WEBVTT - Central Banks, Markets, Quants, and the SEC (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:21.960 at Bloomberg dot com slash podcast. Certainly, the news over 0:00:21.960 --> 0:00:25.000 the last twenty four hours has been this consistent effort, 0:00:25.040 --> 0:00:28.040 I would say, by the Federal Reserve central banks around 0:00:28.240 --> 0:00:31.880 the world to continue to fight inflation. Of course, we 0:00:31.960 --> 0:00:34.199 had the FED yesterday, the Bank of England and the 0:00:34.240 --> 0:00:36.520 e c B. This morning we heard from Christine Loclegard, 0:00:36.880 --> 0:00:39.920 uh still moving rates higher. We want to see what 0:00:39.960 --> 0:00:42.960 that means for markets and what that means for kind 0:00:42.960 --> 0:00:45.800 of you know, as we think about setting us up there, 0:00:45.800 --> 0:00:47.440 and we can do that with this round table that 0:00:47.520 --> 0:00:51.760 we've got together. Vince Signarella, global macro strategists with Bloomberg News. 0:00:51.800 --> 0:00:53.720 He joins us on the phone, as does Jennifer Lee, 0:00:54.080 --> 0:00:57.920 Managing director and senior economist with the BMO Capital Markets. Jennifer, 0:00:57.960 --> 0:01:01.000 let's start with you here. Um again, the central banks 0:01:01.000 --> 0:01:03.600 have been nothing else if consistent. What is what is 0:01:03.600 --> 0:01:05.800 your takeaway from the last twenty four hours or so? 0:01:06.959 --> 0:01:09.040 Good morning, I'm thanks for having me once day. Um, 0:01:09.080 --> 0:01:11.000 you know what I've if he had told me like 0:01:11.400 --> 0:01:15.000 ten years ago or so that on all the central banks, 0:01:15.040 --> 0:01:18.520 the ECB would be on the we're hawk, I guess 0:01:18.560 --> 0:01:20.679 you could call them on the on the spectrum of 0:01:20.760 --> 0:01:22.760 central banks, I would have said, get out of town, 0:01:22.840 --> 0:01:24.960 you know. But that's what's going on. And this is crazy, 0:01:24.959 --> 0:01:28.000 I mean, especially after her the press conference, and she 0:01:28.160 --> 0:01:31.280 was extremely clear this morning. Usually she's you know, it's 0:01:31.280 --> 0:01:33.440 a lot of you know, everything's gonna depend, it's gonna 0:01:33.440 --> 0:01:35.720 be meeting by meeting, but she actually said that, you know, 0:01:35.840 --> 0:01:38.920 we're gonna be expecting fifty basis point hikes, you know, 0:01:39.000 --> 0:01:42.240 steadily for some time until we get to a significantly 0:01:42.280 --> 0:01:45.440 restrictive level, um, something like that, you know, which is 0:01:45.600 --> 0:01:48.440 very very clear and very un characteristic for for this 0:01:48.720 --> 0:01:51.320 for this particular central bank. I thought that was quite interesting. 0:01:51.320 --> 0:01:53.360 Me on the bake of England, you know, you've got 0:01:53.480 --> 0:01:56.640 one person voting for seventy five two people saying let's 0:01:56.760 --> 0:01:59.160 let's do nothing, and the other six saying let's get 0:01:59.200 --> 0:02:00.840 let's do fifty. You know, if I were there, I'd 0:02:00.840 --> 0:02:03.240 be like, Okay, is anyone wanting a great cut? At 0:02:03.240 --> 0:02:05.800 this point? Everyone's all over the map. So I find 0:02:05.800 --> 0:02:09.160 this very very interesting and very unsuddenly. Excuse me to 0:02:09.160 --> 0:02:13.519 see at least Vince hop On in here, because what's 0:02:13.520 --> 0:02:17.040 so striking to me is a very simple comment that 0:02:17.120 --> 0:02:21.880 Madame Laguard made, which was the recession risks skew to 0:02:21.919 --> 0:02:26.000 the downside. Obviously, Um, but as this a recession Europe 0:02:26.000 --> 0:02:28.240 that has been kind of inevitability for almost a year, 0:02:28.320 --> 0:02:30.160 and it was supposed to hit us the fourth quarter 0:02:30.240 --> 0:02:31.960 of this year, it was supposed to happen by now 0:02:32.000 --> 0:02:35.000 and actually hasn't yet happened. When do we get that recession? 0:02:35.120 --> 0:02:36.960 How bad is it and how long is it going 0:02:37.000 --> 0:02:40.600 to be? I think you're going to see it show 0:02:40.680 --> 0:02:45.240 up in the numbers, probably starting in December, most definitely January. Um. 0:02:45.320 --> 0:02:46.959 You know, I think that Jennifer made a good point, 0:02:47.040 --> 0:02:49.640 without question. The ECP basically, as a trader said to 0:02:49.680 --> 0:02:54.200 me today, me kepped the market with their aggressive hawkish output. 0:02:54.360 --> 0:02:56.680 When you look at the data, and I must say, 0:02:56.680 --> 0:02:59.280 I'm actually a little surprised at the magnitude of the 0:02:59.280 --> 0:03:03.480 cell up today. Um that you know, retail sales in 0:03:03.520 --> 0:03:08.200 the month of November holiday season declining, What is that 0:03:08.280 --> 0:03:10.280 going to say for us for the first quarter of 0:03:10.320 --> 0:03:14.079 next year. I think the consumer is absolutely tapped out now. 0:03:14.080 --> 0:03:16.560 If the market is selling off because they see a recession, 0:03:17.120 --> 0:03:20.360 uh and maybe a drop in earnings and therefore dropping stocks, 0:03:20.400 --> 0:03:22.640 I think they also need to see the fact that 0:03:22.720 --> 0:03:25.639 that procession is going to bring a fent pivot. So 0:03:25.720 --> 0:03:27.720 it's a bit of a push and pull I think 0:03:27.800 --> 0:03:31.720 as to what what whether the cart leads to horse 0:03:31.840 --> 0:03:34.800 or the other way around. I think in this case, um, 0:03:34.840 --> 0:03:37.680 I think this sell off is is going to be 0:03:37.720 --> 0:03:40.720 the last hurrah. And as the numbers start to come 0:03:40.760 --> 0:03:45.360 in quite um slow and uh and such, I think 0:03:45.400 --> 0:03:49.360 we're going to see markets tern Jen from Vince brought 0:03:49.400 --> 0:03:51.480 up the retail sales data today, and we just had 0:03:51.480 --> 0:03:54.200 a retail analyst on just before you guys, and she 0:03:54.280 --> 0:03:57.320 was suggesting that the weaker than expected retail numbers today 0:03:57.520 --> 0:04:00.360 reflect in part maybe the pull through that we saw 0:04:00.360 --> 0:04:03.320 in October when retail sales were up and surprised on 0:04:03.360 --> 0:04:05.920 the upside, up one point three. So maybe don't get 0:04:06.080 --> 0:04:09.760 too concerned about the consumer. But boy, this data point 0:04:09.760 --> 0:04:12.640 that we saw this month has been highlighted. Kind of surprising, 0:04:12.720 --> 0:04:15.480 kind of disappointing. Another guest this morning says that he's 0:04:15.520 --> 0:04:18.760 concerned about rising consumer debt that they're buying stuff with 0:04:19.000 --> 0:04:21.799 on their credit cards. So you put all that together, 0:04:21.839 --> 0:04:24.680 how do you view the consumer right here and then 0:04:24.720 --> 0:04:28.280 going into next year? So we um, you know, this 0:04:28.360 --> 0:04:31.080 is like today's retail sales report. I mean, this is 0:04:31.120 --> 0:04:33.360 another indication of how we can't we can always take 0:04:33.480 --> 0:04:35.719 one report, you know, with a with a grand assaults 0:04:35.760 --> 0:04:37.040 I guess, you know. I mean, we we have that 0:04:37.120 --> 0:04:39.520 upside surprise last month and everything was great, and now 0:04:39.560 --> 0:04:41.240 all of a sudden, you know, we said this big 0:04:41.279 --> 0:04:43.880 pull back, pullback, So it's almost like, um, a lot 0:04:43.880 --> 0:04:46.520 of expenses were being pulled forward. UM. But of course 0:04:46.560 --> 0:04:49.000 it is concerning that you know, there is more um 0:04:49.400 --> 0:04:52.040 consumer credit being being taken on. You know some of that. 0:04:52.080 --> 0:04:54.359 I'm wondering if it could be you know, because you 0:04:54.360 --> 0:04:56.440 know some of the credit cards you get points, so 0:04:56.839 --> 0:04:58.440 you know, you could be using up more of your 0:04:58.440 --> 0:05:00.919 credit cards for for that reason. But I'm gonna go 0:05:00.960 --> 0:05:04.040 back to you know, the funnel metal um UM support. 0:05:04.160 --> 0:05:07.279 I guess below the or beneath of the US consumer, 0:05:07.320 --> 0:05:09.599 and is that they are still they still have savings, 0:05:09.640 --> 0:05:11.400 you know, not as much as they used to obviously, 0:05:11.680 --> 0:05:13.839 but at least they have some savings to work awful 0:05:14.000 --> 0:05:16.960 right now. Job growth remains very solid. You know, the 0:05:17.000 --> 0:05:19.520 labor market is still tight as a fetch, your pala 0:05:19.560 --> 0:05:22.600 said yesterday. As long as wages keep increasing, you know, yes, 0:05:22.640 --> 0:05:25.520 they're they're they're whittling down there a pile of savings bellies. 