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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

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Speaker 1: my co host Matt Miller. Every business day we bring

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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast

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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast. All right, let's bring

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Speaker 1: on Katie Nix and chief investment officer for Northern Trust

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Speaker 1: to Wealth Management, joining us on the phone from Ryan,

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Speaker 1: New York. Kat, I love to start with earnings. You know,

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Speaker 1: we've had some good tech earnings. We had some We

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Speaker 1: started off the season with good bank earnings UM away

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Speaker 1: through the SMP five hundred. In terms of reporting, they

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Speaker 1: seem pretty good to me. Are are they enough to

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Speaker 1: support this market and the folks that raise the valuation concern?

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Speaker 1: So far, so good, Paul, I mean, I do think

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Speaker 1: earnings across industries have come in uh stronger than analysts

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Speaker 1: had anticipated um on a relative basis and on an

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Speaker 1: absolute basis, just really strong. You have strong earnings from

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Speaker 1: industrial companies and banks tech as you suggest, So yes,

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Speaker 1: these earnings are good enough to support markets here at

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Speaker 1: even these high valuations um And as we know, and

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Speaker 1: I know you've mentioned this before as well, valuations are

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Speaker 1: a pretty poor market timing tool over a short term period.

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Speaker 1: So even though valuations are a relatively high today, it

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Speaker 1: really doesn't provide a useful inforcation for investors who are

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Speaker 1: trying to guess what they're going to do over the

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Speaker 1: next six or twelve months. Katie. I fully understand that

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Speaker 1: the earning story is looking pretty good, and that kind

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Speaker 1: of feeds into a bullish narrative. But then I think

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Speaker 1: about risks out there, and I can think of many.

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Speaker 1: I can think of policy normalization on the behalf of

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Speaker 1: monetary policy and fiscal policy. You have COVID risks still

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Speaker 1: out there, inflation and never present fear in these markets.

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Speaker 1: Why are earnings enough to offset all of that? Well,

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Speaker 1: the fundamental backdrop is really strong, Kaylee, and I think

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Speaker 1: that's really what investors are buying into right We're buying

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Speaker 1: these robust, resilient company earnings and cash flows. But I

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Speaker 1: do think you raise some really good issues. Probably the

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Speaker 1: biggest risk for investors right now is inflation, um how

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Speaker 1: persistent for how long? And maybe more important than that

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Speaker 1: question is what will the FED do about it? And

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Speaker 1: I think that's where we sort of differ with the

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Speaker 1: market narrative UM on on that score, because our view

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Speaker 1: is inflation is going to be transitory for longer. I know,

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Speaker 1: that's sort of become the phrase djure um. We do

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Speaker 1: think we're going to have you know, higher than than

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Speaker 1: than UM target inflation probably for the next six months

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Speaker 1: or so UM. But but after that point, we think

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Speaker 1: we're going to normalize. I mean, at a certain point

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Speaker 1: the supply chain disruptions are going to ease, and at

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Speaker 1: the same time demand is also going to be easy.

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Speaker 1: As we get into two. You referenced sort of the

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Speaker 1: fiscal issue. Um. Not that there's necessarily a household fiscal

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Speaker 1: cliff coming, but we certainly see on a relative basis,

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Speaker 1: you know, far less fiscal stimulus in the system in

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Speaker 1: two relative demanding just as a line is really coming

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Speaker 1: on stream, and I think that will ease the inflationary concerns.

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Speaker 1: And in the meantime, we don't think the FED is

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Speaker 1: going to react. See that the market is pricing in

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Speaker 1: a couple of FED hikes in two, and we think

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Speaker 1: that's really overdoing it. Alright, So the FED is doing

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Speaker 1: its job, Katie, how about our friends in Congress? How

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Speaker 1: concerned are you are? How concerns tould the market be

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Speaker 1: with you know, the various pieces of legislation winding the

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Speaker 1: way through Congress. Is it simple enough to say, at

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Speaker 1: the end of the day, they'll get something done. I

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Speaker 1: think they will get something done, Paul. We're looking at

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Speaker 1: you know, one point five to one point seven five trillion,

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Speaker 1: which is significant. UM. So we do think that they'll

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Speaker 1: get something done. And you know, the pay for is now.

