Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast.
Speaker 1: I'm my freaking a senior editor at Bloomberg, and this
Speaker 1: week on the show, I guess you could call it
Speaker 1: a dot plot bombshell, with the shifting of a few
Speaker 1: dots on a chart of what various Federal Reserve policymakers
Speaker 1: expect for their benchmark interest rate, as well as Chairman
Speaker 1: Pal's acknowledgement that it's time to at least start talking
Speaker 1: about talking about tapering outset purchases. Well, the markets are
Speaker 1: coming to grips with the idea that the Feds ultra
Speaker 1: loose monetary policy maybe tightening a little bit sooner than
Speaker 1: previously thought. What does that all mean for how you
Speaker 1: should allocate your investments? We'll get into it with a
Speaker 1: chief investment strategist in Milwaukee, but first, Charlie Pellett tell
Speaker 1: us who this week's mystery co host is. This week's
Speaker 1: mystery co host is Katie Greifeld. Katie is a cross
Speaker 1: asset reporter and co anchor of take Stock on Bloomberg
Speaker 1: Quick Take. She's an animal lover at heart and celebrates
Speaker 1: every Friday by tweeting a picture of a hairless cat
Speaker 1: in a milk bath. No need to rewind. You heard
Speaker 1: that right, A hairless cat in a milk bath? You know, Katie,
Speaker 1: would you actually say the words hairless cat in a
Speaker 1: milk bath? It makes it sound a lot more kind
Speaker 1: of weird than it really is, I think is I
Speaker 1: hope I would direct people to my sort of page.
Speaker 1: It's not as profane as it sounds. I promise. It's
Speaker 1: just a very relaxed cat enjoying some self care. It's
Speaker 1: some self care, some self as we all should on
Speaker 1: Friday nights. It's a very soothing image. Again express verbally
Speaker 1: it sounds a little weird, but it is a soothing image.
Speaker 1: It always makes me feel like Friday is here. As
Speaker 1: I know does the show for a lot of people,
Speaker 1: which publishes on Friday afternoons. But Katie talked to us
Speaker 1: a little bit about quick take. How's it going? You're
Speaker 1: answering what noon? So one pm these days noon to
Speaker 1: twelve thirty. We actually just had our one month anniversary
Speaker 1: launched on May seventeenth, so the last month has been
Speaker 1: kind of a blur. But it's a daily market show
Speaker 1: and we're really aimed at retail and individual investors. Um
Speaker 1: so a little bit of a different flavor from Bloomberg
Speaker 1: Television for any Bloomberg television watchers out there. We we
Speaker 1: definitely try to keep it more geared towards, you know,
Speaker 1: the individual rather than the institution. Hey, uh, well, those
Speaker 1: retail traders, as we all know, are the lords of
Speaker 1: the market now, so you can imagine what we've been
Speaker 1: spending our time on. It's a lot of a lot
Speaker 1: of memes, a lot of game games. The half hour
Speaker 1: of memes, it should just be all memes. I think
Speaker 1: that that would be. We should call it take stock.
Speaker 1: We've joked about that stock. Well, let's get into it
Speaker 1: with the markets, uh discussion here with our guests. Actually,
Speaker 1: before we do that, one more thing, I've been very
Speaker 1: remiss in reminding people that we love to hear from you.
Speaker 1: If you want to give us a call on the
Speaker 1: Bloomberg Podcast hotline and leave us a voicemail, the number
Speaker 1: is six four six three to four three four nine
Speaker 1: oh and by all means, call in and tell us
Speaker 1: what the craziest thing you saw in markets this week was,
Speaker 1: and maybe we will play your voicemail on the show.
Speaker 1: But let's get to that market's talk. We're very happy
Speaker 1: to have on the show this week. He is the
Speaker 1: chief investment strategist at Northwestern Mutual Wealth Management. As I said,
Speaker 1: he's in Milwaukee City, running pretty hot with the bucks
Speaker 1: these days. Uh don't don't add me if you're a
Speaker 1: Brooklyn Nets fan, but but they're looking pretty good anyway.
Speaker 1: His name is Brent. Shoot you, Brent, Welcome to the show. Well,
Speaker 1: thanks for having me. Yeah, Brent. I wanted to get
Speaker 1: into it a little bit at first with this FED
Speaker 1: meeting that we saw on Wednesday. UM, and I reflecting
Speaker 1: back to a note you guys had out I think
Speaker 1: it was a month or two ago that sort of
Speaker 1: details your your asset allocations, some some changes you made. Um.
