Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane
Speaker 1: jay Ley. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg I
Speaker 1: wonder if Gabrielle Gabriella would want to dream baroness this
Speaker 1: week so you're better prepared to talk to Gabriella. Not
Speaker 1: necessarily nice big photograph of Lloyd Blank. Find of Goldman
Speaker 1: sax On the Barons. Uh. Gabriella Santos is the vice
Speaker 1: president for JP Morgan and our global market strategist for
Speaker 1: JP Morgan Asset Management. Gabriella, thank you very much for
Speaker 1: being here. Good morning. You know, as I was mentioning
Speaker 1: to Tom, looked like there was a crush people who
Speaker 1: really wanted to be in that room, And I'm wondering
Speaker 1: if you felt that there may be obviously you were
Speaker 1: not there, if there was a change in sentiment because
Speaker 1: of the remarks that were televised and broadcast by the
Speaker 1: President on that Friday, and whether that has had any
Speaker 1: effect in your mind about investor psychology. So if we
Speaker 1: think about how investors are feeling right now. They're feeling
Speaker 1: quite good about the global economy. They're feeling like we're
Speaker 1: finally on solid footing, but they're also wondering what could
Speaker 1: disrupt that balance. And so what I think UH investors
Speaker 1: were looking for in that speech was any sort of
Speaker 1: UH sign or inkling really around trade policy, which is
Speaker 1: seen as perhaps one of those risks that could disrupt
Speaker 1: this really good environment we're seeing for the global economy.
Speaker 1: And in that sense, I do think it was is
Speaker 1: well received. Uh. It was seen as a pragmatic UH
Speaker 1: speech by someone who doesn't want to disrupt that balance
Speaker 1: for the U. S and global economy. But I do
Speaker 1: still think that there are some trade anxieties lingering in
Speaker 1: the back of investors minds. Well, certainly we've got the
Speaker 1: last meeting, I think today in Montreal of the last
Speaker 1: meeting for this round of NAFTA renegotiation talks. Having said
Speaker 1: that we don't know what's going to happen, UH, let's
Speaker 1: say things stay the same status quo Latin America specifically,
Speaker 1: I want to get your thoughts investing in Latin America.
Speaker 1: I smile when you say that, because it's it's really
Speaker 1: the first time, I would say, in six seven years
Speaker 1: where Latin America is actually a positive story, right, so
Speaker 1: we do see growth turning around. Latin America is likely
Speaker 1: to grow at potential this year for the first time
Speaker 1: in those six seven We've got rising commodity prices. That's
Speaker 1: got to be good for countries that mind copper for
Speaker 1: Exa flore Brazil getting past their petrobrass scandal. Yes, so
Speaker 1: rising or just stable commodity prices are definitely a support
Speaker 1: for the region. But even more than that, I think
Speaker 1: it's about a lot of countries having really hit rock
Speaker 1: bottom when it comes to economic growth, and Brazil really
Speaker 1: comes to the forefront. Uh So it's about a cyclical
Speaker 1: improvement and also the perspective of a structural improvement with
Speaker 1: several changes in administrations towards a more business family stand Gabriela.
Speaker 1: We spoke with a finance maner of Indonesia today, a
Speaker 1: lengthy conversation with Mr Maliani Um. Indonesia's maybe a textbook
Speaker 1: of the complexity we don't see as equity investors. It's
Speaker 1: not just about buying a telephone company anymore. Is that
Speaker 1: how do you go about acquiring shares to make capital
Speaker 1: gain in these complex stories, these complex nations. So, I mean,
Speaker 1: if you think about all of the different puzzle pieces
Speaker 1: that make up this term that we use of emerging markets,
Speaker 1: it's really very very complex, right, And and so the
Speaker 1: way that we approach emerging markets is we have to
Speaker 1: have people on the ground, right, people who truly understand
Speaker 1: the dynamics in these economies, the dynamics and the political sphere,
Speaker 1: and frankly just the dynamics at the company level. Right.
