:55.840
<v Speaker 2>along type of economy then, Rick, what does that look like?

0:12:57.000 --> 0:12:58.840
<v Speaker 4>It's I mean, it's good, it's still pretty good. I mean,

0:12:58.880 --> 0:13:00.800
<v Speaker 4>it's still pretty good. At the cap is still going

0:13:00.840 --> 0:13:02.760
<v Speaker 4>to be robust. You know, got a high end consumer

0:13:02.800 --> 0:13:05.040
<v Speaker 4>that's in pretty good shape. You know, I would argue

0:13:05.080 --> 0:13:06.800
<v Speaker 4>they are parts of the economy though that you could

0:13:06.880 --> 0:13:10.880
<v Speaker 4>argue are in recession. You know, we talked about traditional manufacturing,

0:13:10.920 --> 0:13:14.840
<v Speaker 4>we talked about housing, we talked about small business, lower income, so,

0:13:15.440 --> 0:13:18.160
<v Speaker 4>you know, but in aggregate, it's still pretty good. It's

0:13:18.280 --> 0:13:20.120
<v Speaker 4>just you know what what I think, and we go

0:13:20.160 --> 0:13:22.360
<v Speaker 4>back to the interest rate tool. The interestrate tool doesn't

0:13:22.400 --> 0:13:25.400
<v Speaker 4>really work on you know, it doesn't cut capex for

0:13:25.559 --> 0:13:28.400
<v Speaker 4>the big you know, the big hyperscalers. But you know,

0:13:28.480 --> 0:13:31.360
<v Speaker 4>they're parts of the economy. They just aren't great, but

0:13:31.400 --> 0:13:35.040
<v Speaker 4>they're not large enough and impactful enough today to really

0:13:35.080 --> 0:13:38.400
<v Speaker 4>create an economy. That's that's anywhere close to talking about recession.

0:13:38.480 --> 0:13:40.880
<v Speaker 4>But I would argue with you know today it's very good,

0:13:41.120 --> 0:13:42.600
<v Speaker 4>maybe transitioning to good.

0:13:43.320 --> 0:13:45.280
<v Speaker 2>Hey Rick, it is always such a pleasure to have you.

0:13:45.280 --> 0:13:47.440
<v Speaker 2>Thank you for joining us on another jobs today that

0:13:47.520 --> 0:13:50.079
<v Speaker 2>is a black Rocks CIO of Global Fixed Income RIC

0:13:50.120 --> 0:13:50.360
<v Speaker 2>reader