Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. All right, let's bring
Speaker 1: on Katie Nix and chief investment officer for Northern Trust
Speaker 1: to Wealth Management, joining us on the phone from Ryan,
Speaker 1: New York. Kat, I love to start with earnings. You know,
Speaker 1: we've had some good tech earnings. We had some We
Speaker 1: started off the season with good bank earnings UM away
Speaker 1: through the SMP five hundred. In terms of reporting, they
Speaker 1: seem pretty good to me. Are are they enough to
Speaker 1: support this market and the folks that raise the valuation concern?
Speaker 1: So far, so good, Paul, I mean, I do think
Speaker 1: earnings across industries have come in uh stronger than analysts
Speaker 1: had anticipated um on a relative basis and on an
Speaker 1: absolute basis, just really strong. You have strong earnings from
Speaker 1: industrial companies and banks tech as you suggest, So yes,
Speaker 1: these earnings are good enough to support markets here at
Speaker 1: even these high valuations um And as we know, and
Speaker 1: I know you've mentioned this before as well, valuations are
Speaker 1: a pretty poor market timing tool over a short term period.
Speaker 1: So even though valuations are a relatively high today, it
Speaker 1: really doesn't provide a useful inforcation for investors who are
Speaker 1: trying to guess what they're going to do over the
Speaker 1: next six or twelve months. Katie. I fully understand that
Speaker 1: the earning story is looking pretty good, and that kind
Speaker 1: of feeds into a bullish narrative. But then I think
Speaker 1: about risks out there, and I can think of many.
Speaker 1: I can think of policy normalization on the behalf of
Speaker 1: monetary policy and fiscal policy. You have COVID risks still
Speaker 1: out there, inflation and never present fear in these markets.
Speaker 1: Why are earnings enough to offset all of that? Well,
Speaker 1: the fundamental backdrop is really strong, Kaylee, and I think
Speaker 1: that's really what investors are buying into right We're buying
Speaker 1: these robust, resilient company earnings and cash flows. But I
Speaker 1: do think you raise some really good issues. Probably the
Speaker 1: biggest risk for investors right now is inflation, um how
Speaker 1: persistent for how long? And maybe more important than that
Speaker 1: question is what will the FED do about it? And
Speaker 1: I think that's where we sort of differ with the
Speaker 1: market narrative UM on on that score, because our view
Speaker 1: is inflation is going to be transitory for longer. I know,
Speaker 1: that's sort of become the phrase djure um. We do
Speaker 1: think we're going to have you know, higher than than
Speaker 1: than UM target inflation probably for the next six months
Speaker 1: or so UM. But but after that point, we think
Speaker 1: we're going to normalize. I mean, at a certain point
Speaker 1: the supply chain disruptions are going to ease, and at
Speaker 1: the same time demand is also going to be easy.
Speaker 1: As we get into two. You referenced sort of the
Speaker 1: fiscal issue. Um. Not that there's necessarily a household fiscal
Speaker 1: cliff coming, but we certainly see on a relative basis,
Speaker 1: you know, far less fiscal stimulus in the system in
Speaker 1: two relative demanding just as a line is really coming
Speaker 1: on stream, and I think that will ease the inflationary concerns.
Speaker 1: And in the meantime, we don't think the FED is
Speaker 1: going to react. See that the market is pricing in
Speaker 1: a couple of FED hikes in two, and we think
Speaker 1: that's really overdoing it. Alright, So the FED is doing
Speaker 1: its job, Katie, how about our friends in Congress? How
Speaker 1: concerned are you are? How concerns tould the market be
Speaker 1: with you know, the various pieces of legislation winding the
Speaker 1: way through Congress. Is it simple enough to say, at
Speaker 1: the end of the day, they'll get something done. I
Speaker 1: think they will get something done, Paul. We're looking at
Speaker 1: you know, one point five to one point seven five trillion,
Speaker 1: which is significant. UM. So we do think that they'll
Speaker 1: get something done. And you know, the pay for is now.
Speaker 1: The good news for investors is it doesn't seem as
Speaker 1: if we're going to get a wholesale increase in the
Speaker 1: in the corporate tax rate um from one to twenty
Speaker 1: five or even we might have this fift minimum tax,
Speaker 1: which seems very manageable. UM. It's something that would obviously
Speaker 1: hit the tech sector harder than most um. But it
Speaker 1: does seem like it's a it's a more manageable uh hit.
