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Speaker 2: Sonya Martin joins us Use, the chief economist for d
Speaker 2: Z Bank Sonia. What do you make of this move
Speaker 2: here by Japan in the US to kind of support
Speaker 2: the Japanese in here. What's your take?
Speaker 3: Actually, I think it's a pretty clever move.
Speaker 4: I mean, the back of Japan has been trying to,
Speaker 4: you know, to manage the end.
Speaker 3: They've been trying to support the currency for some time.
Speaker 4: They happen to be time and again, and every time
Speaker 4: then dolentus ended up going higher afterwards. So it wasn't
Speaker 4: a particularly successful intervention story. So moving in together with
Speaker 4: the Americans is a much more smarter move, and it's
Speaker 4: much more likely to have some success in it. So
Speaker 4: far is that it may well serve to draw a
Speaker 4: limit to the upside dot a en. It's not going
Speaker 4: to change the fact that the en is a week currency,
Speaker 4: but it might be more successful and it's a very
Speaker 4: very strong signal to the marketing, particularly because it seems
Speaker 4: to be the case that they might be further intervention
Speaker 4: if need be.
Speaker 5: Investors were heavily positioned though for a week or en
Speaker 5: before the intervention, and maybe early to tell. But how
Speaker 5: much of the move we're seeing, in your view is
Speaker 5: about a policy shift versus maybe an unwind in positioning.
Speaker 4: Yeah, well, we'll have to wait a week until we
Speaker 4: get some data on this, but I suspect strongly that
Speaker 4: quite a few of these positions have been wiped out,
Speaker 4: and that is a good thing because it's a clear
Speaker 4: signal to investors that speculating against the end is no
Speaker 4: longer going to be sort of a free lunch as
Speaker 4: it were. I mean, we have been having these problems
Speaker 4: that investors have been speculating heavily against the currency, and
Speaker 4: maybe this move will at least curtail this happening in
Speaker 4: the future.
Speaker 2: One of the interesting mechanics here of this potential intervention
Speaker 2: have been reports that the US Treasury used euros rather
Speaker 2: than dollars to fund its purchases. Talk to us about that.
Speaker 4: Yeah, well, it's very unusual, certainly, don't expected. I wonder
Speaker 4: whether they called the ECB to at least let them know,
Speaker 4: you know, a courtesy call, that this was going to happen.
Speaker 4: So yeah, a bit unusual. There's a lot of speculation
Speaker 4: about why they might have done this, and I think
Speaker 4: that the current consensus seems to be that they didn't
Speaker 4: want to open the Pandora's box of the strong dollar policy,
Speaker 4: so by intervening in EUROPEA and this circumvented having to
Speaker 4: use to sell dollars, which again may have raised questions
Speaker 4: about the official strong dollar policy that US governments have
Speaker 4: held for decades. So maybe that's why they did this.
Speaker 4: That's the I think the most logical explanation. We'll see
Speaker 4: if they have to intervene again, whether they stick to that,
Speaker 4: and if they do, what the ECB might have to
Speaker 4: say about that as well?
Speaker 6: And what about the FED?
Speaker 5: I mean, we have cher Kevin Waash signaling a different
Speaker 5: approach to FED communication with less forward guidance, and we
Speaker 5: have the New York Times reporting that it may even
Speaker 5: be I think six times a year, And how is
Speaker 5: that going to change the way fixed income investors think
Speaker 5: about risk?
Speaker 4: More broadly, I think Kevin Whash is a big challenge
Speaker 4: for the bond market right now. He's very different than
Speaker 4: his predecessor or predecessors, I should say.
Speaker 3: He obviously has plans with the FED.
Speaker 4: There's all these working groups that you know, are active
Speaker 4: trying to change certain things about the way that the
Speaker 4: FED does business. Then there's to talk about less meetings.
