1 00:00:00,800 --> 00:00:04,040 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 2 00:00:04,040 --> 00:00:06,920 Speaker 1: my co host Matt Miller. Every business day we bring 3 00:00:06,960 --> 00:00:11,520 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,520 --> 00:00:15,600 Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast 5 00:00:15,600 --> 00:00:18,439 Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:21,960 Speaker 1: at Bloomberg dot com slash podcast. Certainly, the news over 7 00:00:21,960 --> 00:00:25,000 Speaker 1: the last twenty four hours has been this consistent effort, 8 00:00:25,040 --> 00:00:28,040 Speaker 1: I would say, by the Federal Reserve central banks around 9 00:00:28,240 --> 00:00:31,880 Speaker 1: the world to continue to fight inflation. Of course, we 10 00:00:31,960 --> 00:00:34,199 Speaker 1: had the FED yesterday, the Bank of England and the 11 00:00:34,240 --> 00:00:36,520 Speaker 1: e c B. This morning we heard from Christine Loclegard, 12 00:00:36,880 --> 00:00:39,920 Speaker 1: uh still moving rates higher. We want to see what 13 00:00:39,960 --> 00:00:42,960 Speaker 1: that means for markets and what that means for kind 14 00:00:42,960 --> 00:00:45,800 Speaker 1: of you know, as we think about setting us up there, 15 00:00:45,800 --> 00:00:47,440 Speaker 1: and we can do that with this round table that 16 00:00:47,520 --> 00:00:51,760 Speaker 1: we've got together. Vince Signarella, global macro strategists with Bloomberg News. 17 00:00:51,800 --> 00:00:53,720 Speaker 1: He joins us on the phone, as does Jennifer Lee, 18 00:00:54,080 --> 00:00:57,920 Speaker 1: Managing director and senior economist with the BMO Capital Markets. Jennifer, 19 00:00:57,960 --> 00:01:01,000 Speaker 1: let's start with you here. Um again, the central banks 20 00:01:01,000 --> 00:01:03,600 Speaker 1: have been nothing else if consistent. What is what is 21 00:01:03,600 --> 00:01:05,800 Speaker 1: your takeaway from the last twenty four hours or so? 22 00:01:06,959 --> 00:01:09,040 Speaker 1: Good morning, I'm thanks for having me once day. Um, 23 00:01:09,080 --> 00:01:11,000 Speaker 1: you know what I've if he had told me like 24 00:01:11,400 --> 00:01:15,000 Speaker 1: ten years ago or so that on all the central banks, 25 00:01:15,040 --> 00:01:18,520 Speaker 1: the ECB would be on the we're hawk, I guess 26 00:01:18,560 --> 00:01:20,679 Speaker 1: you could call them on the on the spectrum of 27 00:01:20,760 --> 00:01:22,760 Speaker 1: central banks, I would have said, get out of town, 28 00:01:22,840 --> 00:01:24,960 Speaker 1: you know. But that's what's going on. And this is crazy, 29 00:01:24,959 --> 00:01:28,000 Speaker 1: I mean, especially after her the press conference, and she 30 00:01:28,160 --> 00:01:31,280 Speaker 1: was extremely clear this morning. Usually she's you know, it's 31 00:01:31,280 --> 00:01:33,440 Speaker 1: a lot of you know, everything's gonna depend, it's gonna 32 00:01:33,440 --> 00:01:35,720 Speaker 1: be meeting by meeting, but she actually said that, you know, 33 00:01:35,840 --> 00:01:38,920 Speaker 1: we're gonna be expecting fifty basis point hikes, you know, 34 00:01:39,000 --> 00:01:42,240 Speaker 1: steadily for some time until we get to a significantly 35 00:01:42,280 --> 00:01:45,440 Speaker 1: restrictive level, um, something like that, you know, which is 36 00:01:45,600 --> 00:01:48,440 Speaker 1: very very clear and very un characteristic for for this 37 00:01:48,720 --> 00:01:51,320 Speaker 1: for this particular central bank. I thought that was quite interesting. 38 00:01:51,320 --> 00:01:53,360 Speaker 1: Me on the bake of England, you know, you've got 39 00:01:53,480 --> 00:01:56,640 Speaker 1: one person voting for seventy five two people saying let's 40 00:01:56,760 --> 00:01:59,160 Speaker 1: let's do nothing, and the other six saying let's get 41 00:01:59,200 --> 00:02:00,840 Speaker 1: let's do fifty. You know, if I were there, I'd 42 00:02:00,840 --> 00:02:03,240 Speaker 1: be like, Okay, is anyone wanting a great cut? At 43 00:02:03,240 --> 00:02:05,800 Speaker 1: this point? Everyone's all over the map. So I find 44 00:02:05,800 --> 00:02:09,160 Speaker 1: this very very interesting and very unsuddenly. Excuse me to 45 00:02:09,160 --> 00:02:13,519 Speaker 1: see at least Vince hop On in here, because what's 46 00:02:13,520 --> 00:02:17,040 Speaker 1: so striking to me is a very simple comment that 47 00:02:17,120 --> 00:02:21,880 Speaker 1: Madame Laguard made, which was the recession risks skew to 48 00:02:21,919 --> 00:02:26,000 Speaker 1: the downside. Obviously, Um, but as this a recession Europe 49 00:02:26,000 --> 00:02:28,240 Speaker 1: that has been kind of inevitability for almost a year, 50 00:02:28,320 --> 00:02:30,160 Speaker 1: and it was supposed to hit us the fourth quarter 51 00:02:30,240 --> 00:02:31,960 Speaker 1: of this year, it was supposed to happen by now 52 00:02:32,000 --> 00:02:35,000 Speaker 1: and actually hasn't yet happened. When do we get that recession? 53 00:02:35,120 --> 00:02:36,960 Speaker 1: How bad is it and how long is it going 54 00:02:37,000 --> 00:02:40,600 Speaker 1: to be? I think you're going to see it show 55 00:02:40,680 --> 00:02:45,240 Speaker 1: up in the numbers, probably starting in December, most definitely January. Um. 56 00:02:45,320 --> 00:02:46,959 Speaker 1: You know, I think that Jennifer made a good point, 57 00:02:47,040 --> 00:02:49,640 Speaker 1: without question. The ECP basically, as a trader said to 58 00:02:49,680 --> 00:02:54,200 Speaker 1: me today, me kepped the market with their aggressive hawkish output. 59 00:02:54,360 --> 00:02:56,680 Speaker 1: When you look at the data, and I must say, 60 00:02:56,680 --> 00:02:59,280 Speaker 1: I'm actually a little surprised at the magnitude of the 61 00:02:59,280 --> 00:03:03,480 Speaker 1: cell up today. Um that you know, retail sales in 62 00:03:03,520 --> 00:03:08,200 Speaker 1: the month of November holiday season declining, What is that 63 00:03:08,280 --> 00:03:10,280 Speaker 1: going to say for us for the first quarter of 64 00:03:10,320 --> 00:03:14,079 Speaker 1: next year. I think the consumer is absolutely tapped out now. 65 00:03:14,080 --> 00:03:16,560 Speaker 1: If the market is selling off because they see a recession, 66 00:03:17,120 --> 00:03:20,360 Speaker 1: uh and maybe a drop in earnings and therefore dropping stocks, 67 00:03:20,400 --> 00:03:22,640 Speaker 1: I think they also need to see the fact that 68 00:03:22,720 --> 00:03:25,639 Speaker 1: that procession is going to bring a fent pivot. So 69 00:03:25,720 --> 00:03:27,720 Speaker 1: it's a bit of a push and pull I think 70 00:03:27,800 --> 00:03:31,720 Speaker 1: as to what what whether the cart leads to horse 71 00:03:31,840 --> 00:03:34,800 Speaker 1: or the other way around. I think in this case, um, 72 00:03:34,840 --> 00:03:37,680 Speaker 1: I think this sell off is is going to be 73 00:03:37,720 --> 00:03:40,720 Speaker 1: the last hurrah. And as the numbers start to come 74 00:03:40,760 --> 00:03:45,360 Speaker 1: in quite um slow and uh and such, I think 75 00:03:45,400 --> 00:03:49,360 Speaker 1: we're going to see markets tern Jen from Vince brought 76 00:03:49,400 --> 00:03:51,480 Speaker 1: up the retail sales data today, and we just had 77 00:03:51,480 --> 00:03:54,200 Speaker 1: a retail analyst on just before you guys, and she 78 00:03:54,280 --> 00:03:57,320 Speaker 1: was suggesting that the weaker than expected retail numbers today 79 00:03:57,520 --> 00:04:00,360 Speaker 1: reflect in part maybe the pull through that we saw 80 00:04:00,360 --> 00:04:03,320 Speaker 1: in October when retail sales were up and surprised on 81 00:04:03,360 --> 00:04:05,920 Speaker 1: the upside, up one point three. So maybe don't get 82 00:04:06,080 --> 00:04:09,760 Speaker 1: too concerned about the consumer. But boy, this data point 83 00:04:09,760 --> 00:04:12,640 Speaker 1: that we saw this month has been highlighted. Kind of surprising, 84 00:04:12,720 --> 00:04:15,480 Speaker 1: kind of disappointing. Another guest this morning says that he's 85 00:04:15,520 --> 00:04:18,760 Speaker 1: concerned about rising consumer debt that they're buying stuff with 86 00:04:19,000 --> 00:04:21,799 Speaker 1: on their credit cards. So you put all that together, 87 00:04:21,839 --> 00:04:24,680 Speaker 1: how do you view the consumer right here and then 88 00:04:24,720 --> 00:04:28,280 Speaker 1: going into next year? So we um, you know, this 89 00:04:28,360 --> 00:04:31,080 Speaker 1: is like today's retail sales report. I mean, this is 90 00:04:31,120 --> 00:04:33,360 Speaker 1: another indication of how we can't we can always take 91 00:04:33,480 --> 00:04:35,719 Speaker 1: one report, you know, with a with a grand assaults 92 00:04:35,760 --> 00:04:37,040 Speaker 1: I guess, you know. I mean, we we have that 93 00:04:37,120 --> 00:04:39,520 Speaker 1: upside surprise last month and everything was great, and now 94 00:04:39,560 --> 00:04:41,240 Speaker 1: all of a sudden, you know, we said this big 95 00:04:41,279 --> 00:04:43,880 Speaker 1: pull back, pullback, So it's almost like, um, a lot 96 00:04:43,880 --> 00:04:46,520 Speaker 1: of expenses were being pulled forward. UM. But of course 97 00:04:46,560 --> 00:04:49,000 Speaker 1: it is concerning that you know, there is more um 98 00:04:49,400 --> 00:04:52,040 Speaker 1: consumer credit being being taken on. You know some of that. 99 00:04:52,080 --> 00:04:54,359 Speaker 1: I'm wondering if it could be you know, because you 100 00:04:54,360 --> 00:04:56,440 Speaker 1: know some of the credit cards you get points, so 101 00:04:56,839 --> 00:04:58,440 Speaker 1: you know, you could be using up more of your 102 00:04:58,440 --> 00:05:00,919 Speaker 1: credit cards for for that reason. But I'm gonna go 103 00:05:00,960 --> 00:05:04,040 Speaker 1: back to you know, the funnel metal um UM support. 104 00:05:04,160 --> 00:05:07,279 Speaker 1: I guess below the or beneath of the US consumer, 105 00:05:07,320 --> 00:05:09,599 Speaker 1: and is that they are still they still have savings, 106 00:05:09,640 --> 00:05:11,400 Speaker 1: you know, not as much as they used to obviously, 107 00:05:11,680 --> 00:05:13,839 Speaker 1: but at least they have some savings to work awful 108 00:05:14,000 --> 00:05:16,960 Speaker 1: right now. Job growth remains very solid. You know, the 109 00:05:17,000 --> 00:05:19,520 Speaker 1: labor market is still tight as a fetch, your pala 110 00:05:19,560 --> 00:05:22,600 Speaker 1: said yesterday. As long as wages keep increasing, you know, yes, 111 00:05:22,640 --> 00:05:25,520 Speaker 1: they're they're they're whittling down there a pile of savings bellies. 