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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Masters in

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Speaker 1: Business with Barry Ritholts on Bloomberg Radio.

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Speaker 2: This week on the podcast, yet another extra special guest.

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Speaker 2: Steve Lpley is global cohead of bondytfs and investment giant Blackrock.

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Speaker 2: He helps to oversee over a trillion dollars in bondytfs.

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Speaker 2: He's got a fascinating background at both Bank America, Merrill

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Speaker 2: Lynch and since two thousand and nine at BGI and Blackrock.

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Speaker 2: I thought this conversation was really fascinating. There are a

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Speaker 2: few people in the world of fixed income that understands

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Speaker 2: the bond market, the ETF market, what the Fed's doing,

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Speaker 2: what is driving both institutional and household investors on the

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Speaker 2: fixed income side. I thought this conversation was absolutely fascinating,

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Speaker 2: and I think you will also with no further ado,

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Speaker 2: my conversation with black Rock's co head of bondi pfs, Steve,

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Speaker 2: Steve likely, welcome to Bloomberg.

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Speaker 3: Thanks for having me, Berry.

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Speaker 2: So what a perfect time to have somebody who specializes

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Speaker 2: in fixed income and bonds. We've had all sorts of

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Speaker 2: mayhem with tariffs on tariff's off rates up, rates down,

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Speaker 2: yields starting to creep higher and hire. But before we

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Speaker 2: get into what's going on today, let's talk a little

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Speaker 2: bit about you and your background. BS degree in finance

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Speaker 2: from University of Miami, NBA from Wharton Finance. Always the career.

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Speaker 3: Plan, not quite. So I went to Miami University in Ohio.

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Speaker 3: Actually I grew up in a small town in Ohio. Yeah,

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Speaker 3: so went there for ultimately ended up in the business school.

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Speaker 3: I did start off thinking, you know, as many people

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Speaker 3: might that, oh what should I do? Should I be

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Speaker 3: a doctor or a lawyer? I decided to try doctor.

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Speaker 3: I love biology, Organic chemistry not so much.

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Speaker 2: That's the that's the gut course that the reins a

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Speaker 2: lot of future docs out.

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Speaker 3: Yeah. So I had a good friend who said, hey,

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Speaker 3: I'm taking finance. I really like it, Maybe give it

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Speaker 3: a shot. I took a finance class, really liked it

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Speaker 3: a lot. It's sort of like math with dollar signs

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Speaker 3: attached to it. So that's sort of the way I viewed.

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Speaker 3: I really enjoyed it, and that was kind of that

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Speaker 3: was kind of it. I was hooked.

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Speaker 2: So University of Miami in Ohio is gonna scratch out

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Speaker 2: my next question, which which is how do you get

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Speaker 2: anything done in the Florida Sun in Miami? But Ohio,

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Speaker 2: I bet is a little easier study type of regime.

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Speaker 3: A little bit. It's still it's a beautiful campus, a

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Speaker 3: lot of fun. But but yeah, it's uh, it was.

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Speaker 3: It was a good experience.

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Speaker 2: So you come out of work and we'll talk a

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Speaker 2: little bit about I shares and your previous history at

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Speaker 2: Bank America Merrill Lynch. But what was it that drew

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Speaker 2: you to fixed income?

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Speaker 3: I think a couple of things. One, I really I

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Speaker 3: really did enjoy sort of the variety of things in

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Speaker 3: fixed income. You know, I mean, you know, equities can

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Speaker 3: be complex in their own right, but fixed income you

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Speaker 3: can have so many different types of instruments and cash

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Speaker 3: flows and structures. And it was just really interesting to

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Speaker 3: me to see that variety.

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Speaker 2: And what do we have something like thirty five hundred

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Speaker 2: individual equities outside of the pink sheets, and how many

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Speaker 2: q SIPs are there for fixed income?

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Speaker 3: So I did this, I did this exercise on Bloomberg.

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Speaker 3: Depending on how you filter, well north of a million,

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Speaker 3: right well north, and it's you might even get multiples

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Speaker 3: of that depending on how you filter. But yeah, fixed income,

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Speaker 3: as you know once you once you issue that a

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Speaker 3: company is going to issue debt, you know perpetually, they're

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Speaker 3: going to keep issuing newq SIPs over time. So it

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Speaker 3: adds up, no doubt.

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Speaker 2: So you're at Bank America Merrill Lynch as a senior

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Speaker 2: member of the Interest Rate Structuring and Strategic Solutions. Sounds

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Speaker 2: very institutional. Tell us a little bit about your time

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Speaker 2: at Bank America Merrill Lynch.

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Speaker 3: Yes, so I think that group. The idea was to

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Speaker 3: work with institutional clients to really help them manage risk, right,

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Speaker 3: and so it was about using derivatives in particular in

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Speaker 3: a sensible way to come up with hedging strategy. So

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Speaker 3: my particular focus was on the mortgage servicing community. They

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Speaker 3: had a very very complex asset they still do, it's

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Speaker 3: a little bit different now all these years later, but

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Speaker 3: they had a tremendous amount of interest rate risk in

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Speaker 3: those servicing right assets, right, So my job was to

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Speaker 3: work with them to come up with, you know, thoughtful

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Speaker 3: ways to hedge that risk. And there are you know,

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Speaker 3: some very very vanilla ways to do it, but you know,

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Speaker 3: we wanted to really try to be you know, more

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Speaker 3: thoughtful and much more tailored. And that was that was

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Speaker 3: what I spent a lot of time doing. I really

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Speaker 3: enjoyed it.

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Speaker 2: When I think of hedging risk on the fixed income side,

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Speaker 2: not specific to that era, which was kind of unique,

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Speaker 2: I think of interest rate risk, credit risk, the underlying

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Speaker 2: security that subsequently gets securitized. Am I warm? Tell me

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Speaker 2: if that's about right?

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Speaker 3: Okay?

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Speaker 2: What else do you consider when you're trying to find

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Speaker 2: a way to hedge a fixed income risk?

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Speaker 3: Yeah, and so you just nailed almost all of it.

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Speaker 3: So depending on what it is. So when you're dealing

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Speaker 3: with something like a mortgage servicing, right, that's that lender

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Speaker 3: you know, sells the loan off and then somebody retains

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Speaker 3: that annuity that can get prepaid. So you go pay

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Speaker 3: off your mortgage. I go pay off my mortgage, that

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Speaker 3: annuity disappears. There's optionality there. You have to hedge that, right,

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Speaker 3: So you have interest rate risk, volatility risk. Things move

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Speaker 3: up and down the more likely you are to decide

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Speaker 3: if rates fall to prepay. So it's all of that

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Speaker 3: good stuff, and then yes, you can have credit risk

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Speaker 3: and other types of assets as well.

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Speaker 2: You use one of my favorite words, option because every

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Speaker 2: time I have a discussion with people who are not

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Speaker 2: in the world of finance. And they say, have you

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Speaker 2: ever calculated how much it costs to take your boat

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Speaker 2: or jet ski out? And figure out what each ride

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Speaker 2: costs you? And I'm like, you don't understand optionality. I

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Speaker 2: have the ability to do that every single day. Whether

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Speaker 2: I choose to exercise that or not, that is still

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Speaker 2: a value that would cost somebody something you join a

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Speaker 2: boat club or a rental club or whatever. Lay people

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Speaker 2: don't get optionality. Tell us how that applies and fixed income.

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Speaker 3: Yeah, and you see this in different ways, Barry, So

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Speaker 3: I mean not dissimilar. Right. So as an example, again

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Speaker 3: going back to the homeowner part, if you have a mortgage,

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Speaker 3: you can decide to prepay that. A lot of people don't. Interestingly,

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Speaker 3: there are stories that exist, and I'm sure you've heard

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Speaker 3: them where people still have ten percent mortgages somewhere get out.

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Speaker 2: Is that true?

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Speaker 3: There are stories about that, And so if you look

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Speaker 3: at statistics, I haven't done this in a while, by

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Speaker 3: the way, so hopefully after this law long period of time,

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Speaker 3: maybe they've paid them off. But you can find these

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Speaker 3: very high coupon mortgages that are still out there, and

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Speaker 3: nobody really knows why. They haven't paid them off, but

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Speaker 3: it is your right, but you're not forced to pay

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Speaker 3: it off. You would think you'd want to if interest

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Speaker 3: rates were low enough, but that exists in different ways.

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Speaker 3: Just like when companies issue debt, a lot of times

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Speaker 3: they'll issue callable debt. So same idea. If interest rates

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Speaker 3: fall or credit spreads titan, they can call that debt

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Speaker 3: an issue cheaper debt, right, And so that's just sort

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Speaker 3: of a basic tenet of how people like to structure

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Speaker 3: their liabilities.

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Speaker 2: My equity version of that is Blackrock SMP five hundred

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Speaker 2: fund is like five BIPs, four BIPs. It's like practically free.

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Speaker 2: And sometimes portfolios come into the office and why are

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Speaker 2: you paying one hundred basis points for what's effectively an

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Speaker 2: SMP five hundred index. Why don't we save you ninety

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Speaker 2: five BIPs a year compounded over twenty years. That's a

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Speaker 2: lot of money. So the market is kinda sort of

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Speaker 2: almost efficient, is I don't know how else to describe it.

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Speaker 3: No, I think that's right. I mean, and over time,

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Speaker 3: you know, we we've really started to see investors gravitate

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Speaker 3: towards this idea of efficiency. And you know, again, you

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Speaker 3: you this is a theme that you really really hammer home,

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Speaker 3: which is, you know, basic sort of blocking and tackling

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Speaker 3: is don't surrender a lot of your return to fees.

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Speaker 3: Everybody thinks that's incredibly important. It took a while for

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Speaker 3: people to wake up to it, but I do think

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Speaker 3: over time people have really started to understand fees matter.

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Speaker 3: The strategy matters too, but the fees matter as well.

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Speaker 3: And so we have want both. Yeah, you want both.

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Speaker 3: You want both.

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Speaker 2: So I know we'll get to black rocks starting in nine.

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Speaker 2: But how long will you at Bank America for?

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Speaker 3: From ninety seven through nine?

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Speaker 2: Oh? So you watched the debacle front row row? Did

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Speaker 2: you start at Merril? Did you start at Bank America?

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Speaker 3: I started at Meryl, Oh you did. So.

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Speaker 2: A lot of people slag was John Thune. I thought

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Speaker 2: he cut a great deal that worked out really well

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Speaker 2: for metal employees and relatively well for Mental shareholders, at

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Speaker 2: least compared to you know, Bear Stearns and Lehman and

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Speaker 2: so many other companies. He he did a solid and

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Speaker 2: it took a while before people recognized it. What was

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Speaker 2: your experience like going through that mayhem?

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Speaker 3: I mean it was stressful, you know. I was not

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Speaker 3: involved with the particular businesses that were under stress, but

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Speaker 3: it was stressful for all of us as the headline

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Speaker 3: scrolled day after day after day. You know, it was

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Speaker 3: a front seat in history, as it turns out. And

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Speaker 3: so I think, you know, hopefully a lot of lessons

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Speaker 3: have been learned from from you know, that period of time.

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Speaker 3: As you know, and I think you've said this many times,

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Speaker 3: each crisis looks a little bit different, so hopefully we

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Speaker 3: take lessons from the last one, and that starts building

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Speaker 3: a knowledge base up over time. So maybe then next

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Speaker 3: time we're a little bit better equipped to deal with it.

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Speaker 3: But it was, Yes, it was an interesting time.

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Speaker 2: Yeah, to say that very Hopefully we take the right lessons.

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Speaker 2: Sometimes we drove the wrong lessons. That's a whole nother story.

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Speaker 2: So how did you find your way over to black

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Speaker 2: Rock in two thousand and nine? I'm assuming that was

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Speaker 2: once the dust settled a little bit. Was it late

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Speaker 2: past March on nine?

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Speaker 3: Yeah, it was.

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Speaker 1: It was.

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Speaker 3: It was interesting, you know, you you have sort of

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Speaker 3: contact and networking with different folks, and I had and

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Speaker 3: it was at the time Barclay's Global investors, and I

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Speaker 3: did know, I did know a couple of a couple

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Speaker 3: of folks over there, and we had just you know,

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Speaker 3: had casual conversations. But at one point, and this is

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Speaker 3: a former mentor of mine, gentleman named Matt Tucker, reached

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Speaker 3: out to me and said, hey, you know, this is

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Speaker 3: an interesting opportunity. It's called bondy tfs. It's it's a

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Speaker 3: business that that I've really been working hard on over here,

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Speaker 3: and I'm looking for a skill set that that sort

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Speaker 3: of maps to that. And and you know, I kind

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Speaker 3: of think that that your background might be might be

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Speaker 3: interesting for this. Oh you know, let's let's talk about it,

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Speaker 3: and then you know, sort of the rest is history.

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Speaker 3: But I was very very excited about it. And there

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Speaker 3: is a funny story to this, which is I discovered

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Speaker 3: bond ETFs on my own, sort of accidentally. I was

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Speaker 3: trying to buy treasuries and I was very frustrated by

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Speaker 3: the commissions I was getting charged on that. A colleague

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Speaker 3: actually pointed me to the Aischer's website and showed me

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Speaker 3: that bonditfs actually exist and you could simply buy this

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Speaker 3: on exchange without actually having to buy physical bonds and

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Speaker 3: you know, pay a commission for it.

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Speaker 2: So and not only was the commission, you know, next

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Speaker 2: to nothing. The spread and the price discovery seemed to

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Speaker 2: be a little friendlier to buyers.

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Speaker 3: I was really blown away by that, and I could

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Speaker 3: not stop, you know, scrolling through that website and fascinated

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Speaker 3: by the idea that you could take bonds and put

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Speaker 3: them on exchange. Absolutely fascinated by that, and feeling a

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Speaker 3: little stupid that I hadn't stumbled on it before, but

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Speaker 3: so so the fun part about that was it helped

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Speaker 3: a little bit in the interviews to be able to say, yes,

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Speaker 3: I'm familiar, and you know, by the way, yes I'm

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Speaker 3: actually a customer, albeit at a small scale.