0:05:25.720 --> 0:05:28.960 It's still being replenished with rising wages, and I think 0:05:28.960 --> 0:05:31.919 that's the more important thing, I guess going forward. But 0:05:31.960 --> 0:05:33.560 of course, you know, the U. S consumer is not 0:05:33.640 --> 0:05:36.440 as healthy as it once was, just given that prices 0:05:36.480 --> 0:05:39.120 are still rising quite quickly. So we do see consumers 0:05:39.120 --> 0:05:41.640 spending being pulled back. And then you know it's already 0:05:41.680 --> 0:05:44.240 being pulled back already now, but even more so um 0:05:44.360 --> 0:05:46.880 in the uh you know, in the next year probably, um, 0:05:47.400 --> 0:05:49.640 we're probably count see negative growth, I guess in consumer 0:05:49.680 --> 0:05:53.359 spending for the first half of Okay, Hey, Ben, I 0:05:53.400 --> 0:05:55.560 want to get your perspective from a trader's perspective. Talk 0:05:55.560 --> 0:05:59.560 to us about liquidity in the market price broadly defined. 0:05:59.600 --> 0:06:02.120 You know, we've got the FED no longer flooding the 0:06:02.120 --> 0:06:05.000 market with liquidity, in fact, kind of the opposite here, 0:06:05.240 --> 0:06:07.880 How does that play out day to day for kind 0:06:07.880 --> 0:06:10.960 of just the plumbing of the markets? I think you 0:06:11.080 --> 0:06:13.400 just see bigger swings um, you know, a lot more 0:06:13.480 --> 0:06:18.520 volatility uh with liquidity shrinking a touch. But traders are 0:06:18.560 --> 0:06:22.520 just that they basically don't need as bigger position UH 0:06:22.640 --> 0:06:26.280 with higher liquidity and higher volatis excuse me, higher volatility 0:06:26.760 --> 0:06:29.520 UM to make the same nut they need to make 0:06:29.560 --> 0:06:31.520 on a day to day basis. So the positions of 0:06:31.600 --> 0:06:35.839 smaller volatilities higher, and you're going to see bigger swings 0:06:35.880 --> 0:06:37.400 in the market. I just want to make one point 0:06:37.400 --> 0:06:40.080 about the employment issue that Jennifer mentioned one of them. 0:06:40.400 --> 0:06:44.839 I got an email yesterday from essentially someone covering resume 0:06:44.920 --> 0:06:48.880 builder dot com and they did a survey and found 0:06:48.960 --> 0:06:52.840 one there one third of responses predicted that they were 0:06:52.839 --> 0:06:56.719 going to do layoffs next year of upwards. Of Now, 0:06:56.720 --> 0:07:00.120 if that plays out, the FEDS idea of job is 0:07:00.160 --> 0:07:03.400 being strong is gonna get totally trashed. And I just 0:07:03.440 --> 0:07:05.120 don't see how they go on the path, all of 0:07:05.160 --> 0:07:07.440 the central things go on the path that they're they're 0:07:07.440 --> 0:07:10.640 swinging at right now. Vince again, real real quick, what's 0:07:10.720 --> 0:07:14.440 the trade going into the end of this year. I 0:07:14.800 --> 0:07:17.000 think you look at fading the dollar. I think risk 0:07:17.160 --> 0:07:18.640 is going to turn as we head into the first 0:07:18.720 --> 0:07:23.080 quarter UM and if if not so, you'll you'll see 0:07:23.120 --> 0:07:26.520 earnings decline. And that's been the big large cap companies 0:07:27.200 --> 0:07:29.080 getting hurt by what we've seen as a higher dollar 0:07:29.200 --> 0:07:30.800 this year. I think we've seen the peak in the 0:07:30.840 --> 0:07:33.120 dollar for a while. All right, good stuff, Vince Signarella, 0:07:33.120 --> 0:07:36.360 Global macro strategists with Bloomberg News and Jennifer Lee, managing 0:07:36.440 --> 0:07:44.320 director and senior economists with BEMO Capital Markets. One of 0:07:44.320 --> 0:07:46.080 the issues that the market has been dealing with and 0:07:46.120 --> 0:07:50.600 the face of higher inflation depending the recession, the sumer 0:07:50.640 --> 0:07:53.000 has been pretty down strong through all of this, and 0:07:53.080 --> 0:07:54.920 when we got some retail sales today, they kind of 0:07:54.960 --> 0:07:57.200 put a pause in that retail sales. The headline number 0:07:57.880 --> 0:08:00.720 zero point and negative zero point six percent anti consensus 0:08:00.800 --> 0:08:02.920 was for negative zero point two percent, so a little 0:08:02.920 --> 0:08:05.320 bit worse there. That compares to last month when it 0:08:05.360 --> 0:08:08.640 was positive one. So that's I mean some Paul's in 0:08:08.640 --> 0:08:12.000 the marketplace here, uh, you know, bringing up concerns about 0:08:12.000 --> 0:08:14.440 the strength of the consumer and maybe a recession. Um, 0:08:14.520 --> 0:08:16.200 let's bring an expert here. First of all, I've got 0:08:16.200 --> 0:08:18.520 a crick critic group, the Bloomberg Markets correspondent in our 0:08:18.520 --> 0:08:21.720 studio city and from mat so we appreciate that. Angie Solanki. 0:08:22.080 --> 0:08:24.720 She's a national director of retail services in the US 0:08:24.800 --> 0:08:28.520 four Colliers. Uh, Andie, thanks so much for joining us here. 0:08:29.080 --> 0:08:31.160 What did you make of the retail sales data we 0:08:31.200 --> 0:08:35.600 saw today? Yeah? Thanks for having me. Um. So, what 0:08:35.640 --> 0:08:39.440 I would say is that in the sale did definitely 0:08:39.559 --> 0:08:42.760 drop the drop, but we believe that that's due to 0:08:43.480 --> 0:08:47.920 the pull forward in October where we saw significant sales 0:08:48.440 --> 0:08:52.959 in terms of holiday season shopping cyber you know, preparing 0:08:53.000 --> 0:08:55.920 for Cyber Monday and Black Friday. People decided let's go 0:08:55.960 --> 0:08:58.400 ahead and shop in October because we started to see 0:08:58.440 --> 0:09:01.640 discounts from retailers each sooner. It actually started in the 0:09:01.679 --> 0:09:07.600 summer of So what does this mean, Angie? Again, we're 0:09:07.960 --> 0:09:11.160 you know, I like to say my holiday shopping is done, 0:09:11.160 --> 0:09:13.760 but it's not having started yet. But what what's the 0:09:13.800 --> 0:09:16.959 feeling you're hearing from your retail clients about just kind 0:09:16.960 --> 0:09:20.000 of how the holiday seasons shaping up and and maybe 0:09:20.640 --> 0:09:24.760 their recession outlook for next year. Yeah. And one thing 0:09:24.800 --> 0:09:27.320 I have to just really highlight here is if we 0:09:27.360 --> 0:09:31.160 look at our year over year core retail sales, so 0:09:31.280 --> 0:09:34.800 excluding food service, car and gas, because prices have come 0:09:34.880 --> 0:09:38.120 down car prices have come down, we still have a 0:09:38.160 --> 0:09:40.720 pretty healthy retail sales here to date at five point 0:09:40.760 --> 0:09:44.600 six percent. So we're actually looking at a pretty good 0:09:44.640 --> 0:09:47.000 i would say, first test to the holiday season, where 0:09:47.000 --> 0:09:50.480 the retail sector has cleared some hurdles, is still been 0:09:50.520 --> 0:09:53.720 looking positive, maybe not for the month in November, but 0:09:54.120 --> 0:09:57.040 it still should be a pretty solid holiday season, even 0:09:57.080 --> 0:09:59.560 though consumers are going to be mindful of how they're 0:09:59.559 --> 0:10:04.160 spending where they're spending, because we've still seen increases in pricing, 0:10:04.320 --> 0:10:07.880 especially in the grocery sector, um and some and also 0:10:07.920 --> 0:10:12.000 some decreases in some of the other categories such as 0:10:12.440 --> 0:10:18.000 you know, the the apparel side, home furnishings, etcetera. So, 0:10:18.120 --> 0:10:20.520 and one of the concerns we were just speaking with 0:10:20.559 --> 0:10:23.320 the Dennis Gartman of the Garben Letter has been following 0:10:23.360 --> 0:10:25.720 markets for decades, and he brought up a concern that 0:10:25.760 --> 0:10:28.360 he has that consumers are running up their credit card 0:10:28.360 --> 0:10:31.720 debt after being flush with cash Uh, they've exhausted most 0:10:31.760 --> 0:10:34.600 of that. They're now running it up with credit card debt. 0:10:34.960 --> 0:10:37.280 Is that a concern for as you think about retail sales? 0:10:39.160 --> 0:10:41.400 It is. I would say that would be in certain 0:10:41.440 --> 0:10:45.920 categories where we're going to see maybe the higher price points, electronics, 0:10:46.800 --> 0:10:49.800 things of that nature. Um, So we will see some 0:10:50.400 --> 0:10:53.680 debt creep. However, I think that hopefully we'll start to, 0:10:54.400 --> 0:10:57.960 you know, when we start to look at the spend 0:10:58.160 --> 0:11:00.800 and the type of spin in the differ and categories, 0:11:01.080 --> 0:11:03.120 we hope to see that that may start to slow 0:11:03.160 --> 0:11:05.760 down a little bit and balance out. Um, but we 0:11:05.840 --> 0:11:08.280 are a little nervous about that looking into Q one, 0:11:08.320 --> 0:11:12.560 Q two, Well, Angie, as we see these numbers, these 0:11:12.600 --> 0:11:15.400 inflation numbers, at least on the headline novel decelerate. It's 0:11:15.400 --> 0:11:17.360 not a secret inflation is coming down. A lot of 0:11:17.400 --> 0:11:20.120 that is coming from the base effects. Though on the 0:11:20.160 --> 0:11:22.880 way up. Is that going to actually show up in 0:11:22.960 --> 0:11:26.480 consumer patterns? How long before the consumer says, oh, actually 0:11:26.520 --> 0:11:30.240 things are getting more affordable. You know, I think if 0:11:30.280 --> 0:11:32.080 we have to look at, you know, the way the 0:11:32.080 --> 0:11:36.440 consumer is spending. So we're seeing some interesting trends, especially 0:11:36.480 --> 0:11:39.160 in the grocery sector. So that's a daily need, a 0:11:39.200 --> 0:11:43.040 