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Speaker 1: The good news for investors is it doesn't seem as

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Speaker 1: if we're going to get a wholesale increase in the

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Speaker 1: in the corporate tax rate um from one to twenty

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Speaker 1: five or even we might have this fift minimum tax,

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Speaker 1: which seems very manageable. UM. It's something that would obviously

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Speaker 1: hit the tech sector harder than most um. But it

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Speaker 1: does seem like it's a it's a more manageable uh hit.

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Speaker 1: If you will for for corporate earnings to take then

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Speaker 1: it would this wholesale increase in the corporate tax rate.

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Speaker 1: So yeah, we'll get something. UM. I think the market

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Speaker 1: will probably have no real reaction to it because the

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Speaker 1: pay fors are are so far diluted from what we

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Speaker 1: had feared actually coming into this. So it's that kind

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Speaker 1: of policy backdrop, Katie. And given the earning story, is

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Speaker 1: the US still where you want to be putting your money?

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Speaker 1: Are you looking toward other regions? So we have been

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Speaker 1: looking um inside the US Europe in particular, Katy, because

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Speaker 1: we do think the valuation story is a little bit

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Speaker 1: stronger there and that's where you really get the bank

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Speaker 1: for the buck in terms of the global economic rebound.

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Speaker 1: And what we see is we're sort of seeing another

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Speaker 1: another second wind for the for the global economy, now

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Speaker 1: that the delta wave has has really been suppressed across

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Speaker 1: much of the world. We're seeing another sort of mini

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Speaker 1: reopening trade and that really favors UM areas of the

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Speaker 1: world like Europe that are exporters that really have that

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Speaker 1: leverage UM and have more cyclical exposure in their benchmark.

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Speaker 1: So we like Europe, but of course we we do

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Speaker 1: like the US. I mean, the earning story here is

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Speaker 1: super strong. Uh. The incredible resilience that we see across

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Speaker 1: companies UM we think is going to continue into two

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Speaker 1: and we think we're gonna have a pretty good year

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Speaker 1: for earnings next year. As well here in the US, Katie,

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Speaker 1: I'm looking at w T I crewded Northern any dollars

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Speaker 1: to share any dollars in barrel. Did I miss the

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Speaker 1: energy trade here? Well, I mean there's going to be

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Speaker 1: support here for higher energy prices for sure, as we

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Speaker 1: see demand continuing to be pretty robust, and we are

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Speaker 1: all very well aware of some of the supply constraints.

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Speaker 1: So we think energy and energy stocks in particular can

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Speaker 1: stay pretty strong here into this uh into this second

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Speaker 1: wind economic rebound um. But I think from an investor perspective,

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Speaker 1: it's also important to note that you know, we're far

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Speaker 1: less energy intensive than we have been in the past,

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Speaker 1: So those who fear that sort of energy inflation will

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Speaker 1: undermine the global economic recovery, I think are missing that

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Speaker 1: really important component. Katie, thank you so much for joining us.

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Speaker 1: We really appreciate your thoughts, your perspective on these markets

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Speaker 1: as we make a way through the busy part of

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Speaker 1: third quarter earning season. Katie Nixon, chief investment officer in

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Speaker 1: Northern Trust Wealth Management, joining us on the phone from

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Speaker 1: Ryan in New York. Katie, this morning on Bloomber Experience,

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Speaker 1: we had Doug cass On Seabreeze Partners, and he's been

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Speaker 1: notably barish, and he came out with a note today

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Speaker 1: saying I've been wrong. My good friend Tom Lee has

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Speaker 1: been right to be bullish. But here's my wall of

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Speaker 1: worry and it's kind of all the things kind of

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Speaker 1: we we know about, and he says, at some point

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Speaker 1: that's gonna get this market. Let's check in with another

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Speaker 1: voice here, Ross Mayfield, Investment Strategy analyst at bat Ross.

