WEBVTT - Surveillance: Equity Caution with Wei Li 0:00:05.080 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.480 --> 0:00:12.280 with Jonathan Farrell and Lisa Abramowitz. Join us each day 0:00:12.320 --> 0:00:16.800 for insight from the best and economics, geopolitics, financing, investment. 0:00:17.239 --> 0:00:22.040 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.560 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.600 --> 0:00:30.600 the Bloomberg Terminal, and the Bloomberg Business app. Get Lucky 0:00:30.600 --> 0:00:33.440 this Smarting Wailey's with us while kid Mornic from black 0:00:33.520 --> 0:00:35.400 Rock Wailey, thank you for being with us here in 0:00:35.400 --> 0:00:38.680 New York City. You came into this year conservative equities, 0:00:39.000 --> 0:00:41.720 the equity market rally, you stayed conservative on equities, the 0:00:41.720 --> 0:00:44.040 equity market started selling. Golf is still cautious? Can you 0:00:44.040 --> 0:00:46.720 walk us through y I have no clue just to 0:00:46.760 --> 0:00:51.360 add that works perfect, James. But the reason that were 0:00:51.400 --> 0:00:53.920 cautious on aquities is really that if you look at 0:00:53.920 --> 0:00:58.680 where evaluations are, it's pricing in still a very modest 0:00:58.800 --> 0:01:02.760 kind of drove the outlook for the economy as well 0:01:02.800 --> 0:01:04.800 as for earnings as well. And if you look at 0:01:04.840 --> 0:01:06.920 where rates are, as you know, we have been off 0:01:06.959 --> 0:01:09.440 the view that they cannot cut rates. Now markets are 0:01:09.480 --> 0:01:12.360 moving closer to our view, but markets are still looking 0:01:12.400 --> 0:01:15.520 at ray cuts later in twenty twenty four, and we 0:01:15.560 --> 0:01:19.399 think that actually, given how a resilient economy has been 0:01:19.440 --> 0:01:22.240 and how much the recession will be pushed out later 0:01:22.959 --> 0:01:25.480 down the line, actually ray cuts also needs to be 0:01:25.520 --> 0:01:29.360 pushed out further as well. So equity marketing developed world 0:01:29.440 --> 0:01:33.280 are not quite appreciating some of the macro challenges that 0:01:33.319 --> 0:01:35.720 we see happening, and that's why we have been prudent 0:01:35.880 --> 0:01:38.760 now having said that, our time horizon is six to 0:01:38.880 --> 0:01:42.520 twelve months, and some of that metrics that were used 0:01:42.520 --> 0:01:45.920 to support the cautious view is valuation based. But that 0:01:46.080 --> 0:01:48.240 is not to say that we cannot have shorter term 0:01:48.640 --> 0:01:51.800 outs of rally which we saw in January right like 0:01:51.920 --> 0:01:56.440 driven by technical factors, short squeeze driven by formal flows 0:01:56.480 --> 0:01:59.800 as well. Real money investors are telling us that, you 0:01:59.880 --> 0:02:02.560 know what, after a year like twenty twenty two, they 0:02:02.560 --> 0:02:05.000 cannot afford to miss the rebound. So they're just going 0:02:05.040 --> 0:02:07.960 to preposition for that even if they know or they 0:02:08.040 --> 0:02:09.880 fear that it could get worse before it gets better. 0:02:10.040 --> 0:02:14.240 In your beautifully elegant note, you talk about a new regime, 0:02:14.360 --> 0:02:16.600 I'm going to label it a black rock new regime. 0:02:16.800 --> 0:02:20.680 Larry's notice, it's a way Lee new regime. But whatever 0:02:20.720 --> 0:02:24.079 it is, it's a new regime. If we're not going 0:02:24.160 --> 0:02:29.240 back to securities analysis and factor analysis pre twenty twenty, 0:02:29.800 --> 0:02:33.640 what are we going forward to? While the new regime 0:02:33.720 --> 0:02:37.000 is predicated in terms of the Marco drivers of the 0:02:37.040 --> 0:02:40.400 current environment, that we are moving from the Great moderation 0:02:40.840 --> 0:02:45.799 with economic cycles shaped by US demand to the current 0:02:45.880 --> 0:02:50.120 environment shaped by supply and supply constraint. In particular, factor 0:02:50.320 --> 0:02:55.760 analysis is difficult because factors are time varying concepts and 0:02:55.840 --> 0:03:00.640 factors can mean different things to different people. I interrupt, 0:03:00.639 --> 0:03:03.680 because we got to do a mathematical clinic here right now, 0:03:03.720 --> 0:03:06.799 We've got a tailor role is divergent from FED policy 0:03:07.200 --> 0:03:10.520 as we've ever seen. If you do the partial differentials 0:03:10.520 --> 0:03:13.239 of factor analysis, I get the ideas mud out there. 