1
00:00:00,800 --> 00:00:04,040
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

2
00:00:04,040 --> 00:00:06,920
Speaker 1: my co host Matt Miller. Every business day we bring

3
00:00:06,960 --> 00:00:11,520
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

4
00:00:11,560 --> 00:00:15,600
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast

5
00:00:15,640 --> 00:00:18,479
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

6
00:00:18,480 --> 00:00:22,919
Speaker 1: at Bloomberg dot com slash podcast. All right, it is

7
00:00:23,000 --> 00:00:27,040
Speaker 1: FED Day. Bloomberg Radio TV will have complete coverage this afternoon,

8
00:00:27,080 --> 00:00:29,840
Speaker 1: and it's uh, it's all about the tone of the

9
00:00:29,920 --> 00:00:32,760
Speaker 1: interest rate environment going forward that we're gonna be looking

10
00:00:32,800 --> 00:00:36,519
Speaker 1: for from this Fed Reserve Chairman. David Bianco, Chief Investment

11
00:00:36,520 --> 00:00:39,720
Speaker 1: Officer d w S Group joins us. David, I guess

12
00:00:39,760 --> 00:00:43,320
Speaker 1: you know the taperings is well I guess well discounted,

13
00:00:43,320 --> 00:00:46,200
Speaker 1: well understood by the market. What are you looking for

14
00:00:46,400 --> 00:00:49,360
Speaker 1: from Fed chairman Pal this afternoon? Good morning, thanks for

15
00:00:49,400 --> 00:00:52,640
Speaker 1: having me. It's FED Day, which is definitely an exciting

16
00:00:52,720 --> 00:00:56,480
Speaker 1: day here at THEWS and for all investment managers. What

17
00:00:56,600 --> 00:01:00,360
Speaker 1: we're going to be listening to is just thoughts on

18
00:01:00,360 --> 00:01:04,360
Speaker 1: on inflation, of course the transitory versus structural debate, but

19
00:01:04,400 --> 00:01:06,880
Speaker 1: also importantly what's the FED going to do? About it.

20
00:01:07,120 --> 00:01:10,640
Speaker 1: You know, our view is that inflation will decelerate over

21
00:01:10,680 --> 00:01:13,400
Speaker 1: the coming year from what has been very high levels.

22
00:01:13,880 --> 00:01:17,920
Speaker 1: But even though inflation is decelerating, it's still very likely

23
00:01:18,160 --> 00:01:20,959
Speaker 1: going to be above the Fed's target, and therefore the

24
00:01:20,959 --> 00:01:24,199
Speaker 1: FED needs to start continuing to remove accommodation. We're gonna

25
00:01:24,200 --> 00:01:27,840
Speaker 1: hear about tapering today. Uh, the real question is what's

26
00:01:27,880 --> 00:01:30,880
Speaker 1: going to happen to overnight rates. Our view is there

27
00:01:30,920 --> 00:01:33,679
Speaker 1: still will not be a hike in overnight rates until

28
00:01:34,200 --> 00:01:37,000
Speaker 1: the fourth quarter of next year. But let's hear. And

29
00:01:37,040 --> 00:01:39,479
Speaker 1: by the way, this is uh, this is a moment

30
00:01:39,520 --> 00:01:42,080
Speaker 1: where we're gonna get to hear from from the FED chair.

31
00:01:42,560 --> 00:01:45,399
Speaker 1: And after this there's gonna be a lot more. It's

32
00:01:45,400 --> 00:01:48,040
Speaker 1: gonna open the window to hearing whether we get the

33
00:01:48,120 --> 00:01:51,840
Speaker 1: renomination from the President for j. Powell or not. So

34
00:01:51,920 --> 00:01:54,400
Speaker 1: it's a it's when where we all want to hear

35
00:01:54,840 --> 00:01:58,520
Speaker 1: the current chairs mind thoughts, and before we get into

36
00:01:58,560 --> 00:02:01,200
Speaker 1: a little bit more of you know, political considerations about

37
00:02:01,240 --> 00:02:04,840
Speaker 1: the future leadership of the FED. The FED has nothing

38
00:02:04,880 --> 00:02:08,280
Speaker 1: to do with the supply chain crisis or really even

39
00:02:08,400 --> 00:02:12,480
Speaker 1: shipping um issues. The costs that come from that aren't

40
00:02:12,520 --> 00:02:14,800
Speaker 1: anything the FED can control, but it does have a

41
00:02:14,840 --> 00:02:17,799
Speaker 1: mandate for the labor market, and the labor shortage seems

42
00:02:17,840 --> 00:02:20,079
Speaker 1: to be one of the things that people are pointing

43
00:02:20,080 --> 00:02:24,480
Speaker 1: to more and more often, even beyond the chips and

44
00:02:24,520 --> 00:02:27,320
Speaker 1: ships issue. So what do we expect to hear from

45
00:02:27,360 --> 00:02:29,680
Speaker 1: the FED on that? We expect the FED to talk

46
00:02:29,680 --> 00:02:32,200
Speaker 1: about all of these issues, and the FED will rightly

47
00:02:32,440 --> 00:02:35,639
Speaker 1: point out that there has been an inflationary shock from

48
00:02:35,720 --> 00:02:39,040
Speaker 1: the supply side related to the pandemic supply chains, and

49
00:02:39,560 --> 00:02:42,640
Speaker 1: also a little labor scarcity that is getting better but

50
00:02:42,720 --> 00:02:45,960
Speaker 1: getting better slowly. At the same time, the FED should

51
00:02:46,160 --> 00:02:49,880
Speaker 1: acknowledge that there's been monetary effects occurring here too. Cash

52
00:02:49,960 --> 00:02:54,440
Speaker 1: in circulation has jumped tremendously since the pandemic, in part

53
00:02:54,520 --> 00:02:58,760
Speaker 1: to fund the emergency fiscal policy response, and that was important,

54
00:02:58,760 --> 00:03:02,880
Speaker 1: but cash in circulation and even household deposits up a

