Speaker 1: We finished stronger. Jeffrey Rosenberg with his portfolio manager, Blackrock
Speaker 1: Systematic Multi Strategy Fund, he will be systematically reviewing everything
Speaker 1: after this historic meeting. Jeff, you know we're at gunpoint
Speaker 1: at Carnegie. Mellen. You were required to read both volumes
Speaker 1: of Alan Meltzer and get out the sixties and seventies
Speaker 1: and FED meeting. And what doctor Meltzer would say is
Speaker 1: it is at the end of the day about the
Speaker 1: real economy. What did Jerome Powell today say about the
Speaker 1: American economy with the stunning statement the dots in the
Speaker 1: Q and A.
Speaker 2: Yeah, it was overall a validation of the transitory view.
Speaker 2: And you know what was a little bit feared going
Speaker 2: into the press conference was whether he would push back.
Speaker 2: He got the softball from Nick Timmeros on financial conditions
Speaker 2: now being nice and clearly you know, chose not to
Speaker 2: hit it out of the park in terms of pushing
Speaker 2: back on financial conditions, and that was a green lie
Speaker 2: to continue the initial reaction from what we got in
Speaker 2: the statement of economic projections and the dots and the
Speaker 2: seventy five basis points and the dots is clearly the surprise.
Speaker 2: So you know, this is a green light for investors.
Speaker 2: I think nixt question and this question of financial conditions,
Speaker 2: and Bill Dudley mentioned in a minute ago this is
Speaker 2: the problem is that this can go on for a
Speaker 2: while and it can get overdone in terms of how
Speaker 2: much easing the market does before the FED. But the
Speaker 2: message today is the Fed is very happy with what
Speaker 2: they've seen. What changed, you know, clearly it's the validation
Speaker 2: on the inflation story, and they're very pleased that after
Speaker 2: getting it wrong for so long, they're really getting the
Speaker 2: validation in getting it right.
Speaker 3: So, Jeff, what do you do? Stay on the bill,
Speaker 3: hold on to it tightly, don't let go. What you do?
Speaker 2: I mean the short term is you can't really fight
Speaker 2: this until there's some kind of fundamental data from the
Speaker 2: economy side that pushes back, and there hasn't been. It's
Speaker 2: all been coming up soft landing, inflation declines. Yesterday. You
Speaker 2: can squint at Core Corp. Nobody seems to look at
Speaker 2: Corecorp anymore. He mentioned it very briefly. It actually popped up.
Speaker 2: So there are some you know, vulnerabilities, but the message
Speaker 2: and the concern no one's looking at the vulnerabilities. They're
Speaker 2: looking at the validation and So with that validation, this
Speaker 2: bullish sentiment can go on for a while until we
Speaker 2: get a new round of economic data. And until then
Speaker 2: I think I think the message is pretty clear that
Speaker 2: the FED is more than willing to see an easy
Speaker 2: and financial conditions won't step in the way of that.
Speaker 4: Kathy Jones of Schwab Jash Schwab put this out on
Speaker 4: x or Twitter with that, I have to revise my
Speaker 4: twenty twenty four outlook. Happy to do it. Are you
Speaker 4: revising your twenty twenty four outlook after this meeting?
Speaker 2: You know, I've done this for so long that I
Speaker 2: don't do the whole you know, Christmas in July outlooks
Speaker 2: in October kind of thing because you end up with
Speaker 2: this problem. So no, I don't have to revise it
Speaker 2: because I just I just haven't put it out yet.
Speaker 2: So that's that's a good plant bulst.
Speaker 1: Look, Jeff, at where we are, and I just looked
Speaker 1: up one of the black Rock money market funds five
Speaker 1: point two four nine percent. Where's all that money going?
Speaker 1: I mean, this is right up your wheelhouse. Where's all
Speaker 1: that money going when that yield comes down?
Speaker 2: Yeah? You know you asked this question in the pre
Speaker 2: segment to one of the guests, and I was listening in,
Speaker 2: and you know, this is the change. This is the
Speaker 2: turning point, because last year it was all about you're
Speaker 2: rewarded for staying in cash when the cash rates are
Speaker 2: going up. When the cash rates start going down, now
Speaker 2: your rate of return starts going down in cash. So
Speaker 2: it is the signal to start moving out of cash
Speaker 2: into into more term rates in fixed income, to lock
Speaker 2: in rates at their highest yields if you're going into
Speaker 2: a cutting cycle, to move back into risk. As we
Speaker 2: talked about earlier, the lack of the hard landing, the
Speaker 2: over forecasting of recession fears, the legacy of the damage
Speaker 2: of twenty twenty two that's kept people happily in cash,
Speaker 2: all of that dissipates. And I think that's what I
Speaker 2: was referring to before. You got to be careful as
Speaker 2: to how big that easing and financial conditions can become
Speaker 2: and how that can undo some of what the FED
Speaker 2: thinks is the right stance. But that being said, this
Speaker 2: is a turning point, and I think you do start
Speaker 2: to see that money move out of money markets into
Speaker 2: risk of your assets, into more term rates to lock
Speaker 2: in higher rates as the cash rates start to come down.
Speaker 2: You're penalized now in twenty twenty four for holding cash
Speaker 2: because the rates and the prospect of the rates is
Speaker 2: to go lower.
Speaker 3: Jeff, what would you advocate for You're sitting in cash,
Speaker 3: You've missed the rally of the last month. You see
Speaker 3: yield drop and you get nervous. Reinvestment risk is not
Speaker 3: just something to worry about, it's real. You see the
Speaker 3: moves in a single day of more than twenty basis
Speaker 3: points you at the Kant full well.
