WEBVTT - Spiraling US Debt and Its Impact on Interest Rates 0:00:05.080 --> 0:00:08.280 This is the Bloomberg Surveillance Podcast. I'm Lisa A. 0:00:08.320 --> 0:00:11.640 Bromwoyd's along with Tom Keen and Jonathan Farrow, join us 0:00:11.680 --> 0:00:15.280 each day for insight from the best in economics, geopolitics, 0:00:15.320 --> 0:00:16.440 finance and investment. 0:00:16.760 --> 0:00:18.760 Subscribe to Bloomberg Surveillance. 0:00:18.320 --> 0:00:21.840 On demand on Apple, Spotify and anywhere you get your podcasts, 0:00:22.120 --> 0:00:25.200 and always on Bloomberg dot Com, the Bloomberg Terminal, and 0:00:25.200 --> 0:00:27.680 the Bloomberg Business App. And right now, I don't want 0:00:27.680 --> 0:00:30.840 you delay a great conversation coming up. Bloomberg's owner Yusef 0:00:30.880 --> 0:00:34.320 Gamela Aldin is joining us, sitting by with Jennifer Johnson, 0:00:34.400 --> 0:00:37.320 President and CEO of Franklin Templeton In Riad. 0:00:37.600 --> 0:00:39.040 Let's head over, Yousef, Hey. 0:00:39.040 --> 0:00:39.600 Hey Lisa. 0:00:39.680 --> 0:00:41.800 Yeah, So let's pick up on the big debate on 0:00:41.840 --> 0:00:43.840 the health of the US economy and a few other 0:00:43.840 --> 0:00:46.840 angles as well. Jenny, thank you for making the time 0:00:46.960 --> 0:00:50.080 so we had Jamie Diamond come out strong. He's saying 0:00:50.080 --> 0:00:52.200 there should be a lot more humility from central banks. 0:00:52.200 --> 0:00:56.080 They got all their forecasts wrong. Ray dallyus pessimistic. I 0:00:56.120 --> 0:00:59.160 want to know where Jenny Johnson stands in this debate. 0:01:00.160 --> 0:01:03.800 Well, I mean I have a little concern about US 0:01:03.920 --> 0:01:07.360 debt and its impact on interest rates, right. I mean, 0:01:07.560 --> 0:01:11.000 I think the conversation on rates is constantly focused on 0:01:11.040 --> 0:01:14.800 what Pal's going to do next month or December, and 0:01:14.840 --> 0:01:18.039 I actually think the bigger story is really around you know, 0:01:18.080 --> 0:01:21.760 we've got a US debt that is gone from nine 0:01:21.840 --> 0:01:24.840 trillion to thirty one trillion, and you have to have 0:01:24.880 --> 0:01:27.040 buyers of that debt, and that means you have to 0:01:27.080 --> 0:01:30.160 have a rate that's reasonably priced to attract debt, and 0:01:30.200 --> 0:01:32.920 it potentially crowds out some of the other investment opportunities. 0:01:32.920 --> 0:01:35.440 So you know, that's that's a concern. And you've got 0:01:35.640 --> 0:01:38.600 a deficit this year that's gonna add two trillion dollars to. 0:01:39.520 --> 0:01:43.039 The debt, So I think that can weigh on the economy. 0:01:43.080 --> 0:01:45.800 And when do you see interest rates going then? 0:01:45.840 --> 0:01:48.040 I mean, two weeks ago you still had to view 0:01:48.040 --> 0:01:51.040 that there's one more hike in the in the plan. 0:01:51.200 --> 0:01:52.120 You still stand by that. 0:01:52.320 --> 0:01:55.000 I think Pell kind of came out and said, probably 0:01:55.040 --> 0:01:57.280 won't do it in November, but he's watching the data, 0:01:57.400 --> 0:01:59.559 so I think, you know, maybe he'll do December. 0:01:59.560 --> 0:02:02.560 I think he'll be data driven. Uh, maybe he'll just 0:02:02.720 --> 0:02:04.960 kind of leave it for where it is and see 0:02:05.000 --> 0:02:05.800 how it plays out. 0:02:06.560 --> 0:02:08.280 I think the bigger story has been around the ten 0:02:08.360 --> 0:02:10.680 year and I think that's more of an issue around 0:02:10.720 --> 0:02:11.840 the you know, US debt. 0:02:12.120 --> 0:02:14.360 I mean, you've seen the volatility and treasury yields and 0:02:14.440 --> 0:02:17.480 of course some of the you know, prolific commentators, let 0:02:17.520 --> 0:02:21.520 me put it that way, including mister Actman and many others. Uh, 0:02:21.800 --> 0:02:23.920 do you think that we're gonna start consolidating now at 0:02:23.919 --> 0:02:24.639 the current levels? 