WEBVTT - Surveillance: JPM's Michele on the Fed 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best an economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.400 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.880 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:31.240 --> 0:00:35.040 In twenty eleven, I joined a guy named Mohammed el 0:00:35.280 --> 0:00:40.920 Arian on the stage at the Fixed Income Analyst Society 0:00:41.120 --> 0:00:43.800 as he was wandered into the Hall of Fame of 0:00:43.960 --> 0:00:45.600 fixed income folks on Wall Street. 0:00:45.640 --> 0:00:47.680 This is like a geninormous deal. 0:00:48.200 --> 0:00:51.599 Names like Dan Fuss of Loomis Sales, Ed Altman, who 0:00:51.640 --> 0:00:54.720 is one of my first the z Score, and all that, 0:00:55.120 --> 0:00:58.319 a guy named Fabozi. It was inflicted upon us at 0:00:58.320 --> 0:01:02.760 gunpoint to read this. Roger Ferguson, he did okay, and 0:01:02.800 --> 0:01:05.440 every other name. It's a who's who here a fixed 0:01:05.440 --> 0:01:08.080 income There's a new name joining us with a new 0:01:08.200 --> 0:01:16.119 name is Bob Michael Cio, JP Moore. No, forget about 0:01:16.120 --> 0:01:17.760 the title Hall of Fame member. 0:01:17.800 --> 0:01:19.280 Congratulations, thank you. 0:01:19.360 --> 0:01:22.000 It was a conpecional night last night. And by the way, 0:01:22.319 --> 0:01:25.800 Barbara Novic from Blackrock was an honoree, and your own 0:01:26.000 --> 0:01:30.720 Steve Berkeley, the godfather of the entire fixed income index business, 0:01:31.240 --> 0:01:33.280 was also an iki last night. So it's a very 0:01:33.280 --> 0:01:33.920 special night. 0:01:34.000 --> 0:01:35.839 And I just speak to how modest Bob is Tom 0:01:36.040 --> 0:01:37.479 that he came in this morning. And I knew where 0:01:37.480 --> 0:01:39.399 Bob was last night for this event, and Bob came 0:01:39.400 --> 0:01:40.880 in and said, it was a meal last night, and 0:01:40.880 --> 0:01:43.080 he starts talking about a calculator. Yeah, I'm sitting there 0:01:43.120 --> 0:01:45.839 thinking TK not just any meal, not just any meal. 0:01:46.040 --> 0:01:47.520 And you pushed him and he didn't even say it. 0:01:48.240 --> 0:01:50.760 There's so much and within the bond turmoil right now, 0:01:51.000 --> 0:01:53.120 you know, we'll just take a few seconds here. You 0:01:53.160 --> 0:01:56.200 and I were weaned on the same book Sydney Homer, 0:01:56.240 --> 0:01:59.560 who's in the Hall of Fame, and Marty and the 0:01:59.800 --> 0:02:03.560 the Yield Book. I mean, tell us about what that 0:02:03.680 --> 0:02:06.360 book did to you and me, how it straightened out 0:02:06.360 --> 0:02:09.600 our head about discounted cash flows. 0:02:09.760 --> 0:02:12.880 So true story. I heard Marty might be there last night. 0:02:12.919 --> 0:02:17.000 Marty Leebowitz, who co authored that book. I have my 0:02:17.120 --> 0:02:19.240 original copy of the book. I kept it at home. 0:02:19.280 --> 0:02:21.720 I looked at it for weeks, and I decided not 0:02:21.840 --> 0:02:24.880 to bring it in and have a autographic because I 0:02:24.919 --> 0:02:27.600 was afraid he might open it and see I underlined 0:02:27.639 --> 0:02:31.360 the wrong things in it. But he was there. It 0:02:31.560 --> 0:02:35.160 was star after star. So for me, very very specially cool. 0:02:35.200 --> 0:02:37.880 It's a key moment right now in the bond market, 0:02:37.960 --> 0:02:40.440 and I'm so glad that you're here because you've been 0:02:40.480 --> 0:02:42.560 one of the buyers and saying that it is an 0:02:42.560 --> 0:02:46.120 incredible value in the ten year pushing against the grain 0:02:46.240 --> 0:02:49.640 right now. How much conviction do you still have despite 0:02:49.680 --> 0:02:50.720 some of the moves we've seen. 0:02:51.280 --> 0:02:56.480 I have increasing conviction, and I will admit for bond buyers, 0:02:56.760 --> 0:03:00.640 we've been swimming upstream here for the last couple of months. 