WEBVTT - Surveillance: Zentner's Fed call 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best an economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.439 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.960 Bloomberg dot Com, the Bloomberg Terminal and the Bloomberg Business. 0:00:29.600 --> 0:00:30.840 App with Us. 0:00:30.880 --> 0:00:34.800 Ellen Zettner of James Gorman's Morgan Stanley with us right now. 0:00:35.120 --> 0:00:39.760 I saw a hockey stick chart on manufacturing in America. 0:00:39.960 --> 0:00:42.720 Doesn't matter what the details are, the answer is it's 0:00:42.760 --> 0:00:45.800 something we're not used to. I have a chart that 0:00:45.840 --> 0:00:47.640 went back, I got a big splash with it a 0:00:47.640 --> 0:00:54.240 million years ago of manufacturing labor to our population in America. 0:00:54.720 --> 0:00:58.120 And basically the back was broken in nineteen seventy and 0:00:58.160 --> 0:01:02.200 then really broken into how can we have a manufacturing 0:01:02.320 --> 0:01:03.760 renaissance in America? 0:01:03.960 --> 0:01:08.119 Well, we can, we can have increasing share of manufacturing 0:01:09.240 --> 0:01:12.720 in the economy. But these things are slow moving beasts, 0:01:12.760 --> 0:01:15.479 and the decline of manufacturing over time has taken decades 0:01:16.319 --> 0:01:18.880 to play out with larger step downs. As you said 0:01:18.920 --> 0:01:21.920 in the seventies, and then is after the WTO and 0:01:22.080 --> 0:01:26.640 China's rise right more more pronounced after that, And so 0:01:26.720 --> 0:01:29.440 I think, you know, I think we've got something exciting 0:01:29.480 --> 0:01:32.000 going on right now. I think we're digging into the 0:01:32.080 --> 0:01:35.039 data and we're seeing that. And especially if you go 0:01:35.080 --> 0:01:37.640 around the country and you talk to small manufacturers in 0:01:37.680 --> 0:01:41.320 the country, which I have done, and they'll tell you 0:01:41.360 --> 0:01:43.800 that they're starting to get more and more domestic orders 0:01:43.800 --> 0:01:45.360 of people that are. 0:01:44.959 --> 0:01:48.880 On shoring having manufacturing. 0:01:48.120 --> 0:01:52.600 Rooms, they at least feel that their business is picking up. Now, 0:01:53.520 --> 0:01:57.600 this feels like it could be the start of something. 0:01:57.800 --> 0:02:01.120 We're seeing something. There is some on shoring story there, 0:02:01.160 --> 0:02:03.480 there's some near shoring story there. I think the story 0:02:03.480 --> 0:02:08.520 around Mexico's benefit from near shoring is exciting. 0:02:09.120 --> 0:02:10.040 There is a lot. 0:02:09.880 --> 0:02:13.680 Of infrastructure building going on across the country. State and 0:02:13.760 --> 0:02:16.919 local governments have been ramping up hiring around that as well. 0:02:17.160 --> 0:02:19.760 So I think there's something going on in manufacturing here 0:02:19.760 --> 0:02:22.280 that is exciting. But that's a smaller share of the 0:02:22.360 --> 0:02:25.320 economy than the service's side. 0:02:25.440 --> 0:02:27.880 And Katie, one of the unspokens here through June is 0:02:28.440 --> 0:02:33.280 Mexican Paeso stunning in its Mexican peso strength through twenty 0:02:33.360 --> 0:02:36.800 through nineteen through eighteen, you're gonna get a sixteen handle 0:02:36.840 --> 0:02:40.480 on Mexican peso at some point, which is I never thought. 0:02:40.280 --> 0:02:40.800 I'd see that. 0:02:41.000 --> 0:02:43.680 Yeah, And it's important to remember because we talk about 0:02:43.680 --> 0:02:47.079 how strong and resilient the dollar has been all the time, 0:02:47.160 --> 0:02:50.440 but there's definitely some pairs where that is not quite true. 0:02:50.440 --> 0:02:52.400 But Ellen, of course, we have you on Monday, we 0:02:52.480 --> 0:02:56.840 get the jobs report on Friday. Is there anything that 0:02:56.919 --> 0:02:59.480 we could get at eight thirty am on Friday that 0:02:59.520 --> 0:03:01.880 would take the FED off the course for a twenty 0:03:01.880 --> 0:03:03.280 five basis hike later this month. 