WEBVTT - Bloomberg Wall Street Week - December 16th, 2022 0:00:00.520 --> 0:00:03.760 This is Bloomberg Wall Street Week. We turn our attention 0:00:03.840 --> 0:00:07.120 to the markets this week. U s CPI never's reinforcing 0:00:07.160 --> 0:00:10.639 concerns about inflation. The financial stories that cheap are worth 0:00:10.720 --> 0:00:13.480 a really different reaction to Mark. It's more indications of 0:00:13.640 --> 0:00:16.239 just how hot the U. S. Economy really is. Through 0:00:16.239 --> 0:00:19.520 the eyes of the most influential voices Larry Summers, the 0:00:19.560 --> 0:00:22.920 former Treker Secretary, Katherine Keating, CEO of d n Y Mollins, 0:00:22.960 --> 0:00:26.239 Sam's l Sharmon and founder of Equatic Group Investment in 0:00:26.320 --> 0:00:30.240 Bloomberg Wall Street Week with David Weston from Bloomberg Radio, 0:00:30.640 --> 0:00:36.159 Inflation easing, China reopening, and Africa waiting. But all anyone 0:00:36.240 --> 0:00:39.919 can talk about is Samuel Bankman Free. This is Bloomberg 0:00:39.920 --> 0:00:43.680 Wall Street Week. I'm David Weston, this week's special contributor 0:00:43.680 --> 0:00:46.880 to Larry Summers of Harvard on easy inflation and whether 0:00:46.920 --> 0:00:50.680 we're on our way to that soft landing. Chairman is 0:00:50.760 --> 0:00:53.280 in about the right place. I think we are in 0:00:53.360 --> 0:00:57.280 better shape than I thought we were. And Rick Reader 0:00:57.320 --> 0:01:01.080 of Black Rocket on the historic opportunity hec in fixed income. 0:01:01.360 --> 0:01:03.880 If I can lock in these yields through a little 0:01:03.880 --> 0:01:05.720 bit longer without having to go out to tens or 0:01:05.760 --> 0:01:20.920 thirties back to me is a sweet spot today. There 0:01:21.000 --> 0:01:23.200 was a lot of news this week for Global Wall Street, 0:01:23.319 --> 0:01:25.640 but we found ourselves spending just about all of our 0:01:25.720 --> 0:01:28.720 time focused on f t X and its former CEO, 0:01:29.000 --> 0:01:33.400 Samuel Bankman Freed as its curren CEO bluntly told Congress 0:01:33.440 --> 0:01:37.640 what had happened. This isn't a sophisticated whatsoever. This is 0:01:37.680 --> 0:01:41.080 just plain old embezzlement. And some members of Congress, like 0:01:41.160 --> 0:01:44.080 Brad Sherman of California, said we should just do away 0:01:44.120 --> 0:01:48.760 with cryptocurrencies altogether. What does cryptocurrency have over the US 0:01:48.840 --> 0:01:51.720 dollar or other major currencies. It's right there in the 0:01:51.800 --> 0:01:56.960 name hidden money. My goal is to say enough is enough. 0:01:57.480 --> 0:02:01.320 It's time to prohibit Americans from investing in cryminal. President 0:02:01.360 --> 0:02:04.480 Biden convened the summit in Washington to deal with Africa, 0:02:04.640 --> 0:02:09.639 with Secretary of State Anthony Blinkin emphasizing cooperation. Partnership is 0:02:09.680 --> 0:02:13.640 at the heart President biden strategy for Africa partnerships between 0:02:13.639 --> 0:02:16.640 the United States and African nations, with the private sector, 0:02:17.040 --> 0:02:19.880 and between our people. But Ian Bremer of Eurasia Group 0:02:19.960 --> 0:02:22.200 said that the United States has to work to catch 0:02:22.280 --> 0:02:25.320 up with China. When it comes to Africa, the Chinese 0:02:25.800 --> 0:02:29.120 invests a lot more, but the African governments want to 0:02:29.120 --> 0:02:32.280 see the money they need the baseline infrastructure. In so far, 0:02:32.320 --> 0:02:34.200 the Chinese have done a lot more on the ground 0:02:34.280 --> 0:02:37.880 to invest. Secretary Granholm announced that the Department of Energy 0:02:38.120 --> 0:02:43.040 had made a major breakthrough in nuclear fusion. This demonstrates 0:02:43.440 --> 0:02:46.600 it can be done. That threshold being crusted allows them 0:02:46.639 --> 0:02:50.480 to start working on the things that are necessary to 0:02:50.520 --> 0:02:54.440 allow it to be modularized and taken to commercial scale. 