1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 2 00:00:09,200 --> 00:00:13,200 Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 3 00:00:13,280 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,840 --> 00:00:23,840 Speaker 1: To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 5 00:00:23,920 --> 00:00:30,120 Speaker 1: and of course on the Bloomberg terminal. This is important. 6 00:00:30,200 --> 00:00:33,280 Speaker 1: It is that every equity strategist has a certain style. 7 00:00:33,920 --> 00:00:38,480 Speaker 1: The acclaim of Jonathan Golloben credit sweet either courageous bull 8 00:00:38,920 --> 00:00:41,760 Speaker 1: or right now with some real reticence is he dives 9 00:00:41,840 --> 00:00:46,040 Speaker 1: into sector analysis over on page five. In page six 10 00:00:46,080 --> 00:00:48,920 Speaker 1: of his reports, he darkens the door this morning. What 11 00:00:48,960 --> 00:00:51,559 Speaker 1: does the sector analysis tell you right now? Well, we 12 00:00:51,600 --> 00:00:54,200 Speaker 1: put out a note this morning on earnings that we're 13 00:00:54,200 --> 00:00:58,920 Speaker 1: having a margin problem in the vast majority of the sectors, 14 00:00:59,280 --> 00:01:04,080 Speaker 1: with the exception of surprisingly consumer discretionary is better, energies better, 15 00:01:04,400 --> 00:01:08,240 Speaker 1: and industrials but shorter. That you're seeing margin contraction um everywhere. 16 00:01:08,240 --> 00:01:10,600 Speaker 1: But if there's a if there's a big sector story, 17 00:01:10,760 --> 00:01:14,080 Speaker 1: it's a tech is really weak compared to everything else, 18 00:01:14,120 --> 00:01:17,440 Speaker 1: so broadly defined tech and that's just not something we're 19 00:01:17,560 --> 00:01:21,320 Speaker 1: used to. The tech is the this earning season. If 20 00:01:21,400 --> 00:01:24,880 Speaker 1: you take tech out or tech broadly, fine, you have 21 00:01:25,040 --> 00:01:27,959 Speaker 1: a five EPs growth this quarter. I mean, who would 22 00:01:27,959 --> 00:01:30,240 Speaker 1: think that tech is a thing that's holding everything back? 23 00:01:30,480 --> 00:01:32,479 Speaker 1: And I think that this continues for longer than we think. 24 00:01:32,840 --> 00:01:35,360 Speaker 1: And this is a hallmark of credit suite, this linkage 25 00:01:35,360 --> 00:01:38,920 Speaker 1: between strategists and your securities analysis. Do you do your 26 00:01:38,959 --> 00:01:44,280 Speaker 1: tech people as a whole feel newsmaking? Layoffs? Can adjust 27 00:01:44,400 --> 00:01:48,640 Speaker 1: those margins? Can they heal that margin deterioration? Um? Well, 28 00:01:48,720 --> 00:01:51,400 Speaker 1: you know, Tommy and we were talking before before we 29 00:01:51,400 --> 00:01:53,120 Speaker 1: went on air, but what's going on in terms of 30 00:01:53,200 --> 00:01:55,960 Speaker 1: layoffs and young people coming into labor market. A lot 31 00:01:56,000 --> 00:01:59,360 Speaker 1: of this was an over exuberance when when we went 32 00:01:59,360 --> 00:02:02,520 Speaker 1: into the pan Emmic and things were so strong, um 33 00:02:02,560 --> 00:02:06,120 Speaker 1: for tech demand. The company's hired as if this was 34 00:02:06,200 --> 00:02:08,880 Speaker 1: a new normal of really of strength and what it 35 00:02:08,919 --> 00:02:10,799 Speaker 1: really is. And this is why text having a hard time. 36 00:02:11,080 --> 00:02:14,880 Speaker 1: It was a pull forward of activity and everyone believed that. 37 00:02:15,000 --> 00:02:18,120 Speaker 1: You know, the investment community bought into it, the companies 38 00:02:18,160 --> 00:02:21,280 Speaker 1: bought into it, and now it's unwinding. Companies are laying 39 00:02:21,280 --> 00:02:24,000 Speaker 1: those workers off. So do we work through this? Yes, 40 00:02:24,040 --> 00:02:26,440 Speaker 1: but we saw this with y two K. It doesn't 41 00:02:26,480 --> 00:02:28,760 Speaker 1: happen in two or three quarters. It takes a little 42 00:02:28,760 --> 00:02:31,840 Speaker 1: bit of time to work through things. Now, White Tuk 43 00:02:32,440 --> 00:02:34,880 Speaker 1: pull forward and you talked about this and go on 44 00:02:35,120 --> 00:02:37,720 Speaker 1: longer than people think, So let's build on that. How 45 00:02:37,800 --> 00:02:40,880 Speaker 1: much did we pull forward? One? And what gives you 46 00:02:41,000 --> 00:02:42,560 Speaker 1: the sense that this can go on a whole lot 47 00:02:42,600 --> 00:02:44,440 Speaker 1: longer than people think? And when you say that, what 48 00:02:44,520 --> 00:02:49,639 Speaker 1: kind of duration are you thinking about? Oh, um, maybe 49 00:02:49,639 --> 00:02:54,280 Speaker 1: this ends up being a six to eight quarter um period. 50 00:02:54,360 --> 00:02:56,560 Speaker 1: I mean, just think about this. You know, Um, you 51 00:02:56,680 --> 00:02:59,760 Speaker 1: bought a laptop because you're now working from home? When 52 00:02:59,800 --> 00:03:02,880 Speaker 1: you buying the replacement for that? Not this year? You 53 00:03:02,880 --> 00:03:06,160 Speaker 1: you went and you my mother started using a streaming 54 00:03:06,200 --> 00:03:08,640 Speaker 1: service for the first time. Is she's signing up for 55 00:03:08,680 --> 00:03:11,360 Speaker 1: the second streaming service now if she wasn't before? And 56 00:03:11,400 --> 00:03:13,880 Speaker 1: it's not and or or you know, the move towards 57 00:03:13,880 --> 00:03:17,000 Speaker 1: global advertising, which was has you know, kind of got 58 00:03:17,000 --> 00:03:20,000 Speaker 1: pulled forward and so it's not as if things are 59 00:03:20,120 --> 00:03:23,320 Speaker 1: the long term trend is necessarily a negative one. But 60 00:03:23,440 --> 00:03:26,280 Speaker 1: there was definitely a bit of exuberance as we went 61 00:03:26,360 --> 00:03:28,280 Speaker 1: to pandemic and it just takes a little while. We're 62 00:03:28,320 --> 00:03:30,480 Speaker 1: also as an investment community, if you look at it, 63 00:03:30,520 --> 00:03:33,359 Speaker 1: you know, hedge funds in particular. Growth in tech has 64 00:03:33,400 --> 00:03:36,080 Speaker 1: been such a huge win from the time that the 65 00:03:36,120 --> 00:03:38,920 Speaker 1: iPhone came out in two thousand eight to now, everybody 66 00:03:39,000 --> 00:03:42,000 Speaker 1: staffed up their tech teams, everybody built processes around it. 67 00:03:42,320 --> 00:03:44,320 Speaker 1: Nobody wants to be a value manager. Every want to 68 00:03:44,320 --> 00:03:47,280 Speaker 1: be a growth manager. And so it takes a little 69 00:03:47,280 --> 00:03:49,200 Speaker 1: while for, you know, for for this to kind of 70 00:03:49,280 --> 00:03:52,240 Speaker 1: set used to this and you've mentioned this, this is 71 00:03:52,280 --> 00:03:54,280 Speaker 1: not what we used to And with that in mind, 72 00:03:54,560 --> 00:03:55,720 Speaker 1: this is the question of the moment. I think for 73 00:03:55,760 --> 00:03:58,480 Speaker 1: a lot of people, how compromises the index story? Because 74 00:03:58,480 --> 00:04:00,680 Speaker 1: what we are used to and what we condict' buy 75 00:04:00,840 --> 00:04:03,160 Speaker 1: is just sitting at the index on the SMP passively 76 00:04:03,480 --> 00:04:06,480 Speaker 1: and being very rewarded for it. How compromises that index 77 00:04:06,520 --> 00:04:08,440 Speaker 1: story gonna beate for how long? I'm not sure it's 78 00:04:08,480 --> 00:04:11,960 Speaker 1: it's compromise. I'll say so. I yesterday, I last night, 79 00:04:11,960 --> 00:04:14,560 Speaker 1: I had dinner with ten head traders at at some 80 00:04:14,600 --> 00:04:16,400 Speaker 1: of the bigger shops, and I said, if you had 81 00:04:16,400 --> 00:04:21,359 Speaker 1: a choice between buying the tech basket cap weighted or 82 00:04:21,360 --> 00:04:23,760 Speaker 1: the tech basket equal weighted, how many would buy the 83 00:04:23,760 --> 00:04:26,280 Speaker 1: cap weighted? What are they say, not one hand went up, 84 00:04:26,279 --> 00:04:28,160 Speaker 1: how many would you buy? The equal weighted all ten 85 00:04:28,200 --> 00:04:31,160 Speaker 1: hands went up? And so there's a lot of great names. 86 00:04:31,160 --> 00:04:32,760 Speaker 1: So if you're if you're trading, if you're looking for 87 00:04:32,800 --> 00:04:35,560 Speaker 1: individual securities, there's a lot of a lot of interesting 88 00:04:35,600 --> 00:04:38,680 Speaker 1: things going on. But these, you know, these really big 89 00:04:39,080 --> 00:04:41,400 Speaker 1: listen to three years ago, all we were talking about 90 00:04:41,400 --> 00:04:45,960 Speaker 1: was moats. These are these are impenetrable businesses, yes, exactly, 91 00:04:46,000 --> 00:04:47,800 Speaker 1: and listen and some of these and they're great, but 92 00:04:47,960 --> 00:04:51,240 Speaker 1: let's let's be honest. They're great businesses. But but there 93 00:04:51,360 --> 00:04:55,240 Speaker 1: doesn't mean that they're impenetrable. So at the dinner last night, 94 00:04:55,279 --> 00:04:58,560 Speaker 1: which I'm sure you slatted through credits zero expenses, did 95 00:04:58,600 --> 00:05:01,760 Speaker 1: you finish is in the old days of credit suites 96 00:05:01,760 --> 00:05:04,880 Speaker 1: with the Hennessey parodies, brandy or did you go a 97 00:05:04,880 --> 00:05:08,080 Speaker 1: different direction now like get out of six package? Oh yeah, 98 00:05:08,160 --> 00:05:10,320 Speaker 1: you know we were drinking light beer and and and 99 00:05:10,320 --> 00:05:13,400 Speaker 1: that was so you know it tell us about this dinner. 