Speaker 4: He is a bit of a closed book when it
Speaker 4: comes to communicating with the market. You know, it's very different,
Speaker 4: and I think people are sort of not sure how
Speaker 4: to read the FED, and that ultimately creates more volatility,
Speaker 4: I think, because it leaves much more room, you know,
Speaker 4: for speculation, and given the fact that there's so much
Speaker 4: political pressure on the FED from the White House, I
Speaker 4: think personally, I'm not sure if this is the right
Speaker 4: moment to sort of, you know, scale down the communication
Speaker 4: with the market, because that could be interpreted as something
Speaker 4: rather unfavorable. So more volatility, more uncertainty, I think. And
Speaker 4: maybe over time we'll get to know Kevin Walsh better
Speaker 4: and you can read them better.
Speaker 3: But for now, it's a bit of a black box, sonya.
Speaker 2: A lot of folks are trying to get their handle
Speaker 2: on underlying inflation out there in the marketplace. Today's a
Speaker 2: day where we've got oil down five six percent here,
Speaker 2: but it can just as easily up five to six
Speaker 2: percent given the social media activity out there. What's your
Speaker 2: view of kind of underlying inflation out there in the marketplace.
Speaker 4: Well, I think, you know, ever since this trade of
Speaker 4: hamuse was effective at closed with the beginning of the war,
Speaker 4: with what we were basically witnessing is this big wave
Speaker 4: of inflation that every day it just gets a little
Speaker 4: bit taller and it builds up a little bit further, right,
Speaker 4: and and so that is still happening, even if the
Speaker 4: op price goes down temporarily, even after we had the
Speaker 4: MoU and there was some you.
Speaker 3: Know, ship traffic going through the strait of Hormus.
Speaker 4: Ultimately, the factors that are pushing inflation higher are still
Speaker 4: very much in place, and it is of course predominantly energy.
Speaker 4: But the longer this is going on, the more you're
Speaker 4: going to have other effects. I mean, I always the
Speaker 4: best example, I think is food prices. I mean food
Speaker 4: is expensive energyized to store, to cool, to transport.
Speaker 3: You know, we're going to see that effect that we have.
Speaker 4: Of course, the issue with wheak prices being higher because
Speaker 4: of what's happening in the Ukraine so there are a
Speaker 4: lot of inflation factors still in the pipeline as it were,
Speaker 4: and those aren't going to disappear just because the ore
Speaker 4: price falls by five or six percent, or because we
Speaker 4: maybe get a resolution in Iran. Potentially we'll see that's
Speaker 4: still very much in place. I think that's what central
Speaker 4: banks we need to focus on.
Speaker 5: Between FED policy, Sonya and coordinated ethics invention throwing geopolitics
Speaker 5: there and maybe even oil. What do you think is
Speaker 5: the biggest macro risk that markets are underestimating at the moment.
Speaker 4: Well, I think, okay, so I mean a risk that
Speaker 4: could be a negative or if we think about focasting
Speaker 4: a positive event. But I think on the downside, I
Speaker 4: think the big unknown and the big risk is probably
Speaker 4: the question of when we will get physical shortages of goods,
Speaker 4: including including potentially oil. I mean, one of the reasons
Speaker 4: why we've fared so reasonably well for the last five
Speaker 4: months despite what's happening in Iron is the fact that
Speaker 4: strategic reserves have been drawn down. But that is not
Speaker 4: an that will end at some point. At some point,
Speaker 4: you cannot draw down strategic reserves more. Some countries like
Speaker 4: the US or China still have a lot other countries
Speaker 4: have less. So this is I think a major risk.
Speaker 4: And I think when I look at how the market
Speaker 4: is behaving in this environment, you know, the equity market.
Speaker 3: I mean the Ducks just posted a new record high.
Speaker 4: Clearly, this is a risk that I think is heavily
Speaker 4: underpriced in the market.
Speaker 2: H Right, very good, Sonia, Thank you so much for
Speaker 2: really appreciate gating a few minutes of your time, Sonia Martin.
Speaker 2: She's the chief economist at Easy Bang. There to stay
Speaker 2: with us. More from Bloomberg Surveillance coming up after this.
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Speaker 2: Ryan Mittrion joins us. She's a founding partner of the
Speaker 2: Callan Family Office. Hey, Ray, and we're about sixty percent
Speaker 2: of the way through the S and P five hundred
Speaker 2: earning so far this quarter here seems to be pretty
Speaker 2: darn good. What do you make of it?