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Speaker 2: For those people who are unfamiliar with BGI or Barclay's

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Speaker 2: Global investments. Eventually, what I have argued is the single

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Speaker 2: greatest acquisition in at least wealth management history. Barclay's Global

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Speaker 2: gets brought up by black Rock, and the whole I

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Speaker 2: Shares product line gets really supersized with just a much

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Speaker 2: savvier group of product developers, marketers, traders, just everything about

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Speaker 2: it went next level. How much of that were you

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Speaker 2: there to witness? Did you start a BGI started blacks.

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Speaker 3: It's funny because people often asked me what was BGI

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Speaker 3: like I was there for one month before the actual Yeah.

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Speaker 2: Like what I've heard through the grapevine is it was

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Speaker 2: a solid shop with a great product, a little sleepy,

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Speaker 2: kind of backwater. If you are at Bank America Merrill

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Speaker 2: Lynch and you still haven't discovered their bondy TF somebody

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Speaker 2: is not doing the marketing job they should.

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Speaker 3: Well, it was interesting. They were very much i think

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Speaker 3: quantitative and academically oriented, and I think I think a

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Speaker 3: little bit of the culture was okay with with being

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Speaker 3: you know, somewhat under the radar because it was, you know,

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Speaker 3: a very proprietary place, and so that that might be

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Speaker 3: might be some of it. But yeah, Blackrock did come

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Speaker 3: in and uh, you know they did. That deal was interesting.

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Speaker 3: If I don't know if you remember Barry, there were

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Speaker 3: there were some discussions about whether, you know, it would

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Speaker 3: be some sort of a private deal or what have you,

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Speaker 3: and then Blackrock kind of came in and said we'll

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Speaker 3: take the whole thing in that that was announced I

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Speaker 3: think in June, so I'd only been there a very

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Speaker 3: short period of time, and then it closed in the fall,

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Speaker 3: and I will never forget you could tell that Blackrock

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Speaker 3: was was very efficient at this because the day after

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Speaker 3: the merger closed, the signage was up on the building.

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Speaker 3: You walked in, all the screen savers that changed overnight.

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Speaker 3: You had a nice pad, no pad with the logo

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Speaker 3: on it, and you know, nice pens and all that stuff.

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Speaker 3: So very very impressive. How they were able to do

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Speaker 3: this so cleanly and quickly.

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Speaker 2: That's fascinating. And I failed to mention Black Rock is

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Speaker 2: a little shop over on the west side of the city.

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Speaker 2: Eleven twelve trillion dollars an asset someone in that range,

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Speaker 2: how big chunk is fixed income and fixeding? Come ETFs

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Speaker 2: at black.

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Speaker 3: We just hit one trillion in fixing, Come etf.

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Speaker 2: So keep at it. You'll get some aum soon. Keep

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Speaker 2: keep plugging away.

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Speaker 3: Keep plugging away. Yeah, And you know, the industry is

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Speaker 3: now globally the industry is approaching three trillion. We're at

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Speaker 3: around two point eight trillion and change. And we think

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Speaker 3: that number is going to get to six by the

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Speaker 3: end of the decade for the industry. And we hope

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Speaker 3: to be obviously a sizable chunk of that. But it's

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Speaker 3: been you know, it's been experiencing double digit growth, you know,

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Speaker 3: four years and years, and it's just been a very

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Speaker 3: you know, fast moving river for us.

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Speaker 2: Huh really really quite fascinating. So, Steve, you just mentioned

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Speaker 2: you think bond ETFs can reach six trillion dollars by

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Speaker 2: twenty thirty, Is that right? What is the key driver

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Speaker 2: of that growth that's doubling in less than five years.

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Speaker 3: Yeah, And it's a number of things. And we've talked

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Speaker 3: about these trends. So I think you have you have

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Speaker 3: a series of waves of adoption that happen. And it's

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Speaker 3: interesting because where we tend to see the largest uptake

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Speaker 3: of bond ETFs is when you have stress markets, and

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Speaker 3: so I think this is we have several several test

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Speaker 3: cases at this point, so you know, we've had many

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Speaker 3: one since the financial crisis. So financial crisis happened, and

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Speaker 3: I think that's the first time where I personally started

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Speaker 3: getting reverse inquiry from sophisticated investors asking about the bond

300
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Speaker 3: because they noticed that even at the worst of it,

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Speaker 3: let's call it September or October of eight, they were

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Speaker 3: still trading on exchange very robustly. Other markets not doing

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Speaker 3: so well, right, and so that got the attention of

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Speaker 3: a lot of investors at that time. Products are probably

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Speaker 3: too small for a lot of those investors, but they

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Speaker 3: became very intrigued by them. Over the ensuing years, you

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Speaker 3: had to you know, you would have occasional blips in

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Speaker 3: the markets, whether it was some sort of energy dislocation

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Speaker 3: in high yield or what have you. But what we

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Speaker 3: noticed was every single time you would have one of

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Speaker 3: these stressed markets, you'd see a huge surgeon volumes in

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Speaker 3: BONDYTF trading on exchange that would get the attention of

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Speaker 3: larger investors. They would start adopting the products. Why because

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Speaker 3: when you need to trade something, you were able to

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Speaker 3: trade bonditfs even if other things were really struggling to trade.

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Speaker 3: And so every single time you'd have one of these

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Speaker 3: waves of dislocation and fixed income, you started seeing more

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Speaker 3: in more and more investors gravitate to bond ETFs. The

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Speaker 3: big one was COVID, so for sure February March twenty twenty,

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Speaker 3: you know, even treasuries, high quality investment grade, you know,

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Speaker 3: the whole thing, everything was seeing dislocation, right, and so

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Speaker 3: that's when we saw probably our largest wave of adoption

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Speaker 3: in fixed income ets was during that period of time.

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Speaker 3: Same story. You saw things that people would just take

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Speaker 3: for granted, suddenly struggling, you know, in terms of bid

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Speaker 3: ask and depth of liquidity. But what could you trade?

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Speaker 3: You could trade bond ets, you could trade them in size.

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Speaker 3: That got at that point a lot of attention because

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Speaker 3: now the products has scaled to a level where even

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Speaker 3: the largest investors could use them in their portfolios, and

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Speaker 3: so that was interesting.

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Speaker 2: So you're absolutely preaching to the choir I have heard

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Speaker 2: mostly on the equity side, but also on the fixed

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Speaker 2: income side. You know, these ETFs, you don't know what

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Speaker 2: the underlying is priced at it. They're filled with all

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Speaker 2: sorts of stuff. It's really hard to get a print on.

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Speaker 2: When it hits the fan, you're not gonna be able

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Speaker 2: to get in or out of it. You're gonna have

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Speaker 2: giant spreads and no liquidly. That wasn't true in eight

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Speaker 2: oh nine, that wasn't true during the flash crash COVID

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Speaker 2: and the most recent tariff volatility. Even in twenty two,

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Speaker 2: when stocks and bonds were both down double digits for

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Speaker 2: the first time in four plus decades, ETFs traded like

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Speaker 2: rock stars. Why is this such persistent squabbling? You know,

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Speaker 2: you'll say, just wait, is it that people are losing

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Speaker 2: business to ETFs. Why is there so much fear and

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Speaker 2: concern that for twenty five years have been completely unjustified.

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Speaker 3: Yeah, I think it's a little bit of it, might

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Speaker 3: be a little bit of the hour grapes a little bit,

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Speaker 3: but I think part of it too was after the crisis,

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Speaker 3: there was it felt to me like there was this

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Speaker 3: search for what's the next thing, right, it's the next

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Speaker 3: thing that could go wrong. Not quite sure why that

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Speaker 3: focus shifted to ETFs, but it was ets and probably

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Speaker 3: a number of other things. But I think the idea

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Speaker 3: of a bond ETF in particular drew attention because the

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Speaker 3: talk track was, well, you're taking something over the counter

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Speaker 3: and you're putting inside this box, and you're putting this

359
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Speaker 3: box on exchange and that might you know, cause some

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Speaker 3: some interesting things to happen. And in reality what we've

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Speaker 3: seen is just the opposite of those fears buried again.

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Speaker 3: Just you know, you pointed out the terraf folatility, same story,

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Speaker 3: different verse, right, so you have you know, markets are

364
00:19:38,440 --> 00:19:41,920
Speaker 3: really really stressed. You see a lot of dislocations, volumes

365
00:19:41,920 --> 00:19:44,439
Speaker 3: on exchange once again set new records. I think, you know,

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Speaker 3: on the day of the announcements, I think we saw

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Speaker 3: close to one hundred billion dollars of bond ETFs train

368
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Speaker 3: on exchange. Wow, way more than the previous record during COVID.

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Speaker 3: But the sort of I think skeptic has always said, well,

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Speaker 3: you know, we haven't seen a good test yet. We

371
00:20:01,640 --> 00:20:04,359
Speaker 3: haven't seen a good test yet. I think COVID was

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00:20:04,400 --> 00:20:07,359
Speaker 3: a good test. This was just a reminder, right, And

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Speaker 3: so really what happens is, you know, the exchange keeps

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Speaker 3: trading even if the underlying doesn't. And unlike you know,

375
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Speaker 3: the fears, you don't see these quote unquote forced redemptions

376
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Speaker 3: or anything like that. Nobody's forced to redeem an ETF.

377
00:20:20,840 --> 00:20:22,600
Speaker 3: It can just trade on exchange. And I think that's

378
00:20:22,600 --> 00:20:24,560
Speaker 3: the elegance of it, and it gets proven time and

379
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Speaker 3: time again.

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Speaker 2: So I just want to define some terms you reference

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Speaker 2: because in the back of my head, I'm always thinking,

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Speaker 2: does my real estate agent mom or my art teacher

383
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Speaker 2: wife know what that means? So when we talk about

384
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Speaker 2: on the exchange, we're talking about anything that's publicly traded

385
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Speaker 2: that you could just log onto your online trading account

386
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Speaker 2: buy or sell instantly. When we talk about over the

387
00:20:49,720 --> 00:20:54,040
Speaker 2: count or OTC, that's one bond desk calling another bond

388
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Speaker 2: desk and saying, hey, do you guys have this twenty

389
00:20:56,960 --> 00:21:01,960
Speaker 2: nineteen you know, Munich California, Muni series whatever, and someone

390
00:21:01,960 --> 00:21:05,359
Speaker 2: has to go locate that. So over the counter means

391
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Speaker 2: two people literally speaking to each other to engage in

392
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Speaker 2: a transaction. Is that Is that a fair description?

393
00:21:11,560 --> 00:21:15,680
Speaker 3: That's exactly right, and so yes, over time, bond trading

394
00:21:15,680 --> 00:21:18,119
Speaker 3: has gotten more efficient. You know, in the underlying market

395
00:21:18,119 --> 00:21:22,000
Speaker 3: you have electronic trading of treasuries and now and now credit.

396
00:21:22,840 --> 00:21:26,120
Speaker 3: But you know, if you've go back twenty years when

397
00:21:26,240 --> 00:21:29,080
Speaker 3: ets were first new, bond ets were first new, it

398
00:21:29,119 --> 00:21:31,119
Speaker 3: was still very much a voice market. It was a

399
00:21:31,280 --> 00:21:34,359
Speaker 3: very much pick up the phone exactly as you described.

400
00:21:34,760 --> 00:21:38,359
Speaker 3: And even today, I think even the most sophisticated institutions

401
00:21:38,359 --> 00:21:41,960
Speaker 3: still believe in the you know, efficiency and the elegance

402
00:21:41,960 --> 00:21:44,879
Speaker 3: of being able to trade a bond etf on exchange.

403
00:21:45,240 --> 00:21:47,119
Speaker 3: You're trading if you if you just step back for

404
00:21:47,119 --> 00:21:49,440
Speaker 3: a second and think about what you're actually doing, you're

405
00:21:49,440 --> 00:21:54,159
Speaker 3: trading hundreds or sometimes thousands of bonds simultaneously at a

406
00:21:54,160 --> 00:21:57,399
Speaker 3: penny bit ask on exchange. You actually still can't do

407
00:21:57,480 --> 00:21:59,959
Speaker 3: that in the underlying market. So you know, it does

408
00:22:00,000 --> 00:22:01,959
Speaker 3: doesn't matter if you're an individual, it doesn't matter if

409
00:22:02,000 --> 00:22:05,200
Speaker 3: you're a large sovereign wealth fund. That's still a very

410
00:22:05,240 --> 00:22:08,480
Speaker 3: impressive feat to be able to do a transaction like that,

411
00:22:08,520 --> 00:22:10,720
Speaker 3: and bonditfs allow you to do that. But I want

412
00:22:10,760 --> 00:22:12,359
Speaker 3: to get back to you know, you would ask what

413
00:22:12,400 --> 00:22:14,840
Speaker 3: are sort of the long term drivers. I think this

414
00:22:15,000 --> 00:22:17,720
Speaker 3: idea of just okay, you can trade these things when

415
00:22:17,760 --> 00:22:21,520
Speaker 3: you need to, that's important. Another one would be when

416
00:22:21,560 --> 00:22:23,919
Speaker 3: we're building portfolios, and we see this both again on

417
00:22:23,960 --> 00:22:26,440
Speaker 3: the wealth and on the institutional side, do we need

418
00:22:26,480 --> 00:22:29,560
Speaker 3: to build portfolios with hundreds or thousands of bonds or

419
00:22:30,359 --> 00:22:32,680
Speaker 3: could we take a low cost bond e TF as

420
00:22:32,720 --> 00:22:35,680
Speaker 3: sort of the core of that portfolio. Could we then

421
00:22:35,840 --> 00:22:38,879
Speaker 3: use individual bonds to sort of flavor that or tilt

422
00:22:38,880 --> 00:22:41,879
Speaker 3: that in different ways, and then maybe add our favorite

423
00:22:41,880 --> 00:22:44,080
Speaker 3: active managers on top of that. Might that be a

424
00:22:44,160 --> 00:22:45,919
Speaker 3: more efficient way to do it than just going out

425
00:22:45,960 --> 00:22:48,200
Speaker 3: and buying, you know, to your point, picking up the

426
00:22:48,240 --> 00:22:51,600
Speaker 3: phone and calling around and putting together hundreds or however

427
00:22:51,640 --> 00:22:54,520
Speaker 3: many bonds which might take days or weeks. And so

428
00:22:54,560 --> 00:22:57,120
Speaker 3: I think there's this growing realization that you know, what

429
00:22:57,440 --> 00:23:00,000
Speaker 3: it's fine to trade in and out when things are volatile,

430
00:23:00,080 --> 00:23:03,359
Speaker 3: but actually might be more efficient to use these things

431
00:23:03,359 --> 00:23:05,880
Speaker 3: long term in a bomb portfolio. So I think that's

432
00:23:05,920 --> 00:23:08,040
Speaker 3: a huge part of the adoption, too, is the recognition

433
00:23:08,119 --> 00:23:10,200
Speaker 3: that this might be a smarter way to build bomb

434
00:23:10,280 --> 00:23:11,320
Speaker 3: portfolios in general.

