Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast.
Speaker 1: I'm Mike Creaging, a senior editor at Bloomberg, and this
Speaker 1: week on the show, Well, this was supposed to be
Speaker 1: the summer that kicks off a so called new Roaring twenties,
Speaker 1: as vaccinations allowed us to take off our masks and
Speaker 1: go out and see the outside world again. But if
Speaker 1: you're looking just at the financial markets, well it sort
Speaker 1: of looks like somebody didn't get the memo. Long end
Speaker 1: treasury yields and the type of stocks that benefit from
Speaker 1: a return to normalcy have both made you turns after
Speaker 1: rising strongly earlier in the year. So what exactly is
Speaker 1: going on? We'll get into it with the director of
Speaker 1: investment research at one of the world's biggest hedge fund companies.
Speaker 1: But first, Charlie Pellett tell us who this week's mystery
Speaker 1: co host is. This week's mystery co host is John Author's.
Speaker 1: John is a senior editor and columnist for Bloomberg Opinion.
Speaker 1: He is a big time Red Sox fan who has
Speaker 1: the strangest Boston accent that Reagan has ever heard. Sources
Speaker 1: say John broke into song in the middle of the
Speaker 1: newsroom when England scored first in the euro Cup finals,
Speaker 1: but he was singing the blues by the end of
Speaker 1: the shootout. Uh, John, that was a bit of a
Speaker 1: cheap shot by Charlie there. I think you mean at
Speaker 1: sory rather than blues. It was I was, I was
Speaker 1: seeing all kinds of things when we beat Germany. In
Speaker 1: the news room, I was, I was, I was elsewhere
Speaker 1: for the for the Grand Final. We we Italy were
Speaker 1: the best team on the on the day in the tournament.
Speaker 1: It's much easier to much easier to take guts crushing
Speaker 1: losses like that if if you feel that you weren't
Speaker 1: quite the better team, right, all right, I gotta say
Speaker 1: my wife had this sudden interest in this tournament and
Speaker 1: the English side specifically. I think it had something to
Speaker 1: do with the average level of handsomeness of that team though,
Speaker 1: so I was kind of inclined to take the Italian side.
Speaker 1: I'm a Jersey guy too, so I was kind of
Speaker 1: inclined to take the Italian side just just because of that. Okay,
Speaker 1: I can forgive you. It's like, but John, let's bring
Speaker 1: in our guest, who I think is an old friend
Speaker 1: of yours, and she's one of these people who has
Speaker 1: just an amazing resume. I wish I could read you
Speaker 1: just the highlights, but I think that would be all
Speaker 1: the time we had on the show. But I encourage
Speaker 1: you to google her and check out her history. I
Speaker 1: think you know where. I think the two of you
Speaker 1: have switched jobs, possibly since you last spoke, so we'll
Speaker 1: have to we'll have to catch up on that, but
Speaker 1: I will I will pull one thing from her resume, John,
Speaker 1: and that is she has a few degrees, but their
Speaker 1: first degree is as a journalism major. So I I
Speaker 1: was encouraging for for those of us with ink stains
Speaker 1: on our pants. Still, I'm happy to hear that. But anyway,
Speaker 1: her name is Rebecca Patterson and she's with Bridgewater Associates. Rebecca,
Speaker 1: thank you so much for joining the show. Oh it's
Speaker 1: great to be here. Oh great, And Rebecca, I wanted
Speaker 1: to sort of get a download of everything you're up
Speaker 1: to it Bridgewater these days. I guess you've been there,
Speaker 1: what about eighteen months or so, twenty months something like that.
Speaker 1: But I really wanted to just first start with kind
Speaker 1: of what we've seen in the markets, uh this week
Speaker 1: and really over the last few months, and just kind
Speaker 1: of get your take on the state of play. Like
Speaker 1: I said that the yields have have come back down,
Speaker 1: there was sort of real cyclical reopening. Uh, favorite stocks
Speaker 1: in the stock market have made a U turn as well,
Speaker 1: And I suppose part of it is just, you know,
Speaker 1: the reopening seems to be progressing in sort of a
Speaker 1: two step forward, one step back type of thing. You know,
Speaker 1: we're seeing Masqus again in Los Angeles, this delta variant
Speaker 1: is is really causing a lot of questions. Well, what's
Speaker 1: curiously your thirty thousand foot take, your macro take on
Speaker 1: on what the market signals are right now? Given especially
Speaker 1: earlier this week, we saw that big a scoff move
Speaker 1: that I guess you could kind of attribute possibly to
Speaker 1: just this typical sloppy summer trading, But it's really been
Speaker 1: going on for months now, this kind of reversal of
Speaker 1: the reflation and reopening themes. What do you see going on? Sure, So,
Speaker 1: at the risk of being cute, I'm going to start
Speaker 1: with alliteration um and I would if I had to
Speaker 1: boil down what caused this sort of view turn, if
Speaker 1: you will, that started around April. I would say it's
Speaker 1: policy pandemic positions and really on the policy and pandemic.
