WEBVTT - Rates, Markets, and the Economy (Podcast) 0:00:00.760 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.520 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.400 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.800 at Bloomberg dot com slash podcast. It's going to Ira Jersey, 0:00:22.840 --> 0:00:25.720 Chief US Interest rate Strategist, because you know, we talk 0:00:25.760 --> 0:00:28.240 about earnings, but the reality is we still have to 0:00:28.280 --> 0:00:30.880 talk to Ira Jersey. As much as we want to 0:00:30.920 --> 0:00:33.199 try to avoid talking about the Fed, the Fed is 0:00:33.320 --> 0:00:37.199 moving continues to move this market. So, Ira, what's some 0:00:37.240 --> 0:00:39.599 of the latest work you and your team have been 0:00:39.640 --> 0:00:42.520 doing about kind of what's going on in the treasury market. Again, 0:00:42.560 --> 0:00:44.680 we got a two year four point seven percent to 0:00:44.800 --> 0:00:48.440 ten year three point nine I'm sorry three point nine 0:00:48.520 --> 0:00:51.880 three percent? Wow, what are you guys looking at? Yeah, 0:00:51.920 --> 0:00:54.639 so that three point nine percent on the ten year 0:00:54.720 --> 0:00:57.760 was a pretty important technical level, and you know, even 0:00:57.760 --> 0:01:00.200 though a longer term I'm a bit constructive on the 0:01:00.240 --> 0:01:04.039 long end of the market, there's clearly clearly the market 0:01:04.160 --> 0:01:06.840 is very offered right now and we're likely to see 0:01:07.200 --> 0:01:09.560 UM a break now above four percent and a ten 0:01:09.640 --> 0:01:12.440 year in the near term, so that the next important 0:01:12.480 --> 0:01:15.039 technical level is actually around four and a quarter percent 0:01:15.520 --> 0:01:19.160 on the ten year. And I think there's two things 0:01:19.240 --> 0:01:22.040 driving this number. One is just the idea that inflation 0:01:22.160 --> 0:01:24.400 is going to continue to be a problem. You have 0:01:24.920 --> 0:01:27.679 UM some of the services numbers, like some of the 0:01:27.720 --> 0:01:31.600 manufacturing data PMI data that just came out looking pretty strong. 0:01:31.680 --> 0:01:34.479 You know, the Philadelphia Services Index come out this morning 0:01:34.480 --> 0:01:38.039 and positive territory after being in negative territory, and that 0:01:38.040 --> 0:01:42.200 that tends to follow um excuse me, the services inflation 0:01:42.240 --> 0:01:47.720 tends to follow what some of these services indexes are doing. UM. So, 0:01:47.720 --> 0:01:50.320 so the fact that you have positive Philly fed UM 0:01:50.600 --> 0:01:54.160 Services index going up is you know, suggesting that you're 0:01:54.200 --> 0:01:57.320 not going to get a decline in inflation. And I 0:01:57.360 --> 0:01:59.480 think that's one of the reasons why you're seeing inflation 0:01:59.480 --> 0:02:02.000 expectation today up by five basis points. By the way, 0:02:02.040 --> 0:02:05.080 do we have uh, hey, ken fella, you do we 0:02:05.200 --> 0:02:10.799 have Philadelphia terrestrial radio station? No? No, all right, who 0:02:10.800 --> 0:02:15.359 cares about Philadelphia? Ira Love? Why why does it matter? Philly? 0:02:15.400 --> 0:02:17.520 By the way, I've I've actually listened to eleven three 0:02:17.560 --> 0:02:22.000 zero in Philadelphia. Okay, we love Philadelphia. We love you Philadelphians. 0:02:22.680 --> 0:02:26.200 How important is this? I mean Philadelphia Fed survey versus 0:02:26.240 --> 0:02:29.760 Atlanta versus New York. Are these very regional surveys or 0:02:29.800 --> 0:02:33.520 do they all do national work? Now, those are all 0:02:33.680 --> 0:02:37.760 regional surveys, um. And then they they then they do 0:02:37.840 --> 0:02:40.880 have a national survey for UH for the PMI, and 0:02:41.160 --> 0:02:44.040 obviously the different Fed districts kind of get together and 0:02:44.080 --> 0:02:47.040 create something called the Beige Book. And these are these 0:02:47.080 --> 0:02:50.880 monthly survey data are part of that larger narrative as 0:02:50.880 --> 0:02:54.400 to what's going on in the different Federal Reserve Bank