100 00:05:13,480 --> 00:05:15,279 Speaker 1: That's what I wanted. Well, you know it's it's we 101 00:05:15,400 --> 00:05:16,960 Speaker 1: do this, we do this a fair beat. I mean 102 00:05:17,000 --> 00:05:19,680 Speaker 1: next week it's your job. Yeah. But well, and if 103 00:05:19,720 --> 00:05:23,080 Speaker 1: I look at where my ideas come from UM. So 104 00:05:23,360 --> 00:05:26,560 Speaker 1: last night was ten head traders. Next week we're doing UM. 105 00:05:26,760 --> 00:05:29,760 Speaker 1: Ten guys were either hedge fund founders or c I 106 00:05:29,839 --> 00:05:32,440 Speaker 1: O at some of the want from you seriously? I 107 00:05:32,440 --> 00:05:34,880 Speaker 1: mean we're making jokes about Kinna, forget about that. What 108 00:05:34,920 --> 00:05:36,800 Speaker 1: do they want to know for you? What's the mystery 109 00:05:36,839 --> 00:05:40,039 Speaker 1: for traders and hedge funds tycoons when they talk to John? 110 00:05:40,320 --> 00:05:43,560 Speaker 1: If the expectations right now are for weaker If you 111 00:05:43,600 --> 00:05:46,920 Speaker 1: look at strategist forecast this this maybe the weakest year 112 00:05:47,160 --> 00:05:49,760 Speaker 1: I can I can remember in terms of forecasts. So 113 00:05:49,800 --> 00:05:51,839 Speaker 1: the question is if you can't make this, if you 114 00:05:51,839 --> 00:05:54,520 Speaker 1: can't make money to simply by jumping into the market 115 00:05:54,520 --> 00:05:57,120 Speaker 1: and riding up a beta trade, how do you play 116 00:05:57,160 --> 00:05:59,640 Speaker 1: the game? Where? Where's where's that edge that you get 117 00:05:59,640 --> 00:06:04,520 Speaker 1: in this environment? Because because everyone around the table really 118 00:06:04,560 --> 00:06:07,719 Speaker 1: struggled last year, managers had a really hard time, especially 119 00:06:07,720 --> 00:06:11,080 Speaker 1: a hedge funds, So momentum traders have a harder time 120 00:06:11,120 --> 00:06:13,880 Speaker 1: in this environment. We think there's gonna be a big movement. 121 00:06:14,279 --> 00:06:16,680 Speaker 1: Last year the whole story was value people weren't there. 122 00:06:16,960 --> 00:06:20,800 Speaker 1: We think the growth snaps back this year. There's a John, 123 00:06:20,800 --> 00:06:22,839 Speaker 1: why you only at if you think you get that 124 00:06:22,839 --> 00:06:26,720 Speaker 1: growth snap back given the white singer this index. Um, Well, 125 00:06:26,760 --> 00:06:28,560 Speaker 1: there's a couple of things. One is is that this 126 00:06:28,600 --> 00:06:32,120 Speaker 1: will be a rare year that earnings are down. I'm 127 00:06:32,160 --> 00:06:34,520 Speaker 1: in the non recessionary camp, and we could talk about that, 128 00:06:34,720 --> 00:06:36,280 Speaker 1: but I think this is gonna be the rare year 129 00:06:36,320 --> 00:06:39,040 Speaker 1: that earnings are down in a non recessionary year, and 130 00:06:39,120 --> 00:06:41,400 Speaker 1: it's because of margins. I would take this earning season. 131 00:06:41,800 --> 00:06:44,360 Speaker 1: Revenues are up four and a half, margins down eight 132 00:06:44,400 --> 00:06:48,440 Speaker 1: and a half. I don't remember an environment where we 133 00:06:48,480 --> 00:06:52,680 Speaker 1: saw that much that much pressure st Okay Street, bat 134 00:06:53,520 --> 00:06:57,520 Speaker 1: Will Street challenged Main Street. Okay, well you know it's this, Yeah, 135 00:06:57,560 --> 00:07:00,240 Speaker 1: I guess, But I mean, look at what last year was. 136 00:07:00,800 --> 00:07:04,400 Speaker 1: Wages went up slower than cp I, so companies didn't 137 00:07:04,440 --> 00:07:06,159 Speaker 1: have to pay higher wages, but they got to move 138 00:07:06,160 --> 00:07:09,360 Speaker 1: on pricing. That's a beautiful corporate environment. This year, wages 139 00:07:09,400 --> 00:07:12,040 Speaker 1: are gonna be sticky. CPI coming down. They're paying the 140 00:07:12,040 --> 00:07:15,280 Speaker 1: employees more, they can't pass it on, and so the 141 00:07:15,280 --> 00:07:19,040 Speaker 1: the consumer, the individual is better off this year relative 142 00:07:19,040 --> 00:07:22,080 Speaker 1: to companies. Last year, it was the opposite. Companies were 143 00:07:22,120 --> 00:07:23,800 Speaker 1: better off. Want to take about that recession code. If 144 00:07:23,800 --> 00:07:25,200 Speaker 1: you can stand at a bit longer. Tom and I 145 00:07:25,280 --> 00:07:26,960 Speaker 1: just have one question. Can we come to the dinner 146 00:07:27,400 --> 00:07:30,600 Speaker 1: next week? While we're getting an invite to the dinner, 147 00:07:31,000 --> 00:07:37,560 Speaker 1: we can host well listen at least it has to like, 148 00:07:37,640 --> 00:07:43,200 Speaker 1: you know, check our barrashness at the door. Though she 149 00:07:43,240 --> 00:07:45,080 Speaker 1: can have the she can have the cone yak at 150 00:07:45,080 --> 00:07:47,600 Speaker 1: the end. You just have to check this is this 151 00:07:47,640 --> 00:07:50,040 Speaker 1: is important. I mean, if you're a Credit Suite stiner 152 00:07:50,040 --> 00:07:53,320 Speaker 1: with Golub, you're getting one Oaks d V in your 153 00:07:53,400 --> 00:07:57,280 Speaker 1: Coneyak and it's a splendid a copy. Could you give 154 00:07:57,320 --> 00:07:59,080 Speaker 1: me a price on that? I I don't have a 155 00:07:59,120 --> 00:08:03,000 Speaker 1: price that I get there right now. Good morning Zurich. John, 156 00:08:03,000 --> 00:08:05,240 Speaker 1: I'm gonna full sate stars for a few momentutes. We're 157 00:08:05,280 --> 00:08:07,600 Speaker 1: with Jonathan Gold. We're gonna continue right now, Global Wall 158 00:08:07,600 --> 00:08:10,000 Speaker 1: Street giving a nice response with this a gentleman from 159 00:08:10,040 --> 00:08:12,480 Speaker 1: Credit Sweez, John, I'm gonna go back, and of course 160 00:08:12,520 --> 00:08:15,200 Speaker 1: we have to use the dal Jones Industrial average in 161 00:08:15,240 --> 00:08:19,040 Speaker 1: honor of lou ru Kaiser seventy four. The bottom World's 162 00:08:19,080 --> 00:08:21,120 Speaker 1: coming to an end sort of like now, sort of 163 00:08:21,160 --> 00:08:26,200 Speaker 1: like sev the Doo six sixteen to eight fifty two 164 00:08:26,840 --> 00:08:29,600 Speaker 1: and the next year we enjoyed going from eight fifty 165 00:08:29,640 --> 00:08:32,960 Speaker 1: two topping out above one thousand. We were up thirty 166 00:08:33,000 --> 00:08:36,439 Speaker 1: eight percent off the gloom of the seventy three seventy 167 00:08:36,440 --> 00:08:39,760 Speaker 1: four Pittsburgh's Gonna Die recession. Is that where we are 168 00:08:39,840 --> 00:08:43,520 Speaker 1: right now? You know what I would love to you know, 169 00:08:43,559 --> 00:08:46,240 Speaker 1: I think what every strategist wants to see is that 170 00:08:46,360 --> 00:08:49,280 Speaker 1: the FED crashes this thing. We get a really hard recession, 171 00:08:49,640 --> 00:08:51,880 Speaker 1: get a V shape bounce, and you get a normal cycle. 172 00:08:52,280 --> 00:08:54,760 Speaker 1: And I think, I mean, you know, we're talking about 173 00:08:54,960 --> 00:08:58,480 Speaker 1: just a moment ago, how the strategy is, expectations for 174 00:08:58,520 --> 00:09:01,559 Speaker 1: this year as week as you know, as we can see. 175 00:09:01,920 --> 00:09:05,040 Speaker 1: And I think that the idea of a soft landing 176 00:09:05,840 --> 00:09:08,319 Speaker 1: is way more likely than people think. But it's not 177 00:09:08,440 --> 00:09:11,160 Speaker 1: something to get excited about because it also means that 178 00:09:11,200 --> 00:09:14,600 Speaker 1: you're looking at anemic returns with a lot of volatility. 179 00:09:14,600 --> 00:09:18,319 Speaker 1: But landing, does that express out to a thirty percent up? Like? 180 00:09:21,559 --> 00:09:23,240 Speaker 1: I don't? I don't think so. I think that what 181 00:09:23,280 --> 00:09:27,120 Speaker 1: you're looking at here is the FED doesn't raise rates 182 00:09:27,280 --> 00:09:30,320 Speaker 1: enough to crush the Listen. Here's here's what people are 183 00:09:30,320 --> 00:09:33,319 Speaker 1: getting wrong in this inflation story. It's the headline CPI 184 00:09:33,480 --> 00:09:36,920 Speaker 1: is falling, but wages are not falling, services are not falling, 185 00:09:36,920 --> 00:09:38,920 Speaker 1: and rents are not falling. It's goods that are falling, 186 00:09:39,160 --> 00:09:42,839 Speaker 1: which means that we're not really addressing the underlying cause 187 00:09:42,880 --> 00:09:45,800 Speaker 1: of this thing. So the market gets is getting very 188 00:09:45,800 --> 00:09:48,240 Speaker 1: exuberant that the Fed is going to pause. They're not 189 00:09:48,240 --> 00:09:51,120 Speaker 1: pausing because they're stopped. They're pausing because they need more data. 190 00:09:51,160 --> 00:09:53,080 Speaker 1: They want to slow this down. It's any bit the 191 00:09:53,240 --> 00:09:56,520 Speaker 1: streets looking at the wrong The market sees falling inflation, 192 00:09:56,600 --> 00:09:59,280 Speaker 1: they're getting really excited about that. But it's good and 193 00:09:59,320 --> 00:10:01,600 Speaker 1: that's that's a comps issue. It's a it's a one 194 00:10:01,679 --> 00:10:03,880 Speaker 1: off thing. It's not that we've gotten rid of inflation, 195 00:10:03,920 --> 00:10:07,040 Speaker 1: it's we've gotten ridden that component temporarily. And so what 196 