Speaker 1: If you will for for corporate earnings to take then
Speaker 1: it would this wholesale increase in the corporate tax rate.
Speaker 1: So yeah, we'll get something. UM. I think the market
Speaker 1: will probably have no real reaction to it because the
Speaker 1: pay fors are are so far diluted from what we
Speaker 1: had feared actually coming into this. So it's that kind
Speaker 1: of policy backdrop, Katie. And given the earning story, is
Speaker 1: the US still where you want to be putting your money?
Speaker 1: Are you looking toward other regions? So we have been
Speaker 1: looking um inside the US Europe in particular, Katy, because
Speaker 1: we do think the valuation story is a little bit
Speaker 1: stronger there and that's where you really get the bank
Speaker 1: for the buck in terms of the global economic rebound.
Speaker 1: And what we see is we're sort of seeing another
Speaker 1: another second wind for the for the global economy, now
Speaker 1: that the delta wave has has really been suppressed across
Speaker 1: much of the world. We're seeing another sort of mini
Speaker 1: reopening trade and that really favors UM areas of the
Speaker 1: world like Europe that are exporters that really have that
Speaker 1: leverage UM and have more cyclical exposure in their benchmark.
Speaker 1: So we like Europe, but of course we we do
Speaker 1: like the US. I mean, the earning story here is
Speaker 1: super strong. Uh. The incredible resilience that we see across
Speaker 1: companies UM we think is going to continue into two
Speaker 1: and we think we're gonna have a pretty good year
Speaker 1: for earnings next year. As well here in the US, Katie,
Speaker 1: I'm looking at w T I crewded Northern any dollars
Speaker 1: to share any dollars in barrel. Did I miss the
Speaker 1: energy trade here? Well, I mean there's going to be
Speaker 1: support here for higher energy prices for sure, as we
Speaker 1: see demand continuing to be pretty robust, and we are
Speaker 1: all very well aware of some of the supply constraints.
Speaker 1: So we think energy and energy stocks in particular can
Speaker 1: stay pretty strong here into this uh into this second
Speaker 1: wind economic rebound um. But I think from an investor perspective,
Speaker 1: it's also important to note that you know, we're far
Speaker 1: less energy intensive than we have been in the past,
Speaker 1: So those who fear that sort of energy inflation will
Speaker 1: undermine the global economic recovery, I think are missing that
Speaker 1: really important component. Katie, thank you so much for joining us.
Speaker 1: We really appreciate your thoughts, your perspective on these markets
Speaker 1: as we make a way through the busy part of
Speaker 1: third quarter earning season. Katie Nixon, chief investment officer in
Speaker 1: Northern Trust Wealth Management, joining us on the phone from
Speaker 1: Ryan in New York. Katie, this morning on Bloomber Experience,
Speaker 1: we had Doug cass On Seabreeze Partners, and he's been
Speaker 1: notably barish, and he came out with a note today
Speaker 1: saying I've been wrong. My good friend Tom Lee has
Speaker 1: been right to be bullish. But here's my wall of
Speaker 1: worry and it's kind of all the things kind of
Speaker 1: we we know about, and he says, at some point
Speaker 1: that's gonna get this market. Let's check in with another
Speaker 1: voice here, Ross Mayfield, Investment Strategy analyst at bat Ross.
Speaker 1: Where do you come down on that? I mean, that
Speaker 1: wall of worry issues and we're all aware to whether
Speaker 1: it's inflation or stagflation, whether it's supply chain woes and
Speaker 1: so on. There's a lot of stuff out there for
Speaker 1: this market to be concerned about, yet we grind higher.