regions. UM. 0:02:54.480 --> 0:02:57.400 But but Philadelphia is is big enough and has enough 0:02:57.760 --> 0:03:00.200 you know, both services and manufacturing that that you know, 0:03:00.240 --> 0:03:03.400 it has over the course of many decades, been at 0:03:03.480 --> 0:03:05.320 least a little bit of a leading indicator, you know, 0:03:05.360 --> 0:03:08.000 sometimes better than others. So you have to take the 0:03:08.040 --> 0:03:10.440 full mosaic and look at all of these data. And 0:03:10.480 --> 0:03:12.720 certainly there's going to be some regions that are doing 0:03:13.120 --> 0:03:15.239 better than others and some that are obviously going to 0:03:15.320 --> 0:03:17.640 be doing worse. UM. You know, we had a significant 0:03:17.639 --> 0:03:20.799 period of time in the intermeding period over the last 0:03:20.840 --> 0:03:24.079 decade in between the two crises, where you know, the 0:03:24.440 --> 0:03:26.839 South and southeast were doing very well, so you had 0:03:26.880 --> 0:03:29.760 like the president of the you know, Dallas FED would 0:03:29.760 --> 0:03:32.280 be very hawkish, whereas everyone else was like, things aren't 0:03:32.280 --> 0:03:34.880 so rosy because California was still doing bad. New York 0:03:34.880 --> 0:03:38.720 and Northeast were doing bad. So you know, Boston, New York, Philadelphia, Um, 0:03:39.200 --> 0:03:41.840 you know, feder reserve presidents were saying, well, we're not 0:03:41.880 --> 0:03:45.400 as optimistic as you are, maybe down in Texas. So 0:03:45.400 --> 0:03:47.640 so again, like the federal Federal Reserve obviously is looking 0:03:47.640 --> 0:03:50.480 at the whole country, but there are certainly regional differences 0:03:50.480 --> 0:03:53.200 and that's and quite frankly, that is one of the 0:03:53.240 --> 0:03:57.400 benefits of having the Federal Reserve system be similar to 0:03:57.440 --> 0:04:00.440 how it is with all of these regions doing their 0:04:00.480 --> 0:04:04.080 own work and trying to determine what's going on within 0:04:04.120 --> 0:04:07.040 their their you know, one of their twelve districts, all right, Ira, 0:04:07.160 --> 0:04:09.720 So what's the market telling us now in terms of 0:04:09.720 --> 0:04:11.520 what this FED is going to do over the remainder 0:04:11.600 --> 0:04:13.320 of this year? Is it? Because I think at one 0:04:13.320 --> 0:04:16.520 point we're seeing twenty five bases points maybe a second 0:04:16.520 --> 0:04:18.560 twenty five bases point than a pause and maybe even 0:04:18.560 --> 0:04:21.960 cutting rates later in the year. Is where are we now? Yeah, 0:04:21.960 --> 0:04:24.680 so now we're still three twenty five bases point hikes 0:04:24.720 --> 0:04:28.520 now is more or less what's priced, Um, some small 0:04:28.600 --> 0:04:30.680 chance of a fifty basis point in there for the 0:04:30.760 --> 0:04:33.080 for the March meeting. I think that they're going to 0:04:33.120 --> 0:04:35.520 be in in doing twenty fives. Now the question is 0:04:35.520 --> 0:04:37.640 how many more twenty five bases point hikes and do 0:04:37.680 --> 0:04:40.400 they get you know, towards six percent. I don't think 0:04:40.400 --> 0:04:42.640 that they'll get there, but then again, you know, some 0:04:42.760 --> 0:04:47.200 of this data is just is as surprisingly strong, so 0:04:47.400 --> 0:04:50.640 you can't completely discount the possibility. So the market is 0:04:50.680 --> 0:04:53.040 thinking now five and a half percent on the upper 0:04:53.080 --> 0:04:56.440 bound for the Fed funds rate and then still some 0:04:56.880 --> 0:04:59.200 pretty high chance of a cut before the end of 0:04:59.240 --> 0:05:01.320 the year. And I still think that that's what the 0:05:01.360 --> 0:05:04.760 market's mispricing. It's not necessarily mispricing five and a quarter 0:05:04.800 --> 0:05:06.520 or five and a half. It's more that you know, 0:05:06.600 --> 0:05:09.560 we're we're pricing for for cuts before year end, which 0:05:09.600 --> 0:05:12.720 which I think is very unlikely. I just heard um 0:05:12.760 --> 0:05:18.000 somebody may not be buying Liverpool and we're still we 0:05:18.080 --> 