435
00:23:11,720 --> 00:23:16,719
Speaker 2: On the equity side, I'm fond of telling people, before

436
00:23:16,760 --> 00:23:19,000
Speaker 2: you go chasing alpha, why don't you at least lock

437
00:23:19,080 --> 00:23:23,080
Speaker 2: in beta. And I'm pleased to hear that's a similar

438
00:23:23,080 --> 00:23:25,240
Speaker 2: approach on the fixed income side.

439
00:23:25,119 --> 00:23:27,719
Speaker 3: Very much, very much, And I think it's a and

440
00:23:27,760 --> 00:23:31,160
Speaker 3: this has been a journey because you know you've run

441
00:23:31,200 --> 00:23:32,879
Speaker 3: into this, and I've heard you talk about this on

442
00:23:32,920 --> 00:23:36,239
Speaker 3: your show before. Everybody wants to believe that, you know,

443
00:23:36,320 --> 00:23:39,120
Speaker 3: if I'm buying this security, I have intent, I did

444
00:23:39,160 --> 00:23:42,360
Speaker 3: my homework, it matters a great deal. And that may

445
00:23:42,400 --> 00:23:44,439
Speaker 3: be true for that security, But when you do that

446
00:23:44,520 --> 00:23:47,880
Speaker 3: one hundred times, some of that starts getting canceled out right.

447
00:23:47,920 --> 00:23:49,760
Speaker 3: And so that's when you have to step back and say,

448
00:23:49,800 --> 00:23:53,359
Speaker 3: all right, if I'm looking at my portfolio holistically, I

449
00:23:53,400 --> 00:23:56,320
Speaker 3: want a certain beta, I want a certain tilt, I

450
00:23:56,359 --> 00:23:58,760
Speaker 3: want a certain amount of yield coming from you know,

451
00:23:58,840 --> 00:24:02,040
Speaker 3: one place or another. What's the most efficient the cheapest

452
00:24:02,040 --> 00:24:04,359
Speaker 3: way to do that, and that's I think people are

453
00:24:04,400 --> 00:24:09,760
Speaker 3: slowly recognizing that maybe the ETF actually that has that utility.

454
00:24:10,160 --> 00:24:12,560
Speaker 2: So this is a good time to ask a question

455
00:24:13,800 --> 00:24:20,679
Speaker 2: about active fixed income investing. It seems like it's super challenging.

456
00:24:20,920 --> 00:24:24,240
Speaker 2: On the equity side. We all know the stats. Sixty

457
00:24:24,280 --> 00:24:27,520
Speaker 2: percent of active managers underperform the benchmark in year one.

458
00:24:28,040 --> 00:24:30,760
Speaker 2: By the time you get to five years, it's eighty plus,

459
00:24:30,800 --> 00:24:33,240
Speaker 2: ten years it's ninety plus, and by the time you

460
00:24:33,280 --> 00:24:35,520
Speaker 2: get to twenty one, it's a handful of guys like

461
00:24:35,600 --> 00:24:39,400
Speaker 2: one and Buffin and Peter Lynch. I don't see that

462
00:24:39,760 --> 00:24:42,440
Speaker 2: uphill battle of the same. On the fixed income side,

463
00:24:42,880 --> 00:24:48,440
Speaker 2: it seems like fixed income active does much better than

464
00:24:48,520 --> 00:24:51,640
Speaker 2: fixed income equity. Is that fair or.

465
00:24:52,600 --> 00:24:54,879
Speaker 3: I think there are a few things. So One, we

466
00:24:55,000 --> 00:24:58,720
Speaker 3: think that all investing is active to a degree. Right,

467
00:24:58,760 --> 00:25:02,439
Speaker 3: you're making decisions, So if you're using ETFs, you're making

468
00:25:02,520 --> 00:25:05,240
Speaker 3: sort of these broad beta calls and you're deciding, you know,

469
00:25:05,960 --> 00:25:08,119
Speaker 3: which beta, which sector, what have you. So there's an

470
00:25:08,119 --> 00:25:10,560
Speaker 3: active choice there in how you build that portfolio. But

471
00:25:10,880 --> 00:25:13,640
Speaker 3: to your point, strictly active in fixed income, what does

472
00:25:13,680 --> 00:25:16,240
Speaker 3: that mean? That means that Hey, I'm going out and

473
00:25:16,240 --> 00:25:18,840
Speaker 3: I'm assembling a bond portfolio. I'm going to compare that

474
00:25:18,960 --> 00:25:20,760
Speaker 3: to a benchmark, and I'm going to see if I

475
00:25:20,800 --> 00:25:21,160
Speaker 3: beat it.

476
00:25:21,200 --> 00:25:26,480
Speaker 2: And you guys have the benchmark, the I shares core

477
00:25:26,680 --> 00:25:29,720
Speaker 2: us AG, whereas everybody calls it the AG.

478
00:25:29,880 --> 00:25:32,520
Speaker 3: Yeah, the AG, we have agg we have the universal,

479
00:25:32,560 --> 00:25:35,800
Speaker 3: which is I USB. One of the things that we've

480
00:25:35,840 --> 00:25:39,120
Speaker 3: been vocal about is which benchmark are you looking at?

481
00:25:39,480 --> 00:25:44,679
Speaker 3: Because sometimes you'll see a manager buy a bunch of

482
00:25:44,760 --> 00:25:47,159
Speaker 3: high you bonds in their portfolio, not all, but like

483
00:25:47,200 --> 00:25:49,960
Speaker 3: they'll hold, you know, a large allocation of high old

484
00:25:49,960 --> 00:25:53,800
Speaker 3: bonds benchmark to the aggregate which has none, and say,

485
00:25:53,840 --> 00:25:57,040
Speaker 3: oh look I'm beating the aggregate. Now that's that's fine,

486
00:25:57,119 --> 00:25:59,359
Speaker 3: taking on more risks. They're taking on more risks. Okay,

487
00:25:59,359 --> 00:26:01,760
Speaker 3: that's fine. You may give some of that back every

488
00:26:01,920 --> 00:26:02,800
Speaker 3: call it five years.

489
00:26:02,880 --> 00:26:03,080
Speaker 1: Right.

490
00:26:04,119 --> 00:26:06,360
Speaker 3: What we sort of preach to is, okay, let's get

491
00:26:06,359 --> 00:26:08,960
Speaker 3: benchmarks that look a little bit closer to the risk

492
00:26:09,000 --> 00:26:13,000
Speaker 3: you're taking and see what you're actually adding through security selection. Right,

493
00:26:13,000 --> 00:26:16,960
Speaker 3: So some of it's benchmark misspecification, but fixed income markets

494
00:26:17,000 --> 00:26:21,000
Speaker 3: still are less liquid, they're more fragmented. So yes, there

495
00:26:21,080 --> 00:26:23,960
Speaker 3: are opportunities there, and so you know, people often ask me,

496
00:26:24,040 --> 00:26:26,840
Speaker 3: do you believe in active or quote passive? We call

497
00:26:26,880 --> 00:26:32,400
Speaker 3: passive index because actually even in an index choice yeah, exactly.

498
00:26:32,040 --> 00:26:34,800
Speaker 2: So market cap waiting, that's a choice.

499
00:26:34,840 --> 00:26:37,080
Speaker 3: It's a choice. And so my answer to that is

500
00:26:37,160 --> 00:26:39,120
Speaker 3: we believe in all of the above. We think the

501
00:26:39,160 --> 00:26:43,040
Speaker 3: best portfolios have elements of both of these things. Index

502
00:26:43,160 --> 00:26:47,360
Speaker 3: and quote unquote active together, much better portfolio, much more

503
00:26:47,440 --> 00:26:51,080
Speaker 3: resilient than just sort of suiciding one or the other. Oh,

504
00:26:51,119 --> 00:26:54,040
Speaker 3: I'm all active or I'm all index, right, So we

505
00:26:54,119 --> 00:26:56,600
Speaker 3: think both makes a lot of sense, and that's that's

506
00:26:56,640 --> 00:26:58,760
Speaker 3: how we sort of design our products at give.

507
00:26:58,840 --> 00:27:01,760
Speaker 2: Given the million play plus q SIPs, the million plus

508
00:27:01,800 --> 00:27:06,160
Speaker 2: bonds that are out there, my simple thesis was always,

509
00:27:06,640 --> 00:27:08,880
Speaker 2: if you want to be an active fixed income manager,

510
00:27:09,000 --> 00:27:12,520
Speaker 2: how hard is it to screen out the lowest quality,

511
00:27:12,800 --> 00:27:18,120
Speaker 2: weakest credit, poorest yield relative to risk you have to take?

512
00:27:18,760 --> 00:27:22,440
Speaker 2: And if you're just cutting out the bottom half of that,

513
00:27:22,440 --> 00:27:26,000
Speaker 2: that should do better than whatever the AG is going

514
00:27:26,040 --> 00:27:29,920
Speaker 2: to do or whatever your benchmark is, because as you know, hey,

515
00:27:29,920 --> 00:27:32,560
Speaker 2: this thirty five hundred stocks, not all of which are great.

516
00:27:33,200 --> 00:27:35,600
Speaker 2: A million bonds, there's a lot of room for the

517
00:27:35,600 --> 00:27:39,320
Speaker 2: bottom pick a number decile quartz asle half a lot

518
00:27:39,320 --> 00:27:41,399
Speaker 2: of junk can get mixed up into that. I don't

519
00:27:41,400 --> 00:27:45,880
Speaker 2: mean high yield, I mean lower quality fixed income opportunities.

520
00:27:46,480 --> 00:27:49,199
Speaker 3: Yeah, and this is the trick with fixed income. You

521
00:27:49,240 --> 00:27:52,960
Speaker 3: could see great opportunities, but when you try to act

522
00:27:53,000 --> 00:27:55,840
Speaker 3: on them, it can be really costly to actually implement.

523
00:27:55,920 --> 00:27:59,360
Speaker 3: And that cost or just can you find that bond? Right?

524
00:27:59,440 --> 00:28:02,760
Speaker 3: So you're okay, the search costs the actual transaction costs.

525
00:28:02,800 --> 00:28:05,399
Speaker 2: Wait, there's a search cost for locating a bond. I

526
00:28:05,440 --> 00:28:09,000
Speaker 2: always thought it was kind of built into the transaction costs.

527
00:28:09,040 --> 00:28:11,280
Speaker 2: I didn't realize, Hey, find me this, that's going to

528
00:28:11,359 --> 00:28:12,960
Speaker 2: cost you just to ask that question.

529
00:28:13,160 --> 00:28:15,800
Speaker 3: Well, let's call let's call that the time it takes

530
00:28:15,840 --> 00:28:18,840
Speaker 3: to actually get a hold of it. You're sitting in cash, right,

531
00:28:18,880 --> 00:28:21,200
Speaker 3: and and I've I've heard you say this many times.

532
00:28:21,240 --> 00:28:23,520
Speaker 3: You probably should not be singing in cash very long.

533
00:28:23,800 --> 00:28:26,920
Speaker 3: It's a medium of exchange, right, So that's right, But

534
00:28:27,320 --> 00:28:30,040
Speaker 3: this is the time it takes you to locate that

535
00:28:30,119 --> 00:28:32,760
Speaker 3: particular bond, and then you have to pay the transaction cost,

536
00:28:32,920 --> 00:28:34,679
Speaker 3: you know, the bit ask on top of it. So

537
00:28:35,040 --> 00:28:39,120
Speaker 3: you know, yes, optically, you could see opportunities all over

538
00:28:39,160 --> 00:28:41,840
Speaker 3: the place. The question is are you able to actually

539
00:28:42,000 --> 00:28:44,239
Speaker 3: move on them and implement them at the right at

540
00:28:44,240 --> 00:28:46,880
Speaker 3: the right price. And that's that's where there's a lot

541
00:28:46,920 --> 00:28:48,840
Speaker 3: of skill involved in fixed income, I think.

542
00:28:48,720 --> 00:28:53,959
Speaker 2: And I've heard some clients say, especially institutional clients, listen,

543
00:28:54,280 --> 00:28:59,040
Speaker 2: my cash, my money allocation. I've got that I've hired

544
00:28:59,080 --> 00:29:01,840
Speaker 2: you to do. You're my equity guy, you are my

545
00:29:01,920 --> 00:29:06,200
Speaker 2: fixed income you are my opportunistic distress guy. I don't

546
00:29:06,240 --> 00:29:09,200
Speaker 2: need you to carry cash. And I wonder how that

547
00:29:09,280 --> 00:29:12,840
Speaker 2: impacts people's thoughts of when you start to see one, two, three,

548
00:29:12,920 --> 00:29:16,480
Speaker 2: four percent creeping up as a cash balance. Got to

549
00:29:16,480 --> 00:29:19,200
Speaker 2: put that money to work. There's an opportunity cost of

550
00:29:19,320 --> 00:29:20,200
Speaker 2: just sitting in cash.