0:02:54.680 --> 0:02:58.400 And Elon Musk gave up his title as world's richest man, 0:02:58.880 --> 0:03:01.600 at least for now. He's no longer the richest man 0:03:01.639 --> 0:03:03.799 in the world if you look at Tesla stock, specifically 0:03:03.840 --> 0:03:08.200 their market value now falling below five billion dollars. But 0:03:08.320 --> 0:03:11.200 for all the drama, the big news really came from 0:03:11.280 --> 0:03:14.960 the central banks, starting with the Federal Reserve. On Tuesday, 0:03:15.040 --> 0:03:17.520 the Fed got the good news that inflation was slowing 0:03:17.639 --> 0:03:21.720 faster than we had thought. Investors didn't think inflation was 0:03:21.760 --> 0:03:25.040 going to come down as fast as economists were forecasting, 0:03:25.320 --> 0:03:28.640 and now it's coming down even faster. And on Wednesday, 0:03:28.680 --> 0:03:33.200 the Fed responded by saying, well, not so fast. It's good, 0:03:33.480 --> 0:03:37.400 but not good enough to declare victory. The MC raised 0:03:37.400 --> 0:03:41.000 our policy interest rate by a half percentage point. We 0:03:41.040 --> 0:03:44.760 continue to anticipate that ongoing increases will be appropriate. I 0:03:44.760 --> 0:03:47.920 wouldn't see us considering RAID cuts until the Committee is 0:03:47.960 --> 0:03:51.240 confident fit inflation is moving down to two in a 0:03:51.280 --> 0:03:54.440 sustained way. And then on Thursday, the Bank of England 0:03:54.480 --> 0:03:57.400 and the European Central Bank raised their own rates another 0:03:57.480 --> 0:04:01.360 fifty basis points each, with ECB pre Christine Legarde saying 0:04:01.480 --> 0:04:04.720 they won't be taking their foot off the break anytime soon. 0:04:05.200 --> 0:04:10.880 We should expect to raise interest rates at a fifty 0:04:10.960 --> 0:04:17.240 basis points face for a period of time. And the 0:04:17.320 --> 0:04:19.680 markets well, as much as they were encouraged by those 0:04:19.680 --> 0:04:22.560 CPI numbers on Tuesday, they were just that disappointed by 0:04:22.560 --> 0:04:25.320 the fed chairs reaction, as stocks were down again for 0:04:25.320 --> 0:04:27.600 the week, with the SP losing just over two p 0:04:28.080 --> 0:04:31.000 the NASAC off two point seven percent, while the yield 0:04:31.000 --> 0:04:33.760 and the tenure was down just over nine basis points 0:04:33.760 --> 0:04:36.920 to end the week just under three. Take us through 0:04:36.960 --> 0:04:40.000 this combination of economic and market data. Welcome now. Joe 0:04:40.040 --> 0:04:43.320 and Feeney partnered in Advisor's capital management and Sonalda, said 0:04:43.600 --> 0:04:46.640 Franklin Templeton, CEO of Fixed Income. So, Joe, let me 0:04:46.680 --> 0:04:48.880 start with you. Did I detect just a wee tension 0:04:48.960 --> 0:04:51.120 this week between other one hand, the markets and the 0:04:51.160 --> 0:04:54.320 other the Federal Reserve? Yeah, just a little bit, David. 0:04:54.440 --> 0:04:57.039 You know, we've seen this play before. The market gets 0:04:57.080 --> 0:04:58.920 all excited to see a data point and they think, 0:04:58.920 --> 0:05:01.320 okay that that's finally going to ease off or signal 0:05:01.320 --> 0:05:03.839 that'll ease off, and and then we get that bucket 0:05:03.839 --> 0:05:06.320 of cold water. The fact of the matter is there's 0:05:06.360 --> 0:05:07.840 just a lot of work for the Fed to do 0:05:08.240 --> 0:05:11.200 to get back to that two percent targets. And uh, 0:05:11.240 --> 0:05:14.040 you know, they're going to keep rates elevated and continue 0:05:14.040 --> 0:05:18.000 to raise until they have a much clearer and broader signal. 0:05:18.360 --> 0:05:21.400 And one CPI print is not going to convince them 0:05:21.480 --> 0:05:24.479 that the hard work has has been done. There's just 0:05:24.520 --> 0:05:27.200 too much in terms of labor shortages right now driving 0:05:27.200 --> 0:05:30.760 wage growth for them to ease off on this efforts 0:05:30.800 --> 0:05:33.600 to constrain economic activity. So so now the FET has 0:05:33.640 --> 0:05:36.680 been fairly explicit, why doesn't the bond market believe it? So, 0:05:36.800 --> 0:05:39.359 you know, I think that it's a question of what 0:05:39.480 --> 0:05:42.280 your call credibility. Is it credibility, does the FED a 0:05:42.400 --> 0:05:45.440 credibility that's going to fight inflation? Or is it more 0:05:45.520 --> 0:05:48.840 that the market does not believe the FED has credibility 0:05:48.960 --> 0:05:51.440 to stick to the guns in terms of raising rates. 