112 00:05:25,720 --> 00:05:28,960 Speaker 1: It's still being replenished with rising wages, and I think 113 00:05:28,960 --> 00:05:31,919 Speaker 1: that's the more important thing, I guess going forward. But 114 00:05:31,960 --> 00:05:33,560 Speaker 1: of course, you know, the U. S consumer is not 115 00:05:33,640 --> 00:05:36,440 Speaker 1: as healthy as it once was, just given that prices 116 00:05:36,480 --> 00:05:39,120 Speaker 1: are still rising quite quickly. So we do see consumers 117 00:05:39,120 --> 00:05:41,640 Speaker 1: spending being pulled back. And then you know it's already 118 00:05:41,680 --> 00:05:44,240 Speaker 1: being pulled back already now, but even more so um 119 00:05:44,360 --> 00:05:46,880 Speaker 1: in the uh you know, in the next year probably, um, 120 00:05:47,400 --> 00:05:49,640 Speaker 1: we're probably count see negative growth, I guess in consumer 121 00:05:49,680 --> 00:05:53,359 Speaker 1: spending for the first half of Okay, Hey, Ben, I 122 00:05:53,400 --> 00:05:55,560 Speaker 1: want to get your perspective from a trader's perspective. Talk 123 00:05:55,560 --> 00:05:59,560 Speaker 1: to us about liquidity in the market price broadly defined. 124 00:05:59,600 --> 00:06:02,120 Speaker 1: You know, we've got the FED no longer flooding the 125 00:06:02,120 --> 00:06:05,000 Speaker 1: market with liquidity, in fact, kind of the opposite here, 126 00:06:05,240 --> 00:06:07,880 Speaker 1: How does that play out day to day for kind 127 00:06:07,880 --> 00:06:10,960 Speaker 1: of just the plumbing of the markets? I think you 128 00:06:11,080 --> 00:06:13,400 Speaker 1: just see bigger swings um, you know, a lot more 129 00:06:13,480 --> 00:06:18,520 Speaker 1: volatility uh with liquidity shrinking a touch. But traders are 130 00:06:18,560 --> 00:06:22,520 Speaker 1: just that they basically don't need as bigger position UH 131 00:06:22,640 --> 00:06:26,280 Speaker 1: with higher liquidity and higher volatis excuse me, higher volatility 132 00:06:26,760 --> 00:06:29,520 Speaker 1: UM to make the same nut they need to make 133 00:06:29,560 --> 00:06:31,520 Speaker 1: on a day to day basis. So the positions of 134 00:06:31,600 --> 00:06:35,839 Speaker 1: smaller volatilities higher, and you're going to see bigger swings 135 00:06:35,880 --> 00:06:37,400 Speaker 1: in the market. I just want to make one point 136 00:06:37,400 --> 00:06:40,080 Speaker 1: about the employment issue that Jennifer mentioned one of them. 137 00:06:40,400 --> 00:06:44,839 Speaker 1: I got an email yesterday from essentially someone covering resume 138 00:06:44,920 --> 00:06:48,880 Speaker 1: builder dot com and they did a survey and found 139 00:06:48,960 --> 00:06:52,840 Speaker 1: one there one third of responses predicted that they were 140 00:06:52,839 --> 00:06:56,719 Speaker 1: going to do layoffs next year of upwards. Of Now, 141 00:06:56,720 --> 00:07:00,120 Speaker 1: if that plays out, the FEDS idea of job is 142 00:07:00,160 --> 00:07:03,400 Speaker 1: being strong is gonna get totally trashed. And I just 143 00:07:03,440 --> 00:07:05,120 Speaker 1: don't see how they go on the path, all of 144 00:07:05,160 --> 00:07:07,440 Speaker 1: the central things go on the path that they're they're 145 00:07:07,440 --> 00:07:10,640 Speaker 1: swinging at right now. Vince again, real real quick, what's 146 00:07:10,720 --> 00:07:14,440 Speaker 1: the trade going into the end of this year. I 147 00:07:14,800 --> 00:07:17,000 Speaker 1: think you look at fading the dollar. I think risk 148 00:07:17,160 --> 00:07:18,640 Speaker 1: is going to turn as we head into the first 149 00:07:18,720 --> 00:07:23,080 Speaker 1: quarter UM and if if not so, you'll you'll see 150 00:07:23,120 --> 00:07:26,520 Speaker 1: earnings decline. And that's been the big large cap companies 151 00:07:27,200 --> 00:07:29,080 Speaker 1: getting hurt by what we've seen as a higher dollar 152 00:07:29,200 --> 00:07:30,800 Speaker 1: this year. I think we've seen the peak in the 153 00:07:30,840 --> 00:07:33,120 Speaker 1: dollar for a while. All right, good stuff, Vince Signarella, 154 00:07:33,120 --> 00:07:36,360 Speaker 1: Global macro strategists with Bloomberg News and Jennifer Lee, managing 155 00:07:36,440 --> 00:07:44,320 Speaker 1: director and senior economists with BEMO Capital Markets. One of 156 00:07:44,320 --> 00:07:46,080 Speaker 1: the issues that the market has been dealing with and 157 00:07:46,120 --> 00:07:50,600 Speaker 1: the face of higher inflation depending the recession, the sumer 158 00:07:50,640 --> 00:07:53,000 Speaker 1: has been pretty down strong through all of this, and 159 00:07:53,080 --> 00:07:54,920 Speaker 1: when we got some retail sales today, they kind of 160 00:07:54,960 --> 00:07:57,200 Speaker 1: put a pause in that retail sales. The headline number 161 00:07:57,880 --> 00:08:00,720 Speaker 1: zero point and negative zero point six percent anti consensus 162 00:08:00,800 --> 00:08:02,920 Speaker 1: was for negative zero point two percent, so a little 163 00:08:02,920 --> 00:08:05,320 Speaker 1: bit worse there. That compares to last month when it 164 00:08:05,360 --> 00:08:08,640 Speaker 1: was positive one. So that's I mean some Paul's in 165 00:08:08,640 --> 00:08:12,000 Speaker 1: the marketplace here, uh, you know, bringing up concerns about 166 00:08:12,000 --> 00:08:14,440 Speaker 1: the strength of the consumer and maybe a recession. Um, 167 00:08:14,520 --> 00:08:16,200 Speaker 1: let's bring an expert here. First of all, I've got 168 00:08:16,200 --> 00:08:18,520 Speaker 1: a crick critic group, the Bloomberg Markets correspondent in our 169 00:08:18,520 --> 00:08:21,720 Speaker 1: studio city and from mat so we appreciate that. Angie Solanki. 170 00:08:22,080 --> 00:08:24,720 Speaker 1: She's a national director of retail services in the US 171 00:08:24,800 --> 00:08:28,520 Speaker 1: four Colliers. Uh, Andie, thanks so much for joining us here. 172 00:08:29,080 --> 00:08:31,160 Speaker 1: What did you make of the retail sales data we 173 00:08:31,200 --> 00:08:35,600 Speaker 1: saw today? Yeah? Thanks for having me. Um. So, what 174 00:08:35,640 --> 00:08:39,440 Speaker 1: I would say is that in the sale did definitely 175 00:08:39,559 --> 00:08:42,760 Speaker 1: drop the drop, but we believe that that's due to 176 00:08:43,480 --> 00:08:47,920 Speaker 1: the pull forward in October where we saw significant sales 177 00:08:48,440 --> 00:08:52,959 Speaker 1: in terms of holiday season shopping cyber you know, preparing 178 00:08:53,000 --> 00:08:55,920 Speaker 1: for Cyber Monday and Black Friday. People decided let's go 179 00:08:55,960 --> 00:08:58,400 Speaker 1: ahead and shop in October because we started to see 180 00:08:58,440 --> 00:09:01,640 Speaker 1: discounts from retailers each sooner. It actually started in the 181 00:09:01,679 --> 00:09:07,600 Speaker 1: summer of So what does this mean, Angie? Again, we're 182 00:09:07,960 --> 00:09:11,160 Speaker 1: you know, I like to say my holiday shopping is done, 183 00:09:11,160 --> 00:09:13,760 Speaker 1: but it's not having started yet. But what what's the 184 00:09:13,800 --> 00:09:16,959 Speaker 1: feeling you're hearing from your retail clients about just kind 185 00:09:16,960 --> 00:09:20,000 Speaker 1: of how the holiday seasons shaping up and and maybe 186 00:09:20,640 --> 00:09:24,760 Speaker 1: their recession outlook for next year. Yeah. And one thing 187 00:09:24,800 --> 00:09:27,320 Speaker 1: I have to just really highlight here is if we 188 00:09:27,360 --> 00:09:31,160 Speaker 1: look at our year over year core retail sales, so 189 00:09:31,280 --> 00:09:34,800 Speaker 1: excluding food service, car and gas, because prices have come 190 00:09:34,880 --> 00:09:38,120 Speaker 1: down car prices have come down, we still have a 191 00:09:38,160 --> 00:09:40,720 Speaker 1: pretty healthy retail sales here to date at five point 192 00:09:40,760 --> 00:09:44,600 Speaker 1: six percent. So we're actually looking at a pretty good 193 00:09:44,640 --> 00:09:47,000 Speaker 1: i would say, first test to the holiday season, where 194 00:09:47,000 --> 00:09:50,480 Speaker 1: the retail sector has cleared some hurdles, is still been 195 00:09:50,520 --> 00:09:53,720 Speaker 1: looking positive, maybe not for the month in November, but 196 00:09:54,120 --> 00:09:57,040 Speaker 1: it still should be a pretty solid holiday season, even 197 00:09:57,080 --> 00:09:59,560 Speaker 1: though consumers are going to be mindful of how they're 198 00:09:59,559 --> 00:10:04,160 Speaker 1: spending where they're spending, because we've still seen increases in pricing, 199 00:10:04,320 --> 00:10:07,880 Speaker 1: especially in the grocery sector, um and some and also 200 00:10:07,920 --> 00:10:12,000 Speaker 1: some decreases in some of the other categories such as 201 00:10:12,440 --> 00:10:18,000 Speaker 1: you know, the the apparel side, home furnishings, etcetera. So, 202 00:10:18,120 --> 00:10:20,520 Speaker 1: and one of the concerns we were just speaking with 203 00:10:20,559 --> 00:10:23,320 Speaker 1: the Dennis Gartman of the Garben Letter has been following 204 00:10:23,360 --> 00:10:25,720 Speaker 1: markets for decades, and he brought up a concern that 205 00:10:25,760 --> 00:10:28,360 Speaker 1: he has that consumers are running up their credit card 206 00:10:28,360 --> 00:10:31,720 Speaker 1: debt after being flush with cash Uh, they've exhausted most 207 00:10:31,760 --> 00:10:34,600 Speaker 1: of that. They're now running it up with credit card debt. 208 00:10:34,960 --> 00:10:37,280 Speaker 1: Is that a concern for as you think about retail sales? 209 00:10:39,160 --> 00:10:41,400 Speaker 1: It is. I would say that would be in certain 210 00:10:41,440 --> 00:10:45,920 Speaker 1: categories where we're going to see maybe the higher price points, electronics, 211 00:10:46,800 --> 00:10:49,800 Speaker 1: things of that nature. Um, So we will see some 212 00:10:50,400 --> 00:10:53,680 Speaker 1: debt creep. However, I think that hopefully we'll start to, 213 00:10:54,400 --> 00:10:57,960 Speaker 1: you know, when we start to look at the spend 214 00:10:58,160 --> 00:11:00,800 Speaker 1: and the type of spin in the differ and categories, 215 00:11:01,080 --> 00:11:03,120 Speaker 1: we hope to see that that may start to slow 216 00:11:03,160 --> 00:11:05,760 Speaker 1: down a little bit and balance out. Um, but we 217 00:11:05,840 --> 00:11:08,280 Speaker 1: are a little nervous about that looking into Q one, 218 00:11:08,320 --> 00:11:12,560 Speaker 1: Q two, Well, Angie, as we see these numbers, these 219 00:11:12,600 --> 00:11:15,400 Speaker 1: inflation numbers, at least on the headline novel decelerate. It's 220 00:11:15,400 --> 00:11:17,360 Speaker 1: not a secret inflation is coming down. A lot of 221 00:11:17,400 --> 00:11:20,120 Speaker 1: that is coming from the base effects. Though on the 222 00:11:20,160 --> 00:11:22,880 Speaker 1: way up. Is that going to actually show up in 223 00:11:22,960 --> 00:11:26,480 Speaker 1: consumer patterns? How long before the consumer says, oh, actually 224 00:11:26,520 --> 00:11:30,240 Speaker 1: things are getting more affordable. You know, I think if 225 00:11:30,280 --> 00:11:32,080 Speaker 1: we have to look at, you know, the way the 226 00:11:32,080 --> 00:11:36,440 Speaker 1: consumer is spending. So