Speaker 7: Good morning, Paul.
Speaker 8: Yeah, absolutely, we're off to another really strong start for
Speaker 8: this earning season. We have eighty six percent of companies
Speaker 8: are beating on earnings, seventy seven percent are beating on revenues.
Speaker 7: You have ten of eleven sectors that.
Speaker 8: Have year over year growth in earnings, and eight of
Speaker 8: those have double digit growth. So we're really seeing broad
Speaker 8: based strength across the board. And earnings growth is now
Speaker 8: expected to come in for the quarter at around forty
Speaker 8: seven percent, which is more than double the twenty three
Speaker 8: percent expectation coming in into the quarters. So we've really
Speaker 8: seen we're really pleased to continue seeing that the strength
Speaker 8: is still there.
Speaker 5: How are you interpreting the earning season so far? Because
Speaker 5: I feel like this is the earning season where AI
Speaker 5: spending stopped being enough on its own, and maybe investors
Speaker 5: were really really looking for when they'll see the ROI
Speaker 5: And you see investors really seeing rising costs or delayed
Speaker 5: payoffs and really punishing them.
Speaker 8: That's absolutely true, I mean, and you're seeing companies that
Speaker 8: are coming out with phenomenal results and are selling off
Speaker 8: on that news. But a lot of it, I mean,
Speaker 8: especially what we saw last week with some of those
Speaker 8: hyperscaler earnings, that there are very different outcomes in the
Speaker 8: stocks based based on what we're seeing and it's not.
Speaker 7: Enough to just be spending.
Speaker 8: We need to see that there is potentially some ROI
Speaker 8: coming from that, and we saw that last week with
Speaker 8: Microsoft with the Azure and Copilot businesses and Amazon with
Speaker 8: AWS and the growth that they're both seeing. But then
Speaker 8: the opposite, the market didn't feel as good about what
Speaker 8: came out from the Meta report at the free cash
Speaker 8: flow dropping significantly weaker than expected results. So we are
Speaker 8: going to need to start seeing more tangible results I
Speaker 8: think for the stocks to continue moving up on these
Speaker 8: high expectations and all.
Speaker 7: This cash that's being spent to fund these investments.
Speaker 2: Hey, Ryan, I know a lot of investors are probably
Speaker 2: looking for some diversification away from the AI trade here,
Speaker 2: which seems to be impacting a lot of different sectors
Speaker 2: across the marketplace. Where where do you guys look for
Speaker 2: a little diversification.
Speaker 7: That's a really important thing.
Speaker 8: I mean, we believe strongly in diversified portfolios, and you know,
Speaker 8: even within the equity markets, trying to find some of
Speaker 8: that diversification outside of the tech sector. Even though to
Speaker 8: your point, you are having a lot of the AI
Speaker 8: trade is you know, you're seeing it in the power
Speaker 8: gen you're seeing it in the industrials with the data
Speaker 8: center build out, You're seeing it in small caps with
Speaker 8: smaller semiconductor companies and emerging markets. But we do want
Speaker 8: to have that spread out of exposure across the board,
Speaker 8: and you know, leaning into some more of that value,
Speaker 8: more of the international, especially the emerging markets, the small caps,
Speaker 8: and just getting some of that diversified exposure, as well
Speaker 8: as looking into other parts in the market, whether it's
Speaker 8: fixed income or alternatives where appropriate for different investors, just
Speaker 8: to have a little bit of diversification.
Speaker 7: So when we get into these.
Speaker 8: Periods where you see some volatility in the markets like
Speaker 8: we've seen this past month, your portfolio can still hold up.
Speaker 5: What about semiconductors. We saw, for instance, of Philadelphia Semiconductor
Speaker 5: index see it's worst month since a great financial crisis.
Speaker 5: Do you view that as a buying opportunity or do
Speaker 5: you think that maybe it's a sign that expectations got
Speaker 5: a little too far ahead of reality.
Speaker 8: There's no question that the momentum has pushed up those
Speaker 8: stocks so high. I mean, they were up over eighty
Speaker 8: percent for the year, so it's not that surprising to
Speaker 8: see it take a little bit of a breather and
Speaker 8: have some of that profit taking and rotation into other sectors.