weekly need. So they're coping with these different inflationary issues 0:11:43.720 --> 0:11:47.800 by adjusting those shopping habits and they're balancing that um 0:11:47.840 --> 0:11:50.960 you know, you know, the way of their spend through 0:11:51.000 --> 0:11:55.920 looking at private label goods, lower cost brands, um opting 0:11:56.000 --> 0:12:01.040 for less expensive. So that pattern will continue, and I 0:12:01.080 --> 0:12:04.080 think when we if we continue to see gasoline prices, 0:12:04.559 --> 0:12:08.360 you know, decrease, that will also help in terms of 0:12:08.400 --> 0:12:11.200 just kind of that mindset in terms of where we're going. Now, 0:12:11.320 --> 0:12:14.319 keep in mind cp I still at seven point one 0:12:14.320 --> 0:12:18.320 per cent, whereas sales um growth have been less than that. 0:12:18.520 --> 0:12:23.080 So we're definitely managing and or monitoring. Managed to say, alright, Angie, 0:12:23.080 --> 0:12:24.840 thank you so much for joining us. We always appreciate 0:12:24.880 --> 0:12:27.720 getting your perspective and we get some of these retail 0:12:27.840 --> 0:12:31.360 data points. Angie Solanki, National director of Retail Services for 0:12:31.360 --> 0:12:34.640 the United States for Colliers. Uh So, retail sales came 0:12:34.640 --> 0:12:40.000 a little bit weaker than expected. Look at the markets here, 0:12:40.200 --> 0:12:42.000 it's a little ugly. We've got a lot of stuff 0:12:42.040 --> 0:12:44.080 that digests. We had central banks moving over the last 0:12:44.080 --> 0:12:46.920 twenty four hours, raising rage, talking tough. We've got some 0:12:46.960 --> 0:12:48.680 weaker retail sales. So we need to break it all 0:12:48.760 --> 0:12:51.640 down here with some smart people, and we got that going. Uh, 0:12:51.720 --> 0:12:55.280 we've got a roundtable this thing. Jonathan Hurdle, executive chairman 0:12:55.280 --> 0:12:58.880 of Hurdle, Callaghan and Company. Uh, he's been doing that. 0:12:59.000 --> 0:13:01.719 He manages about twenty million dollars. But for me, the 0:13:01.800 --> 0:13:04.679 highlight of his resumes he's a Penn State grad. So 0:13:04.720 --> 0:13:07.360 we're talking to Penn State football. Here. We got Ira Jersey, 0:13:07.480 --> 0:13:10.600 he chief US interest rate Strategists with Bloomberg Intelligence. Both 0:13:10.600 --> 0:13:13.000 of these gentlemen joined pretty night in our Bloomberg Interactive 0:13:13.000 --> 0:13:15.600 Broker studio. John, you've been doing this a long time, 0:13:16.040 --> 0:13:19.040 managing money for others. What do you make of the 0:13:19.080 --> 0:13:21.760 last twenty four hours when we've got seemingly concerted effort 0:13:21.800 --> 0:13:24.000 on the part of these central banks that continue to 0:13:24.040 --> 0:13:26.840 raise rates. Well, I think today's action is just a 0:13:26.880 --> 0:13:29.720 simple selling the news reaction. Okay, So this is what 0:13:29.760 --> 0:13:32.600 they did, what we anticipated, and they're selling on the news. 0:13:32.600 --> 0:13:34.440 So I think one of the things that people do 0:13:34.880 --> 0:13:36.640 that make a mistake in the market is they see 0:13:36.640 --> 0:13:39.920 trading action and they try to apply fundamental logic to it. 0:13:40.200 --> 0:13:42.439 And so if you've been long and you get this 0:13:42.480 --> 0:13:44.880 trip tick and you say, I've got to get away 0:13:44.920 --> 0:13:47.200 from that trade. All of a sudden, new cascades the 0:13:47.200 --> 0:13:51.400 markets down six fifty points. People say, what happened, Nothing happened, 0:13:51.400 --> 0:13:54.880 it's just trading. They're selling on the news. That's one 0:13:54.880 --> 0:13:56.599 of the first things I was taught by one of 0:13:56.600 --> 0:13:58.680 my mentors on the prince side. He said, sometimes traders 0:13:58.720 --> 0:14:01.600 just trade because they trade. That's all they do. Ira 0:14:01.720 --> 0:14:03.600 hop on in here. Would you agree with that? Would you? 0:14:03.679 --> 0:14:06.439 Would you say that's happening? Positioning matters so much? Right, 0:14:06.480 --> 0:14:08.240 So what happens is is that you get people in 0:14:08.280 --> 0:14:10.560 positions like right now, just about everyone in the world 0:14:10.640 --> 0:14:13.640 is in flattening trades in my market, in the in 0:14:13.679 --> 0:14:16.360 the rates market, particularly in the US, and then um, 0:14:16.640 --> 0:14:19.120 you know, so it makes it harder and harder because 0:14:19.120 --> 0:14:21.400 so many people are in those positions for the curve 0:14:21.480 --> 0:14:23.360 to flatten more. But then all of a sudden, there's 0:14:23.360 --> 0:14:26.320 something fundamental that occurs, like you know, Christine Leguard being 0:14:26.440 --> 0:14:28.400 very hawkish, and the next thing you know, you know, 0:14:28.440 --> 0:14:30.440 you can you can flatten a little bit more because 0:14:30.480 --> 0:14:33.240 you now bring in what would be weaker hands. So 0:14:33.240 --> 0:14:36.320 so I agree, I mean the intra day volatility. Sometimes 0:14:36.360 --> 0:14:38.680 it's just all about positioning and people, you know, just 0:14:38.720 --> 0:14:42.360 squaring positions and managing risk, as opposed to longer term trends, 0:14:42.440 --> 0:14:44.960 which obviously I think ultimately do have to come back 0:14:44.960 --> 0:14:47.680 to more fundamentals. Well, you're talking about the inversion. Talk 0:14:47.720 --> 0:14:49.560 to me about the depth of the inversion, because I 0:14:49.560 --> 0:14:51.600 think that's really significant. It's been in the two tents, 0:14:51.640 --> 0:14:53.840 for example, has been inverted for a while. But the 0:14:53.880 --> 0:14:55.880 fact that we've got I think to like two I 0:14:55.880 --> 0:14:58.360 want to say negative at two basis points, that seems 0:14:58.440 --> 0:15:01.600 extreme going back to um even the seventies when we 0:15:01.600 --> 0:15:03.840 saw I think negative two hundred. Yeah, so briefly so 0:15:03.960 --> 0:15:06.600 negative two hundred, but but basically the market had spent 0:15:06.680 --> 0:15:09.240 about the better part of a year on nine months 0:15:09.240 --> 0:15:12.200 plus at negative hundred to a negative hundred and fifty 0:15:12.200 --> 0:15:13.800 basis points. Now I'm not sure that we'll get to 0:15:13.800 --> 0:15:16.160 a hundred negative hundred and fifty again this cycle, although 0:15:16.240 --> 0:15:18.800 it's not out of the question. But our targets about 0:15:18.840 --> 0:15:20.600 negative a hundred, and the way that we get there 0:15:20.840 --> 0:15:23.680 is that the the the long end stays more or 0:15:23.720 --> 0:15:25.560 less where it is three point four to three point 0:15:25.640 --> 0:15:28.400 six on on the tenure um. But then the two 0:15:28.480 --> 0:15:31.000 year yield still is has to go a little bit higher. 0:15:31.000 --> 0:15:32.520 So two year yields have to sell off a little 0:15:32.520 --> 0:15:35.200 bit because the market still doesn't believe that the Fed 0:15:35.320 --> 0:15:37.680 is going to hold interest rates at the five percent 0:15:37.720 --> 0:15:39.840 plus or mind us a little bit level for all 0:15:39.880 --> 0:15:42.880 of next year. The market is still pricing for there'll 0:15:42.920 --> 0:15:44.960 be a FED put and they think that if you know, 0:15:45.080 --> 0:15:47.000 unemployment starts to go up, that the Fed's gonna start 0:15:47.000 --> 0:15:49.120 cutting rates at the end of next year. Once we 0:15:49.160 --> 0:15:51.880 take out that pricing for cuts next year, that's where 0:15:51.880 --> 0:15:55.000 you get two year yields higher. Hey, John, you know 0:15:55.120 --> 0:15:58.200 here in December two this is a year where stock 0:15:58.280 --> 0:16:01.280 there's just no place to hide stocks, I mean just 0:16:01.440 --> 0:16:04.240 ugly out there. And we haven't seen that in a 0:16:04.280 --> 0:16:06.440 in a long time. And I wonder what you're telling 0:16:06.440 --> 0:16:08.520 your clients here, and you're I'm assuming you're penning a 0:16:08.600 --> 0:16:11.200 year ahead outlook letter to your clients. How do you 0:16:11.200 --> 0:16:15.600 put into context just set up for well, I mean 0:16:15.640 --> 0:16:18.080 it's um you know, one of the first of all, 0:16:18.080 --> 0:16:20.960 we're chief investment officers, so we're looking to invest in trade, 0:16:21.000 --> 0:16:23.120 and I want to draw a bright line between those two. 0:16:23.600 --> 0:16:25.720 I was struck by, you know, the there are two 0:16:25.720 --> 0:16:28.040 types of forecasters, those who don't know and those who don't. 0:16:28.080 --> 0:16:30.000 Those who don't know, they don't know, you know, So 0:16:30.560 --> 0:16:32.800 we try not to forecast. We're looking at the current 0:16:32.800 --> 0:16:35.200 cash flows and reacting, so we like the US better 0:16:35.240 --> 0:16:38.240 than non US. We're managing global portfolios who are overweight 0:16:38.360 --> 0:16:41.320 US but fully invested in stocks. That doesn't mean we 0:16:41.320 --> 0:16:44.040 won't accumulate some cash. So in other words, when a 0:16:44.040 --> 0:16:45.720 lot of the risks that people think about in the 0:16:45.760 --> 0:16:49.760 marketplace should be addressed by portfolio construction, So the words, 0:16:49.840 --> 0:16:52.280 do you have enough cash and short term fixed income 0:16:52.320 --> 0:16:54.880 in your portfolio that you can weather down terms? So 0:16:54.920 --> 0:16:57.200 this is a time where you might be accumulating dividends 0:16:57.480 --> 0:16:59.840 and putting them in things where like short term fixed income, 0:17:00.000 --> 0:17:01.560 the yield has gone up. There's nothing wrong with that. 0:17:02.240 --> 0:17:04.879 So that um, so we like that. We're neutral equity 0:17:04.920 --> 0:17:09.480 market overweight US. Shorter duration still we were, um we were, 0:17:09.560 --> 0:17:11.639 we were quite short, and then we took some of 0:17:11.680 --> 0:17:14.359 that off recently, but we're still a little short. So 0:17:14.440 --> 0:17:17.720 short duration overweight US, fully invested in equities is sort 0:17:17.720 --> 0:17:19.560 of where we are. But like On the stock side, 0:17:19.640 --> 0:17:22.040 we like um sort of growth stocks with pricing power. 