0:03:13.560 --> 0:03:16.400 You have no idea visibly where you're going if you 0:03:16.520 --> 0:03:20.960 do the partial differentials across any FED theory. Now do 0:03:21.120 --> 0:03:25.280 they work at this juncture? No, thank you, at this 0:03:25.440 --> 0:03:29.440 juncture not just because of how unstable some of the 0:03:30.440 --> 0:03:34.680 forces are. Right So thinking about you know, like our star, 0:03:34.880 --> 0:03:38.000 you know, one could see actually in moving temporarily before 0:03:38.040 --> 0:03:41.080 settling back down. And given the kind of environment that 0:03:41.120 --> 0:03:45.920 we see right now, so as it translates into factors, 0:03:45.480 --> 0:03:50.080 it's it's tough to apply the old playbook to factor investing. 0:03:50.160 --> 0:03:52.440 You know, like people say, as we head into recession, 0:03:52.520 --> 0:03:54.760 we got to shy away from value, but we're also 0:03:54.800 --> 0:03:57.560 in an environment where rates are going higher and curve 0:03:57.640 --> 0:04:01.200 in our views, should steepen over that to twelve month horizon. 0:04:01.400 --> 0:04:03.080 So we actually think that there is more room for 0:04:03.280 --> 0:04:06.560 factor value to perform, but we want to be a 0:04:06.600 --> 0:04:09.800 bit more selective, so we apply a quality tilt to 0:04:09.920 --> 0:04:12.880 the factor typical factory exposures. When you talk about rates 0:04:12.920 --> 0:04:15.880 going higher from here, HSBC is different. Major put out 0:04:15.920 --> 0:04:17.640 a note this morning where you said the debate and 0:04:17.640 --> 0:04:20.280 bond markets today is whether to buy and hold short 0:04:20.320 --> 0:04:22.839 dated bonds at close to five percent or go for 0:04:22.880 --> 0:04:25.000 the longer ones which are almost four percent. And it 0:04:25.040 --> 0:04:27.520 goes to this belief our rates going to go higher 0:04:27.560 --> 0:04:30.680 and stay there for a longer period of time, or 0:04:30.880 --> 0:04:33.960 you know, do you want to capture just what you 0:04:33.400 --> 0:04:35.200 kind you can get at this point? Where do you 0:04:35.240 --> 0:04:38.839 fall on that debate? The former, So we like from 0:04:38.880 --> 0:04:40.880 the end of the curve. Over the back end of 0:04:40.920 --> 0:04:43.600 the curve, you know, you take very little duration and 0:04:43.760 --> 0:04:46.960 credit risk, you get paid TBO is paying you almost 0:04:47.040 --> 0:04:49.800 five percent, and commercial papers are paying you five point 0:04:49.800 --> 0:04:53.799 five percent. You know, these are very attractive income opportunities. 0:04:53.880 --> 0:04:57.279 And given our review that actually rates will stay longer, 0:04:57.520 --> 0:05:00.640 for higher, for longer, we don't necess cerily want to 0:05:00.720 --> 0:05:02.520 kind of go into the long end of the curve, 0:05:02.640 --> 0:05:06.120 especially given how inverted curve is at this current juncture. 0:05:06.160 --> 0:05:09.840 Turn premier should come back. It's underappreciating the degree that 0:05:09.880 --> 0:05:13.200 we're going to have to live with inflation, and we 0:05:13.640 --> 0:05:17.160 do want to kind of sit out when the value 0:05:17.520 --> 0:05:20.840 proposition change. When will the long end start to look 0:05:20.880 --> 0:05:23.360 more attractive to you, or even risk asids start to 0:05:23.400 --> 0:05:26.360 look more attractive to you than a five percent short 0:05:26.480 --> 0:05:30.880 term rate. I think it comes it comes down to 0:05:30.880 --> 0:05:35.520 to what extent macro damages are being priced in by markets. 0:05:35.560 --> 0:05:38.600 So the reason that we currently are shying away from 0:05:38.720 --> 0:05:41.760 developed market acquity were modestly the underweight is because we 0:05:41.800 --> 0:05:44.640 don't see the macro challenges being fully priced in, so 0:05:44.760 --> 0:05:47.760 we're bunkering down in short end of the curve. But 0:05:48.279 --> 0:05:51.599 if market pricing changes, getting closer to our fair value. 