WEBVTT - Bloomberg Surveillance TV: November 12th, 2025 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.680 --> 0:00:15.480 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.720 with Lisa Bromwitz and Amerie Hordernt. Join us each day 0:00:18.760 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.960 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.319 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.400 Terminal and the Bloomberg Business App. Rick Reader is black 0:00:37.440 --> 0:00:40.120 Rocks CIO of Global Fixed Thing Come, and it's widely 0:00:40.120 --> 0:00:42.200 considered to be one of five contenders to replace fed 0:00:42.240 --> 0:00:45.320 share Jay Powell. He writes, the following moving interest rates 0:00:45.360 --> 0:00:47.320 lower is very much in line with what we do 0:00:47.440 --> 0:00:49.720 know today, which is that the labor market is clearly 0:00:49.720 --> 0:00:53.120 slowing to the point of potential store speed. Rick joins 0:00:53.159 --> 0:00:55.000 us now for more. Rick and Monick, thanks thanks for 0:00:55.080 --> 0:00:56.680 having us. Good to see my friend, it's been too long. 0:00:56.840 --> 0:00:57.160 Thank you. 0:00:57.160 --> 0:00:59.840 Welcome to the studio. We've got a labor market problem. 0:01:00.360 --> 0:01:02.279 I don't and by the way, I don't think it's 0:01:02.280 --> 0:01:05.280 a cyclical phenomenon. I think there is the way at least, 0:01:05.480 --> 0:01:08.720 I think we have a productivity revolution that is pretty extraordinary, 0:01:08.720 --> 0:01:11.479 and people point to AI as an exclusive driver of that. 0:01:12.080 --> 0:01:14.839 If you look across what companies are doing, including second 0:01:14.920 --> 0:01:17.840 quarter earnings, their quarter earnings, if you only dynamic around 0:01:18.040 --> 0:01:22.800 around how do you think about logistics, freight management, predictive maintenance, 0:01:23.800 --> 0:01:27.280 customer procurement, companies are doing more with less. And I 0:01:27.319 --> 0:01:29.440 think that is a secular dynamic that's going to be 0:01:29.440 --> 0:01:31.839 with us for a couple of years now. I think, 0:01:31.880 --> 0:01:33.440 I mean, we can talk about there's a bit of 0:01:33.480 --> 0:01:36.480 elevated inflation because of terras, but I think we're going 0:01:36.520 --> 0:01:38.199 to be dealing with something. By the way, you also 0:01:38.200 --> 0:01:41.400 put robotics, automation. You know, this to me is a 0:01:41.400 --> 0:01:44.119 structural dynamic. I think full employment will be the challenge 0:01:44.120 --> 0:01:45.080 for the next couple of years. 0:01:45.120 --> 0:01:48.960 So we mentioned the spread between Ernie's growth fantastic, employment 0:01:49.000 --> 0:01:52.040 growth terrible. How are we closing that gap? If ever? 0:01:52.840 --> 0:01:55.280 So, I think, by the way, I actually think that's 0:01:55.320 --> 0:01:56.120 not a coincident. 0:01:56.200 --> 0:01:57.560 Those aren't coincident factors. 0:01:57.600 --> 0:02:00.320 What's happening is companies literally the top line revenu is 0:02:00.360 --> 0:02:03.360 pretty good generally. But what's happening is they're cutting costs 0:02:03.360 --> 0:02:06.360 of good soul, they're cutting their SGNA costs, they're reducing 0:02:06.400 --> 0:02:09.680 their cost infrastructure. By the way, AI is a technology, 0:02:09.680 --> 0:02:13.480 there's historically been this dynamic of when you have new technology, 0:02:13.520 --> 0:02:17.480 it moves people into other higher value jobs. And this technology, 0:02:17.520 --> 0:02:19.480 by the way, I put robotics and automation on top 0:02:19.480 --> 0:02:22.960 of that, autonomous driving, et cetera, is literally designed to 0:02:23.080 --> 0:02:24.240 replace human input. 0:02:24.560 --> 0:02:27.919 You have a dynamic that is pretty extraordinary that I think. 