0:02:24.720 --> 0:02:26.600 I mean, what's going to bring them down? 0:02:26.720 --> 0:02:28.120 Because there was a big debate on what's going to 0:02:28.160 --> 0:02:29.680 carry them up if they are going to go down 0:02:29.680 --> 0:02:30.000 from here? 0:02:30.040 --> 0:02:31.680 Where you know, what's gonna push them down? 0:02:31.720 --> 0:02:33.240 I mean, honestly, there's a lot of things. 0:02:33.320 --> 0:02:33.520 You know. 0:02:33.680 --> 0:02:36.399 I think that the Fed has done a good job 0:02:36.440 --> 0:02:38.560 on kind of jamming on the brakes and raising rates 0:02:38.560 --> 0:02:41.360 and slowing things. But you know, there's tremendous headwinds to 0:02:41.480 --> 0:02:47.000 slowing inflation. Oil prices are inflationary. Uh. You know, some 0:02:47.120 --> 0:02:51.760 of the union wage negotiations are inflationary. 0:02:52.360 --> 0:02:54.359 Uh. So there's factors that makes it tough. 0:02:54.360 --> 0:02:58.160 The the you know, spending on things like renewable energy, 0:02:58.200 --> 0:03:00.880 government spending and incentives on renewal energy, and things like 0:03:00.919 --> 0:03:04.320 the Chipsack are all pumping money into the system. That 0:03:04.400 --> 0:03:07.760 becomes a headwind to somebody who's trying to tamp down inflation. 0:03:07.919 --> 0:03:09.640 One of the stories that's been trending the last twenty 0:03:09.639 --> 0:03:12.280 four hours on the terminal is about six hundred billion 0:03:12.320 --> 0:03:15.080 dollars worth of client cash that it's headed for the 0:03:15.120 --> 0:03:18.000 exits from some of the bigger investment funds, and it 0:03:18.120 --> 0:03:21.480 raises the question, how does Franklin sort of thrive amid 0:03:21.480 --> 0:03:24.000 a shift to more passive solution. 0:03:24.600 --> 0:03:27.720 Well, first of all, let me take on the back 0:03:27.720 --> 0:03:30.400 on the passer active. Right, anytime you have a full 0:03:30.440 --> 0:03:33.880 momentum market where you've literally had central banks printing money 0:03:34.240 --> 0:03:36.160 right and interest rate zero, the only place to go 0:03:36.240 --> 0:03:38.560 is the equity markets. Have pumped the equity markets up 0:03:38.880 --> 0:03:41.920 but today right, And first of all, nobody ever talks 0:03:41.920 --> 0:03:45.400 about market beta or passive as going up or down 0:03:45.400 --> 0:03:45.760 a risk. 0:03:46.120 --> 0:03:48.120 The day Tesla was added to the S. 0:03:48.080 --> 0:03:51.160 And P five hundred, market beta became more risky, right, 0:03:51.440 --> 0:03:53.320 and we don't talk about that. 0:03:53.440 --> 0:03:56.600 Now you're sitting here today, You've got a market where you. 0:03:56.520 --> 0:03:58.760 Look at it and say it's up thirteen percent, but 0:03:58.840 --> 0:04:01.760 actually most of it that's because of seven stocks and 0:04:01.840 --> 0:04:04.840 Magnificent seven, you're seeing the highest concentration. 0:04:05.320 --> 0:04:06.720 You know, at the peak ofthe dot. 0:04:06.520 --> 0:04:09.480 Com ten stocks and count for twenty five percent on 0:04:09.560 --> 0:04:14.240 market cap today that's thirty percent, so you're thirty two percent, right, 0:04:14.280 --> 0:04:16.920 so you're even higher from a concentration usually doesn't end 0:04:16.960 --> 0:04:21.320 well after that. And from the return standpoint, top five 0:04:21.360 --> 0:04:24.520 stocks have a PE ratio of forty nine and the 0:04:24.560 --> 0:04:27.160 rest of the market has a PA ratio of like fourteen. 0:04:27.720 --> 0:04:31.080 So you know those are really different from a risk scenario. 0:04:31.360 --> 0:04:33.320 Now you've got to navigate interest rates. You got to 0:04:33.320 --> 0:04:35.720 figure out the impact of rates on different companies. 