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Speaker 1: Where do you come down on that? I mean, that

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Speaker 1: wall of worry issues and we're all aware to whether

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Speaker 1: it's inflation or stagflation, whether it's supply chain woes and

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Speaker 1: so on. There's a lot of stuff out there for

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Speaker 1: this market to be concerned about, yet we grind higher.

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Speaker 1: How do you view the market? I care? Yeah, well,

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Speaker 1: I think first and foremost, you know, a wall of

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Speaker 1: worry and investor sentiment being you know, actually quite negative

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Speaker 1: despite the all time eyes is a is a positive

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Speaker 1: from a contrarian perspective. I mean it was earlier in

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Speaker 1: the year where um, you know, enthusiasm and euphoria and

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Speaker 1: everybody's you know, retail creating, and that is that is

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Speaker 1: pulled back so um with investor sentiment fairly negative and

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Speaker 1: consumer sentiment kind of middling. We gotta beat the other day,

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Speaker 1: but it's it's still down. Um. We we think from

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Speaker 1: a contraying perspective, that's good for the market, uh, the

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Speaker 1: near term performance. And then more broadly, I mean we

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Speaker 1: we remained bullish. I think there is a cocktail of

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Speaker 1: of risks and and you know, headline risks, headwinds that

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Speaker 1: that you can count towards. But you know, the couple

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Speaker 1: of legs that the market stands on as far as

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Speaker 1: the bull case in corporate earnings, which you're seeing, you know,

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Speaker 1: tremendous resilience and strength. They're a very strong consumer picture.

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Speaker 1: And then still accommodative policy. I mean it's coming, you know,

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Speaker 1: it's it's definitely less accomminative than it was, but still

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Speaker 1: you know versus history, still still quite easy policy. Uy.

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Speaker 1: So there's a lot to like about the market as well.

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Speaker 1: On the subject of easy policy, though, Bank of Canada

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Speaker 1: one example today outlining the path for quicker tightening than

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Speaker 1: expected in the face of inflation. We see the BOE

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Speaker 1: moving in that direction as well. The Fed is trying

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Speaker 1: its best to be patient, but can you foresee a

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Speaker 1: scenario where it gets so uncomfortable with inflation it's forced

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Speaker 1: to make a mistake. I can't see that scenario. If

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Speaker 1: I were talking about the risk that I were worried about,

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Speaker 1: that would be you know, near to top of the

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Speaker 1: of the page. Um. I'm not worried about papering. I think,

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Speaker 1: you know, that's a policy meant for kind of extraordinary circumstances,

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Speaker 1: and we're certainly through that. So I think papering makes

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Speaker 1: a lot of sense. Now. I think that the speed

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Speaker 1: and paste, you know, it's kind of irrelevant at this point,

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Speaker 1: since they've done such a good job telegraphing it to

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Speaker 1: the market. But I am a little concerned that they

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Speaker 1: will start to get itchy on their new inflation policy. Um,

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Speaker 1: and Titan tightens too aggressively, pulled forward a rate hike

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Speaker 1: or two in it's not a problem immediately, um, I mean,

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Speaker 1: the first few ray hikes are never usually you know, big,

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Speaker 1: big scary items for the market. But it pulls forward

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Speaker 1: the whole timeline and eventually, you know, the Fed has

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Speaker 1: kind of a history of tightening us into you know,

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Speaker 1: either a market panic or recession or at least economic weakness.

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Speaker 1: So I can't see that scenario. I hope that inflation

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Speaker 1: of bates to the point where they're a little more

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Speaker 1: comfortable riding it out. And they have done a good

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Speaker 1: job of trying to separate papering and tightening in the

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Speaker 1: mind of investors. But it's a concern. Russ UM. A

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Speaker 1: lot of folks, uh thinking about how they want to

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Speaker 1: play this market, how they want to be in this market,

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Speaker 1: how where they want to be overweight this market. A

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Speaker 1: couple of camps out there, one being I guess, you know,

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Speaker 1: I'm sticking with the tried and true great growth stories.