0:02:27.960 --> 0:02:30.000 You know, if you know, as at central banker or 0:02:30.000 --> 0:02:32.320 whatever is, you think about being anticipatory of where the 0:02:32.320 --> 0:02:34.320 world is going. That is where the world is going, 0:02:34.360 --> 0:02:37.320 and I think that is a challenge. Economy is doing fine, 0:02:37.520 --> 0:02:41.480 divergent and quite frankly only operating on a couple of cylinders, 0:02:41.600 --> 0:02:45.359 huge capex which we talk about from cloud, from infrastructure, 0:02:45.360 --> 0:02:50.000 from power. And you've got higher income wealthy savers they're 0:02:50.000 --> 0:02:53.640 doing great and supporting consumption in the economy. And then 0:02:53.720 --> 0:02:55.880 you have the part of the economy that's interest rates 0:02:55.880 --> 0:02:58.919 sensitive that's really struggling. And that's part of why I 0:02:58.919 --> 0:03:02.080 think the interest rate tool needs to address low income 0:03:02.200 --> 0:03:05.280 small business housing and that that's where I think you 0:03:05.400 --> 0:03:06.160 square the circle. 0:03:06.280 --> 0:03:08.080 So we've got to talk about this from two perspectives, 0:03:08.120 --> 0:03:10.320 one as a policy maker, the other as an investor, 0:03:10.320 --> 0:03:12.400 and one of course informs the other. Let's just sit 0:03:12.480 --> 0:03:15.680 on policy for a moment. You're talking about maybe the 0:03:15.720 --> 0:03:18.080 needs cut interest rates, but also the fact that some 0:03:18.120 --> 0:03:20.040 of the pullback we're sent in hiring is not cyclical. 0:03:20.560 --> 0:03:22.720 How can we address one with lower interest rates? Just 0:03:22.760 --> 0:03:23.800 explore that for us a little bit. 0:03:23.919 --> 0:03:25.560 Yeah, So, first of all, if you came down from 0:03:25.600 --> 0:03:27.800 Mars and said, okay, so I've got five year inflation 0:03:27.880 --> 0:03:29.480 break even, so trade in the market, you buy as 0:03:29.480 --> 0:03:31.520 many as you want a two point three five percent 0:03:31.720 --> 0:03:34.560 and you said okay, now set the price, and you said, okay, 0:03:34.560 --> 0:03:36.960 two point three five percent inflation, and I clearly have 0:03:37.120 --> 0:03:39.640 a slowing labor market, you would say, gosh, I don't 0:03:39.640 --> 0:03:41.960 know if I set the rate at three, and then 0:03:42.000 --> 0:03:44.280 I talked about okay, so now what's equilibrium on the 0:03:44.280 --> 0:03:47.960 mortgage rate to create velocity in housing? And they're directly 0:03:48.000 --> 0:03:51.240 related to what you said. Housing today is three quarters 0:03:51.240 --> 0:03:53.320 of the wealth by people in the countries in housing. 0:03:53.640 --> 0:03:55.800 We have a housing market that you know, you look 0:03:55.800 --> 0:03:57.600 at the earnings into your horton you look at Leonar 0:03:57.720 --> 0:04:00.760 By the way, I just saw an ISI builder survey 0:04:00.800 --> 0:04:03.480 that show the softness. If you actually get the mortgage 0:04:03.560 --> 0:04:06.120 rate down a bit, then what happens is all of 0:04:06.160 --> 0:04:08.640 a sudden you get housing velocity. WHI is housing velocity 0:04:08.640 --> 0:04:11.480 important because you get labor mobility today you can't move, 0:04:11.640 --> 0:04:12.200 you lose your job. 0:04:12.240 --> 0:04:13.600 You got to go somewhere else, you can't move. 0:04:13.920 --> 0:04:16.760 Secondly, and I've set up before, for every home built 0:04:16.760 --> 0:04:19.200 in this country, we hire three point one people. It's 0:04:19.240 --> 0:04:22.320 pretty hard to ai building a house. So if you 0:04:22.360 --> 0:04:24.600 can get some real estate velocity. And by the way, 0:04:24.680 --> 0:04:27.880 it's a young people who are struggling today, young people 0:04:27.920 --> 0:04:31.040 who aren't savers, who are borrowers, that's the way they 0:04:31.040 --> 0:04:33.080 build wealth. That's the way you put people to work. 0:04:33.120 --> 0:04:35.240 And so I think it is all a related concept. 