0:17:22.560 --> 0:17:25.120 But in general, UM, I just think. I mean, I'm 0:17:25.119 --> 0:17:26.879 gonna be controversial in a minute and say I think 0:17:26.880 --> 0:17:29.000 we're spending too much time talking about I don't mean 0:17:29.040 --> 0:17:31.520 this conversation, but the world is talking too much about 0:17:31.520 --> 0:17:34.679 the ft. We know about the fet you know, Chairman 0:17:34.760 --> 0:17:37.600 Pal's trying to be as transparent as he can. There's 0:17:37.680 --> 0:17:40.480 nothing that I know that the market doesn't know. And 0:17:40.560 --> 0:17:42.560 so it's all in there, he said, he tells us 0:17:42.600 --> 0:17:44.800 what he's doing, and then he does it. So I 0:17:44.880 --> 0:17:47.159 really instruct by some of the more fundamental things that 0:17:47.160 --> 0:17:49.679 are going on that give us huge reasons for optimism 0:17:49.680 --> 0:17:52.120 that I never feel like anybody's talking about. For example, 0:17:52.680 --> 0:17:57.000 we actually may have fusion energy in my lifetime. People 0:17:57.040 --> 0:17:59.400 said the other day, oh yeah, this is don't get 0:17:59.440 --> 0:18:01.480 over excited. It may take a few years before it 0:18:01.520 --> 0:18:04.800 really works. Really, I can wait a few years. I mean, 0:18:04.840 --> 0:18:07.200 this is unbelievable. And the other one is the m 0:18:07.280 --> 0:18:09.280 r N, a breakthrough that we just talked about in 0:18:09.320 --> 0:18:12.600 the news, and what that does for mankind. So we've 0:18:12.600 --> 0:18:17.520 got this never before positive environment in the world. I mean, 0:18:17.560 --> 0:18:21.160 if you go through every statistic, you know, birth rates, UH, 0:18:21.720 --> 0:18:25.200 health around the world, economic expansion, everything around the world 0:18:25.280 --> 0:18:27.280 is better than it's ever been. And I would make 0:18:27.280 --> 0:18:30.879 the case that almost everything we're seeing is a trend 0:18:30.920 --> 0:18:34.119 in that direction. It's not linear, it's bumpy. But I 0:18:34.200 --> 0:18:36.040 just saw while I was waiting to come in that 0:18:37.160 --> 0:18:40.800 the China a d r D listing maybe delayed because 0:18:40.840 --> 0:18:44.200 we're gonna get access to audits. Well, isn't that interesting? 0:18:44.240 --> 0:18:47.000 The free markets, the truth will set you free. If 0:18:47.000 --> 0:18:50.480 you can answer transparency and you add value, you get 0:18:50.520 --> 0:18:54.119 access to global capital, and good things happen. So there's 0:18:54.119 --> 0:18:56.960 a I do think we have a lot of rational 0:18:57.000 --> 0:19:00.600 reasons to be optimistic. UH. And the Fed's gonna do 0:19:00.640 --> 0:19:04.000 what the FED does UH, And it doesn't really change 0:19:04.080 --> 0:19:08.800 much for a long term investor, right it is what 0:19:08.920 --> 0:19:11.840 should what's gonna be the next data point that? You know, 0:19:12.359 --> 0:19:15.240 the FED the other central banks are just going to 0:19:15.320 --> 0:19:17.520 be really looking at it. You know, as John said 0:19:17.560 --> 0:19:20.159 that the long term trends UH for most of the 0:19:20.200 --> 0:19:22.240 world are positive, but they have to live in the 0:19:22.359 --> 0:19:24.560 here and now. So how do you think they're gonna 0:19:24.600 --> 0:19:27.560 be playing this out? Because I don't I can't imagine 0:19:27.880 --> 0:19:30.760 either any center banks are going to push the economy 0:19:30.760 --> 0:19:33.960 into a significant recession. So so this we're just we're 0:19:33.960 --> 0:19:35.880 talking for here. I think a little bit about trend 0:19:36.000 --> 0:19:37.760 versus cycle. Right, So a lot of people, you know 0:19:37.800 --> 0:19:40.119 where your news. I was on a trading desk for 0:19:40.160 --> 0:19:41.639 a long time, so we cared a lot about the 0:19:41.640 --> 0:19:43.879 cycle as opposed to the trend, right, and the long 0:19:44.000 --> 0:19:46.679 term trends in some cases are might be positive. So 0:19:47.040 --> 0:19:49.040 you know that the next data point, like and and 0:19:49.160 --> 0:19:51.359 the FED is right now data dependent in trying to 0:19:51.720 --> 0:19:53.800 kind of smooth out this cycle, right and trying to 0:19:53.800 --> 0:19:56.720 get inflation down. Um, so so the next inflation print 0:19:57.080 --> 0:19:59.320 is going to be important, right, So next next, actually 0:19:59.400 --> 0:20:02.240 next Friday gonna be insanely busy. From a data perspective, 0:20:02.280 --> 0:20:04.640 You're gonna have so much data to talk about. You're 0:20:04.680 --> 0:20:06.359 not gonna know what to do. Because you get the 0:20:06.760 --> 0:20:09.320 PC data, we get the personal spending and income data, 0:20:09.359 --> 0:20:14.040 we get again, I'll see what I can do. So 0:20:14.119 --> 0:20:16.280 the importantly, though, I think it's going to be the 0:20:16.359 --> 0:20:19.800 January CPI print because because that that print and the 0:20:19.920 --> 0:20:22.600 PC print later in January are going to be both. 0:20:22.720 --> 0:20:26.160 We get those before the February one FED meetings. So 0:20:26.160 --> 0:20:27.600 so with the idea that is the Fed going to 0:20:27.640 --> 0:20:29.679 go twenty five basis points or fifty basis points in 0:20:29.680 --> 0:20:32.960 February is going to be answered probably middle of January 0:20:33.000 --> 0:20:36.520 based on what the CPI number is. Well, Jonathan hop 0:20:36.560 --> 0:20:39.680 In here, because what do you think the tenure treasury 0:20:39.720 --> 0:20:43.080 being like after this news? It goes from three fifty 0:20:43.080 --> 0:20:45.720 three to three sixty? Other words, it's not really doing 0:20:45.840 --> 0:20:48.720 much as an investor, And I think about discounting future 0:20:48.760 --> 0:20:52.040 cash flows, those farther out cash flows mean a lot 0:20:52.080 --> 0:20:54.399 more on the discounting than the short term cash flows 0:20:54.400 --> 0:20:57.600 to so I think that tenure at three sixty is 0:20:57.640 --> 0:21:00.320 still what's it telling us? I mean, what is it 0:21:00.359 --> 0:21:02.199 telling us about core inflation? Do you think? And I 0:21:02.200 --> 0:21:04.840 know it's a global number, but what do you think 0:21:04.920 --> 0:21:07.640 it tells us about core inflation? Well, it's really very 0:21:07.640 --> 0:21:10.359 little about core inflation in and of itself, except that 0:21:10.400 --> 0:21:14.119 the markets anticipating that inflation over a long period of 0:21:14.119 --> 0:21:16.159 time is going to be three pc plus or minus 0:21:16.200 --> 0:21:18.800 fifty basis points right, So um, and probably a little 0:21:18.840 --> 0:21:21.960 lower than that. Um. So you know, I I used 0:21:22.040 --> 0:21:24.240 I do use the market numbers there was someone who 0:21:24.520 --> 0:21:26.480 was trying to convince me the other day that that 0:21:26.560 --> 0:21:29.080 the markets being still being manipulated by the FED, even 0:21:29.080 --> 0:21:31.800 though the FEDS now running off its balance sheet. But 0:21:32.080 --> 0:21:33.560 you know, ten year yields at three and a half 0:21:33.560 --> 0:21:36.359 percent still is not saying that the markets worried about 0:21:36.359 --> 0:21:38.840 long term inflation. It's worried about inflation here and now. 0:21:39.040 --> 0:21:41.119 That's why we have two year yields at four and 0:21:41.119 --> 0:21:42.639 a half. Four and a quarter should be four and 0:21:42.640 --> 0:21:45.800 a half. But longer, longer term, the market is not 0:21:46.000 --> 0:21:53.480 fearful that inflation is going to be particularly sticky, real quick. France, Argentina, God, 0:21:53.520 --> 0:21:55.920 I really I want Argentina in this one, just because 0:21:55.920 --> 0:21:57.840 I want Messy to be the goat, and there would 0:21:57.840 --> 0:22:01.080 be no question. But but the same time, France is 0:22:01.160 --> 0:22:05.879 so deep beautifully against Morocco. Their defense, the French defense. 