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Speaker 1: We saw some pretty good tech earnings this past week.

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Speaker 1: Others just say no, that cyclical trade, um, the reopening trade.

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Speaker 1: Maybe banks on the steepening yield curve, maybe some energy here.

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Speaker 1: How do you think about that? Yeah, I mean if

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Speaker 1: it forced into one camp the near term, you know,

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Speaker 1: we remain pretty positive on the cyclical trade. So we'd

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Speaker 1: liked financials for a while now. I do think the

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Speaker 1: earnings are quite supportive. A lot of different factors of

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Speaker 1: the businesses that big banks are doing really well, you know,

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Speaker 1: you know, making M and a um, wealth management, you know,

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Speaker 1: just your classic bank activity with keeping yield care about you. Note. Um,

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Speaker 1: With that said, I think there's plenty room the portfolio

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Speaker 1: for longer term secular growth stories as well. I mean really,

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Speaker 1: at this point, um, you know, the only place that

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Speaker 1: I wouldn't want to be is getting hyper defensive. I mean,

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Speaker 1: you know, I kind of outlined our goal case at

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Speaker 1: the beginning, but things like staples, um, which which not

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Speaker 1: only are they you know, rate sensitive and defensive and

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Speaker 1: uh an early cycle market. But well we'll first challenges

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Speaker 1: with input costs and rising wages. UM, things like utilities,

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Speaker 1: which are which are hyper rate sensitive as well, so

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Speaker 1: we we expect rates to continue to move higher a

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Speaker 1: little bit from here. But I think there's room for

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Speaker 1: both of those trades in the portfolio, you know, force

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Speaker 1: to choose one. We like cyclicals. Ross. Before we let

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Speaker 1: you go, I just want to get your thoughts on inflation,

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Speaker 1: because you can pick your prefects. Deflation, stagflation, hyper inflation.

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Speaker 1: Do any of them sound right in this environment? Or

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Speaker 1: any of them an accurate description? I think just good old,

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Speaker 1: tried and true inflation is probably good. I mean, hyper

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Speaker 1: enough strikes ascessilly, Um, that that's that happens when collapse. Um,

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Speaker 1: that's not something we're experiencing here. Deflation and disinflation are

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Speaker 1: I think, longer term still possibilities. There are a lot

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Speaker 1: of structural forces out there that um have caused those

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Speaker 1: phenomenons in the last couple of decades, UM. But for

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Speaker 1: now this is just some some some pretty classic inflation.

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Speaker 1: Too much money chasing too few goods, and the economy

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Speaker 1: and companies are working on it. So um. You know,

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Speaker 1: it's kind of a weird environment, but I think it's

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Speaker 1: the inflation will eventually a bit maybe settle in a

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Speaker 1: little higher than the last decade. But think about Ross,

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Speaker 1: thanks so much for joining us, really for ship you're

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Speaker 1: taking the time there, Ross Mayfield, investment strategist for Bared.

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Speaker 1: Looking at this market here again, you know, kind of mixed.

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Speaker 1: I got the SMP essentially unchanged a little about two

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Speaker 1: tenths lower on the DAB, but we've got a little

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Speaker 1: bit of strength on NASTAC, most likely reflecting some of

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Speaker 1: the good numbers we saw from some of the big

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Speaker 1: tech names over the past a couple of days. And

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Speaker 1: getting Microsoft numbers really really jumped out at me. Some

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Speaker 1: some really strong top line margin, imperiment, free cash flow,

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Speaker 1: the cloud really the story there at Microsoft. Well, as

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Speaker 1: we get our way through this third quarter earning season,

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Speaker 1: generally the numbers are coming in quite quite good. The

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Speaker 1: question is is it enough to satisfy those folks in

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Speaker 1: the marketplace that do have concerns about evaluations in this marketplace.