0:03:03.360 --> 0:03:05.040 Yes, So we've given this a lot of thoughts. 0:03:05.120 --> 0:03:08.240 So we have these roadmaps to each FED decision that 0:03:08.280 --> 0:03:10.480 we produce of here's what we think the data will 0:03:10.480 --> 0:03:12.000 look like in hand, and this is what we think 0:03:12.040 --> 0:03:15.200 their response will be. And because it seems like, yes, 0:03:15.240 --> 0:03:17.360 they're data dependent, but it feels like they're sort of 0:03:17.600 --> 0:03:20.840 locked in for this July hike, I think the bar 0:03:21.160 --> 0:03:22.960 is just a lot lower than we thought it would 0:03:23.000 --> 0:03:25.520 be that you would have to. 0:03:27.840 --> 0:03:29.079 For the data to say. 0:03:28.880 --> 0:03:31.200 Don't hike, and so I think it would be a 0:03:31.240 --> 0:03:35.200 payroll print less than one hundred thousand right, because really 0:03:35.600 --> 0:03:38.040 that would get the market thinking maybe they're not going 0:03:38.080 --> 0:03:40.000 to hike in July and then still wait for that 0:03:40.120 --> 0:03:43.560 CPI print to do the rest of the job. And 0:03:43.560 --> 0:03:45.720 if you've got a downside surprise and CPI as well, 0:03:45.760 --> 0:03:49.040 then I think that would be the final you know, 0:03:49.160 --> 0:03:51.160 box to tick off that says Okay, it doesn't have 0:03:51.240 --> 0:03:53.880 to be a July hike. I think it would still 0:03:54.000 --> 0:03:56.080 keep the Fed saying, hey, there's still may be more 0:03:56.120 --> 0:03:57.440 to do. I think there's still going to be an 0:03:57.440 --> 0:04:00.760 asymmetric hiking bias, but I think it would have to 0:04:00.800 --> 0:04:03.280 be some pretty big downward misses for them to not 0:04:03.360 --> 0:04:03.920 hike in July. 0:04:04.400 --> 0:04:06.880 Yeah, definitely an important point that we do have a 0:04:06.920 --> 0:04:09.960 CPI before we do get to that July decision. But 0:04:10.520 --> 0:04:12.360 when you look at and I don't want to get 0:04:12.400 --> 0:04:14.160 too short term here, but when you look at sort 0:04:14.200 --> 0:04:16.760 of the expectations that are baked in for the Fed 0:04:16.800 --> 0:04:19.240 to go ahead in July, for you know, probably the 0:04:19.320 --> 0:04:22.680 labor strength that we've been seeing to continue with June's report, 0:04:22.760 --> 0:04:26.279 what do you think would prompt the bigger reaction in markets? 0:04:26.400 --> 0:04:29.600 Is it an upside surprise or a downside surprise? 0:04:30.160 --> 0:04:32.560 You know, I think it would be a downside surprise 0:04:32.640 --> 0:04:35.360 because the market is is you know, the Fed's been 0:04:35.400 --> 0:04:37.680 really successful here. The market is saying, Okay, they're on 0:04:37.720 --> 0:04:41.560 this hiking bias, and we're going to give them the 0:04:41.560 --> 0:04:44.240 benefit of the doubt that it could be two additional 0:04:44.320 --> 0:04:47.080 hikes from here, not just one additional hike or no hikes, 0:04:47.600 --> 0:04:49.800 or even pushing out the expectation they could be cutting 0:04:49.839 --> 0:04:52.040 before the end of the year. I think the market 0:04:52.080 --> 0:04:54.840 has really grabbed onto that narrative and the data has 0:04:54.880 --> 0:04:56.760 helped support that. So I think it would be a 0:04:56.839 --> 0:05:00.280 downside surprise. It would probably get the bigger reaction we. 0:05:00.279 --> 0:05:03.640 Partitioned where part of the American public has a two 0:05:03.640 --> 0:05:07.560 percent unemployment rate and another part of the public has 0:05:07.600 --> 0:05:11.400 a seven percent unemployment rate. Yeah, how does morganstantly see 0:05:11.440 --> 0:05:14.279 the quintile makeup or docile makeup? 