Speaker 2: I think there's lots of different ways to step out
Speaker 2: of cash into It depends on the risk perspective. But
Speaker 2: in fixed income, you know that movement into the front
Speaker 2: end of the curve, you can step out a little
Speaker 2: bit more into the belly. It's going to lock in
Speaker 2: not only some yield levels, but you'll pick up a
Speaker 2: bit more price appreciation and a total return context. In
Speaker 2: a falling rate environment, I think you can go further.
Speaker 2: The soft landing the lack of economic recession. It bolsters
Speaker 2: yield and you'll pick up in terms of income and
Speaker 2: credit risk. That credit risk it's priced in, but it's
Speaker 2: not going to collapse. And so if you avoid the recession,
Speaker 2: investors can can step out on the risk spectrum and
Speaker 2: fixed income increase yield levels relative to cash, lock those
Speaker 2: in and as long as that recession outlook is avoided.
Speaker 2: And that's not a guarantee, but that seems again with
Speaker 2: what the data is showing to be the more likely scenario.
Speaker 2: You know, you'll lock in in those yields and achieve
Speaker 2: a higher return than what you're going to get out
Speaker 2: of sitting in cash.
Speaker 4: I want to just point out that we're down now
Speaker 4: about a percentage point in less than a month on
Speaker 4: ten year benchmark yields. This is full faith and credit,
Speaker 4: the most liquid market in the world, and we're seeing
Speaker 4: fluctuations that we have never seen before. Does that raise
Speaker 4: any concerns for you that we are seeing such incredible
Speaker 4: volatility in just the market's psychology on not that much
Speaker 4: different in terms of news, as you pointed out earlier.
Speaker 2: Yeah, it's a really good point when thinking about what
Speaker 2: the fixed income market looks like from a portfolio context.
Speaker 2: We just have to get more used to this higher
Speaker 2: level of volatility. You know, the AG index, the benchmark
Speaker 2: for fixed income, used to be a three to four
Speaker 2: percent volatility instrument. Today it's about double that. So when
Speaker 2: you're balancing out portfolios, there's just a higher level of risk.
Speaker 2: You can mitigate that by being shorter in terms of duration.
Speaker 2: Some of the more attractiveness in the front end of
Speaker 2: the curve is you've got still the highest yields and
Speaker 2: with the lower duration, less volatility, but a bit less
Speaker 2: price appreciation too, So there's a little bit of a
Speaker 2: trade off there. But it is to Lisa's point, you
Speaker 2: gotta expect this isn't the old fixed income market. It's
Speaker 2: a newer fixed income market. It means higher volatility, better yields,
Speaker 2: still in the front end until we normally.
Speaker 1: Jet One final question. Torston, Slack, and Apollo head out
Speaker 1: a stunning chart today of a spike in bankruptcies within
Speaker 1: all this, and I mean from a political economic standpoint,
Speaker 1: the history of this meeting, the shock of this meeting.
Speaker 1: Is this a meeting that just benefits the halves of America?
Speaker 1: Half does countries flat on their back and the others
Speaker 1: are living large. The dows up four hundred and sixty points.
Speaker 1: Is this just about almost the financialization and advantage of
Speaker 1: the elite in America?
Speaker 2: So I love Torston, love his work. You know what
Speaker 2: he's highlighting now and he's done this for a while,
Speaker 2: is there's a distributional aspect of our economy that gets
Speaker 2: lost in these agria get statistics, and so there is
Speaker 2: an impact of rising interest rates. There is an impact
Speaker 2: of the significant tightening and interest rate policy, but you
Speaker 2: don't see it as much in the aggregate. You see
Speaker 2: it when you disaggregate and that distributional side, So the
Speaker 2: bottom end of consumers, the bottom end of credit is
Speaker 2: more vulnerable and you're starting to see that, but it's
Speaker 2: still a distributional story. It's what you would expect to
Speaker 2: see in the tails, and it is showing the effect
Speaker 2: of that. But that doesn't necessarily mean that story is
Speaker 2: exacerbated strapolated into the aggregate view. It's part of the story.
Speaker 2: It's an important part. Credit cycles begin from the bottom,
Speaker 2: and so you got to watch that. But the counterpoint
Speaker 2: is that the rest of the distribution has created a
Speaker 2: lot of immunity, if you will, not permanent immunity, but
Speaker 2: a lot of reservoirs to buffer the increases in interest
Speaker 2: rates on the consumer side, that's from savings. On the
Speaker 2: corporate side, that's some things seeing maturities and turning out
Speaker 2: interest rates. And the reason is we had such a
Speaker 2: prolonged period of zero interest rates so that the shock
Speaker 2: of interest rates isn't as much of a shock as
Speaker 2: it appears it can be. And we have to watch it,
Speaker 2: and you're certainly seeing it. It's Torsen's highlighting, you know,
Speaker 2: in some of the tales, but it's not really the
Speaker 2: aggregate story yet.
Speaker 3: Jeff, I've got a few seconds. Pick a month for
Speaker 3: the first rate cut. I know you're not going to
Speaker 3: give us an outlook, but just pick a month, Jeff.
Speaker 2: I'm gonna give. I'm gonna give you. I'm gonna give
Speaker 2: you June. You know, sometime in the summer, I think
Speaker 2: the March, and I know Neil maybe a little bit early.
Speaker 2: What's the rush. They still want to make sure they've
Speaker 2: nailed the inflation.
Speaker 3: We've got to leave it that, Jeff got to catch out. Buddy,
Speaker 3: always says Jeff Rosenberg there of Black Rock