Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along
Speaker 1: with Jonathan Faroh and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and
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Speaker 1: the Bloomberg Terminal and the Bloomberg Business App. Tara Crunk
Speaker 1: with us the CIO off and investment management at Wellcot
Speaker 1: to see you, John, Do you have the courage to
Speaker 1: be barished? We have had the courage to be barish
Speaker 1: for all of two you know. Look, I think you'll
Speaker 1: hear to the earlier conversation two mixed messages on jobs. Today.
Speaker 1: You're gonna hear Powell at the at the Economic Club
Speaker 1: say he's concerned about the economy overheating in too many jobs.
Speaker 1: And then President Biden's going to get up at the
Speaker 1: State of Union and tout how he's done such a
Speaker 1: great job creating jobs. Right, So you're gonna have this
Speaker 1: kind of deck economy that's going to happen. Um. I
Speaker 1: think you know you've had a subtle change since the
Speaker 1: FED meeting. Obviously the point about UM thirty five basis
Speaker 1: point move in the in the two year UM the
Speaker 1: dollars reverse course gold has started to come down. Um,
Speaker 1: you do have a you have a different message right
Speaker 1: now on on the equity market between technicals and fundamentals.
Speaker 1: Your path was wrestling economics and finance at Dames Iowa
Speaker 1: and then off you went to v BODI and bu.
Speaker 1: The bottom line is you need courage to buy quality
Speaker 1: right now. All the media razzle dazzles in nonprofit tech,
Speaker 1: what memes stocks is that what they're called? And the
Speaker 1: rest is well and what Wells Fargo was saying, get
Speaker 1: brave and buy quality defined quality. Well quality is everything
Speaker 1: that wasn't this rally at the being of the year.
Speaker 1: So if there's only two themes that have driven this
Speaker 1: entire rally at being a year, including across all assets,
Speaker 1: it's long duration assets. And that's not just equities, you know,
Speaker 1: think tech comm services, discretionary golds along duration asset it's
Speaker 1: rallied hard to here. Right for up until the FED meeting,
Speaker 1: the body the long end of the monk curve was
Speaker 1: still rates were still falling and we're rallying. So eating
Speaker 1: this huge long duration rally and then it's low quality, right,
Speaker 1: it's it's all the things you don't want to own.
Speaker 1: Basically that we're just either some form of a January effect,
Speaker 1: some form of short UH covering, or some form of
Speaker 1: just um reversion to the mean after tax lots selling.
Speaker 1: That's not really the basis for a good sustainable rally
Speaker 1: from here. Right now, you've you coiled the fifty day,
Speaker 1: twenty day and two d day moving averages into a
Speaker 1: tight band that had to break out one or the other.
Speaker 1: They broke to the upside here in the short term,
Speaker 1: but all near term indications suggest you're probably over bought
Speaker 1: at this level, so we would fade this latest rally.
Speaker 1: We still think it's probably a bear market rally allah,
Speaker 1: you know, four or five of them in two and
Speaker 1: probably fails into resistance and and eventually comes back down
Speaker 1: before you move higher. How do you fade it? Do
Speaker 1: you fade it with options? Do you bet against the NASDAC,
Speaker 1: do you bet against specific companies? Do you just sell
Speaker 1: on the margins what's gone up? I think you sell
Speaker 1: on the margins. It's giving you a second chance, you know,
Speaker 1: to unwind that lower quality If you want to, or
Speaker 1: you just reduce your equity positions. You take your risk
Speaker 1: budgets down in portfolios like you need to if you
Speaker 1: don't have them where you want to be, and then
Speaker 1: you hold that dry powder to your point of your
Speaker 1: getting paid handsomely on the short side of the old
Speaker 1: curve to hold dry powder, and you're actually, for the
Speaker 1: first time in a long time, getting positive real rates.
Speaker 1: Right If you look at the three month run rate
Speaker 1: on the PC deflator or the CPI, there a two
Speaker 1: point nine three point one percent. If I'm getting four
Speaker 1: eighty two on a twelve month treasury, real rates are
Speaker 1: finally now in a positive place. They hadn't been for
Speaker 1: much of all of last year and the year before,
Speaker 1: So that gives you some nice carry while you wait
Speaker 1: out as this thing kind of the fundamentals catch up.
