WEBVTT - Surveillance: Tech Appetite with Young 0:00:00.120 --> 0:00:03.800 If you enjoy the Bloomberg Surveillance podcast, check out our 0:00:03.880 --> 0:00:08.959 new daily news program, the Bloomberg Daybreak Podcast. It gives 0:00:09.039 --> 0:00:12.840 you the day's top stories with context in just fifteen minutes. 0:00:13.240 --> 0:00:15.960 Look for it in your podcast feed by six a m. 0:00:16.160 --> 0:00:20.280 Eastern every morning. Subscribe on Apple, Spotify and anywhere else 0:00:20.400 --> 0:00:23.799 you get your podcasts, and stay tuned for a sample 0:00:23.880 --> 0:00:27.400 of today's edition of Bloomberg Daybreak at the very end 0:00:27.600 --> 0:00:35.840 of this podcast. This is the Bloomberg Surveillance Podcast. I'm 0:00:35.840 --> 0:00:39.920 Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. Join 0:00:40.040 --> 0:00:44.200 us each day for insight from the best and economics, geopolitics, 0:00:44.200 --> 0:00:49.159 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:49.400 --> 0:00:53.840 Spotify and anywhere you get your podcasts, and always on 0:00:53.960 --> 0:00:58.400 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business. 0:00:58.040 --> 0:01:00.400 App on Wall Straight On my Secuity Market, Liz Young, 0:01:00.520 --> 0:01:03.480 head of investment strategy at so Far, Liz, wonderful to 0:01:03.480 --> 0:01:05.640 see you and thanks for being with us. I think 0:01:05.680 --> 0:01:08.320 the question of the moment can this market rally broaden out? 0:01:08.520 --> 0:01:09.120 Can it? Liz? 0:01:09.319 --> 0:01:11.640 Well, it always can, and you know we're obviously in 0:01:11.680 --> 0:01:14.080 the beginning of a very important week, and each FED 0:01:14.120 --> 0:01:16.680 meeting continues to be the most important one since the 0:01:16.760 --> 0:01:19.400 last one. But what we've seen over the last week 0:01:19.520 --> 0:01:22.600 or so is that you are getting some strength from 0:01:22.800 --> 0:01:25.440 some of those sort of regular stocks. We've got now 0:01:25.440 --> 0:01:28.160 more than fifty percent of the SMP back above the 0:01:28.160 --> 0:01:31.040 two hundred day moving average, which is a good sign. 0:01:31.120 --> 0:01:34.440 And you're getting participation from sectors that hadn't participated in 0:01:34.480 --> 0:01:38.039 this rally since probably last year at some point, So 0:01:38.520 --> 0:01:41.520 it's important to have those signals. It's important to see 0:01:41.560 --> 0:01:45.759 smaller cap stocks participating because that's what you would expect 0:01:46.040 --> 0:01:49.200 if we were in the early expansion phase or if 0:01:49.240 --> 0:01:53.120 we were in a newer bowl market. The big question now, 0:01:53.120 --> 0:01:55.960 and we continue to see this throughout this entire cycle, 0:01:55.960 --> 0:01:58.640 as we get to these decision points. The next level 0:01:58.640 --> 0:02:01.440 on the SMP that everybody's want is forty three twenty five, 0:02:01.440 --> 0:02:05.200 which was the intra day high last August. Can we 0:02:05.280 --> 0:02:08.400 make it to that point and beyond? And that continues 0:02:08.400 --> 0:02:10.520 to be the big question. I don't know that we're 0:02:10.520 --> 0:02:13.880 going to see this strength persist through what continues to 0:02:13.960 --> 0:02:17.880 be a hiking cycle and pressure on valuation Lisz so 0:02:18.000 --> 0:02:18.520 far as a. 0:02:18.440 --> 0:02:23.360 Different remit what are you seeing from SULFI clients, the customers, 0:02:23.360 --> 0:02:26.160 the people that make so far go, What are you 0:02:26.240 --> 0:02:30.120 seeing in terms of their relative gloom or optimism? I 0:02:30.160 --> 0:02:31.360 get mixed signals. 0:02:31.520 --> 0:02:32.680 Well, it's interesting. 