WEBVTT - P&L: Bloomberg's Sink on Trump's Immediate Challenges 0:00:04.760 --> 0:00:08.080 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.119 --> 0:00:11.200 Along with my co host Lisa Abramowitz. Each day we 0:00:11.280 --> 0:00:14.480 bring you the most important, noteworthy, and useful interviews for 0:00:14.520 --> 0:00:16.880 you and your money, whether at the grocery store or 0:00:16.920 --> 0:00:20.680 the trading floor. Find the Bloomberg P L Podcast on iTunes, 0:00:20.840 --> 0:00:29.600 SoundCloud and at Bloomberg dot com. Let's turn our attention 0:00:29.680 --> 0:00:34.040 now to Donald Trump after his inauguration and the immediate 0:00:34.159 --> 0:00:36.800 challenges that he has taking office. Justin Sink is our 0:00:36.880 --> 0:00:40.279 US government reporter for a Bloomberg justin Thank you very 0:00:40.320 --> 0:00:43.320 much for being with us. Where do we start? Affordable 0:00:43.400 --> 0:00:49.480 Care Act? Immigration? What are the hot topics that the 0:00:49.560 --> 0:00:54.520 President Donald Trump will deal with most immediately? Thanks for 0:00:54.560 --> 0:00:56.520 having me. Yeah, I think it's gonna be a little 0:00:56.560 --> 0:01:00.640 bit of everything. Uh, certainly the topics that you mentioned. Um. 0:01:00.680 --> 0:01:03.280 The President act has talked about how he wants to 0:01:03.280 --> 0:01:07.800 take executive action on border security virtually as soon as 0:01:07.840 --> 0:01:11.760 he enters office. Um. Republicans on the Hill are obviously 0:01:11.840 --> 0:01:14.800 very eager to roll back the Affordable Care Act, but 0:01:15.280 --> 0:01:17.600 you know, there's a lot of foreign policy issues where 0:01:17.680 --> 0:01:21.039 he could wait into. There's ongoing to formatic talks um 0:01:21.080 --> 0:01:24.399 regarding the civil war in Syria. There's his sort of 0:01:24.840 --> 0:01:29.200 antagonism with China. He may label them a currency manipulator, 0:01:29.240 --> 0:01:33.080 and um seek to impose new tariffs. And so I 0:01:33.120 --> 0:01:35.760 think across the board, one thing that we're hearing a 0:01:35.760 --> 0:01:37.520 lot from Trump aids is that they want to make 0:01:37.560 --> 0:01:40.600 a kind of a big splash and big impact very early, 0:01:40.680 --> 0:01:44.200 if not today, um certainly by Monday of this week. 0:01:44.360 --> 0:01:47.360 And the idea here is to show that Donald Trump, 0:01:47.400 --> 0:01:50.440 who is somebody who hasn't been in government before, is 0:01:50.520 --> 0:01:54.080 able to be effective and start fulfilling his campaign promises 0:01:54.720 --> 0:01:57.520 very early in this administration. How quickly can we expect 0:01:57.520 --> 0:02:01.280 to see some Supreme Court nominees filled the empty role 0:02:01.360 --> 0:02:05.360 currently out there? So it's just said that they are 0:02:05.840 --> 0:02:08.480 the Donald Trump has already done some interviews that they'll 0:02:08.520 --> 0:02:10.960 be ongoing, but they expect an announcement as soon as 0:02:11.840 --> 0:02:15.239 the second week of the Trump administration and probably no 0:02:15.400 --> 0:02:17.920 later than the third week. And so trying to fill 0:02:18.280 --> 0:02:21.320 Justice Kalia. See, you know, it's something that's lingered open 0:02:21.440 --> 0:02:25.880 for nearly a year now, but we expect pretty quick 0:02:25.919 --> 0:02:29.360 action and most likely a fairly quick Senate confirmation once 0:02:29.400 --> 0:02:32.120 Ah once a nomination aspect. You know, we've heard a 0:02:32.160 --> 0:02:36.080 lot about