Speaker 1: So the way that we think about emerging markets is
Speaker 1: really the most important thing when we look at the
Speaker 1: long run is earnings, right, and that's the same for
Speaker 1: emerging markets as well. So we have to have a
Speaker 1: good feel for how earnings growth is looking in a
Speaker 1: variety of companies countries. Just wants to know what to
Speaker 1: buy or what to sell. Like should you be going
Speaker 1: into the E t F E E M, for example,
Speaker 1: what t H B I shares I shares CI emerging
Speaker 1: markets CTF. So I would say that overall it's a
Speaker 1: positive environment for emerging markets as a whole. Right, So
Speaker 1: if passive is your only approach, that that's fine. But
Speaker 1: if you are able to take the active approach. UM,
Speaker 1: the there's definitely value to be had. And if you
Speaker 1: look at the correlations between countries and emerging markets, they're
Speaker 1: actually pretty low. So you are getting a bang for
Speaker 1: your book for actually picking countries, picking stocks, and really
Speaker 1: having that on the ground field. Give us a country.
Speaker 1: So as we were mentioning Latin America, I feel quite
Speaker 1: optimistic about um and it's not just because I'm Brazilian,
Speaker 1: but I do think that there's a lot to be
Speaker 1: said about Brazil this year with growth finally really picking
Speaker 1: up and as a result, earnings growth picking up as well.
Speaker 1: Where's week dollar play into that? If there's some monution
Speaker 1: gets his way, even if it's eventually adjusted as it was.
Speaker 1: Does does week dollar play into uh? Does week dollar
Speaker 1: push against gains in those Latin American countries? No? Week
Speaker 1: dollar is is really great actually for emerging markets. UM.
Speaker 1: So if we think about just two main ways, right,
Speaker 1: So a week or dollar relieve some pressure on inflation
Speaker 1: in a lot of these countries. That allows their central
Speaker 1: banks to keep rates pretty low, So that's helpful. That's
Speaker 1: a change from with the strong dollar. And then lastly,
Speaker 1: if you have a weaker dollar, it's also about the
Speaker 1: signal it sends. It sends the signal that growth is
Speaker 1: better elsewhere, that investors have a good risk appetite for
Speaker 1: countries outside of the US. So all those factors actually
Speaker 1: help emerging markets. A week dollar is a good thing. Okay,
Speaker 1: So the weak dollar is a good thing. And if
Speaker 1: you don't necessarily feel constrained to become a passive investor,
Speaker 1: is there any industry group or any specific area that
Speaker 1: you would recommend, Because I know that there are elections
Speaker 1: coming up all over Latin America this year, So emerging
Speaker 1: markets has beneath the surface, uh shifted shapes over the
Speaker 1: past couple of years. It started rebounding in was purely
Speaker 1: a commodity story, so materials, energy, and that was it.
Speaker 1: We've moved on from that. Last year it was all
Speaker 1: a story about technology and so Asia is the biggest
Speaker 1: gainer there. I think this year it's a difference story. Um,
Speaker 1: it's really two stories. It's about the improvement in domestic demand.
Speaker 1: So when we talk about Brazil turning around, the consumer
Speaker 1: coming back, So that would argue for things like consumer names,
Speaker 1: consumer discretionary as well as financials. And I think the
Speaker 1: other second bigger story is also about big export powerhouses
Speaker 1: benefiting from the improvement in industrial production and capex and
Speaker 1: developed markets, and that would argue for things like industrials
Speaker 1: in Asia. Well it seems as so Boeing not to
Speaker 1: mention Asia for your second, but Boeing is certainly believing
Speaker 1: in part of this because of the ongoing negotiations to
Speaker 1: acquire a part or all of em Air, the aircraft
Speaker 1: manufacturer in Brasila, Brazil. So that's still I would say
Speaker 1: there's national trophy, right, so there are some political considerations
Speaker 1: there the pres and this this is worse than talking
Speaker 1: about blockchain with or bitcoin. I didn't say a thing
Speaker 1: about bitcoin, did not going there. Gabriela Santos, Thank god,
Speaker 1: we're out of time with JP. Morgan Asset Management. Thank
Speaker 1: you so much. Whether it's down Dana Telsey, that tells
Speaker 1: the advisory group. Dana, thank you for joining us. I'm
Speaker 1: Bloomberg Radio, Bloomberg Television earlier where we dived into luxury.
Speaker 1: Let's dive right now to the death of retail. Retail
Speaker 1: is terrible. All the charts are ugly, except in junieh
Speaker 1: of last year, they all started to vault higher in
Speaker 1: share price. Macy's up. Maybe it's a big thing up
Speaker 1: a little bit, but some of these stocks have really moved.