Speaker 1: How do you view the market? I care? Yeah, well,
Speaker 1: I think first and foremost, you know, a wall of
Speaker 1: worry and investor sentiment being you know, actually quite negative
Speaker 1: despite the all time eyes is a is a positive
Speaker 1: from a contrarian perspective. I mean it was earlier in
Speaker 1: the year where um, you know, enthusiasm and euphoria and
Speaker 1: everybody's you know, retail creating, and that is that is
Speaker 1: pulled back so um with investor sentiment fairly negative and
Speaker 1: consumer sentiment kind of middling. We gotta beat the other day,
Speaker 1: but it's it's still down. Um. We we think from
Speaker 1: a contraying perspective, that's good for the market, uh, the
Speaker 1: near term performance. And then more broadly, I mean we
Speaker 1: we remained bullish. I think there is a cocktail of
Speaker 1: of risks and and you know, headline risks, headwinds that
Speaker 1: that you can count towards. But you know, the couple
Speaker 1: of legs that the market stands on as far as
Speaker 1: the bull case in corporate earnings, which you're seeing, you know,
Speaker 1: tremendous resilience and strength. They're a very strong consumer picture.
Speaker 1: And then still accommodative policy. I mean it's coming, you know,
Speaker 1: it's it's definitely less accomminative than it was, but still
Speaker 1: you know versus history, still still quite easy policy. Uy.
Speaker 1: So there's a lot to like about the market as well.
Speaker 1: On the subject of easy policy, though, Bank of Canada
Speaker 1: one example today outlining the path for quicker tightening than
Speaker 1: expected in the face of inflation. We see the BOE
Speaker 1: moving in that direction as well. The Fed is trying
Speaker 1: its best to be patient, but can you foresee a
Speaker 1: scenario where it gets so uncomfortable with inflation it's forced
Speaker 1: to make a mistake. I can't see that scenario. If
Speaker 1: I were talking about the risk that I were worried about,
Speaker 1: that would be you know, near to top of the
Speaker 1: of the page. Um. I'm not worried about papering. I think,
Speaker 1: you know, that's a policy meant for kind of extraordinary circumstances,
Speaker 1: and we're certainly through that. So I think papering makes
Speaker 1: a lot of sense. Now. I think that the speed
Speaker 1: and paste, you know, it's kind of irrelevant at this point,
Speaker 1: since they've done such a good job telegraphing it to
Speaker 1: the market. But I am a little concerned that they
Speaker 1: will start to get itchy on their new inflation policy. Um,
Speaker 1: and Titan tightens too aggressively, pulled forward a rate hike
Speaker 1: or two in it's not a problem immediately, um, I mean,
Speaker 1: the first few ray hikes are never usually you know, big,
Speaker 1: big scary items for the market. But it pulls forward
Speaker 1: the whole timeline and eventually, you know, the Fed has
Speaker 1: kind of a history of tightening us into you know,
Speaker 1: either a market panic or recession or at least economic weakness.
Speaker 1: So I can't see that scenario. I hope that inflation
Speaker 1: of bates to the point where they're a little more
Speaker 1: comfortable riding it out. And they have done a good
Speaker 1: job of trying to separate papering and tightening in the
Speaker 1: mind of investors. But it's a concern. Russ UM. A
Speaker 1: lot of folks, uh thinking about how they want to
Speaker 1: play this market, how they want to be in this market,
Speaker 1: how where they want to be overweight this market. A
Speaker 1: couple of camps out there, one being I guess, you know,
Speaker 1: I'm sticking with the tried and true great growth stories.
Speaker 1: We saw some pretty good tech earnings this past week.
Speaker 1: Others just say no, that cyclical trade, um, the reopening trade.
Speaker 1: Maybe banks on the steepening yield curve, maybe some energy here.
Speaker 1: How do you think about that? Yeah, I mean if
Speaker 1: it forced into one camp the near term, you know,
Speaker 1: we remain pretty positive on the cyclical trade. So we'd
Speaker 1: liked financials for a while now. I do think the
Speaker 1: earnings are quite supportive. A lot of different factors of
Speaker 1: the businesses that big banks are doing really well, you know,
Speaker 1: you know, making M and a um, wealth management, you know,
Speaker 1: just your classic bank activity with keeping yield care about you. Note. Um,
Speaker 1: With that said, I think there's plenty room the portfolio
Speaker 1: for longer term secular growth stories as well. I mean really,
Speaker 1: at this point, um, you know, the only place that
Speaker 1: I wouldn't want to be is getting hyper defensive. I mean,
Speaker 1: you know, I kind of outlined our goal case at
Speaker 1: the beginning, but things like staples, um, which which not
Speaker 1: only are they you know, rate sensitive and defensive and
Speaker 1: uh an early cycle market. But well we'll first challenges
Speaker 1: with input costs and rising wages. UM, things like utilities,
Speaker 1: which are which are hyper rate sensitive as well, so
Speaker 1: we we expect rates to continue to move higher a
Speaker 1: little bit from here. But I think there's room for
Speaker 1: both of those trades in the portfolio, you know, force
Speaker 1: to choose one. We like cyclicals. Ross. Before we let
Speaker 1: you go, I just want to get your thoughts on inflation,
Speaker 1: because you can pick your prefects. Deflation, stagflation, hyper inflation.