0:05:51.640 --> 0:05:55.240 That would certainly change things as well. But also we're 0:05:55.279 --> 0:05:57.880 actually on a global basis. We like emerging markets. We 0:05:58.600 --> 0:06:02.320 have an overweight, very modest overweighting emerging market equities. So 0:06:02.440 --> 0:06:05.400 think of our view currently as almost a bar bow 0:06:05.520 --> 0:06:08.960 in between the short end of the government bound market 0:06:09.000 --> 0:06:11.280 in the US and emerging market equities on the other 0:06:11.560 --> 0:06:15.960 On the other hand, given where the pricing and evaluation 0:06:16.040 --> 0:06:18.080 sits at its current juncture, the last thing I would 0:06:18.120 --> 0:06:20.680 say is that this is an environment with very heighened 0:06:20.800 --> 0:06:23.279 macro and market volatility. We have to change our views 0:06:23.360 --> 0:06:26.240 very quickly. We've already changed our views twice and we're 0:06:26.279 --> 0:06:28.840 still in February this year, so you know, like it's 0:06:28.920 --> 0:06:32.279 it's very dynamic. We finish on China. Pmis the savenick, 0:06:32.520 --> 0:06:36.479 that's the reopening comic. We have the view that actually 0:06:36.480 --> 0:06:40.960 reopening for twenty twenty three should carry growth to something 0:06:41.240 --> 0:06:44.720 with a six handle for twenty twenty three, and that 0:06:44.960 --> 0:06:47.920 is off the very low basis of twenty twenty two 0:06:47.960 --> 0:06:50.040 with a three handles. So clearly things have to be 0:06:50.279 --> 0:06:53.640 kind of viewed together thinking about long term growth trend. 0:06:53.720 --> 0:06:57.719 But we currently think that the growth pivot that we 0:06:57.960 --> 0:07:03.120 got a flavor of the December A Central Economic Working 0:07:04.520 --> 0:07:08.160 Conference actually will be further reinforced at the two sessions 0:07:08.160 --> 0:07:11.360 that are coming up in two weeks time. And the 0:07:11.440 --> 0:07:15.920 pm I data actually could also could also give further 0:07:15.960 --> 0:07:19.880 evidence of the two that growth would would come through 0:07:19.920 --> 0:07:23.880 in this reopening restart dynamics in China. But but but 0:07:24.080 --> 0:07:27.240 over the longer term though, structural growth in China is 0:07:27.320 --> 0:07:30.880 very challenged. You know, by the end of this decade, 0:07:30.880 --> 0:07:33.800 we're seeing China growth stabilizing with a three handle. So 0:07:33.840 --> 0:07:37.240 we're talking about longer term challenging but near term restart 0:07:37.280 --> 0:07:39.720 opportunities that we want to lean take a six percent 0:07:39.720 --> 0:07:42.800 GDP this year and then back down to levels like 0:07:42.920 --> 0:07:46.040 three percent. Invest Just so you're aware, he's in the 0:07:46.080 --> 0:07:49.280 final rewide and the pharaoh two hundred and seventy day outlook. 0:07:49.280 --> 0:07:55.800 It comes out March in the first quarter, change your 0:07:55.880 --> 0:07:58.440 view three times. So then he puts, I'm not sure 0:07:58.480 --> 0:08:00.520 that would work if I actually did this, professor, but 0:08:00.600 --> 0:08:02.480 you know that's what we do here at Bloomberg Surveymance. 0:08:02.480 --> 0:08:04.880 We waited a quarter wait later, flat Ron, wait. Thank 0:08:04.880 --> 0:08:17.320 you just awesome. As always, thank you very much, right 0:08:17.360 --> 0:08:19.520 now and enjoy to having our studios as someone who 0:08:19.560 --> 0:08:22.800 has immense help through the pandemic. David Page's head of 0:08:22.800 --> 0:08:26.360 macro research at ACTS Investment Managers. Great to see you 0:08:26.640 --> 0:08:28.960 here with us. I'm going to cut to the chase. 