the hundreds of positions within the administration that 0:02:36.120 --> 0:02:39.840 are currently vacant in as this transition goes on. Do 0:02:39.880 --> 0:02:43.360 you have a sense of who is managing that whole 0:02:43.360 --> 0:02:47.919 transition and sort of vetting vetting different people for those 0:02:48.000 --> 0:02:53.880 rules as Trump takes on these other responsibilities. So, you know, 0:02:54.160 --> 0:02:57.400 Mike Penn's the vice president elect, has been heading the 0:02:57.400 --> 0:03:01.120 transition effort so far. He's going to hand off that 0:03:01.360 --> 0:03:06.959 responsibility as the Centers Office. But Um, one of the 0:03:07.000 --> 0:03:09.040 kind of interesting points that your question gets to is 0:03:09.080 --> 0:03:12.400 the fact that there are kind of different centers of 0:03:12.400 --> 0:03:15.280 power within um, the Trump White House. So there's the 0:03:15.360 --> 0:03:19.919 sort of traditional establishment Ryn's previous R and C area, 0:03:20.040 --> 0:03:26.679 there's the Steve Bannon UM, you know, right, different U 0:03:27.240 --> 0:03:31.280 different kind of Trump Republican power center. And then there's 0:03:31.400 --> 0:03:37.160 the Trump family itself, so Jared Kushner, UM, Ivanka and 0:03:37.160 --> 0:03:40.360 and these are people who also have weighed in, especially 0:03:40.360 --> 0:03:43.680 on kind of top level picks and so especially as 0:03:43.760 --> 0:03:47.200 the administration is getting filled out at lower levels, there's 0:03:47.240 --> 0:03:49.640 a lot of back and forth between these kind of 0:03:49.640 --> 0:03:52.720 different power centers, with all of them kind of needing 0:03:52.720 --> 0:03:56.560 to sign off on, especially people who have influential policy 0:03:56.600 --> 0:04:01.560 making roles. Well, justin as President Obama and the Trump's 0:04:01.600 --> 0:04:04.200 I get ready to leave the White House. One trip 0:04:04.280 --> 0:04:08.760 that Donald Trump may be taking relatively quickly in his administration, 0:04:09.000 --> 0:04:11.760 at least according to Sean Spicer, who's the incoming White 0:04:11.760 --> 0:04:14.320 House Press secretary, is a visit to c i A 0:04:14.400 --> 0:04:19.719 headquarters in Langley, Virginia. Have you heard anything about that? Yeah, 0:04:19.760 --> 0:04:24.039 so obviously I've heard Shawn's comments. And this is interesting because, 0:04:24.680 --> 0:04:27.200 you know, a big sort of theme of the transition 0:04:27.760 --> 0:04:31.800 has been a conflict between the Trump team and Trump 0:04:31.839 --> 0:04:34.120 himself in the intelligence community. I think there's going to 0:04:34.200 --> 0:04:39.080 be some attempt at since men in there and and 0:04:39.200 --> 0:04:42.160 kind of getting past the big controversy over Russian involvement 0:04:42.279 --> 0:04:46.120 in the hack of John Podesto, who's Holly Clinton's campaign 0:04:46.200 --> 0:04:49.800 chairman and the Democratic National Committee, something that Trump kind 0:04:49.800 --> 0:04:52.760 of publicly doubted for a long time but has now 0:04:52.800 --> 0:04:54.760 come to accept. And so I think it would be 0:04:54.760 --> 0:04:58.239 an attempt to reset that relationship. Um, we also expect 0:04:58.240 --> 0:05:01.039 in terms of sort of early tra novel that one 0:05:01.120 --> 0:05:04.080 of if not as first domestic trip, will be up 0:05:04.120 --> 0:05:08.240 to Philadelphia next week where the Republican lawmakers are having 0:05:08.240 --> 0:05:11.160 their their Winner retreat, and that will be an