0:04:35.880 --> 0:04:37.400 I think it's a time for app Yeah. 0:04:37.480 --> 0:04:39.880 That's that warrants its own debate. I want to get 0:04:39.920 --> 0:04:42.359 to your meetings here in Saudi Arabia. Talk to me 0:04:42.560 --> 0:04:46.440 about the opportunity set here and where you could sort 0:04:46.480 --> 0:04:47.839 of lock in additional growth. 0:04:48.560 --> 0:04:48.920 Yeah. 0:04:48.960 --> 0:04:51.120 So you know, I'm here at FII, and you know 0:04:51.160 --> 0:04:53.520 one of the reasons to be here is because you 0:04:53.520 --> 0:04:55.680 can you have Franklin Templeton's a global company. We have 0:04:55.680 --> 0:04:59.080 clients in one hundred and sixty countries. You come to FII, 0:04:59.200 --> 0:05:02.280 you can meet your clients from Asia from the US, 0:05:02.320 --> 0:05:04.520 from Europe, from and all Africa, all over the world, 0:05:04.520 --> 0:05:05.640 and so it's a great place to. 0:05:05.640 --> 0:05:07.600 Convene and efficiently meet with clients. 0:05:07.880 --> 0:05:11.800 But it's also I mean, I tend to think energy transition. 0:05:12.000 --> 0:05:12.640 A lot of the. 0:05:12.560 --> 0:05:15.719 Innovation is coming out of this region, and I know 0:05:15.760 --> 0:05:19.279 that sort of sounds counterintuitive, but what you find is 0:05:19.320 --> 0:05:23.039 a mentality of multiple generations, thinking about how do we 0:05:23.080 --> 0:05:26.200 position ourselves for generations, and a recognition that at at 0:05:26.240 --> 0:05:27.599 some point oil goes away, we. 0:05:27.680 --> 0:05:29.080 Better diversify the economy. 0:05:29.320 --> 0:05:34.080 And you see initiatives like in Saudi Arabia where by 0:05:34.120 --> 0:05:36.680 twenty thirty they want fifty percent of their energy. 0:05:36.360 --> 0:05:37.440 Coming from renewables. 0:05:38.080 --> 0:05:40.320 UAE, I think has said by twenty fifty they want 0:05:40.320 --> 0:05:42.960 fifty percent. This is a region that has the will 0:05:43.200 --> 0:05:46.000 and the capital to actually focus on that innovation. 0:05:46.880 --> 0:05:51.120 We're closely monitoring what's happening with the Israel Gaza conflict. 0:05:51.160 --> 0:05:53.280 That's a human tragedy in the first instance. 0:05:54.000 --> 0:05:57.320 In terms of sort of second round effects capital markets, 0:05:57.640 --> 0:06:00.320 what extent is that going to take away from some 0:06:00.360 --> 0:06:03.240 of the ambitions that the golf has as an investment 0:06:03.279 --> 0:06:05.000 destination longer term. 0:06:05.760 --> 0:06:10.039 Well, first of all, I mean it's an absolute humanitarian crisis. 0:06:10.080 --> 0:06:12.400 It is a terrible, terrible situation. 0:06:12.440 --> 0:06:16.280 It's very difficult to watch it unfold, and it's awful. 0:06:18.680 --> 0:06:23.920 If it stays contained, it probably won't have longer term 0:06:24.000 --> 0:06:29.200 impacts other than in obviously tremendous impacts in the areas 0:06:29.400 --> 0:06:33.960 in both Israel and Gaza. But as long as it's remains, 0:06:34.080 --> 0:06:37.680 you know, contained, then I think it doesn't slow things down. 0:06:37.720 --> 0:06:40.040 And honestly, I think, you know, places like. 0:06:40.040 --> 0:06:42.919 Saudi and the UAE are so motivated to try to 0:06:43.000 --> 0:06:46.760 come up with a resolution because they don't want to 0:06:46.800 --> 0:06:50.560 derail the progress that they're making on their visions, you know, 0:06:50.640 --> 0:06:52.800 and trying to attract capital into the region. 0:06:52.880 --> 0:06:56.840 So closing question on broader strategy, you've been acquisitive, what's 0:06:56.880 --> 0:06:57.839 sort of next. 0:06:57.720 --> 0:07:01.839 On the purchase list? How much are you willing to allocate? 0:07:02.440 --> 0:07:05.800 Well, we've been very open about the fact that we 0:07:05.839 --> 0:07:08.040 think sort of the last area that we'd love to 0:07:08.120 --> 0:07:11.360 fill is infrastructure. I think the spending on infrastructure, whether 0:07:11.400 --> 0:07:16.320 it's energy transition or even just updating infrastructure. 