0:08:29.040 --> 0:08:31.320 I love one of the words you used, asynchronous, because 0:08:31.320 --> 0:08:34.040 that's what it feels like to me right now. Can 0:08:34.080 --> 0:08:38.520 we have a slowdown? Maybe not an NBEER recession, but 0:08:38.640 --> 0:08:41.800 can we have a quote media recession, whatever that phrase means, 0:08:42.280 --> 0:08:44.920 but some parts of the economy do okay, Yeah, And 0:08:44.960 --> 0:08:46.960 I think the point that we make with asynchronous is 0:08:46.960 --> 0:08:49.160 that you can have slowdown in all of the economy, 0:08:49.440 --> 0:08:52.120 but at slightly different times, and that might defy the 0:08:52.200 --> 0:08:54.720 NBA definition of recession. So what we're thinking, and we're 0:08:54.720 --> 0:08:56.280 getting some of it in the day to now, we've 0:08:56.280 --> 0:08:58.240 got this sort of nuance coming through from trade, We've 0:08:58.280 --> 0:09:01.600 got this nuance from the tree, so that's probably weak 0:09:01.600 --> 0:09:03.640 in the first half of the year. The consumer looks 0:09:03.679 --> 0:09:05.600 pretty solid though, and I think it's as we move 0:09:05.640 --> 0:09:07.240 into the second half of this year, particularly if we 0:09:07.280 --> 0:09:09.120 get the slowdown and coming through in the labor market, 0:09:09.160 --> 0:09:12.360 that you'll see a softly in the consumer side. So typically, 0:09:12.360 --> 0:09:14.400 and this is why recessions are so difficult to forecast, 0:09:14.440 --> 0:09:17.800 at least in terms of timings. You get a synchronized slowdown, 0:09:17.920 --> 0:09:20.079 and that's when you see recession. If you get it 0:09:20.080 --> 0:09:23.480 asynchronously one quarters negative, then perhaps it's flat, then it's 0:09:23.520 --> 0:09:25.760 negative again. You know, remember we've already had two quarters 0:09:25.800 --> 0:09:29.160 of negative growth that the nbare looked completely through, and 0:09:29.200 --> 0:09:31.760 that wasn't a recession in that was just last year. 0:09:32.080 --> 0:09:34.560 So we could get a sort of saw tooth pattern 0:09:34.559 --> 0:09:37.280 of GDP come through, which would be a muddle through 0:09:37.320 --> 0:09:39.200 and I guess typically that would be a soft land 0:09:39.360 --> 0:09:42.760 rounded up German yields are up up solidly today, I 0:09:42.880 --> 0:09:44.760 might point out, I'm looking at the ten year yield. 0:09:44.840 --> 0:09:47.240 Three point nine six is a round up and a 0:09:47.360 --> 0:09:49.720 ten year year old. Okay, that's one story, but the 0:09:49.760 --> 0:09:54.240 other story is the disinflation. To come model your trajectory 0:09:54.320 --> 0:09:57.760 of US disinflation. So we think that headline inflation is 0:09:57.760 --> 0:09:59.800 going to fall back to a round possibly just under 0:09:59.840 --> 0:10:02.000 three and a half percent by mid year, but then 0:10:02.040 --> 0:10:06.960 by mid year, but then by the second still by 0:10:07.240 --> 0:10:11.160 we are a French house, but so sometime around June. Yeah, 0:10:11.200 --> 0:10:16.880 but then as we move into continuous as we move 0:10:16.920 --> 0:10:19.080 into the second half of this year, we're expecting it 0:10:19.120 --> 0:10:21.400 to stay in that three and a half four passage. 0:10:21.760 --> 0:10:23.760 And that's that's why we've always said the FED is 0:10:23.760 --> 0:10:24.920 not going to be in a position to be able 0:10:24.960 --> 0:10:26.720 to ease in the second half of this year, which 0:10:26.800 --> 0:10:30.480 markets have repriced quite significantly now. But we also think 0:10:30.520 --> 0:10:32.600 it takes a little while throughout twenty twenty four together 0:10:32.760 --> 0:10:34.760 down and they need to crack the labor mark. Well, 0:10:34.800 --> 0:10:37.040 here's the thing. And when you're talking about an asynchronous 0:10:37.080 --> 0:10:40.559 recovery and a muddle through, isn't that problematic for getting 0:10:40.600 --> 0:10:45.120 inflation down? Isn't a muddle through eventually allowing certain industries 0:10:45.160 --> 0:10:49.120 to possibly see price games that will keep inflation higher 0:10:49.240 --> 0:10:51.079 even as you see sort of the year of year 0:10:51.120 --> 0:10:53.720 camps getting more complicated for the others. Yeah, So to 0:10:53.760 --> 0:10:55.280 be clear, I mean, our view is still that we 0:10:55.320 --> 0:10:58.000 do see a mild recession a stress mile but we 0:10:58.040 --> 0:11:00.280 are