551
00:29:20,840 --> 00:29:24,840
Speaker 3: Yeah, yeah, and there is. I think what has happened

552
00:29:24,880 --> 00:29:27,720
Speaker 3: the last couple of years is, you know, money market

553
00:29:27,720 --> 00:29:30,000
Speaker 3: assets are you know, in the trillions.

554
00:29:30,200 --> 00:29:32,320
Speaker 2: Well, now that it's four and a half, that it's.

555
00:29:32,400 --> 00:29:35,080
Speaker 3: A five percent, and so there's been a little bit

556
00:29:35,280 --> 00:29:39,959
Speaker 3: of what I would call, I think apprehension of giving

557
00:29:40,040 --> 00:29:42,560
Speaker 3: up that certain or what people view as certain, you know,

558
00:29:42,600 --> 00:29:44,240
Speaker 3: four and a half to five percent and then moving

559
00:29:44,280 --> 00:29:47,080
Speaker 3: out the trick to that is, you know, if you

560
00:29:47,160 --> 00:29:49,880
Speaker 3: wait too long, the market's going to move past you.

561
00:29:50,200 --> 00:29:52,480
Speaker 2: And we've watched it. You know, it broke below four,

562
00:29:52,560 --> 00:29:55,760
Speaker 2: it went back over five. You're not locking that in,

563
00:29:55,840 --> 00:29:58,640
Speaker 2: you're taking what Look, if you're saving for a house

564
00:29:58,760 --> 00:30:01,080
Speaker 2: or something, six months, it's a year down the road

565
00:30:01,640 --> 00:30:04,800
Speaker 2: and you're afraid of you know, twenty twenty two type year.

566
00:30:05,240 --> 00:30:08,000
Speaker 2: Of course, a money market makes perfect sense. But if

567
00:30:08,040 --> 00:30:11,280
Speaker 2: you're looking out a couple of years, you want a

568
00:30:11,320 --> 00:30:14,360
Speaker 2: product where you can sort of lock in a higher

569
00:30:14,480 --> 00:30:16,160
Speaker 2: yield fair statement.

570
00:30:16,360 --> 00:30:19,320
Speaker 3: Yeah, and you also want to be able to have it.

571
00:30:19,440 --> 00:30:22,520
Speaker 3: So look, cash is great. We launched money market ets.

572
00:30:22,640 --> 00:30:25,120
Speaker 3: Cash plays a role in a portfolio. To your point,

573
00:30:25,160 --> 00:30:27,680
Speaker 3: it shouldn't be a huge part of the portfolio. You

574
00:30:27,760 --> 00:30:30,640
Speaker 3: need to get those assets allocated, you know, on a

575
00:30:30,720 --> 00:30:35,200
Speaker 3: risk basis, so whether it's you know, equities, safe bonds,

576
00:30:35,280 --> 00:30:38,240
Speaker 3: riskier bonds. It's like an orchestra, right, you have your

577
00:30:38,240 --> 00:30:40,400
Speaker 3: string section, your horn section, they all need to play

578
00:30:40,400 --> 00:30:43,840
Speaker 3: together and just sitting on the sidelines that's okay for

579
00:30:43,880 --> 00:30:46,400
Speaker 3: a while, but it's it doesn't make very good music.

580
00:30:46,480 --> 00:30:49,160
Speaker 3: You need to actually have everything you know kind of

581
00:30:49,160 --> 00:30:52,160
Speaker 3: playing its role in the portfolio. And so I long term,

582
00:30:52,240 --> 00:30:55,200
Speaker 3: that is what's going to actually, you know, build your return.

583
00:30:55,200 --> 00:30:57,320
Speaker 2: Right, And I'm spit balling these numbers off the top

584
00:30:57,320 --> 00:30:58,840
Speaker 2: of my head. I have to double check them, but

585
00:30:58,880 --> 00:31:02,560
Speaker 2: I want to say cash is a drag on performance

586
00:31:03,040 --> 00:31:05,400
Speaker 2: four to five years in equity and nine out of

587
00:31:05,480 --> 00:31:09,040
Speaker 2: ten years in fixed income? Am I close there? Bullpark?

588
00:31:09,400 --> 00:31:13,360
Speaker 3: Haven't heard that part in fixed income, But I see

589
00:31:13,360 --> 00:31:14,960
Speaker 3: your point. I mean, you know, if you just sit

590
00:31:15,040 --> 00:31:18,400
Speaker 3: forever in the FED cuts rates, you're going to miss it, right,

591
00:31:18,480 --> 00:31:20,720
Speaker 3: And so that's that's right, that's and you know, and

592
00:31:20,760 --> 00:31:22,800
Speaker 3: I think the consensus right now is, ah, you know,

593
00:31:23,000 --> 00:31:25,240
Speaker 3: maybe they'll cut a couple times this year, maybe a

594
00:31:25,240 --> 00:31:27,960
Speaker 3: couple times next year. Things can move pretty quickly on

595
00:31:28,000 --> 00:31:29,800
Speaker 3: the ground, and you know, it's one of those things

596
00:31:29,840 --> 00:31:32,680
Speaker 3: where you know, yeah, by the time you wake up

597
00:31:32,720 --> 00:31:34,800
Speaker 3: and decide to move, the market may have already moved

598
00:31:34,840 --> 00:31:37,920
Speaker 3: past you. I mean, to your point, we were at

599
00:31:38,040 --> 00:31:40,520
Speaker 3: around four and a half percent almost a year ago,

600
00:31:40,520 --> 00:31:42,760
Speaker 3: and guess where we're sitting at today around four and

601
00:31:42,800 --> 00:31:44,720
Speaker 3: a half percent. But it's been quite a bumpy ride

602
00:31:44,880 --> 00:31:47,000
Speaker 3: up and down, and so who knows where we'll be

603
00:31:47,040 --> 00:31:47,760
Speaker 3: in six months.

604
00:31:48,080 --> 00:31:50,800
Speaker 2: So the question is of if you were sitting in

605
00:31:50,880 --> 00:31:54,880
Speaker 2: money markets for the past year, or you had bought

606
00:31:56,280 --> 00:32:00,520
Speaker 2: some equivalent bond ETF which performed better over the past

607
00:32:00,520 --> 00:32:02,280
Speaker 2: twelve months given all the volatility.

608
00:32:02,440 --> 00:32:05,200
Speaker 3: Well, on a risk adjusted basis, you could say, all right,

609
00:32:05,240 --> 00:32:06,920
Speaker 3: I had less risk in the money market, and I'm

610
00:32:06,920 --> 00:32:07,960
Speaker 3: sort of sitting where I was.

611
00:32:08,040 --> 00:32:10,560
Speaker 2: You know, But if you have high quality dons, how

612
00:32:10,600 --> 00:32:11,240
Speaker 2: much risk.

613
00:32:11,040 --> 00:32:14,600
Speaker 3: Is if you bought sort of last if you think

614
00:32:14,640 --> 00:32:18,520
Speaker 3: about where we were closer to five percent, you know

615
00:32:18,600 --> 00:32:21,160
Speaker 3: you actually ended up locking in pretty good yields. Now,

616
00:32:21,400 --> 00:32:23,720
Speaker 3: the one thing I would say is it's hard to time.

617
00:32:24,120 --> 00:32:26,520
Speaker 3: It's hard to time rates. It might be actually the

618
00:32:26,560 --> 00:32:29,080
Speaker 3: hardest thing to do is to time the top and yields.

619
00:32:29,760 --> 00:32:32,000
Speaker 3: That can be a very very fleeting thing. So it's

620
00:32:32,040 --> 00:32:35,640
Speaker 3: more about get invested, build a durable portfolio. Make sure

621
00:32:35,720 --> 00:32:38,040
Speaker 3: you have risk in the right buckets. You need some

622
00:32:38,120 --> 00:32:42,000
Speaker 3: high quality bonds for ballast, you need some riskier bonds

623
00:32:42,000 --> 00:32:45,040
Speaker 3: for income. Right, that all plays together with the equity

624
00:32:45,080 --> 00:32:47,160
Speaker 3: side and the oult side of your portfolio. All these

625
00:32:47,200 --> 00:32:49,960
Speaker 3: things need to come together. Yes, cash plays a role,

626
00:32:50,040 --> 00:32:53,280
Speaker 3: but you will probably miss out on some very good opportunities.

627
00:32:53,320 --> 00:32:56,240
Speaker 3: We haven't had yields like this in twenty years, right,

628
00:32:56,320 --> 00:32:58,880
Speaker 3: So are you really going to try to hit the

629
00:32:58,920 --> 00:33:01,840
Speaker 3: top when you're seeing yields that are as good as

630
00:33:01,880 --> 00:33:05,760
Speaker 3: they've been in a generation. Yeah, so you can get greedy, right, But.

631
00:33:05,960 --> 00:33:09,120
Speaker 2: Which is kind of funny because it I always laugh

632
00:33:09,200 --> 00:33:13,080
Speaker 2: when I think about someone who's forty forty five years

633
00:33:13,080 --> 00:33:15,640
Speaker 2: old on a stock desk, on a bond desk, have

634
00:33:15,880 --> 00:33:20,320
Speaker 2: not seen seven percent yields in their entire professional career.

635
00:33:20,880 --> 00:33:24,360
Speaker 2: And I recall people's bonds coming up, like the New

636
00:33:24,440 --> 00:33:29,200
Speaker 2: York City geo bonds finally got called seven percent, like

637
00:33:29,200 --> 00:33:31,040
Speaker 2: they were again, I'm getting fifteen percent? What am I

638
00:33:31,040 --> 00:33:34,360
Speaker 2: going to do with seven percent? That was when New

639
00:33:34,440 --> 00:33:36,840
Speaker 2: York City was going to collapse? You can't get fifteen

640
00:33:36,880 --> 00:33:40,240
Speaker 2: percent today. Seven percent treasuries. Hey, that's a good deal.

641
00:33:40,760 --> 00:33:43,640
Speaker 2: No one realized how great a deal it was twenty

642
00:33:43,640 --> 00:33:46,640
Speaker 2: five years ago, but that's just the reality.

643
00:33:46,800 --> 00:33:48,960
Speaker 3: Yeah, And you do have to go back to the

644
00:33:49,000 --> 00:33:51,800
Speaker 3: mid two thousands to see yields at these levels. So

645
00:33:51,880 --> 00:33:54,800
Speaker 3: it's a great opportunity. And you know, rather than saying,

646
00:33:54,800 --> 00:33:56,959
Speaker 3: well I really want to hold on until five percent,

647
00:33:57,360 --> 00:33:59,719
Speaker 3: you know, I mean, you just may miss it. So

648
00:34:00,480 --> 00:34:02,480
Speaker 3: we think it's just a great, great time in fixing.

649
00:34:02,920 --> 00:34:05,520
Speaker 2: Absolutely, And I want to just remind everybody who thinks

650
00:34:05,560 --> 00:34:10,799
Speaker 2: they can time yield. So the FED, collectively, everybody has

651
00:34:10,880 --> 00:34:14,080
Speaker 2: been completely wrong about when the FED was going to

652
00:34:14,120 --> 00:34:16,160
Speaker 2: start cutting, how far they were going to cut, how

653
00:34:16,200 --> 00:34:19,440
Speaker 2: often they would have cut, Like the consensus could not

654
00:34:19,719 --> 00:34:23,640
Speaker 2: possibly have been more wrong for like what three years,

655
00:34:23,680 --> 00:34:27,120
Speaker 2: four years? Here comes the recession, Here comes the Fed cuts,

656
00:34:27,160 --> 00:34:30,359
Speaker 2: Here comes if you're waiting because you think you can

657
00:34:30,480 --> 00:34:33,319
Speaker 2: guess if you're going to be a macro tourist, best

658
00:34:33,360 --> 00:34:33,880
Speaker 2: of luck.

659
00:34:33,719 --> 00:34:37,400
Speaker 3: To you, right, yeah, exactly. It's build a portfolio for

660
00:34:37,440 --> 00:34:40,359
Speaker 3: the long term, you know. And you may say, well

661
00:34:40,360 --> 00:34:43,239
Speaker 3: I could have gotten a higher yield or hey I

662
00:34:43,280 --> 00:34:46,200
Speaker 3: locked in a pretty good yield here. Either way, it's

663
00:34:46,239 --> 00:34:48,560
Speaker 3: about the next ten years. It's not about the next month.

664
00:34:48,800 --> 00:34:53,160
Speaker 2: Huh. Really really interesting. So let's start out talking about

665
00:34:53,200 --> 00:34:57,680
Speaker 2: fixed income today and the obvious spike in bond market

666
00:34:57,760 --> 00:35:01,160
Speaker 2: volatility we've seen this year. Tell us what's going on.

667
00:35:02,000 --> 00:35:06,120
Speaker 3: It's we've covered a couple of these things, but it's

668
00:35:06,680 --> 00:35:08,759
Speaker 3: pick your theme, okay, So let's let's go back a

669
00:35:08,760 --> 00:35:12,360
Speaker 3: few years. We had COVID, we had the policy response

670
00:35:12,440 --> 00:35:15,840
Speaker 3: to that. We then had transitory inflation, which became not

671
00:35:15,960 --> 00:35:20,320
Speaker 3: transitory inflation. We then had the we had the reverse

672
00:35:20,400 --> 00:35:24,600
Speaker 3: policy response, which was too aggressively high grates, the most

673
00:35:24,640 --> 00:35:29,040
Speaker 3: aggressive tightening cycle in forty years. Right, So people were

674
00:35:29,160 --> 00:35:32,360
Speaker 3: used to seeing rates, you know, bumping up against zero.