opportunity 0:05:11.200 --> 0:05:13.440 for Trump to meet with them and kind of set 0:05:13.480 --> 0:05:16.600 forward some of those policy goals that will require legislative 0:05:16.600 --> 0:05:19.679 action that we were talking about earlier. Justin Sank, thanks, 0:05:19.920 --> 0:05:22.279 thank you so much for joining us. Justin Sank, us 0:05:22.360 --> 0:05:26.760 government reporter for Bloomberg talking about what President elect Trump's 0:05:26.920 --> 0:05:41.640 immediate steps will be after he takes office. One thing 0:05:41.680 --> 0:05:44.680 that is not up is the US dollar. I want 0:05:44.680 --> 0:05:48.400 to bring in Doug Barthwick, managing director and head of 0:05:48.680 --> 0:05:52.080 f X at Chapter Lane and Company, to talk about 0:05:52.440 --> 0:05:55.120 what President elect Trump will mean for the dollar. He 0:05:55.160 --> 0:05:57.159 has come out and said that he does not want 0:05:57.320 --> 0:05:59.960 the dollar to be too strong. What will this mean 0:06:00.000 --> 0:06:02.839 in practical terms? Doug, Yeah, thank you very much for 0:06:02.880 --> 0:06:05.400 having me. I think that one of the most important 0:06:05.440 --> 0:06:08.760 statements that the Trump has made so far is that 0:06:08.839 --> 0:06:11.240 he wants to make American more competitive. And I think 0:06:11.279 --> 0:06:15.000 that we all know, based on economics classes, that multinationals 0:06:15.040 --> 0:06:18.360 like to manufacturing countries with a depreciating currency while exporting 0:06:18.360 --> 0:06:21.560 to those goods to one with an appreciating currency. And 0:06:21.560 --> 0:06:25.320 for that reason, you see people manufacturing in China exports 0:06:25.320 --> 0:06:27.599 that then go into the United States. Why why would 0:06:27.640 --> 0:06:29.320 you want that? What you want that because you want 0:06:29.320 --> 0:06:32.400 to have cheaper employees and you want to earn more 0:06:32.480 --> 0:06:37.000 on what you're selling. So how could President Trump effectively 0:06:37.040 --> 0:06:39.760 weaken the dollar? And what do you take such steps? Well, 0:06:39.800 --> 0:06:41.479 one of the one of the most interesting things would 0:06:41.520 --> 0:06:43.880 be the strong dollar policy that's been enforced really since 0:06:45.320 --> 0:06:48.640 ever since Lloyd Benson was there with Mickey Cantor and 0:06:48.720 --> 0:06:51.240 back then we were trying to do trade relationships and 0:06:51.320 --> 0:06:53.560 Dolly and was trading at seventy five. Once we had 0:06:53.560 --> 0:06:56.239 the trade relationships in place, they brought in the strong 0:06:56.279 --> 0:06:58.640 dollar policy, which then saw Dolly and moved from seventy 0:06:58.680 --> 0:07:01.720 five to its current levels. Now, now what's happened since 0:07:01.760 --> 0:07:05.680 then is the U s has essentially become more expensive 0:07:05.720 --> 0:07:08.599 in terms of its labor than maybe Japan, and so 0:07:08.640 --> 0:07:10.840 as the dollar keeps on strengthening, it makes the US 0:07:10.960 --> 0:07:14.040 less and less competitive. Now, the US has exported more, 0:07:14.080 --> 0:07:17.520 but what they're exporting these days is US treasuries. So 0:07:17.600 --> 0:07:19.360 many countries in the world say, you know, we'll buy 0:07:19.400 --> 0:07:22.480 US treasuries because the US currency is a strong dollar. Policy, 0:07:22.520 --> 0:07:24.480 the dollar will go up for treasures will be work more. 0:07:24.960 --> 0:07:27.160 It's not really about the yield and the treasures more 0:07:27.200 --> 