looking at consecutive quarters to growth. But yeah, right, 0:11:00.280 --> 0:11:03.080 I mean, if we see this asynchronous growth is just 0:11:03.160 --> 0:11:05.880 slightly firmer than that, then the labor market doesn't loosen 0:11:06.000 --> 0:11:08.280 by quite as much, and that'll take a little bit 0:11:08.280 --> 0:11:11.760 longer for prices to fall ultimately an asynchronous slow down 0:11:11.760 --> 0:11:13.720 and below trend growth. You know, this is the sort 0:11:13.760 --> 0:11:17.080 of the baseline that Fed chair Power talks too. We 0:11:17.160 --> 0:11:19.520 get below trend growth coming through from the economy, the 0:11:20.000 --> 0:11:23.120 labor market eases a little bit, and that's enough to 0:11:23.160 --> 0:11:25.600 see inflation fall back. We think it'll be more than that, 0:11:25.640 --> 0:11:28.240 but that's exactly the risk. We were joking earlier about 0:11:28.240 --> 0:11:29.720 how we have a show of people coming on and 0:11:29.760 --> 0:11:31.640 saying we have no clue, and then people ask us 0:11:31.679 --> 0:11:33.320 and we're like, we have no clue because this is 0:11:33.320 --> 0:11:35.040 such a difficult time to really have a sense of 0:11:35.040 --> 0:11:38.000 what's going on. But I'm wondering how we can even 0:11:38.040 --> 0:11:41.880 be sure that that's enough to bring inflation lower? Right? 0:11:41.920 --> 0:11:45.079 We can't. Right, So, if you have central banks that 0:11:45.200 --> 0:11:48.200 at least vocally are adhering to a two percent target 0:11:48.280 --> 0:11:50.400 of inflation, how do we know that we're not going 0:11:50.400 --> 0:11:52.400 to see a six percent FED funds rate and a 0:11:52.440 --> 0:11:55.240 four percent ECB target which is now priced into the market. 0:11:55.360 --> 0:11:56.920 And I think that's the key risk. I mean, the 0:11:57.320 --> 0:12:00.000 central banks are pretty clear that they don't know either. 0:12:00.120 --> 0:12:01.840 I mean, we can roll back fifteen months, we know 0:12:01.880 --> 0:12:03.800 the forecast erarors that we all made include in the 0:12:03.840 --> 0:12:06.160 central banks in terms of the inflation outlook, and the 0:12:06.200 --> 0:12:09.559 central banks seem to have learned that lesson. But the 0:12:09.600 --> 0:12:12.240 point of that is that now central banks are using 0:12:12.280 --> 0:12:15.560 backward looking information to judge when they've done enough with 0:12:15.600 --> 0:12:18.720 their forward acting tools of monetary policy. So they're looking 0:12:18.760 --> 0:12:20.640 in the rearview mirror. They're not, I don't think, looking 0:12:20.640 --> 0:12:23.000 too much in inflation. The headline is obviously important, but 0:12:23.080 --> 0:12:25.240 it's the labor market that gives them the long steer 0:12:25.280 --> 0:12:28.040 as to inflation, and they're using that data to judge 0:12:28.040 --> 0:12:30.959 when they've done enough, when they know that rate hikes 0:12:31.000 --> 0:12:33.199 are still going to have a lagged impact on financial 0:12:33.200 --> 0:12:35.320 conditions going further forwards, and that I think is the 0:12:35.320 --> 0:12:39.040 biggest risk if you're using backward looking information to judge 0:12:39.080 --> 0:12:41.560 when you've done enough with your forward acting tool. It 0:12:41.640 --> 0:12:44.560 sounds like a recipe for overtightening. Beautifully explained, and I 0:12:44.559 --> 0:12:47.440 guess the ex post is becoming ever more ex post. 0:12:47.679 --> 0:12:51.319 And there's some ramifications out there we've observed just as 0:12:51.360 --> 0:12:54.200 one theory, the tailor rules completely messed up right down 0:12:54.320 --> 0:12:58.199 towardston slack over at Toparlo models at near nine percent, 0:12:58.280 --> 0:13:03.040 almost ten percent. Bullard is saying of Saint Louis is saying, 0:13:03.160 --> 0:13:06.640 let's go. There's others in the ECB saying the same thing, 0:13:07.080 --> 0:13:11.560 let's go. Is their value to the urgency the doctor 0:13:11.600 --> 0:13:15.000 Bullard speaks of, Yeah, I think so. And I think 0:13:16.000 --> 0:13:17.840 the move that you would get if you followed a 0:13:17.840 --> 0:13:21.560 Bullard type