0:05:14.400 --> 0:05:16.640 Well, look, it's it's more around you know, sort of 0:05:16.760 --> 0:05:18.120 education level. 0:05:19.360 --> 0:05:23.760 You know, the the bottom descile's done well off the pandemic, 0:05:23.880 --> 0:05:25.039 right they. 0:05:25.200 --> 0:05:30.159 Have from government support which is now ended. They have 0:05:30.320 --> 0:05:33.640 off of a tight labor market, which has increased labor 0:05:33.760 --> 0:05:39.039 income and wage growth, especially for low wage paying service sectors. 0:05:39.480 --> 0:05:44.000 But we're only just now seeing real wage gains positive, 0:05:44.720 --> 0:05:48.000 So it was really you know, inflation was still outpacing 0:05:48.680 --> 0:05:52.880 wage gains for those folks. But that divergence between sort 0:05:52.920 --> 0:05:55.240 of those with a seven percent unemployment rate and those 0:05:55.240 --> 0:05:56.760 with a two percent, it's really do you go all 0:05:56.800 --> 0:05:58.960 the way to like a thirteen percent unemployment rate and 0:05:59.040 --> 0:06:01.680 those with a two percent? That has always been the case. 0:06:02.240 --> 0:06:04.640 It's always been the case. So what I look at 0:06:04.760 --> 0:06:09.120 is has the unemployment rate been improving across all. 0:06:10.480 --> 0:06:10.839 All of. 0:06:12.560 --> 0:06:18.599 By ethnicity, by age, by geographic location, like, has it 0:06:18.680 --> 0:06:22.479 been improving across all groups? Yes, it has, and we 0:06:22.520 --> 0:06:27.000 are back to the kind of tight labor market for 0:06:27.160 --> 0:06:31.960 the most underserved in the country being just as good 0:06:32.040 --> 0:06:34.360 or as tight as it was pre pandemic. 0:06:34.800 --> 0:06:35.000 Yeah. 0:06:35.040 --> 0:06:37.479 I look at this and Alan, you know, they said 0:06:37.480 --> 0:06:39.760 to me, can we get Zentner for the Monday before 0:06:39.800 --> 0:06:41.640 fourth of July? And I said, well, she's probably going 0:06:41.680 --> 0:06:44.960 to be in waiters in some trout stream and in 0:06:45.120 --> 0:06:48.200 Chile as well. But you know, folks, this is really 0:06:48.200 --> 0:06:50.800 a sacrifice on the part of ellen Zetner because she's 0:06:50.839 --> 0:06:52.800 going to take a nymphanite fly ride that I can't 0:06:52.839 --> 0:06:54.719 afford and go out in the river. 0:06:54.839 --> 0:06:55.640 This is a Zettner. 0:06:55.720 --> 0:07:00.960 You don't know fly fishing with Zetner the saltwater thing 0:07:01.000 --> 0:07:03.200 that say shells and the Bahamas not. 0:07:03.160 --> 0:07:07.200 As big on saltwater fly fishing salt water, but not 0:07:07.279 --> 0:07:07.960 to fly fish. 0:07:08.279 --> 0:07:09.920 You go to Jacksons far enough. 0:07:10.080 --> 0:07:12.800 Yeah, you go to Jackson all the Smith River, Salmon River, 0:07:12.880 --> 0:07:16.360 Jellystone River and all of it. But Patagonian. We had 0:07:16.440 --> 0:07:22.320 listeners today emailing in from Chile with your appearance here today, 0:07:22.360 --> 0:07:25.400 and there's like the Rio Simpson, Like Chile is like 0:07:25.760 --> 0:07:28.560 huge trout fishing and the fish are ginormous. 0:07:28.800 --> 0:07:29.680 They're ginormous. 0:07:29.760 --> 0:07:31.680 Yeah, there's so much bigger down there. 0:07:32.000 --> 0:07:34.080 You know, they don't get a lot of pressure. There's 0:07:34.120 --> 0:07:36.800 not a whole lot of people going down to Chile. 