0:22:06.359 --> 0:22:08.720 Morocco had some good chances though, you know hit the post. 0:22:08.800 --> 0:22:11.320 I mean there was a really nice spicyclel kick yeah, 0:22:12.840 --> 0:22:15.560 Portugal and John I was actually a part owner of 0:22:15.600 --> 0:22:18.639 a minor league soccer club in central New Jersey, so 0:22:18.680 --> 0:22:20.959 he does actually know what he's talking about. So you know, 0:22:21.040 --> 0:22:23.200 he's actually been in demand now during this World Cup. 0:22:23.320 --> 0:22:26.480 Nobody cares really about the Fed. Uh. Jonathan Hurdle, executive 0:22:26.520 --> 0:22:30.520 chairman at Hurdle Callahan based down Westconscha Hacken p a 0:22:30.640 --> 0:22:33.880 good part of the world in our Jersey Bloomberg Chief 0:22:34.000 --> 0:22:37.240 Us Interest Rate Strategies, both in our Bloomberg Interactor Broker study, 0:22:37.320 --> 0:22:39.960 breaking down what we've been seeing from the central banks. 0:22:44.080 --> 0:22:47.520 Lots going on in the marketplace. Tom King, send him home. 0:22:47.560 --> 0:22:49.719 He's been working like crazy keeping up with what's going 0:22:49.760 --> 0:22:53.399 on with the the central banks. Jason Greenbal joins us. 0:22:53.400 --> 0:22:57.240 He's a senior portfolio folio manager at American Century Investments 0:22:57.240 --> 0:22:59.080 are located in Kansasy. He joins us here in our 0:22:59.080 --> 0:23:03.080 Bloomberg Interactive Broker studio and yet another Penn State grad 0:23:03.440 --> 0:23:06.639 in our studio. So these people are everywhere. Jason, what 0:23:06.720 --> 0:23:09.200 do you make of the last twenty four hours central 0:23:09.200 --> 0:23:11.399 bankers around the world raising rates? We've got some a 0:23:11.400 --> 0:23:13.880 little bit weaker than expected print on the retail sales 0:23:14.400 --> 0:23:17.200 um you know, on the on the credit side, global 0:23:17.240 --> 0:23:20.040 fixed income side. What do you do after it's been 0:23:20.080 --> 0:23:23.720 such a brutal year for global fixed income? Yeah? Great, 0:23:23.760 --> 0:23:26.080 great question and great to be here with you today. 0:23:26.119 --> 0:23:29.200 Thank you. Um what do you do? So, I think 0:23:29.240 --> 0:23:31.879 you need to have dry powder. This this rally that 0:23:31.920 --> 0:23:37.840 we've experienced since October, the the expectation that inflation has peaked. 0:23:37.880 --> 0:23:40.800 We agree with inflation has peaked, but the central banks 0:23:40.800 --> 0:23:43.880 clearly do not like it. Um, there's more work to do. 0:23:44.080 --> 0:23:47.320 Quoting Powell from yesterday, we agree there's more work to do. 0:23:47.640 --> 0:23:50.560 The markets are realizing that, and we've gone probably a 0:23:50.560 --> 0:23:54.120 bit too far too fast. Well, the markets are realizing that, 0:23:54.160 --> 0:23:56.320 but they're also pricing and cuts next year, which is 0:23:56.359 --> 0:23:59.119 the Federal Reserve is actively saying we're not gonna do 0:23:59.320 --> 0:24:02.040 believe us not gonna cut. We're gonna stay elevated for 0:24:02.080 --> 0:24:04.720 a while. What happens if they do? Though? How quick 0:24:04.920 --> 0:24:08.119 does that decision happen? So I think you have to 0:24:08.119 --> 0:24:10.440 take a step back and ask why would they be cutting. 0:24:10.560 --> 0:24:13.159 It's not going to be for a positive event. And 0:24:13.280 --> 0:24:16.280 fundamentals are slowing. If you look at their UH Summary 0:24:16.280 --> 0:24:20.080 of Economic projections, they're coming down. Um, is the market 0:24:20.119 --> 0:24:22.640 prepared for that? There's a there's a huge question mark. 0:24:22.680 --> 0:24:25.240 And I think if you rewind the quock twelve months ago, 0:24:25.960 --> 0:24:30.520 many strategists did not anticipate the rate hikes and the 0:24:30.560 --> 0:24:33.040 pace that we saw this year. I just think it's 0:24:33.080 --> 0:24:36.280 it's maybe two premature to look out twelve months and say, well, 0:24:36.320 --> 0:24:39.119 there's gonna be a rate cut. If that happens, I 0:24:39.119 --> 0:24:41.600 think that's a bad outcome. But isn't that the playbook 0:24:41.640 --> 0:24:43.439 that the FED has been operating on for the past 0:24:43.480 --> 0:24:46.399 two decades, essentially that the minute things go south, you 0:24:46.480 --> 0:24:49.680 cut rates. Yeah, we're we're accustomed to buying the dip. 0:24:49.920 --> 0:24:52.880 I mean that's we saw that this year. The FED 0:24:52.960 --> 0:24:55.240 has our back, and I agree with that. I mean, 0:24:55.400 --> 0:25:00.720 why why let everything unwind since the financial crisis till now? Um, 0:25:00.800 --> 0:25:03.080 you're right, they have our back. It's so interesting to 0:25:03.160 --> 0:25:05.600 hear an investors say the FED has our back, Yes, 0:25:05.800 --> 0:25:09.359 exactly when the Feed has been raising rates. Here, Jace, 0:25:09.400 --> 0:25:12.000 I know in your in your career, you've done some 0:25:12.119 --> 0:25:15.400 high yields, some discrested credit. If we are in fact 0:25:15.440 --> 0:25:18.040 going into a recession in three and maybe it's a 0:25:18.080 --> 0:25:20.359 little bit deeper than most people think, how are the 0:25:20.359 --> 0:25:24.280 credit markets going to react? How's the credit quality out there? Uh, 0:25:24.320 --> 0:25:26.359 it depends on which part of the market you're looking at. 0:25:26.359 --> 0:25:30.040 Investment create corporates were not too concerned about evaluations do 0:25:30.240 --> 0:25:32.520 look tight. We think there's some weakness, but that's not 0:25:32.560 --> 0:25:34.840 where the problems are gonna come. Problems are gonna come 0:25:34.880 --> 0:25:37.640 from the smaller companies. The companies who have you been 0:25:37.640 --> 0:25:42.239 battling to UH to bring workers onto wage inflation. Now 0:25:42.280 --> 0:25:45.800 they're laying some of them off. Um the rate hikes. 0:25:45.840 --> 0:25:48.400 The rate hikes are are chewing into their free cash flow. 0:25:48.760 --> 0:25:51.639 These single be rated bank loans that have you know, 0:25:51.840 --> 0:25:54.720 floating rate capital structures. Those are gonna be the areas 0:25:54.800 --> 0:25:57.840 that you know, with with our credit expertise, we can 0:25:57.880 --> 0:26:00.760 go in and buy these these opportunities is cheap, but 0:26:00.840 --> 0:26:02.480 it's probably not going to be for another six to 0:26:02.560 --> 0:26:04.959 twelve months until we really start to see some of 0:26:04.960 --> 0:26:07.560 this carnage. And what are your economists they're saying about 0:26:07.560 --> 0:26:10.280 a recession in is they talk to you guys the 0:26:10.320 --> 0:26:12.840 portfolio a moment, managers, the analyst actually putting the money 0:26:12.840 --> 0:26:16.960 to work. Yeah, probability in our minds from our investment 0:26:16.960 --> 0:26:20.399 committee is is a sixty plus percent chance of a recession. 0:26:20.840 --> 0:26:23.000 I think when we look back at third quarter earnings, 0:26:23.280 --> 0:26:26.359 there's some companies that you know, really struggled with margins. 0:26:26.600 --> 0:26:31.800 You're seeing that with retail um chemicals, there's probably more 0:26:31.840 --> 0:26:35.520 of that to come. Um, So looking backwards, things look okay. 0:26:35.800 --> 0:26:40.760 Looking forwards were a lot more cautious in the corporate space. 0:26:40.800 --> 0:26:44.000 Are there any sectors that you guys like right here 0:26:44.160 --> 0:26:46.919 or maybe going into where there might be a you know, 0:26:47.080 --> 0:26:51.160 a six percent chance of a recession. Yeah. The spaces 0:26:51.200 --> 0:26:53.359 that we like is, you know, certainly high quality parts 0:26:53.400 --> 0:26:55.840 of the market, um, you know, single a's we we 0:26:55.960 --> 0:26:59.600 certainly like the banks, Um, we like utilities. Those are 0:26:59.720 --> 0:27:02.520 those going to be more stable, they'll they'll come out 0:27:03.200 --> 0:27:06.520 probably unscathed in our minds, um. But there's certainly a 0:27:06.520 --> 0:27:09.040 lot of other sectors that we think, you know, we'll 0:27:09.080 --> 0:27:12.560 feel some pain here. Well. I think it's interesting to 0:27:12.600 --> 0:27:15.840 me about just the carnage that we've seen in the markets, 0:27:15.880 --> 0:27:17.639 and it feels like it's been a no brainer that 0:27:17.680 --> 0:27:20.480 it's has the Federal reserve hikes rates, everything sells off, 0:27:20.520 --> 0:27:24.119 from bonds to the stock market, arguably in commodities, depending 0:27:24.119 --> 0:27:26.879 on how you look at it. But it almost feels 0:27:26.880 --> 0:27:29.640 like this year has been the year in which you're 0:27:29.640 --> 0:27:32.840 pricing in this kind of doom and gloom or sessionary scenario. 