0:04:35.560 --> 0:04:39.719 Point being is by the way, I mean, if we 0:04:39.839 --> 0:04:42.599 had to raise interest rates to where they were, but 0:04:42.680 --> 0:04:44.680 if you said to me today, what's equilibrium, I don't 0:04:44.680 --> 0:04:46.560 think it's where we sit today in the funds, right. 0:04:46.760 --> 0:04:50.000 So how willing are you to allow or how willing 0:04:50.040 --> 0:04:53.000 would you be to allow inflation to run above that? 0:04:53.080 --> 0:04:56.719 Two percent target in order to run the economy hot 0:04:56.760 --> 0:04:58.240 to allow for more job creation. 0:04:58.600 --> 0:05:00.480 Listen, it's a great question. I think. Every time you 0:05:00.760 --> 0:05:02.320 think about these things, and I think about the same thing, 0:05:02.360 --> 0:05:02.800 we take. 0:05:02.720 --> 0:05:05.000 Risk, you sort of think about what are the quadrants 0:05:05.000 --> 0:05:05.640 of risk? 0:05:05.720 --> 0:05:06.960 What are you willing to underwrite? 0:05:07.279 --> 0:05:09.680 So today, when I think about those quadrants, if you 0:05:09.680 --> 0:05:14.160 were willing to take some labor and some overall inflation thing, 0:05:14.160 --> 0:05:16.400 you think about, Okay, what are the sticky drivers of 0:05:16.440 --> 0:05:22.240 inflation today? Healthcare, education, insurance. It's pretty hard use the 0:05:22.279 --> 0:05:25.400 interest rate tool to get insurance costs down. It's pretty 0:05:25.440 --> 0:05:28.440 hard to get healthcare, so the tool is not that robust. 0:05:29.240 --> 0:05:32.360 And shelter is a sticky part of inflation that if 0:05:32.400 --> 0:05:35.040 I actually get the rate down, I actually mitigate some. 0:05:35.000 --> 0:05:38.040 Of that elevator. I'll mitigate the rental inflation. 0:05:38.160 --> 0:05:40.680 So you know out there on one other thing, five 0:05:40.760 --> 0:05:44.080 year inflation expectations are two point three five percent if 0:05:44.120 --> 0:05:46.040 you were at two and three quarters. And by the way, 0:05:46.080 --> 0:05:48.680 core PCEE the six month moving average core PC is 0:05:48.720 --> 0:05:51.919 two point five. Let's say we're probably closer to three. 0:05:51.960 --> 0:05:55.279 If you take the whole full construct of inflation. Three 0:05:55.400 --> 0:05:58.360 is not an infectious. You know, you clearly don't see 0:05:58.360 --> 0:06:00.560 it in terms of where people anticipate in If you're 0:06:00.600 --> 0:06:03.600 running four or five, then I'd say, gosh. Or if 0:06:03.640 --> 0:06:07.120 the three was trending higher on things and that the 0:06:07.160 --> 0:06:09.719 interest rate tool impacted, then I think you'd have to 0:06:09.720 --> 0:06:11.240 address that just to sort of. 0:06:11.200 --> 0:06:12.960 Build on that this idea that three is okay, but 0:06:13.120 --> 0:06:16.160 above that maybe not so much. There's a feeler that 0:06:16.200 --> 0:06:19.159 there is an asymmetry in the timeframe of AI that 0:06:19.279 --> 0:06:21.760 right now the buildout is going to be inflationary because 0:06:21.800 --> 0:06:25.960 of the inflationary inputs of commodity costs, of just how 0:06:26.040 --> 0:06:29.320 much lending and money this is generating on a broad scale. 0:06:29.880 --> 0:06:33.440 The productivity gains that will cause disinflation will take a 0:06:33.480 --> 0:06:36.880 lot longer to come into play. So how if you 0:06:36.920 --> 0:06:39.120 were the head of the FED would you handle that? 0:06:39.839 --> 0:06:40.680 So I take up morning. 0:06:40.760 --> 0:06:43.640 So think about historically the way the interest rate tool worked. 0:06:43.800 --> 0:06:46.000 It was a modulator of capacs. So you think about it, 0:06:46.080 --> 0:06:50.000 go back sixties and seventies. The big spenders in manufacturing today. 