00:10:07,120 --> 00:10:09,280 Speaker 1: I think you're gonna see, like last year, a lot 197 00:10:09,360 --> 00:10:12,000 Speaker 1: of chop without a lot of upward movement. And that's 198 00:10:12,040 --> 00:10:14,199 Speaker 1: a hard time. You're saying this before. It's a hard 199 00:10:14,320 --> 00:10:17,800 Speaker 1: investment environment for for most people, especially those are shorter 200 00:10:18,080 --> 00:10:19,840 Speaker 1: the epicenter. Though, if your coal at is that you 201 00:10:19,880 --> 00:10:22,480 Speaker 1: think recession is avoidable, you think we will avoid that. 202 00:10:22,600 --> 00:10:25,800 Speaker 1: What gives you the indication that we will. The big 203 00:10:25,840 --> 00:10:29,200 Speaker 1: surprise this year is that if the consumer gets what 204 00:10:29,320 --> 00:10:31,760 Speaker 1: looks like, let's say a five percent raise, or or 205 00:10:31,800 --> 00:10:35,080 Speaker 1: for that matter, retiree gets an eight point one percent cola, 206 00:10:35,200 --> 00:10:37,600 Speaker 1: so they're they're getting a lot more money. And we 207 00:10:37,760 --> 00:10:40,880 Speaker 1: end the year with you know, two and a half 208 00:10:40,960 --> 00:10:43,320 Speaker 1: or two percent inflation, which is roughly what the break 209 00:10:43,400 --> 00:10:46,480 Speaker 1: evens are saying, or the Bloomberg surveys saying, this will 210 00:10:46,520 --> 00:10:51,360 Speaker 1: be a great year for consus consumer purchasing power. Their 211 00:10:51,400 --> 00:10:54,160 Speaker 1: wages are going up higher than inflation, and in that 212 00:10:54,280 --> 00:10:56,719 Speaker 1: environment you've seen now we're six months in a row 213 00:10:57,280 --> 00:10:59,840 Speaker 1: of consumer confidence rising, and we're going to see that 214 00:11:00,040 --> 00:11:03,120 Speaker 1: all year long this year, and that well, we'll just 215 00:11:03,160 --> 00:11:05,920 Speaker 1: think about it. Jobs are abundant, your raise is going 216 00:11:05,960 --> 00:11:08,400 Speaker 1: to be running at three percent above your cost of 217 00:11:08,559 --> 00:11:11,319 Speaker 1: you know, a cost of purchasing things, um, and that 218 00:11:11,480 --> 00:11:14,280 Speaker 1: is going to keep us out of this recession. Now, 219 00:11:14,720 --> 00:11:18,959 Speaker 1: from a profit perspective, companies have to pay those higher 220 00:11:18,960 --> 00:11:21,520 Speaker 1: wages and don't get pricing power. So you have this 221 00:11:21,600 --> 00:11:24,920 Speaker 1: weird thing that consumers, Okay, the recession gets pushed off, 222 00:11:25,480 --> 00:11:28,800 Speaker 1: but corporate profits are really in emic, and investors are 223 00:11:28,840 --> 00:11:30,560 Speaker 1: shaking their head because they don't know what to do 224 00:11:30,600 --> 00:11:34,720 Speaker 1: with it. So pick a sector discretion ary, Yes, West discretionary. 225 00:11:34,720 --> 00:11:38,200 Speaker 1: In that world, UM, if you are a company that 226 00:11:38,320 --> 00:11:41,640 Speaker 1: like a retailer, that has a lot of labor, you're 227 00:11:41,640 --> 00:11:43,840 Speaker 1: gonna have a harder time. If you have a business model, 228 00:11:44,480 --> 00:11:48,880 Speaker 1: UM that is less labor intense, you you do pretty nicely. 229 00:11:48,920 --> 00:11:50,320 Speaker 1: You know. I took the down Maath that we were 230 00:11:50,400 --> 00:11:57,120 Speaker 1: just doing here in percent in ninete and that obscures 231 00:11:57,120 --> 00:12:00,320 Speaker 1: that over a forty nine year period without diving ends, 232 00:12:00,520 --> 00:12:03,480 Speaker 1: the DOW or the SMP was up five point four percent. 233 00:12:03,760 --> 00:12:06,440 Speaker 1: You overlay on dividend reinvestment. I get it when you 234 00:12:06,480 --> 00:12:08,199 Speaker 1: go to work or when you have a fancy dinner 235 00:12:08,240 --> 00:12:11,160 Speaker 1: with ten fancy people like John Farrow. Is it a 236 00:12:11,200 --> 00:12:15,040 Speaker 1: single digit return world for you? Or can we get 237 00:12:15,080 --> 00:12:18,520 Speaker 1: back to nine or ten or eleven a small double 238 00:12:18,559 --> 00:12:21,480 Speaker 1: digit return? It's a lower return world you. So we 239 00:12:21,520 --> 00:12:24,040 Speaker 1: talked about what what was the group saying. I surveyed 240 00:12:24,080 --> 00:12:26,280 Speaker 1: the group. I asked how many of you have taken 241 00:12:26,360 --> 00:12:29,600 Speaker 1: some of your equity money personally and moved it towards 242 00:12:29,640 --> 00:12:33,360 Speaker 1: something that looks like a bond, and I you know, 243 00:12:33,800 --> 00:12:36,040 Speaker 1: the majority of the table said, how do you not? 244 00:12:36,440 --> 00:12:39,840 Speaker 1: And it doesn't mean they weren't saying I'm panicked about equities. 245 00:12:40,320 --> 00:12:43,360 Speaker 1: But if you can get you know, after tax equivalent 246 00:12:43,400 --> 00:12:46,120 Speaker 1: a four and a half percent on IMMUNI bond, do 247 00:12:46,160 --> 00:12:48,440 Speaker 1: you put something and is that attractive compared to a 248 00:12:48,480 --> 00:12:52,280 Speaker 1: world where where you're looking at negative art? Does anybody 249 00:12:52,320 --> 00:12:54,440 Speaker 1: in the dinner look at the Dow Jones Industrial average 250 00:12:54,440 --> 00:12:57,000 Speaker 1: and the only look at the standard force five? Yeah? 251 00:12:57,320 --> 00:12:59,679 Speaker 1: Only you know, I don't want to say dinosaur, but oh, 252 00:12:59,760 --> 00:13:02,839 Speaker 1: you know there's not a lot of people. Can I 253 00:13:02,880 --> 00:13:04,719 Speaker 1: have that on the record? Can you actually just say that, 254 00:13:04,760 --> 00:13:08,040 Speaker 1: because I'd love that. It's a less MP t K 255 00:13:08,559 --> 00:13:13,160 Speaker 1: you know that that's all lessence with But the SMP story, 256 00:13:13,360 --> 00:13:15,480 Speaker 1: and I want to finish on this because it is important, 257 00:13:15,720 --> 00:13:18,640 Speaker 1: has become the dominant story, particularly over the last decade, 258 00:13:18,640 --> 00:13:22,360 Speaker 1: because it's rewarded investors so handsomely. You mentioned the equal weight. 259 00:13:22,679 --> 00:13:24,240 Speaker 1: If you had to pick the tech sector right now, 260 00:13:24,240 --> 00:13:26,199 Speaker 1: would you take it market can't waited or equal weight? 261 00:13:26,240 --> 00:13:28,280 Speaker 1: That was a conversation you were having about these investors 262 00:13:28,280 --> 00:13:30,360 Speaker 1: at these hedge funds. Can you tell me about where 263 00:13:30,360 --> 00:13:32,400 Speaker 1: you'd leave that story now? At the index level on 264 00:13:32,400 --> 00:13:34,600 Speaker 1: the SMP five hundred, would you want a market cap 265 00:13:34,679 --> 00:13:37,400 Speaker 1: waited exposure, waiting for the tech snap back that you're 266 00:13:37,400 --> 00:13:39,840 Speaker 1: looking for. Would you want something more equal way? How 267 00:13:39,880 --> 00:13:42,400 Speaker 1: would you get your exposure? I don't have a bias 268 00:13:42,559 --> 00:13:46,360 Speaker 1: against a cap way to benchmark, but but the outlook 269 00:13:46,760 --> 00:13:48,840 Speaker 1: has to be for the at least the next twenty 270 00:13:48,880 --> 00:13:50,840 Speaker 1: four months has to be an equal way that benchmark 271 00:13:50,920 --> 00:13:54,240 Speaker 1: does does better. And and it's because I think that 272 00:13:54,360 --> 00:13:57,319 Speaker 1: some of these larger companies it's harder for them to 273 00:13:57,440 --> 00:14:00,960 Speaker 1: deliver an above average growth rate given their size, you know, 274 00:14:01,000 --> 00:14:04,760 Speaker 1: in perpetuity um but um, and I think that you know, 275 00:14:04,800 --> 00:14:07,360 Speaker 1: there are areas that are smaller in the benchmark. Energy 276 00:14:07,400 --> 00:14:11,280 Speaker 1: for example, underrepresenting the benchmark really low p. If energy 277 00:14:11,400 --> 00:14:15,160 Speaker 1: does well, the capwaight to benchmark will lack. And so yeah, 278 00:14:15,200 --> 00:14:16,560 Speaker 1: you have to you have to go that way, John, 279 00:14:16,559 --> 00:14:20,360 Speaker 1: this was great, Lovett. What restaurant we picking? What cuisine? 280 00:14:20,880 --> 00:14:24,200 Speaker 1: What did you choose? He's thinking he's picking take castend 281 00:14:24,240 --> 00:14:26,600 Speaker 1: to drinks, So we choose about That's what he always does. 282 00:14:26,800 --> 00:14:29,640 Speaker 1: Usually at the hotel, it's always a hotel bomb. What 283 00:14:29,800 --> 00:14:33,360 Speaker 1: is it with you in the hotel? They're just really 284 00:14:33,400 --> 00:14:37,000 Speaker 1: good service as a general rule, they're quiet and critically 285 00:14:37,080 --> 00:14:39,160 Speaker 1: with a lot of the conversations I have, particularly with 286 00:14:39,240 --> 00:14:42,400 Speaker 1: the wonderful people of Bloomberg LP. You know, I don't 287 00:14:42,400 --> 00:14:45,000 Speaker 1: want to be sitting next to somebody taking notes from 288 00:14:45,440 --> 00:14:48,400 Speaker 1: you know somebody. I mean, they're just quieter. They're unlike 289 00:14:48,640 --> 00:14:51,320 Speaker 1: the trashy disco scenes you're going. You said, I got 290 00:14:51,360 --> 00:14:53,600 Speaker 1: to the discuss to like, you know, they got the 291 00:14:53,600 --> 00:14:58,840 Speaker 1: ball going around and they're downs. Have you that the 292 00:14:59,160 --> 00:15:14,280 Speaker 1: thin the thin high you can miss Andrew Holland Horse 293 00:15:14,400 --> 00:15:18,240 Speaker 1: with a spectacular call last year on a regime of 294 00:15:18,360 --> 00:15:21,880 Speaker 1: higher interest rates, and that's where we are, except it's 295 00:15:21,880 --> 00:15:24,400 Speaker 1: City group. They went from fifty beeps to a quarter 296 00:15:24,480 --> 00:15:29,120 Speaker 1: of a percent beeps on the February first derby. So 297 00:15:29,160 --> 00:15:31,760 Speaker 1: what this is about is Holland Horse that U c 298 00:15:32,000 --> 00:15:34,840 Speaker 1: l A learning that one day at u c l A. 299 00:15:34,920 --> 00:15:38,320 Speaker 1: They actually taught John Maynard Keynes. When the facts change, 300 00:15:38,360 --> 00:15:42,160 Speaker 1: I change in Holland Horse said, what do you do? 301 00:15:42,360 --> 00:15:45,240 Speaker 1: What did you do yesterday to go from fifty beeps 302 00:15:45,680 --> 00:15:48,200 Speaker 1: to beeps? Well thanks a lot of time. Yeah, that's right. 