WEBVTT - BlackRock's Rick Rieder Talks Labor Market 0:00:02.520 --> 0:00:07.080 Bloomberg Audio Studios, podcasts, radio news. 0:00:07.400 --> 0:00:10.640 Rick Reader is black Rocks CIO of Global Fixed Income 0:00:10.680 --> 0:00:12.640 and it's widely considered to be one of five contenders 0:00:12.680 --> 0:00:15.800 to replace fetchad Jay Powell. He writes the following, moving 0:00:15.840 --> 0:00:18.080 interest rates slower is very much in line with what 0:00:18.160 --> 0:00:20.400 we do know today, which is that the labor market 0:00:20.440 --> 0:00:23.600 is clearly slowic to the point of potential still speed. 0:00:23.800 --> 0:00:26.079 Rick joins unaw for more. Rick and Monick, thanks thanks 0:00:26.079 --> 0:00:27.400 for having me. Good to see my friend. It's been 0:00:27.440 --> 0:00:29.680 too long. Thank you, Welcome to the studio. Than we've 0:00:29.680 --> 0:00:31.480 got a labor market problem. 0:00:31.440 --> 0:00:33.040 I do, I don't, and by the way, I don't 0:00:33.040 --> 0:00:34.600 think it's a sick local phenomenon. 0:00:34.640 --> 0:00:36.479 I think there is the way least is. 0:00:36.600 --> 0:00:39.800 I think we have a productivity revolution that is pretty extraordinary, 0:00:39.840 --> 0:00:42.519 and people point to AI as an exclusive driver of that. 0:00:43.159 --> 0:00:45.960 If you look across what companies are doing, including second 0:00:46.000 --> 0:00:48.880 quarter earnings, their quarter earnings, if you lead dynamic around 0:00:49.120 --> 0:00:53.920 around how do you think about logistics, freight management, predictive maintenance, 0:00:54.880 --> 0:00:58.360 customer procurement, companies are doing more with less, and I 0:00:58.400 --> 0:01:00.480 think that is a secular dynamic that's going to be 0:01:00.520 --> 0:01:02.880 with us for a couple of years now I think, 0:01:02.920 --> 0:01:04.560 I mean, we can talk about there's a bit of 0:01:04.600 --> 0:01:07.560 elevated inflation because of terres, but I think we're going 0:01:07.600 --> 0:01:09.280 to be dealing with something. By the way, you also 0:01:09.280 --> 0:01:12.480 put robotics, automation. You know, this to me is a 0:01:12.520 --> 0:01:14.919 structural dynamic. I think full employment. 0:01:14.480 --> 0:01:16.160 Will be the challenge for the next couple of years. 0:01:16.200 --> 0:01:20.080 So we mentioned the spread between Ernie's growth fantastic, employment 0:01:20.120 --> 0:01:22.759 growth terrible. How are we closing that gap? 0:01:22.800 --> 0:01:23.120 If ever? 0:01:23.920 --> 0:01:26.320 So, I think, by the way, I actually think there's 0:01:26.400 --> 0:01:29.400 not a coincident. Those aren't coincident factors. What's happening is 0:01:29.440 --> 0:01:32.600 companies literally the top line revenue was pretty good generally, 0:01:32.920 --> 0:01:34.880 But what's happening is they're cutting costs of good soul, 0:01:34.959 --> 0:01:38.720 they're cutting their SGNA costs, they're reducing their cost infrastructure. 0:01:38.760 --> 0:01:41.760 By the way, AI is a technology, there's historically been 0:01:41.800 --> 0:01:45.000 this dynamic of when you have new technology, it moves 0:01:45.000 --> 0:01:48.920 people into other higher value jobs. This technology, by the way, 0:01:48.960 --> 0:01:51.560 I put robotics and automation on top of that, autonomous driving, 0:01:51.520 --> 0:01:55.760 et cetera, is literally designed to replace human input. You 0:01:55.800 --> 0:01:59.000 have a dynamic that is pretty extraordinary that I think 0:01:59.040 --> 0:02:01.040 you know, if you know, as a central banker or 0:02:01.080 --> 0:02:03.440 whatever is, you think about being anticipatory of where the 0:02:03.440 --> 0:02:05.680 world is going, that is where the world is going. 0:02:05.440 --> 0:02:06.800 And I think that is a challenge. 