0:05:20.359 still care about Manu. In fact, Paul, did you know 0:05:20.440 --> 0:05:25.120 MANU Manchester United the soccer team. It's US listed and traded. Yes, 0:05:28.080 --> 0:05:31.520 it sounds like for a reindeer, like an Inuit name. 0:05:31.520 --> 0:05:35.719 But anyway, man you why uh? Oh, Well they have 0:05:35.720 --> 0:05:39.320 an American owner, um so, and they went and they 0:05:39.320 --> 0:05:41.720 went public. They're actually for sale according to a lot 0:05:41.760 --> 0:05:45.800 of reporting being done actually on by Bloomberg in the sports, 0:05:46.080 --> 0:05:49.400 like a six billion dollars sale. Yeah. So it's it's 0:05:49.440 --> 0:05:51.880 a reasonably big company, right, it's a global brand, um 0:05:51.920 --> 0:05:53.960 and they're playing in a cup final this coming week. 0:05:54.000 --> 0:05:56.000 So before Paul asked me what I'm watching this weekend, 0:05:55.960 --> 0:05:59.880 it is Manchester United versus Newcastle a currently middle e 0:06:01.480 --> 0:06:05.000 cloud versus a likely to be cloud going to be 0:06:05.080 --> 0:06:07.599 playing in a cup final and in English and English. Yeah, 0:06:07.720 --> 0:06:10.440 exact stuff all right, Ira, great stuff as always, Ira Jersey. 0:06:10.640 --> 0:06:13.960 He's our chief US interest rate strategist for Bloomberg Intelligence. 0:06:14.360 --> 0:06:22.839 Also a avid soccer fan. Deepot reported some numbers forecast 0:06:22.880 --> 0:06:26.200 a little disappointing stocks off about let's call it five 0:06:26.320 --> 0:06:29.120 percent here, three hundred dollars a share. This is a 0:06:29.160 --> 0:06:33.000 company with a three hundred billion dollars market cap. Let's 0:06:33.000 --> 0:06:35.080 break it down with Drew Reading. He covers the stock 0:06:35.120 --> 0:06:38.520 for Bloomberg Intelligence. He's research annalists over there. Hey, Drew, 0:06:38.600 --> 0:06:40.680 talk to us about HD. I mean what I was 0:06:40.720 --> 0:06:44.280 in an HD store a couple of weeks ago. Packed. Um, 0:06:44.480 --> 0:06:46.839 I don't know. Seems like people are still buying wood 0:06:46.839 --> 0:06:48.880 and nails and hammers and stuff, doing that do it 0:06:48.920 --> 0:06:52.240 yourself thing. What's going on? Yeah, I mean home Depot 0:06:52.279 --> 0:06:55.560 has been really resilient. If you look over the last 0:06:55.600 --> 0:06:58.080 couple of years, they've grown sales over forty percent. They've 0:06:58.120 --> 0:07:01.120 added about fifty billion dollars in sales over the last 0:07:01.120 --> 0:07:03.640 three years. But we're in a little bit of a 0:07:03.640 --> 0:07:06.159 different environment now where we're starting to see some more 0:07:06.200 --> 0:07:09.000 stress on the consumer. And I think that's what their 0:07:09.000 --> 0:07:11.440 guidance really hint at. It's that there's going to be 0:07:11.480 --> 0:07:15.120 some spending pullback among consumers who've got a weaker housing market, 0:07:15.680 --> 0:07:18.760 You've got some anxiety over where home prices are heading. 0:07:19.160 --> 0:07:20.480 And then at the same time, if you put on 0:07:20.560 --> 0:07:22.480 top of that, they're going to have some margin contraction 0:07:22.520 --> 0:07:26.880 because of investments they're making to their hourly employees. So 0:07:26.920 --> 0:07:31.880 that's what's weighing on the stock today. And they've underperformed 0:07:31.920 --> 0:07:33.880 this year as well. You know, while the rest of 0:07:33.960 --> 0:07:37.040 us have been rallying, home Depot is little changed with 0:07:37.120 --> 0:07:42.040 today's dropped their down five percent year to date. Do 0:07:42.200 --> 0:07:45.320 investors not like the home depost story as is it 0:07:45.360 --> 0:07:49.000 not kind of techy enough? Did it not do as 0:07:49.080 --> 0:07:53.360 badly last year as the other winners this year? Yes, 0:07:53.440 --> 0:07:56.720 so they're actually up about twenty five percent since September, 0:07:56.760 --> 0:07:58.640 so they've had a nice rally. But I think what 0:07:59.080 --> 0:08:01.760 we're seeing now, and you know, this is kind of 0:08:01.760 --> 0:08:03.760 how I'm thinking about the