WEBVTT - Examining Markets, The Fed, Yields, And Tech At Work 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.640 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.919 at Bloomberg dot com slash podcast. All right, it is 0:00:23.000 --> 0:00:27.040 FED Day. Bloomberg Radio TV will have complete coverage this afternoon, 0:00:27.080 --> 0:00:29.840 and it's uh, it's all about the tone of the 0:00:29.920 --> 0:00:32.760 interest rate environment going forward that we're gonna be looking 0:00:32.800 --> 0:00:36.519 for from this Fed Reserve Chairman. David Bianco, Chief Investment 0:00:36.520 --> 0:00:39.720 Officer d w S Group joins us. David, I guess 0:00:39.760 --> 0:00:43.320 you know the taperings is well I guess well discounted, 0:00:43.320 --> 0:00:46.200 well understood by the market. What are you looking for 0:00:46.400 --> 0:00:49.360 from Fed chairman Pal this afternoon? Good morning, thanks for 0:00:49.400 --> 0:00:52.640 having me. It's FED Day, which is definitely an exciting 0:00:52.720 --> 0:00:56.480 day here at THEWS and for all investment managers. What 0:00:56.600 --> 0:01:00.360 we're going to be listening to is just thoughts on 0:01:00.360 --> 0:01:04.360 on inflation, of course the transitory versus structural debate, but 0:01:04.400 --> 0:01:06.880 also importantly what's the FED going to do? About it. 0:01:07.120 --> 0:01:10.640 You know, our view is that inflation will decelerate over 0:01:10.680 --> 0:01:13.400 the coming year from what has been very high levels. 0:01:13.880 --> 0:01:17.920 But even though inflation is decelerating, it's still very likely 0:01:18.160 --> 0:01:20.959 going to be above the Fed's target, and therefore the 0:01:20.959 --> 0:01:24.199 FED needs to start continuing to remove accommodation. We're gonna 0:01:24.200 --> 0:01:27.840 hear about tapering today. Uh, the real question is what's 0:01:27.880 --> 0:01:30.880 going to happen to overnight rates. Our view is there 0:01:30.920 --> 0:01:33.679 still will not be a hike in overnight rates until 0:01:34.200 --> 0:01:37.000 the fourth quarter of next year. But let's hear. And 0:01:37.040 --> 0:01:39.479 by the way, this is uh, this is a moment 0:01:39.520 --> 0:01:42.080 where we're gonna get to hear from from the FED chair. 0:01:42.560 --> 0:01:45.399 And after this there's gonna be a lot more. It's 0:01:45.400 --> 0:01:48.040 gonna open the window to hearing whether we get the 0:01:48.120 --> 0:01:51.840 renomination from the President for j. Powell or not. So 0:01:51.920 --> 0:01:54.400 it's a it's when where we all want to hear 0:01:54.840 --> 0:01:58.520 the current chairs mind thoughts, and before we get into 0:01:58.560 --> 0:02:01.200 a little bit more of you know, political considerations about 0:02:01.240 --> 0:02:04.840 the future leadership of the FED. The FED has nothing 0:02:04.880 --> 0:02:08.280 to do with the supply chain crisis or really even 0:02:08.400 --> 0:02:12.480 shipping um issues. The costs that come from that aren't 0:02:12.520 --> 0:02:14.800 anything the FED can control, but it does have a 0:02:14.840 --> 0:02:17.799 mandate for the labor market, and the labor shortage seems 0:02:17.840 --> 0:02:20.079 to be one of the things that people are pointing 0:02:20.080 --> 0:02:24.480 to more and more often, even beyond the chips and 0:02:24.520 --> 0:02:27.320 ships issue. So what do we expect to hear from 0:02:27.360 --> 0:02:29.680 the FED on that? We expect the FED to talk 0:02:29.680 --> 0:02:32.200 about all of these issues, and the FED will rightly 0:02:32.440 --> 0:02:35.639 point out that there has been an inflationary shock from 0:02:35.720 --> 0:02:39.040 the supply side related to the pandemic supply chains, and 0:02:39.560 --> 0:02:42.640 also a little labor scarcity that is getting better but 0:02:42.720 --> 0:02:45.960 getting better slowly. At the same time, the FED should 0:02:46.160 --> 0:02:49.880 acknowledge that there's been monetary effects occurring here too. Cash 0:02:49.960 --> 0:02:54.440 in circulation has jumped tremendously since the pandemic, in part 0:02:54.520 --> 0:02:58.760 to fund the emergency