approaches is much more consistent perhaps with FED history, 0:13:21.640 --> 0:13:24.160 that you could see the rates move a little bit 0:13:24.240 --> 0:13:27.160 higher to peak, maybe you know, even towards a peak 0:13:27.160 --> 0:13:29.960 of six percent, But then once you reach that, you 0:13:30.000 --> 0:13:32.439 would break the economy. You would have to see rate 0:13:32.440 --> 0:13:35.240 cuts follow quite quickly. And I think what the bulk 0:13:35.280 --> 0:13:37.640 of the committee wants to achieve this time around is 0:13:37.679 --> 0:13:40.000 a peak that isn't quite as eyewatering as that, but 0:13:40.120 --> 0:13:41.760 it is held in place for a little bit longer, 0:13:41.800 --> 0:13:44.640 and that provides the restrictiveness that slows the economy further 0:13:44.720 --> 0:13:47.880 before we let you go. The belief in lagged effects. 0:13:48.360 --> 0:13:51.200 Is that enough for the FED for the ECB to 0:13:51.360 --> 0:13:54.640 pause at a level before they see the ramifications of 0:13:54.640 --> 0:13:57.480 their forward tools. No, they need to see some impact 0:13:57.600 --> 0:13:58.839 comes through, and they need to see that in the 0:13:58.880 --> 0:14:01.280 labor market, in particularly for the US five hundred and 0:14:01.280 --> 0:14:04.160 twelve thousand is absolutely nowhere near enough to see a 0:14:04.200 --> 0:14:08.160 slowdown in economic activity and earnings gross Average earnings gross 0:14:08.240 --> 0:14:09.920 needs to be closest three and a half, and they'll 0:14:09.960 --> 0:14:13.000 need to see that before they pause. David Page, thank 0:14:13.040 --> 0:14:15.920 you so much, greatly, greatly appreciated in our studios here 0:14:16.000 --> 0:14:24.360 David Pages with EXA investment manager, Sarah Mouth joins us, right, 0:14:24.360 --> 0:14:27.600 I'll just jump into it A chief investment officer Vine, Sarah, 0:14:27.640 --> 0:14:30.280 what has changed in your outlook in the last week 0:14:30.360 --> 0:14:33.480 or so? We have whipsaw, we are in shock back 0:14:33.520 --> 0:14:38.560 and forth. What has changed in the nouvene placement? Markets 0:14:38.560 --> 0:14:40.920 are adjusting to the fact that the Fed has more 0:14:40.960 --> 0:14:44.120 work to do, and this is monetary tightening is not 0:14:44.240 --> 0:14:46.200 taking a bite out of the economy. This is bad 0:14:46.240 --> 0:14:48.240 news for inflation and bad news for the market. So 0:14:48.280 --> 0:14:51.120 I think the markets generally stay in a trading range 0:14:51.120 --> 0:14:53.440 and the FED stays in a holding pattern with rate 0:14:53.480 --> 0:14:55.640 hikes and then a pose until we can get some 0:14:55.720 --> 0:14:58.320 kind of break on inflation in terms of wages or 0:14:58.360 --> 0:15:01.360 shelter or spending on services. And we're just not really 0:15:01.360 --> 0:15:03.880 seeing that yet, and that's why we're we're generally thinking 0:15:03.880 --> 0:15:06.240 that the market's going to have trouble, continue to move 0:15:06.320 --> 0:15:09.280 the upside likely trading range or downside risk. From here, 0:15:09.440 --> 0:15:11.840 let's talk about the way lead point that basically it's 0:15:11.880 --> 0:15:14.560 not worth necessarily going into the long end of the 0:15:14.640 --> 0:15:17.160 yield curve at four percent if you can get five 0:15:17.200 --> 0:15:19.840 percent the short end, because you could potentially get higher 0:15:19.920 --> 0:15:23.000 yields and you could potentially get a better opportunity elsewhere. 0:15:23.280 --> 0:15:26.200 Do you agree with that stance. I think generally that 0:15:26.320 --> 0:15:28.120 is going to be the case going forward, with now 0:15:28.200 --> 0:15:30.520 about three hikes getting priced into the markets with a 0:15:30.600 --> 0:15:32.920 FED and then again no rate cuts in the future 0:15:32.920 --> 0:15:35.320 are likely a pause and then an inflation doesn't break 0:15:35.320 --> 0:15:37.000 if you'd even see more hikes from there. I think 0:15:37.000 --> 0:15:38.880 it is the short end the yield curve that's going 0:15:38.920 --> 0:15:40.960 to continue to look more and more attractive versus the 0:15:40.960 --> 0:15:43.560 