303 00:15:48,200 --> 00:15:50,160 Speaker 1: When the facts change, you do change. And I think 304 00:15:50,480 --> 00:15:52,680 Speaker 1: we saw in the data a little bit of softness 305 00:15:52,800 --> 00:15:56,440 Speaker 1: in the price data. Certainly we've had software core CPI 306 00:15:56,560 --> 00:15:59,800 Speaker 1: readings UM and then Producer Price Index usually doesn't get 307 00:15:59,800 --> 00:16:02,600 Speaker 1: a lot of attention. It definitely got our attention. That 308 00:16:02,680 --> 00:16:05,240 Speaker 1: was a little bit softer Also, UM, it means core 309 00:16:05,280 --> 00:16:07,600 Speaker 1: pc inflation is going to be a little bit softer. 310 00:16:07,680 --> 00:16:11,200 Speaker 1: So I think there's enough softer price and wage data 311 00:16:11,280 --> 00:16:14,680 Speaker 1: for this FED two. I think the way they're feeling 312 00:16:14,720 --> 00:16:18,800 Speaker 1: now is comfortable that they've may be done enough or 313 00:16:18,840 --> 00:16:23,080 Speaker 1: getting close to having done enough. I am quite uncomfortable 314 00:16:23,200 --> 00:16:24,920 Speaker 1: that they've actually done enough here, and I think we're 315 00:16:24,920 --> 00:16:27,160 Speaker 1: gonna see that in some of the upcoming data. Let's 316 00:16:27,160 --> 00:16:31,240 Speaker 1: talk about the uncomfortable reality of the X axis and economics. 317 00:16:31,240 --> 00:16:35,760 Speaker 1: So you've adjusted for February one, but the cumulative path 318 00:16:36,000 --> 00:16:39,280 Speaker 1: out into two thousand twenty three, does that still give 319 00:16:39,320 --> 00:16:43,040 Speaker 1: you your high newsmaking terminal rate. So we're still at 320 00:16:43,040 --> 00:16:46,520 Speaker 1: five to five fifty on the terminal rate, And I 321 00:16:46,560 --> 00:16:50,560 Speaker 1: would just highlight relative to what I'm hearing FED officials 322 00:16:50,560 --> 00:16:54,600 Speaker 1: talk about relative to what markets are pricing, it would 323 00:16:54,600 --> 00:16:57,320 Speaker 1: seem to me that that is at the lower end 324 00:16:57,600 --> 00:17:00,440 Speaker 1: of what would be a reasonable terminal poll see rate 325 00:17:00,520 --> 00:17:03,120 Speaker 1: for this Federal reserve. So it's it's very possible. It's 326 00:17:03,120 --> 00:17:04,879 Speaker 1: our base case that they're getting to this, you know, 327 00:17:05,200 --> 00:17:08,240 Speaker 1: five point two five to five point five percent range um. 328 00:17:08,280 --> 00:17:10,720 Speaker 1: But just like your previous guest was talking about, if 329 00:17:10,760 --> 00:17:13,320 Speaker 1: we see wage growth that picks back up again, and 330 00:17:13,680 --> 00:17:15,359 Speaker 1: we think it will over the course of this year, 331 00:17:15,720 --> 00:17:19,159 Speaker 1: if we see service inflation that stays sticky, then we 332 00:17:19,240 --> 00:17:22,359 Speaker 1: may see this federal reserve reassessing is that really the 333 00:17:22,400 --> 00:17:25,840 Speaker 1: appropriate policy rate to get to. So, although we're hearing 334 00:17:25,880 --> 00:17:29,239 Speaker 1: Fed officials saying we're gonna stay the course um, and 335 00:17:29,280 --> 00:17:31,080 Speaker 1: it maybe makes sense to move at a slower pace 336 00:17:31,200 --> 00:17:33,920 Speaker 1: now to figure out where that that rate is, will 337 00:17:33,960 --> 00:17:39,080 Speaker 1: we really be seeing the policy response that you need 338 00:17:39,280 --> 00:17:41,840 Speaker 1: to slow down the economy sufficiently to loosen the labor 339 00:17:41,840 --> 00:17:44,600 Speaker 1: market tearing down inflation. I don't know if Phil Bower, 340 00:17:44,680 --> 00:17:47,880 Speaker 1: who founded Modern City Group economics, on to Catherine Man 341 00:17:47,880 --> 00:17:50,720 Speaker 1: and on to you, but I'm going to suggest Professor Bowder, 342 00:17:50,840 --> 00:17:54,239 Speaker 1: studied as a W. Phillips curve over at LC a 343 00:17:54,280 --> 00:17:57,040 Speaker 1: long time ago, linked this to unemployment. And if I 344 00:17:57,080 --> 00:17:59,920 Speaker 1: get holland Horst gloom of a higher rate, what is 345 00:18:00,160 --> 00:18:03,480 Speaker 1: due to the unemployment rate and the societal change that 346 00:18:03,520 --> 00:18:06,159 Speaker 1: will bring Yeah, So I think that that is something 347 00:18:06,200 --> 00:18:08,679 Speaker 1: that I think FED officials need to be really honest 348 00:18:08,720 --> 00:18:11,119 Speaker 1: about when they talk to the public. The idea that 349 00:18:11,200 --> 00:18:15,399 Speaker 1: the way monetary policy works is through things like the 350 00:18:15,480 --> 00:18:18,680 Speaker 1: unemployment rate. It is by slowing down the economy, is 351 00:18:18,720 --> 00:18:21,800 Speaker 1: by creating slack in the economy, and is damping demand 352 00:18:21,880 --> 00:18:25,520 Speaker 1: through those channels. So if you think that this is 353 00:18:25,560 --> 00:18:29,199 Speaker 1: an economy where demand is outstripping supply, you will need 354 00:18:29,240 --> 00:18:31,840 Speaker 1: to lean against that with higher policy rates, and that 355 00:18:31,920 --> 00:18:34,399 Speaker 1: probably will increase the unemployment. Right now, they have that 356 00:18:34,440 --> 00:18:37,040 Speaker 1: in their forecast, but they have the unemployment rate coming 357 00:18:37,080 --> 00:18:39,160 Speaker 1: up to maybe four and a half percent. When you're 358 00:18:39,200 --> 00:18:42,960 Speaker 1: running substantially above target inflation, we still are, even though 359 00:18:42,960 --> 00:18:45,320 Speaker 1: we've had a few months of software core inflation, we 360 00:18:45,320 --> 00:18:49,280 Speaker 1: still are substantially above target. You probably need that unemployment 361 00:18:49,359 --> 00:18:51,720 Speaker 1: rate to move further than four and a half percent. 362 00:18:51,760 --> 00:18:53,320 Speaker 1: So we're probably going to need to see a five 363 00:18:53,359 --> 00:18:56,720 Speaker 1: percent plus unemployment rate to bring inflation down. Um, sort of, 364 00:18:56,880 --> 00:19:00,119 Speaker 1: can we be hopeful? Could we be hoping that going 365 00:19:00,200 --> 00:19:02,400 Speaker 1: to get a better scenario where the unemployment rate doesn't 366 00:19:02,400 --> 00:19:04,399 Speaker 1: need to move as high? Certainly, And you know, I 367 00:19:04,400 --> 00:19:06,320 Speaker 1: think I would hope for that. Everybody would hope for that. 368 00:19:06,560 --> 00:19:10,560 Speaker 1: But the honest answer to your question, the basic macroeconomics 369 00:19:10,920 --> 00:19:13,639 Speaker 1: is that to bring wage growth down you need to 370 00:19:13,680 --> 00:19:15,800 Speaker 1: loosen the labor. But we gotta remember the gentleman from 371 00:19:15,920 --> 00:19:18,320 Speaker 1: U c O. A. Alan Meltzer wrote a modest three 372 00:19:18,359 --> 00:19:20,159 Speaker 1: thousand page history. You're the only one I know is 373 00:19:20,240 --> 00:19:22,959 Speaker 1: read it is Mike McKee, And they come on, Andrew, 374 00:19:23,200 --> 00:19:26,240 Speaker 1: if we societally coming out of this pandemic shift from 375 00:19:26,240 --> 00:19:28,600 Speaker 1: three and a half percent up to the Holland Horse 376 00:19:28,720 --> 00:19:35,040 Speaker 1: five percent, there's gonna be a societal scream about that. Politically, 377 00:19:35,200 --> 00:19:37,600 Speaker 1: how does a fellow reserve adapt to that? Yeah? I 378 00:19:37,600 --> 00:19:39,439 Speaker 1: think this is This is one of the reasons that 379 00:19:39,920 --> 00:19:42,560 Speaker 1: central banks globally and in the US have been made 380 00:19:42,600 --> 00:19:45,359 Speaker 1: independent and the idea that they're supposed to operate outside 381 00:19:45,359 --> 00:19:48,960 Speaker 1: of politics because politically this is a very difficult thing 382 00:19:49,080 --> 00:19:53,040 Speaker 1: to do. Now. The education that needs to happen. Is 383 00:19:53,080 --> 00:19:56,159 Speaker 1: it happening now with these speeches in the silly micro 384 00:19:56,320 --> 00:19:58,399 Speaker 1: parlor game that we're doing. I don't think so. I 385 00:19:58,400 --> 00:20:01,080 Speaker 1: don't think so that that and so so. First, you know, 386 00:20:01,160 --> 00:20:05,399 Speaker 1: be honest, there were large errors and policy making that 387 00:20:05,480 --> 00:20:09,160 Speaker 1: led to much too high inflation we're now recovering from 388 00:20:09,160 --> 00:20:11,639 Speaker 1: that period of time, and the recovery from that period 389 00:20:11,680 --> 00:20:14,040 Speaker 1: of time means much tighter monetary policies. So we're in 390 00:20:14,080 --> 00:20:17,119 Speaker 1: a bad position, right We should acknowledge that, now that 391 00:20:17,160 --> 00:20:18,760 Speaker 1: you're in this bad position, how you're going to get 392 00:20:18,760 --> 00:20:22,440 Speaker 1: out of it. We could say, let's just accept higher 393 00:20:22,480 --> 00:20:25,080 Speaker 1: inflation r and this was in some ways, this is 394 00:20:25,119 --> 00:20:27,680 Speaker 1: what happened in the nineteen seventies, so we know from 395 00:20:27,680 --> 00:20:31,840 Speaker 1: that experience that that actually leads to worse longer term outcomes. 