fiscal policy response, and that was important, 0:02:58.760 --> 0:03:02.880 but cash in circulation and even household deposits up a 0:03:02.919 --> 0:03:06.360 lot since the pandemic started. The FED can't do anything 0:03:06.400 --> 0:03:10.120 and really shouldn't fight supply side inflation when it's you know, 0:03:10.320 --> 0:03:13.440 when it's not something structural, But they need to acknowledge 0:03:13.480 --> 0:03:16.080 that there is a demand side, and part of this 0:03:16.160 --> 0:03:19.520 demand side, whether it be government spending or even just 0:03:19.639 --> 0:03:23.200 households being flushed with cash. The Fed does have something 0:03:23.240 --> 0:03:25.600 to do with that now, to keep all this cash 0:03:26.080 --> 0:03:29.680 kind of on on ice and chilled rather than turning 0:03:29.680 --> 0:03:32.640 into hotter money. Well, this is why you see short 0:03:32.760 --> 0:03:35.440 term interest rates beginning to lift up. Where we've got 0:03:35.440 --> 0:03:37.440 the two year year old at about it's gotten close 0:03:37.480 --> 0:03:41.120 to fifty basis points, three year yields at seventy basis points. 0:03:41.120 --> 0:03:45.200 The bottom market seems to be very confident that the 0:03:45.240 --> 0:03:49.160 Fed is going to take actions to contain inflation um 0:03:49.240 --> 0:03:51.680 and and we believe that's gonna play out. Let's watch 0:03:51.680 --> 0:03:53.720 and see what the you know, what leadership the FIT 0:03:53.840 --> 0:03:56.960 is and what they say. Um. But there is still 0:03:57.000 --> 0:03:59.920 inflation risk out there, and we want to protect again 0:04:00.040 --> 0:04:02.920 those inflation risks. And our view is the best way 0:04:02.960 --> 0:04:06.040 to protect against inflation is simply to own the best 0:04:06.120 --> 0:04:09.960 businesses you can. Out of all these concerns about inflation. 0:04:11.160 --> 0:04:14.360 Year to date, after years of this trend being persistent, 0:04:14.680 --> 0:04:16.919 year to date, growth stocks are out performing in the 0:04:17.080 --> 0:04:20.840 SMP um and and and we believe that it's better 0:04:20.920 --> 0:04:25.120 to own businesses that are uh raising their productivity rather 0:04:25.160 --> 0:04:29.240 than raising their price. David, are you share the concern 0:04:29.279 --> 0:04:31.599 that is held by some that perhaps this FED reserve 0:04:31.800 --> 0:04:34.840 is falling behind that the markets getting ahead of them, 0:04:34.839 --> 0:04:38.840 and even some other central banks out there. Well not yet, 0:04:39.240 --> 0:04:42.839 you know, I mean tapering is probably gonna be announced today, um, 0:04:42.960 --> 0:04:45.279 and that is uh going to move out a little 0:04:45.279 --> 0:04:47.200 bit of a faster pace than most of us thought, 0:04:47.240 --> 0:04:50.200 say six months twelve months ago. The Fed we'll be 0:04:50.240 --> 0:04:55.200 talking about how they're thinking about raising interest rates you 0:04:55.520 --> 0:04:58.360 probably late next year, so you know, they're using their 0:04:58.360 --> 0:05:01.880 communication tools. Well, all the bond market, as I said, 0:05:01.880 --> 0:05:04.120 it's beginning to move and do some you know, it's 0:05:04.120 --> 0:05:07.359 a little bit of you know, pulling back accommodation and 0:05:07.400 --> 0:05:09.920 reason to cost the capital uhs. The bond market is 0:05:09.960 --> 0:05:12.839 doing some work for the FED right now. And yeah, 0:05:12.839 --> 0:05:15.000 this is a tough thing that the FED is trying 0:05:15.000 --> 0:05:19.040 to wrestle with. What parts of inflation are really transitory 0:05:19.080 --> 0:05:21.359 and supply side shocks that will fade. And they'd be 0:05:21.400 --> 0:05:24.240 wrong if they were aggressively going to fight versus other 0:05:24.279 --> 0:05:26.400 things that might be more structural, like you know a 0:05:26.440 --> 0:05:29.560 lot of people have gotten into retirement uh since the pandemic, 0:05:29.600 --> 0:05:32.880 and you know, there may be more labor um difficulties 0:05:32.920 --> 0:05:36.560 in the future, and you know, the trade activity, import