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Speaker 1: Let's check into with a professional on that topic. Another

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Speaker 1: Sylvia Jablonski, chief investment officer for Defiance et S. So, Sylvia, again,

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Speaker 1: some earnings have been coming through this week Big Tech,

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Speaker 1: some pretty good numbers. How are you view in this

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Speaker 1: third earnings period and is it enough for you to

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Speaker 1: support of the valuations we're seeing out there in the market. High,

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Speaker 1: Good morning. Well, I think that what the market is

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Speaker 1: doing is somewhat what I expected. You know, we had

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Speaker 1: a whole year worth of conversations around fear of inflation

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Speaker 1: and you know, sort of fear of COVID coming back

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Speaker 1: into the market and impacting stocks and um, you know,

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Speaker 1: sort of fear of recession and pull back. But what

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Speaker 1: we've actually seen is that, you know, a lot of

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Speaker 1: companies are proving that they really are quality companies and

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Speaker 1: they're exceeding not only meeting, but exceeding earnings expectations. So

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Speaker 1: we haven't had a whole lot of names report just yet,

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Speaker 1: but we still have a number which is pretty high,

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Speaker 1: eighty five percent of them or beating expectations. So even

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Speaker 1: you have, even though you have these supply chain issues, UM,

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Speaker 1: a lot of these companies are sort of proving that

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Speaker 1: they can pass that costs onto the consumer. And you know,

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Speaker 1: in terms of valuations, I think that again it's it's

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Speaker 1: the earning story, right. Earnings have delivered and they've exceeded

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Speaker 1: at expectations. Were also in a seasonally strong period now,

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Speaker 1: so we're past that September of folatility number. Um, there's

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Speaker 1: loads of liquidity in the market, over two trillion dollars.

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Speaker 1: You know, half of essentially half of GDP is sitting

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Speaker 1: in is liquidity right now. Um. Race may rise in

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Speaker 1: the long term, but I think that will be because

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Speaker 1: we're going to see better growth and the economic recovery

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Speaker 1: and the biggest part of the economy, to consumer is

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Speaker 1: doing quite well. So UM. You know, we keep talking

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Speaker 1: about the high demands right now and the supply issues,

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Speaker 1: but I just think that these companies that are reporting now,

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Speaker 1: especially the sort of the large cup companies that make

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Speaker 1: up the top percentage of the SEC five hundred are

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Speaker 1: going to continue to outperform and and we'll see positive

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Speaker 1: margins coming in. Well, let's talk about those companies, Sylvia. Obviously,

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Speaker 1: growth was not the name of the game coming into

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Speaker 1: the year, and yet it has outperformed value more often

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Speaker 1: than I think many people expect. It seems that we've

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Speaker 1: kind of gotten out of that conversation on value versus growth,

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Speaker 1: cyclicals versus defensives. How do you kind to think about

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Speaker 1: the baskets in which we put equities and which ones

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Speaker 1: you think will outperform? Yeah, great question, And I think

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Speaker 1: it's interesting because I'm just not a big I don't

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Speaker 1: trade that way. Um. So, so what I look at

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Speaker 1: actually is is quality companies. You know companies. Look for

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Speaker 1: quality companies that have strong balance sheets, that have you know,

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Speaker 1: future earning potential that you know will not be impacted

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Speaker 1: um with some of the inflation reads or will not

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Speaker 1: be impacted with you know, sort of the modest growth

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Speaker 1: in rates that we expect to come over time. And

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Speaker 1: the companies are the ones, some of the ones that

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Speaker 1: have reported last night. Um, you know Microsoft and Alpha

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Speaker 1: that are two great examples. I mean, these are cash

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Speaker 1: heavy companies. They're doing things like UM increasing the amount

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Speaker 1: of buy back, they're increasing the amount of dividence that

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Speaker 1: they pay out there, they have sort of loads of cash,

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Speaker 1: and they're also just thinking about a different type of future,

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Speaker 1: so they're investing in you know, disruptive technologies like the cloud,

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Speaker 1: like AI, you know, virtual reality, the augmented reality UM. So,

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Speaker 1: so I think that they're well positioned to do well

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Speaker 1: for the next decade or so. And then you know,

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Speaker 1: on the other side of it, well, you know, banks

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Speaker 1: will benefit if interest rates UM go up, and they

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Speaker 1: sort of have weathered COVID well and and have proven

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Speaker 1: that they're sort of you know, stable and and and

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Speaker 1: cash heavy too. So UM diversified portpoleio makes sense right now.