396 00:20:32,160 --> 00:20:38,560 Speaker 1: So if we try to pivot too strongly towards worrying 397 00:20:39,000 --> 00:20:42,560 Speaker 1: about issues regarding growth and unemployment, of course we care 398 00:20:42,560 --> 00:20:45,040 Speaker 1: about those things, but the bigger risk right now is inflation. 399 00:20:45,240 --> 00:20:46,639 Speaker 1: And that's why it's been interesting in the in the 400 00:20:46,640 --> 00:20:49,640 Speaker 1: FED speak right, because we've heard FED officials saying, yes, 401 00:20:49,680 --> 00:20:53,240 Speaker 1: inflation is still the bigger risk um But meanwhile we 402 00:20:53,320 --> 00:20:56,800 Speaker 1: see markets that are pricing out future FED hikes, pricing 403 00:20:56,840 --> 00:21:00,320 Speaker 1: out more hawkish policy, and FED officials being relatively upping 404 00:21:00,320 --> 00:21:02,159 Speaker 1: of that. And so I think, you know, we're not 405 00:21:02,240 --> 00:21:04,399 Speaker 1: there yet, but but this is kind of the early 406 00:21:04,440 --> 00:21:06,240 Speaker 1: stages of something that could end up looking like the 407 00:21:06,280 --> 00:21:09,399 Speaker 1: nineteen seventies, where you essentially declare victory before that victory 408 00:21:09,440 --> 00:21:10,840 Speaker 1: is really attained. Well, we got a lot to talk 409 00:21:10,840 --> 00:21:12,840 Speaker 1: about it. We would expand this interview out to three 410 00:21:12,840 --> 00:21:15,920 Speaker 1: hours a norse as we buy back to the seventies. 411 00:21:16,400 --> 00:21:17,639 Speaker 1: I don't want to get you in trouble with a 412 00:21:17,680 --> 00:21:20,040 Speaker 1: general council, city group or with MS Fraser, But I'm 413 00:21:20,040 --> 00:21:23,119 Speaker 1: gonna ask a delicate question. Your giant and one of 414 00:21:23,160 --> 00:21:25,800 Speaker 1: my heroes, Katherine Man of m I T is overholding 415 00:21:25,840 --> 00:21:28,439 Speaker 1: court at the Bank of England. I would perceive as 416 00:21:28,480 --> 00:21:30,960 Speaker 1: a hawk. Is there a Catherine Man at the FED 417 00:21:31,119 --> 00:21:35,200 Speaker 1: right now? Is anybody at the Federal legitimate Catherine Man? Hawk? 418 00:21:35,440 --> 00:21:37,520 Speaker 1: I think what the FED is trying to do is 419 00:21:37,640 --> 00:21:39,639 Speaker 1: be data dependent, and I think that is the right 420 00:21:39,680 --> 00:21:41,159 Speaker 1: thing to do. You want to watch the data as 421 00:21:41,160 --> 00:21:43,200 Speaker 1: it comes in. Certainly, if we are going to get 422 00:21:43,320 --> 00:21:46,840 Speaker 1: inflation and wage growth cooling off and we can keep 423 00:21:46,840 --> 00:21:49,520 Speaker 1: the unemployment rate at a fifty three year low, that's 424 00:21:49,520 --> 00:21:51,639 Speaker 1: something that we would love to have happen. And you 425 00:21:51,680 --> 00:21:56,359 Speaker 1: have to put some probability on these kind of surprising 426 00:21:56,400 --> 00:21:59,000 Speaker 1: but possible outcomes, right, and the data most recently has 427 00:21:59,000 --> 00:22:00,920 Speaker 1: been favorable for that type of outcomes. So I think 428 00:22:01,200 --> 00:22:04,480 Speaker 1: that that it's not incorrect to be paying the data 429 00:22:04,600 --> 00:22:08,640 Speaker 1: it's due attention on. On the other hand, I think 430 00:22:08,640 --> 00:22:10,760 Speaker 1: what we've heard in the rhetoric, I think Terre Powell 431 00:22:10,800 --> 00:22:14,720 Speaker 1: has actually been quite on message in terms of talking 432 00:22:14,720 --> 00:22:18,640 Speaker 1: about resolve in the face of higher inflation. On the idea, 433 00:22:18,680 --> 00:22:21,159 Speaker 1: if you looked at those last minutes from the December 434 00:22:21,280 --> 00:22:24,280 Speaker 1: fl MC meeting, and they talked about our markets misperceiving 435 00:22:24,280 --> 00:22:27,480 Speaker 1: our reaction function, our markets thinking that we're more dovish 436 00:22:27,840 --> 00:22:30,040 Speaker 1: than we are, and they're concerned about that. So so 437 00:22:30,080 --> 00:22:32,040 Speaker 1: you see that level of concern there. You see that 438 00:22:32,119 --> 00:22:35,240 Speaker 1: kind of hawkishness. I think the issue for FED officials 439 00:22:35,280 --> 00:22:37,399 Speaker 1: is that as soon as you get a short period 440 00:22:37,440 --> 00:22:38,959 Speaker 1: of time, which we've had a short period of time 441 00:22:38,960 --> 00:22:40,840 Speaker 1: where the data comes in a little bit more favorably, 442 00:22:41,040 --> 00:22:43,600 Speaker 1: it's very hard to maintain that messaging. And that's that's 443 00:22:43,640 --> 00:22:45,680 Speaker 1: what they're struggling with with time. I got like eight 444 00:22:45,720 --> 00:22:47,720 Speaker 1: ways to go here, folks, so we are just joining 445 00:22:47,800 --> 00:22:50,399 Speaker 1: us on television and radio. Andrew Holland Horst the City 446 00:22:50,400 --> 00:22:52,560 Speaker 1: Group with one of the great calls of two thousand 447 00:22:52,600 --> 00:22:55,560 Speaker 1: twenty two for this FED meeting, he shifts fifty beats 448 00:22:55,560 --> 00:22:58,400 Speaker 1: down to hurdle a little bit of yeah, but they're 449 00:22:58,800 --> 00:23:02,399 Speaker 1: maybe back to fifty. But he maintains this higher interest 450 00:23:02,480 --> 00:23:05,840 Speaker 1: rate regime. Is Dr Hilarion and Dr Dudley speak about, 451 00:23:06,359 --> 00:23:08,919 Speaker 1: is well, I've got to go, I guess because of 452 00:23:08,960 --> 00:23:13,199 Speaker 1: time to the glide path and presumption of disinflation. Is 453 00:23:13,240 --> 00:23:16,520 Speaker 1: it even if it's curve linear down to two percent? 454 00:23:16,640 --> 00:23:20,000 Speaker 1: Or dare I say, oh Olivier Blanchard three, are the 455 00:23:20,200 --> 00:23:23,800 Speaker 1: kinks along the way or is there a good force 456 00:23:23,880 --> 00:23:27,840 Speaker 1: here to keep disinflation smooth and stable as a trend. 457 00:23:28,000 --> 00:23:29,920 Speaker 1: So they're they're always kinks along the way, And that's 458 00:23:29,960 --> 00:23:33,720 Speaker 1: important to keep in mind. The softer core CPI prints 459 00:23:33,760 --> 00:23:35,800 Speaker 1: that we've had, softer core inflation prints that we've had 460 00:23:35,840 --> 00:23:37,920 Speaker 1: most recently. That has a lot to do with used 461 00:23:37,960 --> 00:23:42,399 Speaker 1: car prices coming down, goods prices stuff that's yeah, chunky 462 00:23:42,440 --> 00:23:45,800 Speaker 1: good stuff, those used car prices. We monitor the wholesale 463 00:23:45,800 --> 00:23:49,280 Speaker 1: prices for used cars and we've seen those stabilized and 464 00:23:49,359 --> 00:23:52,160 Speaker 1: now start to go higher. Actually, um so when we're 465 00:23:52,200 --> 00:23:55,680 Speaker 1: looking at January core inflation February core inflation, you won't 466 00:23:55,720 --> 00:23:59,120 Speaker 1: have that same disinflationary factor from used car prices, what 467 00:23:59,119 --> 00:24:01,240 Speaker 1: what what does help you glide down to shelter prices 468 00:24:01,320 --> 00:24:02,960 Speaker 1: later this year? I think that will cool. With a 469 00:24:02,960 --> 00:24:06,280 Speaker 1: lot of evidence that that's gonna cool non shelter services. 470 00:24:06,440 --> 00:24:09,680 Speaker 1: It's a mouthfull full to say that that is the 471 00:24:09,720 --> 00:24:12,159 Speaker 1: area we should be concentrated on, because that's where that 472 00:24:12,240 --> 00:24:14,399 Speaker 1: wage pressure matters. That's where tight labor market. Take the 473 00:24:14,480 --> 00:24:19,480 Speaker 1: disinflation dynamic, and this non shelter which I can't pronounce, Okay, great, 474 00:24:20,240 --> 00:24:23,960 Speaker 1: bring that over to an initial claim statistic where you 475 00:24:24,000 --> 00:24:27,520 Speaker 1: would begin to see evidence of FED success. I'm going 476 00:24:27,560 --> 00:24:30,800 Speaker 1: to suggest that numbers way more ginormous than a four 477 00:24:30,840 --> 00:24:34,240 Speaker 1: week moving amorhage of two D six thousands. Incredibly low 478 00:24:34,240 --> 00:24:38,119 Speaker 1: initial jobless claims, incredibly high rates of people quitting their jobs. 479 00:24:38,240 --> 00:24:39,720 Speaker 1: And that's important. I think when we look at some 480 00:24:39,760 --> 00:24:43,240 Speaker 1: of these headlines about layoffs, if you have layoffs, that 481 00:24:43,320 --> 00:24:46,360 Speaker 1: showing you that, yes, there's some areas, some sectors where 482 00:24:46,400 --> 00:24:48,840 Speaker 1: maybe you're getting some loosening in labor markets. But if 483 00:24:48,840 --> 00:24:51,680 Speaker 1: you have very few people filing for jobless claims filing 484 00:24:51,720 --> 00:24:54,000 Speaker 1: front of him in insurance, if you have people that 485 00:24:54,080 --> 00:24:57,080 Speaker 1: are very willing historically willing to quit their job because 486 00:24:57,119 --> 00:24:59,360 Speaker 1: they feel so good about the labor market. That's saying 487 00:24:59,400 --> 00:25:01,480 Speaker 1: to me, this is a very very tight labor mark. 488 00:25:01,520 --> 00:25:03,840 Speaker 1: You're becoming a pro like Catherine Man. You didn't answer 489 00:25:03,880 --> 00:25:08,760 Speaker 1: my damn question. Answer. What's the initial jobless claims number? Andrew? 