Speaker 1: How distorted is your portfolio right now? Waited too fixed
Speaker 1: income waited to short term debt versus equities versus other assets.
Speaker 1: So it is definitely underweight equities, there's no doubt about it.
Speaker 1: Um Uh. We had on the fixed income side, we're
Speaker 1: overweight fixed income, but we barbelled the whole fixed income element.
Speaker 1: So short term makes all kinds of sense the belly
Speaker 1: of the yeld curve. You don't want to be there,
Speaker 1: right because now you have instead of rolled down, you
Speaker 1: have roll up in the yolk curve, which is not
Speaker 1: the place to be. And you know, the tenure peeked
Speaker 1: out in on October twenty four. We went long duration
Speaker 1: on October twenty nine, so we were five days late.
Speaker 1: But that's been just a heck of a trade, right,
Speaker 1: I mean it is really um added, you know, mid
Speaker 1: double digit returns to portfolios. At this level, I'd be
Speaker 1: a little careful legging too far into the backside of
Speaker 1: the ool curve. We think the tenure trades between three
Speaker 1: forty and three ninety for most of this year and
Speaker 1: back and forth. So I'd be a little careful here
Speaker 1: at at the level we're at. If this takes up
Speaker 1: the next question, ready, if they can only say to
Speaker 1: keep surprising to the upside, like the types we got
Speaker 1: on Friday with that change anything for you? How many
Speaker 1: change things for you? Well, the obvious is it has
Speaker 1: to price in more hikes. Right. It brings may into
Speaker 1: the conversation, right which today, Um, it's it's all about
Speaker 1: March is now basically a given and then another basis
Speaker 1: points in May, and it takes out any hope of
Speaker 1: cuts in the back half of the year. Great niece, Yeah,
Speaker 1: I think that's the case right now. I mean, you
Speaker 1: you just have to you have to let this thing
Speaker 1: play out. I mean, earnings growth is just now turning negative.
Speaker 1: Right In the last years, we've only seen that happen
Speaker 1: four times. Every time we've seen it happen, it ends
Speaker 1: up being a recession. Yesterday you saw the FEDS Senior
Speaker 1: Loan Survey. Financial conditions are tightening quickly, right, So every
Speaker 1: time you you think about a recession, you have three
Speaker 1: things that happened. You have um interest rates have to
Speaker 1: go up, you have inflation spikes, and you have lending
Speaker 1: and conditions tighten. I think the chairman is more focused
Speaker 1: on the lone survey than perhaps what's happening in public markets.
Speaker 1: Uh No, I think I think still he's he's focused
Speaker 1: on financial conditions too easy, right, I mean, you can
Speaker 1: look at a whole bunch of financial conditions to this
Speaker 1: time last year and Wednesday about what was that about?
Speaker 1: Well Wednesday? Wednesday was his attempt to be hawkish, but
Speaker 1: the but the market interpreted as dovish yeah, So he's
Speaker 1: going to try and walk that back, I think today
Speaker 1: and in subsequent speeches, to try and just continue to
Speaker 1: pound the pulpit about like we have more work to do,
Speaker 1: We're not there yet. Um. And so I think that's
Speaker 1: that's an important thing for markets to kind of reconcile.
Speaker 1: The reality is the equity markets and the bond market
Speaker 1: have not believed the fed up at this point. They
Speaker 1: just don't believe things like the disinflationary processes starts it.
Speaker 1: I'm not going to hear the rest. Wasn't that the problem?
Speaker 1: And that that was what they were looking at and
Speaker 1: that was what they were hoping about. Is it's just
Speaker 1: you know that he kind of failed at the communication.
Speaker 1: That's right. Do we give you an evil evaluation? Killed
Speaker 1: We've got people we talked to. It wonderful And she
Speaker 1: described better than anyone I know, this path of disinflation down.
Speaker 1: And she used the Amazon challenge of the last mile
Speaker 1: to get to your house dating from three to two.