Speaker 1: Do any of them sound right in this environment? Or
Speaker 1: any of them an accurate description? I think just good old,
Speaker 1: tried and true inflation is probably good. I mean, hyper
Speaker 1: enough strikes ascessilly, Um, that that's that happens when collapse. Um,
Speaker 1: that's not something we're experiencing here. Deflation and disinflation are
Speaker 1: I think, longer term still possibilities. There are a lot
Speaker 1: of structural forces out there that um have caused those
Speaker 1: phenomenons in the last couple of decades, UM. But for
Speaker 1: now this is just some some some pretty classic inflation.
Speaker 1: Too much money chasing too few goods, and the economy
Speaker 1: and companies are working on it. So um. You know,
Speaker 1: it's kind of a weird environment, but I think it's
Speaker 1: the inflation will eventually a bit maybe settle in a
Speaker 1: little higher than the last decade. But think about Ross,
Speaker 1: thanks so much for joining us, really for ship you're
Speaker 1: taking the time there, Ross Mayfield, investment strategist for Bared.
Speaker 1: Looking at this market here again, you know, kind of mixed.
Speaker 1: I got the SMP essentially unchanged a little about two
Speaker 1: tenths lower on the DAB, but we've got a little
Speaker 1: bit of strength on NASTAC, most likely reflecting some of
Speaker 1: the good numbers we saw from some of the big
Speaker 1: tech names over the past a couple of days. And
Speaker 1: getting Microsoft numbers really really jumped out at me. Some
Speaker 1: some really strong top line margin, imperiment, free cash flow,
Speaker 1: the cloud really the story there at Microsoft. Well, as
Speaker 1: we get our way through this third quarter earning season,
Speaker 1: generally the numbers are coming in quite quite good. The
Speaker 1: question is is it enough to satisfy those folks in
Speaker 1: the marketplace that do have concerns about evaluations in this marketplace.
Speaker 1: Let's check into with a professional on that topic. Another
Speaker 1: Sylvia Jablonski, chief investment officer for Defiance et S. So, Sylvia, again,
Speaker 1: some earnings have been coming through this week Big Tech,
Speaker 1: some pretty good numbers. How are you view in this
Speaker 1: third earnings period and is it enough for you to
Speaker 1: support of the valuations we're seeing out there in the market. High,
Speaker 1: Good morning. Well, I think that what the market is
Speaker 1: doing is somewhat what I expected. You know, we had
Speaker 1: a whole year worth of conversations around fear of inflation
Speaker 1: and you know, sort of fear of COVID coming back
Speaker 1: into the market and impacting stocks and um, you know,
Speaker 1: sort of fear of recession and pull back. But what
Speaker 1: we've actually seen is that, you know, a lot of
Speaker 1: companies are proving that they really are quality companies and
Speaker 1: they're exceeding not only meeting, but exceeding earnings expectations. So
Speaker 1: we haven't had a whole lot of names report just yet,
Speaker 1: but we still have a number which is pretty high,
Speaker 1: eighty five percent of them or beating expectations. So even
Speaker 1: you have, even though you have these supply chain issues, UM,
Speaker 1: a lot of these companies are sort of proving that
Speaker 1: they can pass that costs onto the consumer. And you know,
Speaker 1: in terms of valuations, I think that again it's it's
Speaker 1: the earning story, right. Earnings have delivered and they've exceeded
Speaker 1: at expectations. Were also in a seasonally strong period now,
Speaker 1: so we're past that September of folatility number. Um, there's
Speaker 1: loads of liquidity in the market, over two trillion dollars.