Speaker 1: Let's go back. Why did retails start to do better
Speaker 1: summer of last year? The group and Tom thank you
Speaker 1: very much for having me exactly right. The group bottomed
Speaker 1: in August and in mid November it improved with the
Speaker 1: initial reads that this that the holiday see in the
Speaker 1: fourth quarter outlook was off to a solid start, and
Speaker 1: that was followed by tax reform becoming a reality. And
Speaker 1: then from their keep it from mid August to mid November,
Speaker 1: our stocks are up six eight percent versus the market,
Speaker 1: up just under five and then from mid November until
Speaker 1: now the stocks are up almost sev versus the market
Speaker 1: up ten percent. And frankly, valuations on current consensual consensus
Speaker 1: are certainly reasonable and earnings in our group are going
Speaker 1: to benefit from lower tax rates, so you're still going
Speaker 1: to have some momentum. With the easy comparisons, I mean
Speaker 1: within this is the y up and is it at
Speaker 1: the top line revenue in that crazy mix of unit
Speaker 1: and price, or is it down the income statement where
Speaker 1: they're finally going to maybe generate some cash. Which is
Speaker 1: it at the top or the middle of the income statement.
Speaker 1: It's both. I've got the top because there's a stronger
Speaker 1: response to the fashion cycle. I got I have in
Speaker 1: the middle. It's better position store fleets, it's improved the
Speaker 1: commerce capability these I've got a macro. I have hir
Speaker 1: income consumers and lower income consumers, each having more disposable dollars.
Speaker 1: And I don't have the election hangover like you had
Speaker 1: last year, Dana pim Fox. Here are you on Instagram
Speaker 1: Buy any chance? Not right now? Okay? But you are
Speaker 1: a member, right okay? So you're one of eight hundred
Speaker 1: million users. Of those users are actually connected to a
Speaker 1: business by choice. And where I'm going with this is
Speaker 1: that Facebook, of course, the parent company of Instagram, now
Speaker 1: has agreements to take data from in store UH positions
Speaker 1: of customers. In other words, they can geo locate you
Speaker 1: in a store. They then take the data from the
Speaker 1: store and combine that with your online activity. Is that
Speaker 1: something that you're seeing as being productive not only for
Speaker 1: obviously Facebook, but for the stores themselves. You see more
Speaker 1: focus on knowing more about your customer, whether it's from
Speaker 1: social media, whether it's from CRM systems, whether it's from
Speaker 1: enhanced loyalty programs. Instead of the customer just going to
Speaker 1: the store, the store is coming to the customer. But
Speaker 1: you need to marry this activity of buying with the
Speaker 1: activity of doing. And what we're seeing is we're seeing
Speaker 1: experiential retail come to the forefront. Well, the reason I
Speaker 1: mentioned this all is beriential retail PIM is where your
Speaker 1: will experience. It just means spend more. But think about it.