Speaker 1: When you talk to Sarah House and you listen to
Speaker 1: Sarah House, what's your yield there that you're trying to
Speaker 1: get to three to two? Are you even trying to
Speaker 1: get from four to three. Well, actually, I think that's
Speaker 1: the mistake the markets are making right now. It's an
Speaker 1: excellent point and I agree with you, Sarah, you did great,
Speaker 1: she said a word. So, um, what what the markets
Speaker 1: are missing is they keep using the inflation data on
Speaker 1: year over year? Who cares about last year? Right? Last
Speaker 1: year at this time was irrelevant. Right right now as
Speaker 1: we speak for three month the rolling three months run
Speaker 1: right on pc deflators two point nine and on cp
Speaker 1: I at the core is three point one. So let's
Speaker 1: just call it three at three year of stones throw
Speaker 1: away from two to two and a half with still
Speaker 1: downward pressure on prices. Right, So we're gonna get there
Speaker 1: faster than what people think. That's what we wrote in
Speaker 1: our economic Our outlook was, look, the great surprise of
Speaker 1: this year is how fast inflation is gonna come down.
Speaker 1: And if you think back in November December, people were like, no, way, no,
Speaker 1: how right, and it is it's there already. Well that's
Speaker 1: why this counts. Yes, run, this is a joy force
Speaker 1: right now and a real symbol here, uh John, of
Speaker 1: everything to move beyond the pandemic. To have Gerard Cassidy
Speaker 1: with this remote from Maine is a legend Uh Tucker
Speaker 1: Anthony uh for for years and onto RBC Capital Markets,
Speaker 1: but have them in studio. I think it's a real
Speaker 1: three years almost three years to the moment when we
Speaker 1: last talked to you, A lobster role in Maine costs
Speaker 1: eighteen dollars. Now it's like a bottle of champagne. What happened, Tom,
Speaker 1: Rising costs even the lobstermen a facing higher inflation costs
Speaker 1: obviously fuel also labor costs are very high. And that's
Speaker 1: that's that's what's driving it. And look at the real
Speaker 1: estate pricing. It's right out. Let's get to it right now,
Speaker 1: Gerard Cassidy, I'm gonna look at securities analysis in the
Speaker 1: four percent return over the last ten years I got
Speaker 1: with a dog like City Group versus the fourteen percent
Speaker 1: return I got as Harrison passed off JP Morgan to
Speaker 1: James Diamond, that differential. How do you, with the legend
Speaker 1: that you are, how do you grind out not to
Speaker 1: pick the dogs in banking? It's very interesting, Tom, because
Speaker 1: it's all about execution, as you know, and obviously JP
Speaker 1: Morgan Chase has executed and City Group has not. And
Speaker 1: now under the new leadership, Jane is trying to execute
Speaker 1: and divest many of the businesses outside the United States.
Speaker 1: Mexico is the big one, and I think if they
Speaker 1: get that done this quarter, that will help the style
Speaker 1: will buy Mexican City Group Banking, and there's such an
Speaker 1: emotional loadstone there for the heritage of the company. Back
Speaker 1: to Mr. Read No, you're you're quite right. At either
Speaker 1: a local bank or a spent one of the Spanish
Speaker 1: banks are most likely to be the buyers, not an
Speaker 1: American bank. Though, as we reflect on the last decade
Speaker 1: or side, just how much more defensive are these knips?
Speaker 1: How much of these banks actually changed? John, That's really
Speaker 1: a good question because we're gonna find out. This is
Speaker 1: going to be the true test. We do go through
Speaker 1: a recession and the banks have been derisked because of
Speaker 1: the financial crisis and the stress tests they go through
Speaker 1: every year. This will prove assuming they get through without
Speaker 1: having a major earnings problem, assuming none of them cut
Speaker 1: their dividends, imagine what's gonna what they're gonna look like
Speaker 1: coming out of the next cycle if this all takes place,
Speaker 1: which is what we think could very well. So what
Speaker 1: does that mean for how we should value some of
Speaker 1: these big banks there you go. So then do they
Speaker 1: become so called financial utility. So they'll never trade like
Speaker 1: Doke energy. But should they trade it eight to ten
Speaker 1: times earnings? Maybe they get revalued to twelve and thirteen
Speaker 1: times earnings. They'll they'll never be marking multiple stocks, of course,
Speaker 1: but the point is that we could have a revaluation
Speaker 1: coming out of this whatever we're going into slow down
Speaker 1: slash recession, assuming the banks don't blow up like they
Speaker 1: didn't of course eight or nine. So let's talk about
Speaker 1: one of their main utilities, which is a place to
Speaker 1: part cash right for consumers. Last year, in the second
Speaker 1: third quarters, banks saw the biggest outflow of withdraw of
Speaker 1: of of deposits on record. Going back, at what point
Speaker 1: do they have to start attracting deposits with higher rates.