Speaker 1: It's going from what felt in the first quarter as
Speaker 1: a really confident, certain outlook among the market, right among
Speaker 1: market participants that okay, after the Georgia race, we had
Speaker 1: all all green lights for big fiscal stimulus. So we
Speaker 1: we got one point nine trillion passed, and then there
Speaker 1: were prospects for another package to be passed, and people
Speaker 1: were fairly confident that was going forward. So that was
Speaker 1: the fiscal monetary The FED told you we got this
Speaker 1: new inflation target regime where we're gonna let we're gonna
Speaker 1: lag the economy, We're gonna let inflation go above two
Speaker 1: and so people thought easy policy great. And then and
Speaker 1: then positioning followed you. You thought, great, I want to
Speaker 1: be short bonds, I want to be long cyclical assets.
Speaker 1: Let's go. By the time we got to late March
Speaker 1: early April, positions have gotten pretty extended. And we know
Speaker 1: that now based on all the data we've been able
Speaker 1: to see you. Starting around April, I think we got
Speaker 1: more question marks around the policy. So fiscal policy less
Speaker 1: certain about how big the packet next package could be.
Speaker 1: In the timing, it's not clear we're going to get
Speaker 1: a bipartisan infrastructure package through soon. It's not as clear
Speaker 1: if we'll get a big one done before the end
Speaker 1: of the year, so more uncertainty there. Obviously, the June
Speaker 1: FED meeting a little less certainty around the FEDS path
Speaker 1: how quickly they might start tapering quantity of easy and
Speaker 1: how quickly they might start reacting to inflation. And then
Speaker 1: on the pandemic, of course, we're seeing the delta variant
Speaker 1: causing some new lockdowns in places like Australia, you know, horrible,
Speaker 1: horrible infection rates in places like Indonesia, and then just
Speaker 1: question marks. I think it's not surprising that after last
Speaker 1: year it was so sudden unexpected, had such a huge
Speaker 1: economic and human impact that when you see anything that
Speaker 1: that feels the same, it's going to cause people to say, Okay,
Speaker 1: maybe I was pricing in too much Roaring twenties, Maybe
Speaker 1: I want to dial back some of that risk. And
Speaker 1: so I think that's it's the positioning that left things
Speaker 1: vulnerable to less certainty around those other piece, if you will,
Speaker 1: the policy and pandemic repe Obviously, you know, uh, everyone
Speaker 1: expected some hot CPI readings, maybe not as hot as
Speaker 1: what we've actually gotten. Um does that transition into uh
Speaker 1: maybe transitory being a little longer than people were expected.
Speaker 1: But also I to throw even one more p in there,
Speaker 1: and the party politics, Uh, in the US, it's a
Speaker 1: it's a very convenient talking point. And I know, you
Speaker 1: know among play company like this, we shouldn't talk to
Speaker 1: religion or politics. But but but just in general terms,
Speaker 1: it's a very convenient talking point with midterms coming up
Speaker 1: against what what you mentioned, the that fiscal stimulus that
Speaker 1: played such a huge role last year. Is inflation a
Speaker 1: sellable uh notion for politicians to vote no on on
Speaker 1: basically everything that Biden wants to do with infrastructure and
Speaker 1: and anything else you know, looking forward, if this delta
Speaker 1: strain gets even worse and we're talking about maybe extending
Speaker 1: those unemployment benefits, maybe you know all the other things. Um, well,
Speaker 1: inflation work as a as a selling point among the
Speaker 1: electorate and among policy to to sort of prevent another
Speaker 1: leg of fiscal stimulus. Well, you made to two points
Speaker 1: there that I think are probably useful for us to
Speaker 1: impact quickly. One is if delta gets worse, and one
Speaker 1: if inflation is bad and and I it is possible
Speaker 1: you have both right, if if the pandemic gets worse
Speaker 1: and exacerbates supply chain issues. You could have inflation actually
Speaker 1: getting worse, even if growth cools a little bit, which
Speaker 1: would be really, really not a good outcome. We hope
Speaker 1: that one doesn't happen. Um. The thing about Delta just quickly,
Speaker 1: and this is a very US centric view because the
Speaker 1: country has a high, relatively high vaccination rate, and the
Speaker 1: politicians and the public have basically said we're not locking
Speaker 1: down again. Um. And that has its own cost. But
Speaker 1: it means that even if the DELTA infections get worse
Speaker 1: in the US, I think the bar is much higher
Speaker 1: before we lock down again, which means that the economic
Speaker 1: consequences are very different. You know, the economic shock occurred
Speaker 1: last year because all business activity largely stopped because of
Speaker 1: the lockdowns. We're not seeing that happen again. And so
Speaker 1: when I look at the markets and how they've behaved recently,
Speaker 1: if you think a large part of the equity sell off,
Speaker 1: and we definitely saw it in reopening sectors. You know,
Speaker 1: if you if you forget about the SMP and you
Speaker 1: drill down to the types of companies that sold off more,
Speaker 1: you know, you see things like hotels and leisure and
Speaker 1: airlines down thirty or fifty from from their high over
Speaker 1: the last few months. So that's a pretty big that's
Speaker 1: a very big move. UM. But I think those growth
Speaker 1: worries purely based on delta, for the United States at least,
Speaker 1: are overdone because it is to me the bar is
Speaker 1: so incredibly high that the US has broad lockdowns again.