675
00:35:32,440 --> 00:35:35,000
Speaker 3: I think at one point the tenure yield was you know,

676
00:35:35,120 --> 00:35:38,759
Speaker 3: somewhere in the you know, sixty seventy basis point range

677
00:35:38,760 --> 00:35:41,680
Speaker 3: at the very very very lows. And I think this

678
00:35:41,840 --> 00:35:43,959
Speaker 3: was quite a shock to people who were just sort

679
00:35:43,960 --> 00:35:47,279
Speaker 3: of used to seeing the post crisis, post crisis story

680
00:35:47,360 --> 00:35:50,040
Speaker 3: quantitative easing regime. All of a sudden, you have yields

681
00:35:50,080 --> 00:35:53,480
Speaker 3: moving you know to a two handle, three handle, four handle,

682
00:35:53,520 --> 00:35:57,160
Speaker 3: and then ultimately a five handle something. To your point,

683
00:35:57,280 --> 00:35:59,920
Speaker 3: many investors haven't seen this before, and so it was

684
00:36:00,040 --> 00:36:03,520
Speaker 3: quite a shock to the system. Then we kind of

685
00:36:03,600 --> 00:36:08,000
Speaker 3: hit sort of equilibrium. The economy seems to be doing

686
00:36:08,000 --> 00:36:10,799
Speaker 3: all right. As we talked about, you know, people were

687
00:36:10,840 --> 00:36:14,880
Speaker 3: worried about recession, it hasn't materialized yet. The Fed you know,

688
00:36:15,120 --> 00:36:18,200
Speaker 3: paused for a while, started easing. Then all of a sudden,

689
00:36:18,280 --> 00:36:22,439
Speaker 3: you get new policy initiatives coming in, specifically tariffs, right,

690
00:36:22,480 --> 00:36:25,839
Speaker 3: and so that caused a general rethinking of the way

691
00:36:25,920 --> 00:36:28,760
Speaker 3: the economy is going to move going forward. Will inflation

692
00:36:28,880 --> 00:36:31,759
Speaker 3: come back, won't it? It's just been you know a

693
00:36:31,880 --> 00:36:34,560
Speaker 3: lot of up and downs. And as we were talking,

694
00:36:34,800 --> 00:36:37,240
Speaker 3: if you just look at the trajectory of the tenure yield,

695
00:36:37,680 --> 00:36:40,640
Speaker 3: you know, we just sort of do this large, you know,

696
00:36:40,760 --> 00:36:43,560
Speaker 3: kind of sime wave between you know, call it sort

697
00:36:43,600 --> 00:36:46,600
Speaker 3: of high threes and high fours. And we've been doing

698
00:36:46,640 --> 00:36:49,439
Speaker 3: that now for a few years. So you're just sort

699
00:36:49,440 --> 00:36:51,360
Speaker 3: of stuck in the middle of you know, kind of

700
00:36:51,400 --> 00:36:54,120
Speaker 3: a fore handle. But you get these ups and downs

701
00:36:54,160 --> 00:36:55,960
Speaker 3: depending on what the driver is.

702
00:36:56,320 --> 00:37:00,000
Speaker 2: And just to put some specifics on this, when when

703
00:37:00,000 --> 00:37:04,320
Speaker 2: when we look at the broad economic consensus about tariffs,

704
00:37:05,200 --> 00:37:10,360
Speaker 2: they're generally perceived as inflationary, sort of a giant vat

705
00:37:10,360 --> 00:37:12,759
Speaker 2: tax on consumers. I know a lot of people in

706
00:37:12,760 --> 00:37:17,520
Speaker 2: the administration push back on that characterization. But if you're

707
00:37:17,520 --> 00:37:20,000
Speaker 2: spending more money on tariffs, you have that much less

708
00:37:20,040 --> 00:37:23,839
Speaker 2: money to spend on other things. Therefore it should hurt

709
00:37:23,880 --> 00:37:28,359
Speaker 2: corporate revenues and perhaps be someone inflationary. Is that a

710
00:37:28,360 --> 00:37:29,040
Speaker 2: fair assessment.

711
00:37:29,280 --> 00:37:31,680
Speaker 3: It's it's hard to say, so I think, you know,

712
00:37:32,000 --> 00:37:36,279
Speaker 3: I've heard both arguments. I think, really what inflation is about, right,

713
00:37:36,360 --> 00:37:38,920
Speaker 3: so we whether it's tariffs or something else. You know,

714
00:37:39,360 --> 00:37:41,880
Speaker 3: people often talk about these things is well, that's a

715
00:37:41,920 --> 00:37:45,160
Speaker 3: one time shock versus something that happens repeatedly, over and

716
00:37:45,200 --> 00:37:48,280
Speaker 3: over again. I think some of that's academic Inflation's really

717
00:37:49,239 --> 00:37:52,759
Speaker 3: I almost think it's a mind game or an expectations game.

718
00:37:53,239 --> 00:37:56,440
Speaker 3: The real, I think question is does inflation, you know,

719
00:37:56,600 --> 00:38:01,200
Speaker 3: a higher expectation for inflation somehow get embedded or get

720
00:38:01,320 --> 00:38:05,040
Speaker 3: sort of resurfaced, right as a result of whatever policy initiative.

721
00:38:05,080 --> 00:38:07,000
Speaker 3: And so I think what the Fed's looking at is

722
00:38:07,080 --> 00:38:11,400
Speaker 3: less about a specific thing and more about whether people

723
00:38:11,440 --> 00:38:15,000
Speaker 3: start worrying that inflation will be at X level like,

724
00:38:15,280 --> 00:38:17,239
Speaker 3: which may be above where the FED wants it to be.

725
00:38:17,600 --> 00:38:19,920
Speaker 3: To me, I think that's what they're really focused on,

726
00:38:20,120 --> 00:38:22,200
Speaker 3: is you know, hey, we got things down. We're at

727
00:38:22,239 --> 00:38:24,800
Speaker 3: two point three percent. And by the way, what's interesting

728
00:38:24,840 --> 00:38:26,560
Speaker 3: I actually looked at this. If you go back to

729
00:38:27,239 --> 00:38:29,439
Speaker 3: let's call it ninety five to two thousand and five,

730
00:38:30,160 --> 00:38:33,600
Speaker 3: average inflation was around two and a half not two. Right,

731
00:38:33,719 --> 00:38:36,000
Speaker 3: So if you kind of look at a long, long

732
00:38:36,080 --> 00:38:39,480
Speaker 3: time series on Bloomberg as an example, right now where

733
00:38:39,520 --> 00:38:42,480
Speaker 3: we're sitting isn't too far off where we've been on

734
00:38:42,520 --> 00:38:45,560
Speaker 3: a long, you know, twenty odd thirty odd year journey.

735
00:38:45,840 --> 00:38:47,919
Speaker 3: But I think what the Fed's worried about is will

736
00:38:47,960 --> 00:38:51,920
Speaker 3: any particular action cause people to start worrying that inflation

737
00:38:52,000 --> 00:38:54,440
Speaker 3: will be hiring. As you know, sometimes that can become

738
00:38:54,760 --> 00:38:56,799
Speaker 3: sort of a self fulfilling thing. I think that's kind

739
00:38:56,840 --> 00:38:57,400
Speaker 3: of the concern.

740
00:38:57,520 --> 00:39:00,640
Speaker 2: So I'm going to play devil's advocate on every point

741
00:39:00,920 --> 00:39:02,880
Speaker 2: you said, and I want to hear you pushback. But

742
00:39:03,000 --> 00:39:07,200
Speaker 2: before I get to that, former Vice Chairman of the FED,

743
00:39:07,320 --> 00:39:13,000
Speaker 2: Roger Ferguson, did this accidentally very funny piece about the

744
00:39:13,040 --> 00:39:17,520
Speaker 2: two percent target, and he could not find an academic

745
00:39:17,680 --> 00:39:21,080
Speaker 2: basis for that number, but he traced it back to

746
00:39:21,280 --> 00:39:27,080
Speaker 2: an interview from the Australian, their central bank chief on

747
00:39:27,160 --> 00:39:30,400
Speaker 2: TV in the nineteen eighties, and he mentioned two percent

748
00:39:30,440 --> 00:39:33,440
Speaker 2: as their target. That was the first mention of it.

749
00:39:34,239 --> 00:39:38,120
Speaker 2: I mean, it certainly was a credible target. In the

750
00:39:38,160 --> 00:39:41,000
Speaker 2: post financial crisis, while we were trying to get up

751
00:39:41,040 --> 00:39:45,000
Speaker 2: to two percent, inflation and deflation was the fear. But

752
00:39:45,200 --> 00:39:48,680
Speaker 2: once the Cares Act and the new era of fiscal

753
00:39:48,719 --> 00:39:52,840
Speaker 2: stimulus passed, isn't two percent kind of the wrong target?

754
00:39:52,920 --> 00:39:56,120
Speaker 2: Why doesn't two and a half or three percent make

755
00:39:56,360 --> 00:40:00,400
Speaker 2: sense in an era of fiscal not monetary stimulus.

756
00:40:00,800 --> 00:40:03,479
Speaker 3: I'm gonna I'm gonna say that is above my pay grade.

757
00:40:03,520 --> 00:40:06,399
Speaker 3: But what I will say is, if you look at

758
00:40:06,400 --> 00:40:10,040
Speaker 3: a long, long time series, whether it's two, whether it's

759
00:40:10,080 --> 00:40:12,399
Speaker 3: two and a half, I mean, I think generally right

760
00:40:12,440 --> 00:40:14,839
Speaker 3: now we're sort of in that zip code, right So

761
00:40:15,200 --> 00:40:16,799
Speaker 3: can they get it all the way down to a

762
00:40:16,800 --> 00:40:20,160
Speaker 3: perfect two? I don't know. And do they want to

763
00:40:20,400 --> 00:40:22,520
Speaker 3: or you know, does do you risk going to one

764
00:40:22,560 --> 00:40:24,560
Speaker 3: and a half? I mean, that's that's for them to

765
00:40:24,719 --> 00:40:27,319
Speaker 3: worry about. I do think that we're not too far

766
00:40:27,440 --> 00:40:29,120
Speaker 3: off if you if you were to look at this

767
00:40:29,160 --> 00:40:33,279
Speaker 3: over many, many, many years. The worry is, somehow does

768
00:40:33,360 --> 00:40:35,560
Speaker 3: everything that's happening right now start sending you in the

769
00:40:35,600 --> 00:40:38,640
Speaker 3: other direction again, people worrying about it, Does that start,

770
00:40:38,880 --> 00:40:42,439
Speaker 3: you know, causing you know, specific actions that actually lead

771
00:40:42,480 --> 00:40:44,279
Speaker 3: to it, to it becoming more of a reality. I

772
00:40:44,320 --> 00:40:45,880
Speaker 3: think that's what the Fed's sort of focused on.

773
00:40:46,360 --> 00:40:50,520
Speaker 2: And I think transitory has become a dirty word, but

774
00:40:52,000 --> 00:40:56,719
Speaker 2: we sometimes want stuff right now. I can make the

775
00:40:56,760 --> 00:41:02,359
Speaker 2: case that this bout of fiscally driven inflation was transitory.

776
00:41:02,480 --> 00:41:05,960
Speaker 2: Transitory just took a little longer than everybody expected compared

777
00:41:06,040 --> 00:41:09,640
Speaker 2: to the sort of deep structural inflation we saw in

778
00:41:09,680 --> 00:41:14,160
Speaker 2: the nineteen seventies. This wasn't structural. We passed a joint everybody,

779
00:41:14,160 --> 00:41:17,640
Speaker 2: stay home. Here's two trillion dollars. Takes a little while

780
00:41:17,680 --> 00:41:19,560
Speaker 2: for the pick to work its way through the python.

781
00:41:19,719 --> 00:41:24,360
Speaker 3: Yeah right, that's interesting. I mean, yeah, you had a huge, huge,

782
00:41:24,400 --> 00:41:28,279
Speaker 3: fiscal impulse, you know, very very significant fiscal impulse, and

783
00:41:28,600 --> 00:41:30,680
Speaker 3: sure it could take time for that to work through.

784
00:41:30,920 --> 00:41:33,680
Speaker 3: If you couple that with the idea that you unleashed

785
00:41:33,680 --> 00:41:36,760
Speaker 3: that fiscal impulse at a time when policy was still easy,

786
00:41:37,239 --> 00:41:40,040
Speaker 3: the textbooks would tell you that you probably should expect

787
00:41:40,040 --> 00:41:42,000
Speaker 3: some inflation. But I think, you know, if you look

788
00:41:42,000 --> 00:41:44,279
Speaker 3: at just the way people had sort of entrenched their

789
00:41:44,320 --> 00:41:47,200
Speaker 3: thinking post crisis, they were caught off guard.

790
00:41:47,400 --> 00:41:50,200
Speaker 2: When you were at Wharton, did you have Jeremy Siegel

791
00:41:50,239 --> 00:41:50,520
Speaker 2: as a.

792
00:41:50,440 --> 00:41:52,480
Speaker 3: Profession I did not. I did sit I was a

793
00:41:52,520 --> 00:41:54,480
Speaker 3: little bit I was a little bit disgruntled about that

794
00:41:54,840 --> 00:41:57,040
Speaker 3: work didn't work out scheduling. I did sit on in

795
00:41:57,160 --> 00:41:59,799
Speaker 3: on some of his lectures, just as a guest.

796
00:42:01,080 --> 00:42:05,160
Speaker 2: But yeah, I had him in here two months after

797
00:42:05,200 --> 00:42:08,799
Speaker 2: the first Cares Act was passed, and he was the

798
00:42:08,840 --> 00:42:12,839
Speaker 2: first person I recall saying, Hey, this is economics, one

799
00:42:12,880 --> 00:42:17,120
Speaker 2: on one, two trillion dollars, the largest fiscal stimulus as

800
00:42:17,120 --> 00:42:20,160
Speaker 2: a percentage of GDP since World War Two. We're going

801
00:42:20,239 --> 00:42:24,240
Speaker 2: to see a giant bout of inflation, maybe even double digits.