guide is they haven't really 0:08:03.840 --> 0:08:07.280 de risked twenty twenty three fully, and I think that's 0:08:07.360 --> 0:08:10.600 something investors are concerned about. When we were thinking about 0:08:10.600 --> 0:08:14.080 the market next year home improvement broadly, we were looking 0:08:14.080 --> 0:08:17.240 at the market being down about mid single digits, home 0:08:17.280 --> 0:08:21.240 Depot outperforming, maybe down two to three percent. Their guidance 0:08:21.280 --> 0:08:24.360 suggest that the broader market for home improvement will be 0:08:24.400 --> 0:08:27.000 down about only one to two percent call it, and 0:08:27.000 --> 0:08:29.440 they'll be about flat. So I think there's still some 0:08:29.480 --> 0:08:31.760 concern out there in the market that there is room 0:08:31.840 --> 0:08:34.199 for four things to deteriorate a little bit more than 0:08:34.240 --> 0:08:38.959 what they're indicating. They also called out some compensation issues. 0:08:38.960 --> 0:08:41.520 They're going to pay people more, you know, the smart 0:08:41.520 --> 0:08:43.320 people that help you out in the aisles and tell 0:08:43.360 --> 0:08:45.200 you where to find stuff, because they're going to pay 0:08:45.200 --> 0:08:48.040 them more. Right, Yeah, that's what the investment is in. 0:08:48.120 --> 0:08:50.960 It's really in that customer service aspect, something Home Depot 0:08:50.960 --> 0:08:53.280 has been well known for. So they're going to invest 0:08:53.320 --> 0:08:56.960 in additional one billion dollars in their hourly employees over 0:08:57.000 --> 0:08:59.120 the next year. That's going to contribute to about a 0:08:59.200 --> 0:09:03.760 sixty base this point contraction in operating margin. And you know, 0:09:03.880 --> 0:09:06.880 it was a little surprising just because they've made so 0:09:06.920 --> 0:09:10.960 many investments over the last years with their employees through COVID. 0:09:11.040 --> 0:09:13.360 But I think it really just highlights, you know, the 0:09:13.400 --> 0:09:16.040 tight labor market that's out there and how difficult it 0:09:16.200 --> 0:09:19.560 is to attract employees and also to retain the ones 0:09:19.559 --> 0:09:22.480 that they already have. So I put up the comp screen. 0:09:22.679 --> 0:09:25.400 I always like to look at just a five year 0:09:25.880 --> 0:09:30.439 shot of any company. Home Depot is over the last 0:09:30.559 --> 0:09:35.079 five years up total return eighty five percent, so not bad. 0:09:35.200 --> 0:09:39.080 That's better than the S ANDP total return sixty three percent, 0:09:39.480 --> 0:09:42.400 and it's they're both better than Lows, which is only 0:09:42.480 --> 0:09:45.640 up twenty five percent over the past five years. Why 0:09:45.720 --> 0:09:48.360 is Lows such a big underperformer as Home Depot just 0:09:48.880 --> 0:09:53.360 kicking it or is Lows dropping the ball? So when 0:09:53.360 --> 0:09:55.280 I think, I think when you're talking about the comparison 0:09:55.320 --> 0:09:57.559 between two, it probably makes sense to look a little 0:09:57.800 --> 0:10:00.720 bit more near term because Lows has been and some 0:10:00.840 --> 0:10:03.240 of a turnaround story over the last several years. They 0:10:03.280 --> 0:10:06.640 brought in new management, they're re emphasizing the professional customer 0:10:07.160 --> 0:10:09.880 somewhere that they've been underpenetrated, and that's really been one 0:10:09.880 --> 0:10:12.240 of the sources of out performance from a home depot 0:10:12.720 --> 0:10:15.839 versus the Lows. As home depots forty five percent exposure 0:10:16.240 --> 0:10:19.640 to professional customers versus Lows at about twenty five percent. 0:10:20.440 --> 0:10:23.080 At the same time, Lows is starting to reinvest in 0:10:23.120 --> 0:10:25.680 their online business, which is something they've neglected over the 0:10:25.720 --> 0:10:28.800 last several years. So Los is more of a turnaround story. 