Speaker 1: It's really going to be the question in this high
Speaker 1: rate environment. But we have to remind ourselves if you
Speaker 1: go back to two thousand nineteen, the system had just
Speaker 1: over thirteen trillion dollars of deposits and they were growing
Speaker 1: approximately six billion a year. Today the system is closer
Speaker 1: to eighteen trillion dollars because of que So I would
Speaker 1: argue the banking system has over three trillion dollars of
Speaker 1: deposits that shouldn't be there. So I think you're going
Speaker 1: to see the continued outflow because of QUI as now
Speaker 1: as QT Well. Another way to put this is do
Speaker 1: they want these deposits? Are banks happy to see them go?
Speaker 1: It's in a way I think they are, because you know,
Speaker 1: they don't want to lose the good cored deposits like
Speaker 1: you know, Tom's account or something like that. Of course
Speaker 1: they you know they will lose some of the hot money,
Speaker 1: and that's okay. But what's interesting is that the loan
Speaker 1: to deposit ratio so still very low, and so a
Speaker 1: normal loan to deposit ratios over and the system today
Speaker 1: is under seven. Can I digress here? This is a
Speaker 1: real hockey history. You and I knew Brian moynihan when
Speaker 1: he was unheard of at the Bank of Boston long
Speaker 1: time ago, correct, And you and I every year would
Speaker 1: go to the St. Patrick's Day party for the Irish banks.
Speaker 1: I remember sitting in one of their drunk fests on St.
Speaker 1: Patrick's Day, four or five people going, this is gonna
Speaker 1: end ugly. You saw the collapse of the regional bank
Speaker 1: experience moynahan and after Ken Lewis helped pick up the pieces.
Speaker 1: Now what's out there right now? That's the same emotion
Speaker 1: that you and I felt on that Sat Patrick's day
Speaker 1: morning long ago. Tom. We asked her to ask that
Speaker 1: question to ourselves all the time, because every cycle we've
Speaker 1: had something blow up. And one of the things that
Speaker 1: I find so amazing is FED funds rates have gone
Speaker 1: from zero twenty five basis points to four and three
Speaker 1: quarters and there hasn't been any debacles yet. Exactly which
Speaker 1: where is it? We're digging, We're turning over, We're turning
Speaker 1: over every rock we ken. We do believe that loans
Speaker 1: to non depository financial institutions could be the place where
Speaker 1: it blows up, meaning loans to private equity companies. That's
Speaker 1: where the valuations have come down dramatically. It's Harvey Shorts
Speaker 1: watching this. It's going to be a conversation about private
Speaker 1: mind that that's we're looking. Anytime you have rapid loan
Speaker 1: growth in a specific asset class, that's where we take
Speaker 1: our nose to and we just haven't really so wait, wait,
Speaker 1: is this the question Paul asked Rubinstein today? Is that
Speaker 1: the rest? But how about that loan about about sixty seconds. Child.
Speaker 1: I want to want to kind of fit this in
Speaker 1: bonuses happening with pay. If these banks are going to
Speaker 1: become utilities, what does that mean for the pay of
Speaker 1: the people that work at these companies? Credit Swace right
Speaker 1: now talking about delaying some bonuses for bankers. What's the
Speaker 1: message for maybe a group of college graduates to want
Speaker 1: to go into this industry. What's the message for them? Now?
Speaker 1: The pay is still quite good, even though the pay
Speaker 1: has come down quite a bit, as you know, John,
Speaker 1: and we have to remember one was all time record years,
Speaker 1: so we're coming off a very high base. That being said,
Speaker 1: pay is not what it was, you know, twelve or
Speaker 1: eighteen months ago. But there's cycles, as we all know,
Speaker 1: and there will be a capital market cycle. E C
Speaker 1: M will come back, I P O S will come back,
Speaker 1: and that's when the bonuses really do grow. So it's
Speaker 1: very cyclical. Let's do this more often. I'd love to.