0:07:17.400 --> 0:07:19.040 Across the globe because so many. 0:07:18.880 --> 0:07:21.720 Of the develop markets have aged infrastructure, is a great opportunity. 0:07:21.960 --> 0:07:23.760 So that would probably be the last area that we'd 0:07:23.760 --> 0:07:27.760 feel we need to complete sort of our product capabilities. 0:07:28.080 --> 0:07:30.080 Denny, great to touch base. Thank you very much. 0:07:30.440 --> 0:07:32.400 Less of luck with your meetings over the next couple 0:07:32.440 --> 0:07:36.080 of days. It's Jenny Johnson, the CEO of Franklin Templeton 0:07:40.880 --> 0:07:41.560 joining me now. 0:07:41.840 --> 0:07:45.560 Is mendeep seeing senior tech analysts for Bloomberg Intelligence. 0:07:45.800 --> 0:07:48.320 It's a relief to see me rather than the other three. 0:07:48.520 --> 0:07:50.800 Ah okay, so we're going to get a few more 0:07:51.000 --> 0:07:53.240 tech results. Part of Magnificent seven are going to get 0:07:53.280 --> 0:07:58.600 delivered today. Talk to me about Google owner, Alphabet, Google, 0:07:58.720 --> 0:07:59.600 whatever weight run. 0:07:59.640 --> 0:08:00.640 Do you like to look at it? 0:08:00.880 --> 0:08:03.760 Are they more immune just simply because I've got to 0:08:03.840 --> 0:08:08.440 advertise on the platform relative let's say Mata or to Snap. 0:08:08.480 --> 0:08:10.000 I mean, that's the consensus in the story. 0:08:10.040 --> 0:08:11.040 Do you believe that? 0:08:11.520 --> 0:08:11.760 Yes? 0:08:11.920 --> 0:08:16.000 And also the divergence and expectations. So Meta is expected 0:08:16.040 --> 0:08:19.480 to grow twenty one percent, Google ten percent, and when 0:08:19.520 --> 0:08:22.560 you parse through their business segments, you know the search 0:08:22.920 --> 0:08:25.680 will likely be resilient. We know they're not losing any 0:08:25.720 --> 0:08:30.040 share to Open AI and bing and YouTube. I mean 0:08:30.080 --> 0:08:33.800 that ten percent is a low bogie, so you probably 0:08:33.800 --> 0:08:37.920 should expect some upside there cloud another big segment for them, 0:08:38.080 --> 0:08:39.760 And you mean we really. 0:08:39.640 --> 0:08:42.080 Used to get very obsessed. Well not uc are obsessed, 0:08:42.080 --> 0:08:44.520 but we are absolutely obsessed. What happens in cloud at Amazon, 0:08:44.520 --> 0:08:48.320 what happens in cloud with Alphabet, How has that grown 0:08:48.559 --> 0:08:50.719 and where can that get to and how important is it? 0:08:50.920 --> 0:08:51.160 Yeah? 0:08:51.200 --> 0:08:54.600 So, think of the three hyperscalers Amazon, Microsoft and Google. 0:08:54.679 --> 0:08:56.920 That makes up about one hundred and eighty billion in 0:08:56.960 --> 0:08:59.920 cloud revenue, and they were growing at north of thirty percent. 0:09:00.160 --> 0:09:03.320 This year, the growth has decelerated to about eighteen to 0:09:03.360 --> 0:09:06.960 twenty percent. So what everyone is looking for that acceleration 0:09:07.160 --> 0:09:09.880 next year because these are the companies that are buying 0:09:09.880 --> 0:09:13.640 all the nvidio GPUs and if that doesn't translate into 0:09:13.640 --> 0:09:16.160 real revenue, then we got a problem. But so far, 0:09:16.559 --> 0:09:19.520 the story has been that hyperscalers will provide the GPU 0:09:19.559 --> 0:09:23.200 capacity for generative AI, and that's going to reflect in 0:09:23.280 --> 0:09:25.160 twenty twenty four numbers, and. 0:09:25.040 --> 0:09:27.959 That those hyperscalers are also critically important to Amazon as well, 0:09:27.960 --> 0:09:31.240 aren't they? And Amazon's going to be a lovely insight 0:09:31.440 --> 0:09:35.320 into how strong we are or not on the consumer 0:09:35.400 --> 0:09:36.040 side as well. 0:09:36.280 --> 0:09:36.520 Yeah. 0:09:36.559 --> 0:09:39.400 So Amazon is the largest player in the public cloud 0:09:39.400 --> 0:09:41.840 one hundred and eighty billion dollar revenue