0:05:51.640 --> 0:05:54.280 They're not taking the FED very seriously. Right. We are 0:05:54.320 --> 0:05:58.599 looking at what markets are pricing, both in terms of 0:05:58.640 --> 0:06:01.480 the peak FED funds, right, which is not five certainly 0:06:01.480 --> 0:06:03.920 not between five and five point two five as the 0:06:04.040 --> 0:06:08.200 s EPs are describing. It's below didn't change after Chair 0:06:08.240 --> 0:06:13.680 Powell's uh Q and A. And furthermore, the market still 0:06:13.680 --> 0:06:15.760 pricing and rate cuts by the end of next year. 0:06:15.800 --> 0:06:18.640 We're looking at four thirty five fill FED funds at 0:06:18.640 --> 0:06:20.599 the end of next year. So I think FED is 0:06:20.760 --> 0:06:22.599 FED has a problem. It's got its work cut out 0:06:22.640 --> 0:06:27.240 for it. Markets have been conditioned to actually not believe 0:06:27.279 --> 0:06:29.760 the FED when it says it's going to be really tough. 0:06:30.640 --> 0:06:33.279 So joy and given this disagreement, if I can put 0:06:33.279 --> 0:06:35.800 it that way, what does an investor do? It does 0:06:35.839 --> 0:06:37.800 strike me the bonds are a lot more attractive at 0:06:37.800 --> 0:06:39.200 the end of the year than they were at the beginning. 0:06:39.240 --> 0:06:40.720 I think the year was something like one point eight 0:06:40.760 --> 0:06:44.160 at the beginning. Here and we're up around three point five. Now, yeah, 0:06:44.200 --> 0:06:48.279 there's no question that finally investors can look to bonds 0:06:48.320 --> 0:06:51.800 to really fill an important role in their portfolios. Not 0:06:51.880 --> 0:06:55.159 only are they getting decent incomes off the bonds um 0:06:55.360 --> 0:06:59.280 and that's allowing them to build more balanced portfolios so 0:06:59.320 --> 0:07:01.839 that they can stay in equities to some degree and 0:07:01.839 --> 0:07:04.440 hopefully get that long term appreciation that they need. But 0:07:04.480 --> 0:07:06.400 now they're getting some decent income on the on the 0:07:06.440 --> 0:07:09.320 fixed income style, which is a relief. Right now, real 0:07:09.440 --> 0:07:12.120 yields are negative because inflation is running ahead, but when 0:07:12.120 --> 0:07:14.120 you look to the longer term out you know, two 0:07:14.240 --> 0:07:17.560 three or four years, those real yields now look look 0:07:17.600 --> 0:07:19.880 positive and they're really going to help purchasing power for 0:07:19.920 --> 0:07:21.960 those investors going forward. So now there is a lot 0:07:22.000 --> 0:07:24.520 of volatility though on the bond markets or not there 0:07:24.560 --> 0:07:27.320 really is. There is a lot of volatility, and honestly, 0:07:27.400 --> 0:07:29.800 until we get to a stage where the market is 0:07:29.960 --> 0:07:32.200 market starts buying whatever it is the fat is selling, 0:07:32.520 --> 0:07:35.000 I think we're going to keep seeing these moves which 0:07:35.040 --> 0:07:38.240 are remarkable. If you look at tenure tenure yields, which 0:07:38.400 --> 0:07:41.800 which I think over the month of November went at 0:07:41.840 --> 0:07:45.080 one point from four five all the way down and 0:07:45.160 --> 0:07:48.200 then back copy. We've seen around seventy eight basis points 0:07:48.200 --> 0:07:52.000 of moves up to thirty basis points in literally days, 0:07:52.120 --> 0:07:55.200 twenty basis points in the last few You look at 0:07:55.240 --> 0:07:58.840 these this level of volatility, it's almost too much, far 0:07:58.920 --> 0:08:02.360 too much. And as I look into next year, I 0:08:02.400 --> 0:08:05.760 think it's probably going to be a few months at least, 0:08:05.840 --> 0:08:07.920 maybe a quart or two until we see the FED 0:08:07.960 --> 0:08:12.480 having raised before we see some reduction and volatility. Nonetheless, 0:08:12.880 --> 0:08:16.960 you know, echoing what Joanne