0:03:00.840 --> 0:03:04.160 And I go back and I look post Silicon Valley 0:03:04.200 --> 0:03:07.040 Bank and we all looked at the market and thought, 0:03:07.080 --> 0:03:09.440 from March to June, we're going to have a pretty 0:03:09.440 --> 0:03:12.840 significant retlacement. Let's sit out of that. I think what's 0:03:12.880 --> 0:03:17.320 been this surprise is from June to this past week, 0:03:17.639 --> 0:03:20.840 rates have continued to go up and the narrative has 0:03:20.919 --> 0:03:24.079 become it's more of a soft landing. You look at 0:03:24.120 --> 0:03:26.760 the fiscal impulse that are coming from all the acts, 0:03:26.760 --> 0:03:31.440 the Inflation Reduction Act, the Chips and Sciences Act, and 0:03:31.720 --> 0:03:35.320 a couple of the others, the Infrastructure Act, and they're 0:03:35.360 --> 0:03:38.920 all rippling through the system. But what we're seeing is 0:03:39.080 --> 0:03:42.440 the underlying data continues to get worse. We look at 0:03:42.480 --> 0:03:45.720 the consumer that continues to get stretched, and we think 0:03:45.760 --> 0:03:48.960 that buying duration in here, we're about to start swimming 0:03:49.040 --> 0:03:50.000 downstream again. 0:03:50.280 --> 0:03:52.520 How do you understand the market moves? How do you 0:03:52.600 --> 0:03:56.200 understand where the bet so far has gone wrong? Given 0:03:56.200 --> 0:03:58.880 the fact that yields have gone up much further than 0:03:58.920 --> 0:04:01.440 anyone thought was passible in this cycle, after so many 0:04:01.440 --> 0:04:03.840 people called this a peak yields. 0:04:04.080 --> 0:04:07.280 Well, I'm not so sure about that. And I've gone 0:04:07.360 --> 0:04:12.520 back and looked at the previous cycles, and actually we 0:04:12.560 --> 0:04:15.400 should have been more surprised if we didn't get this 0:04:15.600 --> 0:04:19.760 backup in yields. And it's happened every single time you 0:04:19.839 --> 0:04:23.839 go back, and about the same magnitude fifty sixty plus 0:04:23.880 --> 0:04:26.800 basis points. We went back and we looked at the 0:04:26.960 --> 0:04:29.919 end of the FED hiking cycle in two thousand and six, 0:04:30.400 --> 0:04:34.800 yields fell dramatically, and then they went back above the 0:04:34.839 --> 0:04:38.200 five and a quarter percent high in June two thousand 0:04:38.240 --> 0:04:42.640 and seven, right before these enhanced cash funds started shuddering. 0:04:43.040 --> 0:04:44.240 So it takes time. 0:04:44.320 --> 0:04:47.839 And then, by the way, they went back in June 0:04:48.000 --> 0:04:51.400 two thousand and eight, they went up one hundred basis 0:04:51.440 --> 0:04:53.840 points from their low in March two thousand and eight. 0:04:54.120 --> 0:04:57.600 So until these long and variable lags hit, you're in 0:04:57.640 --> 0:05:01.560 this never never land of something that feels like a 0:05:01.600 --> 0:05:04.320 soft landing. You're not getting more rate hikes, you're not 0:05:04.480 --> 0:05:08.440 in recession, and the markets will oscillate back and forth, 0:05:08.440 --> 0:05:11.200 and you'll have this battle between the Fed's done it. 0:05:11.240 --> 0:05:15.040 They've engineered a soft landing. They'll congratulate themselves on that 0:05:15.279 --> 0:05:18.640 they did it this time through their summary of economic projections, 0:05:18.880 --> 0:05:21.600 and people like me, you say, look at the underlying data. 0:05:21.720 --> 0:05:24.119 Everything's cracking and then bad things happen. 0:05:24.560 --> 0:05:28.159 You can't throw around six seven eight without really giving 0:05:28.200 --> 0:05:30.160 us an idea of the kind of things you're concerned about. 