Speaker 1: Still bullish on equities, but a little bit less bullish
Speaker 1: than than say the double fisted buying. Uh, you might
Speaker 1: have recommended that at this time last year. But I
Speaker 1: want to read just one quote from this because I
Speaker 1: think it's it's pretty pertinent this week. Uh, you're in
Speaker 1: your colleagues wrote, you know, while we believe there's ample
Speaker 1: time left in the economic cycle, we must also be
Speaker 1: aware that we are progressing at a quick pace, especially
Speaker 1: in the US. And here's the important part. While the
Speaker 1: Federal Reserve will have a high tolerance for rising inflation.
Speaker 1: Their comfort could wear thin. And boy, I can't help
Speaker 1: but look at the dot plot this week and see
Speaker 1: now the medium projection for two rate increases in three
Speaker 1: and UH greater likelihood not yet the median projection, but
Speaker 1: a higher likelihood of perhaps a rate increase UH next
Speaker 1: year in twenty two. UM. But to me, I think
Speaker 1: what the dots really signify. UM, I'm not sure the
Speaker 1: market is freaking out so much about two hikes in
Speaker 1: three instead of one, but rather the idea that the
Speaker 1: tapering UH might come a little bit sooner than what
Speaker 1: people were expecting. That perhaps, you know, this Jackson Hole
Speaker 1: meeting in August will be a sort of a live
Speaker 1: event where we're gonna have to be on the lookout
Speaker 1: for possible a a greater signal that tapering is coming.
Speaker 1: I don't know by the end of the year. We're
Speaker 1: the beginning of the year. But I'm curious what your
Speaker 1: takeaway is from the statement and from Chairman Pal's press conference.
Speaker 1: UM didn't move the needle at all for you as
Speaker 1: far as what you're expected, and given what I read
Speaker 1: from your your note, you kind of were expecting a
Speaker 1: little bit of sort of cold feet from the FED
Speaker 1: at least some FED members as we watch these inflation
Speaker 1: numbers go higher. Um, a little bit of uh, concerned
Speaker 1: that maybe transitory isn't as transitory as we thought. We'll
Speaker 1: walk us through your reaction to the FED this week. Yeah, So,
Speaker 1: I mean, in many ways, UM, this was right along
Speaker 1: why we've actually made the change that we made, because
Speaker 1: we knew this was coming at some point. And no
Speaker 1: matter how many times people tell you the market looks
Speaker 1: forward and expects things, I think traders still react. Uh.
Speaker 1: And so our base case is that this doesn't change anything. Um,
Speaker 1: So I will say that the Federal Reserve, I believe
Speaker 1: is still who I think they are. That famous quote
Speaker 1: I think from Dennis Screen if I recall correctly, Um,
Speaker 1: they are going to let the cycle run hot. But
Speaker 1: people are going to worry more and more about the
Speaker 1: comment that you made that the cycle is going to
Speaker 1: end prematurely. And I still believe it won't. But that
Speaker 1: doesn't mean that it won't have an impact on markets.
Speaker 1: And certainly the other reason we took down the equity
Speaker 1: ratio is because we actually had some pretty explosive returns
Speaker 1: and just going forward to expect those to moderate quite
Speaker 1: a bit more. The Federal deserved it something Wednesday, which
Speaker 1: I'm not for sure they planned to, but it looks
Speaker 1: pretty brilliant. And so what they did is they really
Speaker 1: didn't change anything with taper expectations. They bought themselves time
Speaker 1: and flexibility actually to keep the pedal to the metal,
Speaker 1: so to speak. But they tamp down inflation expectations, which
Speaker 1: are a big determinant of intermediate to long term inflation.
Speaker 1: So think about it this way. They're gonna keep a
Speaker 1: policy accommodative. They bought themselves flexibility to stay accommodative even
Speaker 1: as inflation rises in the near term because guess what
Speaker 1: the market believes now that they're still worried about longer
Speaker 1: term inflation. And so that actually tamped those down. You saw,
Speaker 1: you've seen the break even curve come down. But they
Speaker 1: didn't say anything with regards to tapering, so to speak. Droom,
Speaker 1: Jerome pal actually said that there's still a long way
Speaker 1: away from their labor market goals. And so you know,
Speaker 1: I'm not for sure anything changes. And if you look
Speaker 1: back at the dot plot um, when Jerome Palace says,
Speaker 1: take it with a grain of salt. I encourage you
Speaker 1: to look back on your Bloomberg terminal at the old
Speaker 1: dot plots in two twelve and thirteen and see what
Speaker 1: they thought rates would be by now, or see when
Speaker 1: they thought with liftoff was going to be. They missed
Speaker 1: the mark on more than one occasion. And I keep
Speaker 1: coming back to the Fed is still outcome based, not
Speaker 1: outlook based. And so take the dot plot with a
Speaker 1: grain of salt um. And right now the taper is
Speaker 1: not yet coming. And the FED bought themselves time to
Speaker 1: not taper even if inflation rises, because the market actually
Speaker 1: took down their inflation expectations. I mean, you mentioned that
Speaker 1: they were able to actually tamp down inflation expectations, and
Speaker 1: you did see a big move lower and break evens
Speaker 1: on Thursday, And you also saw a huge flattening in
Speaker 1: the yield curve, particularly the five dirties curve. I think
Speaker 1: at one point, I mean, it's it's the biggest move
Speaker 1: since late February. Could you walk me through that market reaction,
Speaker 1: I mean, does that just go hand in hand with
Speaker 1: what you're saying that you're seeing such a big rally
Speaker 1: in the long end of the treasury curve just because
Speaker 1: the FED was able to do some fantasy footwork and
Speaker 1: managed to bring down those inflation expectations. Yeah. So, I
Speaker 1: mean the crazy thing to me, and I know you're
Speaker 1: gonna ask me that at the end of the show,
Speaker 1: but the crazy thing to me is that traders are
Speaker 1: trading as if this is the end of the cycle.