0:27:33.800 --> 0:27:35.760 Do we actually see some sort of turn around in 0:27:36.600 --> 0:27:38.919 or is it just more of the same. Well, we 0:27:39.000 --> 0:27:41.040 think a lot of the pain has been done already 0:27:41.119 --> 0:27:44.040 in the rates market on the spread side and credit 0:27:44.400 --> 0:27:47.080 we haven't seen that yet. Fundamentals haven't fully caught up 0:27:47.119 --> 0:27:50.280 to what's going on. And again, Powell recognize that that 0:27:50.440 --> 0:27:54.160 this massive tightening that's taken place hasn't been fully filt 0:27:54.200 --> 0:27:56.560 yet by the market, and I think that's where the 0:27:56.600 --> 0:27:59.720 opportunities are gonna uh to present themselves next year. Is 0:27:59.720 --> 0:28:03.000 that through though, has it not been fully felt by 0:28:03.119 --> 0:28:06.119 the market When you're looking at um, I mean it 0:28:06.160 --> 0:28:08.240 feels like what he's using to say that is financial 0:28:08.240 --> 0:28:11.800 conditions essentially, which are still sort of easing. But isn't 0:28:11.800 --> 0:28:13.919 that kind of the market's job to price this in 0:28:14.000 --> 0:28:16.000 and then to look six to nine months down the road. 0:28:16.040 --> 0:28:18.280 So if they are easing a little bit, it's not 0:28:18.320 --> 0:28:19.959 saying that there isn't going to be paying in the 0:28:20.000 --> 0:28:23.480 front half three but that things will turn around later 0:28:23.640 --> 0:28:26.200 down the road. At least that was my interpretation. Yeah, yeah, 0:28:26.240 --> 0:28:28.840 So the pain that I think you're referring to is 0:28:28.840 --> 0:28:31.800 is really again from from treasuries being up two to 0:28:31.840 --> 0:28:34.760 four d basis points this year in terms of spreads, 0:28:35.240 --> 0:28:38.360 credit spreads are not pricing in a recession. They usually 0:28:38.800 --> 0:28:42.440 peak about six months in advance of a recession. So 0:28:42.520 --> 0:28:45.640 if you're thinking six to twelve months out, the corporate O, A, 0:28:45.800 --> 0:28:48.120 S and I G at one thirty, typically it's two 0:28:48.200 --> 0:28:50.640 hundred plus basis points. So we've got quite a bit 0:28:50.640 --> 0:28:53.240 of way to go. If if that's the downs typical 0:28:53.320 --> 0:28:58.200 for typical for a normal run of the mill recession. Um, 0:28:58.240 --> 0:29:01.520 if it's worse, you know, I've seen strategist pencil in 0:29:01.840 --> 0:29:03.920 to fifty plus. We don't think it's going to be 0:29:03.960 --> 0:29:09.200 that bad. So all right, putting perspective historic losses across 0:29:09.280 --> 0:29:13.800 many verticals in fixed income, given that at backdrop, what 0:29:13.840 --> 0:29:18.200 are your clients asking you today? Yeah? Um, what should 0:29:18.240 --> 0:29:22.080 we be doing about duration? So interest rate risk? Uh, 0:29:22.160 --> 0:29:24.080 you know we have an inverted curve. Should we be 0:29:24.120 --> 0:29:26.520 adding duration? The answer is yes, in our minds, we 0:29:26.520 --> 0:29:29.240 should be going out the curve, should be adding duration 0:29:29.320 --> 0:29:33.960 because again our higher higher probability or recessionary risk you know, 0:29:34.040 --> 0:29:37.959 further out and inflation coming down that we should see 0:29:38.040 --> 0:29:40.160 at least stability in the long end of the curve. 0:29:40.480 --> 0:29:44.240 Tens thirties. UM, we do see some more upward pressure 0:29:44.240 --> 0:29:45.960 in the front end of the curve, so we would 0:29:46.000 --> 0:29:48.200 be adding duration in the longer end of the curve. 0:29:48.320 --> 0:29:50.280 And this whole inverted yield curve stuff. It's I think 0:29:50.280 --> 0:29:52.840 it's like negative eighty basis points on the two tens. 0:29:53.240 --> 0:29:55.880 I'm an equity guy. I don't know. Is that important 0:29:55.920 --> 0:29:59.920 to you? It sure is. I mean, I think it's technical. 0:30:00.280 --> 0:30:02.200 You know, it signals whether you look at two s 0:30:02.200 --> 0:30:05.640 tens or the three months versus tens, certainly signaling that 0:30:05.760 --> 0:30:09.200 you know that there's stress on the way. UM. I 0:30:09.200 --> 0:30:12.360 think it's something that equity investors and fixed and investors 0:30:12.360 --> 0:30:14.800 should should certainly be aware of. All right, good stuff. 0:30:14.840 --> 0:30:19.200 Jason Greenblath, senior portfolio manager at American Century Investments. UH, 0:30:19.280 --> 0:30:22.240 joining us here on a Bloomberg Interactive broker studio. UM, 0:30:22.440 --> 0:30:24.520 lots of good clients. I had an American Centry out 0:30:24.520 --> 0:30:26.120 in Kansas City. You got an office here in New York. 0:30:26.160 --> 0:30:28.640 You guys are everywhere. Uh, they've got about two billion 0:30:28.640 --> 0:30:31.960 in assets under management. How about that? There's money everywhere 0:30:31.960 --> 0:30:37.840 out there? All right, let's switch gears and talk a 0:30:37.880 --> 0:30:41.160 little quantity hate of analysis. How are the quant geeks 0:30:41.160 --> 0:30:43.400 out there? How are they play in this market? Uh? 0:30:43.440 --> 0:30:45.440 So far? And what's the outloot going forward? And yes, 0:30:45.520 --> 0:30:48.080 I always refer to them as quant geeks UM. And 0:30:48.080 --> 0:30:51.640 you'll see why. George Patterson c I O Pjim Quantitative Solutions, 0:30:52.120 --> 0:30:55.880 PhD in physics from Boston University. Like he's like a 0:30:55.960 --> 0:30:59.760 rocket scientist and then he goes it starts getting investing 0:30:59.800 --> 0:31:02.720 during Thanks so much for joining us here. Really appreciate it. 0:31:03.280 --> 0:31:05.600 You know, how do guys like you and the way 0:31:05.680 --> 0:31:09.280 you guys look at the market and your clients. What 0:31:09.360 --> 0:31:14.240 what do you make so far? Thank you very much 0:31:14.480 --> 0:31:20.720 for the introduction and uh and for the quant geek. Uh. 0:31:21.080 --> 0:31:23.840 I'm more than other people actually a rocket scientist because 0:31:23.840 --> 0:31:26.000 I actually did spend my first few years working at 0:31:26.000 --> 0:31:31.560 a NASA research facility before getting getting down getting into 0:31:31.600 --> 0:31:35.440 a quantitative quantitative investments UM. So if you look at 0:31:35.440 --> 0:31:40.040 the past three years, we've had three cycles. Really in 0:31:40.120 --> 0:31:44.360 three years. We had a slowdown or a shutdown really 0:31:44.400 --> 0:31:50.200 from COVID, you know, extraordinary fiscal and government support and 0:31:50.240 --> 0:31:54.280 then the resulting inflation. So this has just been a 0:31:54.440 --> 0:31:58.440 massive shock to the system. I think the current environment 0:31:58.480 --> 0:32:01.520 is not surprising given that we've had such strong returns 0:32:01.520 --> 0:32:04.080 in the past couple of years, but those returns have 0:32:04.160 --> 0:32:08.720 really been fueled by, you know, huge stimulus from both 0:32:08.760 --> 0:32:13.160 central banks and governments, So so I'm not surprised we're 0:32:13.160 --> 0:32:15.640 seeing a little bit of softness in the market. But 0:32:15.760 --> 0:32:18.680 the real what I see as the opportunity is that 0:32:18.960 --> 0:32:22.080 people have really just gotten out of equities and there's 0:32:22.120 --> 0:32:24.920 been a huge shock to the system because people are 0:32:24.960 --> 0:32:28.600 just selling things indiscriminately. So there's really a lot of 0:32:28.680 --> 0:32:32.280 relative value opportunities where where people are just getting out 0:32:32.320 --> 0:32:36.240 of names wholesale and and not looking at fundamentals. Um 0:32:36.320 --> 0:32:40.920 that was really true in in but you know, we've 0:32:40.960 --> 0:32:44.640 really seen types of quantitative strategies that that are very 0:32:44.720 --> 0:32:50.160 broad based and look across markets, look across assets, really 0:32:50.160 --> 0:32:52.960 do very well because there's just been such a such 0:32:53.000 --> 0:32:57.440 a shock to the system, not unlike following the financial crisis, 0:32:57.520 --> 0:33:00.480 not unlike following the tech bubble, where it's really going 0:33:00.520 --> 0:33:03.920 to be several years of this going forward that there's 0:33:03.960 --> 0:33:06.000 just been such a displacement, it's going to take time 0:33:06.040 --> 0:33:10.600 for things to get back into equilibrium. Well, George tell 0:33:10.640 --> 0:33:15.680 us a little bit about how quickly that could recalibrate 0:33:15.800 --> 0:33:17.480 if in fact the market is right, and if in 0:33:17.520 --> 0:33:20.760 fact we do see some sort of FED cut in 0:33:20.760 --> 0:33:26.400 the back half of that, the central bank is very 0:33:26.440 --> 0:33:30.640 I want to say, um um dogmatic for lack of 0:33:30.640 --> 0:33:32.360 a better term, in terms of saying no, that's not 0:33:32.360 --> 0:33:35.320 going to happen. But how quickly does the liquidity story change? 0:33:35.320 --> 0:33:39.320 How quickly um does the positioning change if indeed the 0:33:39.320 --> 0:33:43.520 FED decides to pull that trigger. Uh, well, this is 0:33:43.600 --> 0:33:47.480 this is a challenge because everything we know indicates that 0:33:47.520 --> 0:33:50.080 the FED policy acts with a with a significant lag. 0:33:50.200 --> 0:33:53.760 So you know, we're we're seeing impact now from cut 0:33:54.120 --> 0:33:58.440 from from increases that were made months ago. And again 0:33:58.480 --> 0:34:02.800 it's a it's a challenging it's a challenging process. So, um, 0:34:02.840 --> 0:34:05.200 you know, from my perspective, how quickly can we get 0:34:05.200 --> 0:34:08.240 back to equilibrium? It's going to take some time. There's 0:34:08.239 --> 0:34:12.000 a number of Um, there's a number of pressures on equity. 