0:02:32.840 --> 0:02:36.160 We tend to skew younger, especially on the investor side, 0:02:36.280 --> 0:02:36.760 so you end. 0:02:36.760 --> 0:02:42.720 Up under sixty, under sixty, under sixty five sixty nice Liz, 0:02:43.280 --> 0:02:48.000 keep it on, Liz, book the interurn over here, booked, 0:02:48.080 --> 0:02:50.160 what the hell is that about? Keep it going list. 0:02:51.200 --> 0:02:53.680 So what you generally see from a younger investor is 0:02:53.720 --> 0:02:56.960 still interest in headline making names. You want titans of 0:02:57.000 --> 0:02:59.840 tech and sort of the disruptors, So there is still 0:03:00.080 --> 0:03:03.560 a lot of interest and appetite for those names. One 0:03:03.560 --> 0:03:05.520 of the things that has been surprising to me that 0:03:05.560 --> 0:03:08.560 even after last year's tough market, we did a lot 0:03:08.560 --> 0:03:11.080 of surveys of our investors, and you hear things like 0:03:11.440 --> 0:03:14.040 we're still planning to invest just as much, if not more, 0:03:14.160 --> 0:03:17.360 despite the bear market. So it's encouraging that you still 0:03:17.400 --> 0:03:19.959 even have on the younger end of the spectrum, people 0:03:20.040 --> 0:03:23.960 have appetite for long term investing and understanding, maybe more 0:03:24.000 --> 0:03:27.359 so than we expected that bear markets do happen that 0:03:27.400 --> 0:03:29.920 this is part of long term investing. I think in 0:03:29.960 --> 0:03:33.160 the short term, the headlines do drive a lot of 0:03:33.200 --> 0:03:35.680 that sentiment. And obviously, something that we've seen over the 0:03:35.760 --> 0:03:38.880 last week with every investor, not just the SOFI investor, 0:03:39.720 --> 0:03:42.360 is that once the market starts to move in a 0:03:42.400 --> 0:03:45.720 different direction and you've got some optimism that starts to 0:03:45.720 --> 0:03:49.120 show up in the tape, suddenly everybody sentiment changes. And 0:03:49.600 --> 0:03:52.560 that's a good thing, I think for the appetite and 0:03:52.600 --> 0:03:56.320 the buying opportunities that people might see. However, it does 0:03:56.360 --> 0:04:00.320 sometimes skew the risk that's still lurking out there, especially 0:04:00.360 --> 0:04:04.160 in a rising rate environment. So multiple expansion is not 0:04:04.320 --> 0:04:07.640 something that I think many investors have understood from both 0:04:07.720 --> 0:04:10.360 sides of the coin in the last couple of years. 0:04:10.400 --> 0:04:15.960 Because multiple expansion has been supported largely by monetary policy liquidity, 0:04:16.240 --> 0:04:18.080 and now we're in this environment where a lot of 0:04:18.080 --> 0:04:20.159 that is coming out of the system. I don't think 0:04:20.240 --> 0:04:23.479 multiple expansion is warranted right now, and it's something that 0:04:23.520 --> 0:04:26.520 I think starts to sort of trick a more. 0:04:28.279 --> 0:04:30.120 Unexperienced investor. 0:04:30.560 --> 0:04:32.960 Is big tech no longer interest rate sensitive? 0:04:33.600 --> 0:04:36.400 I think it's still interest rates sensitive. If you're looking 0:04:36.440 --> 0:04:39.560 at it just in a growth bucket, right, But that's 0:04:39.600 --> 0:04:42.360 not necessarily how investors have treated Big Tech. 0:04:42.400 --> 0:04:43.600 I think they've actually. 0:04:43.279 --> 0:04:46.720 Removed those big names from the growth bucket and they're 0:04:46.760 --> 0:04:50.039 thinking of them in a different way, partially thinking of 0:04:50.080 --> 0:04:53.240 them in a defensive manner. And this is the part 0:04:53.240 --> 0:04:55.480 of the economy that's going to continue to lead and 0:04:55.520 --> 0:04:57.880 going to be strong for us for the rest of 0:04:58.160 --> 0:05:00.640 seemingly our lives. But then there's also so this other 0:05:00.680 --> 0:05:03.400 piece of it that people have gotten very enthusiastic about 0:05:03.400 --> 0:05:06.680 with the AI theme. The thing about a theme is 0:05:06.680 --> 0:05:08.560 that you usually invest in a theme for a two 0:05:08.640 --> 0:05:12.320 to five year period. There's been so much enthusiasm about 0:05:12.360 --> 0:05:14.200 AI in the last few months. 