0:07:29.800 by the fact that the dollar has been strengthening. Now 0:07:29.920 --> 0:07:32.520 the President elect Trump looks at this and says, you 0:07:32.560 --> 0:07:35.400 know what, when you sell treasuries, you're not really creating jobs. 0:07:35.440 --> 0:07:37.160 But if we wanted to create jobs, we have to 0:07:37.200 --> 0:07:39.840 have manufacturing back in the US. One way to do 0:07:39.920 --> 0:07:42.960 that would be to end the strong dollar policy and 0:07:43.040 --> 0:07:45.040 the chase. There's another way. I mean, you laid out 0:07:45.080 --> 0:07:49.240 this scenario about you know, manufacturing and countries with depreciating 0:07:49.280 --> 0:07:52.040 currencies and then shipping to places like the US with 0:07:52.120 --> 0:07:56.760 appreciating currencies. Of course, there's the talk of this import 0:07:56.800 --> 0:08:01.120 tax and in a way for companies to make products 0:08:01.160 --> 0:08:03.200 here in the US is opposed to making them in 0:08:03.280 --> 0:08:07.240 places like China. How does that prospect change the equation 0:08:07.360 --> 0:08:10.640 for companies when it comes to where they do business. Well, 0:08:10.640 --> 0:08:13.239 I think the companies are being encouraged, either to the 0:08:13.440 --> 0:08:17.240 import tax or or from any sort of dollar policy change, 0:08:17.560 --> 0:08:20.800 to be much more encouraged to manufacture in the US 0:08:20.840 --> 0:08:22.760 to sell to the US. And I think that's certainly 0:08:23.000 --> 0:08:26.240 one of Trump's main agenda parts. Hey, Doug, I wonder 0:08:26.280 --> 0:08:28.120 if you could tell us about the Chinese you want 0:08:28.240 --> 0:08:30.560 and whether there's a possibility that the value of the 0:08:30.720 --> 0:08:35.360 juan will rise against the US dollar. China's economy performing 0:08:35.600 --> 0:08:38.560 pretty well, right, We've got the GDP results, but also 0:08:38.640 --> 0:08:43.040 new orders in December they were up restocking cycle. Would 0:08:43.080 --> 0:08:45.959 this be good for the you want to gain value 0:08:46.040 --> 0:08:51.040 and therefore would help other uh you want related currency pairs. Absolutely. 0:08:51.040 --> 0:08:54.040 The the un is linked to the US dollar through 0:08:54.040 --> 0:08:56.200 the basket that it trades off of, which is really 0:08:56.240 --> 0:08:58.560 a guide, but it trades back and forth with it. 0:08:58.600 --> 0:09:01.360 When you see the dollar strength, you also see then 0:09:01.440 --> 0:09:03.920 dollar China go higher or that you want get weaker. 0:09:04.240 --> 0:09:05.960 If you want that, you want to strength, and you 0:09:06.000 --> 0:09:08.120 have to have the dollar weaken. And that's one of 0:09:08.160 --> 0:09:10.360 the key points in this as well, and that the 0:09:10.400 --> 0:09:12.400 market constantly says, you know, we want to see the 0:09:12.480 --> 0:09:14.560 U want strength, and well, it's only going to strengthen 0:09:14.559 --> 0:09:17.600 if the dollar weakens. There's really two ways it's gonna cat. 0:09:17.679 --> 0:09:19.800 You can actually you can ask China to please strengthen 0:09:19.840 --> 0:09:23.079 their currency, or the US can weaken the dollar. You know, 0:09:23.120 --> 0:09:25.440 I have to wonder people sort of came up with 0:09:25.440 --> 0:09:28.320 this idea that the dollar wood strengthen as yields rose 0:09:28.320 --> 0:09:31.439 in the US. Now we see yields kind of flattening 0:09:31.440 --> 0:09:35.760 out for the year, dipping even while the dollar declines. 