0:02:07.240 --> 0:02:11.480 Economy is doing fine, divergent and quite frankly, only operating 0:02:11.480 --> 0:02:14.280 on a couple of cylinders, huge capex which we talk 0:02:14.320 --> 0:02:18.280 about from cloud, from infrastructure, from power. And you've got 0:02:18.360 --> 0:02:23.640 higher income, wealthy savers. They're doing great and supporting consumption 0:02:23.680 --> 0:02:25.760 in the economy. And then you have the part of 0:02:25.800 --> 0:02:29.400 the economy that's interest rates sensitive, that's really struggling. And 0:02:29.400 --> 0:02:31.000 that's part of why I think the interest rate tool 0:02:31.080 --> 0:02:35.280 needs to address low income small business housing. And that's 0:02:35.320 --> 0:02:37.239 where I think you square the circle. 0:02:37.400 --> 0:02:39.120 So we've got to talk about this from two perspectives, 0:02:39.200 --> 0:02:41.400 one as a policy maker, the other as an investor, 0:02:41.440 --> 0:02:43.520 and one of course informs the other. Let's just sit 0:02:43.560 --> 0:02:46.760 on policy for a moment. You're talking about maybe the 0:02:46.840 --> 0:02:49.160 needs cut interest rates, but also the fact that some 0:02:49.200 --> 0:02:51.160 of the pullback were sent in hiring is not cyclical. 0:02:51.639 --> 0:02:53.840 How can we address one with lower interest rates? Just 0:02:53.840 --> 0:02:54.880 explore that for us a little bit. 0:02:55.040 --> 0:02:56.679 Yeah, So, first of all, if you came down from 0:02:56.680 --> 0:02:58.880 Mars and said, okay, so I've got five year inflation 0:02:58.960 --> 0:03:00.560 break even, so traded in the work at you buys 0:03:00.600 --> 0:03:02.600 many as you want a two point three five percent 0:03:02.800 --> 0:03:05.639 and you said okay, now set the price and you said, okay, 0:03:05.639 --> 0:03:08.160 two point three five percent inflation, and I clearly have 0:03:08.200 --> 0:03:10.720 a slowing labor market. You would say, gosh, I don't 0:03:10.720 --> 0:03:13.040 know if I set the rate at three. And then 0:03:13.080 --> 0:03:15.360 I talked about okay, so now what's equilibrium on the 0:03:15.400 --> 0:03:17.720 mortgage rate to create velocity in housing? 0:03:17.960 --> 0:03:20.520 And they're directly related to what you said. 0:03:20.720 --> 0:03:23.280 Housing today it's three quarters of the wealth by people 0:03:23.280 --> 0:03:26.040 in the countries in housing. We have a housing market 0:03:26.280 --> 0:03:28.000 that you know, you look at the earnings into your horton, 0:03:28.040 --> 0:03:29.480 you look at Leonar. By the way, I just saw 0:03:29.480 --> 0:03:33.520 an ISI home builder survey that showed the softness. If 0:03:33.560 --> 0:03:36.360 you actually get the mortgage rate down a bit, then 0:03:36.400 --> 0:03:38.760 what happens is all of a sudden you get housing velocity. 0:03:38.760 --> 0:03:41.760 Why is housing velocity important because you get labor mobility 0:03:41.800 --> 0:03:43.200 today you can't move, you lose your. 0:03:43.160 --> 0:03:44.680 Job, you got to go somewhere else. You can't move. 0:03:45.000 --> 0:03:47.840 Secondly, and I've set up before for every home built 0:03:47.840 --> 0:03:50.280 in this country, we hire three point one people. It's 0:03:50.320 --> 0:03:53.400 pretty hard to AI building a house. So if you 0:03:53.480 --> 0:03:55.760 can get some real estate velocity. And by the way, 0:03:55.760 --> 0:03:59.040 it's a young people who are struggling today. Young people 0:03:59.040 --> 0:04:02.760 who aren't savers are borrowers. That's the way they build wealth. 0:04:02.880 --> 0:04:04.440 That's the way you put people to work. And so 0:04:04.520 --> 0:04:07.360 I think it is all a related concept. Point baying is. 0:04:08.600 --> 0:04:11.840 By the way, I mean, if we had to raise 0:04:11.880 --> 0:04:14.200 interest rates to where they were, but if you said 0:04:14.200 --> 0:04:16.320 to me today, what's equilibrium, I don't think it's where 0:04:16.360 --> 0:04:17.279 we sit today in the funds. 