0:34:12.080 --> 0:34:14.239 I mean, first of all, people are just hesitant to 0:34:14.320 --> 0:34:17.279 be in equity when inflation is that level, at this 0:34:17.360 --> 0:34:20.240 level and rates are going up. All of our research 0:34:20.280 --> 0:34:22.719 shows that it makes sense to have, you know, some 0:34:22.760 --> 0:34:26.680 allocation of real assets, some allocation to commodities as as 0:34:26.719 --> 0:34:29.839 a very good inflation hedge. Commodities may have pulled back 0:34:29.960 --> 0:34:32.920 a bit since the highs, but it's still had a great, 0:34:33.440 --> 0:34:35.640 great performance here today, and we still think it makes 0:34:35.640 --> 0:34:38.960 sense to have something like that in client portfolio. But 0:34:39.000 --> 0:34:42.480 there's a lot of pressure on equities because you know, 0:34:42.520 --> 0:34:46.959 many large institutions have just focused on private assets and 0:34:47.120 --> 0:34:49.160 that's been a great place to be. It's helped them 0:34:49.160 --> 0:34:53.040 meet their long term return needs. But the challenges is 0:34:53.080 --> 0:34:56.040 that they're illiquid, so a lot of so what you've 0:34:56.080 --> 0:34:59.200 seen is as equities have come down, equities get marked 0:34:59.200 --> 0:35:01.600 to market every day. Your public portfolios get marked to 0:35:01.640 --> 0:35:05.000 market every day. Private assets don't get They're typically on 0:35:05.040 --> 0:35:08.080 a quarterly cycle. It's a slow moving cycle. So right 0:35:08.120 --> 0:35:11.120 now people are seeing their private allocations go up, mostly 0:35:11.200 --> 0:35:14.680 because of the fact that they've just not adjusted. The 0:35:14.719 --> 0:35:17.080 problem is is that if you're in that position and 0:35:17.120 --> 0:35:19.000 now you're at where you need to be with your 0:35:19.000 --> 0:35:22.520 private assets and your public assets are worth less, you 0:35:22.600 --> 0:35:25.239 still may need to eat meat cash flows and you 0:35:25.400 --> 0:35:28.040 likely can't get out of those private assets, so you're 0:35:28.040 --> 0:35:30.600 gonna sell what's liquid, and that's likely going to be 0:35:30.640 --> 0:35:34.239 equities or fixed income. So this is gonna be structurally 0:35:34.280 --> 0:35:37.040 away on the market for you know, probably for the 0:35:37.080 --> 0:35:41.080 next six to nine months. I think George as a 0:35:41.160 --> 0:35:44.560 quantitative manager, I just envisioned in your office, there's a 0:35:44.560 --> 0:35:47.040 black box sitting on your desk and it spits out 0:35:47.040 --> 0:35:50.000 trading and investment ideas all day long. Could you kind 0:35:50.000 --> 0:35:52.280 of lift the cover off that box force and tells 0:35:52.600 --> 0:35:54.200 kind of how yours works a little bit, how you 0:35:54.239 --> 0:35:58.839 guys identify opportunities. Yeah, so so so. Funny thing is 0:35:58.880 --> 0:36:01.360 that when people say quant I think, you know, quant 0:36:01.400 --> 0:36:04.520 gets you know, pictured as everybody's doing the same thing. 0:36:04.560 --> 0:36:08.160 There's a there's a blackboard full of full of formulas, 0:36:08.320 --> 0:36:10.879 and that you know, all quantitative firms are the same 0:36:10.920 --> 0:36:14.520 across the street. In reality, there are many different types 0:36:14.520 --> 0:36:16.799 of quants. There are some that are kind of, you know, 0:36:16.920 --> 0:36:20.920 really much more like electronic market maker is very high frequency. 0:36:21.080 --> 0:36:23.520 We tend to and I view those more as a 0:36:23.560 --> 0:36:27.439 trading strategy, very short horizon. We tend to be much 0:36:27.440 --> 0:36:31.839 more fundamentally driven. So you know, yes, we do have 0:36:32.000 --> 0:36:34.920 a number of you know, mathematical models about how we 0:36:34.960 --> 0:36:38.640 think markets behave, but one of the key hallmarks particularly 0:36:38.680 --> 0:36:42.760 at PIGION quantitative solutions, is that we're always thinking long term, 0:36:42.800 --> 0:36:46.040 you know, fundamentally driven or something that is really driven 0:36:46.040 --> 0:36:49.960 in research. You know, from our perspective, it's very easy 0:36:50.080 --> 0:36:53.040 with financial data to fool yourself. There's a lot more 0:36:53.520 --> 0:36:56.680 noise than there are signals. So it's important to really 0:36:56.719 --> 0:36:59.799 have something that is that is driven by you know, 0:37:00.040 --> 0:37:03.480 long term investment beliefs, you know, long term models about 0:37:03.480 --> 0:37:07.759 how behaviors, how how investors behave, and how markets work. 0:37:08.640 --> 0:37:11.239 We find that that for a long term investor that's 0:37:11.280 --> 0:37:14.000 looking over a cycle is really the right way to 0:37:14.320 --> 0:37:17.040 be thinking about things. So, yes, we do have we 0:37:17.120 --> 0:37:19.360 do have some equations, but a lot of times, like 0:37:19.400 --> 0:37:22.279 if you look if you look at our portfolios, you're 0:37:22.280 --> 0:37:26.320 going to find that they you know, they're a well diversified, 0:37:26.719 --> 0:37:29.399 but they oftentimes, you know, have stocks that we think 0:37:29.440 --> 0:37:33.920 are relatively attractive adjusting for growth um and and sector 0:37:34.480 --> 0:37:38.160 um generally slightly higher quality and places where we think 0:37:38.160 --> 0:37:40.719 that there's you know, like there's not really a chance 0:37:40.719 --> 0:37:43.120 of a value trap. So if you look at our portfolios, 0:37:43.120 --> 0:37:45.439 you're gonna find they really make a lot of long 0:37:45.560 --> 0:37:49.120 term investment sense. And that's really the type of of 0:37:49.920 --> 0:37:53.880 equity portfolio that we build at at Pigeum Quantitative Solutions. 0:37:53.920 --> 0:37:56.080 On the multi asset side, we spend a lot of 0:37:56.080 --> 0:37:59.279 time thinking about how we position defensively, you know, whether 0:37:59.320 --> 0:38:03.400 we have stratg gs that provide downside protection or you know, 0:38:03.440 --> 0:38:06.520 some strategies try to like offset with inflation. That's been 0:38:06.520 --> 0:38:09.680 a very successive I've been very successful call for us 0:38:09.680 --> 0:38:12.759 over the past cycle, where you know, we've always had 0:38:12.760 --> 0:38:15.400 a commitment to having some commodities in the portfolio, but 0:38:15.480 --> 0:38:17.600 it's really paid out very well for us over his 0:38:17.680 --> 0:38:20.719 past cycle. George, really interesting stuff. Appreciate getting a few 0:38:20.719 --> 0:38:24.080 minutes of your time, George Patterson, he's the chief investment 0:38:24.120 --> 0:38:31.360 officer at PGIM Quantitative Solutions. Well on other and I 0:38:31.400 --> 0:38:34.799 think it's going to be potentially big news. US regulators 0:38:34.800 --> 0:38:37.440 took the first step towards the most widespread revamp in 0:38:37.440 --> 0:38:40.200 more than a decade of the way stocks are treated, 0:38:40.560 --> 0:38:43.200 a move that aims to spur better prices for investors 0:38:43.200 --> 0:38:47.600 and direct more business to traditional exchanges. Folks, That's all 0:38:47.719 --> 0:38:49.680 I know, um, but I need to learn more. I 0:38:49.680 --> 0:38:52.280 think it's important. Uh So, let's bring on Larry tab 0:38:52.400 --> 0:38:55.880 He's head of market structure research with Bloomberg Intelligence. He 0:38:55.880 --> 0:38:58.279 actually does this for a living and he's very good 0:38:58.280 --> 0:39:01.480 at it. We also managed to have Barry Ridholts stick 0:39:01.480 --> 0:39:02.799 around a little bit. He knows a thing or two 0:39:02.840 --> 0:39:05.480 about market so he'll be joining us as well. Larry, 0:39:05.520 --> 0:39:08.160 can you, in layman's terms, tell me what the SEC 0:39:09.080 --> 0:39:13.759 is proposing here? Well, they put out for proposals. The 0:39:13.800 --> 0:39:19.359 first is greater transparency on retail broker execution quality, so 0:39:19.400 --> 0:39:23.479 basically giving broker or individuals that the ability to see 0:39:23.560 --> 0:39:27.840 if Robin Hood or Schwab or Merrit Trade or whoever 0:39:28.600 --> 0:39:31.680 has better execution stats than the other. So so that's 0:39:31.719 --> 0:39:36.080 generally good. The second um is going to be reducing 0:39:36.280 --> 0:39:39.000 tick sizes. So the tick size now, which is basically 0:39:39.040 --> 0:39:41.239 the spread between the bit and the offer, is set 0:39:41.239 --> 0:39:45.359 at a penny for all stocks over a dollar. They 0:39:45.400 --> 0:39:48.239 want to reduce that and they're going to create four 0:39:48.320 --> 0:39:52.120 different bands for the most active and tightest stocks. They're 0:39:52.160 --> 0:39:54.240 going to wind up making that a tenth of ascent. 