0:09:35.840 --> 0:09:40.320 I mean, do you think that this can continue this dynamic? Well, 0:09:40.400 --> 0:09:42.520 I think people are very excited right now about the 0:09:42.520 --> 0:09:44.800 FED raising rates a number of times through the year, 0:09:45.040 --> 0:09:47.839 and if you remember last year around the same time, 0:09:47.880 --> 0:09:50.200 there's also the same excitement, and the Fed ended up 0:09:50.240 --> 0:09:53.000 sort of disappointing the market. I think that it's that 0:09:53.200 --> 0:09:55.120 I could see the FED raising rates, but I think 0:09:55.360 --> 0:09:57.440 I think it's more likely the FED would raise rates 0:09:57.480 --> 0:10:00.400 should the dollars start to weaken, and the FAD would 0:10:00.480 --> 0:10:02.960 essentially be the breaks on any sort of dollar weakness, 0:10:03.400 --> 0:10:05.360 and that's what we're expecting for this year. I think 0:10:05.400 --> 0:10:07.599 that that certainly we can look at the differential and 0:10:07.679 --> 0:10:09.360 yields and say, well, that means that the dollar is 0:10:09.360 --> 0:10:11.240 always going to be very well bid. But it's not 0:10:11.280 --> 0:10:13.679 always the case. When Dolly went down to seventy five, 0:10:13.720 --> 0:10:17.240 it wasn't because Japanese had very high interest rates. Well, Doug, 0:10:17.280 --> 0:10:21.320 just quickly tell me about the dollar versus commodity currencies 0:10:21.679 --> 0:10:25.120 such as the Aussie dollar, well, I think that if 0:10:25.160 --> 0:10:26.880 you do see a dollar weakness, i'd expect to see 0:10:26.880 --> 0:10:29.440 the Ausio dollars start to rally. Remember, dollar weakness will 0:10:29.480 --> 0:10:33.680 spread inflation abroad. And there's one thing that old mold 0:10:33.679 --> 0:10:35.719 banks are worried about right now. It's the deflation that 0:10:35.760 --> 0:10:38.880 they're seeing. They're not seeing any inflation. Dollar weakness will 0:10:38.880 --> 0:10:42.600 see inflation in commodity prices. If that's the case, obviously 0:10:42.640 --> 0:10:44.480 the Audio dollar would strengthen. And also I think you 0:10:44.520 --> 0:10:48.439 see the rand strength and Kiwi strengthen and Canada strengthen. 0:10:48.800 --> 0:10:50.560 I want to thank you very much for joining us. 0:10:50.960 --> 0:10:54.199 Douglas Borthwick is managing director ahead of FX at A 0:10:54.360 --> 0:11:09.480 Chapter Lane and Company. Speaking about currencies, all right, let's 0:11:09.480 --> 0:11:11.360 cut to the chase and figure out how to make 0:11:11.400 --> 0:11:15.000 some money in a rising rate environment and a bond 0:11:15.040 --> 0:11:17.600 market that can't seem to figure out which way it 0:11:17.640 --> 0:11:20.440 wants to go. Matt Freund is the co chief Investment 0:11:20.440 --> 0:11:24.840 Officer and the head of fixed income Strategies at Calamo's Investments, 0:11:25.160 --> 0:11:29.319 and they manage over eighteen billion dollars of customer assets 0:11:29.360 --> 0:11:34.240 based in Naperville, Illinois. Alright, Matt Freund what is what 0:11:34.440 --> 0:11:36.600 is the word? What are you telling your clients to 0:11:36.720 --> 0:11:40.040 do or not do well? The first thing we're telling 0:11:40.040 --> 0:11:44.320 our clients is that despite the headlines, we've actually had 0:11:44.320 --> 0:11:48.400 a fairly good year in fixed income over the last 0:11:48.400 --> 0:11:51.320 twelve months. So one of the things we want to 0:11:51.320 --> 0:11:54.520 remind investors is that it's a market of bonds, not 0:11:54.600 --> 0:11:59.800 just one bond market. So