0:04:17.320 --> 0:04:20.720 Right, So, how willing are you to allow or how 0:04:20.839 --> 0:04:23.880 willing would you be to allow inflation to run above 0:04:24.000 --> 0:04:27.560 that two percent target in order to run the economy 0:04:27.640 --> 0:04:29.320 hut to allow for more job creation. 0:04:29.720 --> 0:04:30.719 Listen, it's a great question. 0:04:30.760 --> 0:04:32.560 And I think every time you think about these things, 0:04:32.560 --> 0:04:34.040 and I think about the same thing, we take risk. 0:04:34.480 --> 0:04:36.760 You sort of think about what are the quadrants of risk? 0:04:36.800 --> 0:04:39.159 What are you willing to underwrite? So today when I 0:04:39.160 --> 0:04:41.640 think about those quadrants, if you were willing to take 0:04:41.680 --> 0:04:46.040 some labor and some overall inflation thing, you think about, okay, 0:04:46.040 --> 0:04:51.360 what are the sticky drivers of inflation today? Healthcare, education, insurance. 0:04:52.279 --> 0:04:55.160 It's pretty hard using interest rate tool to get insurance 0:04:55.200 --> 0:04:57.880 costs down. It's pretty hard to get healthcare, so the 0:04:57.920 --> 0:05:02.040 tool is not that robust, and shelter is a sticky 0:05:02.040 --> 0:05:04.560 part of inflation that if I actually get the rate down, 0:05:04.880 --> 0:05:07.880 I actually mitigate some of that elevator, I'll mitigate. 0:05:07.960 --> 0:05:09.120 The rental inflation. 0:05:09.240 --> 0:05:11.800 So you know, out there on one other thing, five 0:05:11.839 --> 0:05:15.160 year inflation expectations are two point three five percent if 0:05:15.200 --> 0:05:17.159 you were at two and three quarters And by the way, 0:05:17.160 --> 0:05:19.800 core PCEE the six month moving average core PC is 0:05:19.839 --> 0:05:23.000 two point five. Let's say we're probably closer to three. 0:05:23.080 --> 0:05:26.360 If you take the whole full construct of inflation. Three 0:05:26.520 --> 0:05:29.440 is not an infectious you know, you clearly don't see 0:05:29.440 --> 0:05:31.320 it in terms of where people anticipate inflation. 0:05:31.360 --> 0:05:33.839 If you're running four or five, then I'd say, gosh. 0:05:34.040 --> 0:05:38.080 Or if the three was trending higher on things that 0:05:38.120 --> 0:05:40.719 the interest rate tool impacted, then I think you'd have 0:05:40.720 --> 0:05:42.400 to address that just to sort. 0:05:42.240 --> 0:05:43.960 Of build on that this idea that three is okay, 0:05:44.000 --> 0:05:46.880 but above that maybe not so much. There's a feeler 0:05:47.080 --> 0:05:49.520 that there is an asymmetry in the timeframe of AI 0:05:50.160 --> 0:05:52.520 that right now the buildout is going to be inflationary 0:05:52.560 --> 0:05:56.720 because of the inflationary inputs of commodity costs, of just 0:05:56.880 --> 0:05:59.400 how much lending and money this is generating on a 0:05:59.440 --> 0:06:03.520 broad scale. Ill the productivity gains that will cause disinflation 0:06:04.120 --> 0:06:06.800 will take a lot longer to come into play. So 0:06:07.720 --> 0:06:09.719 if you were the head of the FED, would you 0:06:09.760 --> 0:06:10.240 handle that? 0:06:10.960 --> 0:06:11.839 So I'd take a bother thning. 