we're seeing some interesting trends, especially 227 00:11:36,480 --> 00:11:39,160 Speaker 1: in the grocery sector. So that's a daily need, a 228 00:11:39,200 --> 00:11:43,040 Speaker 1: weekly need. So they're coping with these different inflationary issues 229 00:11:43,720 --> 00:11:47,800 Speaker 1: by adjusting those shopping habits and they're balancing that um 230 00:11:47,840 --> 00:11:50,960 Speaker 1: you know, you know, the way of their spend through 231 00:11:51,000 --> 00:11:55,920 Speaker 1: looking at private label goods, lower cost brands, um opting 232 00:11:56,000 --> 00:12:01,040 Speaker 1: for less expensive. So that pattern will continue, and I 233 00:12:01,080 --> 00:12:04,080 Speaker 1: think when we if we continue to see gasoline prices, 234 00:12:04,559 --> 00:12:08,360 Speaker 1: you know, decrease, that will also help in terms of 235 00:12:08,400 --> 00:12:11,200 Speaker 1: just kind of that mindset in terms of where we're going. Now, 236 00:12:11,320 --> 00:12:14,319 Speaker 1: keep in mind cp I still at seven point one 237 00:12:14,320 --> 00:12:18,320 Speaker 1: per cent, whereas sales um growth have been less than that. 238 00:12:18,520 --> 00:12:23,080 Speaker 1: So we're definitely managing and or monitoring. Managed to say, alright, Angie, 239 00:12:23,080 --> 00:12:24,840 Speaker 1: thank you so much for joining us. We always appreciate 240 00:12:24,880 --> 00:12:27,720 Speaker 1: getting your perspective and we get some of these retail 241 00:12:27,840 --> 00:12:31,360 Speaker 1: data points. Angie Solanki, National director of Retail Services for 242 00:12:31,360 --> 00:12:34,640 Speaker 1: the United States for Colliers. Uh So, retail sales came 243 00:12:34,640 --> 00:12:40,000 Speaker 1: a little bit weaker than expected. Look at the markets here, 244 00:12:40,200 --> 00:12:42,000 Speaker 1: it's a little ugly. We've got a lot of stuff 245 00:12:42,040 --> 00:12:44,080 Speaker 1: that digests. We had central banks moving over the last 246 00:12:44,080 --> 00:12:46,920 Speaker 1: twenty four hours, raising rage, talking tough. We've got some 247 00:12:46,960 --> 00:12:48,680 Speaker 1: weaker retail sales. So we need to break it all 248 00:12:48,760 --> 00:12:51,640 Speaker 1: down here with some smart people, and we got that going. Uh, 249 00:12:51,720 --> 00:12:55,280 Speaker 1: we've got a roundtable this thing. Jonathan Hurdle, executive chairman 250 00:12:55,280 --> 00:12:58,880 Speaker 1: of Hurdle, Callaghan and Company. Uh, he's been doing that. 251 00:12:59,000 --> 00:13:01,719 Speaker 1: He manages about twenty million dollars. But for me, the 252 00:13:01,800 --> 00:13:04,679 Speaker 1: highlight of his resumes he's a Penn State grad. So 253 00:13:04,720 --> 00:13:07,360 Speaker 1: we're talking to Penn State football. Here. We got Ira Jersey, 254 00:13:07,480 --> 00:13:10,600 Speaker 1: he chief US interest rate Strategists with Bloomberg Intelligence. Both 255 00:13:10,600 --> 00:13:13,000 Speaker 1: of these gentlemen joined pretty night in our Bloomberg Interactive 256 00:13:13,000 --> 00:13:15,600 Speaker 1: Broker studio. John, you've been doing this a long time, 257 00:13:16,040 --> 00:13:19,040 Speaker 1: managing money for others. What do you make of the 258 00:13:19,080 --> 00:13:21,760 Speaker 1: last twenty four hours when we've got seemingly concerted effort 259 00:13:21,800 --> 00:13:24,000 Speaker 1: on the part of these central banks that continue to 260 00:13:24,040 --> 00:13:26,840 Speaker 1: raise rates. Well, I think today's action is just a 261 00:13:26,880 --> 00:13:29,720 Speaker 1: simple selling the news reaction. Okay, So this is what 262 00:13:29,760 --> 00:13:32,600 Speaker 1: they did, what we anticipated, and they're selling on the news. 263 00:13:32,600 --> 00:13:34,440 Speaker 1: So I think one of the things that people do 264 00:13:34,880 --> 00:13:36,640 Speaker 1: that make a mistake in the market is they see 265 00:13:36,640 --> 00:13:39,920 Speaker 1: trading action and they try to apply fundamental logic to it. 266 00:13:40,200 --> 00:13:42,439 Speaker 1: And so if you've been long and you get this 267 00:13:42,480 --> 00:13:44,880 Speaker 1: trip tick and you say, I've got to get away 268 00:13:44,920 --> 00:13:47,200 Speaker 1: from that trade. All of a sudden, new cascades the 269 00:13:47,200 --> 00:13:51,400 Speaker 1: markets down six fifty points. People say, what happened, Nothing happened, 270 00:13:51,400 --> 00:13:54,880 Speaker 1: it's just trading. They're selling on the news. That's one 271 00:13:54,880 --> 00:13:56,599 Speaker 1: of the first things I was taught by one of 272 00:13:56,600 --> 00:13:58,680 Speaker 1: my mentors on the prince side. He said, sometimes traders 273 00:13:58,720 --> 00:14:01,600 Speaker 1: just trade because they trade. That's all they do. Ira 274 00:14:01,720 --> 00:14:03,600 Speaker 1: hop on in here. Would you agree with that? Would you? 275 00:14:03,679 --> 00:14:06,439 Speaker 1: Would you say that's happening? Positioning matters so much? Right, 276 00:14:06,480 --> 00:14:08,240 Speaker 1: So what happens is is that you get people in 277 00:14:08,280 --> 00:14:10,560 Speaker 1: positions like right now, just about everyone in the world 278 00:14:10,640 --> 00:14:13,640 Speaker 1: is in flattening trades in my market, in the in 279 00:14:13,679 --> 00:14:16,360 Speaker 1: the rates market, particularly in the US, and then um, 280 00:14:16,640 --> 00:14:19,120 Speaker 1: you know, so it makes it harder and harder because 281 00:14:19,120 --> 00:14:21,400 Speaker 1: so many people are in those positions for the curve 282 00:14:21,480 --> 00:14:23,360 Speaker 1: to flatten more. But then all of a sudden, there's 283 00:14:23,360 --> 00:14:26,320 Speaker 1: something fundamental that occurs, like you know, Christine Leguard being 284 00:14:26,440 --> 00:14:28,400 Speaker 1: very hawkish, and the next thing you know, you know, 285 00:14:28,440 --> 00:14:30,440 Speaker 1: you can you can flatten a little bit more because 286 00:14:30,480 --> 00:14:33,240 Speaker 1: you now bring in what would be weaker hands. So 287 00:14:33,240 --> 00:14:36,320 Speaker 1: so I agree, I mean the intra day volatility. Sometimes 288 00:14:36,360 --> 00:14:38,680 Speaker 1: it's just all about positioning and people, you know, just 289 00:14:38,720 --> 00:14:42,360 Speaker 1: squaring positions and managing risk, as opposed to longer term trends, 290 00:14:42,440 --> 00:14:44,960 Speaker 1: which obviously I think ultimately do have to come back 291 00:14:44,960 --> 00:14:47,680 Speaker 1: to more fundamentals. Well, you're talking about the inversion. Talk 292 00:14:47,720 --> 00:14:49,560 Speaker 1: to me about the depth of the inversion, because I 293 00:14:49,560 --> 00:14:51,600 Speaker 1: think that's really significant. It's been in the two tents, 294 00:14:51,640 --> 00:14:53,840 Speaker 1: for example, has been inverted for a while. But the 295 00:14:53,880 --> 00:14:55,880 Speaker 1: fact that we've got I think to like two I 296 00:14:55,880 --> 00:14:58,360 Speaker 1: want to say negative at two basis points, that seems 297 00:14:58,440 --> 00:15:01,600 Speaker 1: extreme going back to um even the seventies when we 298 00:15:01,600 --> 00:15:03,840 Speaker 1: saw I think negative two hundred. Yeah, so briefly so 299 00:15:03,960 --> 00:15:06,600 Speaker 1: negative two hundred, but but basically the market had spent 300 00:15:06,680 --> 00:15:09,240 Speaker 1: about the better part of a year on nine months 301 00:15:09,240 --> 00:15:12,200 Speaker 1: plus at negative hundred to a negative hundred and fifty 302 00:15:12,200 --> 00:15:13,800 Speaker 1: basis points. Now I'm not sure that we'll get to 303 00:15:13,800 --> 00:15:16,160 Speaker 1: a hundred negative hundred and fifty again this cycle, although 304 00:15:16,240 --> 00:15:18,800 Speaker 1: it's not out of the question. But our targets about 305 00:15:18,840 --> 00:15:20,600 Speaker 1: negative a hundred, and the way that we get there 306 00:15:20,840 --> 00:15:23,680 Speaker 1: is that the the the long end stays more or 307 00:15:23,720 --> 00:15:25,560 Speaker 1: less where it is three point four to three point 308 00:15:25,640 --> 00:15:28,400 Speaker 1: six on on the tenure um. But then the two 309 00:15:28,480 --> 00:15:31,000 Speaker 1: year yield still is has to go a little bit higher. 310 00:15:31,000 --> 00:15:32,520 Speaker 1: So two year yields have to sell off a little 311 00:15:32,520 --> 00:15:35,200 Speaker 1: bit because the market still doesn't believe that the Fed 312 00:15:35,320 --> 00:15:37,680 Speaker 1: is going to hold interest rates at the five percent 313 00:15:37,720 --> 00:15:39,840 Speaker 1: plus or mind us a little bit level for all 314 00:15:39,880 --> 00:15:42,880 Speaker 1: of next year. The market is still pricing for there'll 315 00:15:42,920 --> 00:15:44,960 Speaker 1: be a FED put and they think that if you know, 316 00:15:45,080 --> 00:15:47,000 Speaker 1: unemployment starts to go up, that the Fed's gonna start 317 00:15:47,000 --> 00:15:49,120 Speaker 1: cutting rates at the end of next year. Once we 318 00:15:49,160 --> 00:15:51,880 Speaker 1: take out that pricing for cuts next year, that's where 319 00:15:51,880 --> 00:15:55,000 Speaker 1: you get two year yields higher. Hey, John, you know 320 00:15:55,120 --> 00:15:58,200 Speaker 1: here in December two this is a year where stock 321 00:15:58,280 --> 00:16:01,280 Speaker 1: there's just no place to hide stocks, I mean just 322 00:16:01,440 --> 00:16:04,240 Speaker 1: ugly out there. And we haven't seen that in a 323 00:16:04,280 --> 00:16:06,440 Speaker 1: in a long time. And I wonder what you're telling 324 00:16:06,440 --> 00:16:08,520 Speaker 1: your clients here, and you're I'm assuming you're penning a 325 00:16:08,600 --> 00:16:11,200 Speaker 1: year ahead outlook letter to your clients. How do you 326 00:16:11,200 --> 00:16:15,600 Speaker 1: put into context just set up for well, I mean 327 00:16:15,640 --> 00:16:18,080 Speaker 1: it's um you know, one of the first of all, 328 00:16:18,080 --> 00:16:20,960 Speaker 1: we're chief investment officers, so we're looking to invest in trade, 329 00:16:21,000 --> 00:16:23,120 Speaker 1: and I want to draw a bright line between those two. 330 00:16:23,600 --> 00:16:25,720 Speaker 1: I was struck by, you know, the there are two 331 00:16:25,720 --> 00:16:28,040 Speaker 1: types of forecasters, those who don't know and those who don't. 332 00:16:28,080 --> 00:16:30,000 Speaker 1: Those who don't know, they don't know, you know, So 333 00:16:30,560 --> 00:16:32,800 Speaker 1: we try not to forecast. We're looking at the current 334 00:16:32,800 --> 00:16:35,200 Speaker 1: cash flows and reacting, so we like the US better 335 00:16:35,240 --> 00:16:38,240 Speaker 1: than non US. We're managing global portfolios who are overweight 336 00:16:38,360 --> 00:16:41,320 Speaker 1: US but fully invested in stocks. That doesn't mean we 337 00:16:41,320 --> 00:16:44,040 Speaker 1: won't accumulate some cash. So in other words, when a 338 00:16:44,040 --> 00:16:45,720 Speaker 1: lot of the risks that people think about in the 339 00:16:45,760 --> 00:16:49,760 Speaker 1: marketplace should be addressed by portfolio construction, So the words, 340 00:16:49,840 --> 00:16:52,280 Speaker 1: do you have enough cash and short term fixed income 341 00:16:52,320 --> 00:16:54,880 Speaker 1: in your portfolio that you can weather down terms? So 342 00:16:54,920 --> 00:16:57,200 Speaker 1: this is a time where you might be accumulating dividends 343 00:16:57,480 --> 00:16:59,840 Speaker 1: and putting them in things where like short term fixed income, 344 00:17:00,000 --> 00:17:01,560 Speaker 1: the yield has gone up. There's nothing wrong with that. 345 00:17:02,240 --> 00:17:04,879 Speaker 1: So that um, so we like that. We're neutral equity 346 00:17:04,920 --> 00:17:09,480 Speaker 1: market overweight US. Shorter duration still we were, um we were, 347 00:17:09,560 --> 00:17:11,639 Speaker 1: we were quite short, and then we took some of 348 00:17:11,680 --> 00:17:14,359 Speaker 1: that off recently, but we're still a little short. So 349 00:17:14,440 --> 00:17:17,720 Speaker 1: short duration overweight US, fully invested in equities is sort 350 00:17:17,720 --> 00:17:19,560 Speaker 1: of where we are. But like On the stock side, 351 00:17:19,640 --> 00:17:22,040 Speaker 1: we like um sort of growth stocks with pricing power. 