Speaker 1: I think what you're seeing now are countries taking different
Speaker 1: paths and how they deal with it. Australia locking down,
Speaker 1: the UK opening up Freedom Day this week right, And
Speaker 1: in the US it feels like it's going to be
Speaker 1: very localized. The l A is having more mask mandates,
Speaker 1: other parts of the country are saying what you know,
Speaker 1: what vaccine and what pandemic? So UM. I do think
Speaker 1: it's important not to extrapolate what happened last year and
Speaker 1: think it just repeats this year. I think the word
Speaker 1: isn't delta. The worry would be if we have a
Speaker 1: mutation which is always possible, that evades the vaccine, right,
Speaker 1: that that we're not protected against. That's when you could
Speaker 1: be looking at new lockdowns. Because we're basically back at
Speaker 1: square one. UM. And I'm not an expert. I don't
Speaker 1: know what the probability is that that happens. But to inflation, absolutely,
Speaker 1: that could be a political point. I as a journalist, um,
Speaker 1: I did spend a few years in d C. Covering
Speaker 1: Capitol Hill in the White House, which was great fun
Speaker 1: to see firsthand how the sausage has made. And you know,
Speaker 1: anything that affects your voters is going to be something
Speaker 1: that becomes a campaign talking point. And if your rents
Speaker 1: are going up, if you can't afford to buy a car,
Speaker 1: if your food prices are going up, your gasoline prices
Speaker 1: are going up, well yeah, blame the other party. Um So,
Speaker 1: I I do think inflation could be something that becomes
Speaker 1: more of a political hot button, and that will put
Speaker 1: the FED in a really interesting position. Obviously, the Fed
Speaker 1: is independent, They're not going to react to politics, but
Speaker 1: you could envision uh situation over the coming months if
Speaker 1: inflation does stay higher a little longer than maybe the
Speaker 1: consensus believes, And the consensus today believes that inflation is
Speaker 1: going to be back to pre pandemic levels within a year,
Speaker 1: which is interesting to me and I think probably overdone.
Speaker 1: Um But if inflation is high and the unemployment rate
Speaker 1: isn't back to the Fed's target, and they're getting political pressure.
Speaker 1: I think you're going to see a tremendous amount of
Speaker 1: focus on the FED, and including on whether or not
Speaker 1: President Buying keeps your own Powell the seat going into
Speaker 1: next year. One point i'd like to to make um
Speaker 1: on the pandemic. I certainly agree with you the chances
Speaker 1: of another lookdown the scale of what happened last spring
Speaker 1: requires effectively a new virus, which i'd like you don't
Speaker 1: know enough about to to know whether it will happen.
Speaker 1: The chances are above zero, and neither of us already
Speaker 1: qualified to say anything much more than that. What I
Speaker 1: do think, however, both from being a British person who
Speaker 1: still can't go home unless I'm prepared to get very
Speaker 1: expensive PC artists and spend ten days in quarantine even
Speaker 1: though I'm fully vaccinated and and Britain is free, there
Speaker 1: are actually um subtler gradations than we than we expected.
Speaker 1: And as somebody who's generally been arguing that inflation is
Speaker 1: more of a risk than people think, this is I
Speaker 1: have to admit an argument that inflation may be less
Speaker 1: of a risk than people think, which is that we're
Speaker 1: not going to lock down. And some people might have
Speaker 1: ideological reasons for not for for thinking they really can
Speaker 1: behave as normal. But it's going to be around. It's
Speaker 1: to remind us of its presence. We're about to watch
Speaker 1: the Olympics played in front of empty stadiums. I couldn't
Speaker 1: go to my Red Sox Yankees game last last week
Speaker 1: because the Yankees all had covid um. It will, it
Speaker 1: will drag on having some kind of an effect on
Speaker 1: our lives, and it won't mean a sudden stop. But
Speaker 1: it also won't mean all the roaring twenties ideas that
Speaker 1: we're all going to go out and spend all this
Speaker 1: money burning a hole in our pockets. That that argument, also,
Speaker 1: it seems to me, is looking weaker now as we
Speaker 1: understand where the pandemic is going. So perhaps we shouldn't
Speaker 1: be thinking so binarily about this. Is that a concern
Speaker 1: of yours, whether whether we really are going to spend
Speaker 1: all the money happily in the way that people have
Speaker 1: have been predicting. The riscue articulated definitely resonates with me
Speaker 1: that and I think again it will depend quite a
Speaker 1: bit country by country. We should see a lot of differentiation.