0:06:50.600 --> 0:06:55.080 My guess is OPENII and Vidia, Google, et cetera. It's 0:06:55.120 --> 0:06:58.080 not the interest rate tool that is affecting CAPAX. They 0:06:58.120 --> 0:07:00.360 are going to put that capex in because there is 0:07:00.400 --> 0:07:02.960 a long run benefit for doing it, meaning the interest 0:07:03.000 --> 0:07:04.360 rate tool doesn't really do a lot. 0:07:04.440 --> 0:07:05.920 So I think, at the end of the day. 0:07:06.000 --> 0:07:08.520 Does that create a little bit of inflation in the 0:07:08.560 --> 0:07:11.120 areas you describe? I think so, But I think you 0:07:11.160 --> 0:07:14.000 have to say, you know where are we going? And 0:07:14.000 --> 0:07:15.880 I always say, being an investor for a long time, 0:07:16.280 --> 0:07:18.920 you know the concept of data dependence. If you are 0:07:18.960 --> 0:07:21.120 constantly in the rear view mirror trying to figure out 0:07:21.120 --> 0:07:23.000 how would you invest is probably the wrong way to 0:07:23.000 --> 0:07:25.200 do it. We are going through something that's very different. 0:07:25.240 --> 0:07:27.800 We now are in a capex cycle. And then if 0:07:27.800 --> 0:07:29.480 you break down the economy and say, okay, what is 0:07:29.560 --> 0:07:33.480 driving GDP today. That's what's driving this capex and some 0:07:33.640 --> 0:07:35.600 consumption from hire income people. 0:07:35.560 --> 0:07:38.600 The key pace of the inflation story. Shouter, you touched 0:07:38.600 --> 0:07:42.280 on it. You said something interesting. Interest rates down, shout, 0:07:42.440 --> 0:07:44.440 costs down. Just explain that for us. 0:07:44.920 --> 0:07:46.720 Yeah, so, I mean we have an inventory problem in 0:07:46.720 --> 0:07:48.720 the country. And by the way, I mean look at 0:07:48.760 --> 0:07:51.720 every piece of data, it shows the same thing. And so, 0:07:51.760 --> 0:07:53.840 by the way, when the mortgage rate has come down 0:07:53.880 --> 0:07:56.880 a bit post this recent fed drop in interest rates, 0:07:57.240 --> 0:07:59.520 all of a sudden you're seeing an existing home sales pickup. 0:08:00.000 --> 0:08:02.520 So we just saw the prepayment report for mortgages, and 0:08:02.600 --> 0:08:05.600 all of a sudden you're seeing some acceleration, meaning you 0:08:05.640 --> 0:08:08.000 don't have to get the interest rate tool down that much. 0:08:08.040 --> 0:08:10.840 If you got the mortgage rate into the fives I'd 0:08:10.840 --> 0:08:13.680 say mid to high fives, you would see some velocity 0:08:13.720 --> 0:08:16.320 of housing. If you saw velocity of housing today, I 0:08:16.640 --> 0:08:19.240 saw on deor Horton's numbers. They talked about they're doing 0:08:19.280 --> 0:08:21.800 one percent first year mortgage and then I think it's 0:08:21.840 --> 0:08:25.880 four point nine because they've got to subsidize the mortgage. Well, 0:08:25.880 --> 0:08:27.640 what if der Horton didn't have to do that, and 0:08:27.640 --> 0:08:30.600 what if the actual organically the rate was lower, they'd 0:08:30.600 --> 0:08:33.600 build more houses. You create more inventory, You create more inventory, 0:08:33.640 --> 0:08:36.560 you take the pressure off of rental rates, and you 0:08:36.600 --> 0:08:39.400 start to bring inflation down. Plus the labor mobility that 0:08:39.840 --> 0:08:41.280 is not an insignificant part of that. 0:08:41.400 --> 0:08:42.880 Do you think the FED needs to think how sound 0:08:42.880 --> 0:08:45.040 of the box beyond just interest rates? Is this something 0:08:45.040 --> 0:08:45.640 else we can do? Hey? 0:08:45.720 --> 0:08:47.480 Yeah, I mean listen, I think there is. I think 0:08:47.520 --> 0:08:49.800 the FAT has a series of tools. The interest rate tool, 0:08:50.480 --> 0:08:52.600 by the way today, nobody really borrows off the overnight 0:08:52.640 --> 0:08:55.200 funding rate, the interest rate tool it used to be. 0:08:55.360 --> 0:08:57.560 They think about how banks borrow a short they lent long. 0:08:57.640 --> 0:09:00.320 Think we had a very different dynamic today the way 0:09:00.320 --> 0:09:02.640 we tranch the debt in the economy. Think about how 0:09:02.640 --> 0:09:07.280 we finance RESI, commercial asset box, credit cards, auto loans. 