352 00:17:22,560 --> 00:17:25,120 Speaker 1: But in general, UM, I just think. I mean, I'm 353 00:17:25,119 --> 00:17:26,879 Speaker 1: gonna be controversial in a minute and say I think 354 00:17:26,880 --> 00:17:29,000 Speaker 1: we're spending too much time talking about I don't mean 355 00:17:29,040 --> 00:17:31,520 Speaker 1: this conversation, but the world is talking too much about 356 00:17:31,520 --> 00:17:34,679 Speaker 1: the ft. We know about the fet you know, Chairman 357 00:17:34,760 --> 00:17:37,600 Speaker 1: Pal's trying to be as transparent as he can. There's 358 00:17:37,680 --> 00:17:40,480 Speaker 1: nothing that I know that the market doesn't know. And 359 00:17:40,560 --> 00:17:42,560 Speaker 1: so it's all in there, he said, he tells us 360 00:17:42,600 --> 00:17:44,800 Speaker 1: what he's doing, and then he does it. So I 361 00:17:44,880 --> 00:17:47,159 Speaker 1: really instruct by some of the more fundamental things that 362 00:17:47,160 --> 00:17:49,679 Speaker 1: are going on that give us huge reasons for optimism 363 00:17:49,680 --> 00:17:52,120 Speaker 1: that I never feel like anybody's talking about. For example, 364 00:17:52,680 --> 00:17:57,000 Speaker 1: we actually may have fusion energy in my lifetime. People 365 00:17:57,040 --> 00:17:59,400 Speaker 1: said the other day, oh yeah, this is don't get 366 00:17:59,440 --> 00:18:01,480 Speaker 1: over excited. It may take a few years before it 367 00:18:01,520 --> 00:18:04,800 Speaker 1: really works. Really, I can wait a few years. I mean, 368 00:18:04,840 --> 00:18:07,200 Speaker 1: this is unbelievable. And the other one is the m 369 00:18:07,280 --> 00:18:09,280 Speaker 1: r N, a breakthrough that we just talked about in 370 00:18:09,320 --> 00:18:12,600 Speaker 1: the news, and what that does for mankind. So we've 371 00:18:12,600 --> 00:18:17,520 Speaker 1: got this never before positive environment in the world. I mean, 372 00:18:17,560 --> 00:18:21,160 Speaker 1: if you go through every statistic, you know, birth rates, UH, 373 00:18:21,720 --> 00:18:25,200 Speaker 1: health around the world, economic expansion, everything around the world 374 00:18:25,280 --> 00:18:27,280 Speaker 1: is better than it's ever been. And I would make 375 00:18:27,280 --> 00:18:30,879 Speaker 1: the case that almost everything we're seeing is a trend 376 00:18:30,920 --> 00:18:34,119 Speaker 1: in that direction. It's not linear, it's bumpy. But I 377 00:18:34,200 --> 00:18:36,040 Speaker 1: just saw while I was waiting to come in that 378 00:18:37,160 --> 00:18:40,800 Speaker 1: the China a d r D listing maybe delayed because 379 00:18:40,840 --> 00:18:44,200 Speaker 1: we're gonna get access to audits. Well, isn't that interesting? 380 00:18:44,240 --> 00:18:47,000 Speaker 1: The free markets, the truth will set you free. If 381 00:18:47,000 --> 00:18:50,480 Speaker 1: you can answer transparency and you add value, you get 382 00:18:50,520 --> 00:18:54,119 Speaker 1: access to global capital, and good things happen. So there's 383 00:18:54,119 --> 00:18:56,960 Speaker 1: a I do think we have a lot of rational 384 00:18:57,000 --> 00:19:00,600 Speaker 1: reasons to be optimistic. UH. And the Fed's gonna do 385 00:19:00,640 --> 00:19:04,000 Speaker 1: what the FED does UH, And it doesn't really change 386 00:19:04,080 --> 00:19:08,800 Speaker 1: much for a long term investor, right it is what 387 00:19:08,920 --> 00:19:11,840 Speaker 1: should what's gonna be the next data point that? You know, 388 00:19:12,359 --> 00:19:15,240 Speaker 1: the FED the other central banks are just going to 389 00:19:15,320 --> 00:19:17,520 Speaker 1: be really looking at it. You know, as John said 390 00:19:17,560 --> 00:19:20,159 Speaker 1: that the long term trends UH for most of the 391 00:19:20,200 --> 00:19:22,240 Speaker 1: world are positive, but they have to live in the 392 00:19:22,359 --> 00:19:24,560 Speaker 1: here and now. So how do you think they're gonna 393 00:19:24,600 --> 00:19:27,560 Speaker 1: be playing this out? Because I don't I can't imagine 394 00:19:27,880 --> 00:19:30,760 Speaker 1: either any center banks are going to push the economy 395 00:19:30,760 --> 00:19:33,960 Speaker 1: into a significant recession. So so this we're just we're 396 00:19:33,960 --> 00:19:35,880 Speaker 1: talking for here. I think a little bit about trend 397 00:19:36,000 --> 00:19:37,760 Speaker 1: versus cycle. Right, So a lot of people, you know 398 00:19:37,800 --> 00:19:40,119 Speaker 1: where your news. I was on a trading desk for 399 00:19:40,160 --> 00:19:41,639 Speaker 1: a long time, so we cared a lot about the 400 00:19:41,640 --> 00:19:43,879 Speaker 1: cycle as opposed to the trend, right, and the long 401 00:19:44,000 --> 00:19:46,679 Speaker 1: term trends in some cases are might be positive. So 402 00:19:47,040 --> 00:19:49,040 Speaker 1: you know that the next data point, like and and 403 00:19:49,160 --> 00:19:51,359 Speaker 1: the FED is right now data dependent in trying to 404 00:19:51,720 --> 00:19:53,800 Speaker 1: kind of smooth out this cycle, right and trying to 405 00:19:53,800 --> 00:19:56,720 Speaker 1: get inflation down. Um, so so the next inflation print 406 00:19:57,080 --> 00:19:59,320 Speaker 1: is going to be important, right, So next next, actually 407 00:19:59,400 --> 00:20:02,240 Speaker 1: next Friday gonna be insanely busy. From a data perspective, 408 00:20:02,280 --> 00:20:04,640 Speaker 1: You're gonna have so much data to talk about. You're 409 00:20:04,680 --> 00:20:06,359 Speaker 1: not gonna know what to do. Because you get the 410 00:20:06,760 --> 00:20:09,320 Speaker 1: PC data, we get the personal spending and income data, 411 00:20:09,359 --> 00:20:14,040 Speaker 1: we get again, I'll see what I can do. So 412 00:20:14,119 --> 00:20:16,280 Speaker 1: the importantly, though, I think it's going to be the 413 00:20:16,359 --> 00:20:19,800 Speaker 1: January CPI print because because that that print and the 414 00:20:19,920 --> 00:20:22,600 Speaker 1: PC print later in January are going to be both. 415 00:20:22,720 --> 00:20:26,160 Speaker 1: We get those before the February one FED meetings. So 416 00:20:26,160 --> 00:20:27,600 Speaker 1: so with the idea that is the Fed going to 417 00:20:27,640 --> 00:20:29,679 Speaker 1: go twenty five basis points or fifty basis points in 418 00:20:29,680 --> 00:20:32,960 Speaker 1: February is going to be answered probably middle of January 419 00:20:33,000 --> 00:20:36,520 Speaker 1: based on what the CPI number is. Well, Jonathan hop 420 00:20:36,560 --> 00:20:39,680 Speaker 1: In here, because what do you think the tenure treasury 421 00:20:39,720 --> 00:20:43,080 Speaker 1: being like after this news? It goes from three fifty 422 00:20:43,080 --> 00:20:45,720 Speaker 1: three to three sixty? Other words, it's not really doing 423 00:20:45,840 --> 00:20:48,720 Speaker 1: much as an investor, And I think about discounting future 424 00:20:48,760 --> 00:20:52,040 Speaker 1: cash flows, those farther out cash flows mean a lot 425 00:20:52,080 --> 00:20:54,399 Speaker 1: more on the discounting than the short term cash flows 426 00:20:54,400 --> 00:20:57,600 Speaker 1: to so I think that tenure at three sixty is 427 00:20:57,640 --> 00:21:00,320 Speaker 1: still what's it telling us? I mean, what is it 428 00:21:00,359 --> 00:21:02,199 Speaker 1: telling us about core inflation? Do you think? And I 429 00:21:02,200 --> 00:21:04,840 Speaker 1: know it's a global number, but what do you think 430 00:21:04,920 --> 00:21:07,640 Speaker 1: it tells us about core inflation? Well, it's really very 431 00:21:07,640 --> 00:21:10,359 Speaker 1: little about core inflation in and of itself, except that 432 00:21:10,400 --> 00:21:14,119 Speaker 1: the markets anticipating that inflation over a long period of 433 00:21:14,119 --> 00:21:16,159 Speaker 1: time is going to be three pc plus or minus 434 00:21:16,200 --> 00:21:18,800 Speaker 1: fifty basis points right, So um, and probably a little 435 00:21:18,840 --> 00:21:21,960 Speaker 1: lower than that. Um. So you know, I I used 436 00:21:22,040 --> 00:21:24,240 Speaker 1: I do use the market numbers there was someone who 437 00:21:24,520 --> 00:21:26,480 Speaker 1: was trying to convince me the other day that that 438 00:21:26,560 --> 00:21:29,080 Speaker 1: the markets being still being manipulated by the FED, even 439 00:21:29,080 --> 00:21:31,800 Speaker 1: though the FEDS now running off its balance sheet. But 440 00:21:32,080 --> 00:21:33,560 Speaker 1: you know, ten year yields at three and a half 441 00:21:33,560 --> 00:21:36,359 Speaker 1: percent still is not saying that the markets worried about 442 00:21:36,359 --> 00:21:38,840 Speaker 1: long term inflation. It's worried about inflation here and now. 443 00:21:39,040 --> 00:21:41,119 Speaker 1: That's why we have two year yields at four and 444 00:21:41,119 --> 00:21:42,639 Speaker 1: a half. Four and a quarter should be four and 445 00:21:42,640 --> 00:21:45,800 Speaker 1: a half. But longer, longer term, the market is not 446 00:21:46,000 --> 00:21:53,480 Speaker 1: fearful that inflation is going to be particularly sticky, real quick. France, Argentina, God, 447 00:21:53,520 --> 00:21:55,920 Speaker 1: I really I want Argentina in this one, just because 448 00:21:55,920 --> 00:21:57,840 Speaker 1: I want Messy to be the goat, and there would 449 00:21:57,840 --> 00:22:01,080 Speaker 1: be no question. But but the same time, France is 450 00:22:01,160 --> 00:22:05,879 Speaker 1: so deep beautifully against Morocco. Their defense, the French defense. 