that I mentioned, 0:09:41.880 --> 0:09:45.640 it's about forty five percent. Microsoft is the second big player, 0:09:45.679 --> 0:09:49.160 and in the case of Amazon, everyone is thinking they 0:09:49.160 --> 0:09:52.640 are behind in that generative AI race and the other 0:09:52.679 --> 0:09:55.360 two are ahead, but clearly you know they are the 0:09:56.000 --> 0:09:59.080 largest player in cloud and if anything, this generative AI 0:09:59.280 --> 0:10:02.560 wave is going to accelerate that shift to cloud because 0:10:02.720 --> 0:10:05.360 you can only do AI training on the cloud. You 0:10:05.400 --> 0:10:06.480 can't do it on prem. 0:10:06.280 --> 0:10:08.000 Are you going to be on AI workkind in this 0:10:08.520 --> 0:10:11.160 reporting season and magnificent seven, I mean, it's all you 0:10:11.240 --> 0:10:13.360 got to do is print those two letters and you're 0:10:13.400 --> 0:10:14.160 off to the races. 0:10:14.320 --> 0:10:16.280 Well, now I think the time has come. 0:10:16.160 --> 0:10:18.680 To guide to make it a bit more discerning, and. 0:10:18.640 --> 0:10:20.760 The twenty twenty four guide is very important. 0:10:20.840 --> 0:10:23.160 So that's where you are going to see companies that 0:10:23.360 --> 0:10:27.240 actually guide to that lift from GPU revenue on the cloud. 0:10:27.640 --> 0:10:30.280 That's where you're going to see, you know, the multiples 0:10:30.320 --> 0:10:31.960 and the estimates go up. 0:10:32.000 --> 0:10:34.680 But so far it's been a huge investment here. 0:10:34.880 --> 0:10:37.520 Everyone is hoping twenty twenty four is when it translates 0:10:37.520 --> 0:10:38.360 into revenue. 0:10:38.559 --> 0:10:41.800 And then if I talk about Microsoft, Microsoft is interesting 0:10:41.880 --> 0:10:44.040 for all of the aspects that We've just touched on 0:10:44.080 --> 0:10:46.880 a little bit of AI, a great deal of cloud, 0:10:46.920 --> 0:10:50.480 but also for them there's the hardware sign of this 0:10:50.600 --> 0:10:53.760 as well. Where does Microsoft fit into the Magnificent seven. 0:10:54.200 --> 0:10:58.080 Well, Microsoft clearly had that early open AI partnership and 0:10:58.120 --> 0:11:00.559 that helped them, you know, in terms of publishing that 0:11:00.679 --> 0:11:04.199 generative AI leadership. But I think the PC side is 0:11:04.240 --> 0:11:07.760 still weak and you're seeing that decline in that Windows revenue. 0:11:07.800 --> 0:11:10.959 Clearly that hasn't changed. Everyone is calling for a PC 0:11:11.120 --> 0:11:13.080 bottom this quarter, but we don't know. 0:11:13.040 --> 0:11:15.439 If that's going to be the case. And in the case. 0:11:15.320 --> 0:11:17.920 Though dine next year, it could be that Microsoft takes 0:11:17.920 --> 0:11:20.080 the bigger hits perhaps out of this grouping. 0:11:20.320 --> 0:11:23.600 Well, so Microsoft has a lot of application software revenue, 0:11:23.679 --> 0:11:27.559 and if they don't, you know, add those co pilots 0:11:27.600 --> 0:11:30.800 to really complement that, and if there is actually real 0:11:30.920 --> 0:11:34.400 destruction from generative AI, I would argue Microsoft is at risk. 0:11:34.440 --> 0:11:37.920 But nobody doubts that office you know, will continue to 0:11:37.960 --> 0:11:41.200 be strong because they added these copilots and that will 0:11:41.200 --> 0:11:43.160 be a nice add on to you know, what you 0:11:43.160 --> 0:11:44.600 already have from the office suite. 0:11:44.640 --> 0:11:46.600 So Europe is under pressure. 0:11:47.360 --> 0:11:51.480 Technically, we can argue about recession China. You can debate 0:11:51.520 --> 0:11:53.360 whether they're going to make five percent growth or not, 0:11:53.440 --> 0:11:56.840 but it's tough in China at the moment with those 0:11:56.840 --> 0:12:02.040 two global markets very much under pressure. Sure, who is 0:12:02.160 --> 0:12:05.640 perhaps the weakest link in the Magnificent seven vicariously exposed 0:12:05.640 --> 0:12:06.600 to the China story. 