0:10:28.840 --> 0:10:31.720 They've made some good strides, they're improving their profitability, and 0:10:31.720 --> 0:10:34.920 they've also narrowed that comp gap with Home Depot that 0:10:35.040 --> 0:10:37.720 has been you know, pretty wide over the last several 0:10:37.800 --> 0:10:40.800 years and drew. In addition to home depot, I know 0:10:40.840 --> 0:10:43.720 you cover the housing industry overall. Here we got existing 0:10:43.760 --> 0:10:46.960 home sales came in with a seven percent decline month 0:10:46.960 --> 0:10:49.959 over a month. Consensus was for a two percent increase, 0:10:50.040 --> 0:10:54.440 So rule under performance. There are people not buying homes? 0:10:54.440 --> 0:10:56.320 Are they not listing homes? What's going on in the 0:10:56.320 --> 0:10:59.679 housing market. So the fact that people aren't listing homes 0:10:59.840 --> 0:11:03.760 is is definitely one of the issues. You know, ninety 0:11:03.800 --> 0:11:06.720 two percent of outstanding mortgages have a rate below five 0:11:06.720 --> 0:11:08.760 and a half percent, so there's a lot of distancented 0:11:08.840 --> 0:11:10.720 for people to move, so they're not putting their homes 0:11:10.720 --> 0:11:13.480 on the market. At the same time, unlike what we 0:11:13.520 --> 0:11:16.920 saw in the last downturn, you don't have those forced sellers, 0:11:16.920 --> 0:11:19.319 and that's because people are locked into fixed rate mortgages 0:11:19.600 --> 0:11:22.600 and they don't have the adjustable mortgages. So a big 0:11:22.640 --> 0:11:25.360 part of it is certainly inventory, but let's not ignore 0:11:25.360 --> 0:11:28.319 the fact that affordability is, you know, near the worst 0:11:28.360 --> 0:11:32.080 that it's ever been. We heard some commentary from some 0:11:32.120 --> 0:11:34.840 of the builders recently that as we got into January 0:11:34.880 --> 0:11:38.320 and rates pulled back to just under six percent from 0:11:38.320 --> 0:11:41.040 as highest seven percent in November, that buyers started to 0:11:41.040 --> 0:11:44.920 come back out into the market. So demand was pretty 0:11:44.960 --> 0:11:48.400 strong in January and early February. But at the same time, 0:11:48.440 --> 0:11:50.520 over the last couple of weeks, rates are back up 0:11:50.679 --> 0:11:53.920 eighty basis points, so you know, we're approaching seven percent again. 0:11:53.960 --> 0:11:56.400 So we think just as quickly as demands kind of 0:11:56.400 --> 0:11:58.760 bounced back, you know, we could see things kind of 0:11:58.760 --> 0:12:01.120 fall off in the other direction. Are there any that 0:12:01.160 --> 0:12:03.040 you like better than the rest when you look at 0:12:03.160 --> 0:12:09.000 k Lnar Poult at all the home builders? So I 0:12:09.000 --> 0:12:11.000 think there, you know, there's a couple of different criteria 0:12:11.480 --> 0:12:13.920 that we look at when we think about how we 0:12:14.200 --> 0:12:17.920 look at the builders on a relative thence, in a 0:12:17.960 --> 0:12:22.200 slowing economic environment, we like those with scale because they can, 0:12:22.720 --> 0:12:25.160 you know, leverage the trades more, they could spread their 0:12:25.160 --> 0:12:28.480 costs out, they could push back against their suppliers, So 0:12:28.520 --> 0:12:30.440 those names would be a Dr. Hort and Lenar. And 0:12:30.480 --> 0:12:32.640 then from a product perspective, we like builders who are 0:12:32.720 --> 0:12:36.760 focused more on affordability. We don't care so much what 0:12:36.800 --> 0:12:39.560 they call their segments, whether it's entry level, move up, 0:12:39.600 --> 0:12:43.160 but we want builders who are competing by price with 0:12:43.240 --> 0:12:45.640 the resale market. So some of the names that come 0:12:46.400 --> 0:12:51.160 to mind there again Dr Horton, a KB home LGI. 0:12:51.400 --> 0:12:54.320 Over the longer terms, so Drew just real quickly here. 0:12:54.360 --> 0:12:57.280 I mean, when we think about the new home market 0:12:57.320 --> 0:13:00.280 in that affordability segment, that's been a role on the 0:13:00.280 --> 0:13:03.680 industry that they just haven't built enough affordable and lower 0:13:03.800 --> 0:13:06.000 end or you know, kind of first time buyer units. 