55
00:03:02,919 --> 00:03:06,360
Speaker 1: lot since the pandemic started. The FED can't do anything

56
00:03:06,400 --> 00:03:10,120
Speaker 1: and really shouldn't fight supply side inflation when it's you know,

57
00:03:10,320 --> 00:03:13,440
Speaker 1: when it's not something structural, But they need to acknowledge

58
00:03:13,480 --> 00:03:16,080
Speaker 1: that there is a demand side, and part of this

59
00:03:16,160 --> 00:03:19,520
Speaker 1: demand side, whether it be government spending or even just

60
00:03:19,639 --> 00:03:23,200
Speaker 1: households being flushed with cash. The Fed does have something

61
00:03:23,240 --> 00:03:25,600
Speaker 1: to do with that now, to keep all this cash

62
00:03:26,080 --> 00:03:29,680
Speaker 1: kind of on on ice and chilled rather than turning

63
00:03:29,680 --> 00:03:32,640
Speaker 1: into hotter money. Well, this is why you see short

64
00:03:32,760 --> 00:03:35,440
Speaker 1: term interest rates beginning to lift up. Where we've got

65
00:03:35,440 --> 00:03:37,440
Speaker 1: the two year year old at about it's gotten close

66
00:03:37,480 --> 00:03:41,120
Speaker 1: to fifty basis points, three year yields at seventy basis points.

67
00:03:41,120 --> 00:03:45,200
Speaker 1: The bottom market seems to be very confident that the

68
00:03:45,240 --> 00:03:49,160
Speaker 1: Fed is going to take actions to contain inflation um

69
00:03:49,240 --> 00:03:51,680
Speaker 1: and and we believe that's gonna play out. Let's watch

70
00:03:51,680 --> 00:03:53,720
Speaker 1: and see what the you know, what leadership the FIT

71
00:03:53,840 --> 00:03:56,960
Speaker 1: is and what they say. Um. But there is still

72
00:03:57,000 --> 00:03:59,920
Speaker 1: inflation risk out there, and we want to protect again

73
00:04:00,040 --> 00:04:02,920
Speaker 1: those inflation risks. And our view is the best way

74
00:04:02,960 --> 00:04:06,040
Speaker 1: to protect against inflation is simply to own the best

75
00:04:06,120 --> 00:04:09,960
Speaker 1: businesses you can. Out of all these concerns about inflation.

76
00:04:11,160 --> 00:04:14,360
Speaker 1: Year to date, after years of this trend being persistent,

77
00:04:14,680 --> 00:04:16,919
Speaker 1: year to date, growth stocks are out performing in the

78
00:04:17,080 --> 00:04:20,840
Speaker 1: SMP um and and and we believe that it's better

79
00:04:20,920 --> 00:04:25,120
Speaker 1: to own businesses that are uh raising their productivity rather

80
00:04:25,160 --> 00:04:29,240
Speaker 1: than raising their price. David, are you share the concern

81
00:04:29,279 --> 00:04:31,599
Speaker 1: that is held by some that perhaps this FED reserve

82
00:04:31,800 --> 00:04:34,840
Speaker 1: is falling behind that the markets getting ahead of them,

83
00:04:34,839 --> 00:04:38,840
Speaker 1: and even some other central banks out there. Well not yet,

84
00:04:39,240 --> 00:04:42,839
Speaker 1: you know, I mean tapering is probably gonna be announced today, um,

85
00:04:42,960 --> 00:04:45,279
Speaker 1: and that is uh going to move out a little

86
00:04:45,279 --> 00:04:47,200
Speaker 1: bit of a faster pace than most of us thought,

87
00:04:47,240 --> 00:04:50,200
Speaker 1: say six months twelve months ago. The Fed we'll be

88
00:04:50,240 --> 00:04:55,200
Speaker 1: talking about how they're thinking about raising interest rates you

89
00:04:55,520 --> 00:04:58,360
Speaker 1: probably late next year, so you know, they're using their

90
00:04:58,360 --> 00:05:01,880
Speaker 1: communication tools. Well, all the bond market, as I said,

91
00:05:01,880 --> 00:05:04,120
Speaker 1: it's beginning to move and do some you know, it's

92
00:05:04,120 --> 00:05:07,359
Speaker 1: a little bit of you know, pulling back accommodation and

93
00:05:07,400 --> 00:05:09,920
Speaker 1: reason to cost the capital uhs. The bond market is

94
00:05:09,960 --> 00:05:12,839
Speaker 1: doing some work for the FED right now. And yeah,

95
00:05:12,839 --> 00:05:15,000
Speaker 1: this is a tough thing that the FED is trying

96
00:05:15,000 --> 00:05:19,040
Speaker 1: to wrestle with. What parts of inflation are really transitory

97
00:05:19,080 --> 00:05:21,359
Speaker 1: and supply side shocks that will fade. And they'd be

98
00:05:21,400 --> 00:05:24,240
Speaker 1: wrong if they were aggressively going to fight versus other

99
00:05:24,279 --> 00:05:26,400
Speaker 1: things that might be more structural, like you know a

100
00:05:26,440 --> 00:05:29,560
Speaker 1: lot of people have gotten into retirement uh since the pandemic,

101
00:05:29,600 --> 00:05:32,880
Speaker 1: and you know, there may be more labor um difficulties

102
00:05:32,920 --> 00:05:36,560
Speaker 1: in the future, and you know, the trade activity, import activity,

103
00:05:37,279 --> 00:05:39,240
Speaker 1: tariffs and so forth. These things are still you know,

104
00:05:39,640 --> 00:05:43,919
Speaker 1: a challenge to uh TO to to keeping inflation low. Also,

105
00:05:43,960 --> 00:05:46,839
Speaker 1: when there is an emergency and you've got low interest rates,

106
00:05:47,240 --> 00:05:48,839
Speaker 1: one of the best things that they can do is

107
00:05:48,839 --> 00:05:51,559
Speaker 1: to promise to keep interest rates low for a long time.

