Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. Catch us live weekdays
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Speaker 3: Joining us our economist of the Year, My economist of
Speaker 3: the Year Lindsay Piigs Chief Economists is Stafel. Lindsay, is
Speaker 3: I make this announcement? Do you still believe in a
Speaker 3: higher rate regime?
Speaker 4: I do.
Speaker 1: I think it's going to be very difficult for the
Speaker 1: Fed to continue along this pathway, and I think at
Speaker 1: this point already reducing the size of rate cuts between
Speaker 1: September and November. Any further surprises in the data, particularly
Speaker 1: the inflation data, is likely going to warrant a reduced
Speaker 1: pace of policy action as well. With the Federal Reserve
Speaker 1: Chairman Jerome Poul himself unwilling to rule out the potential
Speaker 1: for a pause or even a rate hike in the
Speaker 1: coming year. So I think we're on the verge of
Speaker 1: a pause now, whether that comes December or January. We're
Speaker 1: seemingly splitting hairs, but the FED is slowing down with
Speaker 1: inflation still sticky, in the economy still strong.
Speaker 3: Is your terminal rate not a John Williams terminal rate.
Speaker 3: We don't get back to two point x percent? Does
Speaker 3: Lindsey Pigs with your higher rate regime have a rate
Speaker 3: we're getting back to that is new for America.
Speaker 1: I think three seventy five by the end of next
Speaker 1: year is a pause point, a comfortable pause point for
Speaker 1: the FED. Now, whether or not they give us an
Speaker 1: additional twenty five to three and a half in twenty six,
Speaker 1: that still remains a little squishy and will depend on
Speaker 1: the incoming data.
Speaker 4: But in either case, this is noticeably.
Speaker 1: Above both a FED and the market's expectation for that
Speaker 1: longer term, longer term neutral rate of policy.
Speaker 3: A pH when you have a PhD from NYU, squishy
Speaker 3: has a certain thing.
Speaker 5: Okay, good for sure, Lindsay, we had some I guess,
Speaker 5: some decent results out of Walmart, out of Lows. I
Speaker 5: guess a little bit better than expected maybe, And that
Speaker 5: kind of ties into some pretty solid retail sales numbers
Speaker 5: we saw last week. You put all that together, what's
Speaker 5: that tell you about the consumer here?
Speaker 1: Well, we continue to see ongoing resilience in terms of
Speaker 1: spending activity. As you mentioned, the gain in retail sales
Speaker 1: was widespread across a number of categories. We saw electronics
Speaker 1: jumping the most since April, up over two percent, vehicle
Speaker 1: sales rising the most in three months, gains in eating, drinking,
Speaker 1: building materials, you name it. So it was a pretty
Speaker 1: solid report, again underlining this story that we have this
Speaker 1: persistently resilient consumer perpetuating solid economic conditions as the backbone
Speaker 1: of the US economy. Now, broadly, we're still feeling the
Speaker 1: weight of higher prices, higher borrowing costs, as well as
Speaker 1: the near term disruptions from hurricanes, but we see these
Speaker 1: improvements in income as well as access to other supplemental
Speaker 1: factors such as credit cards, which continue to provide welcome
Speaker 1: support to consumer spending. Now, I don't want to oversell
Speaker 1: the state of the consumer. We are down from a
Speaker 1: more robust pace of nearer four percent last year, but
Speaker 1: at the current trend of two and a half, this
Speaker 1: remains sufficient to signal ongoing support to broader economic activity.
Speaker 1: Nearer a three percent GDP pace as we look out
Speaker 1: to the end of the year and beyond into twenty five.
Speaker 5: So with that three percent GDP pace, looking forward. Does
Speaker 5: the FECT need to really do anything here?
Speaker 1: You know, the decision to cut I think even in
Speaker 1: November begs the question of why. But I think it
Speaker 1: comes down to given the simple fact that bypassing November
Speaker 1: just one month after that outsized increase, excuse me, that
Speaker 1: outsized rate cut in September would have been interpreted as
Speaker 1: an omission of a policy error.