high yield up over last 0:12:00.120 --> 0:12:03.079 over the last twelve months, depending on the index the 0:12:03.200 --> 0:12:06.360 broader markets, the the agg is only up about one 0:12:06.400 --> 0:12:09.600 and a half, but active managers in core and core 0:12:09.640 --> 0:12:14.560 plus funds delivered a four percent return. So um. We 0:12:14.640 --> 0:12:16.880 don't think we're going to see the huge capital gains 0:12:16.920 --> 0:12:19.440 of the past five years or so, but we still 0:12:19.480 --> 0:12:23.320 think bonds play an important role in a portfolio. So 0:12:23.400 --> 0:12:26.680 there's been a lot of talk about inflation rising and 0:12:27.000 --> 0:12:30.920 general growth prospects increasing this year. That would be bad 0:12:31.120 --> 0:12:34.800 for government bonds, particularly treasuries. Do you agree. Do you 0:12:34.800 --> 0:12:37.240 agree that this is the outlook for the year. Well, 0:12:37.920 --> 0:12:40.880 clearly it is some people's outlook for the year. I 0:12:40.880 --> 0:12:43.040 think the market is struggling with how much of the 0:12:43.120 --> 0:12:47.679 growth that we're expecting to see is going to be inflationary. 0:12:47.679 --> 0:12:52.280 And inflation is generally bad for stocks and bonds or 0:12:52.600 --> 0:12:56.839 versus real economic growth, So inflation versus real if we 0:12:56.920 --> 0:13:00.200 see inflation spike, and right now, I think the expectations 0:13:00.240 --> 0:13:03.200 are right around two percent, so it's still manageable. But 0:13:03.240 --> 0:13:05.680 if it gets out of control, I think risk assets 0:13:05.800 --> 0:13:09.720 generally UM will be in trouble. If it's real growth, 0:13:09.760 --> 0:13:11.560 I think you're going to see stocks do well and 0:13:11.600 --> 0:13:15.559 credit continue to outperform, credit spreads come in. I'll tell 0:13:15.600 --> 0:13:18.119 you though, we are not in the camp that inflation 0:13:18.840 --> 0:13:20.760 is going to be a problem. We think the next 0:13:20.880 --> 0:13:24.160 quarter or two we're going to see inflation increases. That's 0:13:24.200 --> 0:13:26.160 pretty much baked in the cake because of what we've 0:13:26.160 --> 0:13:30.440 seen in energy past. The next quarter or two, there's 0:13:30.480 --> 0:13:33.720 a lot of deflationary pressures out there that we think 0:13:33.720 --> 0:13:36.640 are aren't going to go away just because of an 0:13:36.640 --> 0:13:39.720 election here in the United States, such as what what 0:13:39.760 --> 0:13:43.120 are the deflationary pressures that you believe are going to 0:13:43.240 --> 0:13:49.000 dominate because clearly we're seeing rates move higher. Rates are 0:13:49.080 --> 0:13:51.800 right exactly, so we think that the market may have 0:13:51.840 --> 0:13:55.559 gotten ahead of itself. But to think about the markets 0:13:55.559 --> 0:13:58.560 over the next two or three quarters, there are high 0:13:58.679 --> 0:14:02.600 levels of debt um, government debt, not personal debt though. 0:14:02.960 --> 0:14:05.920 Well yeah, but you have to look, you know, debt 0:14:06.040 --> 0:14:09.040 is functionable, and you're absolutely right. The deck chairs have 0:14:09.080 --> 0:14:12.400 been rearranged a little bit. But in general, high debt 0:14:12.520 --> 0:14:14.600 levels and by a lot of measures, were higher than 0:14:14.640 --> 0:14:19.320 we were in o A. Uh, you know our deflationary 0:14:19.480 --> 0:14:23.280 strong dollar. UM, how are they? How is that deflationary? 