WEBVTT - Blackrock's Jeffrey Rosenberg Talks Latest Fed Decision

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<v Speaker 1>We finished stronger. Jeffrey Rosenberg with his portfolio manager, Blackrock

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<v Speaker 1>Systematic Multi Strategy Fund, he will be systematically reviewing everything

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<v Speaker 1>after this historic meeting. Jeff, you know we're at gunpoint

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<v Speaker 1>at Carnegie. Mellen. You were required to read both volumes

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<v Speaker 1>of Alan Meltzer and get out the sixties and seventies

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<v Speaker 1>and FED meeting. And what doctor Meltzer would say is

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<v Speaker 1>it is at the end of the day about the

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<v Speaker 1>real economy. What did Jerome Powell today say about the

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<v Speaker 1>American economy with the stunning statement the dots in the

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<v Speaker 1>Q and A.

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<v Speaker 2>Yeah, it was overall a validation of the transitory view.

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<v Speaker 2>And you know what was a little bit feared going

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<v Speaker 2>into the press conference was whether he would push back.

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<v Speaker 2>He got the softball from Nick Timmeros on financial conditions

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<v Speaker 2>now being nice and clearly you know, chose not to

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<v Speaker 2>hit it out of the park in terms of pushing

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<v Speaker 2>back on financial conditions, and that was a green lie

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<v Speaker 2>to continue the initial reaction from what we got in

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<v Speaker 2>the statement of economic projections and the dots and the

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<v Speaker 2>seventy five basis points and the dots is clearly the surprise.

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<v Speaker 2>So you know, this is a green light for investors.

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<v Speaker 2>I think nixt question and this question of financial conditions,

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<v Speaker 2>and Bill Dudley mentioned in a minute ago this is

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<v Speaker 2>the problem is that this can go on for a

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<v Speaker 2>while and it can get overdone in terms of how

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<v Speaker 2>much easing the market does before the FED. But the

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<v Speaker 2>message today is the Fed is very happy with what

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<v Speaker 2>they've seen. What changed, you know, clearly it's the validation

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<v Speaker 2>on the inflation story, and they're very pleased that after

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<v Speaker 2>getting it wrong for so long, they're really getting the

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<v Speaker 2>validation in getting it right.

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<v Speaker 3>So, Jeff, what do you do? Stay on the bill,

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<v Speaker 3>hold on to it tightly, don't let go. What you do?

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<v Speaker 2>I mean the short term is you can't really fight

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<v Speaker 2>this until there's some kind of fundamental data from the

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<v Speaker 2>economy side that pushes back, and there hasn't been. It's

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<v Speaker 2>all been coming up soft landing, inflation declines. Yesterday. You

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<v Speaker 2>can squint at Core Corp. Nobody seems to look at

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<v Speaker 2>Corecorp anymore. He mentioned it very briefly. It actually popped up.

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<v Speaker 2>So there are some you know, vulnerabilities, but the message

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<v Speaker 2>and the concern no one's looking at the vulnerabilities. They're

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<v Speaker 2>looking at the validation and So with that validation, this

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<v Speaker 2>bullish sentiment can go on for a while until we

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<v Speaker 2>get a new round of economic data. And until then

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<v Speaker 2>I think I think the message is pretty clear that

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<v Speaker 2>the FED is more than willing to see an easy

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<v Speaker 2>and financial conditions won't step in the way of that.

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<v Speaker 4>Kathy Jones of Schwab Jash Schwab put this out on

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<v Speaker 4>x or Twitter with that, I have to revise my

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<v Speaker 4>twenty twenty four outlook. Happy to do it. Are you

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<v Speaker 4>revising your twenty twenty four outlook after this meeting?

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<v Speaker 2>You know, I've done this for so long that I

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<v Speaker 2>don't do the whole you know, Christmas in July outlooks

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<v Speaker 2>in October kind of thing because you end up with

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<v Speaker 2>this problem. So no, I don't have to revise it

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<v Speaker 2>because I just I just haven't put it out yet.

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<v Speaker 2>So that's that's a good plant bulst.

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<v Speaker 1>Look, Jeff, at where we are, and I just looked

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<v Speaker 1>up one of the black Rock money market funds five

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<v Speaker 1>point two four nine percent. Where's all that money going?