Speaker 4: I think at this point the.
Speaker 1: FED is simply responding to the fact that they have
Speaker 1: little option for additional policy easing, even though it was
Speaker 1: of lesser twenty five basis points in November, particularly given
Speaker 1: that they had the cover needed by that recent hurricane
Speaker 1: weakness and payrolls. But if they were truly data dependent,
Speaker 1: I don't think they would have moved into November, and
Speaker 1: I don't think they would move in December.
Speaker 6: I mean, Lindsey, this is really critical.
Speaker 3: We're up at the Boston FED the other day greeting
Speaker 3: Susan Collins and Mike McKee, and that one day talking
Speaker 3: to Susan Collins of Boston and Austin Goulsby of Chicago.
Speaker 3: How about pegs at one oh one? Are we accommodative
Speaker 3: or restrictive right now?
Speaker 1: Well, to be fair, we still are restrictive, and so
Speaker 1: changing conditions in the current environment do warrant a less
Speaker 1: firm policy as we slowly move back towards neutral given
Speaker 1: that the data continue to normalize.
Speaker 4: But again, the.
Speaker 1: Sense of urgency that the FED signaled with a fifty
Speaker 1: basis point cut out of the gate in September sent
Speaker 1: the wrong signal to the market that this was a
Speaker 1: FED in a rush to provide support to an ailing
Speaker 1: economy and move policy back to an accommodative stance. So
Speaker 1: the messaging I think was extremely inappropriate, and given the
Speaker 1: strength of the data, I think the FED needs to
Speaker 1: realize that the pace now needs to be severely reduced
Speaker 1: in order to set a more neutral tone.
Speaker 3: Paul squeeze one more in here with my economist to
Speaker 3: the Earth. It's like talking to Simon Johnson. Exactly what
Speaker 3: did they know She's going to Stockholm?
Speaker 6: Exactly?
Speaker 5: So lindsay here, I mean, I think one of the
Speaker 5: concerns about President Trump's economic policies that they may be inflationary.
Speaker 5: How do you is that a big risk for you?
Speaker 5: When you think about tax cuts and tariffs and so on.
Speaker 1: Well, when we look at these in and of themselves,
Speaker 1: there could be inflationary implications. But that provides us with
Speaker 1: somewhat of our superficial analysis, or maybe better set an
Speaker 1: incomplete analysis, as that doesn't account for, particularly on tariff side,
Speaker 1: consumer's ability to adjust what they're purchasing. It also doesn't
Speaker 1: account for the value that we may be instilling by
Speaker 1: protecting American industries, domestic job creation, preserving the quality and
Speaker 1: safety of products and services entering the economy.
Speaker 4: So it's a broader conversation.
Speaker 1: And analysis that needs to be had as opposed to
Speaker 1: just the top line knee jerk reaction.
Speaker 6: Lindsey, thank you so much. Lindsay Piegsa with Stefel.
Speaker 2: You're listening to the Bloomberg Surveillance Podcast. Catch us live
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Speaker 3: Mark Champion is definitive on Russia and on mister Putin.
Speaker 3: He joins us this morning of Eastern Front Tension. Mark Champion,
Speaker 3: just a basic question, is Russia behind mister Putin or
Speaker 3: is this Putin alone?
Speaker 7: Ah? Well, that's a that's a good question. I mean,
Speaker 7: to the extent it matters Russia is behind Putin. I
Speaker 7: say that in that way just because you don't have
Speaker 7: to have the whole country, you know, cheering on the war,
Speaker 7: wanting to continue the war in order for them to
Speaker 7: ultimately say, you know, Putin is the Russian state, and
Speaker 7: he decides what you know is best for the Russian state,
Speaker 7: and I will therefore, you know, back then. But it
Speaker 7: is a complicated question. There isn't sort of you know,
Speaker 7: natural support for the war, but he has what he needs.
Speaker 3: The missile distinction to me of the Lackeyed Martin Ling
Speaker 3: Temco vote Atticum, is this going at Masie? Is there
Speaker 3: a nakedness here where Russia feels they simply can't defend
Speaker 3: against this missile one hundred and fifty one hundred and
Speaker 3: ninety miles into Russia.