802
00:42:24,680 --> 00:42:28,319
Speaker 2: And I got emails we love Jeremy, you've had him

803
00:42:28,360 --> 00:42:30,800
Speaker 2: on the past, but he's crazy. We're not going to

804
00:42:30,840 --> 00:42:33,360
Speaker 2: get anywhere near nine ten percent. He doesn't know what

805
00:42:33,360 --> 00:42:36,239
Speaker 2: he's talking about. And it was kind of shocking to

806
00:42:36,320 --> 00:42:40,200
Speaker 2: hear someone stocks for the long run talk about inflation

807
00:42:40,360 --> 00:42:43,560
Speaker 2: and bond yields, and he turned out to pretty pretty

808
00:42:43,600 --> 00:42:43,920
Speaker 2: dead on.

809
00:42:44,520 --> 00:42:47,040
Speaker 3: Yeah again, if you just sort of go back and

810
00:42:47,480 --> 00:42:51,600
Speaker 3: you look at a large fiscal impulse coupled with easy

811
00:42:51,680 --> 00:42:54,279
Speaker 3: monetary policy, that's right out of the textbooks.

812
00:42:54,640 --> 00:42:58,520
Speaker 2: And yet it was so hard another failure of imagination.

813
00:42:59,160 --> 00:43:01,520
Speaker 2: Was so hard to say, no, no, we've had inflation

814
00:43:01,920 --> 00:43:04,759
Speaker 2: two percent for twenty twenty five years. What are you

815
00:43:04,800 --> 00:43:09,040
Speaker 2: talking eight, nine, ten percent. It just seemed that regime

816
00:43:09,160 --> 00:43:13,280
Speaker 2: change was so hard to incorporate because it just seemed

817
00:43:13,480 --> 00:43:16,759
Speaker 2: like such a break from everything we've experienced before.

818
00:43:17,560 --> 00:43:20,240
Speaker 3: And it happened quickly, very very very quickly.

819
00:43:20,640 --> 00:43:24,800
Speaker 2: So so let's talk a little bit about the next

820
00:43:24,920 --> 00:43:30,000
Speaker 2: easing cycle. I'm assuming that six months from now, by

821
00:43:30,040 --> 00:43:33,239
Speaker 2: the time we get into the fall, the worst of

822
00:43:33,280 --> 00:43:37,640
Speaker 2: the tariff is behind us, things will have stabilized. At

823
00:43:37,680 --> 00:43:40,640
Speaker 2: that point, is the Fed starting to think, all right,

824
00:43:40,840 --> 00:43:43,960
Speaker 2: we can unfreeze the housing mark a little bit and

825
00:43:44,120 --> 00:43:47,000
Speaker 2: talk talk about a few more rate cuts this year

826
00:43:47,080 --> 00:43:49,680
Speaker 2: or next, Like what sort of timing should we be

827
00:43:49,760 --> 00:43:50,400
Speaker 2: thinking about.

828
00:43:50,680 --> 00:43:53,560
Speaker 3: That's what the market I've looked at this this morning.

829
00:43:53,640 --> 00:43:55,680
Speaker 3: The market's pricing in a couple cuts by the end

830
00:43:55,680 --> 00:43:58,879
Speaker 3: of the year, pricing in a couple cuts next year.

831
00:43:59,080 --> 00:44:01,400
Speaker 3: And so it looks to me the markets sort of

832
00:44:01,400 --> 00:44:04,120
Speaker 3: settled on this idea that maybe wind up with a

833
00:44:04,280 --> 00:44:07,240
Speaker 3: terminal rate of around you know, three and a quarter,

834
00:44:07,320 --> 00:44:09,960
Speaker 3: three and a half somewhere in that zip code. So

835
00:44:10,120 --> 00:44:12,280
Speaker 3: we'll we'll see. I mean, the cut definitely got pushed

836
00:44:12,320 --> 00:44:15,319
Speaker 3: out to September, right, I think originally, you know, if

837
00:44:15,320 --> 00:44:17,279
Speaker 3: you go back even you know, a few weeks ago,

838
00:44:17,320 --> 00:44:19,360
Speaker 3: we were still thinking sort of you know, mid to

839
00:44:19,400 --> 00:44:22,640
Speaker 3: late summer. But that's that's now pushed into September for sure,

840
00:44:22,760 --> 00:44:23,920
Speaker 3: so we'll see.

841
00:44:24,200 --> 00:44:27,520
Speaker 2: So the big question is everybody's been expecting cuts for

842
00:44:27,560 --> 00:44:31,080
Speaker 2: so long and has been so wrong. Is there anything

843
00:44:31,120 --> 00:44:34,960
Speaker 2: in the data that you look at that suggests maybe

844
00:44:35,000 --> 00:44:37,080
Speaker 2: we're going to get right this time in terms of

845
00:44:37,120 --> 00:44:40,560
Speaker 2: the Wall Street consensus as to when the timing of

846
00:44:40,719 --> 00:44:41,800
Speaker 2: rate cuts might think.

847
00:44:41,880 --> 00:44:44,759
Speaker 3: Well, you just said it. Consensus has a funny way

848
00:44:44,800 --> 00:44:48,319
Speaker 3: of maybe not actually materializing, right. So I think everybody's

849
00:44:48,520 --> 00:44:51,040
Speaker 3: sort of locked in on this, on this path. Now

850
00:44:51,080 --> 00:44:52,800
Speaker 3: it looks like just the way the curve is shaped

851
00:44:52,800 --> 00:44:55,839
Speaker 3: and everything else. Well, we will see the data has

852
00:44:55,880 --> 00:44:59,640
Speaker 3: come in, you know, it depends you can find you

853
00:44:59,640 --> 00:45:02,839
Speaker 3: can find people who have raised growth concerns, but then

854
00:45:02,880 --> 00:45:06,440
Speaker 3: you can also find the resiliency crowd. There's just a

855
00:45:06,520 --> 00:45:09,399
Speaker 3: lot of I think, sort of mixed data right now.

856
00:45:09,400 --> 00:45:12,240
Speaker 3: But overall, you know, the economy seems to be holding

857
00:45:12,280 --> 00:45:13,719
Speaker 3: in pretty well so far.

858
00:45:13,680 --> 00:45:16,160
Speaker 2: Pretty resilient. You know. One of the things I always

859
00:45:16,200 --> 00:45:20,759
Speaker 2: look at are spreads, and they seem to be relatively

860
00:45:20,840 --> 00:45:23,200
Speaker 2: low for all the people running around with their hair

861
00:45:23,239 --> 00:45:25,799
Speaker 2: on fire, they are. What does that tell us of

862
00:45:25,840 --> 00:45:29,160
Speaker 2: the state of the economy and the state of the

863
00:45:29,440 --> 00:45:30,600
Speaker 2: fixed income markets.

864
00:45:30,880 --> 00:45:33,880
Speaker 3: Yeah, I think whether you're looking at investment grade spreads

865
00:45:34,120 --> 00:45:37,680
Speaker 3: or high yield spreads right to spreads to treasuries, they're

866
00:45:37,880 --> 00:45:42,160
Speaker 3: both pretty tight relative to historical, long term, historical averages.

867
00:45:42,239 --> 00:45:45,000
Speaker 3: So yeah, the credit markets are telling you that so

868
00:45:45,320 --> 00:45:48,879
Speaker 3: far they are buying the resiliency story. They think that,

869
00:45:48,960 --> 00:45:51,400
Speaker 3: you know, balance sheets are still in pretty good shape.

870
00:45:51,640 --> 00:45:54,160
Speaker 3: I mean, you've heard the say anecdote before that when

871
00:45:54,200 --> 00:45:58,520
Speaker 3: yields were low, corporations did do you know, very thoughtful

872
00:45:58,719 --> 00:46:01,359
Speaker 3: issuance and they were able to lock in yields and

873
00:46:01,440 --> 00:46:04,239
Speaker 3: really you know, shore up their balance sheets and have

874
00:46:04,360 --> 00:46:07,680
Speaker 3: these strong cash flow profiles. Now, ultimately people will have

875
00:46:07,760 --> 00:46:10,960
Speaker 3: to refinance, and you know that may be at higher yields.

876
00:46:10,960 --> 00:46:12,880
Speaker 3: So we'll see how long that holds. But so far,

877
00:46:13,000 --> 00:46:16,440
Speaker 3: spreads are telling you that the resiliency story is intact.

878
00:46:16,760 --> 00:46:22,959
Speaker 2: So corporate debt issuers refinanced that at lower rates, households

879
00:46:22,960 --> 00:46:25,839
Speaker 2: did it. Everybody did it except Uncle Sam. We'll save

880
00:46:25,880 --> 00:46:30,240
Speaker 2: that for another time. But if you're a buyer of debt,

881
00:46:30,480 --> 00:46:33,319
Speaker 2: how should you be thinking about duration? When do you

882
00:46:33,360 --> 00:46:37,840
Speaker 2: start extending your duration looking to lock in a little

883
00:46:37,920 --> 00:46:41,319
Speaker 2: higher yield on the possibility that we see lower rates

884
00:46:41,320 --> 00:46:41,880
Speaker 2: in the future.

885
00:46:42,000 --> 00:46:46,080
Speaker 3: This this is the debate capital thg right, So I

886
00:46:46,120 --> 00:46:50,640
Speaker 3: think we've been very much in the camp of you know,

887
00:46:50,920 --> 00:46:53,799
Speaker 3: the intermediate part of the curve is pretty attractive. So

888
00:46:54,200 --> 00:46:56,520
Speaker 3: you know, if you're looking inside five to seven, three

889
00:46:56,560 --> 00:46:58,919
Speaker 3: to seven, somewhere in that zip code, you know, whether

890
00:46:58,960 --> 00:47:01,879
Speaker 3: it's in treasuries or or high grade or even even

891
00:47:01,920 --> 00:47:05,200
Speaker 3: high yields in that area. Anyway, that's the maturity profile.

892
00:47:05,560 --> 00:47:08,160
Speaker 3: But if you look at that versus say thirty years,

893
00:47:08,640 --> 00:47:11,319
Speaker 3: I think that, you know, right now, a lot of

894
00:47:11,400 --> 00:47:16,480
Speaker 3: debate going on on the fiscal situation. Moody's actions sort

895
00:47:16,520 --> 00:47:18,520
Speaker 3: of resurface that debate if you look at it term

896
00:47:18,560 --> 00:47:22,520
Speaker 3: premium meaning and you know, again let's define terms. The

897
00:47:22,560 --> 00:47:26,440
Speaker 3: amount that investors want for holding very long term bonds

898
00:47:26,480 --> 00:47:28,800
Speaker 3: has gone up quite a lot over the last several months,

899
00:47:29,280 --> 00:47:31,319
Speaker 3: and I think all of this is sort of playing

900
00:47:31,360 --> 00:47:35,400
Speaker 3: into this idea that, yeah, longer term yields are flirting

901
00:47:35,400 --> 00:47:38,960
Speaker 3: with five percent, could they go higher? They might. There's

902
00:47:39,000 --> 00:47:42,000
Speaker 3: a lot of ambiguity around what our fiscal trajectory is.

903
00:47:43,000 --> 00:47:45,880
Speaker 3: Are we at risk for further deterioration? We are running

904
00:47:45,920 --> 00:47:49,000
Speaker 3: deficits with a growing economy and that is, you know,

905
00:47:49,280 --> 00:47:52,120
Speaker 3: and we're running larger ones than we historically have with

906
00:47:51,920 --> 00:47:54,239
Speaker 3: a with a growing economy. So that's what's caused this

907
00:47:54,440 --> 00:47:58,640
Speaker 3: fear of the long end. Now our longer term bonds

908
00:47:58,640 --> 00:48:02,719
Speaker 3: to be avoided completely. I think there's healthy debate on that.

909
00:48:02,800 --> 00:48:05,759
Speaker 3: I do think that they still hold some shock absorber

910
00:48:05,840 --> 00:48:08,799
Speaker 3: value depending on the situation. So, you know, we like

911
00:48:09,000 --> 00:48:12,680
Speaker 3: we kind of frame this as being positioned, you know,

912
00:48:12,880 --> 00:48:15,439
Speaker 3: overweight in sort of this belly of the curve because

913
00:48:15,440 --> 00:48:16,960
Speaker 3: we think that's a sweet spot. It doesn't mean that

914
00:48:17,000 --> 00:48:19,799
Speaker 3: you should have zero long term minds, you know, it

915
00:48:19,800 --> 00:48:21,799
Speaker 3: could be having some might be a good sort of

916
00:48:21,840 --> 00:48:23,479
Speaker 3: you know, insurance policy in a way.

917
00:48:23,840 --> 00:48:27,520
Speaker 2: So when when yield comes down, bond values go up

918
00:48:27,560 --> 00:48:32,040
Speaker 2: and vice versa. If you're making a bet, what's the

919
00:48:32,080 --> 00:48:35,279
Speaker 2: next two hundred basis points in yield? Is it more

920
00:48:35,360 --> 00:48:37,600
Speaker 2: likely to go higher and more likely to go lower.

921
00:48:38,360 --> 00:48:41,680
Speaker 2: It would take a pretty big screw up to send

922
00:48:41,880 --> 00:48:45,880
Speaker 2: yields up two hundred basis points not a zero possibility,

923
00:48:45,920 --> 00:48:48,680
Speaker 2: but is that kind of the core bet we're more

924
00:48:48,719 --> 00:48:50,120
Speaker 2: likely to see move down then up.

925
00:48:51,160 --> 00:48:56,120
Speaker 3: I think the current view is that long term yields

926
00:48:56,120 --> 00:48:58,759
Speaker 3: could edge higher on this edge higher, edge higher, like

927
00:48:58,800 --> 00:49:01,640
Speaker 3: twenty five to fifty basis point that's been discussing because

928
00:49:01,640 --> 00:49:04,839
Speaker 3: of this idea that depending okay, depending on how the

929
00:49:04,880 --> 00:49:07,920
Speaker 3: tax and spending bills come out and how people score that,

930
00:49:08,040 --> 00:49:09,960
Speaker 3: and what's that going to look like for the deficit,

931
00:49:10,000 --> 00:49:12,800
Speaker 3: et cetera, et cetera. You know, the discussion could be

932
00:49:12,880 --> 00:49:15,399
Speaker 3: could you see further pressure on the very very long end.