0:05:14.320 --> 0:05:15.680 I just don't think people are going to. 0:05:15.680 --> 0:05:19.200 Get the gratification of that enthusiasm as quickly as they 0:05:19.279 --> 0:05:21.760 want to. So if you're thinking about stock from a 0:05:21.800 --> 0:05:26.320 growth in value perspective, big Tech is probably acting a 0:05:26.320 --> 0:05:29.600 bit different than what we would expect from a growthy 0:05:29.680 --> 0:05:33.600 name in this environment. That hasn't necessarily changed, and it's 0:05:33.640 --> 0:05:36.800 something that I think has served investors well over most 0:05:36.800 --> 0:05:39.599 of this cycle. There hasn't really been a big reason 0:05:39.640 --> 0:05:41.040 to believe otherwise yet. 0:05:40.960 --> 0:05:44.960 Lis Young so find Liz Erowa so always welcome back. 0:05:45.040 --> 0:05:51.200 Thank you LIZI, thanks catching up, Thank you. That's a wife. 0:05:51.279 --> 0:05:54.920 We are thrilled to Michael Mayo with this managing director 0:05:54.960 --> 0:05:59.720 at Wells Fargo. Here off of twenty years, I will say, 0:05:59.760 --> 0:06:03.400 Mike Mail of covering banks, of covering ubs, of covering 0:06:04.080 --> 0:06:07.680 credit suite in the rest. So let's talk about this 0:06:07.960 --> 0:06:12.800 historic day. We go SBC ubs, UBS takes out credit 0:06:12.839 --> 0:06:16.200 suite and here we are. Was this because of greed? 0:06:16.560 --> 0:06:21.599 Was this because of the absolute demand to create revenue. 0:06:21.680 --> 0:06:24.640 We don't care what the quality of the revenue is 0:06:24.680 --> 0:06:26.680 going to be. We just need to get new revenue. 0:06:26.920 --> 0:06:30.159 Is that what happened to your credit suite? Well? 0:06:30.279 --> 0:06:33.360 I didn't officially cover credit suite, but I can comment 0:06:33.400 --> 0:06:37.279 on the European banks, which has sure woefully lagged the 0:06:37.400 --> 0:06:41.520 US banks. And some of this is structural. After the 0:06:41.560 --> 0:06:44.880 global financial crisis, they did not recapitalize at the pace 0:06:45.000 --> 0:06:48.200 of the US banks. And some of this is simply cultural, 0:06:48.200 --> 0:06:51.320 which I lived through, and it was sometimes growth at 0:06:51.360 --> 0:06:55.560 any price, growth that you know, extraordinary risk. And so 0:06:55.560 --> 0:07:00.200 I'd say there are some culturally flawed European organizations or 0:07:00.200 --> 0:07:02.240 which that I worked at. But it's played out through 0:07:02.279 --> 0:07:04.599 the numbers, and it's relevant to by analysis of the 0:07:04.680 --> 0:07:08.120 US banks now because Goliath is winning and the goliath 0:07:08.240 --> 0:07:09.440 are the largest US bank. 0:07:09.640 --> 0:07:12.960 Is mister Ormadi in his red lines going to be 0:07:13.040 --> 0:07:16.880 a change agent and can mister Diamond, with a completely 0:07:16.920 --> 0:07:21.400 separate issue this Epstein scandal be a change agent towards 0:07:21.400 --> 0:07:24.160 and more discerning choice of clients. 0:07:26.040 --> 0:07:30.440 Well, you know your customer is banking one oh one, 0:07:31.080 --> 0:07:36.000 and I don't deal directly with, say the investment banking clients, 0:07:36.000 --> 0:07:38.600 but I have a compliance exam several times a year, 0:07:38.720 --> 0:07:41.760 as does everybody on Wall Street in the United States. 0:07:42.200 --> 0:07:43.320 But there might be. 0:07:43.440 --> 0:07:46.720 More restrictions on which clients you're allowed to take. So 0:07:46.800 --> 0:07:49.560 there's going to be an extra check, and so it's 0:07:49.600 --> 0:07:51.920 not all clients come to us. It's going to be 0:07:52.480 --> 0:07:54.520 a smaller subset of what you deal with today. 0:07:54.640 --> 0:07:57.720 You say goliaths are winning, are the smaller banks losing? 0:07:58.320 --> 0:08:00.680 Just putting aside Europe. 