Speaker 1: And we're talking about two thousand and twenty three for
Speaker 1: the first rate hike. Consider that two years away. This
Speaker 1: is much much different than the FED tightening the economic
Speaker 1: environment into a recession. We're just talking about taper, talking
Speaker 1: about talking about tapering, uh, and we're not talking about
Speaker 1: the first rate hike to two three uh. And So
Speaker 1: to me, um, you know, the Fed um got what
Speaker 1: they wanted. They brought inflation expectations down, but they're able
Speaker 1: to keep policy extremely accommodative. And the crazy thing is
Speaker 1: that traders are trading it as if we are now
Speaker 1: at the end of the cycle, which kind of back
Speaker 1: to Mike's comments in the opening. I don't think we're
Speaker 1: there yet, um, but the traders are reading the playbook,
Speaker 1: and that says by long bonds, I think this will
Speaker 1: be long forgotten in a couple of months. I do
Speaker 1: think you'll see UH rates move higher. I do think
Speaker 1: you will see cyclical stocks move higher. And I think
Speaker 1: the defensive stocks that are rallying are that rallied in
Speaker 1: the past week based upon the fed perceived U turn
Speaker 1: will actually um uh not be the market leaders. Yeah,
Speaker 1: it's interesting. I think the most traumatic reaction, at least
Speaker 1: on Thursday, the day for the FED, was just this
Speaker 1: massive flattening of the of the yield curve, which you know,
Speaker 1: in theory should take some of the wind out of
Speaker 1: the sales of the stars of the cyclical trade, the financials.
Speaker 1: But it sounds to me like, do you think it
Speaker 1: was just a sort of a positioning washout that we
Speaker 1: saw this week and and we'll, like you said, we'll
Speaker 1: forget about it in a few weeks. Or is it
Speaker 1: an overreaction where how do you make sense of what
Speaker 1: we've seen this week? Both of the above. I think
Speaker 1: it's a positioning wash out as well as UH an overreaction.
Speaker 1: I don't think much change with the FED. To me,
Speaker 1: there's still outcome based, not outlook based. I think they
Speaker 1: want to keep monetary policy as easy as possible UH
Speaker 1: as long as they can. I think they bought themselves
Speaker 1: some time with this in an ironic way. But to me,
Speaker 1: the FED shifted last year. Um, the Fed that I
Speaker 1: knew for the prior years of my career was lurching
Speaker 1: in that way, and last year they put it more
Speaker 1: in stone, um, where they're actually going to target inflation
Speaker 1: above two pc. The mandate post was one mandate that
Speaker 1: was inflation. Employment was secondary. Now we've swapped those. Employment
Speaker 1: is first, inflation is secondary, and the Federal Reserve is
Speaker 1: not going to stop until they get everything they possibly
Speaker 1: can out of the labor market, even if that means
Speaker 1: risking higher inflation. And so to me, the backdrop from
Speaker 1: both monetary and fiscal policy is still highly accommodtive in
Speaker 1: the future. Uh, And that meeting didn't shift that in
Speaker 1: my belief that. So I want to dig in more
Speaker 1: on um, what the read through for equities is. I mean,
Speaker 1: you mentioned that you know, you're still optimistic on cyclical stocks. Uh.
Speaker 1: You know this move into defensives that we're seeing maybe
Speaker 1: is overblown. Where do tech stocks fit into all this?
Speaker 1: And particularly the things I mean I read a lot
Speaker 1: of commentary on Wednesday after the FED meeting that this
Speaker 1: isn't good for you know, the speculative corners of tech.
Speaker 1: But what about just those you know, cash cow companies Apple, Amazon,
Speaker 1: What does it mean for those blue chip companies that
Speaker 1: are probably going to make money in any environment. Yeah,
Speaker 1: I think there's still opportunities there. I agree with you.