0:07:36.920 --> 0:07:39.440 It takes quite some time to get down there to fish. 0:07:39.480 --> 0:07:41.520 And do you know that the trout are not native 0:07:42.360 --> 0:07:46.400 to the region. They were introduced to the introduced They 0:07:46.400 --> 0:07:49.680 were introduced in the nineteen thirties by the British. Yeah, 0:07:49.880 --> 0:07:51.480 and so we've got them to think for that. 0:07:51.680 --> 0:07:54.480 So they're invasive. They not invasive. 0:07:54.640 --> 0:07:56.720 Listen to you, it's sport. 0:07:56.760 --> 0:07:57.960 It's not invasive. 0:07:59.040 --> 0:08:00.640 Some inflammatory commentary. 0:08:01.400 --> 0:08:04.080 It's like we don't even miss Bramo. She's worth some bread. 0:08:04.160 --> 0:08:06.679 There's not evidence that they have killed off the native 0:08:06.720 --> 0:08:10.480 populations of fish, but they have really thrived there and 0:08:10.520 --> 0:08:12.960 it's been a great industry now in Chile. 0:08:13.120 --> 0:08:15.800 What's your favorite river in the rocky mountains of this nation? 0:08:16.400 --> 0:08:16.720 Oh? 0:08:16.800 --> 0:08:20.040 Gosh, in Montana? Probably, Well, there's one. 0:08:20.080 --> 0:08:27.240 I can't say publicly because then everybody will go. Let's 0:08:27.760 --> 0:08:30.720 let's say like the beaver Head in Montana, because everybody 0:08:30.720 --> 0:08:32.160 knows that when it is a great river. 0:08:32.320 --> 0:08:34.319 And I won't say the one that's my absolute. 0:08:33.960 --> 0:08:36.680 Favorite because then it will get more pressure. 0:08:36.760 --> 0:08:38.600 Did you make up when? Next time? 0:08:38.679 --> 0:08:38.840 Was that? 0:08:39.080 --> 0:08:41.439 Can we get a beeper in here? So we see 0:08:41.440 --> 0:08:42.640 that Sunday in. 0:08:42.679 --> 0:08:46.800 Montana is a fishing good near Jackson Hawayoming the third 0:08:46.880 --> 0:08:48.440 or fourth week August. 0:08:48.960 --> 0:08:49.480 You know it? 0:08:49.480 --> 0:08:50.600 Well, it depends, right. 0:08:50.640 --> 0:08:52.720 The runoff was really big this year, a lot of 0:08:52.720 --> 0:08:53.720 those record snows. 0:08:53.960 --> 0:08:56.240 Right, the river levels are high. 0:08:56.320 --> 0:08:58.520 And it's not been high like that in quite some time. 0:08:58.640 --> 0:09:01.840 August has been really dry. But if you love cutthroat fishing, 0:09:01.880 --> 0:09:02.520 then you want. 0:09:02.320 --> 0:09:03.280 To be around Jackson Hall. 0:09:03.520 --> 0:09:05.400 James Gorman thinks she's cuts her she's going to be 0:09:05.400 --> 0:09:08.240 on the phone the first week of August. I just 0:09:08.320 --> 0:09:10.240 really think I need to go to Jackson Hall to 0:09:10.320 --> 0:09:14.600 read academic papers. This has been a joy. Ellen Zettner 0:09:14.679 --> 0:09:17.400 with us here on radio and television. 0:09:22.080 --> 0:09:23.720 And all you need to know. It's sort of like 0:09:23.760 --> 0:09:25.760 Tulips and stocks a million years ago. 0:09:25.880 --> 0:09:28.320 Joining us now the guy that wrote the book on this, 0:09:28.480 --> 0:09:31.319 we are thrilled to Tony Cscenzi could join us in 0:09:31.400 --> 0:09:36.439 PIMCO this morning. The Strategic Bond Investor is the grown 0:09:36.520 --> 0:09:39.079 up book to read on it. It's in its fourteenth edition. 0:09:39.440 --> 0:09:41.280 You could buy half a Staten Island off for the 0:09:41.360 --> 0:09:45.880 royalties of it. From Tulips to treasuries, how close are 0:09:45.880 --> 0:09:48.480 we to tulips or are we buying treasuries? 0:09:48.679 --> 0:09:51.760 I think we're closest to treasuries. The Tulips view was 0:09:51.800 --> 0:09:54.120 a couple of years ago, but when treasury yields were 0:09:54.600 --> 0:09:57.959 quite low, and yields globally with negative about eighteen trillion 0:09:58.360 --> 0:10:01.360 or so of negative yielding bonds, and in fact, that 0:10:01.400 --> 0:10:03.840 Tulip's idea I think will probably affect the bond market 0:10:03.880 --> 0:10:07.680 for a generation. What investor for the next twenty years 0:10:07.720 --> 0:10:10.800 will purchase a German blend at minus fifty bases points. 