Speaker 1: You know, half of essentially half of GDP is sitting
Speaker 1: in is liquidity right now. Um. Race may rise in
Speaker 1: the long term, but I think that will be because
Speaker 1: we're going to see better growth and the economic recovery
Speaker 1: and the biggest part of the economy, to consumer is
Speaker 1: doing quite well. So UM. You know, we keep talking
Speaker 1: about the high demands right now and the supply issues,
Speaker 1: but I just think that these companies that are reporting now,
Speaker 1: especially the sort of the large cup companies that make
Speaker 1: up the top percentage of the SEC five hundred are
Speaker 1: going to continue to outperform and and we'll see positive
Speaker 1: margins coming in. Well, let's talk about those companies, Sylvia. Obviously,
Speaker 1: growth was not the name of the game coming into
Speaker 1: the year, and yet it has outperformed value more often
Speaker 1: than I think many people expect. It seems that we've
Speaker 1: kind of gotten out of that conversation on value versus growth,
Speaker 1: cyclicals versus defensives. How do you kind to think about
Speaker 1: the baskets in which we put equities and which ones
Speaker 1: you think will outperform? Yeah, great question, And I think
Speaker 1: it's interesting because I'm just not a big I don't
Speaker 1: trade that way. Um. So, so what I look at
Speaker 1: actually is is quality companies. You know companies. Look for
Speaker 1: quality companies that have strong balance sheets, that have you know,
Speaker 1: future earning potential that you know will not be impacted
Speaker 1: um with some of the inflation reads or will not
Speaker 1: be impacted with you know, sort of the modest growth
Speaker 1: in rates that we expect to come over time. And
Speaker 1: the companies are the ones, some of the ones that
Speaker 1: have reported last night. Um, you know Microsoft and Alpha
Speaker 1: that are two great examples. I mean, these are cash
Speaker 1: heavy companies. They're doing things like UM increasing the amount
Speaker 1: of buy back, they're increasing the amount of dividence that
Speaker 1: they pay out there, they have sort of loads of cash,
Speaker 1: and they're also just thinking about a different type of future,
Speaker 1: so they're investing in you know, disruptive technologies like the cloud,
Speaker 1: like AI, you know, virtual reality, the augmented reality UM. So,
Speaker 1: so I think that they're well positioned to do well
Speaker 1: for the next decade or so. And then you know,
Speaker 1: on the other side of it, well, you know, banks
Speaker 1: will benefit if interest rates UM go up, and they
Speaker 1: sort of have weathered COVID well and and have proven
Speaker 1: that they're sort of you know, stable and and and
Speaker 1: cash heavy too. So UM diversified portpoleio makes sense right now.
Speaker 1: But I still really like those growth names, and I've
Speaker 1: been actually pretty excited about UM the pull backs on
Speaker 1: on on the names earlier in the year, as you mentioned,
Speaker 1: when they weren't outperforming value ship gears a little bit.
Speaker 1: So yeah, I want to take advantage of your expertise
Speaker 1: and E T S and crypto because we have crypto
Speaker 1: E T F B I T O can just give
Speaker 1: us your thoughts here we have bitcoin trading off of
Speaker 1: some recent highs here today off about five percent pretty sharply.
Speaker 1: Just give us your overview today crypto, the e t
Speaker 1: F of crypto, give us your thoughts. We'd appreciate that. Sure. So, UM,
Speaker 1: first of all, I get excited when I see pullbox
Speaker 1: in crypto because the camp of it's going to do
Speaker 1: longer thousand and that's going to happen sooner than later.
Speaker 1: UM steel the same way about ETHEREUM. I think in
Speaker 1: the next year or two we're there. I don't think
Speaker 1: it's a five year trade. Yeah. And I think, you know,
Speaker 1: they're sort of various reasons for that. You have countries
Speaker 1: like Al Salvador adopting it. You have you know, companies
Speaker 1: sort of using it now as a currency to buy
Speaker 1: and sell. Um. Crypto is going to be part of
Speaker 1: this massive movement in n f T S which is
Speaker 1: just sort of take slowly taking over the universe. We
Speaker 1: don't talk about it enough, but UM, you're gonna have crypto,
Speaker 1: which is which is right now the only way to
Speaker 1: pay for for n f T S or one are
Speaker 1: the main ways to pay for n f T s. UM,
Speaker 1: and I think that you have UM, you know, you
Speaker 1: have the ability to now trade them or or or
Speaker 1: get exposure to them through an e t F to
Speaker 1: a mutual fund through a trust. So um, you know,
Speaker 1: marketmakers are going up to buy more to hedge that exposure.