0:06:11.839 --> 0:06:14.400 So think about historically, the way the interest rate tool 0:06:14.440 --> 0:06:16.680 worked is it was a modulator of capac So you 0:06:16.680 --> 0:06:18.760 think about I go back sixties and seventies, the big 0:06:18.839 --> 0:06:25.200 spenders in manufacturing today. My guess is Open AI and Vidia, Google, 0:06:25.200 --> 0:06:27.760 et cetera. It's not the interest rate tool that is 0:06:27.800 --> 0:06:30.599 affecting capax. They are going to put that capex in 0:06:30.720 --> 0:06:33.200 because there is a long run benefit for doing it, 0:06:33.440 --> 0:06:35.440 meaning the interest rate tool doesn't really do a lot. 0:06:35.520 --> 0:06:37.320 So I think, at the end of the day, does 0:06:37.360 --> 0:06:40.000 that create a little bit of inflation in the areas 0:06:40.000 --> 0:06:42.360 you describe? I think so, But I think you have 0:06:42.440 --> 0:06:45.160 to say, you know where are we going? And I 0:06:45.160 --> 0:06:47.440 almost say being an investor for a long time, you 0:06:47.480 --> 0:06:50.440 know the concept of data dependence. If you were constantly 0:06:50.480 --> 0:06:52.320 in the rear view mirror trying to figure out how 0:06:52.360 --> 0:06:54.080 would you invest it is probably the wrong way to 0:06:54.080 --> 0:06:56.279 do it. We are going through something that's very different. 0:06:56.320 --> 0:06:58.880 We now are in a capex cycle. And then if 0:06:58.880 --> 0:07:00.560 you break down the economy and say, okay, what is 0:07:00.680 --> 0:07:04.560 driving GDP today, that's what's driving this compax and some 0:07:04.760 --> 0:07:06.400 consumption from high income people. 0:07:06.640 --> 0:07:09.920 The keypase of the inflation story, Shouter, you touched on it. 0:07:10.280 --> 0:07:14.000 He said something interesting. Interest rates down, shout costs down. 0:07:14.480 --> 0:07:15.560 Just explain that for us. 0:07:16.040 --> 0:07:18.640 Yeah, so we have an inventory problem in the country. 0:07:18.720 --> 0:07:20.920 By the way, I mean, look at every piece of data, 0:07:21.400 --> 0:07:23.240 it shows the same thing. And so, by the way, 0:07:23.280 --> 0:07:25.840 when the mortgage rate has come down a bit post 0:07:25.960 --> 0:07:28.600 this recent fed drop in interest rates, all of a 0:07:28.640 --> 0:07:31.440 sudden you're seeing existing home sales pickup. Saw we just 0:07:31.440 --> 0:07:34.000 saw the prepayment report for mortgages, and all of a 0:07:34.040 --> 0:07:37.120 sudden you're seeing some acceleration, meaning you don't have to 0:07:37.120 --> 0:07:39.320 get the interest rate tool down that much. If you 0:07:39.400 --> 0:07:42.320 got the mortgage rate into the fives I'd say mid 0:07:42.360 --> 0:07:45.280 to high fives, you would see some velocity of housing. 0:07:45.360 --> 0:07:47.920 If you saw velocity of housing today, I saw on 0:07:47.960 --> 0:07:51.000 deor Horton's numbers They talked about they're doing one percent 0:07:51.120 --> 0:07:53.440 first year mortgage, and then I think it's four point 0:07:53.520 --> 0:07:57.040 nine because they've got to subsidize the mortgage. Well, what 0:07:57.160 --> 0:07:58.840 after your horton didn't have to do that, and what 0:07:58.880 --> 0:08:01.960 if the actual organic the rate was lower, they'd build 0:08:02.000 --> 0:08:04.720 more houses. You create more inventory, You create more inventory, 0:08:04.720 --> 0:08:07.680 you took the pressure off of rental rates, and you 0:08:07.720 --> 0:08:10.520 start to bring inflation down. Plus the labor mobility that 0:08:10.920 --> 0:08:12.360 is not an insignificant part of that. 0:08:12.520 --> 0:08:13.960 Do you think the Fed needs to think how side 0:08:14.000 --> 0:08:16.120 of the box beyond just interest rates? Is this something 0:08:16.120 --> 0:08:16.600 else we can do? 0:08:16.640 --> 0:08:16.760 Hey? 0:08:16.840 --> 0:08:18.600 Yeah, I mean listen, I think there is. I think 0:08:18.600 --> 0:08:20.880 the FAT has a series of tools. The interest rate tool. 0:08:21.560 --> 0:08:23.680 By the way, today nobody really borrows off the overnight 0:08:23.720 --> 0:08:26.320 funding rate. The interest rate tool, it used to be 0:08:26.440 --> 0:08:28.640 they think about how banks borrow short, they lent long. 0:08:28.880 --> 0:08:31.520 We had a very different dynamic today, the way we 0:08:31.600 --> 0:08:33.880 trans the debt in the economy. Think about how we 0:08:33.920 --> 0:08:39.120 finance RESI, commercial asset backs, credit cards, auto loans, it's tranched. 