Speaker 1: If if you're a country like Thailand, and you depend
Speaker 1: so heavily on tourism. Um. You know, there are very
Speaker 1: few people who have the ability and willingness to spend
Speaker 1: who are going to Thailand right now, um, And so
Speaker 1: you are going to see some countries hurt and hurt
Speaker 1: even more with delta just creating fear and uncertainty. The
Speaker 1: United States I think is in unique is too strong
Speaker 1: a word, but in a differentiated position in that you
Speaker 1: do have the high vaccination rate, You do have a
Speaker 1: savings rate that is still today um, quite a bit
Speaker 1: elevated versus where it was before the pandemic. You have
Speaker 1: net worth that's basically at record highs UM. You have
Speaker 1: balance sheets both of companies and households that are extremely
Speaker 1: healthy uh. And you have one of the tightest labor
Speaker 1: markets we've seen in decades, even with the unemployment rate
Speaker 1: at five point nine percent. And so while I don't
Speaker 1: know if we're going to see a roaring twenties and
Speaker 1: now LGY, I do think the odds, even with the
Speaker 1: delta variant, are pretty good that you will continue to
Speaker 1: see very robust growth in the United States in line
Speaker 1: with and I think the biases above expectations at least
Speaker 1: for the coming quarters. Um. Now, of course that's barring,
Speaker 1: you know, as we said, a new virus variant. I
Speaker 1: hate even talking about it. It's depressing, but it's possible, um.
Speaker 1: And I think you know, we believe our base case
Speaker 1: is that you are going to get another fiscal package
Speaker 1: in the US this year, maybe not till the fourth quarter,
Speaker 1: but we are going to. We we expect we will
Speaker 1: see something get through. And we believe that the FED
Speaker 1: is going to continue lagging the recovery, so to speak,
Speaker 1: they will let right now, it's too noisy. How can
Speaker 1: you read anything into a CPI report month to month?
Speaker 1: So let the noise fade, see what the underlying inflation
Speaker 1: rate is to the degree you can, and then figure
Speaker 1: out where you go. And so even if the FED
Speaker 1: does announce at Jackson Hole or in September their plan
Speaker 1: for tapering, and maybe they start tapering somewhere around your
Speaker 1: end um, they're they're not going to be acting the
Speaker 1: way they were in two thousand seventeen or before. They're
Speaker 1: not going to be preemptively tightening. And I would add
Speaker 1: on the FED briefly that you know, we're talking so
Speaker 1: much about inflation, and that is the big thing. But
Speaker 1: don't forget they also fine tuned their labor market target. Right.
Speaker 1: They're looking at inclusive employment. And if you think inclusively
Speaker 1: about employment, you're thinking about cohorts of people high school
Speaker 1: degree and under, etcetera. That unemployment rate tends to run
Speaker 1: two or three percentage points higher um than the headline
Speaker 1: unemployment rate. And that's another reason if there are any
Speaker 1: uncertainties about growth and the Fed wants to go a
Speaker 1: little slow, that's a reason they could go a little
Speaker 1: slower justifiably. John, I wanted to ask you a question
Speaker 1: about you have written about inflation. You have what you
Speaker 1: call authors indicators. Um, you are sort of leaning, uh
Speaker 1: perhaps on the on the hawkish side on inflation to
Speaker 1: some degree. And I think that's interesting because it is
Speaker 1: seeing it does seem like such a solid consensus, especially
Speaker 1: many of the guests we've had on the show that
Speaker 1: transitory uh you know, he's on the shorter end of transitory,
Speaker 1: temporary whatever, however many months that is no one seems
Speaker 1: to know. But it's not it's not a real permanent
Speaker 1: shift in pricing. UM. We'll walk us through your indicators,
Speaker 1: what you're seeing kind of briefly, and why you are
Speaker 1: toting a little hawkishly. Okay. You know, first of all, um,
Speaker 1: as Rebecca was saying earlier, I have, thankfully not being
Speaker 1: over well over a hundred years old, I have never
Speaker 1: lived through anything like this either, and so um, you know,
Speaker 1: one starts from a position of humility and ignorance. The
Speaker 1: general idea of the indicators is trying to work out
Speaker 1: what I think the most the most important numbers will
Speaker 1: be to keep an eye on across a range of factors,
Speaker 1: because you can argue about whether inflation is a monetary
Speaker 1: phenomenon or whether it's about the wage spiral or whatever.