490 00:25:09,119 --> 00:25:13,400 Speaker 1: That equates into a constructive FED policies it to fifty? 491 00:25:13,560 --> 00:25:15,600 Speaker 1: Is it three hundred? Yeah? I think you. I think 492 00:25:15,640 --> 00:25:17,680 Speaker 1: you'd expect to see that coming up to something more 493 00:25:17,760 --> 00:25:19,720 Speaker 1: like three hundred, and you'd see that coming up over 494 00:25:19,760 --> 00:25:22,200 Speaker 1: time consistently, and we just we really haven't seen anything 495 00:25:22,240 --> 00:25:24,440 Speaker 1: like that in the data. Extraordinary. What are you gonna 496 00:25:24,440 --> 00:25:26,399 Speaker 1: write about this weekend? We're gonna think about this weekend. 497 00:25:26,440 --> 00:25:29,240 Speaker 1: I'm reading Olivia Blanchard's new book cover to cover, every 498 00:25:29,280 --> 00:25:32,919 Speaker 1: footnote what are you doing? We are thinking about what 499 00:25:33,160 --> 00:25:37,080 Speaker 1: this process will be between the tight labor market and 500 00:25:37,119 --> 00:25:40,360 Speaker 1: wage relationship, and then between that wage and price relationship. 501 00:25:40,400 --> 00:25:42,040 Speaker 1: And I think those are kind of the big unknowns 502 00:25:42,119 --> 00:25:45,359 Speaker 1: right now. So it's it's not hard to believe in 503 00:25:45,600 --> 00:25:48,320 Speaker 1: very tight labor markets pushing up wages. Is that wage 504 00:25:48,320 --> 00:25:50,720 Speaker 1: pressure then going to push up prices further? We we 505 00:25:50,760 --> 00:25:52,680 Speaker 1: think so, But margins are also wide, right, So maybe 506 00:25:52,760 --> 00:25:55,560 Speaker 1: you talked to Suvean Horowitz and the other criminals, City 507 00:25:55,560 --> 00:25:58,560 Speaker 1: Group and Securities Analysis. Are you they telling you these 508 00:25:58,600 --> 00:26:02,560 Speaker 1: corporations have pricing, especially in the services sector. That's where 509 00:26:02,560 --> 00:26:04,679 Speaker 1: we still see the pricing power. So goods maybe not 510 00:26:04,720 --> 00:26:07,480 Speaker 1: so much services. Yes, this has been great. Andrew Holland 511 00:26:07,560 --> 00:26:09,560 Speaker 1: or's with a clinic there on how you get to 512 00:26:09,600 --> 00:26:17,920 Speaker 1: a basis point idea for February one. I think on 513 00:26:17,960 --> 00:26:21,359 Speaker 1: the SCANNO manager Cassie's wonderful to catch up. You've had 514 00:26:21,400 --> 00:26:24,159 Speaker 1: all this communication from central banks worldwide, from the c B, 515 00:26:24,359 --> 00:26:27,080 Speaker 1: from the Federal Service as well. Have we seen peak rights? 516 00:26:27,080 --> 00:26:29,800 Speaker 1: And how fucking this fete Takee thinks. Yeah, so I 517 00:26:29,840 --> 00:26:32,639 Speaker 1: do believe we've seen peak rates, particularly as it relates 518 00:26:32,640 --> 00:26:35,480 Speaker 1: to the long end tens and thirties. But there's this 519 00:26:35,600 --> 00:26:39,199 Speaker 1: motto higher for longer, right, I think this higher for 520 00:26:39,280 --> 00:26:42,359 Speaker 1: longer motto could be the new transitory. So let me 521 00:26:42,440 --> 00:26:46,400 Speaker 1: explain it exactly why. So the FED was saying transitory transitory, 522 00:26:46,440 --> 00:26:50,600 Speaker 1: transitory inflation is transitory. The market didn't believe it. They 523 00:26:50,640 --> 00:26:53,640 Speaker 1: looked through it, They priced ahead of the Fed. They 524 00:26:53,680 --> 00:26:57,280 Speaker 1: pushed the Fed to hike more. Now we're seeing actually 525 00:26:57,320 --> 00:27:01,399 Speaker 1: the reverse. The market is saying, let's rates higher for longer, 526 00:27:01,480 --> 00:27:03,520 Speaker 1: higher for longer, higher for longer. And what is the 527 00:27:03,520 --> 00:27:06,120 Speaker 1: market saying, I don't believe you. It's cutting in, it's 528 00:27:06,119 --> 00:27:09,600 Speaker 1: pricing in rate cuts. It's already seeing the data roll over, 529 00:27:09,960 --> 00:27:12,240 Speaker 1: and so the Fed's going to keep trying to communicate 530 00:27:12,320 --> 00:27:15,080 Speaker 1: higher for longer, but the market is already looking through 531 00:27:15,080 --> 00:27:17,399 Speaker 1: it the Fed. The market is leading the FED on 532 00:27:17,440 --> 00:27:19,400 Speaker 1: the way up and leading the FED on the way 533 00:27:19,440 --> 00:27:23,560 Speaker 1: down as well. Yeah, I do think the market is right. 534 00:27:23,600 --> 00:27:26,160 Speaker 1: I think the market is seeing things in the data 535 00:27:26,600 --> 00:27:29,520 Speaker 1: you highlighted. Is a manufacturing it's been below fifty for 536 00:27:29,600 --> 00:27:32,240 Speaker 1: two months. We don't just look at the headline index. 537 00:27:32,359 --> 00:27:34,840 Speaker 1: We dig into the numbers. For instance, you look at 538 00:27:34,840 --> 00:27:38,960 Speaker 1: the ratio of new orders to inventories. New orders is falling, 539 00:27:39,040 --> 00:27:43,200 Speaker 1: inventories is rising. Not a good situation for companies. That 540 00:27:43,359 --> 00:27:47,000 Speaker 1: level has never been this depressed outside of recession. I 541 00:27:47,000 --> 00:27:49,359 Speaker 1: think it's just a matter of time before we see 542 00:27:49,720 --> 00:27:51,960 Speaker 1: in the initial jobless PLAIE numbers what we're seeing in 543 00:27:52,000 --> 00:27:54,159 Speaker 1: the rust of the economy. What do you see in 544 00:27:54,320 --> 00:27:57,200 Speaker 1: vanilla corporate debt? You don't remember when there was a 545 00:27:57,240 --> 00:27:59,480 Speaker 1: blue SMP book and you thumb through it to see 546 00:27:59,480 --> 00:28:03,240 Speaker 1: what boys Cascade was doing with their massive three percent coupon. 547 00:28:03,800 --> 00:28:06,320 Speaker 1: But corporate debt matters, and now there's a lot of 548 00:28:06,359 --> 00:28:09,560 Speaker 1: issuance as well. What's that dynamic? How do we take 549 00:28:09,600 --> 00:28:12,120 Speaker 1: advantage of that? Yeah, so we do see a lot 550 00:28:12,119 --> 00:28:16,040 Speaker 1: of opportunity in investment grade credit. Um, we think that 551 00:28:16,040 --> 00:28:19,880 Speaker 1: the yields there are attractive to get invested, and we're 552 00:28:19,880 --> 00:28:22,880 Speaker 1: staying very high Quality's a typical yield. They're very high 553 00:28:22,920 --> 00:28:26,119 Speaker 1: quality corporate. So you can get between five and six percent, 554 00:28:26,200 --> 00:28:28,720 Speaker 1: you know, depending on the maturity, depending on exactly. That's 555 00:28:28,720 --> 00:28:31,480 Speaker 1: almost a triple average all cash does. I mean it's 556 00:28:31,480 --> 00:28:33,400 Speaker 1: not there yet. That's that portfolio I do, and it's 557 00:28:33,440 --> 00:28:35,159 Speaker 1: doing good. I mean it's really out there with a 558 00:28:35,240 --> 00:28:40,600 Speaker 1: nice pop, but not to the two twos twenties. Take it. 559 00:28:40,600 --> 00:28:42,520 Speaker 1: It was amazing. But if you take out the two 560 00:28:42,600 --> 00:28:45,800 Speaker 1: and twenty fee on the triple average dot cash, it 561 00:28:45,840 --> 00:28:48,840 Speaker 1: doesn't get down to Kelsey's need to talk about never mind, 562 00:28:48,880 --> 00:28:52,400 Speaker 1: I G. You've talked about where you're at on this economy. 563 00:28:52,520 --> 00:28:54,360 Speaker 1: Some people might be different. They might look at jobless 564 00:28:54,360 --> 00:28:57,000 Speaker 1: claims and say, we're still resilient. What recession. You're on 565 00:28:57,080 --> 00:28:58,800 Speaker 1: the other side of that, gets it. It's try to 566 00:28:58,840 --> 00:29:00,920 Speaker 1: re yields of paint you and cultimately the FED can't 567 00:29:00,920 --> 00:29:02,480 Speaker 1: come as far as it goes. Got all of that, 568 00:29:02,960 --> 00:29:06,120 Speaker 1: what business does high yield have rallying in that world? 