0:13:06.040 --> 0:13:09.040 Is that changing in the industry. So it has started 0:13:09.040 --> 0:13:11.200 to change over the last several years. When we were, 0:13:11.480 --> 0:13:13.160 you know, in the early days of the cycle, all 0:13:13.160 --> 0:13:15.760 the emphasis was placed on the move up market because 0:13:16.160 --> 0:13:18.280 that's where the demand was, that's where the margins were. 0:13:18.280 --> 0:13:20.080 But over the last couple of years, we have seen 0:13:20.080 --> 0:13:22.679 a shift towards the lower end of the market because 0:13:22.679 --> 0:13:25.679 from a demographic perspective, that's where the demand is going 0:13:25.720 --> 0:13:28.520 to come from. You know, we think that will continue 0:13:28.520 --> 0:13:30.200 to be the case once we kind of get through 0:13:30.720 --> 0:13:33.480 the down part of this cycle. We do think that 0:13:33.520 --> 0:13:36.560 the lower end of the market will show relative strength. 0:13:37.400 --> 0:13:40.320 All Right, Drew great stuff appreciated as always Drew Reading. 0:13:40.320 --> 0:13:42.640 He's a research channels to Bloomberg Intelligence. He follows the 0:13:42.679 --> 0:13:45.880 housing market and all the industries around that, including the 0:13:45.960 --> 0:13:49.800 do it yourself retailers like home Depot and Lows and 0:13:49.920 --> 0:13:53.920 Home Depot Forecasting lower earnings in part due to some 0:13:53.960 --> 0:13:56.840 concerns about the top line intercessionary environment, but also because 0:13:56.840 --> 0:14:00.280 their wage costs are increasing. It again, home depot was 0:14:00.480 --> 0:14:02.959 half a million people, so yeah, you got to pay 0:14:03.000 --> 0:14:08.280 those folks that are in the aisles. Also joining us 0:14:08.320 --> 0:14:11.480 here in our Bloomberg interactive brooks sho shine, shold shine. 0:14:11.559 --> 0:14:13.160 Let me just let me just give you a definition. 0:14:13.160 --> 0:14:16.040 Shol Schein debt. This is, according to Bloomberg News, is 0:14:16.040 --> 0:14:19.160 a German promissory note syndicated like both loans and bonds 0:14:19.440 --> 0:14:22.000 that can have both fixed and floating rates. It's turning 0:14:22.000 --> 0:14:25.840 into a niche German instrument to increasingly popular funding option 0:14:26.040 --> 0:14:28.320 for big European companies. I learned something new, and I 0:14:28.360 --> 0:14:30.800 say she will know because Amanda Robello just walked in 0:14:30.840 --> 0:14:33.800 the studio. She has head of passive sales US on 0:14:33.920 --> 0:14:37.200 shore but for DWS GROW. So Amanda, talk to us 0:14:37.240 --> 0:14:39.520 about how you're viewing the markets here. We've had a 0:14:39.600 --> 0:14:41.200 kind of a it feels like a little bit of 0:14:41.200 --> 0:14:42.960 a sea change over the past few weeks, maybe in 0:14:43.000 --> 0:14:45.040 response to some economic data that came in maybe a 0:14:45.040 --> 0:14:49.120 little bit hotter than expected and CPI PPI retail sales. 0:14:49.440 --> 0:14:52.040 However you want to look, we at some PMI data today, 0:14:52.160 --> 0:14:54.160 it seems like the Fed maybe has a little bit 0:14:54.160 --> 0:14:57.320 more support for hire for longers that how you guys 0:14:57.320 --> 0:15:00.640 are reading it. Yeah, we think that it's not all 0:15:00.720 --> 0:15:03.120 doom and gloom, but we think it's still worthwhile thinking 0:15:03.120 --> 0:15:05.680 about potential volatility in the market's going forward. I think, 0:15:05.720 --> 0:15:09.320 you know Biden and the trip that everyone's been speaking about, 0:15:09.560 --> 0:15:12.080 He's really thrown the cash among the pigeons. So volatility 0:15:12.160 --> 0:15:13.680 is going to be here for the rest of the year. 0:15:14.280 --> 0:15:16.640 There are some biopportunities though, and we think it makes 0:15:16.680 --> 0:15:21.920 sense to think about burdenhand theory, locking in dividends, having 0:15:22.000 --> 0:15:25.440 less focus on price appreciation of stocks. Really so we've 0:15:25.480 --> 0:15:27.400 actually heard from somebody night you but this was a 0:15:27.480 --> 0:15:29.360 several weeks ago, and it's just stuck with me because 0:15:29.360 --> 0:15:33.280 I simple catchphrases stick with me, Like