Speaker 1: But you know, there are plainly many factors that go
Speaker 1: into causing it, and there are plainly genuine there are
Speaker 1: real forces in either direction. I think some of this
Speaker 1: debate gets a little weak and it's like saying, you know,
Speaker 1: the picture, just through this at this through the ball
Speaker 1: over a hundred miles an hour. Of course he's not
Speaker 1: going to hit it. And the other guy says, well,
Speaker 1: look this guy, it's the most muscle bound sluggly you've
Speaker 1: ever seen. He swung really hard. It's bound to go out.
Speaker 1: Both of those are very stupid things to say. There
Speaker 1: are very strong forces in either direction, and yet any
Speaker 1: number of outcomes is possible depending on the exact angle,
Speaker 1: that margin, everything about the contact that is that is made.
Speaker 1: So there are forces in both directions. What we need
Speaker 1: to see is how they how they counteract. So we
Speaker 1: all the standard measures of inflation, including trimmed mean, including core,
Speaker 1: everything suggests that inflation is higher than it has been
Speaker 1: on the average for the last ten years. You can
Speaker 1: I've seen some remarkable prestig agitation with with the numbers. Ultimately, yes,
Speaker 1: inflation is definitely a bit higher. Whichever way you look
Speaker 1: at it. It may not be terrifying, but it's higher.
Speaker 1: Um the bond market at this point, there is no
Speaker 1: possible doubt that the bond market just doesn't think this
Speaker 1: is a problem in terms of its consensus, in terms
Speaker 1: of the view that finally emerges from the price uh.
Speaker 1: If you look at we've got indicators for the for
Speaker 1: various components. The one that's fascinating, which I think is
Speaker 1: probably going to be critical over the next few months
Speaker 1: shelter um, which which recommentioned earlier in the in the
Speaker 1: in her first comments as well that generally speaking, there
Speaker 1: are all kinds of technical complaints about exactly how how
Speaker 1: shelter is accounted for in the in the CPI calculations.
Speaker 1: But if house prices rise as much as they've done
Speaker 1: of late, it would be very surprising. Indeed, if rents
Speaker 1: didn't start to rise once annual leases show up and
Speaker 1: landlds have the chance to negotiate a higher, higher rent,
Speaker 1: that the odds are very high that you will see
Speaker 1: that number not get into Zimbabwe territory, but you might
Speaker 1: get it getting into three or a bit more, and
Speaker 1: that would be very very intriguing, very interesting if it happened.
Speaker 1: Then we have wage inflation numbers which are broadly banging
Speaker 1: the line of where they've been for much of the
Speaker 1: last decade, with the intriguing exception that the lower skilled,
Speaker 1: lesser educated people are getting a nicer deal than they
Speaker 1: for a while, obviously because of the way the because
Speaker 1: of all the effects on employment we know about from
Speaker 1: the pandemic, there's a lot of noise there. I think
Speaker 1: you need until the end of this year at the
Speaker 1: very earliest to have any clarity as to whether there
Speaker 1: has been what you would logically expect, which is some
Speaker 1: kind of an increase in the strength of the hand
Speaker 1: of labor. Broadly speaking, I think what we need to
Speaker 1: see is whether um, the wage inflation starts to take
Speaker 1: hold in the way that some people fear. And also
Speaker 1: I forgot to measure commodities, whether commodity inflation takes hold
Speaker 1: in the way that some fear. And that's my that's
Speaker 1: my best attempts to try to be calm and logical
Speaker 1: and provide some kind of a manageable way for for
Speaker 1: our clients are viewers, to understand this in a in
Speaker 1: a way that doesn't oversimplify. I'm glad you brought up psychology, John,
Speaker 1: that that gives me the perfect segue to the craziest
Speaker 1: things we've seen in markets this week, Rebecca. But before
Speaker 1: we get to that, Rebecca, there are two There are
Speaker 1: two things on a certain cohort of listeners of the
Speaker 1: show wait very patiently for so we'll get to the
Speaker 1: crazy things. That's obviously one of them. But I think
Speaker 1: a lot of people just want to hear an answer
Speaker 1: to the general question just tell me what to do
Speaker 1: with my money right now. So I'm curious, you know,
Speaker 1: given this sort of paralyzing feeling of uncertainty and noise. Yeah,
Speaker 1: and especially given Bridgewater, you know, the famous um all
Speaker 1: weather strategy. I mean, we've had a lot of debate.
