WEBVTT - Surveillance: No Market Bottom, says Rosenberg 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.840 --> 0:00:23.799 To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.160 and of course, on the Bloomberg Terminal. David Rosenberg joins 0:00:30.200 --> 0:00:32.400 now with Rosenberg Research. He is the best in the 0:00:32.440 --> 0:00:35.919 world at parsing inflation. I will not mince words about it, 0:00:36.320 --> 0:00:39.520 David and the Bloomberg I can look at CPI inflation 0:00:39.640 --> 0:00:42.920 back to World War One and the average over the 0:00:42.960 --> 0:00:46.239 many hundred and ten years is three point one percent. 0:00:46.960 --> 0:00:50.120 Part of that are the spikes up which are hugely 0:00:50.240 --> 0:00:57.480 stochastic and come down quickly. Will we disinflate rapidly? I 0:00:57.560 --> 0:01:00.000 think we will, Tom, and I think that you are 0:01:00.040 --> 0:01:03.360 you sing it and a lot of indicators I'll mention 0:01:03.520 --> 0:01:08.520 three uh. Commodity prices are well off their highs, even 0:01:08.520 --> 0:01:11.479 though all prices have hung in in the past couple 0:01:11.560 --> 0:01:15.119 of weeks. They're down more than from the peak. Base 0:01:15.160 --> 0:01:19.360 metal prices are down, Um, you know, you've got lumbers 0:01:19.440 --> 0:01:24.440 down more like seventy so the commodity complex which hasn't 0:01:24.440 --> 0:01:27.679 shown up yet. You know, in that chunk of the 0:01:27.760 --> 0:01:30.440 CPI called goods, you know the stuff that you can 0:01:30.440 --> 0:01:35.120 see such and feel commodities are are deflating. You've got 0:01:35.240 --> 0:01:37.360 freight costs across the board. I mean, look at the 0:01:37.600 --> 0:01:42.280 Baltic Dry Index. Yes, yes, yes, I want to stop there. 0:01:43.760 --> 0:01:46.360 The most dollar is up twelve percent year every year. 0:01:46.440 --> 0:01:48.360 Does anybody in the world think that you see in 0:01:48.400 --> 0:01:51.640 all the pass through from the strength and the dollar 0:01:52.360 --> 0:01:55.320 into goods prices? And the answer is no. This will 0:01:55.360 --> 0:01:57.639 all show up with the next twelve months. David Lizian 0:01:57.720 --> 0:02:00.920 Saunders featured Baltic Dry Index US to explain to our 0:02:00.920 --> 0:02:04.920 global audience of symbolism of the cratering of the Baltic 0:02:05.000 --> 0:02:08.000 Dry Index. Well, I think a lot of it is 0:02:08.000 --> 0:02:10.760 the byproduct of the fact that global demand is coming 0:02:10.840 --> 0:02:14.680 under downward pressure. I would also say that we are seeing, 0:02:14.760 --> 0:02:18.160 notwithstanding the ongoing war in the Ukraine, which doesn't seem 0:02:18.200 --> 0:02:20.600 to make the fun pages of the paper anymore, you 0:02:20.639 --> 0:02:23.120 are starting to see and unclogging in a lot of 0:02:23.120 --> 0:02:27.080 the port congestion globally, and so you're seeing the supply 0:02:27.240 --> 0:02:30.680 side thought out. You know where you're seeing that most evidently, 0:02:30.880 --> 0:02:35.200 tom is in the survey data on supply delivery delays, 0:02:35.720 --> 0:02:39.880 which have come down dramatically across every single survey Richmond FED, 0:02:39.960 --> 0:02:43.640 Kansas City FED, Philly FED, New York Empire. And you know, 0:02:43.680 --> 0:02:47.400 it's very interesting from a FED perspective, is that you know, 0:02:47.440 --> 0:02:50.120 about five months ago J. Powell said that, you know, 0:02:50.200 --> 0:02:54.680 we're gonna operate policy blindly relative to what's happening on 0:02:54.720 --> 0:02:57.480 the supply side. The FED made a decision five months 0:02:57.480 --> 0:03:00.920 ago that we're just going to concentrate on the man destruction, 0:03:01.919 --> 0:03:05.440 getting or getting demand growth below supply, which I think 0:03:05.520 --> 0:03:08.160 is a wise policy. But you see, the supply side 0:03:08.800 --> 0:03:12.880 is finally taking hold and creating the disinflation before you've 0:03:12.760 --> 0:03:15.239 even seen any of the lagged impacts that the FED 0:03:15.280 --> 0:03:18.080 has already done, you know, through rates and QT on 0:03:18.120 --> 0:03:21.320 the demand side. So you have the supply curve actually 0:03:21.360 --> 0:03:24.360 becoming more elastic at a time when the Feed is 0:03:24.400 --> 0:03:27.440 engaging in a policy that's going to really kill demand. 