0:12:06.840 --> 0:12:09.360 I mean, I would say Apple, no doubt about it. 0:12:09.880 --> 0:12:13.120 To buy a new Apple fix revenue perspective, twenty percent 0:12:13.240 --> 0:12:16.679 revenue and the supply chain exposure is huge, So there 0:12:16.760 --> 0:12:19.600 is a big risk that clearly lies with Apple. The 0:12:19.679 --> 0:12:22.280 other ones are somewhat insulated because they don't have a 0:12:22.280 --> 0:12:25.640 lot of revenue exposure. And that's where the Internet names 0:12:25.679 --> 0:12:28.439 like alphabet and Meta, I mean, they have no exposure 0:12:28.480 --> 0:12:31.120 at all. So clearly Apple is the one to watch 0:12:31.120 --> 0:12:33.760 out for in terms of that geo revenue exposure. 0:12:33.840 --> 0:12:35.320 Okay, and then of course we have the friends showing 0:12:35.400 --> 0:12:36.760 on shore and let's see what the numbers are when 0:12:36.760 --> 0:12:39.679 they drop. Thank you so much for stopping buy That 0:12:39.840 --> 0:12:49.800 is Mandy sing on All Things Technology. 0:12:48.840 --> 0:12:52.400 Mans Cranny and Cameron Dawson CIO at New Edge Wealth 0:12:52.520 --> 0:12:54.480 both with us right now in Marcuts. 0:12:54.520 --> 0:12:56.480 We can see a bit of a lift. We do 0:12:56.559 --> 0:12:57.160 see those. 0:12:57.000 --> 0:13:01.440 Earnings coming out and Cameron, it's just been catching my eye. 0:13:01.520 --> 0:13:03.480 Everything has been beating. 0:13:03.440 --> 0:13:07.240 Yeah, much better than expected when it's looking at the consumer, 0:13:07.280 --> 0:13:10.240 better than expected, some industrials better than expected. We just 0:13:10.280 --> 0:13:13.840 got share. When Williams come out, they raise guidance significantly. 0:13:14.240 --> 0:13:17.520 That's a housing related stuff, right, it's paint people spending 0:13:17.520 --> 0:13:20.760 more in their houses. So clearly the consumer in these 0:13:20.800 --> 0:13:24.800 earnings is holding up better than expected, somewhat confirming that 0:13:24.840 --> 0:13:26.920 better retail sales that we got in September. 0:13:27.120 --> 0:13:29.680 Do you think the whole narrative, the whole story about 0:13:29.720 --> 0:13:34.720 excess savings running off is we're overplaying it when you 0:13:34.720 --> 0:13:36.880 look at the wealth report that we both all three 0:13:36.920 --> 0:13:38.600 of us looked at yesterday. So do you think the 0:13:38.720 --> 0:13:43.280 xcess savings narrative dropping so aggressively is folly? 0:13:43.520 --> 0:13:45.560 You should be. You know, the resilience of the consumer 0:13:45.920 --> 0:13:47.160 is a bind in these numbers. 0:13:47.520 --> 0:13:50.280 I think that it's a fading tailwind, but it's not 0:13:50.480 --> 0:13:53.120 a headwind because the consumer balance she is healthy. 0:13:53.120 --> 0:13:54.440 The risk is it turns into a head too in 0:13:54.440 --> 0:13:56.120 twenty twenty four. That's the debate, isn't it. 0:13:56.320 --> 0:13:59.720 Certainly, But if you look at things like consumer credit 0:13:59.760 --> 0:14:03.199 card as a percentage of disposable income. They're just back 0:14:03.240 --> 0:14:06.120 to their twenty nineteen levels, meaning that it's gone up 0:14:06.240 --> 0:14:09.560 a lot. Consumers are using more debt, but it's not 0:14:09.960 --> 0:14:12.680 nearly where it was during the Great Financial Crisis. So 0:14:12.840 --> 0:14:16.280 ASTs have been growing faster than liabilities pretty much consistently 0:14:16.320 --> 0:14:18.880 for the last seven years. The consumer balance sheet still 0:14:18.960 --> 0:14:22.480 is healthy, even though at the margins it's deteriorating. 0:14:22.520 --> 0:14:25.800 So there's a real sort of bigger picture question about composition. 