activity, 0:05:37.279 --> 0:05:39.240 tariffs and so forth. These things are still you know, 0:05:39.640 --> 0:05:43.919 a challenge to uh TO to to keeping inflation low. Also, 0:05:43.960 --> 0:05:46.839 when there is an emergency and you've got low interest rates, 0:05:47.240 --> 0:05:48.839 one of the best things that they can do is 0:05:48.839 --> 0:05:51.559 to promise to keep interest rates low for a long time. 0:05:51.920 --> 0:05:55.200 So they don't want to lose credibility either on keeping 0:05:55.279 --> 0:05:57.680 rates low if they need to in an emergency. David, 0:05:57.720 --> 0:06:00.400 thanks so much for joining us. David Bianco there, chief 0:06:00.440 --> 0:06:11.680 investment officer at DWS Group. This is Bloomberg Now. I 0:06:11.720 --> 0:06:14.279 want to get out to Dr Mary. Dr Anne Marie 0:06:14.480 --> 0:06:18.280 sastry Um. She joins us on the phone from ann Arbor, 0:06:18.400 --> 0:06:21.719 Michigan School. There. I believe it's a place I love 0:06:21.839 --> 0:06:26.400 to go, especially around Thanksgiving to watch Ohio State the 0:06:26.440 --> 0:06:29.360 Buckeyes beat the Wolverines, although I have to say it's 0:06:29.400 --> 0:06:32.880 really depressing every time that happens. She's the CEO of 0:06:33.120 --> 0:06:35.440 am a site, and she's gonna talk to us about 0:06:35.440 --> 0:06:38.360 people getting back to work. I'm sure. First of all, 0:06:38.560 --> 0:06:40.360 I'm joking a little bit with you about Anne Arbor. 0:06:40.480 --> 0:06:43.760 It's gorgeous. I absolutely love it there. Um, I'm sure 0:06:43.800 --> 0:06:46.320 people want to go back to work. Uh. There, but 0:06:46.400 --> 0:06:48.240 it seems like here in New York and out in 0:06:48.279 --> 0:06:51.800 London and over in Berlin, nobody's coming back to work. 0:06:51.839 --> 0:06:56.240 What's happening. What's happening is that people are demanding greater flexibility. 0:06:56.440 --> 0:06:58.320 And again, Paul and Mats, great to be with you 0:06:58.400 --> 0:07:00.320 this morning in the stadium here in Anna is big 0:07:00.400 --> 0:07:02.880 enough to hold lovers and haters so that you guys 0:07:02.880 --> 0:07:06.800 can come and help economy. You can help the up economy. Uh. Yeah. 0:07:06.839 --> 0:07:09.560 That The reality is that people are demanding flexible work 0:07:09.640 --> 0:07:11.600 because a lot of the notions that we had about 0:07:11.640 --> 0:07:14.240 how work needs to be done have been upbended by 0:07:14.280 --> 0:07:17.400 the pandemic. That people realize that, yes, the conduct of 0:07:17.440 --> 0:07:20.480 business was possible online and that has led to greater 0:07:20.520 --> 0:07:23.800 degrees of digitalization, not only because it's more efficient for 0:07:23.840 --> 0:07:26.800 companies to deliver goods and services that way, but with 0:07:26.920 --> 0:07:29.320 much of the logistics and most of the engineering, design, 0:07:29.320 --> 0:07:34.360 etcetera going on online, but also that people appreciate it. Uh. 0:07:34.360 --> 0:07:37.960 The stats are are telling. Thirty four percent of employees 0:07:37.960 --> 0:07:40.240 say that they're more productive now than they were before 0:07:40.280 --> 0:07:43.160 the pandemic, and over half of executives say that average 0:07:43.160 --> 0:07:48.360 employee productivity has improved with online work, So so the 0:07:48.440 --> 0:07:50.440 numbers bear it out. The numbers bear it out. And 0:07:50.520 --> 0:07:52.520 you know, a lot of folks, as I'm sure you're 0:07:52.520 --> 0:07:56.000 where in rear, are concerned about inflation, concerned about wage inflation. 