0:08:39.480 --> 0:08:41.440 The front end of the yield curve doesn't really do 0:08:41.520 --> 0:08:41.800 a lot. 0:08:42.600 --> 0:08:44.600 How you think about you know, where is the ten 0:08:44.679 --> 0:08:46.600 year point how do you think about your balance sheet? 0:08:46.600 --> 0:08:48.120 How do you think about all the other tools that 0:08:48.120 --> 0:08:51.160 are at your disposal, I think are really important. Plus 0:08:51.200 --> 0:08:52.839 you got to think about what is the effect of 0:08:52.880 --> 0:08:55.560 the currency et cetera relative to that. So anyway, I 0:08:55.559 --> 0:08:58.120 think the construct is much more complex and much more 0:08:58.200 --> 0:09:01.319 quite frankly, you have a lot of tools that create 0:09:01.400 --> 0:09:03.320 much more effectiveness. Then we're just going to move the 0:09:03.320 --> 0:09:04.880 overnight funds right every six weeks. 0:09:04.960 --> 0:09:07.880 Like the balance sheet? How much would you be open 0:09:07.960 --> 0:09:09.800 to see the Fed use the balance sheet a little 0:09:09.800 --> 0:09:10.200 bit more? 0:09:10.440 --> 0:09:10.560 So? 0:09:10.600 --> 0:09:13.080 I think the construct of the balance sheet is important. 0:09:13.559 --> 0:09:16.320 So I think people don't realize there's a notional dynamic, 0:09:16.320 --> 0:09:18.840 and there's a DVO one, there's a duration dynamic. 0:09:18.440 --> 0:09:19.520 Further out the yield curve. 0:09:20.000 --> 0:09:22.400 I am sympathetic to should we keep the balance sheet 0:09:22.400 --> 0:09:25.320 around the same level, but you could be really effective. 0:09:25.360 --> 0:09:27.640 So today the US Treasury eighty nine percent of what 0:09:27.679 --> 0:09:30.000 the US Treasury finances is at the zero to. 0:09:30.040 --> 0:09:32.480 Two year point eight. Think about if you're a company, 0:09:32.520 --> 0:09:35.760 would you ever finance in the one year? Like it's crazy, 0:09:36.280 --> 0:09:37.840 but that's where we are today and it is what 0:09:37.920 --> 0:09:38.280 it is. 0:09:38.840 --> 0:09:41.480 So there's not that much float. Actually, longer on the curve. 0:09:41.480 --> 0:09:43.280 There's reason why people put on steepeners. I think it's 0:09:43.280 --> 0:09:45.400 squeezed out of steepeners because there's not that much float. 0:09:45.800 --> 0:09:47.679 You don't have to use that much balance sheet. But 0:09:47.720 --> 0:09:50.400 if you thought about, gosh, the construct of the balance sheet, 0:09:50.400 --> 0:09:52.800 if we used more of it further out the curve, 0:09:52.800 --> 0:09:55.880 we let runoff happen on the front if you can keep. 0:09:55.679 --> 0:09:57.920 The stability of the back end. 0:09:57.960 --> 0:10:00.360 So if you can keep the ten year, you know, 0:10:00.400 --> 0:10:02.920 we got to the tenure was three ninety. If the 0:10:02.960 --> 0:10:06.000 tenure was three and a half to four stable and 0:10:06.160 --> 0:10:09.480 rate vaul rate volatility came down all of a sudden, 0:10:09.480 --> 0:10:12.240 you'd see mortgage spreads could come in. Then you'd get 0:10:12.280 --> 0:10:14.960 and by the way, deregulation the banking system, then you 0:10:15.000 --> 0:10:16.400 get mortgage velocity moving. 0:10:16.440 --> 0:10:18.199 So, by the way, I don't think we're that far away. 0:10:18.640 --> 0:10:20.240 And by the way, you know this concept that you 0:10:20.280 --> 0:10:21.840 know we have to get the rate down hundreds of 0:10:21.880 --> 0:10:24.360 basis points, I just think we're not that far away. 0:10:24.520 --> 0:10:27.200 Just get it there, keep volatility of the rate market 0:10:27.200 --> 0:10:29.320 at a stable level, and then you'll see a system 0:10:29.320 --> 0:10:30.360 that will operate pretty well. 0:10:30.440 --> 0:10:32.440 Rick if Cinelot going back to the late eighties. How 0:10:32.520 --> 0:10:33.600 much fun you have in right now? 0:10:34.559 --> 0:10:37.120 I mean, I mean I said before, there's the best 0:10:37.120 --> 0:10:39.839 investment environment I've ever seen. I mean not because stocks 0:10:39.880 --> 0:10:40.839 are going to go straight out. 0:10:41.800 --> 0:10:45.320 I mean you have diversions that is great for investing. 