Speaker 1: I'm thrilled you brought three pounds of lobster. Surprise, Tom
Speaker 1: is not promoting the trip up to Maine. We want
Speaker 1: to fit that in. No, you know, we get that in.
Speaker 1: But May's weather is tough. We're gonna go up to
Speaker 1: He doesn't like the weather, John, that's the reason why
Speaker 1: he has there's better breakfas and bar. You went on
Speaker 1: vacation that the guy didn't you. It was called I
Speaker 1: took one day sabbatical. It was a three day weekend,
Speaker 1: three day week I remember I went up to Bar Harbor.
Speaker 1: We stopped in Portland, looked for Cassidy and he was
Speaker 1: out in this fifty seventh Hinckley picnic boat than Portland Harbor.
Speaker 1: That that that Hinckley boat you've got is gorgeous. I
Speaker 1: wish I had one, But they are gorgeous. I wouldn't
Speaker 1: make that clear. I wish I had one. Those are
Speaker 1: great boats. That's a hedge fun boat there. It's like
Speaker 1: you go sideways in it. Yeah, you got signed ways
Speaker 1: on it. It's got little thrust is on the side.
Speaker 1: Seen the Reefa boats like, yeah, that's the proper bout. Yeah,
Speaker 1: that's a beautiful. But we didn't. More of a lake
Speaker 1: kind of guy than I would be on the open waters.
Speaker 1: That's the way, a kind of a big calma. Yeah.
Speaker 1: This was thank you. Henrietta Treys joins us right now,
Speaker 1: Director of Economic Policy Vada partners here on what we
Speaker 1: just heard from the Speaker the House, Henriette, I want
Speaker 1: to talk about the moral overlay, the moral politics of
Speaker 1: O MG, we're in debt, o MG, we have a deficit. Hile.
Speaker 1: Broner and Bernstein wrote brilliantly about this two lifetimes ago.
Speaker 1: What's the moral debate in the Congress? You know so
Speaker 1: well about our debt and about our deficit. It's a
Speaker 1: great question. Um, and you mentioned Heritage before. I kind
Speaker 1: of want to segue into that a little bit. The
Speaker 1: Heritage Foundation, which is a lynchpin of the sort of
Speaker 1: Republican morality component as you're referencing, is actually just embarking
Speaker 1: on a study to figure out exactly how much defense
Speaker 1: spending Republicans can cut right now in order to balance
Speaker 1: the budget. It's this tremendous morality question that's not just
Speaker 1: Democrat versus Republicans, but also Republicans within their own party.
Speaker 1: Are we a party that is trying to reduce domestic
Speaker 1: spending an increase defense spending? Do we want to keep
Speaker 1: the parody? The Heritage Foundation is about to launch into
Speaker 1: a investigation and to see where the Pentagon can cut,
Speaker 1: where the Defense Department can cut um, and that is
Speaker 1: a pretty unique um segue from the Republican Party. We
Speaker 1: haven't seen and as long as I've been alive for sure.
Speaker 1: UM So, I think that there's a lot of soul
Speaker 1: searching from both sides right now, and especially from Republicans
Speaker 1: before they even enter into conversations with Democrats about what
Speaker 1: to do about this. To the memory of Pete Peterson,
Speaker 1: Sangas of Massachusetts and the other sam none I'll even
Speaker 1: put in here that fought about the debt and the deficit.
Speaker 1: Where do, as President Trump would call them Republicans in
Speaker 1: name only stand, where is the moral fiscal politics of
Speaker 1: the middle ground of Republicans and Democrats? Um, I'll answer
Speaker 1: your question in two phases. One, I think there's a
Speaker 1: middle ground that is achievable. That is about three billion
Speaker 1: dollars in fraud, waste and abuse trimming. That's a drop
Speaker 1: in the bucket compared to the debt ceiling which is
Speaker 1: currently thirty one point three eight one trillion dollars and
Speaker 1: needs to get raised to at least three tri you
Speaker 1: gonna get presidential election. So that's your moral like middle
Speaker 1: ground that's achievable. But then you have Republicans that I
Speaker 1: think they would call them rhinos. Certainly members that they
Speaker 1: have tried this before. They want to do things like
Speaker 1: tether the spending cuts to the debt ceiling hike on
Speaker 1: a one to one ratio, so you see the numbers
Speaker 1: are just relayed. You're looking at cutting one trillion at
Speaker 1: a minimum from federal spending without touching Social Security, without
Speaker 1: touching Medicare, without touching defense to get you two hundred
Speaker 1: eighteen votes in the House and sixty and the Senate.