0:07:56.680 --> 0:07:59.400 But again a lot of folks economists will say, don't 0:07:59.440 --> 0:08:02.880 be so worried about it. Yes, Uh, nominal wages are 0:08:02.920 --> 0:08:07.120 going up, but people are becoming more productive and so 0:08:07.440 --> 0:08:10.880 it's less of an issue in this economy. Do you 0:08:10.880 --> 0:08:14.040 think that's a longer term issue? I do, UH. And 0:08:14.160 --> 0:08:16.240 when you look at the most valuable companies in the 0:08:16.280 --> 0:08:19.920 world and and what their models are, their models are 0:08:20.480 --> 0:08:25.720 fewer people with incredible productivity generating great high degrees of 0:08:25.800 --> 0:08:29.560 revenue per person um. If you look at the jobs available, 0:08:30.600 --> 0:08:33.840 the BLS we're of Labor Statistics found that UH may 0:08:33.960 --> 0:08:37.280 smashed every prior record. Nine point two million job openings 0:08:37.280 --> 0:08:40.680 are available in the country. But the economy hasn't ground 0:08:40.679 --> 0:08:43.520 to a halt. Instead, we have fewer people doing more 0:08:43.640 --> 0:08:47.200 of the work. And what that means is that a 0:08:47.280 --> 0:08:50.440 higher degree of training is required in order to allure 0:08:50.480 --> 0:08:53.240 people back to the workforce and get people back working. 0:08:53.640 --> 0:08:57.440 But also people are adapting to digitalization strategies, meaning that 0:08:57.960 --> 0:09:01.400 they are using skills that they've learning college and they 0:09:01.400 --> 0:09:03.880 need to be constantly upskilled. And when you look at 0:09:03.880 --> 0:09:05.839 the data there again they tell the story in a 0:09:05.960 --> 0:09:10.000 very clear way. The vast majority of employees demand flexibility 0:09:10.080 --> 0:09:14.120 their work. And what we see is that scent of 0:09:14.160 --> 0:09:16.760 workers thinks that they will have to up skill in 0:09:16.880 --> 0:09:21.360 order to stay economically viable. So these changes, these disruptions 0:09:21.679 --> 0:09:24.920 are changing the game for employers who find themselves needing 0:09:24.960 --> 0:09:29.079 to to conduct more business digitally and for workers who 0:09:29.120 --> 0:09:32.040 need more skills. So I you know what, I absolutely 0:09:32.080 --> 0:09:36.560 respect that workers want flexibility, um, and that remote work 0:09:36.679 --> 0:09:40.000 can be better for a lot of people. The problem 0:09:40.080 --> 0:09:43.960 is the technology just doesn't seem there yet for every company, 0:09:44.160 --> 0:09:47.040 right so UM this morning, for example, I was trying 0:09:47.040 --> 0:09:49.079 to get in touch with a bunch of economists and 0:09:49.120 --> 0:09:51.960 then with a bunch of tech people, and all over 0:09:52.000 --> 0:09:54.640 Europe they all seem to be out of the office. 0:09:54.679 --> 0:09:56.360 Then I had to try their cell phones try and 0:09:56.360 --> 0:10:00.160 figure out their home phone number. I'm wondering if they forwarded, um, 0:10:00.280 --> 0:10:03.800 you know, they're calls. It just doesn't seem like the 0:10:03.920 --> 0:10:09.320 infrastructure is ready. Sass growth has been enormous, as you know, 0:10:09.679 --> 0:10:13.440 and SAS companies have have kept the economy going. SASS 0:10:13.440 --> 0:10:17.120 being software is a service, correct, yes, and an AMA 0:10:17.120 --> 0:10:19.600 site my company is also a SAS business. We are 0:10:19.600 --> 0:10:21.800 in the in the training space and so we happen 0:10:21.800 --> 0:10:24.840 to know a little bit about this. We're Nasdaq a MST. 0:10:25.520 --> 0:10:28.720 What we've discovered is is a course that people don't 0:10:28.760 --> 0:10:31.760 want to fiddle or fool with three or four different 0:10:31.800 --> 0:10:34.080 platforms in order to engage. They want to be able 0:10:34.120 --> 0:10:37.920 to perform their work functions on one platform. They also 0:10:38.000 --> 0:10:42.040 want to be served materials uh smartly. And if you 0:10:42.080 --> 0:10:43.880 think about it for a second, if you think about 0:10:43.920 --> 0:10:46.200 Spotify or you think about Netflix, nobody has to come 0:10:46.200 --> 0:10:48.280 to your house to show you how to use those apps, right, 0:10:48.320 --> 0:10:51.960 and so business apps need to become more user friendly. 