Speaker 1: Uh So I'm very bullish on crypto, particularly you know,
Speaker 1: bitcoin and thee UM n F t S. But to
Speaker 1: answer your shin a little more directly about the e
Speaker 1: t F UM, you know, I think it's great. I
Speaker 1: think it's great for particularly for advisors that don't have
Speaker 1: a vehicle UM where you know, by which they can
Speaker 1: get exposure to bitcoin. Um. You know, if you ask
Speaker 1: me like, what is the best way to invest in crypto,
Speaker 1: I think it's to to get exposure to the actual
Speaker 1: physical asset. I think it's it's worth just buying it
Speaker 1: and storing in a digital wallet. But not everyone is
Speaker 1: sort of savvy enough to do that, or or perhaps
Speaker 1: uncomfortable with with doing that UM or perhaps just unable
Speaker 1: to do that based on firm restrictions and things like that.
Speaker 1: So I just think it's awesome to have these different
Speaker 1: options to get access to bitcoins, physical trust and now
Speaker 1: e t S. It's it's great for great story for investors. Sovia,
Speaker 1: thank you so much for joining us. We really appreciate it.
Speaker 1: Sovia Trablanski, chief investment officer for Defiance et s. One
Speaker 1: of the problems of getting bitcoiners if you get the code,
Speaker 1: you can for you and that is a problem for
Speaker 1: some people. We'll have more coming up. This is Bloomberg. Wait.
Speaker 1: When I was at Research Channelist, I would darken the
Speaker 1: door of tc W a couple of times a year
Speaker 1: when I was out in l A to check in
Speaker 1: with my UH analyst kind part out there and talk
Speaker 1: about some ideas. That was equities. Equities are much more
Speaker 1: fun than fixed income. But we'll check in with Lard
Speaker 1: Landman today. He's co director of Fixing Come for t
Speaker 1: c W based in l A. Uh Lard Fixing Come
Speaker 1: is a tough place to make a buck these days.
Speaker 1: I'm looking at the ten year at you know, one
Speaker 1: point five seven. What are you guys doing? Yeah, it
Speaker 1: is it is not the exciting place that has been Um.
Speaker 1: It is a bastion of stability. You know, we see
Speaker 1: problems in the the property sectors, controversy about fiscal stimulus,
Speaker 1: and you look at spreads and you know it was
Speaker 1: eight over at the end of June for investment gradity
Speaker 1: over now, um, you maybe get a basis point or
Speaker 1: two of widening hero there, but it has been uh,
Speaker 1: incredibly over liquefied, we would say, Um, but we have
Speaker 1: seen you know, obviously the market is moving ahead of
Speaker 1: the fed. Here. We've tightened since the beginning of the
Speaker 1: year a good sixty five basis points just through the
Speaker 1: market and the belly of the curve, you know, more
Speaker 1: like eighty. So markets are beginning to price rice action in. Well,
Speaker 1: let's talk about the yield curve, because we're sub eighty
Speaker 1: basis points on the five thirties curve. I mean, that's
Speaker 1: the flattest going back since April. Can that flattening persist
Speaker 1: or is the market starting to overdo it a little bit?
Speaker 1: Probably in the interim it's slightly overdone, I would say,
Speaker 1: but obviously depending on what happens on the fiscal side,
Speaker 1: which is really the interesting story in our opinion. Um,
Speaker 1: there's still a lot of money to be spent that
Speaker 1: was authorized last year, how it's spent and when it's spent.
Speaker 1: You know, the states and the cities that got money
Speaker 1: have spent very little of that. If you put more
Speaker 1: fiscal stimulus on top of that, I mean, I don't
Speaker 1: don't think there's any doubt that. You know, Carl Smith's
Speaker 1: piece this morning on Bloomberg was right on about the
Speaker 1: fact that this pushing inflation that you see in the US,
Speaker 1: it's greater than other countries, is not just a supply story.
Speaker 1: It's not just you know, the ports are involved. Obviously
Speaker 1: there are supply chain issues, but a lot of it's
Speaker 1: excess demand that has been placed in our economy versus others.