0:03:28.040 --> 0:03:30.399 So explain to me, as we get the chalkboard out, 0:03:30.440 --> 0:03:33.440 then you draw these demands supply curves, how does inflation 0:03:33.600 --> 0:03:37.160 not absolutely collapse in the next year? You know, I 0:03:37.440 --> 0:03:39.440 say that's to my clients. They look at me like 0:03:39.480 --> 0:03:44.320 I'm crazy. Not all of them do. Megan Soyber over 0:03:44.520 --> 0:03:46.560 at Bank of America would not look at you like 0:03:46.560 --> 0:03:49.120 you're crazy, because she's still expecting rate cuts next year. 0:03:49.160 --> 0:03:51.440 And it's not because she doubts the reaction function from 0:03:51.440 --> 0:03:55.040 the Fed, but she also sees the prospect of inflation 0:03:55.080 --> 0:03:57.840 coming down very rapidly as we head into the second 0:03:57.880 --> 0:04:02.000 half of three. At what point, and this is really headspinning, 0:04:02.000 --> 0:04:04.120 does this become in some ways good news for the 0:04:04.160 --> 0:04:07.200 market because they can start to price in a softer 0:04:07.400 --> 0:04:11.440 touch or a softer approach from the Federal Reserve? Well, so, 0:04:11.560 --> 0:04:14.240 what's going to happen at some point? And who knows when? 0:04:14.320 --> 0:04:16.679 With this fat in particular, I mean, when Neil cash 0:04:16.720 --> 0:04:19.440 Carry becomes the biggest hawk on the f O m C, 0:04:20.120 --> 0:04:23.880 you know you're in a whole new world altogether. So 0:04:24.040 --> 0:04:29.080 what happens historically is the Fed pauses, and a tightening 0:04:29.120 --> 0:04:32.000 cycle always ends, just like an easing cycle always ends. 0:04:32.000 --> 0:04:34.760 And then with the pause you get a relief rally. 0:04:34.800 --> 0:04:37.640 But then what happens is that the recessionary pressures take hold. 0:04:38.240 --> 0:04:40.640 Then what happens is the Fed cut rates and we've 0:04:40.680 --> 0:04:42.320 seen this so many times in the past, and you 0:04:42.400 --> 0:04:45.560 get another relief rally. Uh, and then once again the 0:04:45.600 --> 0:04:49.600 recession pressures take hold. When when they pause, you want 0:04:49.600 --> 0:04:52.760 to be very wary about the relief rally. You can 0:04:52.839 --> 0:04:54.520 rent it, you can't, don't it. And even if the 0:04:54.640 --> 0:04:57.720 after the first rate cut in the recessionary bear market, 0:04:57.960 --> 0:05:00.400 the market doesn't bottom after the first break cut, you know, 0:05:00.400 --> 0:05:03.359 in the market bottoms. The market bottoms after the last 0:05:03.440 --> 0:05:06.560 rate cut. After you get the last rate cut and 0:05:06.600 --> 0:05:09.760 the market sees the whites of the eyes of the recovery, 0:05:09.839 --> 0:05:12.520 that's the fundamental low. You know that might be that 0:05:12.600 --> 0:05:14.680 might be twelve months from now, So be where the 0:05:14.720 --> 0:05:18.200 pause will generate headline news. You folks report on the pause. 0:05:18.560 --> 0:05:20.520 Then they'll cut rates and then we'll have a pop 0:05:20.520 --> 0:05:22.680 in the market and everybody will think that you know, 0:05:22.800 --> 0:05:25.160 the bull markets right in front of us. But no, no, 0:05:25.160 --> 0:05:27.680 no, no no. If you want to pay attention to the 0:05:27.720 --> 0:05:31.239 historical record, and we know that history rhymes, the time 0:05:31.240 --> 0:05:33.919 to go super long the markets to understand when the 0:05:33.920 --> 0:05:38.159 fundamental low is is actually after the last rate cut, 0:05:38.279 --> 0:05:42.359 when the Fed re steepens the yield curve usually a 0:05:42.400 --> 0:05:45.760 two stands curves plus huntern forty basis points meeting and 0:05:45.800 --> 0:05:48.240 mean by the time the market bottoms, we are so 0:05:48.279 --> 0:05:50.880 long away from that right now, it's not