Speaker 1: And one of the ironic things last week was that
Speaker 1: those hope streams and themes tech stocks actually did rally
Speaker 1: post the FED meeting based upon I guess the view
Speaker 1: that lower rates are going to help them and that
Speaker 1: that's where you have to go for potential or earnings growth,
Speaker 1: which I still think the cyclicals if you believe my
Speaker 1: story that we're still in a cyclical upswing, that the
Speaker 1: economy hasn't even peaked yet, um, and that it still
Speaker 1: has time to run for some time. I still think
Speaker 1: cyclicals have room to run. Now. The thang stocks, the
Speaker 1: older technology stocks, um, you know, there's probably still some
Speaker 1: value there, But I think, you know, from the standpoint
Speaker 1: of where we're focused, it's more towards the value segments
Speaker 1: of the market, the cyclical segments, and increasingly more so
Speaker 1: places like the Eurozone, which benefit from a cyclical growth
Speaker 1: upswing around the globe, which I think is occurring as
Speaker 1: COVID restrictions come off in some of those economies. Also interesting, Brent,
Speaker 1: you guys, you're only overweight in the US recommendation? Is
Speaker 1: is US small caps? Which you know, I assume it's
Speaker 1: it's part of the makeup of the indexes, A lot
Speaker 1: of banks, a lot of uh, sort of more cyclical
Speaker 1: UM type of companies less obviously no megacap tech, but
Speaker 1: but even less you know, tech in general. You know,
Speaker 1: is it all sort of the industry makeup? Or is
Speaker 1: that the primary driver of where you're finding value around
Speaker 1: the world? Um? But or is it for say, US
Speaker 1: small caps? Is is there embedded in that sort of
Speaker 1: a call on risk tolerance? Um? And with Europe too,
Speaker 1: I mean obviously European banks, uh, you know, famously sort
Speaker 1: of risky. Um. You know, is is it kind of
Speaker 1: an animal spirits call as much as it is cyclical
Speaker 1: and and sort of what is it makes up the
Speaker 1: majority of the weights and these indexes, absolutely, I mean,
Speaker 1: there is something about what makes up the what weight
Speaker 1: makes up the weights in these indexes. But you know,
Speaker 1: typically small caps do well in the beginning to mid
Speaker 1: part of an economic cycle. And I think we're still
Speaker 1: there even though, as you mentioned, the question that we
Speaker 1: have is how quickly do we progress? Um. I still
Speaker 1: think we have time. We're early on. Valuations are cheaper
Speaker 1: relative to large cap from the standpoint of real interest rates.
Speaker 1: Small cap stocks really like negative interest rates and I
Speaker 1: think we're going to continue to have those for some
Speaker 1: period of time. Uh. And uh, you know, I think
Speaker 1: everybody wants to run back to the safety of large
Speaker 1: cap growth, or the perceived safety of large cap growth,
Speaker 1: because they did feel well for the past couple of
Speaker 1: years and maybe even longer than that. But I just
Speaker 1: think this economic cycle is gonna be different in the past,
Speaker 1: and then this one you're gonna worry more about upside
Speaker 1: risk to growth, upside risk to inflation, not downside. And
Speaker 1: I think you have you know, go back to risk tolrens. Um,
Speaker 1: you have a federal reserve that you know, I know
Speaker 1: what happened the other day, But the stutter reserve needs
Speaker 1: the market to move higher. The markets in the economy
Speaker 1: are connected. They've done that by doing quee. Uh. And
Speaker 1: I just think you have a risk backdrop that aporable
Speaker 1: first small caps for some period of time. You know.
Speaker 1: I think if you look back historically, Um, the explosive
Speaker 1: move is probably over in small caps, cyclicals and value. UM.
Speaker 1: But I think everyone gets it wrong about how long
Speaker 1: this typically last. If I look historically, those types of
Speaker 1: things continue to outperform until the FED starts aggressively raising
Speaker 1: rates or the yield curb inverts. And I don't think
Speaker 1: we're anywhere near that yet, and so I think you
Speaker 1: still have time to run in that trade. Now. We
Speaker 1: did take a bit of it off because I could
Speaker 1: be wrong, and part of this job is realizing that
Speaker 1: you have to have be humble and that you're playing
Speaker 1: trade offs. UM. But UM, I still think it has
Speaker 1: time to run. And I think if you look at
Speaker 1: Europe and where Europe is, they're a bit behind the curve.