0:10:51.960 --> 0:10:55.000 The unit user experience needs to be streamlined. But in 0:10:55.040 --> 0:10:57.480 the interim, people will use the tools they have now. 0:10:57.760 --> 0:11:00.160 The companies that are going to be very successful are 0:11:00.160 --> 0:11:02.680 going to be the companies that provide those softwares of 0:11:02.720 --> 0:11:06.480 service tools that reduce the friction of business and the 0:11:06.520 --> 0:11:11.480 companies that adopt those tools quickly. Dr Henry Sastry, thank 0:11:11.520 --> 0:11:14.160 you so much for joining us to really appreciated. Uh 0:11:14.320 --> 0:11:18.000 Dr Henry sasstry CEO of emassites on the phone from 0:11:18.080 --> 0:11:22.760 an arbor, Michigan, Home of the Big House. UM, absolutely, 0:11:22.840 --> 0:11:26.040 absolutely love the Big House. It is a game this year. 0:11:26.120 --> 0:11:29.120 Wears it in an arbor, Columbus. I do not. I 0:11:29.160 --> 0:11:31.679 assume it's in an arbor, because otherwise I'm going home 0:11:31.679 --> 0:11:33.520 for thanks you. My brothers would have gotten me tickets 0:11:33.600 --> 0:11:37.000 at the Horseshoe. The Big House is loud and it's 0:11:37.040 --> 0:11:39.319 a lot of fun until, like I said, they lose. 0:11:39.480 --> 0:11:43.200 Then everyone is super bummed out, which happens usually, which happens. 0:11:43.240 --> 0:11:45.000 All right, let's see if they can turn it around 0:11:45.040 --> 0:11:49.600 this year. Let's talk a little bit about what you 0:11:49.640 --> 0:11:53.880 can get from fixed income in the world of high yield. 0:11:53.920 --> 0:11:56.199 We have Brent Pink with US Global Co had of 0:11:56.280 --> 0:12:01.360 high yielded Aviva Investors and I guess, um, you know, 0:12:01.400 --> 0:12:06.680 the question is is the return worth the risk? Um? 0:12:07.440 --> 0:12:10.120 And and some people, a lot of people have been 0:12:10.160 --> 0:12:14.040 answering yes lately. What do you think you know? High 0:12:14.120 --> 0:12:17.360 yield at four percent in historical context does not seem 0:12:17.400 --> 0:12:20.280 like a lot. But we're also in an extremely low 0:12:20.320 --> 0:12:24.120 default environment. The support that the economy got from the 0:12:24.160 --> 0:12:27.560 Federal Reserve last year has really eliminated a lot of 0:12:27.559 --> 0:12:31.840 the downside to high yield. So while yields from a 0:12:31.920 --> 0:12:35.720 long term perspective look relatively low, there's also very few 0:12:35.720 --> 0:12:38.760 alternatives in other asset classes you can get that sort 0:12:38.760 --> 0:12:41.720 of income from. So we still think the asset classholds 0:12:41.720 --> 0:12:44.680 of value for investors that are are income focused or 0:12:45.040 --> 0:12:47.959 or looking for a steady stream of coupons going forward. 0:12:48.320 --> 0:12:50.520 All right, Brent, how far out on the risk curve 0:12:50.559 --> 0:12:54.160 are you guys going these days for returns? Because when 0:12:54.160 --> 0:12:55.920 I was in the market four percent, we would have 0:12:56.200 --> 0:12:59.480 kicked that down out of the room. Um, So if 0:12:59.520 --> 0:13:02.040 you're looking for a return, how far down on the 0:13:02.080 --> 0:13:05.640 curve are you guys going. Well, we play across the 0:13:05.679 --> 0:13:09.240 capital structure, so we will go from triple B even 0:13:09.280 --> 0:13:12.560 down to triple C. We think there's some pockets of 0:13:12.640 --> 0:13:15.360 value right now. One of the most popular trades in 0:13:15.400 --> 0:13:18.360 the market today are rising stars. So these are the 0:13:18.360 --> 0:13:22.080 companies rated double B currently but on their way back 0:13:22.080 --> 0:13:25.120 to triple B or investment grade rated. We think that 0:13:25.160 --> 0:13:27.880 this is a very popular trade. So some of the 0:13:27.960 --> 0:13:30.520 upside has been squeezed down already, but we do think 0:13:30.559 --> 0:13:34.080 that there's a lot of momentum behind these rising stars 0:13:34.080 --> 0:13:37.280 that will continue for the next two years. So we 0:13:37.360 --> 0:13:41.200 think that's the particularly of interest. We also are seen 0:13:41.480 --> 0:13:45.959 an increase in LBO activity that will bring a lot 0:13:46.000 --> 0:13:49.199 of triple C rated bonds to the market. We think 0:13:49.200 --> 0:13:51.960 you have to be very selective in this portion of 0:13:52.280 --> 0:13:54.079 the high yeld market, but we do think there