Speaker 8: We saw dollars going to value and more defensive sectors
Speaker 8: financials and staples, healthcare. But we do think if if
Speaker 8: you're under allocated in that area, we do think, you know,
Speaker 8: some of those valuations have now come down, even though
Speaker 8: the group as a whole is.
Speaker 7: Still up about sixty percent.
Speaker 8: There are still some good names and good buying opportunities
Speaker 8: in there as well if you're under allocated, But we're
Speaker 8: not looking to overweight that sector given where we are
Speaker 8: in the market.
Speaker 2: And how about the fixing come side of the world here, boy,
Speaker 2: you can clip some very nice coupons in the treasury
Speaker 2: market one and a quarter percent on the two year
Speaker 2: you know for sixty five, four, seventeen to ten year.
Speaker 2: Is that where we should be hanging out or you
Speaker 2: suggest some of your clients take credit risk on top
Speaker 2: of that, we.
Speaker 8: Keep most of our fixed income allocations primarily in high
Speaker 8: quality investment grade, but we do think that there is
Speaker 8: some opportunity as well in the below investment grade space,
Speaker 8: and some of that we're leaning in some on private credit.
Speaker 8: We do have some unique high yield exposure as well,
Speaker 8: but you know, some spreads are spreads are still pretty tight,
Speaker 8: so we want to be careful about where we're taking
Speaker 8: that and being very deliberate.
Speaker 7: And that's why we like the private markets for some
Speaker 7: of that as well.
Speaker 6: And what about the Fed?
Speaker 5: I mean, the Fed remains focused on inflation, but markets
Speaker 5: are pricing and a possible rate hike. What data point
Speaker 5: to you matters the most when it comes to the
Speaker 5: next move and interest rates.
Speaker 8: I think we really need to be They're very focused
Speaker 8: on inflation and what direction that's going to go in.
Speaker 8: I mean, the labor market really has been incredibly resilient
Speaker 8: and looks pretty healthy.
Speaker 7: So we'll get some more data obviously on that this week.
Speaker 8: So unless we see some surprise in one direction or
Speaker 8: the other, we think the focus will continue to remain
Speaker 8: on the inflation picture, since we're still pretty far above
Speaker 8: that two percent target.
Speaker 7: If we get softer than expected.
Speaker 8: Employment picture picture, then maybe the Fed stays on pause
Speaker 8: a little bit longer. But if we see a surprisingly
Speaker 8: strong report, then we may see yields jump on the
Speaker 8: expectation that they may make a hike sooner rather than later.
Speaker 2: And what's the appetite from your clients? For alternative investments,
Speaker 2: whether it's private credit, private equity, hedge funds. What's the
Speaker 2: appetite and kind of how do you deal with that?
Speaker 8: Yeah, I mean we work with ultra high net worth
Speaker 8: investors with pretty multi generational time horizons, so there's certainly
Speaker 8: in most cases the ability to take that ill liquidity.
Speaker 7: Into their portfolios.
Speaker 8: But we want to make sure we're evaluating each case
Speaker 8: by case and that the willingness is there and it's
Speaker 8: appropriate for the client. But we do think that there
Speaker 8: is the ability to enhance your returns over the long
Speaker 8: term if you take some of that illiquidity and invest
Speaker 8: in private markets. I mean, so many companies are staying
Speaker 8: private for so much longer now. I mean we saw it,
Speaker 8: you know, for example with SpaceX, with Anthropic, of these
Speaker 8: companies that are seeing so much growth in the private markets.
Speaker 8: So it does open up the opportunity set if you
Speaker 8: go in that area, and we like it on the.
Speaker 7: Private credit, private real estate as well.
Speaker 8: We think that helps to add some diversification to the
Speaker 8: portfolio and most of our clients to to take advantage
Speaker 8: of those opportunities as well.
Speaker 2: Ray, And thank you so much. Always appreciate getting a
Speaker 2: few minutes of your time. Ray and Mittrion founding partner
Speaker 2: in Callen Family offices down there in West Palm Beach, Florida,
Speaker 2: which is kind of ground zero for high network families
Speaker 2: and individuals. So that's a good place to have a
Speaker 2: family office of business here to stay with us. More
Speaker 2: from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or
Speaker 1: watch us live on YouTube.