said, when you're getting yields 0:08:17.480 --> 0:08:20.640 in areas such as high for example, you're getting as 0:08:20.720 --> 0:08:24.840 much as nine on low dollar price bonds. Certainly there 0:08:24.840 --> 0:08:28.240 are specific bonds, specific areas which look attractive, but I 0:08:28.240 --> 0:08:31.400 don't think I would go wholesale into adding risk. It's 0:08:31.400 --> 0:08:35.040 actually quite a nice time to be low and duration 0:08:35.120 --> 0:08:37.520 and high and quality in the bond market. Well, let 0:08:37.520 --> 0:08:39.160 me pursue that if I could for moments a now, 0:08:39.200 --> 0:08:40.520 and this is the end of the year, So we 0:08:40.600 --> 0:08:43.040 traditionally say, what's your conviction trade going in next year? 0:08:43.120 --> 0:08:45.520 What's your conviction trade given that volatil the bond market? 0:08:46.520 --> 0:08:49.000 Oh no, I think my conviction trade on fixed income 0:08:49.040 --> 0:08:52.040 overall is high. I think I like to stay, like 0:08:52.080 --> 0:08:54.920 I said, relatively short duration, high and quality. I do 0:08:55.000 --> 0:08:58.320 like investment grade, and I think fairly soon into the 0:08:58.320 --> 0:09:01.880 new year, we're going to start very attractive opportunities and 0:09:02.360 --> 0:09:04.480 within the first quatural quarter and a half are going 0:09:04.520 --> 0:09:07.240 to see some good opportunities and risking a segments like 0:09:07.360 --> 0:09:11.040 high yield as well. Emerging markets look very attractive to So, John, 0:09:11.120 --> 0:09:12.880 what about you do you take your incremental dollar and 0:09:12.880 --> 0:09:15.120 put into bonds right now rather than the stocks. Given 0:09:15.160 --> 0:09:17.000 where bonds are, they're much more attractive than they work. 0:09:17.040 --> 0:09:19.280 As you said, you know, we've already seen that happen 0:09:19.320 --> 0:09:21.520 a little bit. But right now, you know, it's not 0:09:21.559 --> 0:09:26.160 that the equity markets are particularly cheap. Volatility has been high. 0:09:26.240 --> 0:09:28.199 The bond yield is certainly more attractive, So we get 0:09:28.200 --> 0:09:31.960 a balanced strategy. You know, at seventy sixty can do 0:09:32.040 --> 0:09:35.400 a lot for for clients, and so that incremental dollar, 0:09:35.480 --> 0:09:39.280 it really depends on the client's horizon. Obviously, a shorter 0:09:39.360 --> 0:09:41.800 Verizon client had better be more in bonds at this point. 0:09:41.880 --> 0:09:44.920 Despite that bond volatility that we're seeing and likely to 0:09:44.920 --> 0:09:47.440 continue to see, and while the stock market isn't particularly 0:09:47.520 --> 0:09:51.000 cheap roughly eighteen times forward earnings, and those earnings likely 0:09:51.040 --> 0:09:53.559 to come down some more. There are still some very 0:09:53.600 --> 0:09:58.040 attractively priced stocks out there, conservative companies that pay a dividend, 0:09:58.440 --> 0:10:01.000 that offer dividends that go up year after year, and 0:10:01.000 --> 0:10:04.320 that's another way of creating income for for investors in 0:10:04.320 --> 0:10:07.560 the short term, even while equities remain a bit of volatile. 0:10:07.840 --> 0:10:09.240 So if you can wait it out, you can get 0:10:09.240 --> 0:10:12.440 both the dividend income perhaps well above the market average 0:10:12.559 --> 0:10:15.599 to ride this out, and then still the position to 0:10:15.760 --> 0:10:18.319 have a portfolio on the equity side that's going to 0:10:18.920 --> 0:10:21.360 really help the portfolio appreciate over the next three to 0:10:21.400 --> 0:10:23.920 five years. Okay, So, so one quick one to you. 0:10:24.040 --> 0:10:25.760 I know you're fixed income, but do you think the 0:10:25.760 --> 0:10:28.319 equity markets have really taken into account the decline and 0:10:28.400 --> 0:10:32.080 earnings is coming. So from my equity colleagues, I hear 0:10:32.160 --> 0:10:35.560 that essentially we're not looking. We haven't seen major earnings 0:10:35.600 --> 0:10:38.400 sound grades now. While I don't expect a major recession 0:10:38.480 --> 0:10:40.880 next year, some slowdown in the second top of next 0:10:40.960 --> 0:10:44.880 year is pretty much a given. So I not sure 0:10:45.200 --> 0:10:49.080 that that earning sound grades have been factored fully. Okay, 0:10:49.080 --> 0:10:51.440 Thank you so very much to Sinalte, Siah Franklin Temple, 0:10:51.920 --> 0:10:55.120 and Joanne Peony of Advisors Capital Management. Coming up, we're 0:10:55.120 --> 0:10:57.160 going to talk with you Rick Reader of black Rock 0:10:57.200 --> 0:10:59.720 about what has already been an eventful year for markets 0:10:59.840 --> 0:11:02.360 and why he sees an historic opportunity to fixed income. 