long end. So where are you looking for in terms 0:15:43.640 --> 0:15:46.440 of getting some sort of returns other than the short end. 0:15:46.520 --> 0:15:49.480 Are you starting to see opportunities and industrials as we 0:15:49.480 --> 0:15:52.320 were talking about earlier, Are you starting to see opportunities 0:15:52.600 --> 0:15:55.920 in retail like Target that came out with expectations that 0:15:55.960 --> 0:16:00.160 we're disappointing, but everyone still seems to be cheering. So 0:16:00.200 --> 0:16:02.160 starting with retail, I think, you know, consumer and the 0:16:02.160 --> 0:16:03.880 employment markets are going to be the piece of the 0:16:03.880 --> 0:16:08.200 puzzle that determine the depth of the timing of a recession. 0:16:08.240 --> 0:16:10.200 So consumer, I think is at risk. That's on an 0:16:10.200 --> 0:16:12.680 area that we're incredibly interested in. We're more on the 0:16:12.720 --> 0:16:15.920 conservative side, looking for quality companies and also some beta 0:16:15.960 --> 0:16:18.080 outside of the US. So starting in the US with 0:16:18.320 --> 0:16:21.440 quality companies, companies that tend to grow their dividend, they 0:16:21.440 --> 0:16:24.240 tend to have strong balance sheets, they're more recession resilient, 0:16:24.320 --> 0:16:26.800 provide you some income protection going forward. So this is 0:16:26.840 --> 0:16:30.400 everything from infrastructure companies that are backed by utilities and 0:16:30.440 --> 0:16:33.440 waste management all the way over to companies like Linda 0:16:33.680 --> 0:16:35.560 or Coca Cola, which tend to be a bit more 0:16:35.600 --> 0:16:38.240 defensive in a volatile market. Now, outside of the US, 0:16:38.400 --> 0:16:41.800 we think emerging markets look attractive because evaluations There also 0:16:41.840 --> 0:16:43.920 the dollar which may not be as strong as it 0:16:44.040 --> 0:16:46.840 was last year, and also China continuing to reopen. I 0:16:46.840 --> 0:16:49.080 think em finally has a tailwind. You could see some 0:16:49.160 --> 0:16:51.600 upside there. It's kind of a balance bet there. That's 0:16:51.600 --> 0:16:54.000 saying a little bit more conservative in the US because 0:16:54.160 --> 0:16:56.200 of the continued rate hikes that we see and the 0:16:56.240 --> 0:16:58.960 potential for a recession that may be delayed but likely 0:16:59.000 --> 0:17:01.800 still comes. How does use of cash play in I mean, 0:17:01.800 --> 0:17:04.920 the Journal's got the article out on one trillion share buybacks. 0:17:04.920 --> 0:17:07.919 We saw cheval and mister Wirth make a statement today 0:17:08.000 --> 0:17:12.040 define use of cash for nuvine. Well, first of all, 0:17:12.040 --> 0:17:13.879 just going to look at energy companies, I think that 0:17:13.920 --> 0:17:16.560 we've seen this with them for quite a number of years. 0:17:16.560 --> 0:17:19.159 They are more focused on returning cash to shareholders than 0:17:19.200 --> 0:17:21.760 on pulling barrels out of the ground. That's keeping supply 0:17:21.800 --> 0:17:24.520 type for energy companies, and we agree that oil prices 0:17:24.600 --> 0:17:28.040 likely have more upside because demand remains reasonably strong supply 0:17:28.119 --> 0:17:31.399 remains tight. Now, cash is an interesting asset class in 0:17:31.400 --> 0:17:33.800 the sense that it is paying good yield. My caution 0:17:33.840 --> 0:17:36.520 in terms of cash those courses that the market send 0:17:36.520 --> 0:17:38.880 a price in a recovery well before we see any 0:17:38.920 --> 0:17:41.080 of the data. So it's a timing issue. And when 0:17:41.119 --> 0:17:43.760 you're trying to time the markets usually that's generally a 0:17:43.760 --> 0:17:46.720 loser's game. So while it's important to keep some cash 0:17:46.800 --> 0:17:49.160 in hand, I would continue to look for areas where 0:17:49.160 --> 0:17:51.360 you see good value and these are areas like non 0:17:51.440 --> 0:17:55.919 US markets, particularly emerging markets. Also an alternative, private credit 0:17:56.000 --> 0:17:58.199 tends to be more resilient during a recession. If you 0:17:58.200 --> 0:18:01.399 look at historical