0:08:01.000 --> 0:08:05.160 Yes, we conducted an analysis. We did a kitchen sink 0:08:05.200 --> 0:08:08.880 analysis where we had four haircuts. One haircut was deposits 0:08:08.960 --> 0:08:12.920 leave by another eight percent in the industry. Another haircut 0:08:13.320 --> 0:08:17.800 would be provisions equal to a recession level, extra expenses 0:08:17.800 --> 0:08:20.680 for new regulation. And we have the Fed fund rake 0:08:20.720 --> 0:08:22.880 go all the way down to two point seventy five percent, 0:08:22.920 --> 0:08:27.240 which would hurt the net interest margins. Regional banks get 0:08:27.280 --> 0:08:30.440 hurt by twenty five percent to earnings. Large banks get 0:08:30.520 --> 0:08:33.520 hurt by maybe five percent ten percent. So Goliath is 0:08:33.559 --> 0:08:36.760 winning and Goliath is winning even more. But I wanted 0:08:36.760 --> 0:08:39.560 to make one clear statement today and that relates to 0:08:39.559 --> 0:08:43.199 actually the regional banks for making some comeback. And so 0:08:43.280 --> 0:08:49.360 the statement is that the detour for Garriot Okay, well, 0:08:49.360 --> 0:08:52.680 you know I'm cheesy. I have my props. A detour 0:08:52.760 --> 0:08:55.400 for not owning banks docs is over. 0:08:55.559 --> 0:08:58.320 So those of you it's like end construction. So those 0:08:58.360 --> 0:08:59.679 are you on the radio? He's got give me that 0:08:59.800 --> 0:09:02.760 road sign over there, bringing a stop sign next time 0:09:03.360 --> 0:09:06.480 it might stop m MD tour is what he's saying 0:09:06.480 --> 0:09:08.839 on radio. It's one of those range it's one of 0:09:08.880 --> 0:09:12.760 those range signs, like the real sign. What do you say, 0:09:12.960 --> 0:09:15.800 steal us off the construction sign for the Bloom's your 0:09:15.840 --> 0:09:21.600 head top? He stole his sign off the construction side 0:09:21.600 --> 0:09:24.760 of the Bloomberg pothole at Lexington and fifty eight. 0:09:24.800 --> 0:09:28.400 All right, the prop aside, I am wondering why now, 0:09:28.520 --> 0:09:31.719 because you talk about this potential twenty five percent hit 0:09:31.760 --> 0:09:35.120 to their profits. This is significant. You basically just saying 0:09:35.440 --> 0:09:38.080 it's priced in. We've priced in all of that and 0:09:38.120 --> 0:09:40.520 then some. So it's time to hoover up some of 0:09:40.559 --> 0:09:43.000 these smaller stocks that have gotten being up. 0:09:43.320 --> 0:09:45.800 Well, what I say, the larger regional banks, Look, they're 0:09:45.800 --> 0:09:50.600 not going to zero. You had your failures from idiosyncratic events. 0:09:50.800 --> 0:09:53.880 They're not raising equity at least the largest banks. Look, 0:09:54.080 --> 0:09:56.000 you've had three banks that were in the S and 0:09:56.040 --> 0:09:58.839 P five hundred at the start of the year that failed. Okay, 0:09:58.920 --> 0:10:03.079 that's done. All right, So this idea, this almost hysteria 0:10:03.559 --> 0:10:06.520 as relates to the largest banks, it is over, and 0:10:06.559 --> 0:10:08.480 it's been over for the last four weeks. I mean, 0:10:08.520 --> 0:10:11.000 these the banks have gone up by over ten percent 0:10:11.120 --> 0:10:13.800 during that time. They've outperformed the S and P five hundred, 0:10:13.920 --> 0:10:17.280 but they've no way caught up to the broader SMP 0:10:17.440 --> 0:10:19.800 five hundred. So you're saying, what could have legs in 0:10:19.840 --> 0:10:23.079 the market bank stock? The larger bank stock certainly could. 0:10:23.120 --> 0:10:26.680 Like a US bank court which has been pummeled and 0:10:26.720 --> 0:10:28.559 it's one of the highest quality banks out. 0:10:28.360 --> 0:10:30.840 There, although in fairness they haven't gotten pummeled as much 0:10:30.840 --> 0:10:33.000 as some of the others. And I do wonder, I mean, 0:10:33.040 --> 0:10:36.880 I get your point. With those particular ones. Do the 0:10:37.000 --> 0:10:40.240 largest mid sized banks hold up even if you get 0:10:40.280 --> 0:10:42.800 additional failures on the lower end at a time when 0:10:42.800 --> 0:10:45.720 the emergency landing facility at the FED is still being 0:10:45.840 --> 0:10:47.480 used at a pretty significant rate. 0:10:48.240 --> 0:10:50.679 Well, I'm going to avoid your question just for one moment. 