0:11:02.600 --> 0:11:06.840 That's next on Wall Street Week on Bloomberg. This is 0:11:06.880 --> 0:11:11.280 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:11:18.080 --> 0:11:21.120 This is Wall Street Week. I'm David Weston. Two has 0:11:21.120 --> 0:11:23.920 been a year of change, change in the FED and 0:11:24.000 --> 0:11:26.839 other central banks, pulling back support for the economy of 0:11:26.840 --> 0:11:29.520 the markets, changing the stock markets as they adjust to 0:11:29.520 --> 0:11:32.040 the central banks, changing the rate of inflation and the 0:11:32.120 --> 0:11:34.960 underlying economic growth. Take us through what we have seen 0:11:35.000 --> 0:11:37.000 so far this year and to look forward to what 0:11:37.160 --> 0:11:39.800 may come next year. Welcome back, Rick Riager. He is 0:11:39.840 --> 0:11:42.960 black Rock ce IO of Global Fixed Income and head 0:11:42.960 --> 0:11:45.400 of Global Asset Allocation. Rick, welcome back. First of all, 0:11:45.480 --> 0:11:47.480 the big news on Global Wall Street this week was 0:11:47.520 --> 0:11:50.160 you got a promotion. You're on the Global Executive Community 0:11:50.200 --> 0:11:53.800 A black congratulations, sir. I appreciate that, Thank you very much. 0:11:53.800 --> 0:11:55.599 A lot more stripes and epulots, so so talk to 0:11:55.640 --> 0:11:57.320 us about the change we've seen, because there has been 0:11:57.360 --> 0:11:58.920 a lot. If you look back to where we were 0:11:59.040 --> 0:12:01.360 January one of this year where we are now, it's 0:12:01.360 --> 0:12:03.840 really different, for example, from zero to three point seven 0:12:03.880 --> 0:12:07.560 five percent, even higher than that four point on the FED. 0:12:08.240 --> 0:12:10.040 Pretty incredible. Actually, when you go through I've been doing 0:12:10.040 --> 0:12:12.000 this almost thirty six years and you say, what were 0:12:12.040 --> 0:12:14.440 the years that were you had this sort of changed. 0:12:14.480 --> 0:12:17.040 Two thousand and eight maybe still the biggest, but this 0:12:17.280 --> 0:12:19.080 ranks right up in there at the top. And think 0:12:19.120 --> 0:12:21.840 about we came into the year in March the FED 0:12:21.920 --> 0:12:24.800 was still doing que and had the funds rated zero. 0:12:24.920 --> 0:12:27.560 Now we've priced the funds rate at about five as 0:12:27.559 --> 0:12:30.479 a terminal. I mean, that's pretty I mean, that's pretty extraordinary. 0:12:30.520 --> 0:12:33.000 And a year that you've never seen, nobody's ever seen, 0:12:33.040 --> 0:12:35.560 even in my long tenure in the industry, where the 0:12:35.600 --> 0:12:39.160 bondmark in the stock market all traded down, so your hedges, 0:12:39.600 --> 0:12:43.240 how you did portfolio allocation change, the leadership in the 0:12:43.320 --> 0:12:46.920 UK and all of the pension system dynamic that a 0:12:47.000 --> 0:12:49.160 war that you know, who thought that we'd go through 0:12:49.160 --> 0:12:52.880 a deglobalization process and the impact that has on inflation, 0:12:53.280 --> 0:12:57.000 impact on fuel cost, food costs. I mean, this is extraordinary, 0:12:57.000 --> 0:12:59.760 and I mean, by the way, did think about that 0:12:59.840 --> 0:13:02.960 and emergence from COVID, not emergence from COVID, Now do 0:13:03.040 --> 0:13:05.440 we start to grow? I mean, it's it's pretty extraordinary. 