Speaker 1: They had negative GDP in the first quarter, UM, and
Speaker 1: they're just emerging from COVID lockdowns. And that back to
Speaker 1: your index composition. Their indexes are really cyclical in nature,
Speaker 1: and they really benefit when global growth ticks higher, which
Speaker 1: I think we're moving from more of a US centric
Speaker 1: to now the globe being much more in the growth
Speaker 1: mode and that should favor international equities. And I think
Speaker 1: the euro Zone is primed UH to be a part
Speaker 1: of that. Right, you brought up index composition, and uh,
Speaker 1: this is one of my favorite topics, and I have
Speaker 1: to bring in the meme stocks at some point. And
Speaker 1: when you look at the Russell two thousand, the small
Speaker 1: cap index, it's biggest weights are a MC and game
Speaker 1: stop right up there. And I mean, if you really
Speaker 1: dissect a lot of the performance, I think both of
Speaker 1: those stocks are still the biggest contributors to the indexes. Game.
Speaker 1: I mean, as a manager, how do you invest around
Speaker 1: that that you you do have these stocks totally disconnected
Speaker 1: from fundamentals sort of just ballooning in these indexes. I mean,
Speaker 1: do you just try to ignore it or how do
Speaker 1: you factor that in? No, so I think you tear
Speaker 1: apart the performance and you look and you see that
Speaker 1: there's a lot of other things in the indexes. And
Speaker 1: we use the SNP six so it's a bit different
Speaker 1: of the composition than Russell two thousand. But look and
Speaker 1: you realize that that is a decent sized part of it,
Speaker 1: but there certainly are other parts to it. The other
Speaker 1: thing that I'd say is that active management could have
Speaker 1: the ability to add value above and beyond, just because
Speaker 1: sometimes performance is created by avoiding certain things, not just
Speaker 1: what you buy, um and so I think there's a
Speaker 1: couple of messages there, and I've made reference this in
Speaker 1: prior interviews that I do think this reminds me a
Speaker 1: lot of late nine uh. And I should add that
Speaker 1: postd uh that a lot of stocks that hadn't done
Speaker 1: well or that weren't overbid actually did very well during
Speaker 1: that supposed last decade. Uh. And active management also did
Speaker 1: very well during that time period because the market broadened
Speaker 1: out beyond just a few names moving each and every
Speaker 1: one of the indussy is kind of what we've seen
Speaker 1: over the past couple of years, you know, Brett, I'm curious,
Speaker 1: just anecdotally, what it's like working for a firm like
Speaker 1: yours in this era of the meme stock craziness. I mean,
Speaker 1: you guys have a lot of advisors out there who were,
Speaker 1: you know, in in contact with individual retail investors, you
Speaker 1: know daily. You know, it's it's the phone ringing off
Speaker 1: the hook with people asking about why can't I get
Speaker 1: dose coin or should I but you know, should I
Speaker 1: buy AMC calls? That does it change the mindset of
Speaker 1: of your clients when all this stuff is going on?
Speaker 1: You know, I certainly have heard a lot about cryptocurrency,
Speaker 1: So that's been although a lot less lately. UM. Not surprisingly. UM.
Speaker 1: The meat stocks I haven't heard too much about, although
Speaker 1: I'm sure the advisors are answering questions. You know, I
Speaker 1: think we're we're a firm that's focused much more on
Speaker 1: blocking and tackling and overall asset allocation and the importance
Speaker 1: of planning in that aspect rather than what's the hot
Speaker 1: stock of the day. UM, and our advisors do a
Speaker 1: great job of planning, combining insurance and investments. Uh. And
Speaker 1: so I'm sure those conversations are happening, but they certainly
Speaker 1: haven't filtered through too much to me, although you know,
Speaker 1: I do. I suppose here a bit about cryptocurrencies, and
Speaker 1: certainly we've heard a bit about AMC and and GameStop,
Speaker 1: but more from the perplexing common terry not necessary, I
Speaker 1: want to buy this. They're trying to make sense of it,
Speaker 1: and and is this something they need to be doing?
Speaker 1: And I think the answer has been for the most
Speaker 1: part no, uh. And I think that's acceptable for our clients,
Speaker 1: just because they're more ground in the fundamentals of how
Speaker 1: you actually grow well, which is more along the blocking
Speaker 1: and tackling of saving investing in a diverse, bied portfolio. Uh,
Speaker 1: and protecting your assets. Um, you know from the bad
Speaker 1: things that happen in life, you know, Brent. One thing
Speaker 1: I found interesting in your allocation note, uh that was
Speaker 1: out recently, Um is the discussion of emerging markets. Um.
