Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: We begin this hour with stock sitting of record highs
Speaker 2: as investors are potential us around Truce Rick, reader of
Speaker 2: black Rock righting the immense disruption of trade and global
Speaker 2: supply conditions will be what truly influences market price. Sick
Speaker 2: Rick joins us now for more. Rick, Welcome to the program, buddy.
Speaker 2: Always a privilege, a pleasure to catch up with you, sir.
Speaker 2: This move that we've seen in this equity market, we've
Speaker 2: thrown so much of the stock market over the last
Speaker 2: several months AI disruption, private market, jitters and now the
Speaker 2: straight and form most remaining closed for almost two months now, Rick,
Speaker 2: and here we are at all time highs. Does that
Speaker 2: bring you comfort or make you nervous?
Speaker 1: Good question, So i'd I'd say a couple of things.
Speaker 1: First of all, I think what it tells you is
Speaker 1: the technicals in the equity market are extraordinary, and the
Speaker 1: earning numbers that are coming through are pretty powerful. And
Speaker 1: so you know, if you look at the US economy
Speaker 1: and you look at what's you know, I heard to
Speaker 1: begin the show time about the economies weak countmies is strong.
Speaker 1: Actually the parts of the economy and the primary drivers
Speaker 1: are doing quite well.
Speaker 3: You look at tech.
Speaker 1: I mean, you look at some of the numbers yesterday
Speaker 1: that you cited, and you look at these earnings growth
Speaker 1: and I was looking at some of the semies. You
Speaker 1: took about ninety seven percent earnings.
Speaker 3: Growth year on here.
Speaker 1: I mean, like unbelievably powerful numbers. And then you look
Speaker 1: at you know, the high end consumer, that consumption. You
Speaker 1: look at retail sales when you break it down, pretty
Speaker 1: darn good. So you've got an economy and by the way,
Speaker 1: you've got housing's not in good shape, lower income's not
Speaker 1: in good shape.
Speaker 3: So that is is what it is.
Speaker 1: But what drives the equity market is in pretty good shape.
Speaker 1: And the technical So you had this period of time
Speaker 1: that nobody wanted to buy stocks, and then you realize,
Speaker 1: you know, I've said it before. You you know you're
Speaker 1: gonna have an IPO calendar this year that maybe's a
Speaker 1: couple hundred billion, Maybe we're gonna buy back a trillion
Speaker 1: of stock this year, so we're actually there's not enough
Speaker 1: stock to buy. So it's just a pretty you talk
Speaker 1: about how explosive this is, you realize people sit on
Speaker 1: their hands. I don't want to do anything, particularly in tech,
Speaker 1: and then all of a sudden, you know, maybe a
Speaker 1: little bit of better news, the earnings come in, and
Speaker 1: then you create this the technicals and equities, by the way,
Speaker 1: it's a completely different And when you think about the treasury market,
Speaker 1: et cetera, because we're getting do we get five hundred
Speaker 1: and twenty billion a week of supply, it's I mean,
Speaker 1: it's amazing. In the equity market, how good the technicals are.
Speaker 4: Rick, is there a contradiction in the fact that we're
Speaker 4: seeing such explosive confidence in equities.
Speaker 3: You're seeing so much cash.
Speaker 4: Out there that are looking for places to go, and
Speaker 4: at the same time, people are expecting inflation to come
Speaker 4: back down to two percent over the next five to
Speaker 4: ten years. Does that seem contradictory?
Speaker 1: No, man, listen, I think, I think, and I've been
Speaker 1: doing this for many, many, few decades. I've never seen
Speaker 1: a productivity revolution like this before. I mean, so you
Speaker 1: go through I mean almost every company I look at,
Speaker 1: you see a similar dynamic and grow my top line revenue.
Speaker 1: Let's say it's four to ten percent. Obviously techts significantly
Speaker 1: more significant that.
Speaker 3: But then if I.
Speaker 1: Keep my labor static to down. And then if I
Speaker 1: can get my costs of good soul and you see
Speaker 1: this in M and I, if I can create synergies,
Speaker 1: I can run a higher operating margin. If you could
Speaker 1: run a higher operating margin, then my roees is significantly higher.
Speaker 1: And so then it just keeps driving this dynamic. So
Speaker 1: thinking about what And by the way, we haven't really
Speaker 1: seen automation AI really kick in yet, so I think
Speaker 1: you know, there's this transmission. Part of why I think
Speaker 1: big cap stocks are so powerful is you're building a
Speaker 1: mode because you utilize data so effectively. We're seeing productivity
Speaker 1: take place in Buoye's earnings.