0:10:45.679 --> 0:10:48.320 You have technology that's changing, and so the ability to 0:10:48.320 --> 0:10:51.520 look at tech stocks, healthcare tech, to look at you know, 0:10:51.520 --> 0:10:53.600 where some of the financials, how you create velocity in 0:10:53.600 --> 0:10:57.160 the system. And then you know the earlier conversation and 0:10:57.240 --> 0:11:00.280 we were talking about the break like now the income levels. 0:11:00.280 --> 0:11:02.040 As long as this interest rate stays here, you know 0:11:02.040 --> 0:11:04.880 what's ironic as commercially, you know, I prefer the interest 0:11:04.960 --> 0:11:06.960 rate to stay here because it's I mean, this is 0:11:06.960 --> 0:11:07.400 pretty good. 0:11:07.400 --> 0:11:08.280 We can create portfolios. 0:11:08.280 --> 0:11:10.880 We run the CTF called Bink, and you know, creating 0:11:10.920 --> 0:11:13.120 six six in a quarter, we're running almost six thirty. 0:11:13.160 --> 0:11:15.240 Now you don't have to take a lot of risk, 0:11:15.280 --> 0:11:16.760 you don't have to go out the yield curve. That's 0:11:16.800 --> 0:11:18.920 pretty good. So anyway, I think, and by the way, 0:11:18.920 --> 0:11:21.240 the options market, I think the best opportunities are in 0:11:21.240 --> 0:11:24.720 the options market. Rate options, equity options, and you could 0:11:24.720 --> 0:11:27.080 manage your convexi so you can be long equities and 0:11:27.120 --> 0:11:29.800 then buy a lot of you can overwrite your single 0:11:29.840 --> 0:11:30.480 name stocks, you. 0:11:30.480 --> 0:11:32.480 Can buy downside. It's a it's a fun environment. 0:11:32.520 --> 0:11:35.319 Well, leth Lene into Bink. You mentioned the ices, flexpeleective 0:11:35.800 --> 0:11:38.080 income ETF. What kind of things have you been doing 0:11:38.280 --> 0:11:39.440 over the past six months. 0:11:39.480 --> 0:11:40.959 You know, we've been you know, the cool thing about 0:11:41.000 --> 0:11:43.800 being active is you can move around because the regime shifts. 0:11:44.040 --> 0:11:46.520 And while you know, I was describing earlier like where 0:11:46.520 --> 0:11:47.680 do you think the interest rate should be? 0:11:47.960 --> 0:11:49.360 The truth is the interest rates isn't going to move 0:11:49.480 --> 0:11:49.800 very far. 0:11:49.880 --> 0:11:52.640 So you know, we're we're keeping our interest rate duration, 0:11:53.080 --> 0:11:56.400 you know, in and around four years. We've moved a 0:11:56.440 --> 0:11:58.560 little bit out of the very front end because it's 0:11:58.559 --> 0:12:01.360 pricing a lot now where this FED is going to go, 0:12:02.000 --> 0:12:04.160 then we've done. We've shifted some of our credit into 0:12:04.200 --> 0:12:06.880 mortgages quite frankly, if you believe rate volatility is going 0:12:06.920 --> 0:12:10.080 to be down, mortgages has become interesting and credit spreads 0:12:10.120 --> 0:12:13.439 have gotten pretty tight, particularly US investment grade has gotten 0:12:13.480 --> 0:12:14.000 pretty tight. 