Speaker 1: You have gyms like Yoga Works, you have beauty salons
Speaker 1: like dry Bar. You have movies which are now wine
Speaker 1: dine and reclined theaters like I Pick. So I have
Speaker 1: a new way that customers are trafficking and center JANEA
Speaker 1: has helped us wine dine and he doesn't even need
Speaker 1: the movie. He just wants to do all three. He
Speaker 1: doesn't you need it all and it happens. Okay. But
Speaker 1: having said that, what I was going with this Instagram
Speaker 1: an online connection is about a third of the content
Speaker 1: that people who use Instagram save you know the new
Speaker 1: save post feature are from business accounts, right, so that
Speaker 1: means they're using it as a wish list of products
Speaker 1: that they may eventually purchase. And as a result, you
Speaker 1: now know that as a merchant and you can help
Speaker 1: them make that purchase in some way exactly. Well, what
Speaker 1: are the things you're seeing is where are companies investing
Speaker 1: their advertising dollars. You've seen a shift going on, and
Speaker 1: the shift for social media and Instagram is what we're
Speaker 1: seeing happen. Dana. One final question, who's battling best against
Speaker 1: the onslaught known as Gucci? Who's like like fighting Gucci
Speaker 1: the best? I mean, you have to think there's a
Speaker 1: couple of companies out there. Have LVMH, who has so
Speaker 1: many brands and so many creative directors. You have PVH
Speaker 1: with Calvin Klein and with Tommy Hilfiger. And let's see
Speaker 1: what caring does given the fact that Gucci, I mean,
Speaker 1: as you said, the momentum is continuing. I think something
Speaker 1: conservative for you, Dana, like the Margaret Leather pump. You
Speaker 1: can't make this up, folks, The Queen Margaret Leather pump
Speaker 1: at Bergdorf one thousand, one fifty dollars. Every home should have,
Speaker 1: well at least the black ones, but maybe even pin
Speaker 1: the pink and the black ones as well. Dana, Telsey,
Speaker 1: thank you so much, greatly appreciate it. With Telsey Advisory
Speaker 1: Group as well. Just the final chapter of his book,
Speaker 1: call It twenty Pages, is probably a good place for
Speaker 1: the President to start a strategy for competing in a
Speaker 1: globalized world. After the Pierceborgan interview Edward Alden. His book
Speaker 1: Failure to Adjust is absolutely phenomenal. It is a dense
Speaker 1: pro read on how Americans got left behind and the
Speaker 1: global economy. Ted Alden, good morning, Um, is you write
Speaker 1: about the startling comments the President made to Mr Morgan
Speaker 1: about Europe. I've had a lot of problems with the
Speaker 1: European Union and may morph into something very big. Um,
Speaker 1: He's gone after people that we usually think of, Why
Speaker 1: go after Europe? Well, I presume the reason he's going
Speaker 1: after Europe is the same reason he's going after Mexico
Speaker 1: and after South Korea and after China, which is the
Speaker 1: large trade surplus that Europe, mostly Germany runs with the
Speaker 1: United States. But it is an odd choice. I mean,
Speaker 1: if you look at where the real challenges on trade lie,
Speaker 1: China looms by far the largest. We could sure use
Speaker 1: the Europeans help on that one. We could use the
Speaker 1: Europeans help, which speaks of maybe multilateral is too strong. Uh,
Speaker 1: some would say hope in prayer. I don't mean to
Speaker 1: give it, but I mean, really the body language that
Speaker 1: Davos was, Okay, we're bilateral, but we're gonna make the rules.
Speaker 1: Is that what he wants with Europe as well? We're bilateral,
Speaker 1: but we make the rules on bree cheese. I don't know.
Speaker 1: It's it's a little puzzling. I mean, you know, the
Speaker 1: chance to make the rules on breeches and it wasn't
Speaker 1: gonna happen even there. But that was the t tip talks,
Speaker 1: and those have been suspended either the Europeans nor this
Speaker 1: administration or particularly eager to move forward to. But I
Speaker 1: would think that there are some at least some lowest
Speaker 1: common denominator possibilities for cooperation and and and that would
Speaker 1: be on China. I mean, European companies are having the
Speaker 1: same problems in China that American companies are having. Um,
Speaker 1: that's a much bigger fish to fry, it seems to
Speaker 1: me than than worrying about Germany's trades are plus with
Speaker 1: the United States, most of which is, you know, kind
Speaker 1: of fairly come by that. Germans are a great manufacturing nation.
Speaker 1: They make really good products. That's kind of the way
Speaker 1: the world's supposed to work on question. Do we have
Speaker 1: a quote unquote excuse me, it's a plague, folks, massive
Speaker 1: trade deficit? Do we have a massive trade deficit with Germany? Well,
Speaker 1: it's I mean it's large, it's you know, in the
Speaker 1: sort of sixty seventy billion dollar range. But if you know,
Speaker 1: if you compare it to the definite of China, which
Speaker 1: over three fifty billion dollars. No, I don't think massive
Speaker 1: is the right word. I think significant. Perhaps I'm running
Speaker 1: based on the title of your book, Failure to Adjust
Speaker 1: how Americans got left behind in the global economy. What
Speaker 1: would be a specific example of something that we would
Speaker 1: see in another country that we don't see here that
Speaker 1: you find that we're left behind? Oh, a whole bunch
Speaker 1: of things. I mean, you look at at the existence
Speaker 1: of apprenticeship programs and and work education experience far more
Speaker 1: prevalent in Europe. You look at their system for supporting
Speaker 1: unemployed workers and getting them back into the job market.