0:10:10.800 --> 0:10:12.439 Again, given the car looking. 0:10:12.160 --> 0:10:14.680 At me in my Austrian ninety seven year you're looking 0:10:14.720 --> 0:10:16.440 at me, yeah, yeah. 0:10:16.640 --> 0:10:19.800 And I say a generation because things change. Think about 0:10:19.840 --> 0:10:22.400 the housing market. Of course, in two thousand and eight, 0:10:22.440 --> 0:10:24.040 two thousand and nine we would have said the housing 0:10:24.040 --> 0:10:27.840 market will never rebound, and of course it certainly did vigorously. 0:10:28.040 --> 0:10:30.800 It takes time, but I think the low and negative 0:10:30.840 --> 0:10:34.240 yielding bonds are probably out the door, out the window 0:10:34.360 --> 0:10:35.360 for quite a long time. 0:10:36.240 --> 0:10:40.040 I'm looking at the splash this weekend from your shop. 0:10:40.080 --> 0:10:43.360 In the Financial Times they gave one Daniel Ivison. I 0:10:43.400 --> 0:10:46.280 think he's an intern with PIMCO. Front and center. 0:10:46.040 --> 0:10:48.280 Headlines bond fund giant. 0:10:48.320 --> 0:10:53.559 PIMCO prepares for quote harder landing for global economy. How 0:10:53.559 --> 0:10:58.240 does econobabble fit into total return in the fixed income market? 0:10:58.520 --> 0:11:00.800 I think that view from Dan I in our group 0:11:00.920 --> 0:11:06.480 CEO is just a cautionary note and so relative when 0:11:06.520 --> 0:11:09.400 we say hard landing, we're saying relative to perhaps what 0:11:09.440 --> 0:11:12.800 others are expecting. At Pimco, we're expecting a soft landing, 0:11:13.200 --> 0:11:15.800 but that may be harder than others are thinking. So 0:11:15.840 --> 0:11:18.520 in terms of a total return type portfolio, a Bloomberg 0:11:18.559 --> 0:11:21.080 aggregate style of portfolio, which of course is a collection 0:11:21.160 --> 0:11:26.280 of bonds, treasuries, mortgages, corporates, mostly market cap weighted. You 0:11:26.400 --> 0:11:29.120 want to be up in quality. Of course, we think 0:11:29.520 --> 0:11:32.400 if there is a slowdown or a recession, the credit 0:11:32.400 --> 0:11:35.880 spreads could widen. The broader point is that one needn't 0:11:35.880 --> 0:11:38.280 take a lot of duration risk, credit risk, et cetera 0:11:39.000 --> 0:11:41.760 to get good yields in the bond market. We're looking 0:11:41.800 --> 0:11:44.680 at five, six, seven percent type returns in assets we 0:11:44.760 --> 0:11:47.600 think are so called money good, So you needn't take 0:11:47.640 --> 0:11:51.520 a big leap. Consider, for example, tom where high yield 0:11:51.600 --> 0:11:54.240 bonds are. Even though they may be attractive to some, 0:11:54.360 --> 0:11:57.480 we'd say be cautious in the area. At spreads of 0:11:57.520 --> 0:12:01.120 over four hundred basis points or four hundred and four 0:12:01.200 --> 0:12:04.839 fifty on average, it's kind of tight relative to what 0:12:04.880 --> 0:12:07.880 could happen in recession with the spread of call it, 0:12:07.960 --> 0:12:10.680 let's say eight hundred bases points or more, and a 0:12:10.800 --> 0:12:13.760 widening of that magnitude can in a total turn style 0:12:13.840 --> 0:12:17.240 portfolio be painful because it would be losses. And so 0:12:17.679 --> 0:12:21.760 we're saying prepare by keeping your podder dry and don't 0:12:21.800 --> 0:12:24.480 reach so much. You needn't these days, with where yields 0:12:24.520 --> 0:12:25.480 are well. 0:12:25.320 --> 0:12:27.440 To that point, I wanted to go to duration. 0:12:27.520 --> 0:12:28.640 So I'm glad that we're there. 