451 00:22:06,359 --> 00:22:08,720 Speaker 1: Morocco had some good chances though, you know hit the post. 452 00:22:08,800 --> 00:22:11,320 Speaker 1: I mean there was a really nice spicyclel kick yeah, 453 00:22:12,840 --> 00:22:15,560 Speaker 1: Portugal and John I was actually a part owner of 454 00:22:15,600 --> 00:22:18,639 Speaker 1: a minor league soccer club in central New Jersey, so 455 00:22:18,680 --> 00:22:20,959 Speaker 1: he does actually know what he's talking about. So you know, 456 00:22:21,040 --> 00:22:23,200 Speaker 1: he's actually been in demand now during this World Cup. 457 00:22:23,320 --> 00:22:26,480 Speaker 1: Nobody cares really about the Fed. Uh. Jonathan Hurdle, executive 458 00:22:26,520 --> 00:22:30,520 Speaker 1: chairman at Hurdle Callahan based down Westconscha Hacken p a 459 00:22:30,640 --> 00:22:33,880 Speaker 1: good part of the world in our Jersey Bloomberg Chief 460 00:22:34,000 --> 00:22:37,240 Speaker 1: Us Interest Rate Strategies, both in our Bloomberg Interactor Broker study, 461 00:22:37,320 --> 00:22:39,960 Speaker 1: breaking down what we've been seeing from the central banks. 462 00:22:44,080 --> 00:22:47,520 Speaker 1: Lots going on in the marketplace. Tom King, send him home. 463 00:22:47,560 --> 00:22:49,719 Speaker 1: He's been working like crazy keeping up with what's going 464 00:22:49,760 --> 00:22:53,399 Speaker 1: on with the the central banks. Jason Greenbal joins us. 465 00:22:53,400 --> 00:22:57,240 Speaker 1: He's a senior portfolio folio manager at American Century Investments 466 00:22:57,240 --> 00:22:59,080 Speaker 1: are located in Kansasy. He joins us here in our 467 00:22:59,080 --> 00:23:03,080 Speaker 1: Bloomberg Interactive Broker studio and yet another Penn State grad 468 00:23:03,440 --> 00:23:06,639 Speaker 1: in our studio. So these people are everywhere. Jason, what 469 00:23:06,720 --> 00:23:09,200 Speaker 1: do you make of the last twenty four hours central 470 00:23:09,200 --> 00:23:11,399 Speaker 1: bankers around the world raising rates? We've got some a 471 00:23:11,400 --> 00:23:13,880 Speaker 1: little bit weaker than expected print on the retail sales 472 00:23:14,400 --> 00:23:17,200 Speaker 1: um you know, on the on the credit side, global 473 00:23:17,240 --> 00:23:20,040 Speaker 1: fixed income side. What do you do after it's been 474 00:23:20,080 --> 00:23:23,720 Speaker 1: such a brutal year for global fixed income? Yeah? Great, 475 00:23:23,760 --> 00:23:26,080 Speaker 1: great question and great to be here with you today. 476 00:23:26,119 --> 00:23:29,200 Speaker 1: Thank you. Um what do you do? So, I think 477 00:23:29,240 --> 00:23:31,879 Speaker 1: you need to have dry powder. This this rally that 478 00:23:31,920 --> 00:23:37,840 Speaker 1: we've experienced since October, the the expectation that inflation has peaked. 479 00:23:37,880 --> 00:23:40,800 Speaker 1: We agree with inflation has peaked, but the central banks 480 00:23:40,800 --> 00:23:43,880 Speaker 1: clearly do not like it. Um, there's more work to do. 481 00:23:44,080 --> 00:23:47,320 Speaker 1: Quoting Powell from yesterday, we agree there's more work to do. 482 00:23:47,640 --> 00:23:50,560 Speaker 1: The markets are realizing that, and we've gone probably a 483 00:23:50,560 --> 00:23:54,120 Speaker 1: bit too far too fast. Well, the markets are realizing that, 484 00:23:54,160 --> 00:23:56,320 Speaker 1: but they're also pricing and cuts next year, which is 485 00:23:56,359 --> 00:23:59,119 Speaker 1: the Federal Reserve is actively saying we're not gonna do 486 00:23:59,320 --> 00:24:02,040 Speaker 1: believe us not gonna cut. We're gonna stay elevated for 487 00:24:02,080 --> 00:24:04,720 Speaker 1: a while. What happens if they do? Though? How quick 488 00:24:04,920 --> 00:24:08,119 Speaker 1: does that decision happen? So I think you have to 489 00:24:08,119 --> 00:24:10,440 Speaker 1: take a step back and ask why would they be cutting. 490 00:24:10,560 --> 00:24:13,159 Speaker 1: It's not going to be for a positive event. And 491 00:24:13,280 --> 00:24:16,280 Speaker 1: fundamentals are slowing. If you look at their UH Summary 492 00:24:16,280 --> 00:24:20,080 Speaker 1: of Economic projections, they're coming down. Um, is the market 493 00:24:20,119 --> 00:24:22,640 Speaker 1: prepared for that? There's a there's a huge question mark. 494 00:24:22,680 --> 00:24:25,240 Speaker 1: And I think if you rewind the quock twelve months ago, 495 00:24:25,960 --> 00:24:30,520 Speaker 1: many strategists did not anticipate the rate hikes and the 496 00:24:30,560 --> 00:24:33,040 Speaker 1: pace that we saw this year. I just think it's 497 00:24:33,080 --> 00:24:36,280 Speaker 1: it's maybe two premature to look out twelve months and say, well, 498 00:24:36,320 --> 00:24:39,119 Speaker 1: there's gonna be a rate cut. If that happens, I 499 00:24:39,119 --> 00:24:41,600 Speaker 1: think that's a bad outcome. But isn't that the playbook 500 00:24:41,640 --> 00:24:43,439 Speaker 1: that the FED has been operating on for the past 501 00:24:43,480 --> 00:24:46,399 Speaker 1: two decades, essentially that the minute things go south, you 502 00:24:46,480 --> 00:24:49,680 Speaker 1: cut rates. Yeah, we're we're accustomed to buying the dip. 503 00:24:49,920 --> 00:24:52,880 Speaker 1: I mean that's we saw that this year. The FED 504 00:24:52,960 --> 00:24:55,240 Speaker 1: has our back, and I agree with that. I mean, 505 00:24:55,400 --> 00:25:00,720 Speaker 1: why why let everything unwind since the financial crisis till now? Um, 506 00:25:00,800 --> 00:25:03,080 Speaker 1: you're right, they have our back. It's so interesting to 507 00:25:03,160 --> 00:25:05,600 Speaker 1: hear an investors say the FED has our back, Yes, 508 00:25:05,800 --> 00:25:09,359 Speaker 1: exactly when the Feed has been raising rates. Here, Jace, 509 00:25:09,400 --> 00:25:12,000 Speaker 1: I know in your in your career, you've done some 510 00:25:12,119 --> 00:25:15,400 Speaker 1: high yields, some discrested credit. If we are in fact 511 00:25:15,440 --> 00:25:18,040 Speaker 1: going into a recession in three and maybe it's a 512 00:25:18,080 --> 00:25:20,359 Speaker 1: little bit deeper than most people think, how are the 513 00:25:20,359 --> 00:25:24,280 Speaker 1: credit markets going to react? How's the credit quality out there? Uh, 514 00:25:24,320 --> 00:25:26,359 Speaker 1: it depends on which part of the market you're looking at. 515 00:25:26,359 --> 00:25:30,040 Speaker 1: Investment create corporates were not too concerned about evaluations do 516 00:25:30,240 --> 00:25:32,520 Speaker 1: look tight. We think there's some weakness, but that's not 517 00:25:32,560 --> 00:25:34,840 Speaker 1: where the problems are gonna come. Problems are gonna come 518 00:25:34,880 --> 00:25:37,640 Speaker 1: from the smaller companies. The companies who have you been 519 00:25:37,640 --> 00:25:42,239 Speaker 1: battling to UH to bring workers onto wage inflation. Now 520 00:25:42,280 --> 00:25:45,800 Speaker 1: they're laying some of them off. Um the rate hikes. 521 00:25:45,840 --> 00:25:48,400 Speaker 1: The rate hikes are are chewing into their free cash flow. 522 00:25:48,760 --> 00:25:51,639 Speaker 1: These single be rated bank loans that have you know, 523 00:25:51,840 --> 00:25:54,720 Speaker 1: floating rate capital structures. Those are gonna be the areas 524 00:25:54,800 --> 00:25:57,840 Speaker 1: that you know, with with our credit expertise, we can 525 00:25:57,880 --> 00:26:00,760 Speaker 1: go in and buy these these opportunities is cheap, but 526 00:26:00,840 --> 00:26:02,480 Speaker 1: it's probably not going to be for another six to 527 00:26:02,560 --> 00:26:04,959 Speaker 1: twelve months until we really start to see some of 528 00:26:04,960 --> 00:26:07,560 Speaker 1: this carnage. And what are your economists they're saying about 529 00:26:07,560 --> 00:26:10,280 Speaker 1: a recession in is they talk to you guys the 530 00:26:10,320 --> 00:26:12,840 Speaker 1: portfolio a moment, managers, the analyst actually putting the money 531 00:26:12,840 --> 00:26:16,960 Speaker 1: to work. Yeah, probability in our minds from our investment 532 00:26:16,960 --> 00:26:20,399 Speaker 1: committee is is a sixty plus percent chance of a recession. 533 00:26:20,840 --> 00:26:23,000 Speaker 1: I think when we look back at third quarter earnings, 534 00:26:23,280 --> 00:26:26,359 Speaker 1: there's some companies that you know, really struggled with margins. 535 00:26:26,600 --> 00:26:31,800 Speaker 1: You're seeing that with retail um chemicals, there's probably more 536 00:26:31,840 --> 00:26:35,520 Speaker 1: of that to come. Um, So looking backwards, things look okay. 537 00:26:35,800 --> 00:26:40,760 Speaker 1: Looking forwards were a lot more cautious in the corporate space. 538 00:26:40,800 --> 00:26:44,000 Speaker 1: Are there any sectors that you guys like right here 539 00:26:44,160 --> 00:26:46,919 Speaker 1: or maybe going into where there might be a you know, 540 00:26:47,080 --> 00:26:51,160 Speaker 1: a six percent chance of a recession. Yeah. The spaces 541 00:26:51,200 --> 00:26:53,359 Speaker 1: that we like is, you know, certainly high quality parts 542 00:26:53,400 --> 00:26:55,840 Speaker 1: of the market, um, you know, single a's we we 543 00:26:55,960 --> 00:26:59,600 Speaker 1: certainly like the banks, Um, we like utilities. Those are 544 00:26:59,720 --> 00:27:02,520 Speaker 1: those going to be more stable, they'll they'll come out 545 00:27:03,200 --> 00:27:06,520 Speaker 1: probably unscathed in our minds, um. But there's certainly a 546 00:27:06,520 --> 00:27:09,040 Speaker 1: lot of other sectors that we think, you know, we'll 547 00:27:09,080 --> 00:27:12,560 Speaker 1: feel some pain here. Well. I think it's interesting to 548 00:27:12,600 --> 00:27:15,840 Speaker 1: me about just the carnage that we've seen in the markets, 549 00:27:15,880 --> 00:27:17,639 Speaker 1: and it feels like it's been a no brainer that 550 00:27:17,680 --> 00:27:20,480 Speaker 1: it's has the Federal reserve hikes rates, everything sells off, 551 00:27:20,520 --> 00:27:24,119 Speaker 1: from bonds to the stock market, arguably in commodities, depending 552 00:27:24,119 --> 00:27:26,879 Speaker 1: on how you look at it. But it almost feels 553 00:27:26,880 --> 00:27:29,640 Speaker 1: like this year has been the year in which you're 554 00:27:29,640 --> 00:27:32,840 Speaker 1: pricing in this kind of doom and gloom or sessionary scenario. 