down draft in the market's private credit 0:18:01.440 --> 0:18:04.399 tends to hold up better, and then conservative equities like 0:18:04.480 --> 0:18:06.960 dividend growers tend to be more resilient. That's where I'd 0:18:06.960 --> 0:18:09.000 be looking to put my cash. So I'd be rude 0:18:09.040 --> 0:18:11.960 if I didn't ask the Nuvine heritage. Should we take 0:18:12.000 --> 0:18:16.760 advantage of municipal bonds this morning? I mean fundamentals versus 0:18:16.760 --> 0:18:19.560 the valuations of municipal bonds are at a mismatch because 0:18:19.600 --> 0:18:21.800 of the strength of the economy and the tightening that's 0:18:21.800 --> 0:18:25.320 not impacted the economy. Yet municipalities still look very strong, 0:18:25.440 --> 0:18:29.080 So fundamentals are strong, valuations look interesting. You're seeing total 0:18:29.119 --> 0:18:32.600 returns in municipal bonds and also areas if taxabil fix 0:18:32.680 --> 0:18:35.280 incomes such as leverage loans that still look very attractive 0:18:35.320 --> 0:18:37.520 to us. And again that's why it's important to make 0:18:37.560 --> 0:18:39.880 sure you use your cash wisely, because you are seeing 0:18:40.080 --> 0:18:42.520 entry points that you haven't seen in years or even decades. 0:18:42.560 --> 0:18:45.080 In many of these asset classes, such as fixed incomes. 0:18:45.080 --> 0:18:47.160 Sarah I've always wanted to ask you this question. How 0:18:47.160 --> 0:18:50.600 did Neuvine become the largest manager of farmland assets on 0:18:50.640 --> 0:18:54.639 the planet. Yeah, this is an historical asset class that 0:18:54.640 --> 0:18:57.520 we've been very heavily invested in all the way back 0:18:57.560 --> 0:19:00.919 to when the TIA days as our parent company. It's 0:19:00.960 --> 0:19:03.120 an asset class that we thought was very resilient. It's 0:19:03.119 --> 0:19:05.840 a great asset class as a head to inflation. So 0:19:06.119 --> 0:19:08.639 it's just a very strong asset class and important obviously 0:19:08.720 --> 0:19:11.440 to society. We've built it over time and it's become 0:19:11.960 --> 0:19:14.320 I think, in a world where equities and fixed income 0:19:14.359 --> 0:19:17.679 have become very correlated, alternatives such as farmland have been 0:19:17.680 --> 0:19:20.560 a very important piece of investors portfolios, and they continue 0:19:20.560 --> 0:19:22.600 to be correlated this year as well, even when we 0:19:22.600 --> 0:19:25.520 were expecting that to break. Sarah just wonderful. Us always 0:19:25.520 --> 0:19:39.480 ceremontic that of new thing. Ken Leon joins us right now, 0:19:39.560 --> 0:19:45.000 director of Equity Research. It's CFI truly with decades of exposure. Kenn, 0:19:45.119 --> 0:19:47.199 is this any way to do business? I mean, you 0:19:47.240 --> 0:19:50.920 know CFA one, you got a John Dear and your report, 0:19:51.520 --> 0:19:53.720 maybe you've got something else and this and that, and 0:19:53.760 --> 0:19:56.560 now we've got one hundred and eighteen page power points 0:19:57.000 --> 0:20:00.040 with a welcome from mister Solomon, a state of the 0:20:00.080 --> 0:20:03.240 franchise from John Waldron's Shinali basket. Will speak with mister 0:20:03.320 --> 0:20:07.280 Waldron at twelve doing very important and then we have 0:20:07.760 --> 0:20:11.879 one Goldman Sex. Is this a branding exercise or do 0:20:11.920 --> 0:20:16.840 you guys like you learn anything out of these soirees. Well, 0:20:16.880 --> 0:20:21.080 it's great to be here and Goldman is probably best 0:20:21.119 --> 0:20:24.000 in delivering messages and road shows. I mean that's what 0:20:24.040 --> 0:20:27.760 they do as an investment bank, and it's all about 0:20:27.800 --> 0:20:30.320 what they're doing right first and then they're going to 0:20:30.359 --> 0:20:34.920 get the hard questions later. They speak to client franchise 0:20:35.440 --> 0:20:39.880 and essentially this means that everyone wants to do business 0:20:39.880 --> 0:20:45.119 with Goldman, particularly the investment bank and also asset and 0:20:45.160 --> 0:20:49.719 wealth management. But what's interesting here is that there's a 0:20:49.720 --> 0:20:53.800