0:12:29.000 --> 0:12:31.000 You think about where we were starting to get to 0:12:31.080 --> 0:12:33.920 on the ten year treasure yield approaching four percent. We 0:12:33.960 --> 0:12:36.800 can put that back into the conversation to your point 0:12:36.840 --> 0:12:39.240 that you don't have to reach that far when you 0:12:39.280 --> 0:12:41.760 start to see the ten uere approach four percent, Does 0:12:41.840 --> 0:12:43.720 that look like a good entry point. 0:12:44.200 --> 0:12:47.200 Yeah, PIMCO believes, and I believe as well because we 0:12:47.320 --> 0:12:49.760 kind of different freuse within PIMCO. The range for the 0:12:49.840 --> 0:12:52.800 US ten year is probably now we think call it 0:12:52.800 --> 0:12:55.320 three point three percent or so to four four and 0:12:55.320 --> 0:12:59.280 a quarter or so. But when thinking about core fixed 0:12:59.280 --> 0:13:03.440 income and therefore duration relative to short term products which 0:13:03.480 --> 0:13:06.240 have very little duration, you should be thinking about the 0:13:06.320 --> 0:13:09.199 history since nineteen seventy eight, and forgiving with the earpiece 0:13:09.240 --> 0:13:12.720 filling out. Since nineteen seventy eight, core fixed income, and 0:13:12.720 --> 0:13:15.920 the Bloomberg aggregate is a good representation of that has 0:13:16.000 --> 0:13:19.800 outpaced Treasury bill returns on a three year rolling basis 0:13:19.880 --> 0:13:22.480 ninety percent of the time, and by a very substantial 0:13:22.679 --> 0:13:26.560 margin three percentage points. So these yields look attractive on 0:13:26.600 --> 0:13:29.199 that basis, and so one doesn't want to get into 0:13:29.240 --> 0:13:33.520 the game of market timing because market timing, for diversifier 0:13:33.640 --> 0:13:36.360 is a very dangerous game. And I should add Katie 0:13:36.400 --> 0:13:39.000 that in core fixed income and this idea that they 0:13:39.000 --> 0:13:42.960 can outpace T bills and have considerably since nineteen seventy eight, 0:13:43.400 --> 0:13:47.440 that the time for entering core fixed income is typically 0:13:47.760 --> 0:13:51.000 close to the peak for the Fed Funds rate, which 0:13:51.160 --> 0:13:54.880 we think and many think the markets think is upon us. 0:13:54.920 --> 0:13:57.360 And the typical timeline is called maybe up to six 0:13:57.400 --> 0:14:00.160 months prior you're good. So you don't want to play 0:14:00.200 --> 0:14:04.280 the game of timing diversifier too much, is what we'd say. 0:14:04.360 --> 0:14:06.400 Final final view is that if I add in three 0:14:06.400 --> 0:14:09.960 components really quickly, the inflation view two and a half percent, 0:14:10.040 --> 0:14:12.720 the market has a term premium, the extra yield you 0:14:12.720 --> 0:14:14.760 get for moving out the yield curve, and the real 0:14:14.800 --> 0:14:17.960 interest rate where marcuts think the Fed Funds rate should 0:14:17.960 --> 0:14:20.680 be relative to inflation. Those things together put a fair 0:14:20.760 --> 0:14:24.440 value in the current zone. So again be cautious about 0:14:24.640 --> 0:14:26.200 the idea of market timing. 0:14:26.080 --> 0:14:28.080 So don't try to time the market. 0:14:28.080 --> 0:14:30.240 But then you look at the five point four trillion 0:14:30.400 --> 0:14:34.680 dollars in cash, Like you said, very little duration risk there. 0:14:35.320 --> 0:14:37.400 When does that start to move out? 0:14:37.520 --> 0:14:41.400 Though it is a hard mentality in financial markets. Time 0:14:41.400 --> 0:14:43.320 you're quite familiar with this as well, and okay to 0:14:43.440 --> 0:14:47.640 you two in your time in the market, tell cam 0:14:48.400 --> 0:14:53.640 but it's when others, when others start to leave. But 0:14:53.720 --> 0:14:57.160 that's not optimal for an investor, and that's what active 0:14:57.200 --> 0:14:59.000 management is all about, and it's why we would say 0:14:59.320 --> 0:15:01.280 now is the time get ahead of the herd? 0:15:01.840 --> 0:15:05.360 Yeah, but is Jerome Schneider? Did he survive the first 0:15:05.400 --> 0:15:06.160 half of this year? 0:15:07.040 --> 0:15:10.600 Yes, and quite well. In the short term space, there's 0:15:10.600 --> 0:15:13.240 plenty to do as well. Consider for example, you could 0:15:13.240 --> 0:15:15.680 purchase a T bill and get in the low fives, 0:15:15.680 --> 0:15:19.560 but there's asset backed securities assets that are backed by 0:15:19.880 --> 0:15:21.960 student loans, car loans, equipment. 