Speaker 2: Sarah Hunt joins his partner and chief market strategist at
Speaker 2: Alpine Saxson Woods joins us here in studio.
Speaker 7: Sarah.
Speaker 2: Last week we had a lot of tech earnings and
Speaker 2: there were some winners and some losers. And when you
Speaker 2: look at the stock market performance after they reported, how
Speaker 2: does that influence how you think about the AI trade?
Speaker 2: Where is the market in terms of how it wants
Speaker 2: to be exposed to AI? How do you guys think
Speaker 2: about that?
Speaker 9: Well, if you look at where we were, you know
Speaker 9: a year ago, everybody was raising capex and they were
Speaker 9: getting rewarded for raising capex almost across the board, and
Speaker 9: I think that that's obviously changed dramatically. I think you
Speaker 9: saw in the results this week that where you start
Speaker 9: to see that acceleration and growth which you saw for
Speaker 9: Microsoft and Amazon, versus where you have issues like you
Speaker 9: saw with Meta. Apple's got different issues because I think
Speaker 9: that's much more about the supply chain and the fact
Speaker 9: that memory prices are so high. But I don't think
Speaker 9: it's a demand problem. So for something like Apple, I
Speaker 9: would be less concerned about that in the near term,
Speaker 9: but a longer term or medium term. But I think
Speaker 9: that it really shows you you're starting to get bifurcation
Speaker 9: on how people are accepting the kind of spending that's happening,
Speaker 9: and what people hope for on the return side.
Speaker 5: So this is definitely the earning season where AI spending
Speaker 5: stop being enough on its own, but we're seeing companies
Speaker 5: spend billions and billions on AI infrastructure. Are there key
Speaker 5: signs that you're looking at to see whether those investments
Speaker 5: will actually pay off? That might be a tricky question,
Speaker 5: but I know you look at these closely well.
Speaker 9: I think I mean, I think that this was where
Speaker 9: the earnings were very important, because had you not seen
Speaker 9: the acceleration in demand that Microsoft was talking about and
Speaker 9: that AWS was talking about.
Speaker 2: On that side, I.
Speaker 9: Think that that question would be even more in focus.
Speaker 9: But I think the fact that also you've seen a
Speaker 9: little bit of moderation on that raise of capex. Yes,
Speaker 9: the capex is still strong, but we're not talking about
Speaker 9: doubling it again and again and again. And I think
Speaker 9: that that's important. And I also think that you know,
Speaker 9: the issue with what's going on in China and some
Speaker 9: of those models that are cheaper, that also brings into question, Okay,
Speaker 9: maybe the capex moderates a little bit, and I think
Speaker 9: the market starts to reward that moderation to some degree,
Speaker 9: because it's not just you have to get there first,
Speaker 9: it's how do we integrate this, what's actually going to happen,
Speaker 9: and what are you going to get paid for?
Speaker 2: Overall? What's your take so far of earnings? Because what
Speaker 2: we had a really high bar to clear and we
Speaker 2: had fantastic earnings in the first quarter, pretty big expectations
Speaker 2: for Q two as well.
Speaker 9: I think that the earnings, you know, you're still seeing
Speaker 9: earnings growth in the places where you expect to see it,
Speaker 9: and the information technology side you're STI also seeing it industrials.
Speaker 9: What you're starting to see, like Tyson and like Pocter
Speaker 9: and Gamble, is some real issues on thensumer side because
Speaker 9: consumer staples are having trouble with that pricing. You're starting
Speaker 9: to hit a wall with pricing. You don't see that
Speaker 9: yet in the technology space, but you, I mean, this
Speaker 9: is the whole. This is why you saw such volatility.
Speaker 9: Is that that adding to China with a cheaper potential
Speaker 9: mix into there makes it question how much you can
Speaker 9: continue to raise price on the technology side. I think
Speaker 9: that's going to be the tension going into twenty twenty seven.