0:10:50.800 --> 0:10:53.079 There's a big news last week, and I think the 0:10:53.679 --> 0:10:56.079 one outlook that really picked up when it was Bloomberg. 0:10:56.640 --> 0:11:00.440 There was over ten billion dollars of debt issued by 0:11:00.480 --> 0:11:03.720 the large regional banks. It was the first issue since 0:11:03.760 --> 0:11:06.640 the failure of Silicon Valley. It was four to five 0:11:06.720 --> 0:11:09.960 times oversubscribed and the spreads came in pretty well. So 0:11:10.040 --> 0:11:13.560 for those banks, yes, below that level, below the level 0:11:13.640 --> 0:11:17.440 the top ten banks, it's still to be determined how 0:11:17.520 --> 0:11:21.080 much wherewithal they'll have to access the debt markets. That 0:11:21.120 --> 0:11:23.439 hasn't happened yet, So you're right, there is a divide. 0:11:23.679 --> 0:11:25.920 Golias are winning. The next level down is tap the 0:11:25.920 --> 0:11:29.280 markets below that. It weighed the scene and once you 0:11:29.320 --> 0:11:32.240 get past this acute stage, you still have a recession 0:11:32.520 --> 0:11:35.480 with commercial real estate, and most of the commercial real 0:11:35.600 --> 0:11:38.560 estate loans are for banks below the top ten. 0:11:39.280 --> 0:11:41.840 Move the decimal point, Mike Mayo, City Group after a 0:11:41.920 --> 0:11:45.000 ten to one reverse split way back four dollars eighty 0:11:45.000 --> 0:11:48.760 three cents, which is basically unchanged from two thousand and nine. 0:11:49.000 --> 0:11:53.319 I detect some Jane Fraser moves. They seem to be 0:11:53.440 --> 0:11:58.320 consolidating and simplifying the process. What is the new What 0:11:58.440 --> 0:12:00.319 is the next City Group look like? 0:12:01.000 --> 0:12:04.360 The next City Group looks a lot like the old 0:12:04.360 --> 0:12:08.280 City Group before the merger in nineteen ninety eight. So 0:12:08.360 --> 0:12:10.439 this is City Groups the silver anniversary. 0:12:10.520 --> 0:12:13.040 Gospel folks, This goes back to when Mayo was candid, 0:12:13.080 --> 0:12:14.040 credit sweet. 0:12:13.840 --> 0:12:19.120 Continue and so this is City Group's silver anniversary. It's 0:12:19.120 --> 0:12:22.360 their twenty five year anniversary, and it's certainly not a 0:12:22.400 --> 0:12:26.520 cause for celebration. The stocks down over three fourths at 0:12:26.520 --> 0:12:30.160 a time, the stock markets more than tripled. They failed 0:12:30.200 --> 0:12:31.480 on almost every measure. 0:12:31.559 --> 0:12:33.640 What is she doing different? What does the courage she's 0:12:33.679 --> 0:12:35.880 doing right now to get them back to John Reid? 0:12:36.600 --> 0:12:40.520 Well, she's simplifying. You know the old adage, Tom, is 0:12:40.559 --> 0:12:46.640 that global banking, wholesale banking, is global. Consumer banking is local, 0:12:47.200 --> 0:12:50.400 and that even predates this merger. This goes back to 0:12:50.880 --> 0:12:54.120 Walter Riston and we're talking about a fifty year failed 0:12:54.160 --> 0:12:57.760 strategy where City Group thought they could go ahead and 0:12:58.520 --> 0:13:01.320 you know, you know, have a customer in Hong Kong 0:13:01.600 --> 0:13:04.160 whose kids go to boarding school in London and they 0:13:04.240 --> 0:13:07.920 vacation and aspen and we're going to serve that life. 0:13:08.040 --> 0:13:08.480 What's that? 0:13:08.600 --> 0:13:08.760 Now? 0:13:10.320 --> 0:13:12.080 Got one more question life, Teddy. 0:13:12.160 --> 0:13:15.280 That's failed. She's reversing that, going global with wholesale and 0:13:15.280 --> 0:13:16.800 getting rid of the non US consumer. 0:13:16.920 --> 0:13:18.800 You dodged one thing. So I'm going to come back 0:13:18.840 --> 0:13:19.840 to it just real quickly. 0:13:20.160 --> 0:13:23.360 If smaller banks start to fail again, are all bets 0:13:23.400 --> 0:13:25.520 off with the largest regionals. 