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<v Speaker 1>I mean, this is right up your wheelhouse. Where's all

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<v Speaker 1>that money going when that yield comes down?

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<v Speaker 2>Yeah? You know you asked this question in the pre

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<v Speaker 2>segment to one of the guests, and I was listening in,

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<v Speaker 2>and you know, this is the change. This is the

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<v Speaker 2>turning point, because last year it was all about you're

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<v Speaker 2>rewarded for staying in cash when the cash rates are

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<v Speaker 2>going up. When the cash rates start going down, now

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<v Speaker 2>your rate of return starts going down in cash. So

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<v Speaker 2>it is the signal to start moving out of cash

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<v Speaker 2>into into more term rates in fixed income, to lock

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<v Speaker 2>in rates at their highest yields if you're going into

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<v Speaker 2>a cutting cycle, to move back into risk. As we

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<v Speaker 2>talked about earlier, the lack of the hard landing, the

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<v Speaker 2>over forecasting of recession fears, the legacy of the damage

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<v Speaker 2>of twenty twenty two that's kept people happily in cash,

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<v Speaker 2>all of that dissipates. And I think that's what I

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<v Speaker 2>was referring to before. You got to be careful as

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<v Speaker 2>to how big that easing and financial conditions can become

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<v Speaker 2>and how that can undo some of what the FED

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<v Speaker 2>thinks is the right stance. But that being said, this

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<v Speaker 2>is a turning point, and I think you do start

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<v Speaker 2>to see that money move out of money markets into

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<v Speaker 2>risk of your assets, into more term rates to lock

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<v Speaker 2>in higher rates as the cash rates start to come down.

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<v Speaker 2>You're penalized now in twenty twenty four for holding cash

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<v Speaker 2>because the rates and the prospect of the rates is

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<v Speaker 2>to go lower.

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<v Speaker 3>Jeff, what would you advocate for You're sitting in cash,

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<v Speaker 3>You've missed the rally of the last month. You see

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<v Speaker 3>yield drop and you get nervous. Reinvestment risk is not

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<v Speaker 3>just something to worry about, it's real. You see the

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<v Speaker 3>moves in a single day of more than twenty basis

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<v Speaker 3>points you at the Kant full well.

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<v Speaker 2>I think there's lots of different ways to step out

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<v Speaker 2>of cash into It depends on the risk perspective. But

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<v Speaker 2>in fixed income, you know that movement into the front

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<v Speaker 2>end of the curve, you can step out a little

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<v Speaker 2>bit more into the belly. It's going to lock in

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<v Speaker 2>not only some yield levels, but you'll pick up a

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<v Speaker 2>bit more price appreciation and a total return context. In

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<v Speaker 2>a falling rate environment, I think you can go further.

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<v Speaker 2>The soft landing the lack of economic recession. It bolsters

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<v Speaker 2>yield and you'll pick up in terms of income and

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<v Speaker 2>credit risk. That credit risk it's priced in, but it's

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<v Speaker 2>not going to collapse. And so if you avoid the recession,

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<v Speaker 2>investors can can step out on the risk spectrum and

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<v Speaker 2>fixed income increase yield levels relative to cash, lock those

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<v Speaker 2>in and as long as that recession outlook is avoided.

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<v Speaker 2>And that's not a guarantee, but that seems again with

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<v Speaker 2>what the data is showing to be the more likely scenario.

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<v Speaker 2>You know, you'll lock in in those yields and achieve

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<v Speaker 2>a higher return than what you're going to get out

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<v Speaker 2>of sitting in cash.

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<v Speaker 4>I want to just point out that we're down now

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<v Speaker 4>about a percentage point in less than a month on

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<v Speaker 4>ten year benchmark yields. This is full faith and credit,

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<v Speaker 4>the most liquid market in the world, and we're seeing

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<v Speaker 4>fluctuations that we have never seen before. Does that raise

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<v Speaker 4>any concerns for you that we are seeing such incredible

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<v Speaker 4>volatility in just the market's psychology on not that much

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<v Speaker 4>different in terms of news, as you pointed out earlier.

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<v Speaker 2>Yeah, it's a really good point when thinking about what

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<v Speaker 2>the fixed income market looks like from a portfolio context.