Speaker 1: Because at first, Blush, I think, well, if if you're
Speaker 1: bullish on inflation, uh, if you're bullish on cyclical and
Speaker 1: value stocks, that you'd probably be bullish on EM. I mean,
Speaker 1: just looking at the the E M E T F
Speaker 1: A is a proxy real heavy waiting to banks and
Speaker 1: financial services, decent sides, waiting to energy commodities, that sort
Speaker 1: of thing. And as far as tech, a big waiting
Speaker 1: to two chip makers. UM. You know obviously Korean and
Speaker 1: Shine and whatnot. Um. But you're you guys are a
Speaker 1: bit more cautious about emerging markets, um. Uh in an
Speaker 1: inflationary environment. So walk us through why that is why? Um,
Speaker 1: is this not really the best place to be in
Speaker 1: this type of cyclical possibly inflationary environment. Yeah, And that's
Speaker 1: it's it's it's kind of a base case discussion versus
Speaker 1: what I discussion. Uh. And so UM, if you think
Speaker 1: about emerging markets of inflation were to be more persistent,
Speaker 1: they would probably be hit hardest and first just because
Speaker 1: a lot of those countries don't control their monetary policy
Speaker 1: per se, and they often times have to raise rates
Speaker 1: uh when inflation rises and money starts flowing out of
Speaker 1: their economies, and that actually harms them. You can actually
Speaker 1: have a currency crisis. And so you know, we still
Speaker 1: do have a modest overweight, a very minor overweight t
Speaker 1: e M. It's much less um So I guess that
Speaker 1: that trade was two fold. We took midcaps down to
Speaker 1: decrease or actor ratio, and then essentially we moved some
Speaker 1: of our emerging market overweight into the Eurozone, thinking that
Speaker 1: they had much more control of their monetary policy than
Speaker 1: some of those emerging economies do. And so again I
Speaker 1: bring it back, and I think people think this job
Speaker 1: is all about trying to get everything right all at once.
Speaker 1: It's kind of the opposite. In many cases, we're managing risk, uh.
Speaker 1: And so while I may have some risk on one side,
Speaker 1: I may want to actually take it off on the
Speaker 1: other side or figure out where I can get the
Speaker 1: same exposure with less risk. And so I think of
Speaker 1: it that way. It's just more of the anoledg acknowledgement
Speaker 1: that I do think this a bout of inflation that
Speaker 1: we're having right now is more transitory, but I do
Speaker 1: think it could become more permanent. Uh. And if that
Speaker 1: were to be the case and it would run away, um,
Speaker 1: I think emerging would be amongst the first, you know,
Speaker 1: to be hit, and to be hit pretty hard. And
Speaker 1: so we wanted to take some of those chips and
Speaker 1: move them more towards developed international markets which have a
Speaker 1: lot of the same characteristics and are tied to global growth.
Speaker 1: But actually have you know, the European Central Bank who
Speaker 1: can choose more so to do what they want rather
Speaker 1: than be forced to tighten because the fet is tightening
Speaker 1: or something of that nature. And Brent, I want to
Speaker 1: shift gears a little bit and ask you about real
Speaker 1: estate because it also caught my eye, uh, in your
Speaker 1: investment allocation that you are unfavorable on real estate. And
Speaker 1: this is a market I know very little about, just
Speaker 1: to be completely honest, but I mean, it's been hard
Speaker 1: to miss headlines about just how hot the housing market is.
Speaker 1: You know, it feels like there's just zero housing supply
Speaker 1: and everything it takes to build a house also costs
Speaker 1: a lot. UM. So I mean, walk me through your
Speaker 1: call there. I mean, is that market just too hot
Speaker 1: to touch? Yeah, So real estate is much more than
Speaker 1: the housing market is. Certainly office reads, storage reads, things
Speaker 1: of that nature, and so there's a lot more to
Speaker 1: it than the housing market. And certainly, you know, to me, um,
Speaker 1: and I'm just back in office for the first week
Speaker 1: this week, I mean, to me, real estate was the
Speaker 1: asset class that had the most COVID tail to it.
Speaker 1: And so how do companies react in the future. What
Speaker 1: does the world look like? Do people go back into offices?
Speaker 1: Do we need the same amount of office properties that
Speaker 1: we had in the past? Um, rent abatements, what happens there?
Speaker 1: And so we were actually max underweight read going into COVID.
Speaker 1: That was lucky UM, and that was a different call UM.
Speaker 1: And then we recently, so the acid allocation that you're
Speaker 1: reading the one before that in January, we actually opt
Speaker 1: our reats from max underweight to UM slightly underweight. UM.
Speaker 1: But to me reads UM, you know, they certainly rallied recently. UM.
Speaker 1: They are more of an income play and if you
Speaker 1: look historically, they trade almost based like long bonds, at
Speaker 1: least in the past four or five years when the
Speaker 1: FED is really tied this to UH to the to
Speaker 1: you know, keeping rates low. And this is where I
Speaker 1: guess tourist investors who are looking for income went there
Speaker 1: and whenever the yields would rise, they would bail. And
Speaker 1: so you know, think of it this way. If you
Speaker 1: look back you're worried about a taper tantrum, you want
Speaker 1: to the asset classes sold up the most reads, They
Speaker 1: felt a lot, and that's just because they trade as
Speaker 1: if they're long bonds and they trade based upon yields. Um.