0:13:25.840 --> 0:13:28.480 The smallest banks are not systemic. There's over forty five 0:13:28.559 --> 0:13:30.760 hundred banks. You're going to have bank failure. That's a 0:13:30.840 --> 0:13:33.839 rule of banking. But it's not going to be any 0:13:33.880 --> 0:13:36.800 bank in the SMP five hundred in my view over 0:13:37.000 --> 0:13:40.440 the you know, many immediate time frames. So that phase 0:13:40.600 --> 0:13:45.040 is over. It's the you know this idea of you know, Tom, 0:13:45.080 --> 0:13:46.520 you can hold it up, the idea. 0:13:46.440 --> 0:13:47.280 Just don't hit hear it again. 0:13:47.480 --> 0:13:51.600 The detour away from banks has ended right if we can. 0:13:51.880 --> 0:13:55.320 Okay, we got twenty seconds MD tour, MD tour. What's 0:13:55.360 --> 0:13:56.760 your single best buy right now? 0:13:57.040 --> 0:13:59.960 You know, I'm going with JP Morgan and City Grew 0:14:00.160 --> 0:14:02.040 as my top two pick, but I'm also adding in 0:14:02.080 --> 0:14:05.800 there right now the US Bancorp, which has been relatively 0:14:05.800 --> 0:14:07.400 pummeled given the quality should. 0:14:07.200 --> 0:14:11.160 Hit him in the head. No, thank you so much. 0:14:20.880 --> 0:14:24.840 Probert Tip is the chief investment strategist for p JUM. 0:14:25.240 --> 0:14:28.640 Robert just simply, right now, what are you doing to 0:14:28.880 --> 0:14:33.120 adjust for a mid year adjustment? Everyone in equity land 0:14:33.200 --> 0:14:37.880 is adjusting like crazy, particularly bears or near bears. How 0:14:37.920 --> 0:14:41.160 does fixed income adjust. 0:14:42.040 --> 0:14:44.920 Right? Well, I think to Lisa's point there, you know, 0:14:44.920 --> 0:14:47.000 are people ignoring some of the data and some of 0:14:47.000 --> 0:14:50.680 the market messages in terms of the the equity market. 0:14:50.720 --> 0:14:53.000 People have been very zeroed in on the narrowness of 0:14:53.040 --> 0:14:55.760 the rally with tech stocks. But you know, the fact 0:14:55.760 --> 0:14:58.680 of the matter is on a country basis, Europe Japan 0:14:58.760 --> 0:15:01.440 have been doing really well even before the US, so 0:15:01.480 --> 0:15:04.440 there's a breadth of growth out there. And the reason 0:15:04.480 --> 0:15:07.880 I mentioned that, because that is the threat to the 0:15:07.920 --> 0:15:13.320 fixed income market, is that the economy is doing reasonably well. 0:15:14.600 --> 0:15:17.840 But if you wondered what a price wage spiral looks like, 0:15:18.400 --> 0:15:21.080 I think you're looking at it. You know, it's been 0:15:21.240 --> 0:15:26.800 some time here where wages have budged, they've moved up, 0:15:27.920 --> 0:15:30.480 they're not surging, but some of the settlements that you 0:15:30.560 --> 0:15:34.600 see around the world coming out of negotiations are high, 0:15:35.200 --> 0:15:38.600 and inflation, you know, on a core basis, is running 0:15:38.800 --> 0:15:41.880 around I mean the better part of five percent, and 0:15:41.920 --> 0:15:44.800 there's not a lot of signs of acceleration there. So 0:15:45.400 --> 0:15:48.000 maybe it's not a wage price spiral, but it's certainly 0:15:48.040 --> 0:15:52.480 a wage price race. You know, it's a horse race 0:15:52.520 --> 0:15:55.240 out there, and that is what could cause it to 0:15:55.320 --> 0:15:57.440 be a very long time for inflation to come down. 0:15:57.480 --> 0:16:00.720 Bring us back to that comment of the being at 0:16:00.760 --> 0:16:03.120 these levels for a very long time and not putt 0:16:03.120 --> 0:16:05.440 a little bit of upward pressure on the middle of 0:16:05.440 --> 0:16:06.080 the yell curve. 0:16:06.560 --> 0:16:07.800 So there's a lot to impact there. 0:16:07.880 --> 0:16:10.280 And let's just start and sort of elaborate on your 0:16:10.320 --> 0:16:12.840 point about a wage price spiral basically being here, or 0:16:12.840 --> 0:16:14.960 a wage price escalation, whatever you want to call it, 0:16:15.000 --> 0:16:18.400 a skip jump, pause, whatever. I am curious about what 0:16:18.600 --> 0:16:20.680 data you're looking at to give you that assertion. 