0:09:07.280 --> 0:09:09.920 It's trunched. The front end of the yield curve doesn't 0:09:09.960 --> 0:09:12.760 really do a lot. How you think about you know, 0:09:12.760 --> 0:09:14.600 where is the ten year point? How do you think 0:09:14.600 --> 0:09:16.360 about your balance sheet? How do you think about all 0:09:16.360 --> 0:09:18.880 the other tools that are at your disposal, I think 0:09:18.920 --> 0:09:21.000 are really important. Plus you got to think about what 0:09:21.080 --> 0:09:22.560 is the effect of the currency etc. 0:09:22.880 --> 0:09:23.400 Relative to that. 0:09:23.480 --> 0:09:26.400 So anyway, I think the construct is much more complex 0:09:26.520 --> 0:09:28.840 and much more quite frankly, you have a lot of 0:09:28.880 --> 0:09:31.880 tools that create much more effectiveness. Then we're just going 0:09:31.920 --> 0:09:33.800 to move the overnight funds right every six weeks. 0:09:33.880 --> 0:09:34.640 Like the balance sheet. 0:09:34.880 --> 0:09:37.680 How much would you be open to see the Fed 0:09:37.760 --> 0:09:39.120 use the balance sheet a little bit more? 0:09:39.320 --> 0:09:39.480 So? 0:09:39.520 --> 0:09:42.000 I think the construct of the balance sheet is important. 0:09:42.480 --> 0:09:45.199 So I think people don't realize there's a notional dynamic, 0:09:45.240 --> 0:09:47.600 and there's a DVO one, there's a duration dynamic further 0:09:47.640 --> 0:09:50.360 out the yield curve. I am sympathetic to should we 0:09:50.440 --> 0:09:53.160 keep the balance sheet around the same level, but you 0:09:53.200 --> 0:09:55.760 could be really effective. So today the US Treasury eighty 0:09:55.840 --> 0:09:58.400 nine percent of what the US Treasury finances is at 0:09:58.440 --> 0:10:00.880 the zero to two year point eighty And think about 0:10:00.880 --> 0:10:02.720 if you're a company, would you ever finance in the 0:10:02.760 --> 0:10:03.200 one year. 0:10:04.000 --> 0:10:06.520 It's crazy, but that's where we are today, and it 0:10:06.559 --> 0:10:09.080 is what it is. So there's not that much float. 0:10:09.160 --> 0:10:11.360 Actually, longer on the curve, there's reason why people put 0:10:11.360 --> 0:10:13.360 on steepeners. I think get squeezed out of steepeners because 0:10:13.360 --> 0:10:15.520 there's not that much float. You don't have to use 0:10:15.559 --> 0:10:17.880 that much balance sheet. But if you thought about, gosh, 0:10:17.960 --> 0:10:20.160 the construct of the balance sheet, if we used more 0:10:20.200 --> 0:10:22.720 of it further out the curve, we let runoff happen 0:10:22.800 --> 0:10:26.120 on the front. If you can keep the stability of 0:10:26.240 --> 0:10:28.199 the back end. So if you can keep the tenure, 0:10:29.040 --> 0:10:31.200 you know, we got to the tenure was three ninety. 0:10:31.559 --> 0:10:33.520 If the tenure was three and a half to four 0:10:33.800 --> 0:10:37.959 stable and rate vault, rate volatility came down all of 0:10:38.000 --> 0:10:39.880 a sudden, you'd see mortgage spreads. 0:10:39.520 --> 0:10:40.040 Could come in. 0:10:40.600 --> 0:10:43.280 Then you'd get and by the way, deregulation the banking system, 0:10:43.600 --> 0:10:45.920 then you get mortgage velocity moving. So, by the way, 0:10:45.920 --> 0:10:48.080 I don't think we're that far away. And by the way, 0:10:48.080 --> 0:10:49.760 you know this concept that you have to get the 0:10:49.840 --> 0:10:51.440 rate down hundreds of basis points. 