Speaker 1: The average European country spends five or six times what
Speaker 1: we do. Okay, but hang on, hang on right there, okay,
Speaker 1: So hang on right there with unemployment, So why do
Speaker 1: you have chronically high unemployment in a place like Spain.
Speaker 1: Oh well, look, I mean Spain is not, you know,
Speaker 1: particularly the best model here, and there are lots of
Speaker 1: reasons for high unemployment. Um, what I'm saying is that
Speaker 1: if you lose your job in Germany or Denmark, or
Speaker 1: Sweden or most of them. Wait wait wait wait wait
Speaker 1: wait wait. You can't cherry pick this, can you. I mean,
Speaker 1: I'm just saying, Look, if you look at the europe
Speaker 1: you're telling you're saying that the United States has got
Speaker 1: left behind for unemployment benefits. We do have unemployment insurance,
Speaker 1: and you have a completely different mindset when it comes
Speaker 1: to the labor market here because of the effect of unions. Right,
Speaker 1: Unions sit on the boards of most companies in Germany.
Speaker 1: Oh look, I have I would agree that there are
Speaker 1: reasons for the difference. I'm just saying that if you're
Speaker 1: trying to get maximum benefits out of your workforce, retrain
Speaker 1: them for the jobs that are available. You've got six
Speaker 1: million jobs open in the United States right now, and
Speaker 1: manufacturers crying bloody murder because they don't have folks with
Speaker 1: the skills to fill those jobs. And we are doing
Speaker 1: little or nothing as a country to try to meet
Speaker 1: that demand, so you feel that the it's a government's
Speaker 1: responsibility to do that. No, not necessarily. I mean, if
Speaker 1: you look at the Swedish model, it's all run by
Speaker 1: the companies with some cooperation from the union. Excuse me,
Speaker 1: I got a bit of tom I think I think
Speaker 1: everybody's got the plague. I mean, it's it is. It's
Speaker 1: a bad season, absolutely, it is a bad bad season.
Speaker 1: Within you know all that we're going What are you
Speaker 1: even listened for from the state of the Union. I
Speaker 1: assume it's going to be the same discussion as Davos,
Speaker 1: which is, you know, this is the way America is
Speaker 1: doing it. We're angry, We're an aggrieved America. So these
Speaker 1: are the rules, and if you want to participate, great,
Speaker 1: But is that a trade policy? Well, it's not a
Speaker 1: trade policy in the sense that you've got to make
Speaker 1: some choices. Obviously you can pick fights, and there's some
Speaker 1: fights worth picking, but I think the president has got
Speaker 1: to decide which those are. Are we more worried about NAFTA,
Speaker 1: or be more worried about Korea, or may be more
Speaker 1: worried about China? Are we more worried about Germany? What's
Speaker 1: the order of priority? And how is the United States
Speaker 1: going to go after these we we we may know
Speaker 1: more very soon when the announcements are made with respect
Speaker 1: to China trade policy, which are which are coming soon.
Speaker 1: But I'm hoping to get some clear sense of the
Speaker 1: hierarchy of priorities for this administration on trade. Well, the
Speaker 1: most recent news perhaps is the Bombardier deal. Right. Bombardier
Speaker 1: can now start shipping those C series jets to Delta
Speaker 1: air Lines because of that ruling of the U. S
Speaker 1: Trade Panel that was on Friday, Right, And so that
Speaker 1: means that Boeing isn't going to get what it wants.