Speaker 1: You look at our curve versus the euro curve, it's
Speaker 1: a really very different story. Our curve looks like it's
Speaker 1: supposed to be flat around you know, to a little bit,
Speaker 1: a little bit above two percent. Uh. The euro curve
Speaker 1: looks like it's gonna flatten according to the markets, you know,
Speaker 1: around fifty basis points in the next five years. So um,
Speaker 1: there is a lot priced in. I do think that
Speaker 1: if there is more fiscal stimulus, you do see the
Speaker 1: FED eventually try to move here um, and as they move,
Speaker 1: the curve could again overestimate the ability of the FED
Speaker 1: to titan. We don't think it's that great, we don't
Speaker 1: think it's that big a threat, but it's one of
Speaker 1: your high yield portfolio managers, and I walk into your
Speaker 1: office and I say I want to push the envelope
Speaker 1: on yield and return. How how far will you let
Speaker 1: me go in terms of you know, ratings and things
Speaker 1: like that. Well, I think the thing about TCW's approaches
Speaker 1: that we've always believed that you have to have sort
Speaker 1: of a macro risk management overway. And I think our
Speaker 1: macro risk management approach looks at where things are now,
Speaker 1: and again, the stock markets could run a lot more
Speaker 1: stocks you know, can go to the moon. As you know,
Speaker 1: if you look if you take your Bloomberg out and
Speaker 1: you do your your chart of high yield spreads, what
Speaker 1: you'll see is they mean revert and that two D
Speaker 1: and eight over is pretty close where it is today,
Speaker 1: uh to where where it stops getting any tighter. So
Speaker 1: I let you push it in terms of maybe adding
Speaker 1: yield to the portfolio, but not spread duration. I don't
Speaker 1: want to get in a situation where it spreads widen
Speaker 1: a hundred or two hundred basis points. I'm looking at
Speaker 1: eight or ten percent losses on that portfolio. That's what
Speaker 1: we have to protect the client against, and that's sort
Speaker 1: of the job of the macro call at TCW. Well,
Speaker 1: but to your point, I mean some three basis points.
Speaker 1: Those are remarkably tight spreads. Do you think the appetite
Speaker 1: for credit risk can continue in this really cheap borrowing
Speaker 1: costs for even kind of junkraded companies, they're going to
Speaker 1: be able to continue to borrow easily and cheaply. Well,
Speaker 1: I think that. I don't think it lass indefinitely. Um,
Speaker 1: it could when you look at sort of the amount
Speaker 1: of demand that's been stimulated in the US and how
Speaker 1: liquid the markets are and how much liquidity the FETE
Speaker 1: is put in until they begin to withdraw that liquidity,
Speaker 1: which of course could be as soon as you know,
Speaker 1: next month, um, when they probably announced the taper. Until
Speaker 1: that's withdrawn, it's hard to know. Um, But certainly this
Speaker 1: could persist for a while. And I think what you
Speaker 1: have to do as a manager in high yield or
Speaker 1: in any space, we have to make sure that we're
Speaker 1: capturing some yield in the portfolio without going you to
Speaker 1: the zombie companies that today look healthy because basically there's
Speaker 1: such huge demand pull. But in a recession, basically these
Speaker 1: are companies that can't make it and they don't have assets.
Speaker 1: And so as the more we overstimulate, the more UH
Speaker 1: inventory of companies like that builds up and in the
Speaker 1: high old market and then you run into problems and
Speaker 1: so we really have to watch that. Hey, Lard, thanks
Speaker 1: so much for joining us. Really appreciate it, Lard Landman,
Speaker 1: he's co director of Fixing come for TCW. They have
Speaker 1: two sixty five billion dollars in assets on the management
Speaker 1: based in l A. And again, Kelly, when you went
Speaker 1: out there as an analyst, you had to get a
Speaker 1: tc W meeting, and you had to get a meeting
Speaker 1: a capital group. Those are the big dogs and then
Speaker 1: you can build everything else around it. But it's amazing, Uh,
Speaker 1: you know, the you know tc W and the fixing
Speaker 1: comes Oude really for a couple of years now been
Speaker 1: very cautious, uh in their view of the marketplace. Thanks
Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe
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Speaker 1: at Matt Miller three. Put on fall Sweeney I'm on
Speaker 1: Twitter at pt Sweeney. Before the podcast, you can always
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