0:13:05.480 --> 0:13:08.120 It felt like five years wrapped into one. So the 0:13:08.160 --> 0:13:10.880 economy is absorbed a surprising amount. Actually, if you think 0:13:10.920 --> 0:13:13.880 about what's happened here, uh candidate absorbed what's going on 0:13:14.000 --> 0:13:16.120 right now? I mean, what are your prospects for as 0:13:16.120 --> 0:13:19.000 a so called soft landing at this point, Soda? But 0:13:19.040 --> 0:13:24.480 I think people underestimate how flexible, adaptive, innovative, particularly the 0:13:24.559 --> 0:13:27.480 U S economy is harder in emerging markets. You saw 0:13:27.520 --> 0:13:30.480 a year where a dollar appreciated. Emerging markets come under stress. 0:13:30.840 --> 0:13:33.800 But I think people underestimate how darn flexible, and you're 0:13:33.800 --> 0:13:36.080 seeing it play out in the US economy. Think about 0:13:36.080 --> 0:13:38.520 when we emerge from COVID. All of a sudden, people 0:13:38.559 --> 0:13:42.599 needed a TV, electronics, furniture, massive goods grow and you 0:13:42.640 --> 0:13:46.160 saw jobs moving into the good sector. Then people had 0:13:46.200 --> 0:13:48.080 had already gotten what they need to get. They didn't 0:13:48.080 --> 0:13:50.720 need another computer or TV. Now you shift to the 0:13:50.760 --> 0:13:55.680 service sector. Growth from the service sector and you're seeing jobs, leisure, restaurants, hospitality, 0:13:56.080 --> 0:13:59.200 healthcare that are now. It's pretty extraordinary. So can the 0:13:59.240 --> 0:14:03.320 economy with stand this? Listen, this is a historic move 0:14:03.400 --> 0:14:06.280 up and interest rates, tightening of liquidity through the balance 0:14:06.320 --> 0:14:09.000 sheet channel. But yes, I think that. I think you 0:14:09.040 --> 0:14:11.040 know what we've talked about in your show. I just 0:14:11.080 --> 0:14:13.400 don't know why. Soft landing is like landing the plane 0:14:13.400 --> 0:14:15.920 on a pin needle. It's you have an economy of 0:14:16.000 --> 0:14:17.920 a savings right, that's still that still in good shape. 0:14:18.000 --> 0:14:20.440 Leverage in the system. I've gone through two thousand two, 0:14:20.480 --> 0:14:22.160 two th eight, we had too much leverage in the 0:14:22.200 --> 0:14:26.680 financial system, consumers, corporates. Leverage is in pretty good shape. 0:14:26.720 --> 0:14:30.560 So the economy has some a series of buffers alongside 0:14:30.560 --> 0:14:32.720 of it. Listen to economy slowing. Could we have a 0:14:32.760 --> 0:14:36.160 shallow recession, for sure? But I think people will underestimated. 0:14:36.160 --> 0:14:39.920 Developed economy, particularly the US, has as much more reflective 0:14:39.920 --> 0:14:42.600 than people give credit to. Can say the economies were resilient. 0:14:42.720 --> 0:14:45.320 How resilient are the markets because you mentioned one of 0:14:45.320 --> 0:14:47.720 the issues that we've talked about before, which is liquidity. 0:14:47.760 --> 0:14:49.560 A lot of liquidity coming out of the markets and 0:14:49.680 --> 0:14:52.360 the markets held up. Are they prepared for what comes next. 0:14:52.920 --> 0:14:55.760 So I'd say the markets are less adaptive and flexible. 0:14:55.800 --> 0:14:57.880 And you know, I learned over my care there's a 0:14:57.880 --> 0:15:01.960 cultural dynamic around markets. People don't like to lose money, 0:15:02.120 --> 0:15:03.960 but not in of course, they don't like to lose money, 0:15:03.960 --> 0:15:06.480 but it's not symmetric to making money. I've always found 0:15:06.520 --> 0:15:08.960 this markets go down five times faster than they go up. 0:15:09.440 --> 0:15:12.560 People like to protect what they've made and don't like 0:15:12.640 --> 0:15:15.040 to lose money. And when people think the prospects they 0:15:15.040 --> 0:15:18.560 could lose more money, markets go down even faster. And 0:15:18.640 --> 0:15:20.640 it's pretty short to me why we witness that. And 0:15:20.640 --> 0:15:23.040 I've always found that people buy on up markets and 0:15:23.080 --> 0:15:25.320 sell on denmarks as they guess can't take the losing 0:15:25.320 --> 0:15:28.480 more money. Now we're at a place today that if 0:15:28.520 --> 0:15:31.280 the FED starts to come off the boil, which I 0:15:31.280 --> 0:15:33.200 think is the case, that now we're talking