555 00:27:33,800 --> 00:27:35,760 Speaker 1: Do we actually see some sort of turn around in 556 00:27:36,600 --> 00:27:38,919 Speaker 1: or is it just more of the same. Well, we 557 00:27:39,000 --> 00:27:41,040 Speaker 1: think a lot of the pain has been done already 558 00:27:41,119 --> 00:27:44,040 Speaker 1: in the rates market on the spread side and credit 559 00:27:44,400 --> 00:27:47,080 Speaker 1: we haven't seen that yet. Fundamentals haven't fully caught up 560 00:27:47,119 --> 00:27:50,280 Speaker 1: to what's going on. And again, Powell recognize that that 561 00:27:50,440 --> 00:27:54,160 Speaker 1: this massive tightening that's taken place hasn't been fully filt 562 00:27:54,200 --> 00:27:56,560 Speaker 1: yet by the market, and I think that's where the 563 00:27:56,600 --> 00:27:59,720 Speaker 1: opportunities are gonna uh to present themselves next year. Is 564 00:27:59,720 --> 00:28:03,000 Speaker 1: that through though, has it not been fully felt by 565 00:28:03,119 --> 00:28:06,119 Speaker 1: the market When you're looking at um, I mean it 566 00:28:06,160 --> 00:28:08,240 Speaker 1: feels like what he's using to say that is financial 567 00:28:08,240 --> 00:28:11,800 Speaker 1: conditions essentially, which are still sort of easing. But isn't 568 00:28:11,800 --> 00:28:13,919 Speaker 1: that kind of the market's job to price this in 569 00:28:14,000 --> 00:28:16,000 Speaker 1: and then to look six to nine months down the road. 570 00:28:16,040 --> 00:28:18,280 Speaker 1: So if they are easing a little bit, it's not 571 00:28:18,320 --> 00:28:19,959 Speaker 1: saying that there isn't going to be paying in the 572 00:28:20,000 --> 00:28:23,480 Speaker 1: front half three but that things will turn around later 573 00:28:23,640 --> 00:28:26,200 Speaker 1: down the road. At least that was my interpretation. Yeah, yeah, 574 00:28:26,240 --> 00:28:28,840 Speaker 1: So the pain that I think you're referring to is 575 00:28:28,840 --> 00:28:31,800 Speaker 1: is really again from from treasuries being up two to 576 00:28:31,840 --> 00:28:34,760 Speaker 1: four d basis points this year in terms of spreads, 577 00:28:35,240 --> 00:28:38,360 Speaker 1: credit spreads are not pricing in a recession. They usually 578 00:28:38,800 --> 00:28:42,440 Speaker 1: peak about six months in advance of a recession. So 579 00:28:42,520 --> 00:28:45,640 Speaker 1: if you're thinking six to twelve months out, the corporate O, A, 580 00:28:45,800 --> 00:28:48,120 Speaker 1: S and I G at one thirty, typically it's two 581 00:28:48,200 --> 00:28:50,640 Speaker 1: hundred plus basis points. So we've got quite a bit 582 00:28:50,640 --> 00:28:53,240 Speaker 1: of way to go. If if that's the downs typical 583 00:28:53,320 --> 00:28:58,200 Speaker 1: for typical for a normal run of the mill recession. Um, 584 00:28:58,240 --> 00:29:01,520 Speaker 1: if it's worse, you know, I've seen strategist pencil in 585 00:29:01,840 --> 00:29:03,920 Speaker 1: to fifty plus. We don't think it's going to be 586 00:29:03,960 --> 00:29:09,200 Speaker 1: that bad. So all right, putting perspective historic losses across 587 00:29:09,280 --> 00:29:13,800 Speaker 1: many verticals in fixed income, given that at backdrop, what 588 00:29:13,840 --> 00:29:18,200 Speaker 1: are your clients asking you today? Yeah? Um, what should 589 00:29:18,240 --> 00:29:22,080 Speaker 1: we be doing about duration? So interest rate risk? Uh, 590 00:29:22,160 --> 00:29:24,080 Speaker 1: you know we have an inverted curve. Should we be 591 00:29:24,120 --> 00:29:26,520 Speaker 1: adding duration? The answer is yes, in our minds, we 592 00:29:26,520 --> 00:29:29,240 Speaker 1: should be going out the curve, should be adding duration 593 00:29:29,320 --> 00:29:33,960 Speaker 1: because again our higher higher probability or recessionary risk you know, 594 00:29:34,040 --> 00:29:37,959 Speaker 1: further out and inflation coming down that we should see 595 00:29:38,040 --> 00:29:40,160 Speaker 1: at least stability in the long end of the curve. 596 00:29:40,480 --> 00:29:44,240 Speaker 1: Tens thirties. UM, we do see some more upward pressure 597 00:29:44,240 --> 00:29:45,960 Speaker 1: in the front end of the curve, so we would 598 00:29:46,000 --> 00:29:48,200 Speaker 1: be adding duration in the longer end of the curve. 599 00:29:48,320 --> 00:29:50,280 Speaker 1: And this whole inverted yield curve stuff. It's I think 600 00:29:50,280 --> 00:29:52,840 Speaker 1: it's like negative eighty basis points on the two tens. 601 00:29:53,240 --> 00:29:55,880 Speaker 1: I'm an equity guy. I don't know. Is that important 602 00:29:55,920 --> 00:29:59,920 Speaker 1: to you? It sure is. I mean, I think it's technical. 603 00:30:00,280 --> 00:30:02,200 Speaker 1: You know, it signals whether you look at two s 604 00:30:02,200 --> 00:30:05,640 Speaker 1: tens or the three months versus tens, certainly signaling that 605 00:30:05,760 --> 00:30:09,200 Speaker 1: you know that there's stress on the way. UM. I 606 00:30:09,200 --> 00:30:12,360 Speaker 1: think it's something that equity investors and fixed and investors 607 00:30:12,360 --> 00:30:14,800 Speaker 1: should should certainly be aware of. All right, good stuff. 608 00:30:14,840 --> 00:30:19,200 Speaker 1: Jason Greenblath, senior portfolio manager at American Century Investments. UH, 609 00:30:19,280 --> 00:30:22,240 Speaker 1: joining us here on a Bloomberg Interactive broker studio. UM, 610 00:30:22,440 --> 00:30:24,520 Speaker 1: lots of good clients. I had an American Centry out 611 00:30:24,520 --> 00:30:26,120 Speaker 1: in Kansas City. You got an office here in New York. 612 00:30:26,160 --> 00:30:28,640 Speaker 1: You guys are everywhere. Uh, they've got about two billion 613 00:30:28,640 --> 00:30:31,960 Speaker 1: in assets under management. How about that? There's money everywhere 614 00:30:31,960 --> 00:30:37,840 Speaker 1: out there? All right, let's switch gears and talk a 615 00:30:37,880 --> 00:30:41,160 Speaker 1: little quantity hate of analysis. How are the quant geeks 616 00:30:41,160 --> 00:30:43,400 Speaker 1: out there? How are they play in this market? Uh? 617 00:30:43,440 --> 00:30:45,440 Speaker 1: So far? And what's the outloot going forward? And yes, 618 00:30:45,520 --> 00:30:48,080 Speaker 1: I always refer to them as quant geeks UM. And 619 00:30:48,080 --> 00:30:51,640 Speaker 1: you'll see why. George Patterson c I O Pjim Quantitative Solutions, 620 00:30:52,120 --> 00:30:55,880 Speaker 1: PhD in physics from Boston University. Like he's like a 621 00:30:55,960 --> 00:30:59,760 Speaker 1: rocket scientist and then he goes it starts getting investing 622 00:30:59,800 --> 00:31:02,720 Speaker 1: during Thanks so much for joining us here. Really appreciate it. 623 00:31:03,280 --> 00:31:05,600 Speaker 1: You know, how do guys like you and the way 624 00:31:05,680 --> 00:31:09,280 Speaker 1: you guys look at the market and your clients. What 625 00:31:09,360 --> 00:31:14,240 Speaker 1: what do you make so far? Thank you very much 626 00:31:14,480 --> 00:31:20,720 Speaker 1: for the introduction and uh and for the quant geek. Uh. 627 00:31:21,080 --> 00:31:23,840 Speaker 1: I'm more than other people actually a rocket scientist because 628 00:31:23,840 --> 00:31:26,000 Speaker 1: I actually did spend my first few years working at 629 00:31:26,000 --> 00:31:31,560 Speaker 1: a NASA research facility before getting getting down getting into 630 00:31:31,600 --> 00:31:35,440 Speaker 1: a quantitative quantitative investments UM. So if you look at 631 00:31:35,440 --> 00:31:40,040 Speaker 1: the past three years, we've had three cycles. Really in 632 00:31:40,120 --> 00:31:44,360 Speaker 1: three years. We had a slowdown or a shutdown really 633 00:31:44,400 --> 00:31:50,200 Speaker 1: from COVID, you know, extraordinary fiscal and government support and 634 00:31:50,240 --> 00:31:54,280 Speaker 1: then the resulting inflation. So this has just been a 635 00:31:54,440 --> 00:31:58,440 Speaker 1: massive shock to the system. I think the current environment 636 00:31:58,480 --> 00:32:01,520 Speaker 1: is not surprising given that we've had such strong returns 637 00:32:01,520 --> 00:32:04,080 Speaker 1: in the past couple of years, but those returns have 638 00:32:04,160 --> 00:32:08,720 Speaker 1: really been fueled by, you know, huge stimulus from both 639 00:32:08,760 --> 00:32:13,160 Speaker 1: central banks and governments, So so I'm not surprised we're 640 00:32:13,160 --> 00:32:15,640 Speaker 1: seeing a little bit of softness in the market. But 641 00:32:15,760 --> 00:32:18,680 Speaker 1: the real what I see as the opportunity is that 642 00:32:18,960 --> 00:32:22,080 Speaker 1: people have really just gotten out of equities and there's 643 00:32:22,120 --> 00:32:24,920 Speaker 1: been a huge shock to the system because people are 644 00:32:24,960 --> 00:32:28,600 Speaker 1: just selling things indiscriminately. So there's really a lot of 645 00:32:28,680 --> 00:32:32,280 Speaker 1: relative value opportunities where where people are just getting out 646 00:32:32,320 --> 00:32:36,240 Speaker 1: of names wholesale and and not looking at fundamentals. Um 647 00:32:36,320 --> 00:32:40,920 Speaker 1: that was really true in in but you know, we've 648 00:32:40,960 --> 00:32:44,640 Speaker 1: really seen types of quantitative strategies that that are very 649 00:32:44,720 --> 00:32:50,160 Speaker 1: broad based and look across markets, look across assets, really 650 00:32:50,160 --> 00:32:52,960 Speaker 1: do very well because there's just been such a such 651 00:32:53,000 --> 00:32:57,440 Speaker 1: a shock to the system, not unlike following the financial crisis, 652 00:32:57,520 --> 00:33:00,480 Speaker 1: not unlike following the tech bubble, where it's really going 653 00:33:00,520 --> 00:33:03,920 Speaker 1: to be several years of this going forward that there's 654 00:33:03,960 --> 00:33:06,000 Speaker 1: just been such a displacement, it's going to take time 655 00:33:06,040 --> 00:33:10,600 Speaker 1: for things to get back into equilibrium. Well, George tell 656 00:33:10,640 --> 00:33:15,680 Speaker 1: us a little bit about how quickly that could recalibrate 657 00:33:15,800 --> 00:33:17,480 Speaker 1: if in fact the market is right, and if in 658 00:33:17,520 --> 00:33:20,760 Speaker 1: fact we do see some sort of FED cut in 659 00:33:20,760 --> 00:33:26,400 Speaker 1: the back half of that, the central bank is very 660 00:33:26,440 --> 00:33:30,640 Speaker 1: I want to say, um um dogmatic for lack of 661 00:33:30,640 --> 00:33:32,360 Speaker 1: a better term, in terms of saying no, that's not 662 00:33:32,360 --> 00:33:35,320 Speaker 1: going to happen. But how quickly does the liquidity story change? 663 00:33:35,320 --> 00:33:39,320 Speaker 1: How quickly um does the positioning change if indeed the 664 00:33:39,320 --> 00:33:43,520 Speaker 1: FED decides to pull that trigger. Uh, well, this is 665 00:33:43,600 --> 00:33:47,480 Speaker 1: this is a challenge because everything we know indicates that 666 00:33:47,520 --> 00:33:50,080 Speaker 1: the FED policy acts with a with a significant lag. 667 00:33:50,200 --> 00:33:53,760 Speaker 1: So you know, we're we're seeing impact now from cut 668 00:33:54,120 --> 00:33:58,440 Speaker 1: from from increases that were made months ago. And again 669 00:33:58,480 --> 00:34:02,800 Speaker 1: it's a it's a challenging it's a challenging process. So, um, 670 00:34:02,840 --> 00:34:05,200 Speaker 1: you know, from my perspective, how quickly can we get 671 00:34:05,200 --> 00:34:08,240 Speaker 1: back to equilibrium? It's going to take some time. There's 672 00:34:08,239 --> 00:34:12,000 Speaker 1: a number of Um, there's a number of pressures on equity. 