Speaker 7: You know, it is a it is a very sophisticated missile.
Speaker 7: It's a you know, people often talk about it as
Speaker 7: a long range missile. It's not. It's a tactical missile.
Speaker 7: It has a range, maximum range of about one hundred
Speaker 7: and ninety miles. It will have reached that the you know,
Speaker 7: this first time that it's been used in Russia, it
Speaker 7: will have reached that because it has to sit behind
Speaker 7: the lines obviously, which in turn are behind you know,
Speaker 7: are further into Ukraine. So you know, the Russians will
Speaker 7: be somewhat concerned. But I think for a number of reasons,
Speaker 7: it's a little bit you know, performative. One is that
Speaker 7: the Ukraine is not going to have a lot of them.
Speaker 7: The US doesn't have a lot of them. It won't
Speaker 7: have given very many to Ukraine. The second is that
Speaker 7: the range is quite limited, although we do talk about
Speaker 7: it as lot. It's you know, it's longer than a
Speaker 7: high Mark uses the same launch platform, but it does
Speaker 7: have a longer range. Both the Ukrainians now they make
Speaker 7: their own missiles now, which have a range of fifteen
Speaker 7: hundred kilometers ballistic missiles. What they lack there is money
Speaker 7: to produce them, but they are using them. And the Russians,
Speaker 7: of course, they have a whole range of missiles that
Speaker 7: are much more powerful than the attackers. The real question
Speaker 7: is you know that you know what has put him
Speaker 7: want to do with this politically, and you know that
Speaker 7: he has used it as he always does, to you know,
Speaker 7: make a kind of nuclear threat that we're heading for
Speaker 7: World War three. Nuclear armageddon all that sort of thing.
Speaker 7: Nuclear is extremely difficult to use, and that's why he
Speaker 7: hasn't yet. But you will see him escalate. He is responding.
Speaker 7: He has given you know, anti ship missiles to the Hooties,
Speaker 7: and he has said, you know, I can give stuff
Speaker 7: to your enemies just as you give stuff to ours. Also,
Speaker 7: you know, mysteriously to cables under the Baltic Sea connecting
Speaker 7: you know, Finland and to Lithuania and Sweden to getting
Speaker 7: that backwards, Sweden to Lithuania and Finland to Germany, both
Speaker 7: appear to have been cut. This is another area very
Speaker 7: kind of you know, fruitful potential area for Russia to respond.
Speaker 5: Mark. There seems to have been increased rhetoric here, maybe
Speaker 5: just since the US election of a negotiated piece here
Speaker 5: with this war here. Is that something that Ukraine wants
Speaker 5: at this time or do they feel that maybe Russia
Speaker 5: has much more of the leverage. Even Germany's Chancellor all
Speaker 5: of Schultz made a phone call recently to that end.
Speaker 5: Where do we stand about a negotiated piece?
Speaker 7: Yeah, no, you're absolutely right. The Ukrainians are very worried
Speaker 7: that they will be a precipitous piece. Also rather peace talks,
Speaker 7: and the difficulty there is that at the moment, you know,
Speaker 7: the Lysia is actually very clear about this. At the moment,
Speaker 7: the Putin and the Russians have a very little, if
Speaker 7: any incentive to newgiate, so they have made it clear.
Speaker 7: And and again, you know, Schultz, I think unwisely made
Speaker 7: that call to put In without coordinating with anybody. And
Speaker 7: the response that he got, according to you know, his
Speaker 7: own readout of the call was we stand by our goals,
Speaker 7: and there's you know, I'm not interested in the kind
Speaker 7: of you know, the solutions that are being talked about,
Speaker 7: and our goals aren't amount to the surrender of Ukraine.
Speaker 6: Mark, how do you respond?
Speaker 3: And I'm quoting this loosely, folks, that the president elects
Speaker 3: as he can fix Ukraine in one day, just as
Speaker 3: I don't quote me on that, folks.