about rate 0:15:33.280 --> 0:15:36.320 volatility on the risk free rate on interest rates, that's 0:15:36.320 --> 0:15:38.800 going to come down a lot. That gives you know, 0:15:38.800 --> 0:15:41.000 when you there are two components, particularly fixed income at 0:15:41.000 --> 0:15:43.400 any assets, a risk free rate plus your risky rate. 0:15:43.680 --> 0:15:46.600 And we always think about whether it's debt equity, where's 0:15:46.600 --> 0:15:48.200 my wrist free rate, where's my risky rate? But if 0:15:48.200 --> 0:15:50.800 your wrisk free rate is moving all over the place 0:15:51.120 --> 0:15:55.160 and moving higher, you can't value any financial asset that 0:15:55.360 --> 0:15:59.640 If that stabilizes risk premia, term premier comes down, and 0:15:59.680 --> 0:16:02.040 I think it's a really big deals. But are we 0:16:02.120 --> 0:16:04.600 going to have some vall into next year? Yes, I 0:16:04.680 --> 0:16:07.840 just think less than twenty two if if the FED pauses, 0:16:07.880 --> 0:16:09.800 and by the way, the ECB starts to tone up 0:16:09.800 --> 0:16:12.320 a Bank of England, etcetera, well you can talk about 0:16:12.320 --> 0:16:13.920 the FED coming off the boil. Looks like at least 0:16:13.920 --> 0:16:16.040 a're gonna slow down the rate of increases. I'm not 0:16:16.040 --> 0:16:18.120 sure they're going to cut right away, but slow in 0:16:18.120 --> 0:16:20.840 the rate of increases. What do the economic numbers show 0:16:20.920 --> 0:16:23.080 us about that? Because we did get CPI numbers out 0:16:23.080 --> 0:16:25.400 this week that a lot of people reacted to very favorably, 0:16:26.160 --> 0:16:27.960 So it's really encouraging. By the way, we've had head 0:16:28.000 --> 0:16:29.560 fixed before, you know, we had it in the summer, 0:16:29.600 --> 0:16:31.440 would look like Okay, we're on the back side, and 0:16:31.440 --> 0:16:32.960 then all of a sudden it popped up again. I 0:16:33.000 --> 0:16:36.080 don't think it's over around around what is elevated rates 0:16:36.120 --> 0:16:39.000 of inflation? You see it through wage stresses in the system. 0:16:39.040 --> 0:16:42.000 That being said, when we break down the component parts 0:16:42.000 --> 0:16:44.960 of inflation, you think about shelter, you think about food costs, 0:16:45.040 --> 0:16:48.680 use cars, supply chain freight costs are all coming down, 0:16:49.280 --> 0:16:51.320 so you get you you take some comfort in that 0:16:51.360 --> 0:16:53.840 we're on the back side of the elevated inflation. You know, 0:16:53.880 --> 0:16:57.440 we've run some numbers that even if inflation and most 0:16:57.440 --> 0:17:00.960 products stays elevated four to five because of were energy 0:17:01.040 --> 0:17:02.600 is today, because of how much has come to worst 0:17:02.720 --> 0:17:05.240 but worse of where it was, because of house prices, 0:17:05.280 --> 0:17:08.000 shelter coming down, we still get in the high two 0:17:08.040 --> 0:17:09.679 is an inflation by the middle of the year. So 0:17:09.720 --> 0:17:11.719 you can live with that. And as part of why 0:17:11.760 --> 0:17:14.480 I think the FED, if the momentum is moving in 0:17:14.520 --> 0:17:18.159 that direction to a more normalized state, although elevated from history, 0:17:18.480 --> 0:17:21.159 FED can pause. But you've made a critical point. The 0:17:21.200 --> 0:17:22.840 markets a price in the FEDS gonna start easing in 0:17:22.880 --> 0:17:25.119 twenty three. I don't think that's right at all. I 0:17:25.119 --> 0:17:26.639 think the FED is gonna sit with us for a 0:17:26.680 --> 0:17:31.400 while and a restrictive policy. Maybe you'll start not maybe 0:17:31.440 --> 0:17:34.680 I think five you'll start normalizing rates back down again. 