0:14:25.800 --> 0:14:28.680 And we're talking about this with Tom Sousaurus yesterday when 0:14:28.680 --> 0:14:30.880 it came on and said, what you're seeing is that 0:14:30.920 --> 0:14:35.320 the Fed policy rates have really affected lower income individuals 0:14:35.640 --> 0:14:37.880 as smaller businesses disproportionately. 0:14:37.960 --> 0:14:39.440 You have seen this again and again. 0:14:39.480 --> 0:14:42.600 So when do they start to have a bigger impact 0:14:42.720 --> 0:14:46.040 on the overall general narrative, or can you see this 0:14:46.160 --> 0:14:49.760 dispersion and continue where the overall averages keep chugging along. 0:14:49.920 --> 0:14:50.080 Well. 0:14:50.120 --> 0:14:53.000 The thing that lower income individuals and smaller businesses have 0:14:53.080 --> 0:14:55.160 in common is that they tend to have more of 0:14:55.200 --> 0:14:59.160 that floating rate debt. It's bigger companies and higher income 0:14:59.200 --> 0:15:01.920 people who are a to turn out their debt borrow 0:15:02.000 --> 0:15:05.760 at thirty year mortgages or issue thirty year bonds, and 0:15:05.840 --> 0:15:09.440 so it's those larger borrowers that have not been pinched 0:15:09.480 --> 0:15:12.160 by these higher interest rates. It's why small caps and 0:15:12.240 --> 0:15:15.920 microcaps are underperforming so much, they have more floating rate debt. 0:15:16.120 --> 0:15:18.280 But this was the we were just talking about this 0:15:18.560 --> 0:15:20.640 in the break, as Gina left I said, I thought 0:15:20.640 --> 0:15:22.480 we were supposed to run into some kind of a 0:15:22.560 --> 0:15:26.120 significant debt cliff moment for corporates refinancing. 0:15:26.160 --> 0:15:27.359 They have refinancing. 0:15:27.720 --> 0:15:30.160 Now, we haven't made a huge deal out of anybody 0:15:30.240 --> 0:15:34.200 missing the refinancing yet, but as you look at debt 0:15:34.280 --> 0:15:39.280 costs going forward, and you look at the returns going 0:15:39.320 --> 0:15:41.880 forward with debt costs, surely that begins to impinge as 0:15:41.920 --> 0:15:42.520 well well. 0:15:42.560 --> 0:15:46.120 Certainly because eventually you have to refinance that debt. And 0:15:46.160 --> 0:15:49.600 if you look at the corporate treasury market, a lot 0:15:49.680 --> 0:15:52.560 or corporate bond market, a lot of them have average 0:15:52.640 --> 0:15:55.920 yields that are less than the entirety of the treasury curve. 0:15:56.320 --> 0:15:58.920 Entirety of the treasury curve. So eventually you will have 0:15:59.000 --> 0:16:02.280 to refinance at these much higher rates. And that's the 0:16:02.320 --> 0:16:05.200 reality of higher for longer starting to bite. 0:16:05.400 --> 0:16:07.800 This is what everyone thought, Okay, and this to me, 0:16:07.840 --> 0:16:10.000 I'm so glad you brought this up. Mannis, because to me, 0:16:10.560 --> 0:16:13.960 there's been this sort of overhang. Back in twenty fifteen, 0:16:13.960 --> 0:16:15.800 twenty sixteen, we were. 0:16:15.640 --> 0:16:17.080 Talking about beer goggles. 0:16:17.320 --> 0:16:20.360 Dallas FED President Kaplan came on and said, everyone's looking 0:16:20.440 --> 0:16:22.640 at this world with beer goggles of low rates, and 0:16:22.640 --> 0:16:25.720 that's why they're buying anything. Anything can look beautiful when 0:16:25.720 --> 0:16:28.040 you go out and you take a little assets with 0:16:28.120 --> 0:16:31.720 low rates, with zero rates, and now you're expecting armageddon 0:16:31.760 --> 0:16:34.680 because you've had a world refinance at that and you haven't. 0:16:35.040 --> 0:16:38.120 And that's really sort of the surprise. How much can 0:16:38.160 --> 0:16:43.000 companies survive by just basically relying on investors to force 0:16:43.080 --> 0:16:46.640 them to stay afloat so the investors don't get totally 0:16:46.680 --> 0:16:48.560 slammed with losses, right, I mean, this is something that 0:16:48.560 --> 0:16:51.480 they've you've been seeing with helping refinance at decent rates. 