Speaker 6: But just the general tone that you hear.
Speaker 3: From the president elect if he fixes Ukraine in one day,
Speaker 3: who's he speaking to?
Speaker 7: Well, he's speaking to his own audience, you know. And
Speaker 7: that was you know, that quote which has been used
Speaker 7: a lot. I've used that. That was during the election
Speaker 7: campaign season, and you know, I'm not too bothered by that.
Speaker 8: You know.
Speaker 7: Question is which day I go.
Speaker 3: I go one minute left, Mark Champion. I've been dying
Speaker 3: to ask you this, because you'd.
Speaker 6: Be the one. Have you seen the new restored Notre
Speaker 6: Dame in Paris?
Speaker 7: I have not. I have not. I've actually been meaning
Speaker 7: to go over and see it, but I haven't.
Speaker 6: We'll get you when you do.
Speaker 3: Email my have your people, Mark, email my people when
Speaker 3: you go see the new Notre Dame.
Speaker 6: I would be honored for you.
Speaker 3: To give us the first report on this great French restoration.
Speaker 3: Mark Champion, of course, writing for Bloomberg Opinion, can't say
Speaker 3: enough about his perspective east of the Eastern Front.
Speaker 2: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 2: starting at seven am Eastern on applecar Play and Android
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Speaker 2: Just Say Alexa playing Bloomberg eleven thirty.
Speaker 3: Joining us our economist of the Year, My Economist of
Speaker 3: the Year, Lindsay pigs a chief economist is Stifel. Lindsay,
Speaker 3: is I make this announcement? Do you still believe in
Speaker 3: a higher rate regime?
Speaker 1: I do I think it's going to be very difficult
Speaker 1: for the FED to continue along this pathway, and I
Speaker 1: think at this point already reducing the size of rate
Speaker 1: cuts between September and November. Any further surprises in the data,
Speaker 1: particularly the inflation data, is likely going to warrant a
Speaker 1: reduced pace of policy action as well. With the Federal
Speaker 1: Reserve Chairman Jerome Poell himself unwilling to rule out the
Speaker 1: potential for a pause or even a rate hike in
Speaker 1: the coming year, So I think we're on the verge
Speaker 1: of a pause now, whether that comes December or January.
Speaker 1: We're seemingly splitting hairs. But the FED is slowing down,
Speaker 1: with inflation still sticky, in the economy still strong.
Speaker 3: Is your terminal rate not a John Williams terminal rate?
Speaker 3: We don't get back to two point x percent? Does
Speaker 3: Lindsey Pigs with your higher rate regime have a rate
Speaker 3: we're getting back to that is new for America.
Speaker 1: I think three seventy five by the end of next
Speaker 1: year is a pause point, a comfortable pause point for
Speaker 1: the Fed now, whether or not they give us an
Speaker 1: additional twenty five to three and a half in twenty six,
Speaker 1: that still remains a little squishy and will depend on
Speaker 1: the incoming data, but in either case, this is noticeably
Speaker 1: above both the FED and the market's expectation for that
Speaker 1: longer term, longer term neutral rate of policy.
Speaker 3: A pH when you have a PhD from NYU, squishy
Speaker 3: has a certain thing.
Speaker 5: Okay, very good, lindsay, we had some I guess, some
Speaker 5: decent results out of Walmart, out of Lows. I guess
Speaker 5: a little bit better than expected maybe, And that kind
Speaker 5: of ties into some pretty solid retail sales numbers we
Speaker 5: saw last week. You put all that together, what's that
Speaker 5: tell you about the consumer here?