0:10:51.880 --> 0:10:53.760 I just think we're not that far away. Just get 0:10:53.760 --> 0:10:54.200 it there and. 0:10:54.280 --> 0:10:57.040 Keep volatility of the rate market at a stable level, 0:10:57.280 --> 0:10:59.280 and then you'll see a system that will operate pretty well. 0:11:00.240 --> 0:11:01.839 Going back to the late eighties, how much fun you 0:11:01.920 --> 0:11:02.600 have in right now? 0:11:03.520 --> 0:11:05.840 I mean, I mean I said before, this is the 0:11:05.840 --> 0:11:08.480 best investment environment I've ever seen. I mean not because 0:11:08.559 --> 0:11:11.160 stocks are going to go straight up. I mean you 0:11:11.320 --> 0:11:15.679 have diversions that is great for investing. You have technology 0:11:15.679 --> 0:11:19.199 that's changing, and so the ability to look at tech stocks, healthcare, tech, 0:11:19.720 --> 0:11:20.280 to look. 0:11:20.080 --> 0:11:21.760 At you know, where some of the financials. How you 0:11:21.760 --> 0:11:23.160 create velocity in the system. 0:11:23.520 --> 0:11:26.480 And then you know the earlier conversation and we were 0:11:26.480 --> 0:11:29.200 talking about the break like now at the income levels. 0:11:29.200 --> 0:11:31.000 As long as this interest rate stays here, you know 0:11:31.040 --> 0:11:33.880 what's ironic as commercially, you know, I prefer the interest 0:11:33.920 --> 0:11:35.920 rate to stay here because it's I mean, this is 0:11:35.920 --> 0:11:38.000 pretty good. We can create portfolios, we run the CTF 0:11:38.040 --> 0:11:40.840 called BINK and you know, creating six six in a quarter, 0:11:40.840 --> 0:11:43.520 we're running almost six thirty. Now you don't have to 0:11:43.559 --> 0:11:44.719 take a lot of risk, you don't have to go 0:11:44.760 --> 0:11:47.400 out the yield curve. That's pretty good. So anyway, I think, 0:11:47.440 --> 0:11:49.200 and by the way, the options market, I think the 0:11:49.240 --> 0:11:52.840 best opportunities are in the options market rate options, equity options, 0:11:53.200 --> 0:11:55.079 and you could manage your CONVEXI so you can be 0:11:55.200 --> 0:11:57.880 long equities and then buy a lot of you can 0:11:57.920 --> 0:12:00.719 overwrite your single name stocks, you can buy downs. It's 0:12:00.760 --> 0:12:01.480 a fun environment. 0:12:01.480 --> 0:12:03.920 Well, leslen into BINK. You mentioned here the ices, flexple 0:12:03.960 --> 0:12:06.760 active income ETF. What kind of things have you been 0:12:06.800 --> 0:12:08.439 doing over the past six months. 0:12:08.440 --> 0:12:09.920 You know we've been you know, the cool thing about 0:12:09.960 --> 0:12:12.760 being active is you can move around because the regime shifts. 0:12:13.000 --> 0:12:15.599 And while I was describing earlier, like where do you 0:12:15.640 --> 0:12:18.040 think the interest rate should be? The true interestrates an't 0:12:18.040 --> 0:12:20.480 going to move very far. So you know we're keeping 0:12:20.520 --> 0:12:23.080 our interest rate duration. You know, in and around four 0:12:23.160 --> 0:12:26.520 years we've moved a little bit out of the very 0:12:26.559 --> 0:12:29.079 front end because it's pricing a lot now in terms 0:12:29.120 --> 0:12:31.360 of where this FED is going to go. Then we've 0:12:31.360 --> 0:12:34.240 done we've shifted some of our credit into mortgages quite frankly, 0:12:34.240 --> 0:12:36.320 if you believe rate volatility is going to be down, 0:12:37.080 --> 0:12:39.960 mortgage has become interesting, and credit spreads have gotten pretty tight, 0:12:40.000 --> 0:12:43.320 particularly us investern grade has gotten pretty tight, so we've 0:12:43.400 --> 0:12:46.000 rotated out of that. We've bought a little bit of 0:12:46.040 --> 0:12:48.840 EM recently, I would say recently over the last six months. 0:12:48.840 --> 0:12:50.400 We haven't bought a YM in a long time. 0:12:51.480 --> 0:12:53.640 You know, if you believe the dollar is contained, EM 0:12:53.679 --> 0:12:56.800 becomes pretty interesting and the yields, you know, relative to 0:12:56.880 --> 0:12:59.040 high yield, the yields and EM are attractive. 