Speaker 1: Is this an indication of the kind of things you're
Speaker 1: talking about? Well, I mean you can't necessarily conflate this
Speaker 1: with the Trump administration's policy. That decision was made by
Speaker 1: the International Trade Commission, which is an independent body, long
Speaker 1: history of independence. They looked into the case and simply said,
Speaker 1: you know, Boeing's claim for having been injured doesn't hold up,
Speaker 1: and I think a lot of the analysts looking at
Speaker 1: it thought that was the correct decision. Um Interestingly, though,
Speaker 1: those planes are now coming from Alabama. I mean, bombard
Speaker 1: you entered into a joint venture with Airbus to produce
Speaker 1: them inside the United States, in part because they were
Speaker 1: having their own problems, but in part to get around
Speaker 1: what they feared would be tariffs. So so it doesn't
Speaker 1: that end up being a good thing for the United States. Absolutely,
Speaker 1: I mean one of the really interesting things about Trump's
Speaker 1: policy is that in the short run, it can pay
Speaker 1: some benefits. I mean you look at h at the
Speaker 1: announcement by Chrysler to bring its light truck production back
Speaker 1: from Mexico. That was a hedge a against the NAFTA
Speaker 1: going away, which would have meant that those vehicles face
Speaker 1: to tariff. You look at the announcements by Apple, you
Speaker 1: look at the expansion announcements by Toyota. I mean, companies
Speaker 1: are trying to say to the President, yeah, we're going
Speaker 1: to bed big on America, and and the tax reform helps, right,
Speaker 1: corporate tax looks a heck of a lot better than
Speaker 1: So there's no question it can pay some benefits. Question
Speaker 1: is do other countries respond in ways that harm us
Speaker 1: export interests? We have seen that, yet we have we
Speaker 1: have economists at all explained to us the trade dynamics
Speaker 1: against savings equal investment and all that. Let's have you do.
Speaker 1: It is a more international relations specialist. When we say
Speaker 1: deficits are bad or surpluses are bad, that's confusing to
Speaker 1: our listeners. What do we want? Do we want a
Speaker 1: little deficit, do we want a surplus? What? What is
Speaker 1: the goal? I mean? I think the goal should be
Speaker 1: global economic growth, and we obviously want a big piece
Speaker 1: of that. And that's where the focus on the depth.
Speaker 1: That doesn't necessarily make a lot of sense because generally speaking,
Speaker 1: when the U. S economy grows more strongly, the trade
Speaker 1: deficit goes up. Um that said, you know, there are
Speaker 1: things you don't want to do. You don't want to
Speaker 1: be running a big budget deficit, which US government has
Speaker 1: been doing for a long time. You don't want a
Speaker 1: currency that's too strong that knocks you out of global markets.
Speaker 1: And I have some sympathy with the Trump administration on
Speaker 1: that one. So so I don't think the trade deficit
Speaker 1: alone is a good metric. But attracting investment, attracting jobs,
Speaker 1: boosting exports, those are all good things that we want
Speaker 1: to pay attention to as a country. Tell all the
Speaker 1: concept formulations failure to adjustice is wonderful booking. Are you
Speaker 1: gallows with Federated, which runs a huge amount of coupon money.
Speaker 1: His focus, he's on municipal bonds. He's had of something
Speaker 1: called the duration committee. R J. Gallo, with your experience
Speaker 1: in in fixed income, what does the duration committee do
Speaker 1: at a shop like Federated? Good morning Tom and him
Speaker 1: and thanks for having me um. Our main role on
Speaker 1: the Duration Committee is to make tactical calls on the
Speaker 1: direction of underlying US market yields, focusing on treasuries obviously
Speaker 1: the you know, sort of the basis for US fixed income.
Speaker 1: Our goal there is to generate alpha, generate access return
Speaker 1: by shading our duration shorter along depending upon what we
Speaker 1: expect from a macroeconomic context and a market outcome. Uh.
Speaker 1: You know, it's a it's a tough job. Calling rates
Speaker 1: is never an easy thing to do, especially with massive
Speaker 1: central bank balance sheets. But that's our goal. Okay, what's
Speaker 1: the level of sweat at the esteemed Federated group this morning?
Speaker 1: And I say that in the sense of all of
Speaker 1: our listeners understand yield up, price down. We're it is
Speaker 1: Federated hide in two thousand. Well, uh, it's interesting you
Speaker 1: say that we we we meet on an ad hoc
Speaker 1: basis and at least monthly to to adjust our duration call.
Speaker 1: We have been tactically short uh for for quite some time,
Speaker 1: but to varying degrees. That worked rather well last year
Speaker 1: for all bonds the eight years, and in of course
Speaker 1: last year was a relentless flattner. This year we're seeing
Speaker 1: all yields heading higher, which is more typical. I looked
Speaker 1: at the data going back forty five years, and only
Speaker 1: four times in forty five years has the yield on
Speaker 1: the ten year gone in a different direction than the
Speaker 1: market weighted average yield on the entire bar Cap Treasury index.