even funny. Well, 0:05:50.960 --> 0:05:53.520 but David, to John's point earlier in the show, when 0:05:53.520 --> 0:05:55.880 he was talking to Sebastian Page, he said, is being 0:05:55.920 --> 0:05:58.240 bullish fighting the FED right now because exactly what you 0:05:58.320 --> 0:06:00.280 pointed to Neil cush Cary coming out in saying he 0:06:00.320 --> 0:06:03.200 was disappointed to say that the market was rallying after 0:06:03.600 --> 0:06:07.039 that Powell speech, and that he isn't terribly unhappy and 0:06:07.080 --> 0:06:09.400 maybe even happy to see that the market is selling 0:06:09.440 --> 0:06:12.200 off in response to the latest guidance. How much are 0:06:12.200 --> 0:06:15.920 we looking for a weakening in the h it's heightening 0:06:16.080 --> 0:06:19.320 in the financial conditions in order to satisfy the FET's 0:06:19.400 --> 0:06:24.560 desire in terms of transmitting their policy. Right Well, that's 0:06:24.600 --> 0:06:27.880 the question. Um. I'm paying attention to what the FETE 0:06:27.960 --> 0:06:31.039 is telling us. I think they're wrong. I think that 0:06:31.160 --> 0:06:35.400 Powell has already told us we are operating policy without 0:06:35.480 --> 0:06:38.240 focusing on what's happening on the supply side of the economy. 0:06:38.520 --> 0:06:41.719 Of course, after sixteen months, the grand total of sixteen 0:06:41.720 --> 0:06:45.880 months which in the annals of economic history is still transitory. 0:06:46.120 --> 0:06:48.920 The FETE has given as valuable information we are operating 0:06:48.960 --> 0:06:52.800 policy without actually focusing on what's happening in the supply 0:06:52.880 --> 0:06:55.080 set anymore. They're they're not relying on the fact that 0:06:55.120 --> 0:06:58.560 these bottlenecks pressures are going to continue to ease, although 0:06:58.600 --> 0:07:00.479 all the data are showing that they are. Reason So 0:07:00.520 --> 0:07:03.760 they're focused on the demand side. So the question becomes, um, 0:07:03.839 --> 0:07:07.119 given where the FED thinks sees of the supply curve going, 0:07:07.160 --> 0:07:09.840 how far do they have to contract demand? How far 0:07:09.880 --> 0:07:12.280 do financial conditions have to tighten to get to that 0:07:12.400 --> 0:07:15.000 holy grail? In their model, I would say, and I've 0:07:15.000 --> 0:07:19.200 tried to copy their model, it's the lowest the smp 0:07:19.480 --> 0:07:23.760 okay and high yield spreads or seven basis points. That's 0:07:24.200 --> 0:07:27.120 that's the matrix. That's the combination that we'd have to 0:07:27.120 --> 0:07:30.720 get to to make make has scary more comfortable with 0:07:30.840 --> 0:07:33.320 where the market you're there's a little bit of the 0:07:33.400 --> 0:07:37.560 Rosenberg humor there this morning, David Off of Jackson Hole 0:07:37.840 --> 0:07:41.320 in the codification of two is the goal is the 0:07:41.360 --> 0:07:44.240 idea that it's not one America. I've been talking all 0:07:44.280 --> 0:07:49.360 morning about a heterogeneous America heterogeneous outcomes. It's a challenge 0:07:49.680 --> 0:07:53.120 for any central bank. What does the FED do about two, 0:07:53.200 --> 0:07:58.360 three and even four America's Blanche Flower is apoplectic over 0:07:58.400 --> 0:08:01.680 the oddities of the America in labor market. Do they 0:08:01.720 --> 0:08:04.600 need to look at us is one America or can 0:08:04.640 --> 0:08:10.080 they study two three or even four America's Now, I'd 0:08:10.080 --> 0:08:15.680 say that monetary policy has to be a national policy. 0:08:16.120 --> 0:08:20.000 You can't carry out a policy based on uh couple 0:08:20.040 --> 0:08:23.840 of segments of the economy or a couple of socioeconomic segments. 