0:12:59.080 --> 0:13:00.679 So we've cut a little bit of high yield. 0:13:01.200 --> 0:13:03.880 We've got a good amount of investment grade credit, and 0:13:03.920 --> 0:13:06.680 we've rotated. So today I think our average rating is AS, 0:13:06.679 --> 0:13:08.160 which is pretty good. So it gives us a little 0:13:08.200 --> 0:13:09.920 bit of room to do some things. 0:13:09.960 --> 0:13:13.040 Like you said something that was interesting there, which is 0:13:13.120 --> 0:13:15.040 you don't have to go very far out the risk 0:13:15.080 --> 0:13:18.280 curve in order to get income now because yields are high. 0:13:18.600 --> 0:13:20.800 If the FED were to cut rates, does that make 0:13:20.840 --> 0:13:22.320 you more inclined to take more risk? 0:13:23.360 --> 0:13:24.720 Yeah, I mean I have to say, you know, for 0:13:25.080 --> 0:13:27.040 two decades, part of why I'm so excited about where 0:13:27.040 --> 0:13:29.040 we are today. For two decades, it was like I 0:13:29.080 --> 0:13:30.600 got to buy high yield at three and a half 0:13:30.600 --> 0:13:33.560 and four and it doesn't feel natural. But now if 0:13:33.600 --> 0:13:35.480 you have the risk free rate, particularly in the front 0:13:35.559 --> 0:13:37.200 end here, gosh, I put a little bit of spread 0:13:37.240 --> 0:13:39.880 on it. Now I get what is ample yield. With 0:13:40.000 --> 0:13:42.199 default rates that are not that elevated. You are seeing 0:13:42.240 --> 0:13:44.800 some bubbling defaults in a couple of places. 0:13:45.360 --> 0:13:46.560 So you know, I think the thing. 0:13:46.440 --> 0:13:48.320 That we would do is, you know, I know what 0:13:48.360 --> 0:13:50.640 we would do is if rates come down. You know, 0:13:50.679 --> 0:13:53.040 I'm not a believer, and this is what blows you up. 0:13:53.280 --> 0:13:55.080 I'm not a Believer's gosh, I I got to keep 0:13:55.080 --> 0:13:57.120 that yield. I gotta get my risk up. You just 0:13:57.200 --> 0:13:59.280 have to absorb it and say, you know what, I'm 0:13:59.280 --> 0:14:02.400 going to run at run six twenty five or so. 0:14:02.840 --> 0:14:04.680 I'm going to run five and three quarters of six. 0:14:05.000 --> 0:14:06.679 But you know what will happen is the cash rate 0:14:06.720 --> 0:14:08.360 will come down and people say, gosh, you know what, 0:14:08.400 --> 0:14:09.520 cash is only getting me two and a. 0:14:09.520 --> 0:14:10.199 Half to three. 0:14:10.520 --> 0:14:13.640 That's any you know, inflation, even if inflation's three like, 0:14:13.720 --> 0:14:14.560 it's still pretty great. 0:14:15.000 --> 0:14:16.719 Very few people on Wall Street they are saying, you 0:14:16.800 --> 0:14:18.440 know what, I can just live with less income. 0:14:18.720 --> 0:14:21.480 It's okay, I won't stretch too far. I'll be disciplined and. 0:14:21.440 --> 0:14:23.760 Maybe I'll just take less cash and I'll commit. 0:14:23.480 --> 0:14:24.200 To the economy. 0:14:24.320 --> 0:14:27.320 At what point can you imagine that things start to 0:14:27.320 --> 0:14:29.840 get a bit excessive, especially given the fact that there 0:14:29.880 --> 0:14:31.880 is a lot of cash right now looking for a home. 0:14:32.520 --> 0:14:34.000 So, by the way, it's a funny thing is you 0:14:34.040 --> 0:14:36.280 say that, you know, we live in a competitive environment. 0:14:36.320 --> 0:14:38.080 We can't just sit back. I mean, it is a 0:14:38.080 --> 0:14:38.880 tough business. 0:14:39.280 --> 0:14:41.760 We have competitors and people that are out there say, gosh, 0:14:41.840 --> 0:14:44.400 I can get you more yield, and listen. I think 0:14:44.400 --> 0:14:45.520 one of the things you have to do is you 0:14:45.560 --> 0:14:47.800 have to keep your volatility as long as you always 0:14:47.800 --> 0:14:50.960 think about what's your yield per unit of volatility? Today equities, 0:14:51.040 --> 0:14:53.640 I think equities are are still going up fifteen to 0:14:53.640 --> 0:14:56.080 twenty percent from where they are over the next year. 0:14:56.400 --> 0:14:59.080 So I'm just trying to keep our volatility at a reasonable place. 