0:05:30.520 --> 0:05:32.840 Do you see things going badly wrong or just the 0:05:32.880 --> 0:05:34.880 ultimate run of the mill recession that we're not used to. 0:05:35.160 --> 0:05:37.760 Well, you touched on them earlier. It's not true that 0:05:37.800 --> 0:05:41.359 these rate hikes don't have consequences. We almost took out 0:05:41.600 --> 0:05:45.480 the UK pension fund system and the US banking system. 0:05:45.800 --> 0:05:48.359 When you look at the bank term funding program, it 0:05:48.400 --> 0:05:52.880 didn't backstop regional banks, it backstop the entire banking system. 0:05:52.920 --> 0:05:55.960 We're looking at a couple of things. We're looking at 0:05:56.120 --> 0:06:02.560 the consumer facing depleted savings, the excess savings from the 0:06:02.600 --> 0:06:06.880 COVID fiscal transfers. Those are gone, and now they're seeing 0:06:06.920 --> 0:06:11.080 the higher cost of everything. They're facing higher energy prices 0:06:11.080 --> 0:06:15.520 which are going to dip into consumption elsewhere. We look 0:06:15.600 --> 0:06:19.799 at temporary help services jobs. They've turned down, they've never 0:06:19.960 --> 0:06:24.479 turned down before, except in advance of recession. And we 0:06:25.040 --> 0:06:29.719 looked at home price affordability, housing affordability. Kelsey Bearro and 0:06:29.720 --> 0:06:34.160 I we're talking about this morning. It's the worst on record. Now, 0:06:34.200 --> 0:06:36.520 the date only goes back to nineteen eighty six, so 0:06:36.560 --> 0:06:39.440 I don't know before that. But the combination of very 0:06:39.520 --> 0:06:43.400 high home prices and the cost to finance them, we've 0:06:43.480 --> 0:06:46.200 never seen it. So when you hear about the current 0:06:46.320 --> 0:06:50.039 generation talking about how hard it is to buy a 0:06:50.040 --> 0:06:52.920 home and how an expensive, they're one hundred percent right. 0:06:52.960 --> 0:06:54.240 We've never seen this before. 0:06:54.360 --> 0:06:57.680 Here's Bob Michael's in my calculator. This is my personal 0:06:57.880 --> 0:07:02.279 HP twelve C was cfa sticker here, and Bob you 0:07:02.400 --> 0:07:04.120 used to have this, or Bill Gross. 0:07:03.839 --> 0:07:06.560 Had a monro trader at his desk and all that. 0:07:06.880 --> 0:07:08.000 All that's out the window. 0:07:08.040 --> 0:07:11.280 Now here's what our audience knows and what you're dealing with. 0:07:11.280 --> 0:07:12.200 A JP Morgan. 0:07:12.680 --> 0:07:17.840 Every day, the Vanguard Total bond fund is down something 0:07:17.960 --> 0:07:21.560 like twenty one percent from the Great Moderation peak. It's 0:07:21.600 --> 0:07:26.640 down seven point five percent annualized. That's what our audience 0:07:26.720 --> 0:07:30.600 is feeling. How do they turn that around? Leave bonds? 0:07:32.040 --> 0:07:35.640 I'm all for that. We're at an inflection point in 0:07:35.680 --> 0:07:39.240 the economy and the bond market that the last fifteen 0:07:39.320 --> 0:07:43.840 years were not normal, That we got to a structural low, 0:07:44.400 --> 0:07:46.800 that was it, and now we're going to revert to 0:07:46.880 --> 0:07:50.640 something that's more normal, where maybe that first long term 0:07:50.640 --> 0:07:53.520 Fed DOT at four and a quarter percent will be 0:07:53.720 --> 0:07:56.200 the neutral Fed funds rate. I just don't think you 0:07:56.320 --> 0:07:59.040 get there all at once. I think it takes time. 0:07:59.120 --> 0:08:01.400 It took twenty seven years for the Fed to get 0:08:01.400 --> 0:08:04.600 from twenty percent to zero. Maybe this time we go 0:08:04.680 --> 0:08:07.320 from zero to five and a quarter, things slow down. 0:08:07.360 --> 0:08:08.920 They have to come back to two and a half 0:08:08.960 --> 0:08:11.720 to three. Next time they go to six percent, and 0:08:11.760 --> 0:08:14.520 then we figure out what that range is. We've gone 0:08:14.560 --> 0:08:15.440 too far already. 0:08:15.520 --> 0:08:17.520 You're in an officer with a guy named James Diamond, 0:08:17.600 --> 0:08:20.400 and these are huge questions with a lot of zeros. 