933
00:49:16,000 --> 00:49:19,200
Speaker 3: The intermediate part is probably okay. So the real debate

934
00:49:19,280 --> 00:49:21,160
Speaker 3: is are we going to see more of a steepening

935
00:49:21,760 --> 00:49:25,239
Speaker 3: depending on the outcome of the you know, tax and

936
00:49:25,280 --> 00:49:29,040
Speaker 3: spending bills, et cetera, et cetera. That's been the debate. Now,

937
00:49:29,280 --> 00:49:32,720
Speaker 3: if you get an unexpected slow down, you could see

938
00:49:32,800 --> 00:49:36,400
Speaker 3: long term yields come down temporarily. And so to your point,

939
00:49:36,640 --> 00:49:39,239
Speaker 3: you know, do you get two hundred basis points up

940
00:49:39,320 --> 00:49:41,360
Speaker 3: or do you get fifty to one hundred down. It

941
00:49:41,400 --> 00:49:44,560
Speaker 3: all depends on you know, the unexpected by definition, If

942
00:49:44,600 --> 00:49:46,720
Speaker 3: you get a sharp slow down, then nobody saw coming.

943
00:49:47,040 --> 00:49:49,600
Speaker 3: You probably do see longer term yields coming down, and

944
00:49:49,640 --> 00:49:51,840
Speaker 3: I think not a lot of people are expecting.

945
00:49:51,480 --> 00:49:54,319
Speaker 2: That at all, well except everybody for the past five

946
00:49:54,520 --> 00:49:58,080
Speaker 2: years predicting recessions that never showed up. The other question

947
00:49:58,160 --> 00:50:00,880
Speaker 2: that I always like to ask is, hey, what happens

948
00:50:00,880 --> 00:50:04,960
Speaker 2: if we yields don't go appreciably higher or lower? Can

949
00:50:05,000 --> 00:50:07,600
Speaker 2: we just be stuck in a four and a quarter

950
00:50:07,640 --> 00:50:11,360
Speaker 2: to four and three quarter, you know, money market yields

951
00:50:11,680 --> 00:50:14,120
Speaker 2: plus or minus around four and a half percent. What

952
00:50:14,160 --> 00:50:16,840
Speaker 2: does that look like? Can we just stay in that

953
00:50:16,960 --> 00:50:18,600
Speaker 2: range for three, four or five years?

954
00:50:19,640 --> 00:50:22,799
Speaker 3: Sure? Are you likely to? Probably not? History would tell

955
00:50:22,880 --> 00:50:26,440
Speaker 3: us that except for you had this long period, that

956
00:50:26,520 --> 00:50:29,480
Speaker 3: doesn't look really like anything that we wanted in the

957
00:50:29,520 --> 00:50:31,680
Speaker 3: twenty tens, right totally. So unless we go back to

958
00:50:31,719 --> 00:50:34,920
Speaker 3: the twenty tens, probably not. But I think you know

959
00:50:35,560 --> 00:50:38,200
Speaker 3: my earlier point, it's gonna be really hard to call

960
00:50:38,320 --> 00:50:41,200
Speaker 3: like this is the best yield that I want to

961
00:50:41,239 --> 00:50:44,200
Speaker 3: get into. It's more about we're gonna have ups, we're

962
00:50:44,239 --> 00:50:46,840
Speaker 3: gonna have downs, we'll have cycles. It's really about building

963
00:50:46,840 --> 00:50:50,040
Speaker 3: that portfolio out for the long term and getting income.

964
00:50:50,160 --> 00:50:52,600
Speaker 3: So it's the first time in twenty odd years the

965
00:50:52,760 --> 00:50:55,920
Speaker 3: income is back in fixed income. So that's pretty compelling.

966
00:50:56,520 --> 00:51:01,680
Speaker 2: So if someone's fixed then come investor or looking to

967
00:51:01,760 --> 00:51:05,080
Speaker 2: add fixed income as a sort of shock absorber to

968
00:51:05,120 --> 00:51:09,240
Speaker 2: their equity. Portfolios. What segments of the fixed income market

969
00:51:09,560 --> 00:51:12,200
Speaker 2: do you find attractive? Where are the opportunities today?

970
00:51:12,840 --> 00:51:16,640
Speaker 3: We've been seeing flows mostly go into very high quality

971
00:51:16,800 --> 00:51:20,640
Speaker 3: so that being treasuries, that being investment grade. That's where

972
00:51:20,920 --> 00:51:22,759
Speaker 3: you know, the bulk of flows have been moving into.

973
00:51:22,800 --> 00:51:24,919
Speaker 3: And again much of it has been in that sort

974
00:51:24,920 --> 00:51:28,120
Speaker 3: of belly of the curve type of exposure. Now, mathematically,

975
00:51:28,680 --> 00:51:31,280
Speaker 3: as a shock absorber, you're going to get your biggest

976
00:51:31,360 --> 00:51:33,120
Speaker 3: kick from the very long end of the curve. We

977
00:51:33,239 --> 00:51:35,880
Speaker 3: just talked about that, Right, You're taking some risk there.

978
00:51:36,239 --> 00:51:38,239
Speaker 2: So because if it goes the other way, it goes the.

979
00:51:38,160 --> 00:51:40,719
Speaker 3: Other way, it hurts. And so the debate's going to be,

980
00:51:40,960 --> 00:51:43,680
Speaker 3: you know, will it play that role if you get

981
00:51:43,719 --> 00:51:46,239
Speaker 3: a big slowdown, right, if you get a huge risk off,

982
00:51:46,239 --> 00:51:49,319
Speaker 3: will you see long long term yields rally like they

983
00:51:49,360 --> 00:51:51,840
Speaker 3: have in the past in light of some of the

984
00:51:51,880 --> 00:51:53,920
Speaker 3: fiscal concerns. That's the big, big.

985
00:51:53,719 --> 00:51:58,520
Speaker 2: Defence the doll Yeah, that's the debate. And what about

986
00:51:58,680 --> 00:52:02,000
Speaker 2: you know, we always have clients who are looking into

987
00:52:02,040 --> 00:52:04,600
Speaker 2: their retirement. You know, I just want X dollars and

988
00:52:04,640 --> 00:52:08,239
Speaker 2: not worry about taxes. Uh, if you're in a high

989
00:52:08,280 --> 00:52:11,600
Speaker 2: tax state, how are you looking at the muni markets

990
00:52:11,640 --> 00:52:12,280
Speaker 2: these days?

991
00:52:12,560 --> 00:52:15,400
Speaker 3: Yeah, and I think munis have have really you know,

992
00:52:15,520 --> 00:52:17,560
Speaker 3: seen some whipsaw as well. Right, so a lot of

993
00:52:17,600 --> 00:52:22,560
Speaker 3: folks now look look at muni's and see some opportunities there. Again,

994
00:52:22,960 --> 00:52:27,080
Speaker 3: this discussion around tax policy has really really sort of

995
00:52:27,080 --> 00:52:30,400
Speaker 3: caused a lot of volatility. At some point, you just

996
00:52:30,480 --> 00:52:33,080
Speaker 3: have to really make an allocation decision. And if you're

997
00:52:33,160 --> 00:52:36,520
Speaker 3: if you are, you know, in a high tax bracket,

998
00:52:36,560 --> 00:52:39,280
Speaker 3: I mean, unis can be pretty compelling, and they've cheapened

999
00:52:39,360 --> 00:52:40,080
Speaker 3: up a fair amount.

1000
00:52:40,239 --> 00:52:42,560
Speaker 2: All right, so I only have you for a limited

1001
00:52:42,560 --> 00:52:46,040
Speaker 2: amount of time. Let's jump to my favorite questions that

1002
00:52:46,120 --> 00:52:50,240
Speaker 2: I ask all of my guests, starting with what's keeping

1003
00:52:50,239 --> 00:52:53,160
Speaker 2: you entertained these days? What are you watching or listening to?

1004
00:52:53,840 --> 00:52:57,640
Speaker 3: H Well, so, the funny part about this is it's

1005
00:52:57,680 --> 00:53:00,760
Speaker 3: so masters in business, big fan and I we already

1006
00:53:00,760 --> 00:53:01,239
Speaker 3: talked about that.

1007
00:53:01,280 --> 00:53:04,320
Speaker 2: But no, I also whenever someone says that, I always

1008
00:53:04,320 --> 00:53:07,399
Speaker 2: feel like Rodney Dangerfield and Pattie Shack, keep it fair,

1009
00:53:07,560 --> 00:53:08,200
Speaker 2: Keep it fair.

1010
00:53:08,360 --> 00:53:13,040
Speaker 3: No right now, you know, streaming wise, my wife makes

1011
00:53:13,080 --> 00:53:16,320
Speaker 3: this joke. So she and and my my older sons,

1012
00:53:16,360 --> 00:53:18,319
Speaker 3: you know, will watch Yellowstone or something like that. I've

1013
00:53:18,320 --> 00:53:19,280
Speaker 3: always got my laptop.

1014
00:53:19,600 --> 00:53:19,880
Speaker 2: Right.

1015
00:53:20,040 --> 00:53:23,680
Speaker 3: It's so she's like, you don't really watch TV with us,

1016
00:53:23,760 --> 00:53:25,960
Speaker 3: You pretend to, But I think one of the fun

1017
00:53:26,080 --> 00:53:29,120
Speaker 3: things I'm watching, you know, friends and neighbors right now.

1018
00:53:29,440 --> 00:53:32,319
Speaker 2: So interesting, it's fun. Are you are you caught up?

1019
00:53:32,760 --> 00:53:33,319
Speaker 3: Not caught up?

1020
00:53:33,360 --> 00:53:35,879
Speaker 2: Not caught up from so the what whatever? The last

1021
00:53:35,920 --> 00:53:41,920
Speaker 2: episode was five really fun twist no spoilers, no spoilers, absolutely,

1022
00:53:42,080 --> 00:53:46,000
Speaker 2: but yeah on it not unexpected, but the way they

1023
00:53:46,080 --> 00:53:48,120
Speaker 2: execute it was really well done.

1024
00:53:48,160 --> 00:53:50,920
Speaker 3: All right, cool, that'll be some good bit. And I

1025
00:53:51,480 --> 00:53:54,239
Speaker 3: am still very fond of binge watching Law and Order.

1026
00:53:54,640 --> 00:53:57,120
Speaker 3: I will try purposely to hold out because I do

1027
00:53:57,320 --> 00:54:00,520
Speaker 3: like binge watching all of the above. Right, So, whether

1028
00:54:00,520 --> 00:54:02,440
Speaker 3: it's organized crime or what have you.

1029
00:54:02,520 --> 00:54:06,440
Speaker 2: So my wife makes eight o'clock the screens go away,

1030
00:54:06,520 --> 00:54:08,960
Speaker 2: you can watch TV. You have to put that away.

1031
00:54:09,000 --> 00:54:11,440
Speaker 2: So that means right before I go to bed. Ye,

1032
00:54:11,560 --> 00:54:13,720
Speaker 2: last couple of minutes. Let me just try to impose

1033
00:54:13,760 --> 00:54:14,120
Speaker 2: that rule.

1034
00:54:14,120 --> 00:54:15,120
Speaker 3: It kind of falls apart.

1035
00:54:15,760 --> 00:54:19,120
Speaker 2: No, No, she's a strict, stern task master, she who

1036
00:54:19,200 --> 00:54:22,400
Speaker 2: must be obeyed. All right, So let's talk about you

1037
00:54:22,440 --> 00:54:25,160
Speaker 2: mentioned one of your mentors. Tell us about the folks

1038
00:54:25,239 --> 00:54:26,920
Speaker 2: who helped shape your career.

1039
00:54:27,680 --> 00:54:30,520
Speaker 3: Yeah, and many of them are are folks who have

1040
00:54:30,600 --> 00:54:33,799
Speaker 3: moved on. But I think there are certain people that

1041
00:54:33,880 --> 00:54:37,120
Speaker 3: I remember, you know, who really gave good advice. And

1042
00:54:38,000 --> 00:54:40,799
Speaker 3: you know, I'll give you a couple of examples. I

1043
00:54:40,800 --> 00:54:44,440
Speaker 3: had a boss, one of my first ones out of

1044
00:54:44,440 --> 00:54:47,759
Speaker 3: business school, and he basically said, look, I viewed my

1045
00:54:47,880 --> 00:54:52,400
Speaker 3: job as teaching you. I want you to listen and learn,

1046
00:54:52,600 --> 00:54:54,680
Speaker 3: and then if you work hard, have you My other

1047
00:54:54,840 --> 00:54:59,240
Speaker 3: job is to help you create financial security for yourself

1048
00:54:59,239 --> 00:55:02,640
Speaker 3: and your family. But you have to do those things

1049
00:55:02,760 --> 00:55:05,040
Speaker 3: in order for that to happen. So if you listen

1050
00:55:05,160 --> 00:55:07,279
Speaker 3: and you work hard, I'll try to keep up my

1051
00:55:07,719 --> 00:55:09,960
Speaker 3: side of it as well. And that always struck me

1052
00:55:10,000 --> 00:55:12,000
Speaker 3: and I thought that was a great way to put it.

1053
00:55:12,280 --> 00:55:14,520
Speaker 3: You know, he viewed his job as teaching but also

1054
00:55:14,840 --> 00:55:16,759
Speaker 3: if I did the right things to help me in

1055
00:55:16,800 --> 00:55:18,960
Speaker 3: the long term, and so I thought that was really interesting.