108
00:05:51,920 --> 00:05:55,200
Speaker 1: So they don't want to lose credibility either on keeping

109
00:05:55,279 --> 00:05:57,680
Speaker 1: rates low if they need to in an emergency. David,

110
00:05:57,720 --> 00:06:00,400
Speaker 1: thanks so much for joining us. David Bianco there, chief

111
00:06:00,440 --> 00:06:11,680
Speaker 1: investment officer at DWS Group. This is Bloomberg Now. I

112
00:06:11,720 --> 00:06:14,279
Speaker 1: want to get out to Dr Mary. Dr Anne Marie

113
00:06:14,480 --> 00:06:18,280
Speaker 1: sastry Um. She joins us on the phone from ann Arbor,

114
00:06:18,400 --> 00:06:21,719
Speaker 1: Michigan School. There. I believe it's a place I love

115
00:06:21,839 --> 00:06:26,400
Speaker 1: to go, especially around Thanksgiving to watch Ohio State the

116
00:06:26,440 --> 00:06:29,360
Speaker 1: Buckeyes beat the Wolverines, although I have to say it's

117
00:06:29,400 --> 00:06:32,880
Speaker 1: really depressing every time that happens. She's the CEO of

118
00:06:33,120 --> 00:06:35,440
Speaker 1: am a site, and she's gonna talk to us about

119
00:06:35,440 --> 00:06:38,360
Speaker 1: people getting back to work. I'm sure. First of all,

120
00:06:38,560 --> 00:06:40,360
Speaker 1: I'm joking a little bit with you about Anne Arbor.

121
00:06:40,480 --> 00:06:43,760
Speaker 1: It's gorgeous. I absolutely love it there. Um, I'm sure

122
00:06:43,800 --> 00:06:46,320
Speaker 1: people want to go back to work. Uh. There, but

123
00:06:46,400 --> 00:06:48,240
Speaker 1: it seems like here in New York and out in

124
00:06:48,279 --> 00:06:51,800
Speaker 1: London and over in Berlin, nobody's coming back to work.

125
00:06:51,839 --> 00:06:56,240
Speaker 1: What's happening. What's happening is that people are demanding greater flexibility.

126
00:06:56,440 --> 00:06:58,320
Speaker 1: And again, Paul and Mats, great to be with you

127
00:06:58,400 --> 00:07:00,320
Speaker 1: this morning in the stadium here in Anna is big

128
00:07:00,400 --> 00:07:02,880
Speaker 1: enough to hold lovers and haters so that you guys

129
00:07:02,880 --> 00:07:06,800
Speaker 1: can come and help economy. You can help the up economy. Uh. Yeah.

130
00:07:06,839 --> 00:07:09,560
Speaker 1: That The reality is that people are demanding flexible work

131
00:07:09,640 --> 00:07:11,600
Speaker 1: because a lot of the notions that we had about

132
00:07:11,640 --> 00:07:14,240
Speaker 1: how work needs to be done have been upbended by

133
00:07:14,280 --> 00:07:17,400
Speaker 1: the pandemic. That people realize that, yes, the conduct of

134
00:07:17,440 --> 00:07:20,480
Speaker 1: business was possible online and that has led to greater

135
00:07:20,520 --> 00:07:23,800
Speaker 1: degrees of digitalization, not only because it's more efficient for

136
00:07:23,840 --> 00:07:26,800
Speaker 1: companies to deliver goods and services that way, but with

137
00:07:26,920 --> 00:07:29,320
Speaker 1: much of the logistics and most of the engineering, design,

138
00:07:29,320 --> 00:07:34,360
Speaker 1: etcetera going on online, but also that people appreciate it. Uh.

139
00:07:34,360 --> 00:07:37,960
Speaker 1: The stats are are telling. Thirty four percent of employees

140
00:07:37,960 --> 00:07:40,240
Speaker 1: say that they're more productive now than they were before

141
00:07:40,280 --> 00:07:43,160
Speaker 1: the pandemic, and over half of executives say that average

142
00:07:43,160 --> 00:07:48,360
Speaker 1: employee productivity has improved with online work, So so the

143
00:07:48,440 --> 00:07:50,440
Speaker 1: numbers bear it out. The numbers bear it out. And

144
00:07:50,520 --> 00:07:52,520
Speaker 1: you know, a lot of folks, as I'm sure you're

145
00:07:52,520 --> 00:07:56,000
Speaker 1: where in rear, are concerned about inflation, concerned about wage inflation.

146
00:07:56,680 --> 00:07:59,400
Speaker 1: But again a lot of folks economists will say, don't

147
00:07:59,440 --> 00:08:02,880
Speaker 1: be so worried about it. Yes, Uh, nominal wages are

148
00:08:02,920 --> 00:08:07,120
Speaker 1: going up, but people are becoming more productive and so

149
00:08:07,440 --> 00:08:10,880
Speaker 1: it's less of an issue in this economy. Do you

150
00:08:10,880 --> 00:08:14,040
Speaker 1: think that's a longer term issue? I do, UH. And

151
00:08:14,160 --> 00:08:16,240
Speaker 1: when you look at the most valuable companies in the

152
00:08:16,280 --> 00:08:19,920
Speaker 1: world and and what their models are, their models are

153
00:08:20,480 --> 00:08:25,720
Speaker 1: fewer people with incredible productivity generating great high degrees of

154
00:08:25,800 --> 00:08:29,560
Speaker 1: revenue per person um. If you look at the jobs available,

155
00:08:30,600 --> 00:08:33,840
Speaker 1: the BLS we're of Labor Statistics found that UH may

156
00:08:33,960 --> 00:08:37,280
Speaker 1: smashed every prior record. Nine point two million job openings

157
00:08:37,280 --> 00:08:40,680
Speaker 1: are available in the country. But the economy hasn't ground

158
00:08:40,679 --> 00:08:43,520
Speaker 1: to a halt. Instead, we have fewer people doing more

159
00:08:43,640 --> 00:08:47,200
Speaker 1: of the work. And what that means is that a

160
00:08:47,280 --> 00:08:50,440
Speaker 1: higher degree of training is required in order to allure

161
00:08:50,480 --> 00:08:53,240
Speaker 1: people back to the workforce and get people back working.