0:16:20.840 --> 0:16:21.720 Give considering the. 0:16:21.640 --> 0:16:24.600 Fact that FED officials have said that their concerns about 0:16:24.600 --> 0:16:27.800 a wage price spiral have been eased, We've heard a 0:16:27.880 --> 0:16:31.000 number of others saying the same kind of thing, especially 0:16:31.000 --> 0:16:32.360 with a deceleration recently. 0:16:34.160 --> 0:16:37.000 Yeah, I mean, you could make that comment from average 0:16:37.000 --> 0:16:41.360 hourly earnings, and if you really want it to be optimistic, 0:16:41.360 --> 0:16:44.880 you could even make it from the ECI Employment Costs Index. 0:16:45.600 --> 0:16:49.080 But those sample sizes, especially on payrolls, I mean, they're 0:16:49.080 --> 0:16:53.080 not particularly large, they're subject to revision. An ECI running 0:16:53.160 --> 0:16:57.200 about one point one percent or so on a trailing 0:16:57.520 --> 0:17:00.160 I think it's around five percent. Actually, there's not been 0:17:00.200 --> 0:17:04.760 a lot of deceleration there. And you know, when you 0:17:04.800 --> 0:17:09.280 look at what's going on in the labor market, there's 0:17:09.320 --> 0:17:13.119 been huge growth in the labor force and the hiring 0:17:13.200 --> 0:17:15.959 is going on at a multiple of the pace needed 0:17:16.000 --> 0:17:20.840 to stay full employment. So you know, if you want 0:17:20.840 --> 0:17:22.960 to drill down and you want to be optimistic, you 0:17:23.000 --> 0:17:24.680 can find things that say, oh, yeah, I know this 0:17:24.720 --> 0:17:27.560 is going to be okay. But that's usually the way 0:17:28.080 --> 0:17:30.240 it ends up going the way you don't want it 0:17:30.280 --> 0:17:32.760 to go for longer than you expect, and that's what 0:17:32.840 --> 0:17:35.520 I think market pricing is missing here. 0:17:35.760 --> 0:17:38.320 The irony is that JP Morgan put out a paper 0:17:38.400 --> 0:17:40.720 saying that if bonds are right, stocks have to sell 0:17:40.720 --> 0:17:43.439 off by twenty percent, And bonds usually are right, but 0:17:43.520 --> 0:17:46.320 this time, Robert, are you basically saying that stocks are right, 0:17:46.600 --> 0:17:48.560 that bonds need to catch up to where stocks are 0:17:48.640 --> 0:17:50.880 and that won't necessitates some sort of response from the Fed. 0:17:52.560 --> 0:17:54.760 Yeah, I mean, I think I'm saying that markets actually, 0:17:54.800 --> 0:17:57.800 to me, markets look right. When you look at these 0:17:58.320 --> 0:18:02.240 large cap companies in the stock market, earnings growth is 0:18:02.280 --> 0:18:04.840 not fantastic. That these companies have seen a lot of 0:18:04.880 --> 0:18:07.520 action over the last few years, just like everybody else, 0:18:07.560 --> 0:18:10.320 and they've come through pretty well. So they're showing a 0:18:10.359 --> 0:18:15.399 resilience to calamity, granted with a lot of fiscal stimulus, 0:18:15.960 --> 0:18:18.200 but they've shown a lot of restraint on the way back. 0:18:18.240 --> 0:18:20.840 So they have a lot of cyclical resilience on the 0:18:20.880 --> 0:18:24.480 way down. And they've shown a fair amount of ability, 0:18:24.560 --> 0:18:26.720 not in real terms really, but to hold up and 0:18:26.800 --> 0:18:30.920 keep their earnings in an inflationary environment. 0:18:31.240 --> 0:18:31.720 But what is that? 0:18:31.880 --> 0:18:36.080 So I think that's, you know, maybe what's supporting this market. 0:18:36.080 --> 0:18:39.080 But overall, it looks like a good investment environment. Out 0:18:39.119 --> 0:18:42.920 there for long term fixed income. But there are some 0:18:43.280 --> 0:18:45.440 you know, some things to avoid by pricing on parts 0:18:45.480 --> 0:18:47.120 of the yield curve in particular. 0:18:46.880 --> 0:18:49.560 So how much could that mid year yield curve go up? 0:18:49.600 --> 0:18:51.560 In other words, are you looking at a pretty substantial 0:18:51.640 --> 0:18:53.480 rise in yield price lower? 