0:08:20.440 --> 0:08:21.120 To the left of. 0:08:21.040 --> 0:08:25.360 The decimal point. Is the Great Moderation over? Bring up 0:08:25.400 --> 0:08:28.440 the banner again, BMD. This is the Vanguard Index, and 0:08:28.520 --> 0:08:31.200 this is what our audience is feeling. They've been hammered 0:08:31.240 --> 0:08:34.040 twenty one percent from the peak, seven and a half 0:08:34.040 --> 0:08:36.840 percent analyzed off the Bloomberg What do you say to 0:08:36.920 --> 0:08:40.040 Jamie Diamond about this hope and prayer of getting back 0:08:40.320 --> 0:08:41.360 to the Great moderation. 0:08:43.120 --> 0:08:46.640 We all hope that we moderate at a reasonable level 0:08:46.640 --> 0:08:51.080 of interest rates, and I would hope that not tomorrow, 0:08:51.160 --> 0:08:54.280 but say five to seven years from now, a five 0:08:54.320 --> 0:08:58.679 percent ten year treasury is normal, not one and a 0:08:58.760 --> 0:09:01.600 half to two percent where we were. It's just going 0:09:01.679 --> 0:09:03.199 to take time to get there. 0:09:03.240 --> 0:09:06.160 And this is so importantly so five to seven years 0:09:06.240 --> 0:09:10.520 is not in the vocabulary of financial media and Global 0:09:10.559 --> 0:09:11.840 Wall Street to a great extent. 0:09:11.920 --> 0:09:14.560 Although I did hear I should start paying attention to 0:09:14.640 --> 0:09:16.520 the possibility of seven percent. 0:09:16.679 --> 0:09:17.719 Yes, I was just going to go that. 0:09:17.880 --> 0:09:18.920 What did you think about that? 0:09:20.000 --> 0:09:21.480 Did you go over to Jamien and says. 0:09:21.320 --> 0:09:22.800 What are you thinking, volunteer? 0:09:23.440 --> 0:09:23.920 Exactly? 0:09:24.440 --> 0:09:26.400 I was going to go there, but you actually too easier. 0:09:26.520 --> 0:09:29.880 It is a reminder to me that I sit here 0:09:30.240 --> 0:09:33.280 and I think about could the FED go to five 0:09:33.320 --> 0:09:36.400 and a half five and three quarters? They may just 0:09:36.559 --> 0:09:39.960 do one for decoration. Could they go to five and 0:09:40.000 --> 0:09:43.800 three quarter six percent? No, by the time you get 0:09:43.800 --> 0:09:47.160 to that meeting, and I'm glad to know that the 0:09:47.200 --> 0:09:50.080 guy sitting on the top of the house is thinking. 0:09:50.200 --> 0:09:51.880 You idiots. Okay, goodness, what. 0:09:53.640 --> 0:09:57.040 If all this liquidity hasn't been wrung out of the system, 0:09:57.480 --> 0:10:01.320 it reignites and we do get up to something like 0:10:01.480 --> 0:10:05.600 seven percent. It happened in the eighties. So he's running 0:10:05.640 --> 0:10:10.120 the whole show, and I'm grateful that he's thinking about 0:10:10.160 --> 0:10:12.040 those things. And I get to go back to my 0:10:12.240 --> 0:10:15.959 little world of is it five and three quarters or 0:10:15.960 --> 0:10:16.960 are we stuck here? 0:10:17.120 --> 0:10:19.719 So basically the lead is here. You respectfully disagree with 0:10:19.800 --> 0:10:22.360 Jamie Dimond. You'll let him worry about seven percent interest rates, 0:10:22.440 --> 0:10:25.319 but it's not your range in any way, shape or form. 0:10:25.440 --> 0:10:28.720 Well, I think he's pretty clear that's a stress test. 0:10:28.880 --> 0:10:31.440 I don't think that's his base case scenario. 