0:08:23.920 --> 0:08:26.240 I know, look this time last year, j PLA will 0:08:26.280 --> 0:08:28.880 sending more like a social worker. You really have to 0:08:28.920 --> 0:08:31.920 take a national approach. And I'd be the first to say, 0:08:32.000 --> 0:08:34.400 by the way, that you know, with the unemploy rate 0:08:34.640 --> 0:08:37.640 where it is, the participation right where it is, that's 0:08:37.679 --> 0:08:41.160 obviously on the fads mind, is the tightness of the 0:08:41.240 --> 0:08:43.960 labor market. This is so bizarre, Tom that we would 0:08:43.960 --> 0:08:46.319 have had a year whether you okay, the debate about 0:08:46.360 --> 0:08:49.000 g d I and GDP is a complete waste of time. 0:08:49.320 --> 0:08:51.320 Let's take both measures together and just come to a 0:08:51.320 --> 0:08:54.600 conclusion that the economy is flat whether you look at 0:08:54.600 --> 0:08:57.240 it from an income perspective, in real terms or spending. 0:08:57.280 --> 0:09:00.959 It's basically a flat economy. And here the consensus is 0:09:01.040 --> 0:09:04.560 three hundred thousand on non foreign payrolls on Friday. Does 0:09:04.600 --> 0:09:08.160 anybody stop to think, why would a flat economy need 0:09:08.200 --> 0:09:12.000 to be adding any jobs at all? That's the oddity 0:09:12.200 --> 0:09:16.520 unless you think, unless you think potential is negative, which 0:09:16.559 --> 0:09:19.360 to me is ridiculous. Um So I think at some point, 0:09:19.440 --> 0:09:21.080 let me just say, at some point, and this is 0:09:21.120 --> 0:09:25.160 where the tightening policy by the Feds kiboshed is. When 0:09:25.200 --> 0:09:27.400 you start to see the erosion at the labor market, 0:09:27.480 --> 0:09:29.760 I think that's really what they're waiting for. David, you 0:09:29.840 --> 0:09:32.280 just touched on it. I'll be a little bit more diplomatic. 0:09:32.679 --> 0:09:35.599 The Chairman in the past is demonstrated that sensitivious to 0:09:35.640 --> 0:09:38.720 the political mood in the moment. If unemployment starts climbing, 0:09:38.720 --> 0:09:42.959 do you expect to see the same Chairman Pound again. Well, 0:09:43.000 --> 0:09:46.520 I don't know if we'll see the same Chairman Powell again. 0:09:46.600 --> 0:09:49.319 But do I think that the Fed will respond to 0:09:49.960 --> 0:09:52.800 a loosening in the labor market. I think they're waiting 0:09:52.880 --> 0:09:55.600 for that. I think all of us have been waiting 0:09:55.679 --> 0:09:58.960 for at least the participation rate to start going up. 0:09:59.240 --> 0:10:01.360 I mean, nobody want us to see outright job loss, 0:10:01.440 --> 0:10:03.880 but the big surprise has been in and maybe there's 0:10:03.960 --> 0:10:06.800 maybe there's something to this long COVID story in terms 0:10:06.840 --> 0:10:10.439 of how it's impairing the participation rate. Nobody wants to 0:10:10.440 --> 0:10:13.000 see employment go down. You can actually see the unemployment 0:10:13.080 --> 0:10:16.400 rate actually go up if the participation rate starts to 0:10:16.480 --> 0:10:18.400 go up. So that's going to be very critical. But 0:10:18.520 --> 0:10:22.120 do I think that if the unemploymentrate goes up three, 0:10:22.240 --> 0:10:24.960 four or five tenths where it is today, that they're done. 0:10:25.480 --> 0:10:27.559 I think that's all it would take. In fact, usually 0:10:27.600 --> 0:10:29.480 when you get three or four tenths of an increase 0:10:29.480 --> 0:10:32.079 in the unemployment rate, the lagging indicative that it is 0:10:32.520 --> 0:10:36.520 the recession has already started. So that's yes. So I 0:10:36.600 --> 0:10:39.040 think that I think that would be enough to push 0:10:39.440 --> 0:10:42.760 the Powell pivot back on the front burner. We appreciate 0:10:42.800 --> 0:10:46.920 your for you. So why Stephen Rosenberg that of Rosenberg Research. 0:11:00.120 --> 0:11:02.920 Let's get to set page sow Sebastian page join us 0:11:02.960 --> 0:11:05.360 nowt's he wrote price c IO and head a global 0:11:05.400 --> 0:11:08.280 multi asset Sebastian awesome to catch up. I'll ask that 0:11:08.400 --> 0:11:10.679 question I asked of Lisa. If I'm buy stocks, am 0:11:10.720 --> 0:11:16.040 I fighting this FED? You know, Lisa said that the 0:11:16.160 --> 0:11:19.440 FED expects a gang buster economy. I don't think that's 0:11:19.480 --> 0:11:21.920 the case. I actually think that not only is the 0:11:22.000 --> 0:11:25.240 FED put gone, but there's a FED call in the 0:11:25.320 --> 