162
00:08:53,640 --> 00:08:57,440
Speaker 1: But also people are adapting to digitalization strategies, meaning that

163
00:08:57,960 --> 00:09:01,400
Speaker 1: they are using skills that they've learning college and they

164
00:09:01,400 --> 00:09:03,880
Speaker 1: need to be constantly upskilled. And when you look at

165
00:09:03,880 --> 00:09:05,839
Speaker 1: the data there again they tell the story in a

166
00:09:05,960 --> 00:09:10,000
Speaker 1: very clear way. The vast majority of employees demand flexibility

167
00:09:10,080 --> 00:09:14,120
Speaker 1: their work. And what we see is that scent of

168
00:09:14,160 --> 00:09:16,760
Speaker 1: workers thinks that they will have to up skill in

169
00:09:16,880 --> 00:09:21,360
Speaker 1: order to stay economically viable. So these changes, these disruptions

170
00:09:21,679 --> 00:09:24,920
Speaker 1: are changing the game for employers who find themselves needing

171
00:09:24,960 --> 00:09:29,079
Speaker 1: to to conduct more business digitally and for workers who

172
00:09:29,120 --> 00:09:32,040
Speaker 1: need more skills. So I you know what, I absolutely

173
00:09:32,080 --> 00:09:36,560
Speaker 1: respect that workers want flexibility, um, and that remote work

174
00:09:36,679 --> 00:09:40,000
Speaker 1: can be better for a lot of people. The problem

175
00:09:40,080 --> 00:09:43,960
Speaker 1: is the technology just doesn't seem there yet for every company,

176
00:09:44,160 --> 00:09:47,040
Speaker 1: right so UM this morning, for example, I was trying

177
00:09:47,040 --> 00:09:49,079
Speaker 1: to get in touch with a bunch of economists and

178
00:09:49,120 --> 00:09:51,960
Speaker 1: then with a bunch of tech people, and all over

179
00:09:52,000 --> 00:09:54,640
Speaker 1: Europe they all seem to be out of the office.

180
00:09:54,679 --> 00:09:56,360
Speaker 1: Then I had to try their cell phones try and

181
00:09:56,360 --> 00:10:00,160
Speaker 1: figure out their home phone number. I'm wondering if they forwarded, um,

182
00:10:00,280 --> 00:10:03,800
Speaker 1: you know, they're calls. It just doesn't seem like the

183
00:10:03,920 --> 00:10:09,320
Speaker 1: infrastructure is ready. Sass growth has been enormous, as you know,

184
00:10:09,679 --> 00:10:13,440
Speaker 1: and SAS companies have have kept the economy going. SASS

185
00:10:13,440 --> 00:10:17,120
Speaker 1: being software is a service, correct, yes, and an AMA

186
00:10:17,120 --> 00:10:19,600
Speaker 1: site my company is also a SAS business. We are

187
00:10:19,600 --> 00:10:21,800
Speaker 1: in the in the training space and so we happen

188
00:10:21,800 --> 00:10:24,840
Speaker 1: to know a little bit about this. We're Nasdaq a MST.

189
00:10:25,520 --> 00:10:28,720
Speaker 1: What we've discovered is is a course that people don't

190
00:10:28,760 --> 00:10:31,760
Speaker 1: want to fiddle or fool with three or four different

191
00:10:31,800 --> 00:10:34,080
Speaker 1: platforms in order to engage. They want to be able

192
00:10:34,120 --> 00:10:37,920
Speaker 1: to perform their work functions on one platform. They also

193
00:10:38,000 --> 00:10:42,040
Speaker 1: want to be served materials uh smartly. And if you

194
00:10:42,080 --> 00:10:43,880
Speaker 1: think about it for a second, if you think about

195
00:10:43,920 --> 00:10:46,200
Speaker 1: Spotify or you think about Netflix, nobody has to come

196
00:10:46,200 --> 00:10:48,280
Speaker 1: to your house to show you how to use those apps, right,

197
00:10:48,320 --> 00:10:51,960
Speaker 1: and so business apps need to become more user friendly.

198
00:10:51,960 --> 00:10:55,000
Speaker 1: The unit user experience needs to be streamlined. But in

199
00:10:55,040 --> 00:10:57,480
Speaker 1: the interim, people will use the tools they have now.

200
00:10:57,760 --> 00:11:00,160
Speaker 1: The companies that are going to be very successful are

201
00:11:00,160 --> 00:11:02,680
Speaker 1: going to be the companies that provide those softwares of

202
00:11:02,720 --> 00:11:06,480
Speaker 1: service tools that reduce the friction of business and the

203
00:11:06,520 --> 00:11:11,480
Speaker 1: companies that adopt those tools quickly. Dr Henry Sastry, thank

204
00:11:11,520 --> 00:11:14,160
Speaker 1: you so much for joining us to really appreciated. Uh

205
00:11:14,320 --> 00:11:18,000
Speaker 1: Dr Henry sasstry CEO of emassites on the phone from

206
00:11:18,080 --> 00:11:22,760
Speaker 1: an arbor, Michigan, Home of the Big House. UM, absolutely,

207
00:11:22,840 --> 00:11:26,040
Speaker 1: absolutely love the Big House. It is a game this year.

208
00:11:26,120 --> 00:11:29,120
Speaker 1: Wears it in an arbor, Columbus. I do not. I

209
00:11:29,160 --> 00:11:31,679
Speaker 1: assume it's in an arbor, because otherwise I'm going home

210
00:11:31,679 --> 00:11:33,520
Speaker 1: for thanks you. My brothers would have gotten me tickets

211
00:11:33,600 --> 00:11:37,000
Speaker 1: at the Horseshoe. The Big House is loud and it's

212
00:11:37,040 --> 00:11:39,319
Speaker 1: a lot of fun until, like I said, they lose.

213
00:11:39,480 --> 00:11:43,200
Speaker 1: Then everyone is super bummed out, which happens usually, which happens.