0:10:31.320 --> 0:10:34.079 As we game out how to understand long and variable lags. 0:10:34.160 --> 0:10:35.840 You did talk about that, and I think that that 0:10:35.960 --> 0:10:38.000 is one of the questions that we keep hearing about, 0:10:38.000 --> 0:10:40.400 with the likes of Jim Bullard, the former Saint Louis 0:10:40.400 --> 0:10:43.040 FED president, saying that we've already seen them, and that 0:10:43.040 --> 0:10:45.080 there might be shorter and they might have worked their 0:10:45.080 --> 0:10:47.360 way through the system much more quickly. How do you 0:10:47.440 --> 0:10:50.120 push back against that, especially at a time where you 0:10:50.200 --> 0:10:53.680 do have highly financialized markets that do respond to a 0:10:53.720 --> 0:10:56.800 Federal Reserve forecast what it's going to look like and 0:10:56.840 --> 0:10:59.120 have already been adapting to this reality for a year 0:10:59.200 --> 0:10:59.800 more than a year. 0:11:00.840 --> 0:11:04.720 I would have waited until two years past from the 0:11:04.800 --> 0:11:08.600 period of FED hikes to see whether those long and 0:11:08.720 --> 0:11:12.360 variable lags hit, because the FED zone studies show it's 0:11:12.440 --> 0:11:16.280 eighteen to twenty four months, and here we are about 0:11:16.320 --> 0:11:19.080 twelve to eighteen months into it, so we should just 0:11:19.480 --> 0:11:23.560 be starting to see that. I disagree. I don't think 0:11:23.559 --> 0:11:26.840 they fully hit. I think we've only seen the front edge. 0:11:27.040 --> 0:11:30.920 You talk to anyone in corporate America. The big companies 0:11:30.960 --> 0:11:33.360 have already turned out their debt. They have to go 0:11:33.440 --> 0:11:36.720 back and refinance that you talk to anyone who's looking 0:11:36.760 --> 0:11:40.360 at a home, they can't get a mortgage at three percent. 0:11:40.720 --> 0:11:43.560 They're in that close to eight percent category. And those 0:11:43.600 --> 0:11:46.360 people who own homes, if they need to move, they're 0:11:46.400 --> 0:11:49.040 going to have to step up their mortgage. The cost 0:11:49.080 --> 0:11:52.160 of financing autos has gone up, and we've seen through 0:11:52.200 --> 0:11:56.000 the Chase credit card data that revolving credit usage has 0:11:56.080 --> 0:12:00.800 gone vertical, and that's at a much higher cost of before. 0:12:01.040 --> 0:12:04.360 So that is telling you the crew consumers already stretched here. 0:12:04.520 --> 0:12:07.400 They're trying to maintain their level of spending and it's 0:12:07.440 --> 0:12:09.440 going to cost them more when they put it on credit. 0:12:09.520 --> 0:12:12.160 We've been seeing this, and we've been hearing the acknowledgment 0:12:12.200 --> 0:12:14.400 of this for people who still are not buying treasuries 0:12:14.440 --> 0:12:16.920 right now because they're saying that prices are still going up. Yes, 0:12:16.920 --> 0:12:20.040 the housing market is broken, but house prices are surprising 0:12:20.080 --> 0:12:22.360 to the upside. At what point do you say that 0:12:22.400 --> 0:12:26.160 inflation can stay here, the benchmark rates can stay here, 0:12:26.600 --> 0:12:30.520 even with a downdraft that's being felt and recognized by 0:12:30.520 --> 0:12:31.040 the market. 0:12:32.320 --> 0:12:34.600 Well, I think the end of this week will be 0:12:34.679 --> 0:12:39.280 interesting because on Thursday we get benchmark revisions to GDP. 0:12:39.880 --> 0:12:43.400 We expect those to be lower, so that will raise 0:12:43.440 --> 0:12:46.720 into question how strong the economy is. Then we get 0:12:46.760 --> 0:12:51.199 personal consumption expenditures on Friday. We think that while the 0:12:51.320 --> 0:12:54.520 year over year may come down below four percent, you 0:12:54.559 --> 0:12:57.160 could have another point too. Now you start to print 0:12:57.200 --> 0:13:01.200 a string of point twos, which is bringing inflation pretty 0:13:01.200 --> 0:13:04.360 close to the Fed's two percent target. As long as 0:13:04.400 --> 0:13:11.320 those growth and inflationary pressures, the trajectory is down. At 0:13:11.360 --> 0:13:14.800 some point, the Fed's policies will look outdated. 