are 0:13:54.120 --> 0:13:59.640 some interesting individual credit opportunities within that lower quality tire. 0:13:59.800 --> 0:14:06.480 Well kind of economic cycle assumptions do you have to make? Well, 0:14:06.520 --> 0:14:11.040 you know, right now you look at GDP consensus growth 0:14:11.080 --> 0:14:14.440 estimate at four percent, and that's actually a really healthy 0:14:14.520 --> 0:14:18.720 environment for high yield companies hw YOUELD bonds typically do 0:14:18.840 --> 0:14:22.600 well when the economy is growing in positive territory but 0:14:22.720 --> 0:14:27.080 not overly hot, and that's the environment where you really 0:14:27.080 --> 0:14:31.320 get that restrictive or tightening FED policy that can dampen 0:14:31.360 --> 0:14:34.320 down economic growth. So this is similar the sweet spot 0:14:34.400 --> 0:14:37.920 for high yield here, this low but positive growth environment. 0:14:38.840 --> 0:14:40.920 Brent in a new issue market, do you guys on 0:14:40.960 --> 0:14:44.680 the buy side have any leverage or these When I 0:14:44.720 --> 0:14:48.280 go to the covenant section of x y Z widget manufacturer, 0:14:48.680 --> 0:14:51.840 it's basically just a couple of pages. Yeah, kind of 0:14:52.000 --> 0:14:55.280 quality is certainly deteriorated over the years, and you're right, 0:14:55.360 --> 0:14:58.040 the power kind of went to the issuers. But we 0:14:58.160 --> 0:15:01.880 have seen some evidence of discipline from investors right now. 0:15:01.920 --> 0:15:05.800 There's a few uh new issues on the on the 0:15:05.840 --> 0:15:10.760 docket right now that that have struggled from a covenant standpoint, 0:15:10.840 --> 0:15:15.040 but price where the investors and the issuers have not 0:15:15.120 --> 0:15:20.200 come to terms. Um, maybe there's some creative structuring or 0:15:20.200 --> 0:15:22.680 covenant agreements that can be met, but we are seeing 0:15:22.760 --> 0:15:25.760 some signs of discipline from the market. It's not anything 0:15:25.800 --> 0:15:31.880 goes at this point. So when do we get back 0:15:31.920 --> 0:15:35.360 to a world where high yield is paying out seven 0:15:35.640 --> 0:15:39.760 or eight or ten or twelve percent? I mean, seeing 0:15:39.840 --> 0:15:44.400 three or four percent on high yield coupon is just nuts. Yeah, 0:15:44.520 --> 0:15:46.440 it's kind of a misnomer to call it high yield 0:15:46.440 --> 0:15:49.480 when it's only four percent. Really, I think the less 0:15:49.480 --> 0:15:53.680 inflations at five because then you're getting nine really right, Yeah, Well, 0:15:54.120 --> 0:15:56.200 you know, you could you could make the case the 0:15:56.320 --> 0:15:59.280 real yield on on high yield right now is negative. 0:16:00.440 --> 0:16:04.960 I think for yields to go back to seven, we're 0:16:04.960 --> 0:16:07.440 really going to need to see an economic cycle were 0:16:07.520 --> 0:16:12.160 significantly higher interest rates. Right now, spreads are credit spread 0:16:12.200 --> 0:16:15.240 as about three hundred basis points above treasury, So if 0:16:15.280 --> 0:16:18.880 you did see a meaningful increase in interest rates, you 0:16:18.880 --> 0:16:21.920 would see that carry through to credit as well. Now, 0:16:22.360 --> 0:16:26.080 for investors that are concerned about interstrate risk, high yield 0:16:26.240 --> 0:16:29.360 historically has had a negative correlation to interst rate, So 0:16:29.440 --> 0:16:33.840 it is one asset class within fixed income that historically 0:16:33.880 --> 0:16:37.640 has been able to weather a rising rate environment. Bright 0:16:37.680 --> 0:16:41.440 what's the sector you guys like the most right now? Well, 0:16:41.480 --> 0:16:44.120 if you look at the pace of fundamental improvement, energy 0:16:44.840 --> 0:16:49.040 is growing the fastest. We've had a significant recovery. We've 0:16:49.080 --> 0:16:52.560 also cleansed a lot of the worst players in the 0:16:52.600 --> 0:16:57.040 high yeld market through two thousand and fifteen, and early 0:16:57.560 --> 0:16:59.840 during the pandemic we saw a lot of defaults within 0:16:59.840 --> 