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<v Speaker 2>We just have to get more used to this higher

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<v Speaker 2>level of volatility. You know, the AG index, the benchmark

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<v Speaker 2>for fixed income, used to be a three to four

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<v Speaker 2>percent volatility instrument. Today it's about double that. So when

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<v Speaker 2>you're balancing out portfolios, there's just a higher level of risk.

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<v Speaker 2>You can mitigate that by being shorter in terms of duration.

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<v Speaker 2>Some of the more attractiveness in the front end of

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<v Speaker 2>the curve is you've got still the highest yields and

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<v Speaker 2>with the lower duration, less volatility, but a bit less

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<v Speaker 2>price appreciation too, So there's a little bit of a

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<v Speaker 2>trade off there. But it is to Lisa's point, you

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<v Speaker 2>gotta expect this isn't the old fixed income market. It's

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<v Speaker 2>a newer fixed income market. It means higher volatility, better yields,

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<v Speaker 2>still in the front end until we normally.

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<v Speaker 1>Jet One final question. Torston, Slack, and Apollo head out

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<v Speaker 1>a stunning chart today of a spike in bankruptcies within

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<v Speaker 1>all this, and I mean from a political economic standpoint,

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<v Speaker 1>the history of this meeting, the shock of this meeting.

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<v Speaker 1>Is this a meeting that just benefits the halves of America?

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<v Speaker 1>Half does countries flat on their back and the others

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<v Speaker 1>are living large. The dows up four hundred and sixty points.

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<v Speaker 1>Is this just about almost the financialization and advantage of

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<v Speaker 1>the elite in America?

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<v Speaker 2>So I love Torston, love his work. You know what

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<v Speaker 2>he's highlighting now and he's done this for a while,

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<v Speaker 2>is there's a distributional aspect of our economy that gets

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<v Speaker 2>lost in these agria get statistics, and so there is

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<v Speaker 2>an impact of rising interest rates. There is an impact

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<v Speaker 2>of the significant tightening and interest rate policy, but you

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<v Speaker 2>don't see it as much in the aggregate. You see

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<v Speaker 2>it when you disaggregate and that distributional side, So the

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<v Speaker 2>bottom end of consumers, the bottom end of credit is

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<v Speaker 2>more vulnerable and you're starting to see that, but it's

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<v Speaker 2>still a distributional story. It's what you would expect to

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<v Speaker 2>see in the tails, and it is showing the effect

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<v Speaker 2>of that. But that doesn't necessarily mean that story is

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<v Speaker 2>exacerbated strapolated into the aggregate view. It's part of the story.

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<v Speaker 2>It's an important part. Credit cycles begin from the bottom,

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<v Speaker 2>and so you got to watch that. But the counterpoint

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<v Speaker 2>is that the rest of the distribution has created a

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<v Speaker 2>lot of immunity, if you will, not permanent immunity, but

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<v Speaker 2>a lot of reservoirs to buffer the increases in interest

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<v Speaker 2>rates on the consumer side, that's from savings. On the

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<v Speaker 2>corporate side, that's some things seeing maturities and turning out

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<v Speaker 2>interest rates. And the reason is we had such a

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<v Speaker 2>prolonged period of zero interest rates so that the shock

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<v Speaker 2>of interest rates isn't as much of a shock as

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<v Speaker 2>it appears it can be. And we have to watch it,

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<v Speaker 2>and you're certainly seeing it. It's Torsen's highlighting, you know,

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<v Speaker 2>in some of the tales, but it's not really the

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<v Speaker 2>aggregate story yet.

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<v Speaker 3>Jeff, I've got a few seconds. Pick a month for

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<v Speaker 3>the first rate cut. I know you're not going to

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<v Speaker 3>give us an outlook, but just pick a month, Jeff.

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<v Speaker 2>I'm gonna give. I'm gonna give you. I'm gonna give

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<v Speaker 2>you June. You know, sometime in the summer, I think

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<v Speaker 2>the March, and I know Neil maybe a little bit early.

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<v Speaker 2>What's the rush. They still want to make sure they've

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<v Speaker 2>nailed the inflation.

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<v Speaker 3>We've got to leave it that, Jeff got to catch out. Buddy,

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<v Speaker 3>always says Jeff Rosenberg there of Black Rock