Speaker 9: I can't believe I'm saying that we're going into twenty
Speaker 9: twenty seven, but there you are, and I think that
Speaker 9: that's how people are going to be looking at things
Speaker 9: as are am. I seeing that acceleration in demand and
Speaker 9: can I count on some returns from all that spending
Speaker 9: that I'm doing Right now?
Speaker 5: We are heading into twenty twenty seven and it's August,
Speaker 5: which is for me hard to believe. What about the FED,
Speaker 5: They're balancing stubborn inflation against concerns about consumer pressure. Do
Speaker 5: you think there's a risk that maybe keeping rates high
Speaker 5: for longer may create more economic damage than maybe some
Speaker 5: brief relief.
Speaker 9: I think the problem is that where we're seeing the
Speaker 9: inflation coming from, it's hard to see how higher rates
Speaker 9: are going to solve that problem. If you have a
Speaker 9: supply shock on oil, it's hard to see how higher
Speaker 9: rates help you unless you just kill demand, and that
Speaker 9: has lary effects that they don't necessarily want. So I
Speaker 9: think it's more about keeping things elevated as opposed to
Speaker 9: elevating them further. Although that argument is going to continue
Speaker 9: into the summer and we'll see what happens both with
Speaker 9: the employment report and what happens with inflation, because that
Speaker 9: oil shock that was getting better is now it's now
Speaker 9: gotten worse. I mean today you're down a little, you're
Speaker 9: down four box five. There's a lot more volatility there,
Speaker 9: and I think people were expecting a one way trip down,
Speaker 9: and I think that's going to complicate things for the
Speaker 9: FED once again.
Speaker 2: Twenty twenty six is shaping up to be a year
Speaker 2: driven by information technology communication services. Are there areas outside
Speaker 2: of there that maybe investors should be looking for, whether
Speaker 2: it's financials, healthcare, I'm not sure absolutely.
Speaker 9: I think that there are places in healthcare. I think
Speaker 9: that there are places in industrials. This is really a
Speaker 9: good time. I mean, you saw what happened with the
Speaker 9: memory stocks, and you see what happens with the hardware stocks.
Speaker 9: Occasionally on this AI trade, you want to be looking
Speaker 9: at the companies that are outside that to some degree
Speaker 9: and have a good cash flow, a good balance sheet.
Speaker 9: You know, we're big Beliezer vision capital return. We want
Speaker 9: to see those dividends being paid. We want to see
Speaker 9: that cash flow coming through and that cash flow growing.
Speaker 9: And I think that this is a good time to
Speaker 9: be looking in those areas because some of the valuations
Speaker 9: are not as punchy as you see on the AR
Speaker 9: hardware track.
Speaker 2: Some of those tech names that we've since the beginning
Speaker 2: of time, whether it's Google or somebody else, gobs of
Speaker 2: free cashlow gobs CFA term gobs of free cash. Now
Speaker 2: they were cash flow negative in some reas. I mean,
Speaker 2: that's a real issue for investors to deal with.
Speaker 9: And I think that that's exactly why that capex question
Speaker 9: is becoming a bigger and louder one, Which is okay,
Speaker 9: if you're funding it at a cash flow, at least
Speaker 9: you're funding yourself if you're now going to the debt markets,
Speaker 9: are going to the equity markets, you really have to
Speaker 9: justify that in a way that when you had gobs
Speaker 9: of cash I cant of CFA turn on your balance sheet,
Speaker 9: people didn't question that so much. And I think that
Speaker 9: those questions are getting louder.
Speaker 2: All right, sir, thank you so much, Really appreciate it.
Speaker 2: Sarah Hunt, partner and chief market strategist at Alpine Saxon Woods.
Speaker 2: Stay with us. More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am. E's durn Listen
Speaker 1: on Apple Karplay and Android Auto with the Bloomberg Business app,
Speaker 1: or watch us live on YouTube.
Speaker 2: We're going to check in with Joan g. Diego's co
Speaker 2: founder bomb Blocks. Talk to her about the bond market
Speaker 2: and what the bond markets reacting to this new FED
Speaker 2: chair and kind of his strategy is going forward. Paisley
Speaker 2: and Nardini. She has portfolio Mattress Simplify Asset Management. Get
Speaker 2: her thoughts on these markets. Apparently, Eric Balchunas is supposed
Speaker 2: to join us here to talk about the ETF business.