Speaker 1: I could show you a chart that shows you the SMP,
Speaker 1: for example, divided by reads, and you can overly attend
Speaker 1: your treasury and they're almost moved exactly alike for the
Speaker 1: prior three or four five years. And so um, you know,
Speaker 1: we're we've warmed more to reads that we did buy
Speaker 1: them back in January. The one area that I think,
Speaker 1: and I think I've made mention that I think yields
Speaker 1: could rise more. But one of the things that could
Speaker 1: happen over the summer, I think think about the euro Zone,
Speaker 1: think about government debt all around the globe, think about
Speaker 1: negative yields in Germany, if the euro Zone starts recovering,
Speaker 1: might those yields in Germany move higher, which would allow
Speaker 1: UM some US yield movement higher. UM And our thinking
Speaker 1: is if that were to occur, possibly that would be
Speaker 1: an attractive point to re enter reads because they are
Speaker 1: so incomsensive. I would imagine they would sell off on
Speaker 1: that scenario. Well, uh, Brett, one thing we are very
Speaker 1: much overw on in the show is the crazy things
Speaker 1: that that we've all seen this week. So I hope
Speaker 1: you can't prepared. I know they warned you about this. Uh.
Speaker 1: Are crazy things segment stand clear of the craziest things
Speaker 1: we saw in markets this week. But let's just get
Speaker 1: started with Katie. Katie, I have high hopes for your
Speaker 1: crazy thing. What's the craziest thing you saw this week?
Speaker 1: All right? So this is crazy. I don't totally understand
Speaker 1: it because it has to do with defy UM. But
Speaker 1: this is a blog already, the centralized finance. It's like,
Speaker 1: I've got so many people to explain it to me,
Speaker 1: it still won't quite click in my brain. But um,
Speaker 1: there's this token to defy titanium token. It was trading
Speaker 1: around sixty dollars now at zero But the crazy thing
Speaker 1: is that Mark Cuban had put out this blog post
Speaker 1: about how excited he was about defy, how he was
Speaker 1: providing liquidity to the Titan this token. Um so it
Speaker 1: wasn't it wasn't that he necessarily held it. I hope
Speaker 1: I'm understand this correctly. But he would could collect a
Speaker 1: fee on the volume. But now it's a zero um
Speaker 1: so that's pretty amazing. It's just I feel like this
Speaker 1: perfect little illustration of how cookie the cryptospace can get. Yeah, yeah,
Speaker 1: I read about that. Yeah, there's some arb between arbitrage
Speaker 1: trade that's automated between that token and some other token.
Speaker 1: I don't understand it either, and I think that the
Speaker 1: real world the story is Mark Cuban didn't understand it clearly,
Speaker 1: and so but when I saw it went to zero,
Speaker 1: I was like, okay, I'm a buyer. I'll take all
Speaker 1: of it. I'll take it all. But it must be
Speaker 1: like not quite zero. It's got to be zero point
Speaker 1: zero zero. There must be one in the decimal place,
Speaker 1: something there that I would imagine, because who's sounded for zero?
Speaker 1: I don't know. Amazingly, I can't get a price for
Speaker 1: it on the Bloomberg terminal. They haven't put that in
Speaker 1: there yet. I don't think we got I don't think
Speaker 1: we have dogs either. Still, no, you don't, there's no
Speaker 1: dog in there. I've looked forward a couple of times. Yes, Yeah,
Speaker 1: I don't know if that's a good or bad idea
Speaker 1: on our part. I've leaning towards a good idea, I guess,
Speaker 1: but uh, Brent, I don't know. Katie came pretty big there.
Speaker 1: That's a good one. You have something that's crazier than that.
Speaker 1: I know, you tease something for us at the beginning. Yeah,
Speaker 1: I know. I just think I mean, that's more tame
Speaker 1: probably than I don't know if it's crazy, but I
Speaker 1: think it's crazy. I mean it's crazy to me that, Um,
Speaker 1: every meeting that we go into the FED, people say
Speaker 1: it's the biggest FED meeting ever, and then people choose
Speaker 1: to trade it. Uh, and then you know, a few
Speaker 1: weeks later we'll forget about in the next meeting will
Speaker 1: be the big one. Yeah. And I just think it's
Speaker 1: crazy that people are trading the end of an economic cycle.
Speaker 1: When you think about the dots being moved forward and there,
Speaker 1: their record historically is not very good. Um. I just
Speaker 1: think that's kind of crazy, I guess, Um. I certainly
Speaker 1: think it's still crazy that one person UM can tweet
Speaker 1: about a cryptocurrency and cause it to move as much
Speaker 1: as that person does, And that probably shows Katie kind
Speaker 1: of ties back into what you're just mentioned. I mean,
Speaker 1: there's ten thousands of these cryptocurrencies, I believe, uh and
Speaker 1: when one person can move, it kind of shows you
Speaker 1: how immature the whatever this is asset class still is. UM.