the decade of 0:15:33.320 --> 0:15:36.760 the dividend. I mean, I don't know, do I go 0:15:36.840 --> 0:15:38.480 out just buy some of these big three, four or 0:15:38.480 --> 0:15:41.040 five percent yielding stocks and then maybe put the rest 0:15:41.040 --> 0:15:43.120 of it a two year treasury, build a four point 0:15:43.160 --> 0:15:46.800 seven percent or you can buy a dividen focus ets Okay, 0:15:47.120 --> 0:15:50.000 to tell me about that? Definitely, So We've got two 0:15:50.040 --> 0:15:52.160 on our side which had been quite interesting in the 0:15:52.160 --> 0:15:55.160 past couple of weeks and months. So the first one SMPD. 0:15:56.040 --> 0:15:58.160 We've spoken in the past with you guys about our 0:15:58.400 --> 0:16:01.560 ESG SMP five hundred fun this is now an ESG 0:16:02.400 --> 0:16:07.880 SMP Dividend Aristocrats fund. The one on there, it's an 0:16:07.880 --> 0:16:10.400 ETF with dividend paying stacks that are also good at 0:16:10.560 --> 0:16:14.320 ESG companies exactly as you get everything in there. And 0:16:14.360 --> 0:16:16.720 the reason why the ESG part here is interesting is 0:16:16.760 --> 0:16:19.040 because ESG is also a very good way to think 0:16:19.040 --> 0:16:23.240 about intangible off balance sheets risks, so that's kind of 0:16:23.240 --> 0:16:27.239 helping with the volatility component. Also, the dividend Aristocrats methodology, 0:16:27.240 --> 0:16:29.200 I think a lot of investors are familiar with. This 0:16:29.280 --> 0:16:33.160 is about quality, sustainable dividends, so not just names which 0:16:33.160 --> 0:16:35.240 are going to pay out four five percent, but then 0:16:35.560 --> 0:16:40.160 not investing CAPEX, for example, So that's an interesting side 0:16:40.200 --> 0:16:42.240 from that perspective. And the fund is yielding about five 0:16:42.640 --> 0:16:47.200 fifty basis points sorry, more than just SMP alone, but 0:16:47.320 --> 0:16:50.000 international equities as well also quite interesting as well, So 0:16:50.040 --> 0:16:52.880 these typically yield more than US equities, so thinking about 0:16:52.880 --> 0:16:55.840 more diversification in the portfolio and now you can be 0:16:55.920 --> 0:16:59.080 yielding as much as five point two five percent. Are 0:16:59.120 --> 0:17:02.440 we in an age where I mean you say ESG 0:17:03.120 --> 0:17:09.000 and it makes me think of you know, climate change, 0:17:09.119 --> 0:17:11.879 global warming. We're against that sort of thing, right, But 0:17:11.920 --> 0:17:15.720 this dividend holds x on Mobile. Yeah, this dividend holds 0:17:15.760 --> 0:17:19.399 Coca Cola. Yeah. Um, can you just put anything you 0:17:19.440 --> 0:17:22.439 want in an EESG ETF as long as you call 0:17:22.480 --> 0:17:24.959 it ESG, it's a better seller because those things are 0:17:25.000 --> 0:17:29.280 not good for like humanity or the environment. You're equating 0:17:29.320 --> 0:17:31.920 Coca Cola with big energy. Well, no Coca I mean, 0:17:32.240 --> 0:17:36.960 I would say even executives there would have to acknowledge 0:17:37.600 --> 0:17:42.400 a huge part of giving people diabetes globally, right, and 0:17:43.320 --> 0:17:45.760 x on Mobile I don't even have to explain that one. 0:17:45.840 --> 0:17:48.520 We all know that doesn't sound like an ESG name. 0:17:48.800 --> 0:17:51.520 So um, sad but true that you know, maybe Coca 0:17:51.560 --> 0:17:55.240 Cola is added to the obest crisis an xomobile. Maybe 0:17:55.359 --> 0:17:59.120 it's a good thing. But going on this rabbit hole, 0:17:59.359 --> 0:18:01.639 it's the The thing is, though, it's about which of 0:18:01.680 --> 0:18:05.800 the companies which also have most scope for CAPEX in diversifying. 0:18:05.880 --> 0:18:08.680 So Coca Cola, for example, is included because there isn't 0:18:08.680 --> 0:18:11.360 a great deal of capex, which is in like diversifying 0:18:11.359 --> 0:18:14.200 their revenue streams to things like water and health drinks 0:18:14.200 --> 0:18:17.359 and so forth, health products as well. Then on the 0:18:17.520 --> 0:18:19.600 health drinks are for the most part packed with sugar 0:18:20.359 --> 0:18:23.879 and a spossible consumption is just fine. Yeah, And do 0:18:23.880 --> 0:18:28.800 you think a large part of Americans are responsibly? So 0:18:29.000 --> 0:18:33.399 all right, So, Amanda, give us another sense of where 0:18:33.440 --> 0:18:36.359 you're seeing flows right now. I mean, I kind of 0:18:36.359 --> 0:18:39.680 feel like ESG has peaked in terms of interest level. 