0:15:22.240 --> 0:15:27.080 Are you gross in five percent on cameras on Jerome Schneider? 0:15:27.240 --> 0:15:30.440 Short term versus short term ETF we have and not 0:15:30.480 --> 0:15:33.680 to tout it, but just as an it's Monday mint 0:15:33.880 --> 0:15:37.040 m I n T minting money. It's the yield is 0:15:37.080 --> 0:15:38.760 currently five percent or so. 0:15:38.960 --> 0:15:40.280 It's unbelievable. 0:15:41.840 --> 0:15:42.680 Distribution yield. 0:15:42.760 --> 0:15:45.040 Nobody at the table remembers this world and it's like 0:15:45.080 --> 0:15:45.880 we're back to it. 0:15:45.800 --> 0:15:49.000 But the asset backed securities and others large short term 0:15:49.000 --> 0:15:52.000 measments to have fields close to six percent, Tony. 0:15:51.760 --> 0:15:54.720 Is it possible to see a benign resteepening of the 0:15:54.760 --> 0:15:55.320 yield curve? 0:15:56.480 --> 0:15:59.680 Benign resteepening meaning that I think what you're thinking, Cameron, 0:15:59.760 --> 0:16:02.960 is that in a steepening some event has occurred to 0:16:03.160 --> 0:16:06.000 cause a flight into short term insturance. The type of 0:16:06.600 --> 0:16:09.480 thing perhaps that Katie's thinking about that could cause movement 0:16:11.320 --> 0:16:16.680 not usually, of course, the history suggests perhaps not, and 0:16:16.720 --> 0:16:19.080 many are thinking, can there be a soft landing in 0:16:19.080 --> 0:16:23.440 the soft landing that could occur? It may be occurring now. 0:16:23.600 --> 0:16:26.800 US growth last year was about economic growth was one 0:16:26.880 --> 0:16:29.640 percent or so. It's tracking a little higher today, but 0:16:29.680 --> 0:16:31.640 we think it'll be slower than that for this year. 0:16:32.080 --> 0:16:33.880 We're in a growth The US is in a growth 0:16:33.960 --> 0:16:37.200 recession today. Growth recession is something above zero but below 0:16:37.760 --> 0:16:40.480 growth potential. The US has a potential to grow each 0:16:40.520 --> 0:16:42.640 year about one point eight percent. That's a combination of 0:16:42.640 --> 0:16:45.680 productivity one and a half plus changes in labor force 0:16:45.960 --> 0:16:50.200 about point three. The US is growing below that, which 0:16:50.320 --> 0:16:54.000 enables supply to catch up with demand, the ability to 0:16:54.040 --> 0:16:56.000 produce goods and services. 0:16:55.560 --> 0:16:56.520 To meet demand. 0:16:56.600 --> 0:17:01.200 It's catching up, and that can enable the steepening, because 0:17:01.240 --> 0:17:05.160 then the Fed can say we needn't to raise interest 0:17:05.240 --> 0:17:08.280 rates anymore. And if supply catches up enough, if they're 0:17:08.280 --> 0:17:11.480 in a growth recession, there it can happen, and then 0:17:11.680 --> 0:17:15.200 eventually there are interest rate cuts. But we'd caution that 0:17:15.440 --> 0:17:17.920 the view on interest rate cuts flies in the face 0:17:17.960 --> 0:17:20.120 of Paul Volker, the legendary FED Chair. 