Speaker 1: Well, we continue to see ongoing resilience in terms of
Speaker 1: spending activity. As you mentioned, the gain in retail sales
Speaker 1: was widespread across a number of categories. We saw electronics
Speaker 1: jumping the most since April, up over two percent, vehicle
Speaker 1: sales rising the most in three months, gains in eating, drinking,
Speaker 1: building materials, you name it. So it was a pretty
Speaker 1: solid report, again underlining this story that we have this
Speaker 1: persistently resilient consumer perpetuating solid economic conditions as the backbone
Speaker 1: of the US economy. Now broadly, we're still feeling the
Speaker 1: weight of higher prices, higher borrowing costs, as well as
Speaker 1: the near term disruptions from hurricanes. But we see these
Speaker 1: improvements in income as well as access to other supplemental
Speaker 1: factors such as credit cards, which continue to provide welcome
Speaker 1: support to consumer spending. Now, I don't want to oversell
Speaker 1: the state of the consumer. We are down from a
Speaker 1: more robust pace of nearer four percent last year, but
Speaker 1: at the current trend of two and a half, this
Speaker 1: remains sufficient to signal ongoing support to broader economic activity
Speaker 1: nearer three percent GDP pace as we look out to
Speaker 1: the end of the year and beyond into twenty five.
Speaker 5: So with that three percent GDP pace looking forward, does
Speaker 5: effected to really do anything here?
Speaker 8: You know?
Speaker 1: The decision to cut I think, even in November begs
Speaker 1: the question of why. But I think it comes down
Speaker 1: to given the simple fact that bypassing November just one
Speaker 1: month after that outsized increase EXCU be that outsized rate
Speaker 1: cut in September would have been interpreted as an omission
Speaker 1: of a policy error. I think at this point the
Speaker 1: FED is simply responding to the fact that they have
Speaker 1: little option for additional policy easing, even though it was
Speaker 1: of lesser twenty five basis points in November, particularly given
Speaker 1: that they had the cover needed by that recent hurricane
Speaker 1: weakness and payrolls. But if they were truly data dependent,
Speaker 1: I don't think they would have moved into November, and
Speaker 1: I don't think they would move in December.
Speaker 6: I mean, Lindsey, this is really critical.
Speaker 3: We're up at the Boston FED the other day greeting
Speaker 3: Susan Collins and Mike McKee, and that one day talking
Speaker 3: to Susan Collins of Boston and Austin Goulsby of Chicago.
Speaker 3: How about pigs at one oh one? Are we accommodative
Speaker 3: or restrictive right now?
Speaker 1: Well, to be fair, we still are restrictive, and so
Speaker 1: changing conditions in the current environment do warrant a less
Speaker 1: firm policy as we slowly move back towards neutral given
Speaker 1: that the data continue to normalize.
Speaker 4: But again, the.
Speaker 1: Sense of urgency that the FED signaled with a fifty
Speaker 1: basis point cut out of the gate in September sent
Speaker 1: the wrong signal to the market that this was a
Speaker 1: FED in a rush to provide support to an ailing
Speaker 1: economy and move policy back to an accommodative stance. So
Speaker 1: the messaging I think was extremely inappropriate, and given the
Speaker 1: strength of the data, I think the FED needs to
Speaker 1: realize that the pace now needs to be severely reduced
Speaker 1: in order to set a more neutral tone.
Speaker 3: Paul squeeze one more in here with my economist to
Speaker 3: the Earth. It's like talking to Simon Johnson. Exactly what
Speaker 3: did they know She's going to Stockholm?
Speaker 6: Exactly?
Speaker 5: So lindsay here, I mean, I think one of the
Speaker 5: concerns about President at Trump's economic policies that they may
Speaker 5: be inflationary. How do you is that a big risk
Speaker 5: for you when you think about tax cuts and tariffs
Speaker 5: and so on.
Speaker 1: Well, when we look at these in and of themselves,
Speaker 1: there could be inflationary implications. But that provides us with
Speaker 1: somewhat of our superficial analysis, or maybe better set an
Speaker 1: incomplete analysis, as that doesn't account for, particularly on the
Speaker 1: tariff side, consumer's ability to adjust what they're purchasing.
Speaker 4: It also doesn't account for the.
Speaker 1: Value that we may be instilling by protecting American industries,
Speaker 1: domestic job creation, preserving the quality and safety of products
Speaker 1: and services entering the economy.
Speaker 4: So it's a broader conversation.