Speaker 2: He has not badged in. That could be a problem
Speaker 2: given he depends on the Ascella train, but we'll hope
Speaker 2: for the best there. So we all lot coming up
Speaker 2: in the next hour. Here, we've got some green on
Speaker 2: the screen. Let's go right to our first guest joining
Speaker 2: Go Diego. She's a co founder bond Blocks. Join it.
Speaker 2: Talk to us about how the bond market reacting to
Speaker 2: FED Chairman Walsh his second meeting last week. Kind of
Speaker 2: have the bond market doing the work of the FED
Speaker 2: bringing rates up over time? Here? What are you singing
Speaker 2: in your plat with your flows?
Speaker 6: Yeah, so I think a lot's been said this morning.
Speaker 10: A lot of guests have mentioned the same thing that
Speaker 10: you have about the market doing the work for him
Speaker 10: and his comments on wanting to change the meeting schedule
Speaker 10: and the pace of the data, maybe being able to
Speaker 10: absorb and process that data. I think that's kind of
Speaker 10: important because we've gone through so many mini scares and cycles.
Speaker 6: I always like to bring it up.
Speaker 10: On this show that in twenty twenty three we thought
Speaker 10: there'd be a banking crisis, you know, when SVB went down.
Speaker 10: There's been Liberation Day War, and so these these these moments,
Speaker 10: you know, the bond market reacts and you're seeing the
Speaker 10: long end really move out and actually like although this
Speaker 10: time these are historical even for the last four or
Speaker 10: five years, so this is a this is a big move,
Speaker 10: and investors are you know, absorbing it and reacting as
Speaker 10: they have where we're seeing a lot of short end
Speaker 10: and ultra short flows into etips and they're great ways
Speaker 10: to look at what's happening in investor views, and we.
Speaker 5: Have Chairwash suggesting this yields themselves can maybe help slow
Speaker 5: the economy. Do you think that the bond market is
Speaker 5: doing some of the Fed's work or do you think
Speaker 5: that they're signaling something more concerning.
Speaker 10: The way we look at this and what we're talking
Speaker 10: to clients about are Okay, this is happening. We've seen
Speaker 10: again lots of different bouts of volatility, the rate and
Speaker 10: the curve move, especially on the long end, and what
Speaker 10: we talk to clients about is what you should do now,
Speaker 10: And we think that what clients are focusing on as
Speaker 10: they're focusing on income, they're focusing on the traditional role
Speaker 10: because the traditional return expectations are back bonds. The corporates
Speaker 10: are yielding five to seven percent, five to six percent.
Speaker 10: How yield is yielding seven to twelve percent. You have
Speaker 10: a four percent treasure yield on the short end. That
Speaker 10: is the traditional return expectations you should have. And so
Speaker 10: when you compare that against equity returns, which have been
Speaker 10: outsized in the last five years but are still on
Speaker 10: average about fifteen percent annually, the long term rate is
Speaker 10: ten percent.
Speaker 6: Bonds are becoming.
Speaker 10: More competitive in your portfolio and what you should do next.
Speaker 10: So what you should do next is you should allow
Speaker 10: bonds to take that traditional position in your portfolio, add
Speaker 10: them in for both income and stability.
Speaker 6: Equities are expensive right now.
Speaker 10: They're pricing twenty one to twenty two times they're earnings.
Speaker 10: It's a moment for you to acknowledge, which I think
Speaker 10: maybe feathers into Worsh's policies and thoughts that you know,
Speaker 10: when things have reset to their traditional levels, you should
Speaker 10: be using bonds in a traditional way and also in
Speaker 10: a more precise way.
Speaker 2: Pc MM, which is the ticker for the bond blocks
Speaker 2: Private Credit clo ETF talk to us about that. What
Speaker 2: are you seeing there?
Speaker 6: It's my favorite product to talk about.