214
00:11:43,240 --> 00:11:45,000
Speaker 1: All right, let's see if they can turn it around

215
00:11:45,040 --> 00:11:49,600
Speaker 1: this year. Let's talk a little bit about what you

216
00:11:49,640 --> 00:11:53,880
Speaker 1: can get from fixed income in the world of high yield.

217
00:11:53,920 --> 00:11:56,199
Speaker 1: We have Brent Pink with US Global Co had of

218
00:11:56,280 --> 00:12:01,360
Speaker 1: high yielded Aviva Investors and I guess, um, you know,

219
00:12:01,400 --> 00:12:06,680
Speaker 1: the question is is the return worth the risk? Um?

220
00:12:07,440 --> 00:12:10,120
Speaker 1: And and some people, a lot of people have been

221
00:12:10,160 --> 00:12:14,040
Speaker 1: answering yes lately. What do you think you know? High

222
00:12:14,120 --> 00:12:17,360
Speaker 1: yield at four percent in historical context does not seem

223
00:12:17,400 --> 00:12:20,280
Speaker 1: like a lot. But we're also in an extremely low

224
00:12:20,320 --> 00:12:24,120
Speaker 1: default environment. The support that the economy got from the

225
00:12:24,160 --> 00:12:27,560
Speaker 1: Federal Reserve last year has really eliminated a lot of

226
00:12:27,559 --> 00:12:31,840
Speaker 1: the downside to high yield. So while yields from a

227
00:12:31,920 --> 00:12:35,720
Speaker 1: long term perspective look relatively low, there's also very few

228
00:12:35,720 --> 00:12:38,760
Speaker 1: alternatives in other asset classes you can get that sort

229
00:12:38,760 --> 00:12:41,720
Speaker 1: of income from. So we still think the asset classholds

230
00:12:41,720 --> 00:12:44,680
Speaker 1: of value for investors that are are income focused or

231
00:12:45,040 --> 00:12:47,959
Speaker 1: or looking for a steady stream of coupons going forward.

232
00:12:48,320 --> 00:12:50,520
Speaker 1: All right, Brent, how far out on the risk curve

233
00:12:50,559 --> 00:12:54,160
Speaker 1: are you guys going these days for returns? Because when

234
00:12:54,160 --> 00:12:55,920
Speaker 1: I was in the market four percent, we would have

235
00:12:56,200 --> 00:12:59,480
Speaker 1: kicked that down out of the room. Um, So if

236
00:12:59,520 --> 00:13:02,040
Speaker 1: you're looking for a return, how far down on the

237
00:13:02,080 --> 00:13:05,640
Speaker 1: curve are you guys going. Well, we play across the

238
00:13:05,679 --> 00:13:09,240
Speaker 1: capital structure, so we will go from triple B even

239
00:13:09,280 --> 00:13:12,560
Speaker 1: down to triple C. We think there's some pockets of

240
00:13:12,640 --> 00:13:15,360
Speaker 1: value right now. One of the most popular trades in

241
00:13:15,400 --> 00:13:18,360
Speaker 1: the market today are rising stars. So these are the

242
00:13:18,360 --> 00:13:22,080
Speaker 1: companies rated double B currently but on their way back

243
00:13:22,080 --> 00:13:25,120
Speaker 1: to triple B or investment grade rated. We think that

244
00:13:25,160 --> 00:13:27,880
Speaker 1: this is a very popular trade. So some of the

245
00:13:27,960 --> 00:13:30,520
Speaker 1: upside has been squeezed down already, but we do think

246
00:13:30,559 --> 00:13:34,080
Speaker 1: that there's a lot of momentum behind these rising stars

247
00:13:34,080 --> 00:13:37,280
Speaker 1: that will continue for the next two years. So we

248
00:13:37,360 --> 00:13:41,200
Speaker 1: think that's the particularly of interest. We also are seen

249
00:13:41,480 --> 00:13:45,959
Speaker 1: an increase in LBO activity that will bring a lot

250
00:13:46,000 --> 00:13:49,199
Speaker 1: of triple C rated bonds to the market. We think

251
00:13:49,200 --> 00:13:51,960
Speaker 1: you have to be very selective in this portion of

252
00:13:52,280 --> 00:13:54,079
Speaker 1: the high yeld market, but we do think there are

253
00:13:54,120 --> 00:13:59,640
Speaker 1: some interesting individual credit opportunities within that lower quality tire.

254
00:13:59,800 --> 00:14:06,480
Speaker 1: Well kind of economic cycle assumptions do you have to make? Well,

255
00:14:06,520 --> 00:14:11,040
Speaker 1: you know, right now you look at GDP consensus growth

256
00:14:11,080 --> 00:14:14,440
Speaker 1: estimate at four percent, and that's actually a really healthy

257
00:14:14,520 --> 00:14:18,720
Speaker 1: environment for high yield companies hw YOUELD bonds typically do

258
00:14:18,840 --> 00:14:22,600
Speaker 1: well when the economy is growing in positive territory but

259
00:14:22,720 --> 00:14:27,080
Speaker 1: not overly hot, and that's the environment where you really

260
00:14:27,080 --> 00:14:31,320
Speaker 1: get that restrictive or tightening FED policy that can dampen

261
00:14:31,360 --> 00:14:34,320
Speaker 1: down economic growth. So this is similar the sweet spot

262
00:14:34,400 --> 00:14:37,920
Speaker 1: for high yield here, this low but positive growth environment.

263
00:14:38,840 --> 00:14:40,920
Speaker 1: Brent in a new issue market, do you guys on

264
00:14:40,960 --> 00:14:44,680
Speaker 1: the buy side have any leverage or these When I

265
00:14:44,720 --> 00:14:48,280
Speaker 1: go to the covenant section of x y Z widget manufacturer,

266
00:14:48,680 --> 00:14:51,840
Speaker 1: it's basically just a couple of pages. Yeah, kind of

267
00:14:52,000 --> 00:14:55,280
Speaker 1: quality is certainly deteriorated over the years, and you're right,

268
00:14:55,360 --> 00:14:58,040
Speaker 1: the power kind of went to the issuers. But we

269
00:14:58,160 --> 00:15:01,880
Speaker 1: have seen some evidence of discipline from investors right now.