673 00:34:12,080 --> 00:34:14,239 Speaker 1: I mean, first of all, people are just hesitant to 674 00:34:14,320 --> 00:34:17,279 Speaker 1: be in equity when inflation is that level, at this 675 00:34:17,360 --> 00:34:20,240 Speaker 1: level and rates are going up. All of our research 676 00:34:20,280 --> 00:34:22,719 Speaker 1: shows that it makes sense to have, you know, some 677 00:34:22,760 --> 00:34:26,680 Speaker 1: allocation of real assets, some allocation to commodities as as 678 00:34:26,719 --> 00:34:29,839 Speaker 1: a very good inflation hedge. Commodities may have pulled back 679 00:34:29,960 --> 00:34:32,920 Speaker 1: a bit since the highs, but it's still had a great, 680 00:34:33,440 --> 00:34:35,640 Speaker 1: great performance here today, and we still think it makes 681 00:34:35,640 --> 00:34:38,960 Speaker 1: sense to have something like that in client portfolio. But 682 00:34:39,000 --> 00:34:42,480 Speaker 1: there's a lot of pressure on equities because you know, 683 00:34:42,520 --> 00:34:46,959 Speaker 1: many large institutions have just focused on private assets and 684 00:34:47,120 --> 00:34:49,160 Speaker 1: that's been a great place to be. It's helped them 685 00:34:49,160 --> 00:34:53,040 Speaker 1: meet their long term return needs. But the challenges is 686 00:34:53,080 --> 00:34:56,040 Speaker 1: that they're illiquid, so a lot of so what you've 687 00:34:56,080 --> 00:34:59,200 Speaker 1: seen is as equities have come down, equities get marked 688 00:34:59,200 --> 00:35:01,600 Speaker 1: to market every day. Your public portfolios get marked to 689 00:35:01,640 --> 00:35:05,000 Speaker 1: market every day. Private assets don't get They're typically on 690 00:35:05,040 --> 00:35:08,080 Speaker 1: a quarterly cycle. It's a slow moving cycle. So right 691 00:35:08,120 --> 00:35:11,120 Speaker 1: now people are seeing their private allocations go up, mostly 692 00:35:11,200 --> 00:35:14,680 Speaker 1: because of the fact that they've just not adjusted. The 693 00:35:14,719 --> 00:35:17,080 Speaker 1: problem is is that if you're in that position and 694 00:35:17,120 --> 00:35:19,000 Speaker 1: now you're at where you need to be with your 695 00:35:19,000 --> 00:35:22,520 Speaker 1: private assets and your public assets are worth less, you 696 00:35:22,600 --> 00:35:25,239 Speaker 1: still may need to eat meat cash flows and you 697 00:35:25,400 --> 00:35:28,040 Speaker 1: likely can't get out of those private assets, so you're 698 00:35:28,040 --> 00:35:30,600 Speaker 1: gonna sell what's liquid, and that's likely going to be 699 00:35:30,640 --> 00:35:34,239 Speaker 1: equities or fixed income. So this is gonna be structurally 700 00:35:34,280 --> 00:35:37,040 Speaker 1: away on the market for you know, probably for the 701 00:35:37,080 --> 00:35:41,080 Speaker 1: next six to nine months. I think George as a 702 00:35:41,160 --> 00:35:44,560 Speaker 1: quantitative manager, I just envisioned in your office, there's a 703 00:35:44,560 --> 00:35:47,040 Speaker 1: black box sitting on your desk and it spits out 704 00:35:47,040 --> 00:35:50,000 Speaker 1: trading and investment ideas all day long. Could you kind 705 00:35:50,000 --> 00:35:52,280 Speaker 1: of lift the cover off that box force and tells 706 00:35:52,600 --> 00:35:54,200 Speaker 1: kind of how yours works a little bit, how you 707 00:35:54,239 --> 00:35:58,839 Speaker 1: guys identify opportunities. Yeah, so so so. Funny thing is 708 00:35:58,880 --> 00:36:01,360 Speaker 1: that when people say quant I think, you know, quant 709 00:36:01,400 --> 00:36:04,520 Speaker 1: gets you know, pictured as everybody's doing the same thing. 710 00:36:04,560 --> 00:36:08,160 Speaker 1: There's a there's a blackboard full of full of formulas, 711 00:36:08,320 --> 00:36:10,879 Speaker 1: and that you know, all quantitative firms are the same 712 00:36:10,920 --> 00:36:14,520 Speaker 1: across the street. In reality, there are many different types 713 00:36:14,520 --> 00:36:16,799 Speaker 1: of quants. There are some that are kind of, you know, 714 00:36:16,920 --> 00:36:20,920 Speaker 1: really much more like electronic market maker is very high frequency. 715 00:36:21,080 --> 00:36:23,520 Speaker 1: We tend to and I view those more as a 716 00:36:23,560 --> 00:36:27,439 Speaker 1: trading strategy, very short horizon. We tend to be much 717 00:36:27,440 --> 00:36:31,839 Speaker 1: more fundamentally driven. So you know, yes, we do have 718 00:36:32,000 --> 00:36:34,920 Speaker 1: a number of you know, mathematical models about how we 719 00:36:34,960 --> 00:36:38,640 Speaker 1: think markets behave, but one of the key hallmarks particularly 720 00:36:38,680 --> 00:36:42,760 Speaker 1: at PIGION quantitative solutions, is that we're always thinking long term, 721 00:36:42,800 --> 00:36:46,040 Speaker 1: you know, fundamentally driven or something that is really driven 722 00:36:46,040 --> 00:36:49,960 Speaker 1: in research. You know, from our perspective, it's very easy 723 00:36:50,080 --> 00:36:53,040 Speaker 1: with financial data to fool yourself. There's a lot more 724 00:36:53,520 --> 00:36:56,680 Speaker 1: noise than there are signals. So it's important to really 725 00:36:56,719 --> 00:36:59,799 Speaker 1: have something that is that is driven by you know, 726 00:37:00,040 --> 00:37:03,480 Speaker 1: long term investment beliefs, you know, long term models about 727 00:37:03,480 --> 00:37:07,759 Speaker 1: how behaviors, how how investors behave, and how markets work. 728 00:37:08,640 --> 00:37:11,239 Speaker 1: We find that that for a long term investor that's 729 00:37:11,280 --> 00:37:14,000 Speaker 1: looking over a cycle is really the right way to 730 00:37:14,320 --> 00:37:17,040 Speaker 1: be thinking about things. So, yes, we do have we 731 00:37:17,120 --> 00:37:19,360 Speaker 1: do have some equations, but a lot of times, like 732 00:37:19,400 --> 00:37:22,279 Speaker 1: if you look if you look at our portfolios, you're 733 00:37:22,280 --> 00:37:26,320 Speaker 1: going to find that they you know, they're a well diversified, 734 00:37:26,719 --> 00:37:29,399 Speaker 1: but they oftentimes, you know, have stocks that we think 735 00:37:29,440 --> 00:37:33,920 Speaker 1: are relatively attractive adjusting for growth um and and sector 736 00:37:34,480 --> 00:37:38,160 Speaker 1: um generally slightly higher quality and places where we think 737 00:37:38,160 --> 00:37:40,719 Speaker 1: that there's you know, like there's not really a chance 738 00:37:40,719 --> 00:37:43,120 Speaker 1: of a value trap. So if you look at our portfolios, 739 00:37:43,120 --> 00:37:45,439 Speaker 1: you're gonna find they really make a lot of long 740 00:37:45,560 --> 00:37:49,120 Speaker 1: term investment sense. And that's really the type of of 741 00:37:49,920 --> 00:37:53,880 Speaker 1: equity portfolio that we build at at Pigeum Quantitative Solutions. 742 00:37:53,920 --> 00:37:56,080 Speaker 1: On the multi asset side, we spend a lot of 743 00:37:56,080 --> 00:37:59,279 Speaker 1: time thinking about how we position defensively, you know, whether 744 00:37:59,320 --> 00:38:03,400 Speaker 1: we have stratg gs that provide downside protection or you know, 745 00:38:03,440 --> 00:38:06,520 Speaker 1: some strategies try to like offset with inflation. That's been 746 00:38:06,520 --> 00:38:09,680 Speaker 1: a very successive I've been very successful call for us 747 00:38:09,680 --> 00:38:12,759 Speaker 1: over the past cycle, where you know, we've always had 748 00:38:12,760 --> 00:38:15,400 Speaker 1: a commitment to having some commodities in the portfolio, but 749 00:38:15,480 --> 00:38:17,600 Speaker 1: it's really paid out very well for us over his 750 00:38:17,680 --> 00:38:20,719 Speaker 1: past cycle. George, really interesting stuff. Appreciate getting a few 751 00:38:20,719 --> 00:38:24,080 Speaker 1: minutes of your time, George Patterson, he's the chief investment 752 00:38:24,120 --> 00:38:31,360 Speaker 1: officer at PGIM Quantitative Solutions. Well on other and I 753 00:38:31,400 --> 00:38:34,799 Speaker 1: think it's going to be potentially big news. US regulators 754 00:38:34,800 --> 00:38:37,440 Speaker 1: took the first step towards the most widespread revamp in 755 00:38:37,440 --> 00:38:40,200 Speaker 1: more than a decade of the way stocks are treated, 756 00:38:40,560 --> 00:38:43,200 Speaker 1: a move that aims to spur better prices for investors 757 00:38:43,200 --> 00:38:47,600 Speaker 1: and direct more business to traditional exchanges. Folks, That's all 758 00:38:47,719 --> 00:38:49,680 Speaker 1: I know, um, but I need to learn more. I 759 00:38:49,680 --> 00:38:52,280 Speaker 1: think it's important. Uh So, let's bring on Larry tab 760 00:38:52,400 --> 00:38:55,880 Speaker 1: He's head of market structure research with Bloomberg Intelligence. He 761 00:38:55,880 --> 00:38:58,279 Speaker 1: actually does this for a living and he's very good 762 00:38:58,280 --> 00:39:01,480 Speaker 1: at it. We also managed to have Barry Ridholts stick 763 00:39:01,480 --> 00:39:02,799 Speaker 1: around a little bit. He knows a thing or two 764 00:39:02,840 --> 00:39:05,480 Speaker 1: about market so he'll be joining us as well. Larry, 765 00:39:05,520 --> 00:39:08,160 Speaker 1: can you, in layman's terms, tell me what the SEC 766 00:39:09,080 --> 00:39:13,759 Speaker 1: is proposing here? Well, they put out for proposals. The 767 00:39:13,800 --> 00:39:19,359 Speaker 1: first is greater transparency on retail broker execution quality, so 768 00:39:19,400 --> 00:39:23,479 Speaker 1: basically giving broker or individuals that the ability to see 769 00:39:23,560 --> 00:39:27,840 Speaker 1: if Robin Hood or Schwab or Merrit Trade or whoever 770 00:39:28,600 --> 00:39:31,680 Speaker 1: has better execution stats than the other. So so that's 771 00:39:31,719 --> 00:39:36,080 Speaker 1: generally good. The second um is going to be reducing 772 00:39:36,280 --> 00:39:39,000 Speaker 1: tick sizes. So the tick size now, which is basically 773 00:39:39,040 --> 00:39:41,239 Speaker 1: the spread between the bit and the offer, is set 774 00:39:41,239 --> 00:39:45,359 Speaker 1: at a penny for all stocks over a dollar. They 775 00:39:45,400 --> 00:39:48,239 Speaker 1: want to reduce that and they're going to create four 776 00:39:48,320 --> 00:39:52,120 Speaker 1: different bands for the most active and tightest stocks. They're 777 00:39:52,160 --> 00:39:54,240 Speaker 1: going to wind up making that a tenth of ascent. 