Speaker 1: It's unworkable. Then there's an even uh more impossible theory
Speaker 1: where you try to tether the debt to GDP ratio
Speaker 1: um and if you get or exceed a certain amount,
Speaker 1: you trigger automatic cuts. The current debt to GDP ratio
Speaker 1: is a hundred and twenty four percent. They've never been
Speaker 1: able to identify a ratio that they're comfortable with, and
Speaker 1: they've certainly never been able to identify an automatic trigger
Speaker 1: of what gets cut in the event you exceed that.
Speaker 1: So there really is no middle ground at least. So
Speaker 1: it's so important about what you use heard there on
Speaker 1: which I was shot by. There's a lot of people
Speaker 1: in that room tonight to think we're on the edge
Speaker 1: of France. That's what this is really about. That's uh,
Speaker 1: that's some of the messaging that we may hear after
Speaker 1: the State of the Union. I am curious just to
Speaker 1: pivot a little bit, Henrietta, not only domestic but internationally.
Speaker 1: What you're looking for when it comes to China and
Speaker 1: what President Biden's responses the latest increase intentions. That's a
Speaker 1: great question. There's gonna be no fewer than three hearings
Speaker 1: today on the House and Senate side, starting at ten am,
Speaker 1: along with briefings of the Gang of Eight around the
Speaker 1: sort of spy balloon fiasco over the weekend. I think
Speaker 1: that what we've heard consistently from everyone from you know,
Speaker 1: former ambassador Ambassador tie at Ustr even going so far
Speaker 1: back is when she was chief of staff on the
Speaker 1: trade subcommittees. This is an area where you can actually
Speaker 1: get agreement from Democrats and Republicans. Especially heading into the
Speaker 1: presidential um, we're gonna see Republicans and Democrats race to
Speaker 1: out hawk each other. So one of the things I'm
Speaker 1: focusing on for investors right now is what that means
Speaker 1: for potential additional sanctions, what that means in terms of
Speaker 1: Treasury auditing, the financial services industry in China, what it
Speaker 1: means for potential ban on TikTok. I think all those
Speaker 1: things are on the table and will be um at
Speaker 1: a minimum headline risk for investors and probably very real
Speaker 1: prospects as we head into the next two years. And
Speaker 1: to just quickly here, what does that mean for large
Speaker 1: international companies based in the US who are betting on
Speaker 1: China's rebound to really help use their profits. You've got
Speaker 1: to really be careful about which sector you're looking at,
Speaker 1: because they're gonna be obviously those macroeconomic headwinds that benefit
Speaker 1: them just from the reopening prospect and the sort of fundamentals,
Speaker 1: but you must layer on the risk of federal intervention
Speaker 1: from the United States, either through siffious Treasury, the Pentagon
Speaker 1: um congressional action. Those risks are very real and present.
Speaker 1: I think the second conductor in the battery space would
Speaker 1: tell you that on a very clear recent illustration. And
Speaker 1: you've got to be able to understand that the American
Speaker 1: administration is ready willing and able and thoroughly prepared to
Speaker 1: maintain existing tariffs, ratchet up existing tariff um you know,
Speaker 1: we just saw the two tariffs on Russian aluminum floating yesterday.