0:13:15.120 --> 0:13:17.679 Question from my Bloomberg subscriber, Bob, let's finish with that 0:13:18.040 --> 0:13:21.160 unless the FED steps back into the market, Vique, who's 0:13:21.200 --> 0:13:24.840 going to take down the duration supply next year? What's 0:13:24.880 --> 0:13:25.360 the answer to that? 0:13:25.400 --> 0:13:31.200 At the moment, we get inquiry every day from retail 0:13:31.280 --> 0:13:35.760 platforms and from institutions wanting to know is this the 0:13:35.840 --> 0:13:38.360 time to go into bonds? And there's been a lot 0:13:38.400 --> 0:13:40.400 of flow at the start of the year, but I 0:13:40.440 --> 0:13:42.720 think it's only been at the tip of the iceberg. 0:13:42.800 --> 0:13:44.920 I think there are a lot of pension funds and 0:13:45.000 --> 0:13:47.880 insurance companies that are looking at one of the best 0:13:47.960 --> 0:13:51.440 opportunities to de risk in twenty years. They put some 0:13:51.559 --> 0:13:53.440 money to work, they've got a lot more to do. 0:13:53.840 --> 0:13:56.200 There will be plenty of buyers out there out of 0:13:56.840 --> 0:13:57.400 out of interest. 0:13:57.400 --> 0:13:58.319 What's holding them back? 0:13:58.960 --> 0:14:00.800 If I told them they could have these yields a 0:14:00.840 --> 0:14:03.079 couple of years ago, they've been like ready, Like can 0:14:03.120 --> 0:14:04.880 I take that now? What's holding them back? 0:14:04.920 --> 0:14:07.400 Now here it is for sixty. 0:14:07.280 --> 0:14:11.560 I think everyone's concerned about catching a falling knife. And 0:14:11.600 --> 0:14:13.640 I think at the start of the year when they 0:14:13.640 --> 0:14:17.000 put money in, yields rallied very rapidly, and they pulled 0:14:17.040 --> 0:14:19.320 back to see if you would get a pullback. They 0:14:19.360 --> 0:14:21.560 pulled back a bit, and over the summer they put 0:14:21.560 --> 0:14:23.720 them in, and as yields have continued to go up, 0:14:24.040 --> 0:14:24.880 they've just paused. 0:14:24.960 --> 0:14:27.960 In Lincoln Publishing moments ago, Bank of Montreal goes to 0:14:28.000 --> 0:14:31.240 the same illusion Christopherona had this earlier, the sarcastic idea 0:14:31.240 --> 0:14:35.280 of catching a falling knife. What is the signal out there? 0:14:35.400 --> 0:14:37.840 Is it fed rhetoric or is your own power policy? 0:14:38.200 --> 0:14:40.000 Where all of a sudden you go from the fear 0:14:40.040 --> 0:14:42.160 of catching the knife to something else. 0:14:42.960 --> 0:14:46.640 I think you've got to see something which evidences a 0:14:46.720 --> 0:14:50.880 material slow down in the economy. I think everyone's comfortable 0:14:50.920 --> 0:14:54.920 with the disinflation narrative, but concerned that there's a lot 0:14:54.960 --> 0:14:57.680 of data in the labor market that looks strong. When 0:14:57.720 --> 0:15:00.480 we start to see the labor market come under pressure, 0:15:00.880 --> 0:15:03.000 that will turn the tide for sure above. 0:15:03.000 --> 0:15:05.240 I nine you a long time. Always enjoy catching up 0:15:05.240 --> 0:15:06.400 with your congratulations. 0:15:06.520 --> 0:15:07.240 Thank you very much. 0:15:07.280 --> 0:15:10.320 Inducted into the Fixed Income Hall of Fame. But Michael 0:15:10.320 --> 0:15:12.720 at JP Market Asset Management. 0:15:23.280 --> 0:15:25.680 And your equity markets on your new two oh one 0:15:25.760 --> 0:15:28.600 k with a vis at eighteen point twenty six. Now 0:15:28.600 --> 0:15:32.520 to your level, senior US equity strategist ubs Nadi, thank 0:15:32.560 --> 0:15:35.320 you so much for joining give me the siren call 0:15:35.640 --> 0:15:38.520 of whatever the new level of cash is going to 0:15:38.560 --> 0:15:41.800 be five point two five, five point fivey five. Someday 0:15:41.800 --> 0:15:44.359 it's going to be a level like six percent cash. 0:15:44.440 --> 0:15:47.320 Do I need to be in cash? 0:15:47.440 --> 0:15:47.600 No? 0:15:47.680 --> 0:15:49.440 I don't think that you need to be in cash. 0:15:49.520 --> 0:15:53.120 I think that there are opportunities in the market equities 0:15:53.160 --> 0:15:56.360 as well as the bond