270
00:15:01,920 --> 00:15:05,800
Speaker 1: There's a few uh new issues on the on the

271
00:15:05,840 --> 00:15:10,760
Speaker 1: docket right now that that have struggled from a covenant standpoint,

272
00:15:10,840 --> 00:15:15,040
Speaker 1: but price where the investors and the issuers have not

273
00:15:15,120 --> 00:15:20,200
Speaker 1: come to terms. Um, maybe there's some creative structuring or

274
00:15:20,200 --> 00:15:22,680
Speaker 1: covenant agreements that can be met, but we are seeing

275
00:15:22,760 --> 00:15:25,760
Speaker 1: some signs of discipline from the market. It's not anything

276
00:15:25,800 --> 00:15:31,880
Speaker 1: goes at this point. So when do we get back

277
00:15:31,920 --> 00:15:35,360
Speaker 1: to a world where high yield is paying out seven

278
00:15:35,640 --> 00:15:39,760
Speaker 1: or eight or ten or twelve percent? I mean, seeing

279
00:15:39,840 --> 00:15:44,400
Speaker 1: three or four percent on high yield coupon is just nuts. Yeah,

280
00:15:44,520 --> 00:15:46,440
Speaker 1: it's kind of a misnomer to call it high yield

281
00:15:46,440 --> 00:15:49,480
Speaker 1: when it's only four percent. Really, I think the less

282
00:15:49,480 --> 00:15:53,680
Speaker 1: inflations at five because then you're getting nine really right, Yeah, Well,

283
00:15:54,120 --> 00:15:56,200
Speaker 1: you know, you could you could make the case the

284
00:15:56,320 --> 00:15:59,280
Speaker 1: real yield on on high yield right now is negative.

285
00:16:00,440 --> 00:16:04,960
Speaker 1: I think for yields to go back to seven, we're

286
00:16:04,960 --> 00:16:07,440
Speaker 1: really going to need to see an economic cycle were

287
00:16:07,520 --> 00:16:12,160
Speaker 1: significantly higher interest rates. Right now, spreads are credit spread

288
00:16:12,200 --> 00:16:15,240
Speaker 1: as about three hundred basis points above treasury, So if

289
00:16:15,280 --> 00:16:18,880
Speaker 1: you did see a meaningful increase in interest rates, you

290
00:16:18,880 --> 00:16:21,920
Speaker 1: would see that carry through to credit as well. Now,

291
00:16:22,360 --> 00:16:26,080
Speaker 1: for investors that are concerned about interstrate risk, high yield

292
00:16:26,240 --> 00:16:29,360
Speaker 1: historically has had a negative correlation to interst rate, So

293
00:16:29,440 --> 00:16:33,840
Speaker 1: it is one asset class within fixed income that historically

294
00:16:33,880 --> 00:16:37,640
Speaker 1: has been able to weather a rising rate environment. Bright

295
00:16:37,680 --> 00:16:41,440
Speaker 1: what's the sector you guys like the most right now? Well,

296
00:16:41,480 --> 00:16:44,120
Speaker 1: if you look at the pace of fundamental improvement, energy

297
00:16:44,840 --> 00:16:49,040
Speaker 1: is growing the fastest. We've had a significant recovery. We've

298
00:16:49,080 --> 00:16:52,560
Speaker 1: also cleansed a lot of the worst players in the

299
00:16:52,600 --> 00:16:57,040
Speaker 1: high yeld market through two thousand and fifteen, and early

300
00:16:57,560 --> 00:16:59,840
Speaker 1: during the pandemic we saw a lot of defaults within

301
00:16:59,840 --> 00:17:02,800
Speaker 1: the energy sector. So I think the credit quality there

302
00:17:02,960 --> 00:17:06,199
Speaker 1: is better than it was historically. It still offers a

303
00:17:06,240 --> 00:17:08,920
Speaker 1: premium to the overall market, and given the pace of

304
00:17:08,960 --> 00:17:12,040
Speaker 1: fundamental improvement, we do think that that is one sector

305
00:17:12,040 --> 00:17:15,560
Speaker 1: that we'll see uh a large amount of rising stars

306
00:17:15,600 --> 00:17:18,480
Speaker 1: over the next two years. So that's one particular area

307
00:17:18,480 --> 00:17:21,480
Speaker 1: of the market we find attractive today. All right, Brent,

308
00:17:21,560 --> 00:17:24,080
Speaker 1: thank you so much for joining us. We appreciate, always

309
00:17:24,119 --> 00:17:26,960
Speaker 1: love getting your perspective on the high old market as

310
00:17:27,040 --> 00:17:28,960
Speaker 1: high as it can possibly be. I guess at this

311
00:17:29,000 --> 00:17:32,120
Speaker 1: point it four percent again, like Matt say, not kind

312
00:17:32,119 --> 00:17:34,880
Speaker 1: of the old days. Seven eight nine, All right, Brent

313
00:17:35,000 --> 00:17:38,639
Speaker 1: fit Global, cohead of the high led biz at Aviva Investors,

314
00:17:38,680 --> 00:17:40,960
Speaker 1: joining us on the phone from New York, and again,

315
00:17:41,359 --> 00:17:44,159
Speaker 1: Um still thinks he sees some opportunity out there in

316
00:17:44,160 --> 00:17:48,040
Speaker 1: a high yield space. Credit spreads remain pretty tight, but

317
00:17:48,119 --> 00:17:52,000
Speaker 1: credit quality is surprisingly good given all the liquidity we've

318
00:17:52,000 --> 00:17:54,919
Speaker 1: gotten from the Federal Reserve and from fiscal stimulus, So

319
00:17:54,960 --> 00:17:58,480
Speaker 1: the credit quality has been pretty solid. They're good. Getting

320
00:17:58,520 --> 00:18:00,359
Speaker 1: his perspective on the high old market a little more