0:17:02.800 the energy sector. So I think the credit quality there 0:17:02.960 --> 0:17:06.199 is better than it was historically. It still offers a 0:17:06.240 --> 0:17:08.920 premium to the overall market, and given the pace of 0:17:08.960 --> 0:17:12.040 fundamental improvement, we do think that that is one sector 0:17:12.040 --> 0:17:15.560 that we'll see uh a large amount of rising stars 0:17:15.600 --> 0:17:18.480 over the next two years. So that's one particular area 0:17:18.480 --> 0:17:21.480 of the market we find attractive today. All right, Brent, 0:17:21.560 --> 0:17:24.080 thank you so much for joining us. We appreciate, always 0:17:24.119 --> 0:17:26.960 love getting your perspective on the high old market as 0:17:27.040 --> 0:17:28.960 high as it can possibly be. I guess at this 0:17:29.000 --> 0:17:32.120 point it four percent again, like Matt say, not kind 0:17:32.119 --> 0:17:34.880 of the old days. Seven eight nine, All right, Brent 0:17:35.000 --> 0:17:38.639 fit Global, cohead of the high led biz at Aviva Investors, 0:17:38.680 --> 0:17:40.960 joining us on the phone from New York, and again, 0:17:41.359 --> 0:17:44.159 Um still thinks he sees some opportunity out there in 0:17:44.160 --> 0:17:48.040 a high yield space. Credit spreads remain pretty tight, but 0:17:48.119 --> 0:17:52.000 credit quality is surprisingly good given all the liquidity we've 0:17:52.000 --> 0:17:54.919 gotten from the Federal Reserve and from fiscal stimulus, So 0:17:54.960 --> 0:17:58.480 the credit quality has been pretty solid. They're good. Getting 0:17:58.520 --> 0:18:00.359 his perspective on the high old market a little more 0:18:00.440 --> 0:18:08.280 coming up, This is Bloomberg. Well these fed days. I 0:18:08.320 --> 0:18:10.720 always need to know what am I supposed to look 0:18:10.720 --> 0:18:13.439 out for in the release, what am I supposed to 0:18:13.480 --> 0:18:16.040 focus in on the press conference? I'm not sure because 0:18:16.040 --> 0:18:18.560 it kind of changes kind of period to period. But 0:18:18.640 --> 0:18:21.359 Danielle de Martino booth absolutely on top of that, and 0:18:21.400 --> 0:18:23.400 we're glad to have her here. Danielle de Martino both 0:18:23.440 --> 0:18:26.600 CEO and chief strategist for quill Intelligence. Danielle, thanks so 0:18:26.640 --> 0:18:28.480 much for taking a time on what I know is 0:18:28.480 --> 0:18:31.520 a busy day for you. What should I be looking 0:18:31.520 --> 0:18:36.320 out for from uh FEDS released today in the commentary? Well, um, 0:18:36.359 --> 0:18:39.119 you know you're seeing, first of all, you're seeing rents 0:18:39.200 --> 0:18:42.560 rise at the fastest pace since two thousand one in 0:18:42.640 --> 0:18:45.560 the CPI. So we're no longer waiting to see the 0:18:45.600 --> 0:18:49.280 whites of the eyes of housing inflation manifest in the 0:18:49.320 --> 0:18:52.680 inflation data. It has past tense. That's a sticky form 0:18:52.720 --> 0:18:56.199 of inflation. And we're obviously seeing that the port situation, 0:18:56.480 --> 0:19:01.040 shipping freight, all of this is not going away anytime soon. 0:19:01.680 --> 0:19:05.679 Unraveling this supply chain disaster is going to take time. 0:19:06.119 --> 0:19:08.040 So I think investors are going to want to know, 0:19:08.720 --> 0:19:12.680 how are you planning if inflation continues to accelerate from here, 0:19:12.960 --> 0:19:15.200 How are you planning to do a hurry up taper? 0:19:15.400 --> 0:19:17.320 What does your what? What? What? What? What does your 0:19:17.359 --> 0:19:20.240 plan be on the taper such that you're going to 0:19:20.280 --> 0:19:22.600 be able to get to raising interest rates more quickly? 0:19:23.080 --> 0:19:25.040 And I think that that that is rightly the first 0:19:25.119 --> 0:19:29.359 question that should be on investors mind. You know, the 0:19:29.440 --> 0:19:32.800 labor issue seems to be even a bigger deal for 0:19:32.840 --> 0:19:37.600 a lot of companies than UM Shipping and Supplies. We 0:19:37.680 --> 0:19:41.600 had a story on Dear that even after UM the 0:19:41.680 --> 0:19:46.240 company came back with bonuses a ten percent raised now 0:19:46.280 --> 0:19:48.680 five percent and three years five percent in five years. 