Speaker 1: Another question I'm sick of answering and asking, is is
Speaker 1: sixty forty dead? You know, obviously all weathers a more
Speaker 1: sophisticated but sort of similarly motivated strategy. Just walk us through,
Speaker 1: like what is you know, how should we be positioned
Speaker 1: in this environment? And what is kind of your outlook
Speaker 1: for for the all weather strategy given you know, high
Speaker 1: valuations in both both bond and stock markets. So all
Speaker 1: whether um, I think, I think when you go back
Speaker 1: to why it started and what the goal was, it
Speaker 1: makes it so much more clear. Ray Dahlia, our founder,
Speaker 1: when he got going, he realized his kids might not
Speaker 1: have the same aptitude or interest he did. He wanted
Speaker 1: to have a strategic allocation for his family as kids
Speaker 1: that could compound well over time. Right, So you don't
Speaker 1: want to participate in all the volatility. You just want
Speaker 1: to to do well and it with its less volatility
Speaker 1: or possible, And you don't want to have to be
Speaker 1: able to predict what the heck is going to happen. Right, Well,
Speaker 1: no one knows what the next twenty years is going
Speaker 1: to look like. So can you put together a balanced
Speaker 1: portfolio that can do well regardless of what the economic
Speaker 1: environment is and the two economic variables that are most important.
Speaker 1: I think we'd all agree if you are trying to balance,
Speaker 1: is going to be owth and inflation, and you know
Speaker 1: common sense, like I don't need to give you a
Speaker 1: bunch of fancy correlations or aggressions. Certain assets are going
Speaker 1: to do better in a rising growth, rising inflation environment
Speaker 1: a reflation Some are going to do better in stagflation.
Speaker 1: And so if you can have balanced sets of those
Speaker 1: things for each of those environments, you're not going to
Speaker 1: have the portfolio that performs best all the time, obviously
Speaker 1: mathematically it can't, but it can perform relatively well all
Speaker 1: the time regardless of the environment. So so that's what
Speaker 1: he built, and that was the goal. Like you don't
Speaker 1: have to pay attention to it, you don't have to
Speaker 1: market time, and it's not going to ride through the volatility,
Speaker 1: which obviously costs you over time in the compounding. So
Speaker 1: when bond yields, we get the question all the time
Speaker 1: with bond yields this slow, would we want to be
Speaker 1: long bonds? We're going to own bonds as part of
Speaker 1: this portfolio where we think the bond yields have room
Speaker 1: to fall um and so you know, j g B
Speaker 1: is probably out so much, you know, But but there
Speaker 1: are bonds that have enough field that there is room
Speaker 1: for them to act as a defensive asset. But the
Speaker 1: portfolio has never just been about bonds. It's about having
Speaker 1: a balance set of assets. So to to answer your question,
Speaker 1: what should people do now, I think the most important
Speaker 1: thing people can do is look at their portfolio and say, Okay,
Speaker 1: this is an incredibly unusual time. The pandemic, the fiscal policy,
Speaker 1: central banks doing different things. So and there is that
Speaker 1: consensus view we discussed earlier. What are the risks around that?
Speaker 1: If you know, maybe we are going back to nine
Speaker 1: seventies inflation. But if inflation runs a little hotter than
Speaker 1: expected over the next few years, am I vulnerable to that?
Speaker 1: And if I am, what do I want to do?
Speaker 1: Maybe I want to add some inflation link bonds. Maybe
Speaker 1: I want to have some gold in my portfolio. Maybe
Speaker 1: I want to think about uh certain types of equities
Speaker 1: that will perform better, that have more pricing power. If
Speaker 1: if the pandemic gets worse, we have a new mutation
Speaker 1: and growth stalls. God help us, Um, it is going
Speaker 1: to protect me. Then, so just I think the most
Speaker 1: important thing you should be doing is staring at way
Speaker 1: you own and then say what are the tail risks?
Speaker 1: Reasonable tail risks? We can come up with a million unreasonable,
Speaker 1: and then am I overexposed to either of those? And
Speaker 1: then what pieces do I need to add or adjust
Speaker 1: in my portfolio to try to give me balance because
Speaker 1: it is an unusual time. The other thing I'd say,
Speaker 1: and and this is you started out by reminding folks
Speaker 1: that I was a reporter once upon a time. One
Speaker 1: thing I think that being a reporter helped me in
Speaker 1: this job is you learn to tune out noise. You know,
Speaker 1: I keep my Bloomberg on all day long, every day, um,
Speaker 1: and I will open an article every couple of minutes.
Speaker 1: But I do not read every headline. And I don't
Speaker 1: mean that as an insult. But if I read every
Speaker 1: story on every news feed I get, I don't know
Speaker 1: what else I would do with my life that would
Speaker 1: keep me up all the day. So I think you
Speaker 1: have to understand what's meaningful, what's material, and what's just
Speaker 1: noise that I can ignore. You know, when we talk
Speaker 1: about inflation, inflation expectations. The Fed cares a lot about that.
Speaker 1: Do they get de anchored. They care about the five
Speaker 1: year five year break, even they care about wages in
Speaker 1: the labor market. You can watch those three things and
Speaker 1: a lot of the other stuff is probably noise. Um.