0:12:14.040 --> 0:12:15.360 So we've rotated out of that. 0:12:16.080 --> 0:12:18.280 We've bought a little bit of em recently, I would 0:12:18.320 --> 0:12:20.360 say recently, over the last six months, we haven't bought 0:12:20.400 --> 0:12:22.920 a m in a long time. You know, if you 0:12:22.960 --> 0:12:25.720 believe the dollar is contained, EM becomes pretty interesting. And 0:12:25.760 --> 0:12:29.079 the yields, you know, relative to high yield, the yields 0:12:29.120 --> 0:12:31.040 and EM are attractive. So we've cut a little bit 0:12:31.080 --> 0:12:33.800 of high yield, We've got a good amount of investment 0:12:33.840 --> 0:12:36.480 grade credit, and we've rotated. So today I think our 0:12:36.520 --> 0:12:38.760 average rating is as it's pretty good, so it gives 0:12:38.840 --> 0:12:40.960 us a little bit of room to do some things 0:12:41.000 --> 0:12:41.440 like EM. 0:12:41.679 --> 0:12:44.240 You said something that was interesting there, which is you 0:12:44.280 --> 0:12:46.360 don't have to go very far out the risk curve 0:12:46.440 --> 0:12:49.280 in order to get income. Now, because yields are high, 0:12:49.640 --> 0:12:51.839 if the FED were to cut rates, does that make 0:12:51.880 --> 0:12:53.360 you more inclined to take more risk? 0:12:54.400 --> 0:12:54.600 Yeah? 0:12:54.640 --> 0:12:56.280 I mean I have to say, you know, for two 0:12:56.320 --> 0:12:58.120 decades part of why I'm so excited about where we 0:12:58.160 --> 0:13:00.560 are today. For two decades it was I gotta buy 0:13:00.559 --> 0:13:01.920 how I yield at three and a half and four 0:13:01.960 --> 0:13:04.800 and it doesn't feel natural. But now if you have 0:13:04.840 --> 0:13:07.160 the risk free rate, particularly in the front end here, gosh, 0:13:07.200 --> 0:13:08.480 I put a little bit of spread on it. 0:13:08.559 --> 0:13:10.320 Now I get what is ample yield. 0:13:10.840 --> 0:13:12.920 With default rates that are not that elevated, you are 0:13:12.920 --> 0:13:16.559 seeing some bubbling defaults in a couple of places. So 0:13:16.600 --> 0:13:18.520 you know, I think the thing that we would do is, 0:13:18.760 --> 0:13:20.080 you know, I know what we would do is if 0:13:20.160 --> 0:13:22.840 rates come down. You know, I'm not a believer, and 0:13:22.880 --> 0:13:25.360 this is what blows you up. I'm not a Believer's gosh, 0:13:25.360 --> 0:13:26.920 I got I gotta keep that yield. I gotta get 0:13:26.920 --> 0:13:29.480 my risk up. You just have to absorb it and say, 0:13:29.520 --> 0:13:31.480 you know what, I'm going to run. I can't run 0:13:31.520 --> 0:13:34.680 six twenty five or so. I'm going to run five 0:13:34.679 --> 0:13:36.920 and three quarters of six. But you know what'll happen 0:13:37.000 --> 0:13:39.080 is a cash rate will come down and people say, gosh, 0:13:39.080 --> 0:13:40.439 you know what cash is only get me two and 0:13:40.480 --> 0:13:41.040 a half to three. 0:13:41.559 --> 0:13:44.680 That's an you know, inflation. Even if inflation's three like, 0:13:44.760 --> 0:13:45.600 it's still pretty great. 0:13:46.040 --> 0:13:47.760 Very few people on Wall Street door are saying, you 0:13:47.840 --> 0:13:49.480 know what, I can just live with less income. 0:13:49.760 --> 0:13:51.360 It's okay, I won't stretch too far. 0:13:51.520 --> 0:13:53.640 I'll be disciplined, and maybe I'll just take less cash 0:13:53.720 --> 0:13:56.600 and I'll commit to the economy. At what point can 0:13:56.640 --> 0:13:59.319 you imagine that things start to get a bit excessive, 0:13:59.559 --> 0:14:01.480 especially given the fact that there is a lot of 0:14:01.480 --> 0:14:02.920 cash right now looking for a home. 0:14:03.559 --> 0:14:05.040 So by the way. It's a funny thing is you 0:14:05.080 --> 0:14:07.320 say that. You know, we live in a competitive environment. 0:14:07.360 --> 0:14:09.080 We can't just sit back. I mean, it is a 0:14:09.120 --> 0:14:12.240 tough business and we have competitors and people are out 0:14:12.240 --> 0:14:15.160 there say gosh, I can get you more yield, and listen. 