Speaker 1: But I thought i'd i'd maybe end with a comment
Speaker 1: and a question that I get quite often uh more
Speaker 1: this week, and I saw it actually maybe pop up
Speaker 1: on one of your blogs potentially where someone asked, UM,
Speaker 1: you know, with regards to inflation, the question that is
Speaker 1: coming up quite often is well, do you think these
Speaker 1: companies are just going to roll back their prices? I
Speaker 1: want you to think what inflation is and how we
Speaker 1: measure it. So inflation is a year over your measure.
Speaker 1: If these companies don't roll back their prices next year
Speaker 1: and they stay the same, inflation will be zero. So
Speaker 1: I think people just need a little bit of a
Speaker 1: math reminder, um that even if they don't roll back
Speaker 1: their prices and they keep them at these elevated levels
Speaker 1: and they're the same next year. That's not inflation. That's
Speaker 1: actually zero inflation. So I don't know. I guess it's
Speaker 1: more of a math thing and a question that I'm
Speaker 1: getting quite often and if it's crazy or not, but
Speaker 1: it's certainly struck me as a bit crazy. Well, I
Speaker 1: I agree with you, and I keep thinking that we're
Speaker 1: gonna be talking about transitory deflation, uh, you know, or
Speaker 1: disinflation at least at some point next year when that
Speaker 1: exact thing happens that you know, everyone plays catch up
Speaker 1: and just leaves prices where they are. The commodities that
Speaker 1: we're running hot go down a little bit, you know,
Speaker 1: the base effects work the off site direction next year. Right,
Speaker 1: this year you had higher inflation, last year had lower inflation. Yep, yep. Yeah,
Speaker 1: that's pretty good. AT's your point about it being a
Speaker 1: crypto being an immature asset class, which I agree with,
Speaker 1: especially when one ah know named person can move it
Speaker 1: with the market around as much as as they can.
Speaker 1: What's it's mature? That was the amount of money involved
Speaker 1: in the market caps of of some of these That's
Speaker 1: what's fascinating to me. It is a very immature asset class.
Speaker 1: But yet the assets are there. It's it's so it's
Speaker 1: kind of a scary thing. Yeah, the stakes are much
Speaker 1: higher than they we're in seventeen now that you have
Speaker 1: you know, a lot of Wall Street actually getting involved
Speaker 1: and putting real money into it. Yeah. Yeah, that's a
Speaker 1: great way to put it. The snakes are higher. All right. Well,
Speaker 1: I I'll give you my crazy thing, and it is
Speaker 1: I'm delving back into the crypto space myself. Uh. You know,
Speaker 1: the president of El Salvador obviously made a lot of
Speaker 1: headlines by declaring bitcoin legal tender. This I think is
Speaker 1: even crazier and more interesting. I'm not sure I would
Speaker 1: even call it crazy. I think it might be crazy
Speaker 1: like a fox might be a shrik of genius. He
Speaker 1: is suggesting that they use El Salvador's volcanoes as a
Speaker 1: source of power for bitcoin mining. Obviously, the energy intensive
Speaker 1: use of these bitcoin miners is a hot topic these days,
Speaker 1: causing Elon Musk to sort of take a step back
Speaker 1: away from it. But El Salvador does have a pretty
Speaker 1: what sounds like a robust geothermal energy and for structure
Speaker 1: and some power plants that aren't running at capacity, why
Speaker 1: not mine bitcoin off of the volcanoes of El Salvador.
Speaker 1: I don't know, I've I've heard crazier things, I think,
Speaker 1: but I like it. I like that outside of the
Speaker 1: box thinking. But it makes you think, Katie, you know,
Speaker 1: if if that's where the mining is going to go eventually,
Speaker 1: is too countries that are able to produce the energy
Speaker 1: in some less provocative way than say burning coal or royal.
Speaker 1: I was gonna say, I guess, you know, volcano powered
Speaker 1: bitcoin mining that counts as green. That's, you know, a
Speaker 1: removable source of energy theoretically. I don't know. I hear
Speaker 1: the phrase volcano powered bitcoin mining and like refuses to
Speaker 1: process what could possibly go wrong. I just can't can't
Speaker 1: wrap my mind around it. But that I mean, that's
Speaker 1: I can't wait to watch how that evolves me too.
Speaker 1: And that's that's sort of courtesy a coin desk. By
Speaker 1: the way, I like to give credit where it's do um.
Speaker 1: But with that said, Brent shoots Katie Greyfeld, thank you
Speaker 1: so much to both of you for coming on the show.
Speaker 1: Really enjoyed this conversation and hopefully we'll have you back
Speaker 1: again soon. Thank you, thank you. What goes up, we'll
Speaker 1: be back next week. Until then, you can find us
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