market. We think that there 0:15:56.480 --> 0:16:00.320 is some upsides to this market. I mean, this wellcome 0:16:00.360 --> 0:16:02.760 pulled back I think is very healthy, and I think 0:16:02.800 --> 0:16:05.120 that it's time to really start to leg into the 0:16:05.120 --> 0:16:07.960 equity markets and in the fixed income market. Even though 0:16:08.040 --> 0:16:10.800 yields have backed up a bit. We do think that 0:16:10.880 --> 0:16:14.200 yields will trend lower in the coming months. We do 0:16:14.280 --> 0:16:16.400 think that the economy will start to slow and the 0:16:16.400 --> 0:16:18.720 FED is done hiking, and that should give some relief 0:16:18.760 --> 0:16:21.360 to bond yields, and so we will look into add 0:16:21.400 --> 0:16:22.680 to bond bonds. 0:16:22.400 --> 0:16:25.360 As well, starting to leg into stocks witch stocks, Matty, 0:16:25.400 --> 0:16:27.640 are you looking at consumer discretionary and saying let's go. 0:16:29.240 --> 0:16:32.920 No, We actually in terms of we're mutual consumer discretionary, 0:16:33.040 --> 0:16:38.280 we maintain a preference for industrial consumer stables and the 0:16:38.520 --> 0:16:41.840 energy sector. We know that energy has done quite well 0:16:41.880 --> 0:16:45.200 over the last few months since we upgraded it three 0:16:45.240 --> 0:16:48.160 months ago, but it has lacked the commodity and we 0:16:48.240 --> 0:16:51.400 continue to believe that oil prices are sustainable in this 0:16:51.560 --> 0:16:53.960 ninety to one hundred dollars range. We're looking for ninety 0:16:54.000 --> 0:16:57.040 five into twenty twenty four, and so we do think 0:16:57.040 --> 0:16:59.040 that there's a little bit more to go in the 0:16:59.080 --> 0:17:01.960 long energy trade. I mean, we particularly like the EMP 0:17:02.160 --> 0:17:05.199 companies and the all service six companies within energy. 0:17:05.560 --> 0:17:08.280 When you talk about yields eventually going down, there's a 0:17:08.359 --> 0:17:10.280 question of what's going to trigger that at a time 0:17:10.320 --> 0:17:14.000 where people are seeing strength that was unexpected in the economy, 0:17:14.359 --> 0:17:17.359 and they're saying that it will cause inflation to stay 0:17:17.480 --> 0:17:20.120 higher for longer, the FED to stay on hold for longer. 0:17:20.560 --> 0:17:23.400 What gives you confidence that both equities can keep doing 0:17:23.440 --> 0:17:26.359 well and we are going to get yields going lower 0:17:26.560 --> 0:17:30.600 typically some sort of symbol of weakness being expressed to 0:17:30.600 --> 0:17:31.480 the market. 0:17:32.520 --> 0:17:36.320 Yeah, we are looking for more sub try and economic growth, 0:17:36.359 --> 0:17:38.439 but we are calling for a recession, and so we 0:17:38.520 --> 0:17:40.040 think that you are going to be in this sweet 0:17:40.040 --> 0:17:43.560 spot where the GDP growth is probably around one percent 0:17:43.640 --> 0:17:46.000 the FED is done hiking. We know about historically when 0:17:46.000 --> 0:17:48.160 the Fed is done hike and BONDI you'll start to fall. 0:17:48.480 --> 0:17:51.800 I mean, we think that inflation is going to continue 0:17:51.800 --> 0:17:53.879 to remain on this downward trend. I mean, for a 0:17:53.920 --> 0:17:57.080 core PCE on Friday, we're looking for about fourteen basis 0:17:57.119 --> 0:17:59.600 points and when you annualize like the last three months, 0:18:00.440 --> 0:18:02.680 you're at two point three percent. And so we think 0:18:02.720 --> 0:18:05.760 that that inflation is going to cause effect to stop 0:18:05.840 --> 0:18:08.800 hiking and look to ease rates in twenty twenty four, 0:18:08.840 --> 0:18:12.000 and so that should be supportive to the equity markets 0:18:12.040 --> 0:18:13.240 as well as the bond market. 