Speaker 1: Those are all the kinds of things that we should
Speaker 1: expect for the foreseeable future, and probably at greater um
Speaker 1: instances of frequency going into the presidential I've got thirty
Speaker 1: seconds left, Henrietta, when this president announced he's running for
Speaker 1: when we get that announcement from Biden. This is the
Speaker 1: second time you've asked me that, So let's see if
Speaker 1: I can actually get it right this time. My understanding
Speaker 1: is that it is coming in the next couple of
Speaker 1: weeks at the latest. You know, maybe a month or
Speaker 1: two from now. We're gonna get Nicki Haley announcing next week,
Speaker 1: and then more in May from the Republican side. There
Speaker 1: we go and read a trace next accountle of weeks
Speaker 1: one of the best, also awesome Christine account money Off Investco,
Speaker 1: who I hope is still alongside base case for the
Speaker 1: is they deliver an additional twenty five basis points in March,
Speaker 1: bring FED funds to four seventy five, with the risk
Speaker 1: of a continuing to at a twenty five basis point
Speaker 1: pace for one or two additional meetings. I think that's
Speaker 1: where a lot of the street right now, TK have
Speaker 1: to pay rolls on Friday. Our heads are spinning. Invest
Speaker 1: such a big shop and joining so Christina cat Manage,
Speaker 1: Senior portfolio manager, Global Debt invest I'm gonna assume you're
Speaker 1: not hanging on every word of the chairman today, but
Speaker 1: yet all of our heads, institutional and retail, our heads
Speaker 1: are spinning right now. How do we get controlled back
Speaker 1: of a thought process to the future. I think that's right.
Speaker 1: I mean, obviously, we came off of a massive data
Speaker 1: week last week with the ECB, the FED, the b
Speaker 1: O E, I, S, M h C. I mean, this
Speaker 1: is this massive week, but it seemed that the market
Speaker 1: took away the narrative that it wanted to find rather
Speaker 1: than really listening to what all of these central banks
Speaker 1: speakers gave us. And I think if you look at
Speaker 1: the statements alone from all of these central banks, they
Speaker 1: lean hawkish and that is not the market reaction that
Speaker 1: we got Wednesday Thursday. And you've obviously seen a correction
Speaker 1: the next couple of days. But I think the Fed
Speaker 1: speak in the next couple of days, and Mary Daily
Speaker 1: is kind of echoed it new and Cash Kari this morning,
Speaker 1: I think say the same thing, and I think yesterday, Yeah,
Speaker 1: you're gonna have this back and forth of where nobody
Speaker 1: said we're done right, like we've made progress. I think
Speaker 1: Friday's payroll report is a flying appointment for them, like
Speaker 1: it doesn't give them the green light to just back off.
Speaker 1: So the pushmat might be. On Wednesday, Chairman Pals said
Speaker 1: the disinflationary process has started. He was asked about financial conditions,
Speaker 1: which had eased markedly of the last couple of months,
Speaker 1: and said they haven't changed too much. Was that a mistake?
Speaker 1: What was he trying to tell us? I think on
Speaker 1: when he spoke, the one kind of nod he gave
Speaker 1: was more it seemed to shift to a singular focus
Speaker 1: on inflation versus before it's really been the dual mandate
Speaker 1: of inflation and we need to control the labor market.
Speaker 1: And I still believe that they need to see both.
Speaker 1: But perhaps the inflation coming down, if we actually fulfill
Speaker 1: the market narrative and where we're pricing to get to
Speaker 1: this back to two percent target by June, perhaps that's
Speaker 1: sufficient for them to pause. I think where I have
Speaker 1: trouble with the markets pricing or the markets narrative is
Speaker 1: about this turnaround easing in the second half of the year,
Speaker 1: even with the soft landing, Like if the FED navigates
Speaker 1: a soft landing, there's not a real aggressive case for
Speaker 1: them to ease. That's a good point. So this is
Speaker 1: the pricing for FED funds. Let's talk about market pricing
Speaker 1: and fixed income credits rounded so hard. Lesa's talked about
Speaker 1: what's happened in investment grade further down the quality spectrum
Speaker 1: to high yield as well. Do you move away from
Speaker 1: certain parts of credit now? It's roundy so much? I think, Look,
Speaker 1: I think you do, and I think we've across. I
Speaker 1: think some of the easy, the easier trade of two
Speaker 1: um of a duration trade and directional has has been
Speaker 1: taken off the table in the last two days. We've
Speaker 1: done a lot of work to reprice off of the
Speaker 1: extreme richness in the treasury market. But I don't think
Speaker 1: it's a duration trade as much. From here um so
Speaker 1: spreads are tight. The underlying health of the corporate sector
Speaker 1: remains strong, and global growth, if we take a step back,
Speaker 1: looks a lot better than we thought we would be
Speaker 1: six months ago. Six months ago in the summer, we
Speaker 1: were talking about a massive energy crisis in Europe in
Speaker 1: a very deep recession. European growth has continued to beat
Speaker 1: to impress to the upside, China reopening has come to
Speaker 1: the table sooner than we expected, So I think that
Speaker 1: there's a lot of positive momentum um. But yeah, credit
Speaker 1: is less appealing of the options for us. This is
Speaker 1: fascinating because it actually builds what Darryl Cronk was saying
Speaker 1: as well as Fargo, where he basically said that they
Speaker 1: had really done it amazingly with the duration trade was
Speaker 1: talking about when they got in, but saying perhaps that's
Speaker 1: kind of over for now. He sees a range of
Speaker 1: three point four to three point nine percent on the tenure.