778 00:39:55,239 --> 00:39:57,520 Speaker 1: For the next tier, it's going to be two tenths 779 00:39:58,000 --> 00:40:00,800 Speaker 1: of a percent. For the next year it's going to 780 00:40:00,840 --> 00:40:03,239 Speaker 1: be half a penny. And then for all of the 781 00:40:03,320 --> 00:40:08,000 Speaker 1: things that trade generally wider than a four cents they're 782 00:40:08,000 --> 00:40:12,280 Speaker 1: gonna make They're gonna lead at a penny. The the 783 00:40:12,280 --> 00:40:17,480 Speaker 1: third thing, uh is they want retail investor orders to 784 00:40:17,480 --> 00:40:21,120 Speaker 1: be auctioned off, so uh, they're going to try to 785 00:40:21,200 --> 00:40:26,160 Speaker 1: get a larger percentage of retail float into exchanges to 786 00:40:26,200 --> 00:40:30,560 Speaker 1: the auction. And then the last is the best execution rule, 787 00:40:31,360 --> 00:40:36,239 Speaker 1: which not just only applies to equities, but applies to 788 00:40:36,320 --> 00:40:39,839 Speaker 1: all other securities as the classes that the sec looks over, 789 00:40:39,840 --> 00:40:46,600 Speaker 1: which would be uh, bonds, um option. I guess you know, 790 00:40:46,680 --> 00:40:50,440 Speaker 1: bonds and communies and corporates and things like that. So 791 00:40:50,520 --> 00:40:53,360 Speaker 1: Barry hop on in here for the average investor, what 792 00:40:53,480 --> 00:40:57,400 Speaker 1: does that mean? Good thing, bad thing? Yeah, anytime spreads tighten, 793 00:40:57,480 --> 00:41:03,440 Speaker 1: anytime you you make the cost of execution a little cheaper, 794 00:41:03,800 --> 00:41:08,000 Speaker 1: it's really good for for investors because their costs go down. 795 00:41:08,000 --> 00:41:10,000 Speaker 1: And we know that costs are are a big drag. 796 00:41:10,360 --> 00:41:15,400 Speaker 1: As much as we forget because the changes happened so 797 00:41:15,520 --> 00:41:19,920 Speaker 1: incrementally over time. This is and as much as you know, 798 00:41:20,000 --> 00:41:23,480 Speaker 1: apps like robin Hood and the gamification have been in 799 00:41:23,560 --> 00:41:27,880 Speaker 1: FOMO have been a crazy distraction. This really has become 800 00:41:27,920 --> 00:41:31,960 Speaker 1: the Golden Age for investing, spreads are the narrowest they've 801 00:41:32,000 --> 00:41:35,239 Speaker 1: ever been. You could buy and sell e t fs 802 00:41:35,440 --> 00:41:37,719 Speaker 1: for free. And by the way, if you want to 803 00:41:37,719 --> 00:41:40,799 Speaker 1: buy the whole market, the Vanguard Total Market or the 804 00:41:40,920 --> 00:41:44,040 Speaker 1: SMP five dred it'll cost you three or four bits 805 00:41:44,040 --> 00:41:48,080 Speaker 1: a year. So the world today is so different than 806 00:41:48,120 --> 00:41:52,200 Speaker 1: it's been over the past half century. We sometimes forget that. Yeah, 807 00:41:52,239 --> 00:41:54,000 Speaker 1: I mean when I started trading on Wall Street it 808 00:41:54,080 --> 00:41:57,439 Speaker 1: was price and increments of an eighth of a point. Boy, 809 00:41:57,440 --> 00:42:01,280 Speaker 1: those were the good old days. Uh, Larry, you forget quarters. 810 00:42:01,680 --> 00:42:03,840 Speaker 1: I know, I'm not sure. There are going to be 811 00:42:03,920 --> 00:42:07,919 Speaker 1: some There are going to be some unintended consequences here. 812 00:42:08,840 --> 00:42:14,160 Speaker 1: Pricing stocks that tents um will probably hurt institutional investors 813 00:42:14,200 --> 00:42:15,960 Speaker 1: who want to trade a lot, So we may see 814 00:42:15,960 --> 00:42:18,400 Speaker 1: a lot of their orders go dark, go into a 815 00:42:18,520 --> 00:42:23,520 Speaker 1: t s s, or go into hidden midpoint orders because 816 00:42:23,880 --> 00:42:26,839 Speaker 1: they don't want to get their orders picked off. And 817 00:42:27,120 --> 00:42:31,040 Speaker 1: with adding neither five or ten price points between each penny, 818 00:42:31,520 --> 00:42:33,520 Speaker 1: what are size will go down. So the average order 819 00:42:33,520 --> 00:42:36,080 Speaker 1: size now is about a hundred five shares, we will 820 00:42:36,160 --> 00:42:39,480 Speaker 1: absolutely see this go below a hundred shares. The average 821 00:42:39,480 --> 00:42:43,200 Speaker 1: trade size will go below a hundred shairs UM and 822 00:42:43,200 --> 00:42:46,759 Speaker 1: and any displayed order. You know, for five hundred or 823 00:42:46,760 --> 00:42:48,800 Speaker 1: six hundred chairs, there's gonna be somebody who's going to 824 00:42:48,920 --> 00:42:51,239 Speaker 1: penny you for a tenth of a cent or two 825 00:42:51,320 --> 00:42:54,600 Speaker 1: tenths of a cent. So that's gonna push institutional flow 826 00:42:54,640 --> 00:42:58,960 Speaker 1: into into the dark UM. And then the other question 827 00:42:59,040 --> 00:43:02,839 Speaker 1: will be is you know right now the current wholesaling 828 00:43:02,920 --> 00:43:07,560 Speaker 1: process UM. The wholesalers work with the brokers to internalize 829 00:43:07,560 --> 00:43:10,000 Speaker 1: a lot of this flow, but the swabs and the 830 00:43:10,080 --> 00:43:13,640 Speaker 1: merrit trades and the Robin hoods hold them accountable, not 831 00:43:13,719 --> 00:43:17,600 Speaker 1: just for the actively traded names, but for the ten 832 00:43:17,680 --> 00:43:21,360 Speaker 1: or eleven thousand NMS names are basically all of the stocks. 833 00:43:21,400 --> 00:43:25,080 Speaker 1: So we could see the most average stocks doing better, 834 00:43:25,080 --> 00:43:28,959 Speaker 1: are the most um active stocks doing better and having 835 00:43:29,000 --> 00:43:33,239 Speaker 1: better pricing. But really we're retail investors do a lot 836 00:43:33,239 --> 00:43:35,960 Speaker 1: of their trading in the less active stocks, the stocks 837 00:43:35,960 --> 00:43:39,879 Speaker 1: that really have very little institutional demand. We could see 838 00:43:39,920 --> 00:43:44,000 Speaker 1: their spreads getting much worse. So what's been the pushback 839 00:43:44,080 --> 00:43:46,560 Speaker 1: or what do you anticipate? The pushback will be larry 840 00:43:47,040 --> 00:43:52,120 Speaker 1: from the big Wall Street firms, the big trading firms. Uh, 841 00:43:52,200 --> 00:43:56,760 Speaker 1: the big ones not not so sure. Certainly the retail 842 00:43:56,800 --> 00:44:00,320 Speaker 1: brokers are going to push back because the wholesalers actually 843 00:44:00,400 --> 00:44:02,520 Speaker 1: take good care of them. These are the Citadels and 844 00:44:02,600 --> 00:44:05,680 Speaker 1: the virtues in the Jane Streets and two stigmas. They 845 00:44:05,719 --> 00:44:09,520 Speaker 1: take pretty good care of the institutional or the retail brokers, um, 846 00:44:10,200 --> 00:44:13,480 Speaker 1: because not only do they give their clients price improvement. 847 00:44:13,600 --> 00:44:15,600 Speaker 1: Now you can argue the price improvement should be more 848 00:44:15,640 --> 00:44:18,600 Speaker 1: on the exchange and with auctions, will see that, but 849 00:44:18,719 --> 00:44:22,960 Speaker 1: they also provide them with size improvement. Basically, they execute 850 00:44:23,160 --> 00:44:29,520 Speaker 1: larger orders for for lower prices and they get they 851 00:44:29,600 --> 00:44:31,840 Speaker 1: get taken care of. In case, uh, you know, they 852 00:44:31,880 --> 00:44:34,560 Speaker 1: have a bad trade, the market maker will make them hold. 853 00:44:34,600 --> 00:44:37,440 Speaker 1: The question will be as um, what will happen there 854 00:44:37,440 --> 00:44:40,320 Speaker 1: and will the market makers continue to do that. The 855 00:44:40,440 --> 00:44:43,040 Speaker 1: other thing is that the brokers receive a lot of 856 00:44:43,080 --> 00:44:46,400 Speaker 1: money and payment for word flow, um, which the question 857 00:44:46,440 --> 00:44:49,600 Speaker 1: will be, as will with tighter ticks and and this 858 00:44:49,760 --> 00:44:53,440 Speaker 1: auction will will the wholesalers still provide them with payment 859 00:44:53,480 --> 00:44:55,560 Speaker 1: for water flow And if there's not enough payment for 860 00:44:55,600 --> 00:44:58,440 Speaker 1: water flow, the retail brokers could go back to charging commissions. 861 00:44:59,160 --> 00:45:03,239 Speaker 1: So I think, um, uh you know, on the institutional side, 862 00:45:03,280 --> 00:45:06,960 Speaker 1: the brokers will probably be okay, they have algorithms that 863 00:45:07,120 --> 00:45:09,840 Speaker 1: can trade in the dark, and a lot more of 864 00:45:09,880 --> 00:45:13,400 Speaker 1: the flow will be automated. Um, it'll be the retail 865 00:45:13,520 --> 00:45:15,760 Speaker 1: side that will and the whole sablers that will complain, 866 00:45:15,840 --> 00:45:19,640 Speaker 1: and possibly even the exchanges because the exchanges, uh, they're 867 00:45:19,640 --> 00:45:22,040 Speaker 1: going to see their access fees cut. Will probably see 868 00:45:22,120 --> 00:45:26,719 Speaker 1: fewer exchanges. There'll be some solidation there. Um, you'll see 869 00:45:26,800 --> 00:45:30,560 Speaker 1: probably some some more concentration in the New York and 870 00:45:30,719 --> 00:45:34,520 Speaker 1: nastac uh their formal exchanges, and I think you'll see 871 00:45:34,840 --> 00:45:37,200 Speaker 1: New York NaSTA can see but maybe shutter some of 872 00:45:37,239 --> 00:45:42,719 Speaker 1: their smaller exchanges. Currently there are sixteen exchanges. We may 873 00:45:42,800 --> 00:45:45,800 Speaker 1: see that go down to ten, which probably wouldn't be 874 00:45:45,800 --> 00:45:49,080 Speaker 1: a bad thing. All right, good stuff. We'll cap on 875 00:45:49,200 --> 00:45:51,760 Speaker 1: top of this. Larry tab he's head of Market Structure 876 00:45:52,040 --> 00:45:55,600 Speaker 1: Research with Bloomberg Intelligence, and Bat Haults, head of Hults 877 00:45:55,640 --> 00:45:58,600 Speaker 1: Wealth Management and the Masters in Business podcasts getting the 878 00:45:58,680 --> 00:46:00,920 Speaker 1: latest on some chain just in the rules of how 879 00:46:01,040 --> 00:46:03,680 Speaker 1: stocks are traded. It's kind of sounding like kind of 880 00:46:03,760 --> 00:46:05,840 Speaker 1: the plumbing of the stock market to me, But I 881 00:46:05,920 --> 00:46:09,760 Speaker 1: guess the takeaway, as Barry suggested, is and Larry suggested 882 00:46:09,880 --> 00:46:13,080 Speaker 1: is lower prices for investors, and that's a that's a 883 00:46:13,160 --> 00:46:15,720 Speaker 1: good thing. Yeah, but I have to say on those headlines, 884 00:46:15,800 --> 00:46:18,440 Speaker 1: you saw the likes of robin hood Shares, Virtue shares 885 00:46:18,960 --> 00:46:21,000 Speaker 1: really take a hit, so you can see that this 886 00:46:21,080 --> 00:46:22,840 Speaker 1: is going to have a very real effect for a 887 00:46:22,880 --> 00:46:28,120 Speaker 1: lot of these brokers. Thanks for listening to the Bloomberg 888 00:46:28,200 --> 00:46:31,600 Speaker 1: Markets podcast. You can subscribe and listen to interviews with 889 00:46:31,640 --> 00:46:36,480 Speaker 1: Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. 890 00:46:36,760 --> 00:46:40,680 Speaker 1: I'm on Twitter at Matt Miller three. Put on false 891 00:46:40,680 --> 00:46:43,480 Speaker 1: Sweeney I'm on Twitter at pt Sweeney before the podcast. 892 00:46:43,560 --> 00:46:46,040 Speaker 1: You can always catch us worldwide at Bloomberg Radio.