0:11:28.079 sense that any good news gets taken away by the 0:11:28.200 --> 0:11:32.600 FEDS need to tighten. So yes, I think you are 0:11:32.760 --> 0:11:35.400 fighting the FED. If you're bullish. It's hard to find 0:11:35.480 --> 0:11:38.880 anybody that's bullish now on your show. I saw you 0:11:38.960 --> 0:11:42.120 try with prior guests. Today. I just came back from 0:11:42.320 --> 0:11:45.520 a trip to Australian Japan, meeting with the world's largest 0:11:45.559 --> 0:11:48.240 some of the world's largest pools of capital, and I 0:11:48.280 --> 0:11:52.080 couldn't give anybody to say anything optimistic about the economy 0:11:52.240 --> 0:11:54.240 or markets. Said, I'm not going to mince words for 0:11:54.280 --> 0:11:57.480 our listeners and viewers. This is the most important conversation 0:11:57.559 --> 0:12:01.520 of the day because of your book Beyond Versification. Peter 0:12:01.679 --> 0:12:05.680 Lynch called it diversification. Given the cards we have into 0:12:05.760 --> 0:12:10.000 the autumn into two thousand twenty three, what character of 0:12:10.080 --> 0:12:14.319 diversification should we be right now? Over diversified or a 0:12:14.400 --> 0:12:19.280 more focused effort to guess the right instruments? You know, Tom, 0:12:19.400 --> 0:12:21.920 I love that question. And the number one question around 0:12:21.960 --> 0:12:27.800 diversification is will bonds treasuries in particular diversify stocks if 0:12:27.880 --> 0:12:31.880 we're heading towards recession risk, and I think they will, 0:12:31.960 --> 0:12:34.760 and in fact, we've closed their underweight bonds to go 0:12:34.880 --> 0:12:38.679 back to neutral. We've had a year where diversification between 0:12:38.760 --> 0:12:42.640 stocks and bonds is completely disappeared. The draw down in 0:12:42.840 --> 0:12:46.840 bonds has been unprecedented, and the code draw down between 0:12:46.920 --> 0:12:51.599 stocks and bonds has shaken investors worldwide. So we do 0:12:51.760 --> 0:12:55.400 need to rethink portfolio construction. Tom I would say we're 0:12:55.440 --> 0:12:59.280 going through a paradigm shift in terms of portfolio construction 0:12:59.400 --> 0:13:02.040 and the role bonds will be diminished, but to the 0:13:02.080 --> 0:13:04.559 extent we get growth shocks, you still want to own 0:13:04.600 --> 0:13:07.480 some treasuries, So it's a bestion. I want to clarify 0:13:07.600 --> 0:13:09.160 what I was trying to get at earlier when I 0:13:09.240 --> 0:13:11.920 was talking about the FED. Basically, there is a belief 0:13:12.000 --> 0:13:14.800 that the economy is so strong that it can withstand 0:13:15.040 --> 0:13:18.160 and requires a big dose of pain in terms of 0:13:18.200 --> 0:13:20.199 how high rates go and how long they have to 0:13:20.280 --> 0:13:21.840 hold them there. That was sort of the message from 0:13:21.920 --> 0:13:24.880 Jackson Hole, and then they still reiterated this soft landing 0:13:24.960 --> 0:13:29.600 scenario in one FED official after another. The bull argument, 0:13:29.679 --> 0:13:33.720 ironically is pushing back against that, seeing the deceleration already here, 0:13:34.120 --> 0:13:36.679 that things aren't that strong and it won't require as 0:13:36.760 --> 0:13:40.240 much pain as executed by the FED. Do you believe that? 0:13:40.400 --> 0:13:42.440 I mean, basically, do you think that that's what people 0:13:42.480 --> 0:13:44.600 are doing right now and that you should lean against 0:13:44.679 --> 0:13:47.720 that and believe what they're saying, and that basically bet 0:13:47.920 --> 0:13:52.040 on a hard landing right now. Look, I always say 0:13:52.200 --> 0:13:55.040 you should stay invested no matter what if your horizon 0:13:55.120 --> 0:13:58.760 and say longer than twelve months. But we are underweight 0:13:58.880 --> 0:14:02.160 stocks at the moment we're watching this. We're not ready 0:14:02.240 --> 0:14:04.959 to get back in again. We are in stocks for 0:14:05.040 --> 0:14:08.120 the long run, but we are underweight. There are ways 0:14:08.240 --> 0:14:11.600 to play a more sort of soft landing scenario from 