Speaker 3: Companies do great.
Speaker 1: By the way, the counter of that, it's not great
Speaker 1: from an employee point of view. You're seeing that playout,
Speaker 1: which you know is part of what you know what
Speaker 1: affects the interest rate transmission. So it's a really good
Speaker 1: story from a productivity and a corporate earnings point of view,
Speaker 1: not so much for the.
Speaker 3: Broad world population.
Speaker 4: So Raquel bullish are you right now? It sounds like
Speaker 4: you're incredibly bullish on big claps. I mean, are you
Speaker 4: essentially going all in? Do you think it is a
Speaker 4: time to go into equities over bonds, to go into
Speaker 4: equities over cash, to go into equities over commodities.
Speaker 3: I'm not that bullish, but I listen. I think, you know,
Speaker 3: we are long the equity market. You know. One of
Speaker 3: the things that happens when you know you had what
Speaker 3: happened a.
Speaker 1: Few weeks ago, when volatility spikes, you can't really it's
Speaker 1: hard to have a very long equity position because you
Speaker 1: can't manage your risk using the volatility markets. Now vall
Speaker 1: has come down, it allows you to run a bit
Speaker 1: longer equity disposition.
Speaker 3: And so, yeah, I like equities.
Speaker 1: If you said to me, let's look at the credit markets,
Speaker 1: he say, gosh, where is high yield?
Speaker 3: Where's investment grade credit?
Speaker 1: And I say, okay, I've got some beta that I
Speaker 1: could put in a portfolio. Look at where spreads are.
Speaker 1: Investment grade credit not interesting. High yield you know it
Speaker 1: carries well, spreads are not that interesting. So I said, gosh,
Speaker 1: I'm going to take my beta and orient it a
Speaker 1: bit more towards the equity market, or more towards the
Speaker 1: equity market where the earnings growth is explosive. I got
Speaker 1: convexity of the upside, and I can manage the risk
Speaker 1: that's a better in a portfolio construct. That's a better
Speaker 1: disposition than I think than you know, parts of the
Speaker 1: credit market are today.
Speaker 4: K How do you think the Federal Reserve is thinking
Speaker 4: about all of this, especially given the fact that we
Speaker 4: are seeing higher energy costs in the United States's not
Speaker 4: as high as Asian Europe, but they are.
Speaker 3: Still taking higher.
Speaker 1: You know, I'll tell you there's a pretty extraordinary point
Speaker 1: in time. And you know part of what I'm talking
Speaker 1: about productivity and the employment dynamic. Listen, I think the
Speaker 1: Fed you will be on hold and watch the data
Speaker 1: and you'll see it by the way you're going to
Speaker 1: see and we are seeing some what will be some
Speaker 1: particularly at headline inflation, some heavier numbers on inflation. I
Speaker 1: think what the FED has to do and the ECB
Speaker 1: has to do is think about you having a supply shock.
Speaker 1: This is not a demand driven inflation. By the way
Speaker 1: you think about what's happening to lower income, middle income people.
Speaker 1: You're getting hurt on food costs, fuel costs. You know,
Speaker 1: why do we raise interest rates to raise your mortgage?
Speaker 1: It doesn't make any many sense. So I think what
Speaker 1: what your synopsis is around that is gosh, I'll stay
Speaker 1: on hold for a bit. I'll watch the data. I
Speaker 1: think the ECB should do the same. Maybe they get
Speaker 1: ahead of it and hike a couple of times, but
Speaker 1: I listen. I think you know, when we've talked about before,
Speaker 1: how's it look at the housing numbers this week, you
Speaker 1: look at existing home sales, when the mortgage race shifts up,
Speaker 1: home sales come down, and then you look at the
Speaker 1: breakdown or retail sales. You know what's happening. And I mean,
Speaker 1: is the dispersion keeps growing. Lower income, middle income having
Speaker 1: a hard time. That's where the interest sensitivity is. So listen,
Speaker 1: I think they still the Fed has to get the
Speaker 1: rate down.
Speaker 3: I still think you'll get a couple of cuts. Do
Speaker 3: you push it back a little bit?
Speaker 1: Yeah, maybe, but you're talking about a very two speed
Speaker 1: economy where interest rates really affects things housing, small business,
Speaker 1: lower income, and it's part of what I think the
Speaker 1: rate can come down.