0:39:55.239 --> 0:39:57.520 For the next tier, it's going to be two tenths 0:39:58.000 --> 0:40:00.800 of a percent. For the next year it's going to 0:40:00.840 --> 0:40:03.239 be half a penny. And then for all of the 0:40:03.320 --> 0:40:08.000 things that trade generally wider than a four cents they're 0:40:08.000 --> 0:40:12.280 gonna make They're gonna lead at a penny. The the 0:40:12.280 --> 0:40:17.480 third thing, uh is they want retail investor orders to 0:40:17.480 --> 0:40:21.120 be auctioned off, so uh, they're going to try to 0:40:21.200 --> 0:40:26.160 get a larger percentage of retail float into exchanges to 0:40:26.200 --> 0:40:30.560 the auction. And then the last is the best execution rule, 0:40:31.360 --> 0:40:36.239 which not just only applies to equities, but applies to 0:40:36.320 --> 0:40:39.839 all other securities as the classes that the sec looks over, 0:40:39.840 --> 0:40:46.600 which would be uh, bonds, um option. I guess you know, 0:40:46.680 --> 0:40:50.440 bonds and communies and corporates and things like that. So 0:40:50.520 --> 0:40:53.360 Barry hop on in here for the average investor, what 0:40:53.480 --> 0:40:57.400 does that mean? Good thing, bad thing? Yeah, anytime spreads tighten, 0:40:57.480 --> 0:41:03.440 anytime you you make the cost of execution a little cheaper, 0:41:03.800 --> 0:41:08.000 it's really good for for investors because their costs go down. 0:41:08.000 --> 0:41:10.000 And we know that costs are are a big drag. 0:41:10.360 --> 0:41:15.400 As much as we forget because the changes happened so 0:41:15.520 --> 0:41:19.920 incrementally over time. This is and as much as you know, 0:41:20.000 --> 0:41:23.480 apps like robin Hood and the gamification have been in 0:41:23.560 --> 0:41:27.880 FOMO have been a crazy distraction. This really has become 0:41:27.920 --> 0:41:31.960 the Golden Age for investing, spreads are the narrowest they've 0:41:32.000 --> 0:41:35.239 ever been. You could buy and sell e t fs 0:41:35.440 --> 0:41:37.719 for free. And by the way, if you want to 0:41:37.719 --> 0:41:40.799 buy the whole market, the Vanguard Total Market or the 0:41:40.920 --> 0:41:44.040 SMP five dred it'll cost you three or four bits 0:41:44.040 --> 0:41:48.080 a year. So the world today is so different than 0:41:48.120 --> 0:41:52.200 it's been over the past half century. We sometimes forget that. Yeah, 0:41:52.239 --> 0:41:54.000 I mean when I started trading on Wall Street it 0:41:54.080 --> 0:41:57.439 was price and increments of an eighth of a point. Boy, 0:41:57.440 --> 0:42:01.280 those were the good old days. Uh, Larry, you forget quarters. 0:42:01.680 --> 0:42:03.840 I know, I'm not sure. There are going to be 0:42:03.920 --> 0:42:07.919 some There are going to be some unintended consequences here. 0:42:08.840 --> 0:42:14.160 Pricing stocks that tents um will probably hurt institutional investors 0:42:14.200 --> 0:42:15.960 who want to trade a lot, So we may see 0:42:15.960 --> 0:42:18.400 a lot of their orders go dark, go into a 0:42:18.520 --> 0:42:23.520 t s s, or go into hidden midpoint orders because 0:42:23.880 --> 0:42:26.839 they don't want to get their orders picked off. And 0:42:27.120 --> 0:42:31.040 with adding neither five or ten price points between each penny, 0:42:31.520 --> 0:42:33.520 what are size will go down. So the average order 0:42:33.520 --> 0:42:36.080 size now is about a hundred five shares, we will 0:42:36.160 --> 0:42:39.480 absolutely see this go below a hundred shares. The average 0:42:39.480 --> 0:42:43.200 trade size will go below a hundred shairs UM and 0:42:43.200 --> 0:42:46.759 and any displayed order. You know, for five hundred or 0:42:46.760 --> 0:42:48.800 six hundred chairs, there's gonna be somebody who's going to 0:42:48.920 --> 0:42:51.239 penny you for a tenth of a cent or two 0:42:51.320 --> 0:42:54.600 tenths of a cent. So that's gonna push institutional flow 0:42:54.640 --> 0:42:58.960 into into the dark UM. And then the other question 0:42:59.040 --> 0:43:02.839 will be is you know right now the current wholesaling 0:43:02.920 --> 0:43:07.560 process UM. The wholesalers work with the brokers to internalize 0:43:07.560 --> 0:43:10.000 a lot of this flow, but the swabs and the 0:43:10.080 --> 0:43:13.640 merrit trades and the Robin hoods hold them accountable, not 0:43:13.719 --> 0:43:17.600 just for the actively traded names, but for the ten 0:43:17.680 --> 0:43:21.360 or eleven thousand NMS names are basically all of the stocks. 0:43:21.400 --> 0:43:25.080 So we could see the most average stocks doing better, 0:43:25.080 --> 0:43:28.959 are the most um active stocks doing better and having 0:43:29.000 --> 0:43:33.239 better pricing. But really we're retail investors do a lot 0:43:33.239 --> 0:43:35.960 of their trading in the less active stocks, the stocks 0:43:35.960 --> 0:43:39.879 that really have very little institutional demand. We could see 0:43:39.920 --> 0:43:44.000 their spreads getting much worse. So what's been the pushback 0:43:44.080 --> 0:43:46.560 or what do you anticipate? The pushback will be larry 0:43:47.040 --> 0:43:52.120 from the big Wall Street firms, the big trading firms. Uh, 0:43:52.200 --> 0:43:56.760 the big ones not not so sure. Certainly the retail 0:43:56.800 --> 0:44:00.320 brokers are going to push back because the wholesalers actually 0:44:00.400 --> 0:44:02.520 take good care of them. These are the Citadels and 0:44:02.600 --> 0:44:05.680 the virtues in the Jane Streets and two stigmas. They 0:44:05.719 --> 0:44:09.520 take pretty good care of the institutional or the retail brokers, um, 0:44:10.200 --> 0:44:13.480 because not only do they give their clients price improvement. 0:44:13.600 --> 0:44:15.600 Now you can argue the price improvement should be more 0:44:15.640 --> 0:44:18.600 on the exchange and with auctions, will see that, but 0:44:18.719 --> 0:44:22.960 they also provide them with size improvement. Basically, they execute 0:44:23.160 --> 0:44:29.520 larger orders for for lower prices and they get they 0:44:29.600 --> 0:44:31.840 get taken care of. In case, uh, you know, they 0:44:31.880 --> 0:44:34.560 have a bad trade, the market maker will make them hold. 0:44:34.600 --> 0:44:37.440 The question will be as um, what will happen there 0:44:37.440 --> 0:44:40.320 and will the market makers continue to do that. The 0:44:40.440 --> 0:44:43.040 other thing is that the brokers receive a lot of 0:44:43.080 --> 0:44:46.400 money and payment for word flow, um, which the question 0:44:46.440 --> 0:44:49.600 will be, as will with tighter ticks and and this 0:44:49.760 --> 0:44:53.440 auction will will the wholesalers still provide them with payment 0:44:53.480 --> 0:44:55.560 for water flow And if there's not enough payment for 0:44:55.600 --> 0:44:58.440 water flow, the retail brokers could go back to charging commissions. 0:44:59.160 --> 0:45:03.239 So I think, um, uh you know, on the institutional side, 0:45:03.280 --> 0:45:06.960 the brokers will probably be okay, they have algorithms that 0:45:07.120 --> 0:45:09.840 can trade in the dark, and a lot more of 0:45:09.880 --> 0:45:13.400 the flow will be automated. Um, it'll be the retail 0:45:13.520 --> 0:45:15.760 side that will and the whole sablers that will complain, 0:45:15.840 --> 0:45:19.640 and possibly even the exchanges because the exchanges, uh, they're 0:45:19.640 --> 0:45:22.040 going to see their access fees cut. Will probably see 0:45:22.120 --> 0:45:26.719 fewer exchanges. There'll be some solidation there. Um, you'll see 0:45:26.800 --> 0:45:30.560 probably some some more concentration in the New York and 0:45:30.719 --> 0:45:34.520 nastac uh their formal exchanges, and I think you'll see 0:45:34.840 --> 0:45:37.200 New York NaSTA can see but maybe shutter some of 0:45:37.239 --> 0:45:42.719 their smaller exchanges. Currently there are sixteen exchanges. We may 0:45:42.800 --> 0:45:45.800 see that go down to ten, which probably wouldn't be 0:45:45.800 --> 0:45:49.080 a bad thing. All right, good stuff. We'll cap on 0:45:49.200 --> 0:45:51.760 top of this. Larry tab he's head of Market Structure 0:45:52.040 --> 0:45:55.600 Research with Bloomberg Intelligence, and Bat Haults, head of Hults 0:45:55.640 --> 0:45:58.600 Wealth Management and the Masters in Business podcasts getting the 0:45:58.680 --> 0:46:00.920 latest on some chain just in the rules of how 0:46:01.040 --> 0:46:03.680 stocks are traded. It's kind of sounding like kind of 0:46:03.760 --> 0:46:05.840 the plumbing of the stock market to me, But I 0:46:05.920 --> 0:46:09.760 guess the takeaway, as Barry suggested, is and Larry suggested 0:46:09.880 --> 0:46:13.080 is lower prices for investors, and that's a that's a 0:46:13.160 --> 0:46:15.720 good thing. Yeah, but I have to say on those headlines, 0:46:15.800 --> 0:46:18.440 you saw the likes of robin hood Shares, Virtue shares 0:46:18.960 --> 0:46:21.000 really take a hit, so you can see that this 0:46:21.080 --> 0:46:22.840 is going to have a very real effect for a 0:46:22.880 --> 0:46:28.120 lot of these brokers. Thanks for listening to the Bloomberg 0:46:28.200 --> 0:46:31.600 Markets podcast. You can subscribe and listen to interviews with 0:46:31.640 --> 0:46:36.480 Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. 0:46:36.760 --> 0:46:40.680 I'm on Twitter at Matt Miller three. Put on false 0:46:40.680 --> 0:46:43.480 Sweeney I'm on Twitter at pt Sweeney before the podcast. 0:46:43.560 --> 0:46:46.040 You can always catch us worldwide at Bloomberg Radio.