0:14:11.640 --> 0:14:15.520 a tactical assocation perspective, for example, through small caps. I 0:14:15.600 --> 0:14:18.559 think small caps are already pricing in a very deep recession, 0:14:19.120 --> 0:14:21.680 and so to the extent you get a recession, maybe 0:14:21.760 --> 0:14:24.760 they will go down with the market. And to the 0:14:24.840 --> 0:14:27.960 extent that you get anything that's not as bad as that, 0:14:28.240 --> 0:14:31.680 a soft or softest landing, then maybe you have some 0:14:31.840 --> 0:14:34.080 upside at some point with small caps. It takes some 0:14:34.200 --> 0:14:38.160 courage to lean in. But the valuation spread. Look, large 0:14:38.240 --> 0:14:42.800 caps are in the nine persentile of their historical valuation 0:14:43.320 --> 0:14:47.160 relative to small caps, so large caps expensive relative to 0:14:47.200 --> 0:14:49.840 small caps. That you get a strong dollar, which tends 0:14:49.880 --> 0:14:52.040 to be more of a headwind for large caps. So 0:14:52.080 --> 0:14:55.160 there are ways to play offense. But I call it. 0:14:55.280 --> 0:14:58.680 I don't call it offense. I call it playing aggressive defense. 0:14:58.760 --> 0:15:01.120 And one thing I would say says there is no 0:15:01.360 --> 0:15:04.080 doubt the tone was hawkish. In fact, there was no 0:15:04.200 --> 0:15:06.800 new information at Jackson Hall in the speech. It was 0:15:06.840 --> 0:15:10.440 a short speech, no messy press conference to mix up 0:15:10.600 --> 0:15:14.480 the message, but definitely a hawkish tone. With you mentioned 0:15:14.520 --> 0:15:20.800 the word pain resolved, unconditional. Powell mentioned price stability ten times. 0:15:21.040 --> 0:15:25.600 How many times did you mention unemployment? Zero? That changes? 0:15:26.640 --> 0:15:28.880 It was in the case of the cost of bringing 0:15:28.920 --> 0:15:33.280 inflation down. Yeah, Sebastian Page price step well said buddy 0:15:33.320 --> 0:15:40.280 on a number of things. Jones just about walked off 0:15:40.320 --> 0:15:43.200 the camera, joining us now from Charles Schwab, the chief 0:15:43.640 --> 0:15:47.240 fixed incomes strategist, Cathy Jones, Cathy, where the bonds fit 0:15:47.280 --> 0:15:50.880 in the portfolio? Help me here? It's August. I'm reframing 0:15:51.000 --> 0:15:54.680 for the Q four, I'm reframing for ownership of fixed 0:15:54.720 --> 0:15:57.960 income into two thousand twenty three, and I'm sorry, I'm lost. 0:15:59.120 --> 0:16:03.320 Where does it fit to a portfolio? Yeah? Tom, I 0:16:03.560 --> 0:16:05.960 you know, obviously it's been a very tough year and 0:16:06.040 --> 0:16:08.560 there's been a lot of questions about whether bonds can 0:16:08.640 --> 0:16:12.880 deliver that revlicification benefit that they have for so many years. 0:16:13.000 --> 0:16:15.640 But I would argue this that you still get capital 0:16:15.760 --> 0:16:19.360 preservation and now you're actually getting income and fixed income, 0:16:19.760 --> 0:16:22.400 So I think there's still a valid reason to have 0:16:22.600 --> 0:16:25.920 fixed income. Obviously, you need to be pretty strategic about 0:16:25.960 --> 0:16:28.240 the amount that you have and the type that you have. 0:16:28.480 --> 0:16:32.640 We like have a higher credit quality, and um, we're 0:16:32.720 --> 0:16:35.320 moving out in duration as yelds move up so that 0:16:35.400 --> 0:16:38.760 we can capture some of that income screen longer term. Kathy, 0:16:39.000 --> 0:16:41.440 what is credit fit in given the difficulties we could 0:16:41.440 --> 0:16:46.360 face it to this year. Yeah, we're very cautious on credit, 0:16:46.440 --> 0:16:50.600 particularly how yield. Um. You know, the spreads move up, 0:16:50.680 --> 0:16:52.560 then it came down and started to move up again, 0:16:52.640 --> 0:16:54.800 but we just don't think how yield is price to 0:16:54.960 --> 0:16:58.160 deliver the kinds of returns we'd like to see in 0:16:58.480 --> 0:17:03.040 a slowing economy of mental recession scenario. So I would 0:17:03.040 --> 0:17:06.480 be pretty careful on high yield investment grade that you know, 0:17:06.560 --> 0:17:08.520 we think it's okay, We wouldn't take the hig amount 0:17:08.520 --> 0:17:11.480 of duration risk, but some of the bigger companies with 0:17:11.720 --> 0:17:14.879 solid balance sheets should be able to deliver. And you 0:17:15.000 --> 0:17:19.480 can get decent income in investment grade corporates right now 0:17:19.920 --> 0:17:22.280 and locking some of that in and even a five 0:17:22.359 --> 0:17:25.320 year duration is going to even north for four percent, 0:17:25.440 --> 0:17:29.000 which is which is not bad for an income investor. 