Speaker 10: In your previous guests, was talking about middle market exposure,
Speaker 10: and she's also talking about structural advantages and approaches, so
Speaker 10: in this is the perfect marriage between the structual side
Speaker 10: of the ETFs and the benefits you give from ETF's liquidity,
Speaker 10: but also with a way to get access to private
Speaker 10: credit that's much.
Speaker 6: More diversified than the stories we've been seeing.
Speaker 10: So the way this product works to hold clos, which
Speaker 10: are packages of middle market loans eighty percent of the
Speaker 10: portfolio as exposure to middle market private debt, which is
Speaker 10: direct loans to companies.
Speaker 6: And what that gives.
Speaker 10: You is there's about eighty colos in the product and
Speaker 10: that represents around seventy eight thousand underlying loans across twenty
Speaker 10: five to thirty managers. So the concerns of concentration and
Speaker 10: manager decision concentration in certain deals in certain sectors. It
Speaker 10: has that power of the ETF where you're getting broad diversification,
Speaker 10: you don't lose the characteristics of the asset class, you
Speaker 10: don't lose the opportunity to access those liquidity premiums. The
Speaker 10: product yields seven around seven percent, the fun portfolios seven percent,
Speaker 10: and you're getting a duration of something like seven months,
Speaker 10: so really low volatility with you know, compelling yields that
Speaker 10: investors don't want to give up, you know, private credit completely.
Speaker 6: This is a great entry point.
Speaker 10: This is a great way to complement your more liquid
Speaker 10: and liquid products in your portfolio. So I think it
Speaker 10: has a marriage of all the things that you know,
Speaker 10: other guests have been talking about, and we really keep
Speaker 10: reminding clients to look past the headlines and you know,
Speaker 10: maybe introduce something like this structure to help you, you know,
Speaker 10: ease into your private credit exposure.
Speaker 5: Many investors are now worried about taking too much duration risk.
Speaker 5: Where are you finding the best balance between maybe yield
Speaker 5: and rate sensitivity.
Speaker 10: Yeah, we say we say income over duration and what
Speaker 10: just as a way to talk to clients about it,
Speaker 10: we have been recommending intermediate duration for the last six
Speaker 10: seven months. If you are in the three year, you
Speaker 10: really hit the mark. As of June thirtieth, it's completely flat.
Speaker 10: If you're in the three year treasury, you're completely flat
Speaker 10: and you got to round a four percent yield all
Speaker 10: all of that part of the year.
Speaker 6: If you're in the five year, you're down just a
Speaker 6: little bit.
Speaker 10: So that three five and lower has been the place
Speaker 10: to be in terms of interest rate risk but we
Speaker 10: also want to encourage people to go out and add
Speaker 10: some spread to that to that equation, so that's where
Speaker 10: the income comes in. You would want to go into
Speaker 10: either shorter intermediate corporate debt, either in investment grade or
Speaker 10: high yield.
Speaker 6: Those spaces have.
Speaker 10: Low duration risk, interest rate risk. High yield people don't
Speaker 10: realize is actually low and interest rate risk it has
Speaker 10: about a three year duration in it. So anything under
Speaker 10: three years is something we think is compelling. We think
Speaker 10: that all those spreads are tight, it's still a place
Speaker 10: where you want to reach and grab the yield from
Speaker 10: that and add the income into your portfolio. So don't
Speaker 10: be afraid of credit. One of our top recommendations is
Speaker 10: our triple C product. You're going to get equity like
Speaker 10: returns at twelve percent and with really strong underlying you know, fundamentals,
Speaker 10: you know.
Speaker 6: Relative to historical levels.
Speaker 10: In extended credit, we we can't talk enough about making
Speaker 10: sure that you're you're taking advantage of the opportunities of
Speaker 10: these rates that are structurally higher, but also the health
Speaker 10: and the resilience of the economy, and you know, to
Speaker 10: lean into that in fixed income.
Speaker 2: Janna, thanks so much for joining us. As always Joannaga
Speaker 2: Diegos partner at Bond Blocks. They've dot in fixed income
Speaker 2: ETA for pretty much every way to slice and dice
Speaker 2: the bond market. We appreciate get a few minutes, so
Speaker 2: Joinna's time.
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Speaker 7: Reason not