0:17:35.080 --> 0:17:37.959 But we're not going there. Yet, so what is generational 0:17:37.960 --> 0:17:40.800 inflection point? You know, I mean, I've said this for 0:17:40.960 --> 0:17:43.639 I'm I've never been more excited coming into a year. 0:17:44.400 --> 0:17:46.360 First of all, twenty two wasn't a lot of fun 0:17:46.400 --> 0:17:49.000 and a lot of the markets. But now when you 0:17:49.080 --> 0:17:52.840 put in perspective where we are. For the last ten years, 0:17:52.880 --> 0:17:54.720 the short end of the Yolker of the one to 0:17:54.840 --> 0:17:58.359 three year portion of the aggregate index, the benchmark for 0:17:58.440 --> 0:18:02.120 fixed income, the average average yield was one point one 0:18:02.280 --> 0:18:04.480 percent one point one eight percent. The last three years 0:18:04.480 --> 0:18:06.760 at one point one percent, we're talking about four and 0:18:06.760 --> 0:18:09.760 a half now. So you've got an opportunity where you 0:18:09.800 --> 0:18:12.600 can in fixed income, you can buy yielding assets and 0:18:12.640 --> 0:18:16.320 you don't have to stress around ill liquid, really deep 0:18:16.359 --> 0:18:18.879 down in leverage loans, really deep down in parts of 0:18:18.920 --> 0:18:23.080 emerging markets. You can build a portfolio investment grade credit, 0:18:23.640 --> 0:18:26.840 some of the triple A parts of credit card finance, 0:18:27.160 --> 0:18:29.800 UH student loan finance, etcetera, and you can create six 0:18:29.880 --> 0:18:33.239 to six and a half. That is we haven't seen that, 0:18:33.240 --> 0:18:35.080 Gosh has been I don't know, I don't got it 0:18:35.119 --> 0:18:37.280 since the eighties and nineties that you've seen those sort 0:18:37.280 --> 0:18:40.679 of yields by buying quality assets. David, that is a 0:18:40.720 --> 0:18:43.360 critical moment without taking a lot of interest rate risk, 0:18:43.440 --> 0:18:45.119 without taking a lot of beta risk, without taking a 0:18:45.160 --> 0:18:47.840 lot of convexity risk. And you think about what does 0:18:47.840 --> 0:18:50.120 that mean for equities? What does that mean for private equity? 0:18:50.520 --> 0:18:54.040 If you can get six ish in high quality assets, 0:18:54.080 --> 0:18:56.280 even a bit higher than that, it means boy, you've 0:18:56.280 --> 0:18:58.520 got to get higher numbers significantly, had to take a 0:18:58.560 --> 0:19:01.360 liquidity risk of volatility cetera. It's a really big deal. 0:19:01.400 --> 0:19:03.280 Money is gonna flow into fixed income as the result 0:19:03.280 --> 0:19:04.600 of it. I want to come back to equity and 0:19:04.640 --> 0:19:07.880 private equally before that duration is a particular duration you're 0:19:07.880 --> 0:19:11.760 looking at, it's more attractive. Yeah, I mean so, you know, 0:19:11.760 --> 0:19:13.840 obviously with the inversion of the yield curve it's been 0:19:13.960 --> 0:19:15.720 you can capture and this is part of the beauty 0:19:15.720 --> 0:19:17.359 of it. You don't have to take a lot of 0:19:17.400 --> 0:19:19.520 interest rate risking and so many times in my career 0:19:20.000 --> 0:19:22.040 you've got to hold go out to the ten year 0:19:22.080 --> 0:19:23.720 part of the thirty year part to get your yield. 0:19:23.720 --> 0:19:26.160 The curves inverted, you can stay in the front end 0:19:26.240 --> 0:19:28.680 if you believe, which I think is right, the FED 0:19:28.800 --> 0:19:31.920 is gonna pause. Um, you get to a place where gosh, 0:19:32.000 --> 0:19:33.960 I'm just gonna try and clip that yield. What we've 0:19:33.960 --> 0:19:36.000 been doing, and I think we've been on talking about 0:19:36.000 --> 0:19:38.600 the show that we've started, stayed short. We've run a 0:19:38.640 --> 0:19:40.920 lot of cash this year. Cash has been our best 0:19:40.920 --> 0:19:42.720 performing asset. Did a lot of you think about the 0:19:42.760 --> 0:19:45.160 financial markets? Now we can go a little bit longer. 0:19:45.160 --> 0:19:48.119 Can you go out to three years? Five years? Because 0:19:48.280 --> 0:19:50.880 the next evolution of the FED will be easy again. 0:19:50.920 --> 0:19:55.400 I don't think it's still twenty three until but if 0:19:55.440 --> 0:19:57.920 I can lock in these yields, go a little bit 0:19:57.960 --> 0:20:00.000 longer without having to go out to tens or thirties. 0:20:00.320 --> 0:20:03.040 Back to me as the sweet spot today, it's always 0:20:03.040 --> 0:20:04.600 such a treat you haven't Wall Street Week, thank you 0:20:04.640 --> 0:20:06.720 so much for being u's Rick reader of black Rock. 0:20:09.000 --> 0:20:11.040