0:19:49.280 --> 0:19:54.159 Even then the workers still said, no, we want more UM. 0:19:54.280 --> 0:19:56.560 Is this at some point going to become a concern 0:19:56.680 --> 0:20:00.800 for Jerome Powell? You know? This is Uh, this is 0:20:00.840 --> 0:20:04.600 a huge issue and worker empowerment is a big deal 0:20:04.760 --> 0:20:08.840 right now. Uh what is what? What's problematic for j. 0:20:08.960 --> 0:20:11.840 Powell is that even though we saw a nice dead 0:20:11.880 --> 0:20:15.720 cat bounce in auto sales yesterday, for the month of October, 0:20:16.080 --> 0:20:19.120 they're down from eighteen point five million, eighteen point three 0:20:19.119 --> 0:20:22.600 million in April to thirteen million in October. That's a 0:20:22.680 --> 0:20:26.120 quick slowdown. We're seeing with this Zello business that all 0:20:26.119 --> 0:20:28.639 of a sudden, you know that that homes are not 0:20:28.680 --> 0:20:32.480 flying off shelves for any price. We're seeing the ability 0:20:32.520 --> 0:20:36.760 for you know, to buy big ticket items. They're really 0:20:36.760 --> 0:20:39.160 pushing back, and it's being led. If you look inside 0:20:39.200 --> 0:20:41.399 the University of Michigan data, it's being led by the 0:20:41.480 --> 0:20:45.080 highest income earners. Those who are account for sixty percent 0:20:45.119 --> 0:20:47.439 of car sales just to give you one example. So 0:20:47.480 --> 0:20:51.280 he Powell knows he's tightening into a slowing economy, and 0:20:52.000 --> 0:20:55.280 he's probably betting that this worker empowerment movement is going 0:20:55.359 --> 0:20:58.760 to subside at some point as the economy slows, and 0:20:58.840 --> 0:21:01.960 it will. But at the moment, as you say, it 0:21:02.119 --> 0:21:07.320 is very, very difficult for to be companies hiring or 0:21:07.400 --> 0:21:10.800 dealing with union negotiations. Like howing me imagine what the 0:21:10.960 --> 0:21:14.600 long long shore uh renegotiations is going to be on 0:21:14.920 --> 0:21:17.760 in Long Beach End in Los Angeles come the end 0:21:17.760 --> 0:21:20.320 of June. That could make things even I mean, it 0:21:20.359 --> 0:21:24.000 could be a biblical union strike. Um. Well, I wondered, 0:21:24.040 --> 0:21:26.879 how do they measure full employment? Because if we're not 0:21:27.040 --> 0:21:32.080 there now, um, with the worker shortages that we're seeing, 0:21:32.080 --> 0:21:35.560 with these huge wage increases that um the unions are 0:21:35.560 --> 0:21:38.440 allowed to demand, then what is full employment gonna look like? 0:21:39.920 --> 0:21:42.240 It's really hard to say. I think that there is 0:21:42.240 --> 0:21:45.880 a lack of appreciation for the simple amount of money 0:21:45.880 --> 0:21:49.679 that companies have thrown into I T. Spending, and that 0:21:49.760 --> 0:21:52.400 means that the automation that we always knew was going 0:21:52.440 --> 0:21:56.040 to arrive has been accelerated. So there's a good chance 0:21:56.160 --> 0:22:00.720 that that we are already at full employment today, and 0:22:00.840 --> 0:22:03.120 that there's going to be four million or some odds, 0:22:03.119 --> 0:22:05.399 so four and a half million, four million jobs that 0:22:05.520 --> 0:22:08.240 just don't come back. They've been automated out of existence. 0:22:08.280 --> 0:22:11.080 We could be at full employment. We had millions retire 0:22:11.160 --> 0:22:15.679 early as well. So it starts to become very problematic, 0:22:15.960 --> 0:22:19.080 very fast. Danielle m about third thirty seconds. What's the 0:22:19.160 --> 0:22:21.840 risk that federal the feder Reserve just is too late, 0:22:22.160 --> 0:22:24.199 It just gets passed by either by the market or 0:22:24.200 --> 0:22:27.560 by other central banks. I think that the FED is 0:22:27.560 --> 0:22:29.439 already so far behind the curve it's not even a 0:22:29.440 --> 0:22:32.520 discussion that could be had. I think most beneficials know it, 0:22:32.640 --> 0:22:34.840