0:14:23.360 --> 0:14:25.680 I thought that if you have an acceleration of inflation, 0:14:25.720 --> 0:14:29.560 that would be exactly what the debtors would want because 0:14:29.560 --> 0:14:34.960 it would inflate away the value of the debt. No, exactly, No, 0:14:35.320 --> 0:14:38.240 that that's right. Those two those two statements aren't in conflict. 0:14:38.360 --> 0:14:41.280 So when you have a lot of debt um and 0:14:41.480 --> 0:14:45.800 you owe money higher than expected, inflation makes it easier 0:14:45.840 --> 0:14:48.920 to repay. But when you look over periods of time, 0:14:49.040 --> 0:14:53.120 economies that are burdened with high debt levels, generally UM 0:14:53.880 --> 0:14:58.040 have lower inflation rather than higher. The next thing is 0:14:58.080 --> 0:15:01.720 the dollar, strong dollar, we're imp warding deflation. The next 0:15:01.720 --> 0:15:05.000 one or demographics. As society's age, you don't see as 0:15:05.080 --> 0:15:09.320 much inflationary pressure. And then finally history is important. Only 0:15:09.360 --> 0:15:11.600 if you look what we went through in two thousand 0:15:11.640 --> 0:15:14.360 and eight was a balance sheet recession. We got in 0:15:14.400 --> 0:15:16.520 trouble because of too much debt, and when you look 0:15:16.560 --> 0:15:20.520 at past balance sheet recessions, it's just hard to get 0:15:21.200 --> 0:15:23.920 not just real GDP growth going, but it is hard 0:15:24.000 --> 0:15:27.440 to get the velocity of money accelerating. It is hard 0:15:27.480 --> 0:15:31.280 to get inflation um significantly higher. And that was true 0:15:31.320 --> 0:15:34.400 in the twenties. It was true. Actually it's been true 0:15:34.400 --> 0:15:37.520 in Japan for almost twenty years. So, um, you know, 0:15:37.880 --> 0:15:41.320 there are some long term headwinds that we think after 0:15:41.360 --> 0:15:44.000 the next quarter or two, Uh, we're still going to 0:15:44.080 --> 0:15:46.920 find tough to to beat. So you said that you 0:15:46.960 --> 0:15:49.680 think that the inflation expectations are currently baked into the 0:15:49.680 --> 0:15:52.720 first and second quarter that have to do with higher 0:15:52.760 --> 0:15:55.640 oil prices. Do you Does that mean in the second 0:15:55.680 --> 0:15:58.800 half of the year you expect credit spreads to widen 0:15:58.880 --> 0:16:01.240 out in sort of a soul of what we've seen 0:16:01.760 --> 0:16:05.040 for the past couple of months. In other words, rates 0:16:05.120 --> 0:16:09.960 coming back down, credit spreads widening out, and possibly stocks 0:16:10.000 --> 0:16:13.720 taking a dip. Yeah. So when you think about so again, 0:16:13.760 --> 0:16:17.040 it's going to come back to, uh, you know, the 0:16:17.080 --> 0:16:22.280 whole inflation versus real growth debate. Uh. You know, so 0:16:22.320 --> 0:16:26.120 we were more optimistic on the economy UH in in 0:16:27.560 --> 0:16:30.320 UH than we were prior to the election. I think that, 0:16:30.600 --> 0:16:34.000 you know, some of the things the new administration is 0:16:34.080 --> 0:16:37.760 talking about doing though, I know that changes um uh 0:16:37.800 --> 0:16:40.520 pretty quickly are going to benefit the economy. But the 0:16:40.560 --> 0:16:44.479 economy and markets are two different things. So I suspect 0:16:44.600 --> 0:16:47.640 that UM, as the economy does a little better, that's 0:16:47.640 --> 0:16:50.600 going to be supportive of credit spreads. But again, credit 0:16:50.640 --> 0:16:53.360 spreads have already come a long way over the last 0:16:53.400 --> 0:16:56.160 twelve months, so