569 00:29:06,760 --> 00:29:10,400 Speaker 1: So we were talking to our portfolio managers within our 570 00:29:10,480 --> 00:29:13,440 Speaker 1: high yield desk this week and yeah, I mean we 571 00:29:13,440 --> 00:29:16,960 Speaker 1: were getting that same sense. We're not seeing huge demand 572 00:29:17,080 --> 00:29:19,400 Speaker 1: into high yield so far this year. What we're seeing, 573 00:29:19,720 --> 00:29:23,240 Speaker 1: I think is more technically driven. There's no supply, so 574 00:29:23,400 --> 00:29:26,040 Speaker 1: essentially the people who are looking to get invested are 575 00:29:26,080 --> 00:29:30,320 Speaker 1: just driving spreads tighter. Um. It is incongruent with the 576 00:29:30,400 --> 00:29:34,200 Speaker 1: data that we're seeing. I think it is more technically oriented. Um. 577 00:29:34,240 --> 00:29:37,680 Speaker 1: And we're still staying defensive um, looking forward to to 578 00:29:37,760 --> 00:29:40,479 Speaker 1: what the data is telling us and and what company 579 00:29:40,480 --> 00:29:43,200 Speaker 1: earnings are going to say, which you know we're not 580 00:29:43,360 --> 00:29:46,400 Speaker 1: particularly constructive on. So this is just the salesforce of 581 00:29:46,440 --> 00:29:49,280 Speaker 1: all these big asset managers going around. Same. By fixed income, 582 00:29:49,320 --> 00:29:51,840 Speaker 1: it's all the inflows in the new year coming into 583 00:29:51,880 --> 00:29:53,960 Speaker 1: fixed income funds. Ultimately, you think that's going to fight 584 00:29:54,000 --> 00:29:57,400 Speaker 1: for some of these credit stories. So when we say 585 00:29:57,440 --> 00:30:00,240 Speaker 1: by fixed income. We're focused on high qualities. So when 586 00:30:00,240 --> 00:30:02,880 Speaker 1: you think about somebody investing into the aggregate that's in 587 00:30:03,160 --> 00:30:09,240 Speaker 1: that's generally treasuries, mortgages, and investment grade UM and so yeah, 588 00:30:09,280 --> 00:30:12,280 Speaker 1: the whole spectrum of the fixed income universe is going 589 00:30:12,320 --> 00:30:16,760 Speaker 1: to benefit from those flows undeniably UM. But you know, 590 00:30:16,840 --> 00:30:20,320 Speaker 1: when we're thinking about adding duration to portfolios, you have 591 00:30:20,440 --> 00:30:23,920 Speaker 1: to think about not just the mathematical calculation of duration, 592 00:30:24,160 --> 00:30:27,560 Speaker 1: but the empirical duration. So how does it actually trade? 593 00:30:27,680 --> 00:30:31,200 Speaker 1: When treasuries rally and there's a flight to quality, safe 594 00:30:31,200 --> 00:30:35,280 Speaker 1: haven bid, investment grade is going to get capital appreciation, 595 00:30:35,400 --> 00:30:37,200 Speaker 1: prices are going to go up on those bonds when 596 00:30:37,200 --> 00:30:40,080 Speaker 1: it's risk off high yield. If spreads are blowing out, 597 00:30:40,120 --> 00:30:42,000 Speaker 1: you're not going to get that. And you expect how 598 00:30:42,040 --> 00:30:44,880 Speaker 1: you spreads to blow out this year. So we are 599 00:30:45,000 --> 00:30:48,640 Speaker 1: still anticipating a widening of high yield spreads when that 600 00:30:48,720 --> 00:30:51,640 Speaker 1: recession comes, and timing that recession is difficult. But when 601 00:30:51,680 --> 00:30:55,040 Speaker 1: we do see that recession, UH spreads tend to wide 602 00:30:55,080 --> 00:30:58,480 Speaker 1: into at least eight hundred basis points. Guys like square 603 00:30:58,520 --> 00:31:01,000 Speaker 1: feet Kelsey, I love to go to the individual. I'm 604 00:31:01,000 --> 00:31:03,800 Speaker 1: looking at a high quality piece which I bought John 605 00:31:05,520 --> 00:31:09,000 Speaker 1: it's like this close as I get to god. No, no, no, 606 00:31:09,120 --> 00:31:12,640 Speaker 1: it was better than that. And I've enjoyed the Google 607 00:31:12,720 --> 00:31:17,160 Speaker 1: piece of fifty this century. Okay, fifty, So I'm out 608 00:31:17,200 --> 00:31:20,800 Speaker 1: thirty years ish two point two percent coupon two point 609 00:31:20,880 --> 00:31:23,480 Speaker 1: zero five and I've seen a price reduction of a 610 00:31:23,560 --> 00:31:27,920 Speaker 1: hundred down to sixty four? Is that an opportunity something 611 00:31:28,000 --> 00:31:31,600 Speaker 1: like that? Is that high quality corporate when a ginormous 612 00:31:31,640 --> 00:31:36,880 Speaker 1: company like Google is on sale for under where it was. Yeah, 613 00:31:36,920 --> 00:31:39,960 Speaker 1: so you know, within the bond market, to kind of 614 00:31:40,000 --> 00:31:43,760 Speaker 1: translate that, one of the attractive opportunities that we've been 615 00:31:43,800 --> 00:31:46,320 Speaker 1: finding is when yields are rising, you're having a lot 616 00:31:46,320 --> 00:31:48,440 Speaker 1: of bonds that you can buy below par at very 617 00:31:48,520 --> 00:31:53,160 Speaker 1: discounted uh discounted dollar prices. And so yeah, those those 618 00:31:53,200 --> 00:31:56,840 Speaker 1: are opportunities. Um. And we want to be investing in 619 00:31:56,880 --> 00:32:00,800 Speaker 1: companies where we have vision on the cash flow, we 620 00:32:00,800 --> 00:32:03,640 Speaker 1: we know what they're doing in terms of leverage. I mean. 621 00:32:03,680 --> 00:32:05,080 Speaker 1: And then I want to be fair here and that 622 00:32:05,240 --> 00:32:07,880 Speaker 1: Bob and Kelsey are not in the individual name. That's 623 00:32:07,920 --> 00:32:10,280 Speaker 1: not their mandated. JP Morgat is not to give us 624 00:32:10,280 --> 00:32:13,360 Speaker 1: individual names. I'm just picking this out John, I don't 625 00:32:13,360 --> 00:32:19,920 Speaker 1: think our audience understands yields up one to sixty three 626 00:32:20,400 --> 00:32:23,080 Speaker 1: on a thirty year piece at Google, which is not 627 00:32:23,840 --> 00:32:26,120 Speaker 1: do want to take the thirty year pace at a 628 00:32:26,200 --> 00:32:28,080 Speaker 1: tech company? Can? We might get bored in that? Is 629 00:32:28,120 --> 00:32:30,200 Speaker 1: that the kind of risk you'd want to take. So 630 00:32:30,360 --> 00:32:34,000 Speaker 1: I think that we were generally all of last year 631 00:32:34,280 --> 00:32:37,239 Speaker 1: very focused on keeping both our duration risk and our 632 00:32:37,280 --> 00:32:40,560 Speaker 1: spread risk concentrating in the front end of the curve, 633 00:32:40,640 --> 00:32:43,920 Speaker 1: so minimizing the interest rate sensitivity of our portfolios. We 634 00:32:43,960 --> 00:32:46,280 Speaker 1: thought yields would be rising, and of course those longer 635 00:32:46,360 --> 00:32:48,760 Speaker 1: in bonds are going to get hit the most. UM. 636 00:32:48,840 --> 00:32:51,160 Speaker 1: Now that we're kind of in the reverse of that story, 637 00:32:51,600 --> 00:32:54,800 Speaker 1: I think that you can feel more comfortable extending out 638 00:32:54,840 --> 00:32:58,200 Speaker 1: the curve and extending duration of your portfolios to those 639 00:32:58,200 --> 00:33:02,120 Speaker 1: tenure and those third year high quality UM instruments. Tough 640 00:33:02,160 --> 00:33:07,280 Speaker 1: times ahead. Fifty at the next meeting, that's it, everyone 641 00:33:07,320 --> 00:33:12,080 Speaker 1: say five five, done, deal And again Holland Horst with 642 00:33:12,240 --> 00:33:16,840 Speaker 1: us here in the next hour from fifty said this 643 00:33:16,920 --> 00:33:19,920 Speaker 1: was great. Have you ever watched Wednesday on Netflix? That's 644 00:33:19,920 --> 00:33:21,560 Speaker 1: all we want to know. I've never heard of it. 645 00:33:21,960 --> 00:33:25,600 Speaker 1: Have I never heard of Family? It's just the who's 646 00:33:25,600 --> 00:33:28,000 Speaker 1: in it? Do you know who's in it? I don't know. 647 00:33:28,120 --> 00:33:31,200 Speaker 1: It's what is it called Wednesday? Because that's the character 648 00:33:31,280 --> 00:33:38,320 Speaker 1: of the American culture, Adams family and very good. I've 649 00:33:38,360 --> 00:33:41,040 Speaker 1: got it nailed that, right, that was great Wednesday. And 650 00:33:41,240 --> 00:33:44,400 Speaker 1: you know my afterthoughts calling me, you know, she's a 651 00:33:44,440 --> 00:33:47,560 Speaker 1: dinner calling me and I'm like, what's that about? But 652 00:33:47,680 --> 00:33:51,000 Speaker 1: it's just another example. Is is Getha said of their 653 00:33:51,120 --> 00:33:53,920 Speaker 1: narrow casting to what does Kelsey Barrow want to watch? 654 00:33:54,400 --> 00:33:57,760 Speaker 1: I mean they're in Hollywood Wednesday? Apparently, Well, I don't know, 655 00:33:57,760 --> 00:34:01,160 Speaker 1: there's others. So what does a portfolio manager watch on Netflix? Netflix? 656 00:34:01,360 --> 00:34:03,680 Speaker 1: What does the PM do? Does Bob keep you too busy? 657 00:34:04,200 --> 00:34:06,440 Speaker 1: You don't watch Netflix? You know? I like the more 658 00:34:06,520 --> 00:34:13,719 Speaker 1: mindless stuff when I'm watching, right, what is the mind 659 00:34:13,760 --> 00:34:16,120 Speaker 1: of stuff? You know, a baking show like a bacon show, 660 00:34:16,239 --> 00:34:20,000 Speaker 1: cocktail company? What's the British baking show for instance, British 661 00:34:20,000 --> 00:34:22,760 Speaker 1: bake off? That thing? Yeah, that thing. They moved networks, 662 00:34:22,760 --> 00:34:24,680 Speaker 1: they change the cast kind of fell off the clip. 663 00:34:24,719 --> 00:34:26,719 Speaker 1: Can we bring up to date on my portfolio? Maybe 664 00:34:26,800 --> 00:34:29,279 Speaker 1: Kelsey had here around TV? Hold my hand, it's not 665 00:34:29,360 --> 00:34:34,640 Speaker 1: an HR violation Austria nineties seven year. I bought it 666 00:34:38,200 --> 00:34:41,120 Speaker 1: that stuff when you reflect, causey just to finish there 667 00:34:41,440 --> 00:34:43,359 Speaker 1: on the last decade and what's taking place in this 668 00:34:43,400 --> 00:34:46,359 Speaker 1: fixed income mark? Tom will look back at the sentry bomb, 669 00:34:46,440 --> 00:34:47,920 Speaker 1: what will look what will you look back on to 670 00:34:48,040 --> 00:34:52,800 Speaker 1: say this was crazy? Okay, um eighteen trillion of negative 671 00:34:52,840 --> 00:34:55,400 Speaker 1: yielding debt at one point um in the last decade 672 00:34:55,520 --> 00:34:58,839 Speaker 1: now completely wiped out. That's pretty crazy. And and thinking 673 00:34:58,880 --> 00:35:02,560 