Speaker 1: And so those those would be my two pieces of advice. Well,
Speaker 1: I we thank you for your frequent clicking of the
Speaker 1: article's Rebecca stand clear of the craziest things we saw
Speaker 1: in markets this week. I think it's that time for
Speaker 1: the craziest things we saw in markets. Uh, Mr authors,
Speaker 1: I think I want to start with you, what's the
Speaker 1: maddest thing you've seen this week? Maddest since apparently is
Speaker 1: an anglicism, Um, I've just checked. Um. You might remember
Speaker 1: back in two thousand and nine there was this epochal
Speaker 1: moment when the yields on the SMP went above the
Speaker 1: yield on the tenure um. And this was extraordinary. It
Speaker 1: was the end of the cultural the equity blah blah
Speaker 1: blah blah blah. And last year we saw as big
Speaker 1: as spread in the yield between in favor of equities
Speaker 1: over over bonds as we've seen back in oh nine.
Speaker 1: Both times basically your money doubled over the next twelve
Speaker 1: months if you went into doctorative bonds. Amazingly, we're back
Speaker 1: there again. Um. So the last two times this happened,
Speaker 1: stocks were plainly cheap after a massive sell off. Um
Speaker 1: this is the first time, right that we are actually
Speaker 1: as an all time high in the stock market. And
Speaker 1: yet you get a higher yield dividend yield from stocks
Speaker 1: than you do from ten year bonds, which is crazy.
Speaker 1: That is certainly crazy, not not sexy and funny, but crazy. Absolutely, Absolutely,
Speaker 1: that's pretty good, all right, I'm going to be funny.
Speaker 1: Can I be funny? All right? Because if if I
Speaker 1: wanted to be serious, I would talk about the bond deal,
Speaker 1: the U S. Treasury yield being where it is given
Speaker 1: the economic backdrop. And but I feel like your listeners
Speaker 1: are all so well educated and a stoot that they
Speaker 1: know that already. So I'm gonna I'm gonna go in
Speaker 1: a different direction. I Um, I started in finance doing
Speaker 1: foreign exchange and precious metals research for JP Morgan, and
Speaker 1: so perhaps it's not surprising that I was instantly attracted
Speaker 1: to crypto, just academically, just fascinated by it. So I've
Speaker 1: been following it closely since it was born. And this
Speaker 1: isn't quite this week, but it's recent enough that I
Speaker 1: think it still fits your game. Um you know, I
Speaker 1: am fascinated by this virtual world we're now in, and
Speaker 1: I think part of it is a reflection of immense
Speaker 1: amounts of liquidity in the system, people looking for places
Speaker 1: to make money. I think part of it is, you know,
Speaker 1: the beauty that is technology and the advances people make.
Speaker 1: Maybe there's some populism in there too, but when you
Speaker 1: put all things together. We had a record real estate
Speaker 1: deal recently. We talked about rents and home prices. Okay,
Speaker 1: virtual land. It's happening to nine hundred thousand dollars paid
Speaker 1: for sixteen virtual acres virtual acres, So this was blockchain
Speaker 1: real estate. Um de central Land. You pay with Mona
Speaker 1: and you know, normally if you use an n f T,
Speaker 1: you're buying a song, you're buying a piece of art.
Speaker 1: At least you can print it out right, you can
Speaker 1: touch something. You have virtual land, you can you can
Speaker 1: have events on your virtual land. Atari apparently has bought
Speaker 1: virtual Land recently and they're going to have old time
Speaker 1: Pong championships and so forth. That you can attend. But
Speaker 1: the problem with virtual land as opposed to physical land.
Speaker 1: Physical land has limited supply. That is part of what
Speaker 1: underlies its value. Virtual land that there is absolutely nothing
Speaker 1: to limit its supply. So aside from someone else just
Speaker 1: thinking it's cooler and having more cryptocurrency to spend, what
Speaker 1: makes you think this is a good investment. But I'm
Speaker 1: just I'm fascinated by how the crypto world is evolving,
Speaker 1: how people are looking for ways to use all this
Speaker 1: liquidity that they have received over the last year, And
Speaker 1: this one just jumped out to me as being particularly
Speaker 1: out there and worthy of sharing on your show. That's
Speaker 1: that's pretty good. I feel like I should say something
Speaker 1: about yield farming on that land, but uh, I don't
Speaker 1: know if that's that's the purpose of this. But Rebecca,
Speaker 1: what to have you on sometime just to talk crypto
Speaker 1: and defied because I'm fine, I'm about ten years late
Speaker 1: to it, but I'm I'm I'm fascinated with it all.
Speaker 1: But that's a good one, John, that's stiff competition there. Um,
Speaker 1: I will give you mine. Mine's a very old school asset.
Speaker 1: In fact, it is something that I think is three
Speaker 1: D and fifty years old from the Alternative Assets Space Whiskey.
Speaker 1: The the world's oldest bottle of whiskey was distilled two
Speaker 1: hundred and fifty years ago. I actually believe that the
Speaker 1: liquid inside of it's even a hundred years older than that.