0:14:59.600 --> 0:15:02.920 What is excessive? You know, there's some things that are 0:15:02.960 --> 0:15:07.200 bubbling in the markets that are mostly in privates that. 0:15:07.240 --> 0:15:09.320 Are gosh, I don't I don't get any cash. 0:15:09.080 --> 0:15:11.120 Flow for two or three years. What's the multiple you 0:15:11.200 --> 0:15:13.440 put on that? Like that stuff is hard. There are 0:15:13.440 --> 0:15:15.600 some really good business models, you say, I see it 0:15:16.000 --> 0:15:18.880 and it's almost definitional, you know. You see some parts 0:15:18.920 --> 0:15:21.600 of it where people are stretched and in some of 0:15:21.600 --> 0:15:24.480 the credit markets where some of the levels get aggressive. 0:15:24.520 --> 0:15:26.160 Part of why we've rotated some of the investment preate. 0:15:26.200 --> 0:15:28.000 It doesn't do that much for us anymore at those 0:15:28.000 --> 0:15:30.600 spread levels. But I don't, you know, I don't see 0:15:30.720 --> 0:15:34.680 like you saw before the financial crisis, excessive low you know, 0:15:34.800 --> 0:15:38.680 low covenant or easy covenants, high LTV financing. 0:15:38.720 --> 0:15:39.000 I don't. 0:15:39.040 --> 0:15:41.880 I don't see that yet today at the around the 0:15:42.000 --> 0:15:43.760 edges a little bit, but not not really. 0:15:44.000 --> 0:15:49.800 Fifteen to twenty percent on stocks now the double digit Yeah. 0:15:48.560 --> 0:15:49.560 You know, I don't. I think. 0:15:49.600 --> 0:15:52.240 I mean, I think we're living through history because if 0:15:52.240 --> 0:15:56.280 we're what you asked about before, because productivity and roe 0:15:56.720 --> 0:15:59.240 is so spectacular. And by the way, I don't think 0:15:59.240 --> 0:16:01.680 it's five hundred stocks. I think it's by the way 0:16:01.680 --> 0:16:03.280 we were stat yesterday, if you take the S and 0:16:03.280 --> 0:16:06.080 P fifteen hundred, it's is this right that I heard 0:16:06.120 --> 0:16:08.680 it was twenty two percent off the highs. I thought 0:16:08.720 --> 0:16:10.720 that number of rust constrat to work with Dougleman that 0:16:10.760 --> 0:16:13.600 I thought that was extraordinary. If you take the highest 0:16:13.720 --> 0:16:17.960 ROE businesses, you know, let's say it's thirty stocks, fifty stocks, tech, healthcare, 0:16:18.000 --> 0:16:20.760 attach some of the financials. They're doing really well. They 0:16:20.760 --> 0:16:23.040 throw off a lot of earnings. They're roe is high, 0:16:23.040 --> 0:16:25.680 and they buy back huge amounts of stock. You know, 0:16:25.840 --> 0:16:29.320 small cap don't really know, but there's enough stocks with 0:16:29.440 --> 0:16:31.760 enough market cap that I think will get you that 0:16:31.800 --> 0:16:32.360 sort of return. 0:16:32.480 --> 0:16:35.640 Stay with market weight on the sm P five hundred. No, 0:16:35.840 --> 0:16:36.680 it's the concentration. 0:16:37.080 --> 0:16:37.760 I mean, we're long. 0:16:37.920 --> 0:16:40.840 I mean we're you know, we're you know, we've reduced 0:16:40.880 --> 0:16:43.640 a little bit of beta. When when equity volatility picks up, 0:16:43.680 --> 0:16:45.440 I have to bring my beta down a little bit, 0:16:45.480 --> 0:16:49.280 but I'm still running long. And you know, days like yesterday, 0:16:49.800 --> 0:16:52.000 you know, and you know single name you know, we 0:16:52.040 --> 0:16:55.000 get these earnings reports and single name vault is high 0:16:55.040 --> 0:16:57.360 because you know, if company does own hit these excessive numbers, 0:16:57.600 --> 0:17:00.200 they hit the stock. Yeah, so you can still do 0:17:00.240 --> 0:17:02.240