Speaker 2: So reck, let's look across the curve right now. If
Speaker 2: the Fed's going to stand hold, that's going to anchor
Speaker 2: the front end. We've seen a lot of that in
Speaker 2: the performance of fixed incoming treasury yields over the past
Speaker 2: few weeks. If you go further out along the curve,
Speaker 2: it just feels like the ten year is anchored around
Speaker 2: four thirty, which was the upper end of the pre
Speaker 2: wall range. How does your thinking sort of a just
Speaker 2: when you talk about what's going to happen with FED
Speaker 2: funds and the relationship between that, and how it informs
Speaker 2: your view of how we'll get some performance further out
Speaker 2: along the curve.
Speaker 1: You know, I had to tell you, Jonathan a minute
Speaker 1: when you know, I hear people come on and say,
Speaker 1: I think rates are going higher, things are going I
Speaker 1: think rates are going lower. I actually find the turn
Speaker 1: year part of the curve from an acid.
Speaker 3: Allocation point of view, not interesting, as you said. But
Speaker 3: by the way, my colleague Rus Brownback talks about your.
Speaker 1: Show all the time. If you go back over the
Speaker 1: last year or so and you look at the end
Speaker 1: of every quarter, you look at the end of the year,
Speaker 1: we've made pretty much hover around four twenty five, maybe
Speaker 1: maybe four thirty, but it's pretty unbelievably stable. There's a
Speaker 1: lot of discussion about what do you do with the
Speaker 1: with the with the ten year point. I do think
Speaker 1: there'll be initiatives, and I do think what you know,
Speaker 1: when Kevin Wursh is confirmed, I do think you'll see
Speaker 1: a dynamic where can you contain the ten year point
Speaker 1: of the curve? Can you keep mortgage rates down? Are
Speaker 1: there initiatives to actually pull that mortgage rate down that
Speaker 1: you can have through fiscal stimulus.
Speaker 3: That's really powerful.
Speaker 1: My sense is that ten year note will drift lower
Speaker 1: over the through this year as you get maybe you
Speaker 1: get the funds rate down a bit. Can you keep
Speaker 1: the ten year alongside of it? But I will tell you, Jonathan,
Speaker 1: in our portfolios, I say, look, you know, particularly the
Speaker 1: back end not interesting. I just want to, you know,
Speaker 1: try and do is keep my front to the belly
Speaker 1: yield curve exposure, and I just clip coupon like a year,
Speaker 1: like if we can just keep giving clients six and
Speaker 1: a quarter type of coupon, type of yield, which you
Speaker 1: could do without without compromising rating. I'm just going to
Speaker 1: keep staying there and then, you know, let people get
Speaker 1: excited about where we're going in the back end of
Speaker 1: the curve.
Speaker 2: Rick had got to ask you what kind of initiatives
Speaker 2: would bring down rights yields at the long end of
Speaker 2: the curve.
Speaker 3: So so, by by the way, a bunch of things
Speaker 3: from the FED. From the FED point of.
Speaker 1: View, you can use your balance sheet effectively. We have
Speaker 1: eighty nine percent of the debt of the treasury markets
Speaker 1: in the zero to two year part of the yeld curve.
Speaker 1: It's actually not that much out in the back end.
Speaker 1: The FED can actually be very very effective and how
Speaker 1: you manage the back end.
Speaker 3: Of the yield curve. Second thing you do.
Speaker 1: You see the administration through the GSC program is actually
Speaker 1: buying a huge amount of mortgages, a couple hundred billion mortgages.
Speaker 1: You can actually do a bit more with regard to that.
Speaker 1: There are things you can do in terms of creating
Speaker 1: initiatives to stimulate housing, home builder incentives, et cetera that
Speaker 1: pull out mortgage rate down.
Speaker 3: There's a whole series of things.
Speaker 1: Listen. I mean you look at existing home sales WHI
Speaker 1: should talk about. You look at how there's not enough
Speaker 1: inventory of houses today. It influences labor mobility to the negative.
Speaker 1: Because we don't have enough inventory, people can't move. It
Speaker 1: influences we don't build enough houses. We don't put enough
Speaker 1: people to work in shelter. And by the way, you
Speaker 1: can't bring down shelter inflation because we don't have enough houses.
Speaker 1: There's tremendous motivation and quite frankly the initiative to actually
Speaker 1: bring down housing costs and to bring or to build
Speaker 1: more inventory, to bring down that mortgage rate. You know,
Speaker 1: I think it has much more, much more benefit than
Speaker 1: people give credit to.
Speaker 2: Rick. Appreciate your time, so always good to hear from you.
Speaker 2: That'd be a stranger. Ricreate it there of black crop.
Speaker 2: Thank you, sir, Thank you very much