1056
00:55:19,400 --> 00:55:23,719
Speaker 3: Another mentor, you know, told me that you can be

1057
00:55:23,920 --> 00:55:26,560
Speaker 3: really good at what you do, but you really have

1058
00:55:26,640 --> 00:55:29,200
Speaker 3: to get along with people. You really have to be

1059
00:55:29,280 --> 00:55:32,560
Speaker 3: able to know where somebody else is coming from. Work

1060
00:55:32,600 --> 00:55:34,400
Speaker 3: well with people, because you can be great at what

1061
00:55:34,440 --> 00:55:37,399
Speaker 3: you do, but if you're not pleasant to work with.

1062
00:55:37,800 --> 00:55:39,480
Speaker 3: It's not going to get you too far at all,

1063
00:55:39,600 --> 00:55:42,040
Speaker 3: And so I think that's that's another lesson. I mean,

1064
00:55:42,120 --> 00:55:44,160
Speaker 3: you know a lot of times you like to think

1065
00:55:44,200 --> 00:55:46,680
Speaker 3: you're right in a certain debate or whatever, but you

1066
00:55:46,800 --> 00:55:49,000
Speaker 3: really do have to learn to bridge those gaps or

1067
00:55:49,280 --> 00:55:51,400
Speaker 3: it doesn't even matter how good you are what you do.

1068
00:55:51,880 --> 00:55:55,760
Speaker 2: Huh. Good, good advice for anyone listening. Let's talk about books.

1069
00:55:55,800 --> 00:55:58,000
Speaker 2: What are some of your favorites. What are you reading currently?

1070
00:55:58,560 --> 00:56:01,360
Speaker 3: Well, reading How to Think Like a Monk.

1071
00:56:02,200 --> 00:56:05,080
Speaker 2: I saw that Amazon was Yeah.

1072
00:56:05,000 --> 00:56:07,120
Speaker 3: No, it's pretty cool. I had a friend of mine.

1073
00:56:07,200 --> 00:56:09,480
Speaker 3: I'm not sure why he recommended that book to me,

1074
00:56:09,480 --> 00:56:11,799
Speaker 3: and there might be a hidden message in there, but

1075
00:56:11,840 --> 00:56:14,319
Speaker 3: I think that's pretty cool. Read too much one of

1076
00:56:14,320 --> 00:56:17,200
Speaker 3: my you know, I I like history books, and so

1077
00:56:17,480 --> 00:56:19,240
Speaker 3: you know, I've read a lot of the ken Burns stuff.

1078
00:56:19,360 --> 00:56:22,040
Speaker 3: I think, in particular, the things I've been fascinated with

1079
00:56:22,440 --> 00:56:25,680
Speaker 3: the sixties I think really helped shape the world that

1080
00:56:25,719 --> 00:56:28,200
Speaker 3: we're living in this So I've been a junkie of

1081
00:56:28,239 --> 00:56:31,200
Speaker 3: a lot of that stuff and authors and books ken

1082
00:56:31,239 --> 00:56:33,719
Speaker 3: the ken Burns stuff, all. Yeah, I really like that.

1083
00:56:33,920 --> 00:56:36,520
Speaker 3: So but but I'll watch any number of documentaries. I

1084
00:56:36,600 --> 00:56:39,440
Speaker 3: just think that really was a pivotal time for the

1085
00:56:39,440 --> 00:56:42,120
Speaker 3: country and the world, and it kind of has echoes

1086
00:56:42,160 --> 00:56:44,040
Speaker 3: and you know, really long shadows. So I always thought

1087
00:56:44,080 --> 00:56:48,840
Speaker 3: that was that was really interesting. I like a book

1088
00:56:48,840 --> 00:56:51,480
Speaker 3: that really kind of stuck with me over the years.

1089
00:56:51,480 --> 00:56:54,440
Speaker 3: It was about you know, I love math, statistics, all

1090
00:56:54,440 --> 00:56:56,520
Speaker 3: that stuff. It was a book called Against the Gods

1091
00:56:56,560 --> 00:56:58,239
Speaker 3: and it was the story.

1092
00:57:00,080 --> 00:57:01,759
Speaker 2: Oh my god, so one of my favorite, one of

1093
00:57:01,800 --> 00:57:07,080
Speaker 2: the old time great finance books that most people absolutely

1094
00:57:07,120 --> 00:57:12,359
Speaker 2: one should be reading, no doubt about that. So I

1095
00:57:12,400 --> 00:57:16,080
Speaker 2: always pick out a handful of books to read over

1096
00:57:16,120 --> 00:57:19,120
Speaker 2: the summer. I'm so happy sitting on the beach, waves

1097
00:57:19,160 --> 00:57:22,760
Speaker 2: crashing in the background, banging through book after book. What

1098
00:57:23,080 --> 00:57:26,440
Speaker 2: just came a couple of days ago was Ron Churnow's

1099
00:57:27,040 --> 00:57:30,960
Speaker 2: Mark Twain. Oh wow, and you know Churnout, did Hamilton

1100
00:57:31,000 --> 00:57:34,800
Speaker 2: need a bunch of giant books. I'm super excited about that.

1101
00:57:35,000 --> 00:57:38,320
Speaker 2: So I'll let you know if that's interesting. I can't

1102
00:57:38,360 --> 00:57:41,680
Speaker 2: imagine it's not, given both the author and the subject matter.

1103
00:57:41,880 --> 00:57:44,760
Speaker 2: All Right, our final two questions, what sort of advice

1104
00:57:44,840 --> 00:57:47,960
Speaker 2: would you give to a recent college grad interested in

1105
00:57:48,000 --> 00:57:53,040
Speaker 2: a career in either investing, or specifically fixed income and ETFs.

1106
00:57:53,400 --> 00:57:55,640
Speaker 3: Yeah, I think the most important thing is you have

1107
00:57:55,680 --> 00:57:58,280
Speaker 3: to be honest with yourself about what you like to do.

1108
00:57:58,720 --> 00:58:02,640
Speaker 3: And so I I have met I've met students who

1109
00:58:04,040 --> 00:58:06,080
Speaker 3: say they want to get into the markets, and you know,

1110
00:58:06,080 --> 00:58:09,439
Speaker 3: when you ask why that is, they have trouble articulating why.

1111
00:58:09,480 --> 00:58:11,560
Speaker 3: So I think part of it is you just really

1112
00:58:11,600 --> 00:58:13,880
Speaker 3: got to want to do this, because if it's gonna

1113
00:58:13,880 --> 00:58:16,840
Speaker 3: be your life's pursuit, you've got to wake up on

1114
00:58:16,880 --> 00:58:18,640
Speaker 3: good days and bad days and still want to do

1115
00:58:18,680 --> 00:58:20,720
Speaker 3: it right. And there are good days and there are

1116
00:58:20,840 --> 00:58:22,800
Speaker 3: very bad days, and you still have to have that

1117
00:58:22,920 --> 00:58:25,480
Speaker 3: same sort of love of it. And so if you

1118
00:58:25,520 --> 00:58:28,080
Speaker 3: don't love it right, if it's not if you're just saying, well,

1119
00:58:28,360 --> 00:58:30,360
Speaker 3: you know, I heard it's a profitable thing. I want

1120
00:58:30,360 --> 00:58:32,600
Speaker 3: to you know, I have these certain personal goals, that's

1121
00:58:32,680 --> 00:58:34,440
Speaker 3: that's not a good reason to do it. But if

1122
00:58:34,800 --> 00:58:38,120
Speaker 3: you really do love the idea of markets and just this,

1123
00:58:38,640 --> 00:58:43,160
Speaker 3: you know, really elegant thing where somebody, you know, two

1124
00:58:43,200 --> 00:58:45,680
Speaker 3: people on the opposite sides of the planet can somehow

1125
00:58:45,720 --> 00:58:49,160
Speaker 3: find a common price. You know, what's the saying a

1126
00:58:49,280 --> 00:58:52,840
Speaker 3: trade is an agreement on price, A disagreement on value.

1127
00:58:52,840 --> 00:58:54,760
Speaker 3: I always thought that was the coolest thing, right, So

1128
00:58:55,160 --> 00:58:57,240
Speaker 3: you know, just this idea that you know the markets

1129
00:58:57,280 --> 00:58:59,480
Speaker 3: find a way. I think if you love that, then

1130
00:58:59,480 --> 00:59:02,760
Speaker 3: it's the right career for you. But that's the key thing.

1131
00:59:02,880 --> 00:59:06,120
Speaker 3: Find what you love and be really really honest with yourself.

1132
00:59:06,120 --> 00:59:07,919
Speaker 3: And you know, it's fair to say I don't know yet,

1133
00:59:07,960 --> 00:59:09,720
Speaker 3: And that's why you have to feel around a little bit.

1134
00:59:10,200 --> 00:59:13,200
Speaker 3: You know, whether you're trying different things. You know, you

1135
00:59:13,240 --> 00:59:15,040
Speaker 3: may land on one desk and hate it, rotate to

1136
00:59:15,080 --> 00:59:17,520
Speaker 3: another one and love it. It's a process, but you

1137
00:59:17,600 --> 00:59:19,080
Speaker 3: got to really be honest with yourself.

1138
00:59:19,200 --> 00:59:22,800
Speaker 2: Huh. Really really interesting. And our final question, what do

1139
00:59:22,840 --> 00:59:25,680
Speaker 2: you know about the world of fixed income ETFs and

1140
00:59:25,720 --> 00:59:28,760
Speaker 2: investing today? You wish you knew back in the nineteen

1141
00:59:28,840 --> 00:59:30,520
Speaker 2: nineties when you were first getting started.

1142
00:59:30,640 --> 00:59:34,440
Speaker 3: Yeah, I'm gonna admit this to you. I know many

1143
00:59:34,480 --> 00:59:39,360
Speaker 3: of your your admonishments about investing, I was. I was

1144
00:59:39,400 --> 00:59:41,520
Speaker 3: an original sinner, many of them.

1145
00:59:42,160 --> 00:59:44,800
Speaker 2: No one bigger than me. I learned the hard way.

1146
00:59:44,960 --> 00:59:47,560
Speaker 3: So I did, in fact do a lot of the

1147
00:59:47,600 --> 00:59:51,600
Speaker 3: common mistakes. You know. I chase things. I remember, you know,

1148
00:59:52,880 --> 00:59:57,840
Speaker 3: during the original Internet boom buying some really expensive, racy

1149
00:59:57,960 --> 01:00:02,560
Speaker 3: mutual funds, which I subsequently rode into the ditch. So

1150
01:00:02,840 --> 01:00:04,960
Speaker 3: I think part of it is, you know, the long

1151
01:00:05,040 --> 01:00:08,360
Speaker 3: term idea, you know, really really taking like that long

1152
01:00:08,440 --> 01:00:11,160
Speaker 3: term view. Now, I did learn not to panic over

1153
01:00:11,200 --> 01:00:13,160
Speaker 3: the years, right and not, you know, sort.

1154
01:00:13,000 --> 01:00:16,920
Speaker 2: Of useful skill set if you're running a trillion dollars.

1155
01:00:16,560 --> 01:00:19,000
Speaker 3: I think, try to try to you know, keep your money,

1156
01:00:19,080 --> 01:00:20,680
Speaker 3: you know, don't pay away too much of fees, and

1157
01:00:20,800 --> 01:00:23,919
Speaker 3: definitely don't chase the hot hot thing. I think being diversified.

1158
01:00:24,160 --> 01:00:26,400
Speaker 3: You look, it may not be fun to talk about

1159
01:00:26,400 --> 01:00:31,200
Speaker 3: with your friends, but having a broad, diversified portfolio over time,

1160
01:00:31,320 --> 01:00:34,600
Speaker 3: you're gonna be fine. It's it's it's hair raising sometimes,

1161
01:00:34,600 --> 01:00:36,240
Speaker 3: but you're gonna be fine over the long term.

1162
01:00:36,320 --> 01:00:39,880
Speaker 2: Yeah, very often the cocktail chatter, it's not what makes

1163
01:00:39,920 --> 01:00:43,000
Speaker 2: you money. I love the title of Ned Davis's first book,

1164
01:00:43,280 --> 01:00:44,720
Speaker 2: do you want to be right? Or do you want

1165
01:00:44,720 --> 01:00:48,200
Speaker 2: to make money? And that really sums it up well. Steve,

1166
01:00:48,240 --> 01:00:51,560
Speaker 2: this has been really fascinating. Thank you for being so

1167
01:00:51,680 --> 01:00:55,840
Speaker 2: generous with your time. We have been speaking with Steve Likely,

1168
01:00:56,360 --> 01:01:00,080
Speaker 2: Global cohead of BONDI tf's at black Rock. If you

1169
01:01:00,200 --> 01:01:03,560
Speaker 2: enjoy this conversation. Well, check out any of the five

1170
01:01:03,720 --> 01:01:06,680
Speaker 2: hundred and thirty we've done over the past eleven years.

1171
01:01:07,120 --> 01:01:12,200
Speaker 2: You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever

1172
01:01:12,320 --> 01:01:15,640
Speaker 2: you find your favorite podcasts, and be sure and check

1173
01:01:15,640 --> 01:01:20,000
Speaker 2: out my new book, How Not to Invest The ideas, numbers,

1174
01:01:20,000 --> 01:01:23,480
Speaker 2: and behaviors that destroy wealth and how to avoid them.

1175
01:01:23,960 --> 01:01:25,760
Speaker 2: I would be remiss if I did not thank the

1176
01:01:25,800 --> 01:01:29,720
Speaker 2: crack team that helps put these conversations together each week.

1177
01:01:30,160 --> 01:01:33,640
Speaker 2: John Wasserman is my audio engineer, and A. Luk is

1178
01:01:33,720 --> 01:01:39,440
Speaker 2: my producer. Shortan Russo is my researcher. Sage Bauman is

1179
01:01:39,440 --> 01:01:43,560
Speaker 2: the head of podcasts at Bloomberg. I'm barr Utltz. You've

1180
01:01:43,560 --> 01:02:05,120
Speaker 2: been listening to Masters in Business on Bloomberg Radio.