0:16:51.680 --> 0:16:54.560 I think we're just now starting to see the pinch 0:16:54.640 --> 0:16:57.680 come through because we've been in this for eighteen months 0:16:57.720 --> 0:17:01.080 a little almost two years now. That's allowed extend and 0:17:01.120 --> 0:17:04.439 pretend you can try to push off the refinancing as 0:17:04.520 --> 0:17:07.720 much as possible, because remember we're also conditioned for the 0:17:07.760 --> 0:17:10.320 FED to come in and cut rates really quickly, and 0:17:10.359 --> 0:17:12.479 the Fed's telling you they're not going to do that. 0:17:12.600 --> 0:17:16.040 So it's the reality setting in that, Hey, I've delayed 0:17:16.080 --> 0:17:18.720 refinancing as long as possible. Now I kind of have 0:17:18.800 --> 0:17:20.959 to face the music, and the end result is much 0:17:21.040 --> 0:17:21.639 higher rates. 0:17:21.720 --> 0:17:23.760 So have you shifted your views over the past couple 0:17:23.840 --> 0:17:24.240 of weeks. 0:17:24.720 --> 0:17:28.840 Yeah, So we have been underweight duration for the entirety 0:17:28.880 --> 0:17:31.359 of the year, thinking that there was this floor under 0:17:31.359 --> 0:17:34.159 interest rates because of that higher for longer and an 0:17:34.240 --> 0:17:37.000 upward bias to interest rates. But now we're starting to 0:17:37.000 --> 0:17:39.480 see a world where the risk reward simply looks better. 0:17:39.800 --> 0:17:42.040 If you take a one hundred basis point move higher 0:17:42.040 --> 0:17:44.800 in yields versus lower in yields, at least you have 0:17:44.880 --> 0:17:48.480 this higher base yield offsetting some of those losses. So 0:17:48.560 --> 0:17:51.000 when we think for long term investors, we're starting to 0:17:51.040 --> 0:17:54.919 find interest in compelling opportunities, not just within treasuries but 0:17:54.960 --> 0:17:58.880 within munis. We're not tactically going full overweight duration, saying 0:17:58.920 --> 0:18:00.960 the peak and yields is in. There's still a lot 0:18:01.000 --> 0:18:03.720 of risk, but that's where we're starting to find opportunities 0:18:03.720 --> 0:18:04.160 at the market. 0:18:04.160 --> 0:18:06.440 It's almos going to give cameras are like her introductor 0:18:06.640 --> 0:18:08.760 drum drum roll, because she's in good company and she 0:18:08.840 --> 0:18:13.920 used got wayly from Black Walk. She's got Alliance Alliance 0:18:13.960 --> 0:18:16.400 alongside you. So what goes through my mind and I'm 0:18:16.400 --> 0:18:18.280 just going to I'm going to slightly combat you there, 0:18:18.280 --> 0:18:20.439 which is isn't it just fear of being left behind 0:18:20.440 --> 0:18:23.760 that you've got to pivot on your duration call? 0:18:23.880 --> 0:18:25.960 Certainly, of course we don't want to be too cute 0:18:26.000 --> 0:18:28.880 with it with the timing, but we're long term investors. 0:18:28.920 --> 0:18:30.480 And if you think of it just in terms of 0:18:30.520 --> 0:18:32.879 asset liability matching and thinking. 0:18:32.720 --> 0:18:36.280 So aplication you're shifting, is it a dramatic shifting in 0:18:36.320 --> 0:18:38.399 you're taking a duration or is it incremental manners? In 0:18:38.440 --> 0:18:41.119 other words, we see an opportunity and we add incrementally. 0:18:41.320 --> 0:18:44.600 It's incremental because tactically we have not made this call 0:18:44.640 --> 0:18:46.720 that we say we've seen a peek and yields. We 0:18:46.840 --> 0:18:49.560 still see this supply and demand issue where we do 0:18:49.680 --> 0:18:52.879 know we have higher deficits and that is increasing supply 0:18:52.960 --> 0:18:55.560 at the same time that demand is falling. Hue is 0:18:55.560 --> 0:18:57.399 not here to save the day. We don't have the 0:18:57.400 --> 0:18:59.719 flight to safety bid. Yet We'll have to see how 0:18:59.760 --> 0:19:02.880 data emerges, and we shouldn't forget we have this big 0:19:02.960 --> 0:19:05.960 unknown about the Bank of Japan and potential changes to 0:19:06.040 --> 0:19:09.040