Speaker 1: And analysis that needs to be had as opposed to
Speaker 1: just the top line knee jerk reaction.
Speaker 6: Lindsey, thank you so much, Lindsay pigs with Stevel.
Speaker 2: This is the Bloomberg Surveillance Podcast. Listen live each day
Speaker 2: starting at seven am Eastern on Ammocarplay and Android Auto
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Speaker 3: Earl Davis has been on a stool screaming for two years.
Speaker 6: It's just not going to get back to a lower
Speaker 6: rate regime.
Speaker 3: Earl Davis joins us this morning had a fixed income
Speaker 3: and money markets at Demo Asset Management. Earl, do you
Speaker 3: reconfirm that it will be higher for longer in the
Speaker 3: yield space?
Speaker 8: One hundred percent? And an interesting thing that backs that up.
Speaker 8: We've overlaid charts of the inflation regime starting in twenty
Speaker 8: twenty to presently with the inflation regime from the sixties
Speaker 8: mid sixties till let's call it nineteen eighty, and we
Speaker 8: are almost on par with the alignment of peak inflation,
Speaker 8: lower inflation. So it's our expectation that we will test
Speaker 8: a much higher inflation again, which says yes, higher yields
Speaker 8: for longer.
Speaker 6: How can we get there?
Speaker 3: Like Paul Voker ten twelve percent, fourteen percent recession is
Speaker 3: seventy three, seventy four, which I lived. I mean, Earl Davis,
Speaker 3: are you talking about that kind of a volatile regime?
Speaker 6: Now?
Speaker 8: Maybe not that high just because remember the first peak
Speaker 8: was roughly called it eight nine percent? Can we test
Speaker 8: that again? It's not a twenty twenty five story, but
Speaker 8: it's possibly a twenty twenty six, twenty twenty seven story.
Speaker 8: The reason why is we have zero I won't call
Speaker 8: it zero, but very low slack in the economy or
Speaker 8: excess supply. So when you start bringing in US centric
Speaker 8: policies that are pro growth and have the potential to
Speaker 8: increase potential GDP with minimal slack in the economy, that's
Speaker 8: exactly the kind of tinder that could light up and
Speaker 8: conse inflation to come again. Remember it's not a twenty
Speaker 8: twenty five story, but all the elements are there for
Speaker 8: the next two to five years.
Speaker 5: So what does that mean, Earle? For the Federal Reserve,
Speaker 5: who has you know, cut rates twice, the expectations they
Speaker 5: will continue cutting several more times. Do you think that
Speaker 5: might be on hold?
Speaker 8: I think it's as Powell said in regards to there's
Speaker 8: no rush to do it, so I wouldn't say it
Speaker 8: might be on hold. But in regards to the euphoria
Speaker 8: and getting back to three percent overnight rates, I think
Speaker 8: that has been tempered a bit, but I do see
Speaker 8: slightly lower rates ahead. And the reason why I see
Speaker 8: that ahead is because the Fed is not implementing policy
Speaker 8: for two years. Hence, even though they do say there's
Speaker 8: an eighteen month flag what they're doing, they're reactive to
Speaker 8: the data, and the data does show some general slowing,
Speaker 8: but we're still doing very well.
Speaker 5: We had an election and we've got a new administration
Speaker 5: and a new Congress to be seated. Did that change
Speaker 5: your economic outlook or just kind of your view of
Speaker 5: these markets and perhaps how much risk you want to take?
Speaker 8: Yeah, you know what it What it does, it reinforces
Speaker 8: the uncertainty. So let me back up for a bit.