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Speaker 1: But I still really like those growth names, and I've

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Speaker 1: been actually pretty excited about UM the pull backs on

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Speaker 1: on on the names earlier in the year, as you mentioned,

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Speaker 1: when they weren't outperforming value ship gears a little bit.

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Speaker 1: So yeah, I want to take advantage of your expertise

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Speaker 1: and E T S and crypto because we have crypto

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Speaker 1: E T F B I T O can just give

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Speaker 1: us your thoughts here we have bitcoin trading off of

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Speaker 1: some recent highs here today off about five percent pretty sharply.

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Speaker 1: Just give us your overview today crypto, the e t

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Speaker 1: F of crypto, give us your thoughts. We'd appreciate that. Sure. So, UM,

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Speaker 1: first of all, I get excited when I see pullbox

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Speaker 1: in crypto because the camp of it's going to do

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Speaker 1: longer thousand and that's going to happen sooner than later.

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Speaker 1: UM steel the same way about ETHEREUM. I think in

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Speaker 1: the next year or two we're there. I don't think

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Speaker 1: it's a five year trade. Yeah. And I think, you know,

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Speaker 1: they're sort of various reasons for that. You have countries

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Speaker 1: like Al Salvador adopting it. You have you know, companies

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Speaker 1: sort of using it now as a currency to buy

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Speaker 1: and sell. Um. Crypto is going to be part of

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Speaker 1: this massive movement in n f T S which is

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Speaker 1: just sort of take slowly taking over the universe. We

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Speaker 1: don't talk about it enough, but UM, you're gonna have crypto,

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Speaker 1: which is which is right now the only way to

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Speaker 1: pay for for n f T S or one are

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Speaker 1: the main ways to pay for n f T s. UM,

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Speaker 1: and I think that you have UM, you know, you

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Speaker 1: have the ability to now trade them or or or

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Speaker 1: get exposure to them through an e t F to

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Speaker 1: a mutual fund through a trust. So um, you know,

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Speaker 1: marketmakers are going up to buy more to hedge that exposure.

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Speaker 1: Uh So I'm very bullish on crypto, particularly you know,

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Speaker 1: bitcoin and thee UM n F t S. But to

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Speaker 1: answer your shin a little more directly about the e

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Speaker 1: t F UM, you know, I think it's great. I

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Speaker 1: think it's great for particularly for advisors that don't have

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Speaker 1: a vehicle UM where you know, by which they can

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Speaker 1: get exposure to bitcoin. Um. You know, if you ask

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Speaker 1: me like, what is the best way to invest in crypto,

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Speaker 1: I think it's to to get exposure to the actual

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Speaker 1: physical asset. I think it's it's worth just buying it

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Speaker 1: and storing in a digital wallet. But not everyone is

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Speaker 1: sort of savvy enough to do that, or or perhaps

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Speaker 1: uncomfortable with with doing that UM or perhaps just unable

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Speaker 1: to do that based on firm restrictions and things like that.

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Speaker 1: So I just think it's awesome to have these different

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Speaker 1: options to get access to bitcoins, physical trust and now

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Speaker 1: e t S. It's it's great for great story for investors. Sovia,

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Speaker 1: thank you so much for joining us. We really appreciate it.

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Speaker 1: Sovia Trablanski, chief investment officer for Defiance et s. One

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Speaker 1: of the problems of getting bitcoiners if you get the code,

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Speaker 1: you can for you and that is a problem for

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Speaker 1: some people. We'll have more coming up. This is Bloomberg. Wait.