we think they can grind tighter, but 0:16:56.240 --> 0:16:59.880 it's not going to be um dramatic, So we we've 0:17:00.000 --> 0:17:03.840 after gradual improvement spreads grinding tighter. I do think that 0:17:03.920 --> 0:17:07.439 inflation expectations may be getting ahead of themselves, so we 0:17:07.520 --> 0:17:11.800 see some um uh you know, constructive movements there. And 0:17:11.840 --> 0:17:14.160 then you know again when you when you think about 0:17:14.240 --> 0:17:17.720 the level of volatility in the market, that's one of 0:17:17.760 --> 0:17:20.359 the calls we got wrong last year. We thought, with 0:17:20.400 --> 0:17:23.880 all of the rather significant events that were happening that 0:17:23.960 --> 0:17:26.800 really caught the market off sides, we would see more 0:17:26.840 --> 0:17:30.320 of all that didn't happen UM. But we think that's 0:17:30.320 --> 0:17:33.280 a matter of time, so I I expect volatility to 0:17:33.280 --> 0:17:36.680 go up and present some opportunities over the next year. 0:17:37.080 --> 0:17:39.800 So what would be some specific investments that you would 0:17:39.800 --> 0:17:42.520 be ready to pounce on in that moment of volatility, 0:17:42.840 --> 0:17:45.399 So high yield is one of them. So we're still 0:17:45.440 --> 0:17:48.160 and my my team disagrees with me a little bit here, 0:17:49.000 --> 0:17:52.800 but I think that high yield on a risk adjusted 0:17:52.840 --> 0:17:56.280 basis is still fairly attractive. So we have positive but 0:17:56.400 --> 0:18:00.000 more modest expectations on equities over the next twelve miles. 0:18:00.119 --> 0:18:05.120 We we we don't expect um losses, but again, valuations 0:18:05.480 --> 0:18:07.399 have priced a lot of the good news in. So 0:18:07.480 --> 0:18:10.920 in that environment, we're high yield is yielding about five 0:18:10.960 --> 0:18:13.560 and a half six percent depending on what part of 0:18:13.560 --> 0:18:16.560 the market you're looking at on a risk adjusted basis, 0:18:16.600 --> 0:18:19.520 we think that makes sense. But most of the opportunity 0:18:19.640 --> 0:18:22.119 is in the triple C space, and you have to 0:18:22.160 --> 0:18:26.040 be very selective and very careful when you're investing in 0:18:26.080 --> 0:18:29.000 triple C, so make sure you hire a good manager. 0:18:29.760 --> 0:18:32.560 We also think that loans can make sense here. Now 0:18:32.600 --> 0:18:35.359 this is a very consensus trade. I hate being in 0:18:35.359 --> 0:18:39.720 the consensus, but I think that loans are are the 0:18:40.000 --> 0:18:43.120 consensus may have this one right. And then lastly, we're 0:18:43.119 --> 0:18:46.440 not afraid of duration here. I think that adding out 0:18:46.560 --> 0:18:48.639 in the twenty year thirty year part of the curves 0:18:48.680 --> 0:18:51.040 selectively makes a lot of sense. Thank you so much, 0:18:51.040 --> 0:18:53.879 Matt Freund, co, Chief investment Officer and head of Fixing 0:18:54.080 --> 0:19:03.840 Strategies at Calumus Investments in Naperville, Illinois. Thanks for listening 0:19:03.880 --> 0:19:06.960 to the Bloomberg pen L podcast. You can subscribe and 0:19:07.080 --> 0:19:12.040 listen to interviews at iTunes, SoundCloud, or whatever podcast platform 0:19:12.200 --> 0:19:14.919 you prefer. I'm pim Fox. I'm out there on Twitter 0:19:15.040 --> 0:19:18.760 at pim Fox. I'm out there on Twitter at Lisa Abramo. 0:19:18.840 --> 0:19:21.479 It's one before the podcast. You can always catch us 0:19:21.560 --> 0:19:23.119 worldwide on Bloomberg Radio.