0:18:13.400 --> 0:18:16.480 Nadie I'm going to editorialize and suggest that maybe the 0:18:16.520 --> 0:18:20.240 bond market on price is in a bond bear market, 0:18:20.320 --> 0:18:23.360 priced down and staying down and looking for new lows. 0:18:24.000 --> 0:18:27.919 In the equity space, I'm confused. Are we in a 0:18:27.960 --> 0:18:32.280 bull market off the October lows or are we reaffirming 0:18:33.040 --> 0:18:35.400 the bear market reality and stocks? 0:18:37.200 --> 0:18:39.480 Yeah, I think I don't think that you're going to 0:18:39.560 --> 0:18:42.680 re enter our bear market in equities. I mean, reality 0:18:42.920 --> 0:18:45.720 is the earnest recession in our view, is behind us, 0:18:45.760 --> 0:18:47.639 and so we think the upcome and earnesty so of 0:18:47.720 --> 0:18:49.840 course will be important, but we also think that you 0:18:49.880 --> 0:18:53.200 should be certain to see an inflection point in earnings 0:18:53.280 --> 0:18:56.080 after three quarters of negative earness growth. I mean, when 0:18:56.080 --> 0:18:58.120 we look into twenty twenty four, we see high single 0:18:58.160 --> 0:19:01.560 digitus earnings growth really support still a growing economy. 0:19:01.600 --> 0:19:02.480 It's still a consumer. 0:19:02.560 --> 0:19:04.639 Yes, the consumer is pulling back, but the consumer is 0:19:04.640 --> 0:19:08.160 still there. So I mean, when we look into twenty four, 0:19:08.359 --> 0:19:10.840 we're looking for forty seven one hundred and on the 0:19:10.920 --> 0:19:13.200 S and P five hundred. So no, not an indication 0:19:13.320 --> 0:19:14.879 of our retest of the bear market. 0:19:15.000 --> 0:19:17.560 What do you do with tech and other high flyers. 0:19:17.600 --> 0:19:21.119 I'm thinking luxury, which has been beleaguered. I guess, but 0:19:21.200 --> 0:19:24.400 what do you do with those leading sectors from before? 0:19:26.440 --> 0:19:29.639 You were seeing a pullback in tech. We are mutual 0:19:29.840 --> 0:19:32.399 tech up, but we think that this pullback could provide 0:19:32.440 --> 0:19:36.280 some opportunities. We're really going to be important for tech. Again, 0:19:36.320 --> 0:19:38.600 it's the earnest season. This is really real. The rubbery's 0:19:38.640 --> 0:19:40.800 going to hit the road no longer, it's just the 0:19:40.800 --> 0:19:43.040 outer of the term. AI is going to move U stop. 0:19:43.080 --> 0:19:45.320 You really need to start to see revenues come through 0:19:45.600 --> 0:19:48.719 on that or concrete plans around AI. And we do 0:19:48.800 --> 0:19:50.480 think that you are going to start to see some 0:19:50.720 --> 0:19:53.080 growth in some of those areas of tech that had 0:19:53.119 --> 0:19:56.400 been weak or signs of bottom and a stabilization, whether 0:19:56.440 --> 0:20:01.560 that be PC, smartphone or cloud computing. So for globally, 0:20:01.680 --> 0:20:03.600 we continue to like the areas of tech that are 0:20:03.680 --> 0:20:07.080 profitable Number one and two areas of tech where there 0:20:07.080 --> 0:20:10.919 are higher percentage of Hargn revenues and have some secular 0:20:11.000 --> 0:20:15.879 exposure to cecular trends like AI and cybersecurity. We have 0:20:15.960 --> 0:20:18.320 these do think that there's a role for tech in 0:20:18.320 --> 0:20:18.920 the portfolio. 0:20:19.040 --> 0:20:21.600 Nadia. We talk about these macro trends and then we 0:20:21.600 --> 0:20:24.880 get these micro stories like what the FTC did yesterday 0:20:24.920 --> 0:20:27.919 with Amazon, how much and how do you sort of 0:20:28.440 --> 0:20:33.719 view those headlines and translate them into overall theses. How 0:20:33.800 --> 0:20:36.280 much do you care about those type of developments. 0:20:37.560 --> 0:20:40.800 It's important to keep an eye on these things because obviously, 0:20:40.880 --> 0:20:43.840 you know, any of these sort of cases could eventually 0:20:43.960 --> 0:20:46.800 to a breakup of company, which in some view even 0:20:46.880 --> 0:20:51.640