Speaker 1: Do you agree? Would you sell duration here and just
Speaker 1: go into some of the areas that aren't the bar bell,
Speaker 1: which basically you're saying isn't gonna work now? Yeah, I
Speaker 1: think look the price action in the last two days.
Speaker 1: I guess today would be three takes the compelling weird,
Speaker 1: way too rich on the spectrum off the table, But
Speaker 1: I think on the margin, yeah, duration isn't so compelling here.
Speaker 1: I think it's more of a curve trade. Um. I
Speaker 1: appreciate Priya's argument on the curve, and she has been right,
Speaker 1: but I don't think that an inverted curve is sustainable
Speaker 1: in the long run, right, And um, I think that
Speaker 1: that's where the market will push back. But I think
Speaker 1: positioning and all of these markets continues to be a
Speaker 1: very large driving force. And you see it in equities,
Speaker 1: and you see it in for in exchange the last
Speaker 1: couple of days, and you you see it across the board.
Speaker 1: And I think again, the price action on Thursday and
Speaker 1: reversal on Friday speaks to positioning and people capitulating out
Speaker 1: of things. I got an email from Lisbon last night
Speaker 1: and I said, my god, Christina's on talk ben Fica
Speaker 1: John at the World Cup. I don't know nothing, okay,
Speaker 1: and I'm rooting for France and there's this kid on Argentina,
Speaker 1: Enzo Fernandez. Who's would you explain? I mean, we got
Speaker 1: the all time ben Fica fan ever with us from Investco.
Speaker 1: Were you explained why Chelsea paid a hundred million dollars
Speaker 1: get a big buyout, this piece of meat at a
Speaker 1: big buyout, Claus and who is he? Ultimately that means
Speaker 1: if Benfica even want to keep him, even if they
Speaker 1: wanted to keep him, if it's met you meet the
Speaker 1: buya clause, He's gone. So much money. I mean, this
Speaker 1: is a This is not a benfi Lorenzo Fernandez issue.
Speaker 1: This is a Chelsea issue. In the January transfer window
Speaker 1: where they spent something like four hundred million. Why are
Speaker 1: they different Benfica chel in terms of where's the money
Speaker 1: comes exactly? That's going to be an important question. Okay,
Speaker 1: I did okay there, It's going to be an important question. Okay, okay,
Speaker 1: would you like to join us in her soccer in analysis?
Speaker 1: I think she's going to take a pass you don't
Speaker 1: have night, Is that right? You're ready? On top of it?
Speaker 1: Should we send Tom to Should we send a hundred
Speaker 1: million dollars on a player? And I think that was
Speaker 1: Sterling actually Stern pant Sterning. He's that good Hetty Argentine,
Speaker 1: No he's not. He does look any questions Tom Messi
Speaker 1: does play for Argentine and no he's not as good
Speaker 1: as Messy. I just think that transfer transfer valuations for
Speaker 1: some of these plans now has just gone insane, insane,
Speaker 1: and unlike American sports, that's the fee for the club, Tom,
Speaker 1: that's not what the player gets. I didn't say he's
Speaker 1: got to negotiat his sound read separate. Thank you, for
Speaker 1: bringing this up, Christina. Thank you for the stuff on
Speaker 1: the market. Thank you great cow money that I invest God.
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