0:14:15.160 --> 0:14:16.240 I think one of the things you have. 0:14:16.200 --> 0:14:17.960 To do is you have to keep your volatility as 0:14:18.040 --> 0:14:19.840 long as you always think about what's your yield per 0:14:19.920 --> 0:14:23.760 unit of volatility? Today equities, I think equities are still 0:14:23.800 --> 0:14:26.000 going up fifteen to twenty percent from where they are 0:14:26.280 --> 0:14:28.400 over the next year. So I'm just trying to keep 0:14:28.400 --> 0:14:32.520 our volatility at a reasonable place. What is excessive? You know, 0:14:32.560 --> 0:14:35.480 there's some things that are bubbling in the markets that 0:14:35.600 --> 0:14:39.560 are mostly in privates that are gosh, I don't get 0:14:39.560 --> 0:14:40.359 any cash. 0:14:40.080 --> 0:14:42.200 Flow for two or three years. What's the multiple you 0:14:42.240 --> 0:14:43.160 put on that? Like? 0:14:43.240 --> 0:14:45.640 That stuff is hard. There are some really good business models. 0:14:45.680 --> 0:14:48.320 You say, I see it and it's almost definitional. 0:14:48.800 --> 0:14:49.040 You know. 0:14:49.080 --> 0:14:51.240 You see some parts of it where people are stretched 0:14:51.800 --> 0:14:53.960 and in some of the credit markets where some of 0:14:53.960 --> 0:14:55.520 the levels get aggressive. 0:14:55.560 --> 0:14:57.200 Part of why we've rotated some of the investment preate. 0:14:57.240 --> 0:14:59.000 It doesn't do that much for us anymore. At those 0:14:59.040 --> 0:15:00.320 spread levels. 0:15:00.360 --> 0:15:01.920 But I don't, you know, I don't see like you 0:15:02.000 --> 0:15:05.680 you saw before the financial crisis, excessive low you know, 0:15:05.840 --> 0:15:09.720 low covenant or easy covenants, high LTV financing. 0:15:09.760 --> 0:15:10.000 I don't. 0:15:10.080 --> 0:15:12.920 I don't see that yet today at the around the 0:15:13.000 --> 0:15:14.800 edges a little bit, but not not really. 0:15:15.000 --> 0:15:17.840 Fifteen to twenty percent on stocks, yeah, now the double 0:15:17.880 --> 0:15:20.760 digit yeah. 0:15:19.600 --> 0:15:20.600 You know, I don't. I think. 0:15:20.640 --> 0:15:23.280 I mean, I think we're living through history because if 0:15:23.280 --> 0:15:27.320 we're what you asked about before, because productivity and ROE 0:15:27.720 --> 0:15:30.280 is so spectacular. And by the way, I don't think 0:15:30.280 --> 0:15:32.720 it's five hundred stocks. I think it's by the way, 0:15:32.720 --> 0:15:34.200 we were a stat yesterday, if you take the S 0:15:34.200 --> 0:15:37.080 and P fifteen hundred, it's is this right that I heard? 0:15:37.120 --> 0:15:39.760 It was twenty two percent off the highs. I thought 0:15:39.760 --> 0:15:41.840 that number of rust constrat to work with Dogeleman. I 0:15:41.880 --> 0:15:45.680 thought that was extraordinary. If you take the highest ROE businesses, 0:15:45.760 --> 0:15:49.000 you know, let's say it's thirty stocks, fifty stocks, tech, healthcare, 0:15:49.040 --> 0:15:50.320 attach some of the financials. 0:15:50.680 --> 0:15:51.600 They're doing really well. 0:15:51.640 --> 0:15:54.040 They throw off a lot of armings, their ROE is high, 0:15:54.080 --> 0:15:56.720 and they buy back huge amounts of stock. You know, 0:15:56.840 --> 0:16:00.680 small cap don't really know, but there's enough with enough 0:16:00.720 --> 0:16:03.000 market cap that I think will get you that sort 0:16:03.000 --> 0:16:03.400 of return. 0:16:03.480 --> 0:16:06.120 Stay with market Wait on the s and P five hundred, 0:16:06.680 --> 0:16:07.720 where's the concentration? 0:16:08.120 --> 0:16:11.080 I mean we're long, I mean we're you know, we're 0:16:11.120 --> 0:16:12.960 you know, we've reduced a little bit of beta. When 0:16:13.000 --> 0:16:15.320 when equity volatility picks up, I have to bring my 0:16:15.400 --> 0:16:16.480 beta down a little bit. 0:16:16.480 --> 0:16:17.720 But I'm still running long. 0:16:18.160 --> 0:16:21.760 And you know, days like yesterday, you know, and uh, 0:16:21.920 --> 0:16:22.960 you know, single name, you know. 0:16:22.960 --> 0:16:25.800