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Speaker 1: When I was at Research Channelist, I would darken the

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Speaker 1: door of tc W a couple of times a year

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Speaker 1: when I was out in l A to check in

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Speaker 1: with my UH analyst kind part out there and talk

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Speaker 1: about some ideas. That was equities. Equities are much more

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Speaker 1: fun than fixed income. But we'll check in with Lard

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Speaker 1: Landman today. He's co director of Fixing Come for t

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Speaker 1: c W based in l A. Uh Lard Fixing Come

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Speaker 1: is a tough place to make a buck these days.

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Speaker 1: I'm looking at the ten year at you know, one

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Speaker 1: point five seven. What are you guys doing? Yeah, it

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Speaker 1: is it is not the exciting place that has been Um.

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Speaker 1: It is a bastion of stability. You know, we see

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Speaker 1: problems in the the property sectors, controversy about fiscal stimulus,

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Speaker 1: and you look at spreads and you know it was

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Speaker 1: eight over at the end of June for investment gradity

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Speaker 1: over now, um, you maybe get a basis point or

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Speaker 1: two of widening hero there, but it has been uh,

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Speaker 1: incredibly over liquefied, we would say, Um, but we have

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Speaker 1: seen you know, obviously the market is moving ahead of

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Speaker 1: the fed. Here. We've tightened since the beginning of the

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Speaker 1: year a good sixty five basis points just through the

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Speaker 1: market and the belly of the curve, you know, more

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Speaker 1: like eighty. So markets are beginning to price rice action in. Well,

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Speaker 1: let's talk about the yield curve, because we're sub eighty

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Speaker 1: basis points on the five thirties curve. I mean, that's

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Speaker 1: the flattest going back since April. Can that flattening persist

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Speaker 1: or is the market starting to overdo it a little bit?

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Speaker 1: Probably in the interim it's slightly overdone, I would say,

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Speaker 1: but obviously depending on what happens on the fiscal side,

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Speaker 1: which is really the interesting story in our opinion. Um,

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Speaker 1: there's still a lot of money to be spent that

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Speaker 1: was authorized last year, how it's spent and when it's spent.

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Speaker 1: You know, the states and the cities that got money

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Speaker 1: have spent very little of that. If you put more

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Speaker 1: fiscal stimulus on top of that, I mean, I don't

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Speaker 1: don't think there's any doubt that. You know, Carl Smith's

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Speaker 1: piece this morning on Bloomberg was right on about the

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Speaker 1: fact that this pushing inflation that you see in the US,

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Speaker 1: it's greater than other countries, is not just a supply story.

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Speaker 1: It's not just you know, the ports are involved. Obviously

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Speaker 1: there are supply chain issues, but a lot of it's

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Speaker 1: excess demand that has been placed in our economy versus others.

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Speaker 1: You look at our curve versus the euro curve, it's

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Speaker 1: a really very different story. Our curve looks like it's

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Speaker 1: supposed to be flat around you know, to a little bit,

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Speaker 1: a little bit above two percent. Uh. The euro curve

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Speaker 1: looks like it's gonna flatten according to the markets, you know,

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Speaker 1: around fifty basis points in the next five years. So um,

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Speaker 1: there is a lot priced in. I do think that

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Speaker 1: if there is more fiscal stimulus, you do see the

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Speaker 1: FED eventually try to move here um, and as they move,

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Speaker 1: the curve could again overestimate the ability of the FED

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Speaker 1: to titan. We don't think it's that great, we don't

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Speaker 1: think it's that big a threat, but it's one of

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Speaker 1: your high yield portfolio managers, and I walk into your

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Speaker 1: office and I say I want to push the envelope

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Speaker 1: on yield and return. How how far will you let

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Speaker 1: me go in terms of you know, ratings and things

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Speaker 1: like that. Well, I think the thing about TCW's approaches

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Speaker 1: that we've always believed that you have to have sort

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Speaker 1: of a macro risk management overway. And I think our