0:17:20.960 --> 0:17:22.280 We felt that for some time. 0:17:22.400 --> 0:17:25.720 I've certainly felt that personally, very strongly for a long time. 0:17:25.800 --> 0:17:26.000 Now. 0:17:26.440 --> 0:17:29.160 This is the idea that the Chair Powell has today 0:17:29.160 --> 0:17:32.080 is to keep at it. And he's quoting directly from 0:17:32.680 --> 0:17:34.719 Paul Volker in the book Keeping at It. You have 0:17:34.800 --> 0:17:39.080 to persist with this view in the battle against inflation 0:17:39.160 --> 0:17:41.320 to defeat it. And that's what's happening. And this is 0:17:41.359 --> 0:17:45.000 why Chair Powell will go to heaven, so to speak, 0:17:45.040 --> 0:17:48.400 central bank heaven, and because Tom the view and Cameron 0:17:48.480 --> 0:17:50.800 and Katie the only the view is that only hawks 0:17:50.840 --> 0:17:51.960 go to central bank heaven. 0:17:52.920 --> 0:17:56.160 Well, he also have been saying that history warns against 0:17:56.200 --> 0:17:59.119 cutting rates too soon. So do you think that lower 0:17:59.119 --> 0:18:02.800 inflation is enough for the Fed to cut rates? Or 0:18:02.800 --> 0:18:05.200 do you think that we actually need to see higher unemployment, 0:18:05.280 --> 0:18:06.119 much weaker growth. 0:18:06.200 --> 0:18:09.760 A lower inflation expectation would cut it. 0:18:09.760 --> 0:18:10.560 It is occurring. 0:18:10.720 --> 0:18:13.880 It is observable in the bond market through inflation protective 0:18:13.920 --> 0:18:16.240 securities the price for the inflation rate to be about 0:18:16.280 --> 0:18:19.840 two point two percent or so, but it's not observable 0:18:19.920 --> 0:18:23.640 in the general public. Think about various generations. I'm from 0:18:23.680 --> 0:18:26.880 the older generation. I'm a boomer born between forty six 0:18:26.880 --> 0:18:29.480 and sixty four. Take your guess, really which year that 0:18:29.680 --> 0:18:30.760 is sixty four? 0:18:31.840 --> 0:18:33.120 But I slipped right into that. 0:18:33.920 --> 0:18:37.399 But new generations of Americans have experienced inflation, so my 0:18:37.480 --> 0:18:38.320 generation did. 0:18:38.359 --> 0:18:40.000 We've always expect that could be inflation. 0:18:40.160 --> 0:18:44.359 Now the generations X, the millennials, and Z all believe 0:18:44.440 --> 0:18:47.560 that the prices can go higher faster than any time. 0:18:48.040 --> 0:18:49.639 You've got to get it out of their heads. 0:18:49.800 --> 0:18:52.600 And so the public's view on inflation could be enough, 0:18:52.640 --> 0:18:53.600 and that's what's needed. 0:18:54.240 --> 0:18:54.720 Let's listen. 0:18:54.920 --> 0:18:56.760 I think I went back and forth to Swarning with 0:18:56.800 --> 0:18:59.080 doctor Olarian. He's on a plane tomorrow be with us, 0:18:59.119 --> 0:19:01.840 I mean on Wednesday. But let me ask you something 0:19:01.920 --> 0:19:04.480 Mohammed would ask, which is the unknown unknown. 0:19:04.119 --> 0:19:04.800 That's out there? 0:19:05.119 --> 0:19:06.720 And to me, if I look at the Bloomberg Total 0:19:06.760 --> 0:19:12.480 Return Index, Lehman Barkley's index, beautiful. There's a textbook, Guy's Bolkowski. 0:19:13.000 --> 0:19:15.960 Everybody had to read Bolkowski with four hundred and fifty seven. 0:19:16.080 --> 0:19:19.199 It was almost as thick as Tony's Seigem's book. You 0:19:19.240 --> 0:19:21.600 had to read every chart, pat and known to mankind. 0:19:22.280 --> 0:19:26.560 I'm sorry, bonds are in an absolute textbook, Pennant. No 0:19:26.600 --> 0:19:30.600 one's looking for price down, yield up. What if we 0:19:30.600 --> 0:19:31.919 get that unknown unknown? 0:19:31.960 --> 0:19:34.560 It is the unknown unknown that I think. And I 0:19:34.680 --> 0:19:37.040 wrote a book on this matter, about the idea of 0:19:37.040 --> 0:19:40.359 a Kinesian endpoint, the idea of practical limits to the 0:19:40.440 --> 0:19:43.920 use of debt. There was evidence of that last fall 0:19:43.960 --> 0:19:48.480 when Prime Minister Trust wanted to to increase the indebtedness. 0:19:48.760 --> 0:19:53.280 The markets reacted violently, The bond market collapsed, the pound 0:19:53.320 --> 0:19:56.360