Speaker 1: Last year was one of those years. Phenomenal to say
Speaker 1: that again, that's so important to say it again, Tim,
Speaker 1: jump in here. Only four times in forty five years
Speaker 1: of history of the bar Cap Treasury Index has the
Speaker 1: yield on the index gone in a different mathematical direction
Speaker 1: than the yield in the ten year, and last year
Speaker 1: was one of those years. In other words, it was extraordinary,
Speaker 1: and we anticipate this year will be a little bit
Speaker 1: more normal in that sense that all yields will be
Speaker 1: heading higher. We're not positioning for a massive spike or
Speaker 1: a massive bear market, or a rerun of the taper tantrum.
Speaker 1: But we think that the U S economy, the global economy,
Speaker 1: even the inflation picture are such that yields should be
Speaker 1: heading upwards and and a cautious duration short is warranted
Speaker 1: in terms of what are you how you gonna make money?
Speaker 1: And fixed income well, when when high quality treasury yields
Speaker 1: are rising, you know clearly that's some price loss, that's
Speaker 1: a headwind to total return. But active management and the
Speaker 1: other fixed income sectors UH presents opportunities. Nevertheless, and we're
Speaker 1: still overweight for example, corporate high yield UH. There's a
Speaker 1: lot of caution about evaluation there. We've peeled back a
Speaker 1: little bit, but we remain overweight relative to our neutral
Speaker 1: positioning there. We're looking for opportunities in other spaces. We
Speaker 1: think munties, for example UM are a portion of the
Speaker 1: US fixed income marketplace where you can get relatively attractive
Speaker 1: total returns versus treasuries. Well, that's why I wanted to
Speaker 1: go with you is the municipal bond market and are
Speaker 1: to well. Recently Embarons talking about pension fund liabilities for
Speaker 1: public pension funds, having said that what area of the
Speaker 1: muni market would you be interested in? We're talking revenue
Speaker 1: bonds or anything specific. We tend to be and have
Speaker 1: been for for a while now, and I would say
Speaker 1: we arguably were little early. In some cases, we tend
Speaker 1: to be overweight revenue sectors that have a greater leverage
Speaker 1: or exposure, if you will, to the economic cycle. So
Speaker 1: that would include areas like toll road revenue bonds airport
Speaker 1: revenue bonds, both of which have done relatively well in
Speaker 1: an absolute return standpoint and a relative return standpoint, because
Speaker 1: the underlying economy has been winded the back of the
Speaker 1: performance of those types of issuers. Um, we also tend
Speaker 1: to be a little underweight local geos. Uh. There we
Speaker 1: were a little early, I admit. Um. The pension challenge
Speaker 1: is well known. It is, however not universal. Pension challenges
Speaker 1: are far greater in states like New Jersey and Anois
Speaker 1: than they are in Florida, for example, and so there
Speaker 1: are plenty of opportunities to be selective about which geos
Speaker 1: you own, and we have tended to do that. The
Speaker 1: market does create opportunities where assets are mispriced or poorly
Speaker 1: priced relative to the risk they present. So, for example, Illinois,
Speaker 1: in the first part of last year, everybody hated Illinois,
Speaker 1: and the spreads were huge, you know, two fifty basis
Speaker 1: points over triple A munis. We felt ultimately they were
Speaker 1: going to resolve their multi year budget impass, and we
Speaker 1: were adding at that time that was a huge opportunity
Speaker 1: for out performance with which actually worked. Of course, pensions
Speaker 1: aren't fixed in Illinois because they finally got a budget.
Speaker 1: So that's a multi chapter story that still has many
Speaker 1: chapters to go. But our active management is focusing on
Speaker 1: revenue bonds and taking risk when we feel like prices
Speaker 1: are compensating us for taking that risk in spots even
Speaker 1: where geo's may be struggling with pension challenges. Thank you
Speaker 1: so much, r J. Gillow. We need to get you
Speaker 1: back for a longer discussion. We're sorry with a new
Speaker 1: slow today, but we sent a raid to this is
Speaker 1: an important discussion on those challenges. Thanks for listening to
Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on
Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm
Speaker 1: on Twitter at Tom Keene Before the podcast, you can
Speaker 1: always catch us worldwide. I'm Bloomberg Radio