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Speaker 1: macro risk management approach looks at where things are now,

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Speaker 1: and again, the stock markets could run a lot more

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Speaker 1: stocks you know, can go to the moon. As you know,

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Speaker 1: if you look if you take your Bloomberg out and

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Speaker 1: you do your your chart of high yield spreads, what

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00:22:34,760 --> 00:22:37,280
Speaker 1: you'll see is they mean revert and that two D

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00:22:37,400 --> 00:22:40,280
Speaker 1: and eight over is pretty close where it is today,

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Speaker 1: uh to where where it stops getting any tighter. So

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Speaker 1: I let you push it in terms of maybe adding

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Speaker 1: yield to the portfolio, but not spread duration. I don't

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Speaker 1: want to get in a situation where it spreads widen

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Speaker 1: a hundred or two hundred basis points. I'm looking at

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Speaker 1: eight or ten percent losses on that portfolio. That's what

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Speaker 1: we have to protect the client against, and that's sort

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Speaker 1: of the job of the macro call at TCW. Well,

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Speaker 1: but to your point, I mean some three basis points.

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Speaker 1: Those are remarkably tight spreads. Do you think the appetite

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Speaker 1: for credit risk can continue in this really cheap borrowing

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Speaker 1: costs for even kind of junkraded companies, they're going to

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Speaker 1: be able to continue to borrow easily and cheaply. Well,

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00:23:23,760 --> 00:23:27,040
Speaker 1: I think that. I don't think it lass indefinitely. Um,

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Speaker 1: it could when you look at sort of the amount

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Speaker 1: of demand that's been stimulated in the US and how

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Speaker 1: liquid the markets are and how much liquidity the FETE

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Speaker 1: is put in until they begin to withdraw that liquidity,

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Speaker 1: which of course could be as soon as you know,

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Speaker 1: next month, um, when they probably announced the taper. Until

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Speaker 1: that's withdrawn, it's hard to know. Um, But certainly this

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Speaker 1: could persist for a while. And I think what you

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Speaker 1: have to do as a manager in high yield or

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Speaker 1: in any space, we have to make sure that we're

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Speaker 1: capturing some yield in the portfolio without going you to

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Speaker 1: the zombie companies that today look healthy because basically there's

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Speaker 1: such huge demand pull. But in a recession, basically these

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Speaker 1: are companies that can't make it and they don't have assets.

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Speaker 1: And so as the more we overstimulate, the more UH

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Speaker 1: inventory of companies like that builds up and in the

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Speaker 1: high old market and then you run into problems and

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Speaker 1: so we really have to watch that. Hey, Lard, thanks

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Speaker 1: so much for joining us. Really appreciate it, Lard Landman,

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Speaker 1: he's co director of Fixing come for TCW. They have

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Speaker 1: two sixty five billion dollars in assets on the management

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Speaker 1: based in l A. And again, Kelly, when you went

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Speaker 1: out there as an analyst, you had to get a

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Speaker 1: tc W meeting, and you had to get a meeting

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Speaker 1: a capital group. Those are the big dogs and then

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Speaker 1: you can build everything else around it. But it's amazing, Uh,

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Speaker 1: you know, the you know tc W and the fixing

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Speaker 1: comes Oude really for a couple of years now been

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Speaker 1: very cautious, uh in their view of the marketplace. Thanks

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00:24:53,040 --> 00:24:56,480
Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe

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00:24:56,520 --> 00:24:59,920
Speaker 1: and listen to interviews with Apple Podcasts or whatever pod

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00:25:00,040 --> 00:25:03,399
Speaker 1: cast platform you prefer. I'm Matt Miller. I'm on Twitter

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00:25:03,680 --> 00:25:07,159
Speaker 1: at Matt Miller three. Put on fall Sweeney I'm on

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00:25:07,200 --> 00:25:10,119
Speaker 1: Twitter at pt Sweeney. Before the podcast, you can always

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Speaker 1: catch us worldwide at Bloomberg Radio