321
00:18:00,440 --> 00:18:08,280
Speaker 1: coming up, This is Bloomberg. Well these fed days. I

322
00:18:08,320 --> 00:18:10,720
Speaker 1: always need to know what am I supposed to look

323
00:18:10,720 --> 00:18:13,439
Speaker 1: out for in the release, what am I supposed to

324
00:18:13,480 --> 00:18:16,040
Speaker 1: focus in on the press conference? I'm not sure because

325
00:18:16,040 --> 00:18:18,560
Speaker 1: it kind of changes kind of period to period. But

326
00:18:18,640 --> 00:18:21,359
Speaker 1: Danielle de Martino booth absolutely on top of that, and

327
00:18:21,400 --> 00:18:23,400
Speaker 1: we're glad to have her here. Danielle de Martino both

328
00:18:23,440 --> 00:18:26,600
Speaker 1: CEO and chief strategist for quill Intelligence. Danielle, thanks so

329
00:18:26,640 --> 00:18:28,480
Speaker 1: much for taking a time on what I know is

330
00:18:28,480 --> 00:18:31,520
Speaker 1: a busy day for you. What should I be looking

331
00:18:31,520 --> 00:18:36,320
Speaker 1: out for from uh FEDS released today in the commentary? Well, um,

332
00:18:36,359 --> 00:18:39,119
Speaker 1: you know you're seeing, first of all, you're seeing rents

333
00:18:39,200 --> 00:18:42,560
Speaker 1: rise at the fastest pace since two thousand one in

334
00:18:42,640 --> 00:18:45,560
Speaker 1: the CPI. So we're no longer waiting to see the

335
00:18:45,600 --> 00:18:49,280
Speaker 1: whites of the eyes of housing inflation manifest in the

336
00:18:49,320 --> 00:18:52,680
Speaker 1: inflation data. It has past tense. That's a sticky form

337
00:18:52,720 --> 00:18:56,199
Speaker 1: of inflation. And we're obviously seeing that the port situation,

338
00:18:56,480 --> 00:19:01,040
Speaker 1: shipping freight, all of this is not going away anytime soon.

339
00:19:01,680 --> 00:19:05,679
Speaker 1: Unraveling this supply chain disaster is going to take time.

340
00:19:06,119 --> 00:19:08,040
Speaker 1: So I think investors are going to want to know,

341
00:19:08,720 --> 00:19:12,680
Speaker 1: how are you planning if inflation continues to accelerate from here,

342
00:19:12,960 --> 00:19:15,200
Speaker 1: How are you planning to do a hurry up taper?

343
00:19:15,400 --> 00:19:17,320
Speaker 1: What does your what? What? What? What? What does your

344
00:19:17,359 --> 00:19:20,240
Speaker 1: plan be on the taper such that you're going to

345
00:19:20,280 --> 00:19:22,600
Speaker 1: be able to get to raising interest rates more quickly?

346
00:19:23,080 --> 00:19:25,040
Speaker 1: And I think that that that is rightly the first

347
00:19:25,119 --> 00:19:29,359
Speaker 1: question that should be on investors mind. You know, the

348
00:19:29,440 --> 00:19:32,800
Speaker 1: labor issue seems to be even a bigger deal for

349
00:19:32,840 --> 00:19:37,600
Speaker 1: a lot of companies than UM Shipping and Supplies. We

350
00:19:37,680 --> 00:19:41,600
Speaker 1: had a story on Dear that even after UM the

351
00:19:41,680 --> 00:19:46,240
Speaker 1: company came back with bonuses a ten percent raised now

352
00:19:46,280 --> 00:19:48,680
Speaker 1: five percent and three years five percent in five years.

353
00:19:49,280 --> 00:19:54,159
Speaker 1: Even then the workers still said, no, we want more UM.

354
00:19:54,280 --> 00:19:56,560
Speaker 1: Is this at some point going to become a concern

355
00:19:56,680 --> 00:20:00,800
Speaker 1: for Jerome Powell? You know? This is Uh, this is

356
00:20:00,840 --> 00:20:04,600
Speaker 1: a huge issue and worker empowerment is a big deal

357
00:20:04,760 --> 00:20:08,840
Speaker 1: right now. Uh what is what? What's problematic for j.

358
00:20:08,960 --> 00:20:11,840
Speaker 1: Powell is that even though we saw a nice dead

359
00:20:11,880 --> 00:20:15,720
Speaker 1: cat bounce in auto sales yesterday, for the month of October,

360
00:20:16,080 --> 00:20:19,120
Speaker 1: they're down from eighteen point five million, eighteen point three

361
00:20:19,119 --> 00:20:22,600
Speaker 1: million in April to thirteen million in October. That's a

362
00:20:22,680 --> 00:20:26,120
Speaker 1: quick slowdown. We're seeing with this Zello business that all

363
00:20:26,119 --> 00:20:28,639
Speaker 1: of a sudden, you know that that homes are not

364
00:20:28,680 --> 00:20:32,480
Speaker 1: flying off shelves for any price. We're seeing the ability

365
00:20:32,520 --> 00:20:36,760
Speaker 1: for you know, to buy big ticket items. They're really

366
00:20:36,760 --> 00:20:39,160
Speaker 1: pushing back, and it's being led. If you look inside

367
00:20:39,200 --> 00:20:41,399
Speaker 1: the University of Michigan data, it's being led by the

368
00:20:41,480 --> 00:20:45,080
Speaker 1: highest income earners. Those who are account for sixty percent

369
00:20:45,119 --> 00:20:47,439
Speaker 1: of car sales just to give you one example. So

370
00:20:47,480 --> 00:20:51,280
Speaker 1: he Powell knows he's tightening into a slowing economy, and

371
00:20:52,000 --> 00:20:55,280
Speaker 1: he's probably betting that this worker empowerment movement is going

372
00:20:55,359 --> 00:20:58,760
Speaker 1: to subside at some point as the economy slows, and

373
00:20:58,840 --> 00:21:01,960
Speaker 1: it will. But at the moment, as you say, it

374
00:21:02,119 --> 00:21:07,320
Speaker 1: is very, very difficult for to be companies hiring or

