Speaker 1: Okay, Well, Johnny's Michael hands That, chief investment officer at
Speaker 1: Clarfield Citizens Private Wealth, getting his take on this market volatility. Michael,
Speaker 1: thank you so much for joining. Is you know, as
Speaker 1: a private wealth c I O if you will, What
Speaker 1: do you try to do right now? Is it trying
Speaker 1: to perhaps go in the field of wealth preservation rather
Speaker 1: than actually accumulation. Thanks for having me. The environment we
Speaker 1: find ourselves in, I mean, I think there's a little
Speaker 1: bit of both. But when we look across the landscape
Speaker 1: of investment opportunities, as much volatively as we've seen, and
Speaker 1: certainly for global portfolios, this has been a really challenged year.
Speaker 1: We've we've seen a stark difference in in the yield
Speaker 1: opportunity that we have today relative to where we were
Speaker 1: just a few months ago. And so I think it's
Speaker 1: a combination of not necessarily principle preservation, but a higher
Speaker 1: degree of certainty of more optimal returns where even on
Speaker 1: the front end of the yield curve you can certainly
Speaker 1: earn attractive yield, which leads investors to question how much
Speaker 1: risk do I need to take to hit some of
Speaker 1: my target return levels going forward? Yeah, but you can
Speaker 1: almost think of it the other way to which is
Speaker 1: if you can get four percent on a two year
Speaker 1: treasury and you can get five to six percent on
Speaker 1: Muni's tax free, and you can get slightly higher than
Speaker 1: that with aspects of of corporate you know, investment grade
Speaker 1: and even high yield, then it's you know, you didn't
Speaker 1: used to have that, and yet you were still gambling
Speaker 1: or playing in the equity market. But now that you
Speaker 1: can get pretty solid yields on around say five to
Speaker 1: six percent, does it almost protect you to a certain
Speaker 1: degree that you can make some bets on equity given
Speaker 1: the big sell off we've seen. Absolutely, and and so
Speaker 1: I would tell you we think about the sequencing of
Speaker 1: events and how they're going to occur, and despite today's
Speaker 1: considerable rally, again we tend to find some of the
Speaker 1: sharpest advances, you know, just ultimately proving to be nothing
Speaker 1: more than a bear market rally, right we're positioning became extended.
Speaker 1: So this very well maybe the early stages of a
Speaker 1: similar outcome to what we saw earlier on the summer,
Speaker 1: but we're really not adjusting our equity allocations meaningfully. Where
Speaker 1: we see opportunities unfolding during the course of early we're
Speaker 1: entering into the fourth quarter, is on the capacity for
Speaker 1: investors to now more comfortably extend out the risk spectrum
Speaker 1: from a duration perspective, because of your exact point where
Speaker 1: they're finally being compensated after many years where rates and
Speaker 1: you know, we're extremely low and Tina, there is no alternative.
Speaker 1: Was was the prevailing theme. They really have the capacity
Speaker 1: to generate reasonable returns. And so as we came into
Speaker 1: this year, our biggest concern wasn't necessarily an equity market
Speaker 1: draw down, because it's really difficult to forecast near term returns.
Speaker 1: Our longer term concerns were that with low risk assets
Speaker 1: producing negligible yields, diversified portfolios would fall short. We've adjusted
Speaker 1: our expectations in our capital markets assumptions, and so we
Speaker 1: really do believe equities will be volable, and clients are
Speaker 1: comfortable with that. Right, they don't love it, but they're
Speaker 1: accustomed to the volatility that comes with outside levels of return.
Speaker 1: What they now are getting optimistic about is your exact
Speaker 1: point of being able to generate attractive levels of income
Speaker 1: that is considerably higher. And as a counterintuitive as it seems,
Speaker 1: the sharp and quick policy adjustment rather than a prolonged
Speaker 1: bleed where interest rates grind higher over an extended period
Speaker 1: of time, or certainly they stay low into perpetuity, is
Speaker 1: actually the best outcome for compounding income. So it's not
Speaker 1: all negativity. Al Right, Well, let's let's say you know,
Speaker 1: one thing that Brian and I have been noticing of
Speaker 1: late is the amount of people and guests that we've
Speaker 1: had on the program suggesting that they are seeing liquiditcy
Speaker 1: just perhaps coming out of the system. Are you seeing
Speaker 1: that and would you attribute to that to q T well?
Speaker 1: And could I just piggyback a little bit on the
Speaker 1: back of that, is that even if there is liquidity,
Speaker 1: it's the spreads that have widened, you see, you're seeing
Speaker 1: that in different segments. Look, I found today to be
Speaker 1: really interesting where it does seems if a lot of
Speaker 1: the activity that we were seeing even late last last
Speaker 1: week we saw several days were in the morning session
Speaker 1: or early on around seven eight am, you would see,
Speaker 1: you know, a considerable move higher in the ten year
Speaker 1: and for for most of this move, the back end
Speaker 1: ten out of thirties had really been pretty anchored. A
Speaker 1: lot of the activity and volatility, the increase has been
Speaker 1: in the two year really the front end of the curve.
Speaker 1: I think a lot of what we're seeing today play
Speaker 1: out is that much of what we've been experiencing has
Speaker 1: been around trying to position for some of these shocks
Speaker 1: in the system that really today leads many to believe
Speaker 1: that this was a you know, more driven by some
Speaker 1: of the foreign illiquidity than what we're seeing in the
Speaker 1: treasury market. I don't think it's great, but I don't
Speaker 1: think we're at an instance or an intest where we
Speaker 1: were seeing a breakdown, and I think one of the
Speaker 1: areas to look at as well as certainly within credit
Speaker 1: spreads on the investment grade side, we're really not seeing,
Speaker 1: you know, the type of gap conditions that you would
Speaker 1: expect given the movement and activity that we're seeing across
Speaker 1: you know, the treasury curve. But it's certainly something that
Speaker 1: I think bears watching. But you know, it's days like
Speaker 1: today where you're never gonna get the timing right and
Speaker 1: there's going to be meaningful action. But you know, from
Speaker 1: our vantage point, directionally, you're starting to receive compensation for
Speaker 1: extending duration. And we've been asking this to everybody too.
Speaker 1: I mean, you're you're seeing volatility, but not financial system instability. Correct, Correct,
Speaker 1: You're not seeing the instability. And I think a lot
Speaker 1: of the stems from the fact that there's a tremendous
Speaker 1: degree of pessimism, and at times you almost question is
Speaker 1: there a lot of pessimism because we're looking at negative
Speaker 1: equity markets, or is there pessimism because there's real deterioration
Speaker 1: in the overall economic environment. And I think it's more
Speaker 1: a function of the volatility. Okay, Michael, thanks very much, Shu.
Speaker 1: Up against the clock, coming up to the top of
Speaker 1: the hour. Michael hands his chief investment officer at Calarfield
Speaker 1: Citizen's Wealth Private Wealth. This is Bloomberg