Speaker 1: So around the Revolution. Uh, it's that old. This whiskey,
Speaker 1: Uh from Old Ingle Do Whiskey. That was the name
Speaker 1: of the brewer, Rebecca, you'll be interested in this. It
Speaker 1: will once belonged to none other than JP Morgan himself,
Speaker 1: and in fact it was. It was auctioned off by
Speaker 1: the Skinner auction House, and it was bought by the
Speaker 1: Morgan Library, the JP Morgan Library in Midtown, which leads
Speaker 1: me to believe it it probably will never be drank.
Speaker 1: Perhaps when Jamie Diamond finally retires, they'll they'll they'll dust
Speaker 1: it off. But this leads me to another popular segment,
Speaker 1: the price is right. I want to know what each
Speaker 1: of you think the winning bid was for the world's
Speaker 1: oldest whiskey seven fifty milliliter bottle, if that helps, I
Speaker 1: don't know, if you know you're looking for a bargain
Speaker 1: by volume. Uh, keeping in mind that it was JP
Speaker 1: Morgan himself and it was bought by the Morgan Library
Speaker 1: and the two part questions. Second part would be would
Speaker 1: you take a take a taste of it? John? How
Speaker 1: about you? What's what's your bid for the world's oldest
Speaker 1: bottle of whiskey? Dr Oh, I'm way over. I would
Speaker 1: I would at least double I would double that bid. Okay,
Speaker 1: the prices right rules are in effect, so you could
Speaker 1: go a hundred and fifty one. All right, I will
Speaker 1: be chicken. Then let's go. Let's go with a hundred
Speaker 1: and fifty one. That's easy, Rebecca. I'm with you. I
Speaker 1: would have guessed in the millions. I feel like you
Speaker 1: know the type of people that collect whiskey. This is
Speaker 1: you know, your babe, Ruth Card hundred and seven. Wow,
Speaker 1: congrats John, fascinating. Maybe Bridge, I don't know if Bridgewater
Speaker 1: wants to add something to its portfolio. This is truly
Speaker 1: all weather. Uh. It could be an uncorrelated alpha stream
Speaker 1: right there. Sorry, you guys talking over, talking over. I
Speaker 1: don't know. I don't know if that you know. I
Speaker 1: don't know what the investors would say about that, But
Speaker 1: to me, it seems like a bargain. I don't know,
Speaker 1: it seems like it might be somewhat ill liquid liquid investor,
Speaker 1: and I do think I would not taste it. I
Speaker 1: think that's meant to be kept on a shop. I'm
Speaker 1: not sure. I think a lot of the joy of whiskey,
Speaker 1: and a lot of the joy of tasting general is
Speaker 1: from the sense of smell. And it's part of the
Speaker 1: joy of drinking whiskey is to is to rotate it
Speaker 1: under your nose a few times before you take the
Speaker 1: first sip. I might be a little nervous, but actually
Speaker 1: posing in needs my mouth, I think I probably would
Speaker 1: be quite game for holding that gorgeous, gorgeous pete aroma
Speaker 1: beneath my beneath my nose for a bit. All right, Chad, Well,
Speaker 1: I'll tell you what if I'm not sure if the
Speaker 1: Morgan Library is even open in these times, but when
Speaker 1: it does, maybe we'll walk down and and see. We'll
Speaker 1: see if they a lot of sniff it. They got
Speaker 1: a lot of sniff it. Right, Let's let's make it
Speaker 1: a field trip. I would be I would be down
Speaker 1: for that, all right, it's a date. With that said,
Speaker 1: I think that is all the time. We had really
Speaker 1: enjoyed the conversation. Rebecca, Thank you so much for your time.
Speaker 1: John is always a pleasure to catch up with you,
Speaker 1: and hopefully we can all do it again. Sounds good,
Speaker 1: we can talk about doge coin. I won't be joining you.
Speaker 1: That's a teaser for the next episode. If I've ever
Speaker 1: heard one gonna I'm gonna keep you to that, Rebecca Lord, okay,
Speaker 1: by what Goes Up. We'll be back next week. Until then,
Speaker 1: you can find us on the Bloomberg Terminal website and
Speaker 1: DApp or wherever you get your podcasts. We'd love it
Speaker 1: if you took the time to rate and review the
Speaker 1: show on Apple Podcasts so more listeners can find us,
Speaker 1: and you can find us on Twitter, follow me at Reganonymous.
Speaker 1: John authors is at John Author's You can also follow
Speaker 1: Bloomberg Podcasts at podcasts at that Get to Charlie Pellet
Speaker 1: of Bloomberg Radio in the voice of the New York
Speaker 1: City Subway System. What Goes Up is produced by tofor Forez.
Speaker 1: The head of Bloomberg Podcasts is Francesco Levie. Thanks for listening.
Speaker 1: To see you next time. Thank you