375
00:21:07,400 --> 00:21:10,800
Speaker 1: dealing with union negotiations. Like howing me imagine what the

376
00:21:10,960 --> 00:21:14,600
Speaker 1: long long shore uh renegotiations is going to be on

377
00:21:14,920 --> 00:21:17,760
Speaker 1: in Long Beach End in Los Angeles come the end

378
00:21:17,760 --> 00:21:20,320
Speaker 1: of June. That could make things even I mean, it

379
00:21:20,359 --> 00:21:24,000
Speaker 1: could be a biblical union strike. Um. Well, I wondered,

380
00:21:24,040 --> 00:21:26,879
Speaker 1: how do they measure full employment? Because if we're not

381
00:21:27,040 --> 00:21:32,080
Speaker 1: there now, um, with the worker shortages that we're seeing,

382
00:21:32,080 --> 00:21:35,560
Speaker 1: with these huge wage increases that um the unions are

383
00:21:35,560 --> 00:21:38,440
Speaker 1: allowed to demand, then what is full employment gonna look like?

384
00:21:39,920 --> 00:21:42,240
Speaker 1: It's really hard to say. I think that there is

385
00:21:42,240 --> 00:21:45,880
Speaker 1: a lack of appreciation for the simple amount of money

386
00:21:45,880 --> 00:21:49,679
Speaker 1: that companies have thrown into I T. Spending, and that

387
00:21:49,760 --> 00:21:52,400
Speaker 1: means that the automation that we always knew was going

388
00:21:52,440 --> 00:21:56,040
Speaker 1: to arrive has been accelerated. So there's a good chance

389
00:21:56,160 --> 00:22:00,720
Speaker 1: that that we are already at full employment today, and

390
00:22:00,840 --> 00:22:03,120
Speaker 1: that there's going to be four million or some odds,

391
00:22:03,119 --> 00:22:05,399
Speaker 1: so four and a half million, four million jobs that

392
00:22:05,520 --> 00:22:08,240
Speaker 1: just don't come back. They've been automated out of existence.

393
00:22:08,280 --> 00:22:11,080
Speaker 1: We could be at full employment. We had millions retire

394
00:22:11,160 --> 00:22:15,679
Speaker 1: early as well. So it starts to become very problematic,

395
00:22:15,960 --> 00:22:19,080
Speaker 1: very fast. Danielle m about third thirty seconds. What's the

396
00:22:19,160 --> 00:22:21,840
Speaker 1: risk that federal the feder Reserve just is too late,

397
00:22:22,160 --> 00:22:24,199
Speaker 1: It just gets passed by either by the market or

398
00:22:24,200 --> 00:22:27,560
Speaker 1: by other central banks. I think that the FED is

399
00:22:27,560 --> 00:22:29,439
Speaker 1: already so far behind the curve it's not even a

400
00:22:29,440 --> 00:22:32,520
Speaker 1: discussion that could be had. I think most beneficials know it,

401
00:22:32,640 --> 00:22:34,840
Speaker 1: and that's why we haven't heard boo out of rich

402
00:22:34,880 --> 00:22:38,399
Speaker 1: clarative for so long. Interesting, all right, Daniel D. Martino

403
00:22:38,440 --> 00:22:40,240
Speaker 1: bou thank you so much for joining us. We always

404
00:22:40,240 --> 00:22:44,639
Speaker 1: appreciate its specially on FED day. Daniel D. Martino Boots,

405
00:22:44,640 --> 00:22:48,560
Speaker 1: CEO and chief Strategies at Quill Intelligence, former advisor at

406
00:22:48,600 --> 00:22:51,680
Speaker 1: the Dallas feder Reserve, which again is another great reason

407
00:22:51,680 --> 00:22:54,119
Speaker 1: why I we love to talk to her specifically on

408
00:22:54,160 --> 00:22:57,760
Speaker 1: these FED days. And she's also a Bluemerk opinion contributor.

409
00:22:57,840 --> 00:23:00,159
Speaker 1: So very very busy down there and so at it

410
00:23:00,200 --> 00:23:04,800
Speaker 1: again today. I guess is if Danielle is suggesting um inflation, inflation,

411
00:23:04,840 --> 00:23:07,480
Speaker 1: inflation is something that you know, I think investors are

412
00:23:07,480 --> 00:23:11,200
Speaker 1: gonna want to hear the Chairman's view on inflation and

413
00:23:11,440 --> 00:23:14,960
Speaker 1: how the FED is going to react. Yeah. Absolutely, Um,

414
00:23:15,640 --> 00:23:18,840
Speaker 1: it will be interesting to see, especially what the FED

415
00:23:19,240 --> 00:23:21,800
Speaker 1: can do if we are headed into a slowing economy,

416
00:23:21,880 --> 00:23:24,919
Speaker 1: you know, because um, the kind of inflation that we're seeing,

417
00:23:25,000 --> 00:23:27,960
Speaker 1: it doesn't look like monetary policy is going to be

418
00:23:28,040 --> 00:23:30,760
Speaker 1: able to to stop it. It's a different there are

419
00:23:30,760 --> 00:23:34,920
Speaker 1: different issues that are the roots. So uh, what can

420
00:23:34,960 --> 00:23:41,840
Speaker 1: Pale do other than keep um financial conditions? Yeah, uh

421
00:23:42,359 --> 00:23:46,840
Speaker 1: lacks for longer. Thanks for listening to the Bloomberg Markets podcast.

422
00:23:47,240 --> 00:23:50,440
Speaker 1: You can subscribe and listen to interviews with Apple Podcasts

423
00:23:50,560 --> 00:23:54,480
Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm

424
00:23:54,480 --> 00:23:58,760
Speaker 1: on Twitter at Matt Miller put on Falsewheney. I'm on

425
00:23:58,800 --> 00:24:01,720
Speaker 1: Twitter at pt Sweeney. Before the podcast, you can always

426
00:24:01,760 --> 00:24:04,240
Speaker 1: catch us worldwide at Bloomberg Radio. M