Speaker 1: about this idea of structurally higher yields, are we moving 674 00:35:02,560 --> 00:35:04,200 Speaker 1: into an error of that? And you know you spoke 675 00:35:04,239 --> 00:35:07,919 Speaker 1: to Bob about that earlier in the week. You know what, 676 00:35:07,920 --> 00:35:11,360 Speaker 1: what we noticed this rate hiking cycle, the first time 677 00:35:11,440 --> 00:35:14,320 Speaker 1: that we've peaked at a higher level than the prior cycle, 678 00:35:14,600 --> 00:35:17,160 Speaker 1: first time in thirty years the market here, somebody else 679 00:35:17,239 --> 00:35:19,920 Speaker 1: had this. This goes back to the establishment of Nevermore 680 00:35:19,960 --> 00:35:24,520 Speaker 1: Academy in Jericho. Vermont was the last current. To Cassie's point, 681 00:35:24,640 --> 00:35:26,879 Speaker 1: what Bob said earlier in the week, the first time 682 00:35:26,880 --> 00:35:29,800 Speaker 1: that we've had a higher high and how many psychless 683 00:35:30,080 --> 00:35:32,879 Speaker 1: thirty years And Bobby is basically suggesting that he thinks 684 00:35:32,880 --> 00:35:35,080 Speaker 1: we can have a series of higher lows and higher 685 00:35:35,120 --> 00:35:38,440 Speaker 1: highs at each additional cycle where we get a right 686 00:35:38,520 --> 00:35:42,000 Speaker 1: hiking cycling a rate cutting cycle. I think that's fascinating 687 00:35:42,040 --> 00:35:45,240 Speaker 1: just to think about unwinding the last a few decades. Cassie, 688 00:35:45,239 --> 00:35:57,319 Speaker 1: this was great. We're gonna salve into the show and 689 00:35:57,400 --> 00:36:01,080 Speaker 1: get you to your weekend thinking and weekend reading about 690 00:36:01,120 --> 00:36:04,279 Speaker 1: what to do in a multi asset strategy. And we 691 00:36:04,400 --> 00:36:07,640 Speaker 1: need Bangana deals with this each and every day at 692 00:36:07,640 --> 00:36:10,880 Speaker 1: Columbia thread Needle and all my radars up on Winny 693 00:36:11,040 --> 00:36:14,400 Speaker 1: because so many people are telling me bonds is the 694 00:36:14,480 --> 00:36:18,399 Speaker 1: only comfort zone. Is that a consensus call? And does 695 00:36:18,440 --> 00:36:23,000 Speaker 1: that concern you? Tom? Thanks for having me, Um. It 696 00:36:23,239 --> 00:36:27,080 Speaker 1: is appearing to be a consensus call, um Um. You 697 00:36:27,080 --> 00:36:29,239 Speaker 1: know for two reasons. I think it makes a lot 698 00:36:29,239 --> 00:36:33,719 Speaker 1: of sense. One, the economic data so far, including the 699 00:36:33,760 --> 00:36:36,760 Speaker 1: one that came out this week on producer price index, 700 00:36:37,080 --> 00:36:42,719 Speaker 1: is indicating that inflation has peaked. So all of last 701 00:36:42,800 --> 00:36:46,560 Speaker 1: year was to watch inflation bad for bonds. This year, 702 00:36:46,840 --> 00:36:50,680 Speaker 1: very simply put, inflations peaked, fields are likely to peak, 703 00:36:51,080 --> 00:36:53,120 Speaker 1: and that's what we have witnessed in the last six 704 00:36:53,160 --> 00:36:56,720 Speaker 1: weeks or so, yields coming off pretty sharply. The second 705 00:36:56,760 --> 00:37:00,640 Speaker 1: point from a multi asset perspective is that there once 706 00:37:00,680 --> 00:37:04,160 Speaker 1: again acting like a hedge. So this week we saw 707 00:37:04,400 --> 00:37:08,840 Speaker 1: Wednesday massive sell off and equity space and bonds rallied, 708 00:37:09,600 --> 00:37:13,840 Speaker 1: So the old ballast question is back on the table again. 709 00:37:13,880 --> 00:37:18,879 Speaker 1: They are attractive because data is indicating this and they're 710 00:37:18,920 --> 00:37:20,920 Speaker 1: acting as a hedge. Let me go right to multi 711 00:37:21,040 --> 00:37:23,759 Speaker 1: asset then, so many of our viewers and listeners are 712 00:37:23,760 --> 00:37:26,440 Speaker 1: going to say, okay, but I'm pitched by advisors and 713 00:37:26,560 --> 00:37:31,279 Speaker 1: such this tranch a fixed income or that. How do 714 00:37:31,320 --> 00:37:34,120 Speaker 1: you look at the choices to make in fixed income? 715 00:37:34,600 --> 00:37:38,200 Speaker 1: Is it a duration choice? Is it a credit quality choice? 716 00:37:38,880 --> 00:37:44,960 Speaker 1: What's the most important factor there? Both are two um 717 00:37:45,360 --> 00:37:49,040 Speaker 1: leavers that bond managers use in trying to beat the 718 00:37:49,080 --> 00:37:55,239 Speaker 1: index UM. The fixed income duration is the hedge part 719 00:37:55,360 --> 00:38:00,279 Speaker 1: right now, because as you'll come down, duration rallies that 720 00:38:00,360 --> 00:38:04,319 Speaker 1: provides positive returns. And credit is something that we are 721 00:38:04,360 --> 00:38:08,040 Speaker 1: quite nervous about right now because all indications are that 722 00:38:08,080 --> 00:38:11,840 Speaker 1: we're having whatever the might be a soft landing or 723 00:38:12,000 --> 00:38:17,160 Speaker 1: some sort of UM recession this year, and you want 724 00:38:17,160 --> 00:38:20,600 Speaker 1: to stay in good quality credits. So we are underweight, 725 00:38:20,640 --> 00:38:23,920 Speaker 1: how yell, we are underweight sort of the riskier trenches 726 00:38:23,960 --> 00:38:26,880 Speaker 1: of credit and staying in investment great credit. What are 727 00:38:26,880 --> 00:38:29,440 Speaker 1: your equity people say, I mean Clumbia thread Needle does 728 00:38:29,480 --> 00:38:33,279 Speaker 1: it all, And I'm interested in the equity prism that 729 00:38:33,480 --> 00:38:37,840 Speaker 1: you have more focused on multi asset and fixed income. Sure, 730 00:38:38,360 --> 00:38:41,320 Speaker 1: that's a great question. In equities things are a little 731 00:38:41,360 --> 00:38:45,239 Speaker 1: more um hard to pin down really because if we 732 00:38:45,320 --> 00:38:49,360 Speaker 1: look at the valuation lens on equities, they don't seem 733 00:38:49,360 --> 00:38:53,120 Speaker 1: to have fully priced in this recession fear that's out 734 00:38:53,120 --> 00:38:56,280 Speaker 1: there for this year. So in the U S space, 735 00:38:56,560 --> 00:39:01,200 Speaker 1: our managers are staying fairly defensive. They like um good 736 00:39:01,280 --> 00:39:04,520 Speaker 1: quality components of the U S stock markets. But from 737 00:39:04,560 --> 00:39:09,040 Speaker 1: a multi asset space, we are seeing attractive opportunities to 738 00:39:09,200 --> 00:39:13,840 Speaker 1: actually hold emerging market equities where we have a massive 739 00:39:13,920 --> 00:39:16,839 Speaker 1: valuation cushion that's built up in the last decade or so. 740 00:39:17,440 --> 00:39:20,520 Speaker 1: And at the same time there are improvement in sort 741 00:39:20,560 --> 00:39:25,080 Speaker 1: of the dollar view and the growth prospects from China. 742 00:39:25,200 --> 00:39:28,120 Speaker 1: So we be from a multi asset desk, are liking 743 00:39:28,280 --> 00:39:32,560 Speaker 1: emerging market, particularly emerging market Asia UM. But in in 744 00:39:32,640 --> 00:39:36,360 Speaker 1: the develop market we're staying high quality. So we're trying 745 00:39:36,360 --> 00:39:38,759 Speaker 1: to stagger to Q two. I think there's a huge 746 00:39:38,840 --> 00:39:41,440 Speaker 1: unknown on Q two. You've been doing this for a 747 00:39:41,480 --> 00:39:44,840 Speaker 1: few cycles. Are you able to frame out the fourth 748 00:39:44,920 --> 00:39:49,200 Speaker 1: quarter of this year in terms of earnings? You know, 749 00:39:49,800 --> 00:39:52,920 Speaker 1: the markets doing the standard kabuki it does every earning 750 00:39:52,960 --> 00:39:56,720 Speaker 1: season's expectations are brought down pretty sharply and then they're beaten. 751 00:39:56,920 --> 00:39:59,080 Speaker 1: And so far that's all we are seeing in data, 752 00:39:59,360 --> 00:40:03,000 Speaker 1: and I would say it's early days. UM expectations for 753 00:40:03,000 --> 00:40:05,919 Speaker 1: four Q is that earnings will be down about two 754 00:40:05,920 --> 00:40:08,920 Speaker 1: percent or show. And so far, with about ten percent 755 00:40:09,080 --> 00:40:13,560 Speaker 1: or so of earnings UM that have been released, they're 756 00:40:13,600 --> 00:40:16,640 Speaker 1: beating those expectations. So we might end up if this 757 00:40:16,800 --> 00:40:20,800 Speaker 1: current run rate continues with you know, flat earnings to 758 00:40:20,960 --> 00:40:24,200 Speaker 1: Miley positive, but expectations for the remainder of the year 759 00:40:24,239 --> 00:40:28,719 Speaker 1: for two thousand twenty three are quite bleak. Earnings are 760 00:40:28,719 --> 00:40:31,239 Speaker 1: supposed to go down. Thank you so much, and we 761 00:40:31,440 --> 00:40:34,959 Speaker 1: Boghano with us here this morning with Colombia thread Needle. 762 00:40:35,040 --> 00:40:38,759 Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join 763 00:40:38,840 --> 00:40:42,160 Speaker 1: us live weekdays from seven to ten am Eastern on 764 00:40:42,280 --> 00:40:46,520 Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six 765 00:40:46,640 --> 00:40:51,480 Speaker 1: to nine am for insight from the best in economics. Finance, investment, 766 00:40:51,640 --> 00:40:56,680 Speaker 1: and international relations. And subscribe to the Surveillance podcast on 767 00:40:56,760 --> 00:41:00,560 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course, on 768 00:41:00,680 --> 00:41:12,320 Speaker 1: the terminal. I'm Tom keane In. This is Bloomer h