0:18:54.760 --> 0:18:57.760 I think you're looking at a slow burn. Tom asked 0:18:57.760 --> 0:18:59.479 the question. You know we're going to be here, We're 0:18:59.520 --> 0:19:03.159 going to be a percent your market pricing. You know, 0:19:03.359 --> 0:19:05.680 a year or so out has over one hundred basis 0:19:05.720 --> 0:19:09.080 points of rate cuts priced in, so the market is 0:19:09.119 --> 0:19:12.680 banking on that turnaround. And so I think you could 0:19:12.680 --> 0:19:15.399 see a very slow increase in the range for tens. 0:19:15.440 --> 0:19:18.040 You can see them push up towards four percent. And 0:19:18.119 --> 0:19:20.520 if it turns out you need these five percent plus 0:19:20.520 --> 0:19:22.600 fed funds rates for a very long time, or in 0:19:22.680 --> 0:19:25.800 the case of Europe, pushing four percent for a long time, 0:19:25.880 --> 0:19:28.920 et cetera around much of the world, you're going to 0:19:29.000 --> 0:19:32.040 see you could very easily see over the next one 0:19:32.080 --> 0:19:36.479 two five years, you know, fifty hundred basis point slow 0:19:36.640 --> 0:19:38.359 burn move higher in rates. 0:19:38.720 --> 0:19:39.800 Right, it's the curt. 0:19:39.560 --> 0:19:42.320 I find interesting here. Robert tipped the idea of an 0:19:42.359 --> 0:19:46.439 ambiguity between rates higher rates, lawyer obviously lower. Obviously, somebody 0:19:46.440 --> 0:19:49.680 has their own belief in that is the solution from 0:19:49.720 --> 0:19:55.240 your mortals to barbell or to ladder out maturities. Is 0:19:55.920 --> 0:19:59.040 Kathy Jones, a schwab mentioned to us last week. 0:19:59.760 --> 0:20:04.919 Right, Well, I'm a mere mortal portfolio manager, and yes, 0:20:06.160 --> 0:20:11.720 barbelling is an approach and being tactical on the curve. 0:20:11.960 --> 0:20:15.679 And the reason I mentioned mortals as a portfolio manager is, 0:20:16.160 --> 0:20:18.760 you know, if you're an individual and you're buying your 0:20:18.800 --> 0:20:21.359 bonds on a buy and hold basis, that may not 0:20:21.440 --> 0:20:24.200 be that effective. I mean, there are opportunities in terms 0:20:24.240 --> 0:20:27.640 of floating rates, structure, product, and very high quality that's 0:20:27.640 --> 0:20:29.800 going to key off of the funds rate. You know, 0:20:29.840 --> 0:20:31.959 where the yields are pushing seven percent, and there are 0:20:31.960 --> 0:20:35.280 opportunities in the longer term credit markets again where the 0:20:35.320 --> 0:20:39.680 yields are much higher than cash number one. Number two, 0:20:40.080 --> 0:20:44.200 the pricing has been extremely dynamic. So before SVD, the 0:20:44.240 --> 0:20:47.720 Silicon Valley Bank debacle, there was pricing in the very 0:20:47.760 --> 0:20:49.959 front end of the curve the first handful of months 0:20:50.240 --> 0:20:53.720 that was extremely attractive and you wanted to have duration there. 0:20:54.119 --> 0:20:56.720 And then post SVB that you may want to be short. 0:20:57.280 --> 0:21:00.399 So tactically, i've you know, what we've seen over the 0:21:00.480 --> 0:21:03.560 years is cycles for the market have been compressed into 0:21:03.600 --> 0:21:06.679 weeks and days, and so that may not lend itself 0:21:06.680 --> 0:21:09.800 well to kind of a static barbeling approach. 0:21:10.280 --> 0:21:12.159 Very quickly here we're out of time, but this is 0:21:12.200 --> 0:21:17.520 too important. Gazillions are going into money market funds. All 0:21:17.600 --> 0:21:21.160 my radars up. What's a mistake right now of piling 0:21:21.200 --> 0:21:23.640 into five percent plus money market funds? 0:21:24.760 --> 0:21:29.440 Right? You know, my expectation would be, you know, there 0:21:29.760 --> 0:21:32.960 are two possible problems. They're the one is the economy 0:21:33.040 --> 0:21:36.080 is much weaker than expected. Rates drop and they end 0:21:36.160 --> 0:21:38.240