0:18:39.720 --> 0:18:41.440 I don't know if that's right or wrong. Maybe that's 0:18:41.440 --> 0:18:43.879 just here in the US. I know it's still probably 0:18:43.920 --> 0:18:46.119 a little bit more popular in Europe. Give us a 0:18:46.160 --> 0:18:47.920 sense of where you're seeing flows right now. So we've 0:18:47.960 --> 0:18:50.240 been seeing a lot of flows going into China, especially 0:18:51.000 --> 0:18:55.480 ahead or when we saw the reopening of society, seeing 0:18:55.720 --> 0:18:58.080 higher consumer spending again just because people are out and 0:18:58.119 --> 0:19:01.040 about at the end of the day. Offend Asher has 0:19:01.040 --> 0:19:03.560 been quite popular because it's tracking the local index, so 0:19:03.680 --> 0:19:06.320 the equivalent of the SMP five hundred for China, which 0:19:06.359 --> 0:19:10.200 is the CSI three hundred. And we've also seen as 0:19:10.240 --> 0:19:13.480 well a lot of interest in this international dividend plan 0:19:13.560 --> 0:19:16.920 that I spoke about before HDF that's been driven very 0:19:17.000 --> 0:19:20.280 much by just thinking about the hurdle rate that investors 0:19:20.320 --> 0:19:23.399 need to overcome versus the risk free rate at the moment, 0:19:23.720 --> 0:19:27.720 and international dividend focus strategies are definitely providing an opportunity there. 0:19:28.560 --> 0:19:31.639 What are just ETF funds in general? What have the 0:19:31.680 --> 0:19:33.440 flow has been like? Last year was such a bad 0:19:33.520 --> 0:19:36.800 year for investors equity Fixingcome, there's no place to hide 0:19:36.800 --> 0:19:40.159 in your sixty forty portfolio. Kind of great year for 0:19:40.200 --> 0:19:43.080 ETF launches though, great year for ETF launcher. So tell 0:19:43.119 --> 0:19:46.560 us about how the ETF market kind of behaved or 0:19:46.600 --> 0:19:49.280 evolved in last year going into this year. Yeah, so 0:19:49.359 --> 0:19:51.400 last year and we already start to see the trend 0:19:51.440 --> 0:19:53.320 as well this year. I think on the ETF side 0:19:53.320 --> 0:19:56.200 that continues to be a lot of innovation, much easier 0:19:56.200 --> 0:19:59.000 to bring funds to market then on the mutual funds side, 0:19:59.320 --> 0:20:01.760 and just because you don't have investors looking for the 0:20:01.760 --> 0:20:03.720 three year track record, they can kind of buy them 0:20:03.720 --> 0:20:06.960 typically straight away. Then we've seen flows going into some 0:20:07.000 --> 0:20:08.600 of those new products. So we do still see a 0:20:08.640 --> 0:20:11.360 lot of ESG products. But I think you're absolutely right 0:20:11.400 --> 0:20:15.439 that maybe there's been more focus on risk management and 0:20:15.480 --> 0:20:18.240 things that we're more familiar with. So what's been interesting 0:20:18.320 --> 0:20:20.760 is you've actually seen some value come back as well, 0:20:20.880 --> 0:20:23.720 So we've seen a lot of the value ETF to 0:20:23.760 --> 0:20:27.080 start to attract assets. Also short duration as well, so 0:20:27.160 --> 0:20:29.480 just in light of the uncertainty, cash plus kind of 0:20:29.520 --> 0:20:32.000 products as well, they're doing very well too, short duration 0:20:32.880 --> 0:20:35.600 treasury focus funds. And then on the flip side of that, 0:20:35.640 --> 0:20:38.240 we've seen high yield, but high yield that's very considered. 0:20:38.280 --> 0:20:40.199 So just thinking about the boost that you get in 0:20:40.240 --> 0:20:46.640 the yield, investors advisors being paid for adding risk the portfolios. 0:20:46.840 --> 0:20:50.679 High yield is actually not as terrible as historically. The 0:20:50.800 --> 0:20:53.200 corporate default rate is actually pretty low at the moment 0:20:53.280 --> 0:20:56.359