0:17:29.400 --> 0:17:31.440 When you look internationally, Cathy, and you look at some 0:17:31.520 --> 0:17:35.479 of the projections for the ECB raising rates possibly by 0:17:35.520 --> 0:17:38.600 seventy five basis points next month, how much does that 0:17:38.720 --> 0:17:42.400 change your outlook more broadly considering the regime that we've 0:17:42.440 --> 0:17:45.600 seen and considering how much pain we have seen it 0:17:45.760 --> 0:17:50.800 transpire in the euro project. Yeah, you know, our premis 0:17:50.880 --> 0:17:55.040 conviction this year is that the yield curve will will invert, 0:17:55.240 --> 0:17:59.600 and that inversion will deepen, and the harder the central 0:17:59.640 --> 0:18:02.720 banks go in that direction in terms of raising rates 0:18:03.160 --> 0:18:06.040 fresh inflation. But more likely we are to see that 0:18:06.280 --> 0:18:10.200 in virgin continue. So it doesn't really change the scenario 0:18:10.240 --> 0:18:14.240 that actually, I guess reinforces the idea that if the 0:18:14.359 --> 0:18:19.240 ECB heightens aggressively into a very weak economy on top 0:18:19.280 --> 0:18:22.160 of the FAT and all the other simple banks, it's 0:18:22.200 --> 0:18:25.240 really hard to see that we avoid sto global recession. 0:18:25.440 --> 0:18:29.000 And that should mean more and more envision in you so, 0:18:29.240 --> 0:18:32.080 and that means also the reason why you're more enthusiastic 0:18:32.119 --> 0:18:35.000 about duration. What does that mean in terms of the 0:18:35.119 --> 0:18:37.960 likelihood of the credit declines that you expect not only 0:18:37.960 --> 0:18:40.400 in the US but also in Europe. When you're talking 0:18:40.400 --> 0:18:44.000 about being very cautious on high yield, what's the magnitude 0:18:44.280 --> 0:18:47.760 of the potential losses that you see versus just simply 0:18:47.800 --> 0:18:50.280 strategically being away from them as you wait for this 0:18:50.400 --> 0:18:55.440 to play out. Yeah, it's one of a strategic decision um. Obviously, 0:18:55.520 --> 0:18:59.360 triple siege, you know, the very lowest credit quality. We're 0:18:59.400 --> 0:19:02.119 always a little conscious on that, but particularly that's a 0:19:02.240 --> 0:19:05.359 pro cyclical position and this is not the time to 0:19:05.480 --> 0:19:08.600 be in the lowest credit quality. So we think, you know, 0:19:08.720 --> 0:19:11.320 you could see UH spreads wide in a hundred and 0:19:11.359 --> 0:19:14.119 fifty basis points of so in the high yield area, 0:19:14.640 --> 0:19:17.800 and there's just not a lot of potential reward for 0:19:17.920 --> 0:19:21.840 the risk that you're taking in that that area. Now, 0:19:21.960 --> 0:19:23.960 that's my grade looks a little bit stronger. You know, 0:19:24.000 --> 0:19:25.960 a lot of these companies have turned out their debt 0:19:26.040 --> 0:19:29.680 over long term, so we don't see quite as much 0:19:29.840 --> 0:19:33.760 risk there. But it's definitely credit is pro cyclical, and 0:19:33.880 --> 0:19:36.920 this is not the time to be overweighting credit. Yeah. Well, 0:19:37.000 --> 0:19:38.520 I think I agree with that when I look at 0:19:38.520 --> 0:19:41.240 the charts, Kathy. I just looked at a vanilla corporate 0:19:41.359 --> 0:19:44.720 piece of quality name everybody knows, and I'm sorry, it's 0:19:44.760 --> 0:19:47.040 had an ugly August. And I look at the Bloomberg 0:19:47.560 --> 0:19:52.359 Total Return the index. It's now down fourteen even fift 0:19:53.040 --> 0:19:55.760 from the peak. But it concerns me, Cathy, is in 0:19:55.840 --> 0:20:00.359 the last week it's rolled over again. It's a lower price, 0:20:00.880 --> 0:20:06.400 higher yield. What are the ramifications if that index breaks 0:20:06.560 --> 0:20:09.320 through the let me get the date, John, if it 0:20:09.400 --> 0:20:14.880 breaks through the June low, I mean, I mean, it's stunning. Yeah, 0:20:15.040 --> 0:20:16.960 you know, I think what we're reflecting here is this 0:20:17.160 --> 0:20:22.040 combination of fear of federate hikes and deteriorating economic growth. 