Speaker 8: You know, the questions you've been asking me in regards
Speaker 8: to inflation, I'm saying it's twenty twenty five versus not
Speaker 8: twenty twenty six, and beyond not twenty twenty five. This
Speaker 8: points to why active management is very important, and it's
Speaker 8: important because we're going to have volatility, and as an
Speaker 8: active manager, there's the ability to monetize this volatility. So
Speaker 8: coming back to the policy change that's coming about, yes,
Speaker 8: that does increase the volatility, but this is when you
Speaker 8: want to go into active management, and we've proven that
Speaker 8: as was brought up. You know, the past two years
Speaker 8: have been bang on years for us. You know, last
Speaker 8: year twenty twenty three, we had a great active management
Speaker 8: year and this year even better. We expect that environment
Speaker 8: to continue for two reasons. One is the pro growth
Speaker 8: centric policies, but the other reason is the absolute level
Speaker 8: of yields. Let's call it four to five percent says
Speaker 8: you get more basis point movement during the day. So
Speaker 8: it's a very exciting market to be an acidmader mixed income.
Speaker 6: Can you be so bold to say it's a total
Speaker 6: return market?
Speaker 3: Are you getting out to Montreal Canadian scissors and clipping
Speaker 3: the coupon?
Speaker 8: It is one hundred percent of total return market, and
Speaker 8: that's how we always look at it, and that's why
Speaker 8: we still like credit. Even though valuations and credit spreads
Speaker 8: are tight. You're all in. Yield is good and we
Speaker 8: don't see a recession coming definitely not in twenty twenty five,
Speaker 8: which says, you know what, you could stay and invested
Speaker 8: in risk assets.
Speaker 5: I'm looking at my iend go function, the Bloomberg Index
Speaker 5: browser and fix income returns are positive for twenty twenty four.
Speaker 5: What a surprise that is. But US corporate high yield
Speaker 5: by far the best performer at almost eight percent total return.
Speaker 5: Here talk to us about high yield.
Speaker 8: Yeah, you know what, we like high yield, but the
Speaker 8: valuations are tight yep. So it's our expectation that we
Speaker 8: will get volatility between now and January. First, we're going
Speaker 8: to use that volatility. You're seeing a little negativity in
Speaker 8: the stock market, which reflects itself in credit spreads as well.
Speaker 8: We're gonna use that to switch from our ig investment
Speaker 8: grade corporate exposure to high yel no continual, yeah, yeah,
Speaker 8: so we're gonna use that to switch to high yield
Speaker 8: because you're all in spreads. Look good. We like the
Speaker 8: fiscal let's say, the economic position of the US, and
Speaker 8: that is supportive of lower default rates. So we think
Speaker 8: there's opportunity to do there. But you have to be selective.
Speaker 6: Oh, my chart of the year is not equities. It's
Speaker 6: not this it's not that it's bonds.
Speaker 3: Look at the Bloomberg Total Corporate Index. It was negative
Speaker 3: six standard deviations off trend. You live that crater. We
Speaker 3: came back two point x standard deviations. Do you visualize
Speaker 3: somewhere out there. Our listeners are viewers on YouTube. They
Speaker 3: get back to price up, back to that long term trend.
Speaker 6: Yes.
Speaker 8: And you know what's interesting about the returns you've seen
Speaker 8: both in regular fixed income is call it government bonds
Speaker 8: as well as you're just spoken about investment grade, it's
Speaker 8: outperformed cash. Everyone says, oh, cash is grade at five
Speaker 8: percent before the bets started easing. Even now at four
Speaker 8: and a half to four seventy five, all bond returns
Speaker 8: have outperformed it. We expect bond returns to continue to
Speaker 8: outperform cash going forward. But it's hard for people to
Speaker 8: see that when you see an inverted yeal curve because
Speaker 8: they're just saying cash is great, but it's just a coupon.
Speaker 8: Remember when you invest in bonds, you get that coupon,
Speaker 8: plus you get capital gains as well too. We think
Speaker 8: we're in a similar environment where that total return, as
Speaker 8: we refer to before, will continue to outperform cash. So
Speaker 8: we're telling our clients, as you have GICs and long
Speaker 8: term Investment certificate or shorter term investment certificates maturing, this
Speaker 8: is the time to both extend duration and to look
Speaker 8: for credit.
Speaker 6: Earl, thank you. What a clinic.
Speaker 3: Earl Davis, thank you, thank you so much for Demo
Speaker 3: asset Management. He's just been dead on about a constructive
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