0:20:22.600 --> 0:20:24.920 So we break that low. I don't know that there's 0:20:25.000 --> 0:20:28.800 a huge significance to it. I don't think that We're 0:20:28.880 --> 0:20:31.879 still going to say huge amounts of flows in and 0:20:32.000 --> 0:20:36.280 out based on you know levels anymore. Um, anybody who 0:20:36.359 --> 0:20:39.080 wanted to exit fixed income where the credit markets, it's 0:20:39.119 --> 0:20:41.920 probably done so already at this stage of the game 0:20:42.000 --> 0:20:45.080 and moved to very short term treasuries. But you know, 0:20:45.200 --> 0:20:49.200 if it continues to wear on this, uh, the total 0:20:49.280 --> 0:20:52.680 return in portfolios overall, you know, not making money in 0:20:52.760 --> 0:20:55.720 stock and I'm making money in bonds and uh. And 0:20:55.840 --> 0:20:58.000 I think that people just will tend to want to 0:20:58.080 --> 0:21:02.600 be in safer and safer assets. So compro Cathy Jones, 0:21:02.760 --> 0:21:05.600 Cathy love catching of you, Mr the Piano, Mr Piano, 0:21:05.880 --> 0:21:07.960 Really do do you see? Lizzie Byrden yesterday time with 0:21:08.000 --> 0:21:11.399 the piano behind her told the sur Fatmans rules that 0:21:11.440 --> 0:21:13.440 if you turn up with the piano but a plane, 0:21:14.080 --> 0:21:16.560 she said it wasn't in tune. Yeah, well that's a 0:21:16.600 --> 0:21:22.080 good John the piano in tune. It sounds like it's 0:21:22.119 --> 0:21:38.359 not in tune. Jeffrey You, joins, a senior email market 0:21:38.440 --> 0:21:41.800 strategist at B and Y Melan It is a jumble. 0:21:42.000 --> 0:21:45.360 In August, Jeffrey You, if you were having the next 0:21:45.440 --> 0:21:48.720 cup of coffee with Jerome Powell, what would you say, 0:21:48.880 --> 0:21:54.720 he needs to watch globally for September. Globally for September. 0:21:54.880 --> 0:21:57.320 Look at what your peers are doing. Are they going 0:21:57.400 --> 0:21:59.800 to follow you and say, not only our raids going 0:21:59.840 --> 0:22:01.680 to go up, but they're going to go up for 0:22:01.960 --> 0:22:05.280 a sustained period. Europe is next. What are the BOE 0:22:05.560 --> 0:22:08.200 going to do for so much? For such a while 0:22:08.560 --> 0:22:11.280 market has been pricing in a quick aggressive move by 0:22:11.320 --> 0:22:13.240 the b o E and then cuts towards the end 0:22:13.280 --> 0:22:15.680 of twenty three or maybe early twenty four. Is that 0:22:15.800 --> 0:22:18.080 going to happen now? Because if Europe is now looking 0:22:18.119 --> 0:22:21.760 at sustained high rates for some time, then that's going 0:22:21.840 --> 0:22:24.200 to constrain global growth. And then you just ask where 0:22:24.320 --> 0:22:26.160 is the growth going to come from? Jeff, on your 0:22:26.200 --> 0:22:29.640 tour meeting clients, do you meet any bills because we're 0:22:29.640 --> 0:22:32.959 struggling to find them. No, Well, I am in Europe, 0:22:32.960 --> 0:22:35.960 you know right now, So within Europe until there is 0:22:36.080 --> 0:22:38.280 a plan to deal with the energy situation that sounds 0:22:38.359 --> 0:22:42.560 like behind the scenes, no plans are being formulated, then 0:22:42.680 --> 0:22:44.720 we'll just go and revisit, you know, once we see 0:22:44.760 --> 0:22:46.439 what the plans are. But then again, you know, being 0:22:46.480 --> 0:22:48.560 the UK, where you know let's just say there is 0:22:48.600 --> 0:22:49.879 a bit of a vacuum, you know, at the very 0:22:49.960 --> 0:22:52.560 top right now, we're waiting for plans. It's really hard 0:22:52.640 --> 0:22:54.600