WEBVTT - Surveillance: Fed Signaling With Abby Joseph Cohen 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa A. Brawnowitz Jaily, we bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg 0:00:23.360 --> 0:00:28.800 dot Com, and of course on the Bloomberg terminal. This 0:00:28.960 --> 0:00:32.120 is a joy and Harkins back in his twenty years 0:00:32.120 --> 0:00:36.479 at Columbia to lead Bollinger and myself in conversation at Davos. 0:00:36.560 --> 0:00:41.000 I'm gonna say two thousand four, two thousand five in 0:00:41.080 --> 0:00:45.080 his vision of a Columbia university that would support Harlem 0:00:45.159 --> 0:00:49.480 and support New York City with Manhattanville, that is now. 0:00:49.960 --> 0:00:52.520 And they have moved forward from Bollinger to the great 0:00:52.600 --> 0:00:57.520 architect Renzo Piano to Professor Cohen joining us how ev 0:00:57.760 --> 0:01:00.920 Joseph Cohen of course always with god Been Sacks No 0:01:01.200 --> 0:01:06.240 former Golden Sex senior investment strategists and professor at Geffen 0:01:06.400 --> 0:01:09.880 five Columbus Business School. I mean, you're going to start 0:01:09.959 --> 0:01:15.480 your Future of Global Economy course remote because of COVID, 0:01:15.600 --> 0:01:19.120 because of a macron is Well, when you get to 0:01:19.280 --> 0:01:23.319 Geffen five nine, how will you lecture the business students. 0:01:23.360 --> 0:01:27.559 What will you bring to them different? Well, Tom, first 0:01:27.600 --> 0:01:29.960 of all, thank you for inviting me to be here 0:01:30.000 --> 0:01:32.880 this morning. This, in fact is the first time I've 0:01:32.920 --> 0:01:37.319 been speaking since my shift over from Goldman Sachs. UM. 0:01:37.360 --> 0:01:41.479 I'm ecstatic about this change, UM, moving to the Columbia 0:01:41.520 --> 0:01:45.720 Business School and the Global Economics and Financial Markets course 0:01:45.720 --> 0:01:48.320 that I'll be teaching is actually, of course I've been 0:01:48.320 --> 0:01:51.920 teaching for the past eight or nine years. UM. I've 0:01:51.960 --> 0:01:56.480 been a longstanding adjunctum at Columbia UM, and I consider 0:01:56.520 --> 0:01:59.800 it to be a great intellectual home. Of course, it's 0:02:00.000 --> 0:02:03.400 health is a combination of theory and practice. I have 0:02:03.600 --> 0:02:06.880 the opportunity to teach with one of the wonderful tenured 0:02:06.960 --> 0:02:10.400 professors at Columbia, gentleman by the name of Pierre ja Ed, 0:02:10.720 --> 0:02:13.320 who will be covering a lot of the theoretical macro 0:02:13.840 --> 0:02:16.440 and I'll be talking about, well, what's really happened in 0:02:16.440 --> 0:02:20.120 the markets, not just over the last few days, but 0:02:20.200 --> 0:02:22.800 if you will, over the last several decades, trying to 0:02:22.840 --> 0:02:26.080 put this all in perspective for our students. The perspective 0:02:26.080 --> 0:02:29.399 needed away from your prodigious math abilities, is the new 0:02:29.480 --> 0:02:33.880 capitalism Columbia Business School has supporters with names that we 0:02:34.000 --> 0:02:38.360 know on surveillance. Cravis Cooperman, of course, the great gentleman 0:02:38.440 --> 0:02:42.240 from entertainment, David Geffen. How do the new capitalists and 0:02:42.280 --> 0:02:45.640 the budding NBA students, how do they deal with a 0:02:45.720 --> 0:02:51.760 new more responsible capitalism. That's a terrific question, Tom. And 0:02:51.840 --> 0:02:54.840 let's keep in mind that at Columbia is also this 0:02:54.960 --> 0:02:59.760 great legacy of intellectual capital Uh. Some of the great 0:02:59.800 --> 0:03:03.160 things in terms of capital markets in the nineteen thirties 0:03:03.200 --> 0:03:08.680 and forties also had relationships at Columbia strong economics department, 0:03:08.760 --> 0:03:13.799 strong finance department, people like Ben Graham for example. UM. 0:03:13.840 --> 0:03:16.120 And so what I see in the new students is 0:03:16.160 --> 0:03:19.880 really quite interesting. At Columbia, about half of the students 0:03:19.880 --> 0:03:23.799 in my course are in fact non Americans, and they 0:03:23.840 --> 0:03:28.160 bring an incredible global perspective to what we're seeing. You. 0:03:28.560 --> 0:03:31.160 Very often, when we look at structural change in the 0:03:31.280 --> 0:03:34.120 United States, we say, nobody else has ever dealt with 0:03:34.200 --> 0:03:39.440 us before. Well, we are actually incorporating the experiences of 0:03:39.480 --> 0:03:43.360 our students as well. We do find that this generation 0:03:43.360 --> 0:03:48.000 of students is very much interested in a few things. Uh. 0:03:48.120 --> 0:03:52.400 Number One, they'd like to know how companies run obviously, 0:03:52.880 --> 0:03:56.240 and our course we also talk about how government policy 0:03:56.400 --> 0:04:00.240 is made, and we give the students opportunities to eight 0:04:00.600 --> 0:04:03.920 what should those policies look like. And among the topics 0:04:03.960 --> 0:04:06.520 we addressed, of course of things like E. S. G. 0:04:07.120 --> 0:04:11.360 But we also look at things like regulatory changes, things 0:04:11.400 --> 0:04:14.360 that might need to be adjusted as the structure of 0:04:14.360 --> 0:04:17.960 an economy changes. And of course I always love to 0:04:18.000 --> 0:04:22.120 talk about the fundamentals the data in the economy, but 0:04:22.240 --> 0:04:25.240 also the valuation of the markets. And when I say 0:04:25.279 --> 0:04:30.239 the markets, it's not Lisa Brandma. Do you know somebody 0:04:30.240 --> 0:04:32.560 in row seven is gonna stand up and say, hey, Abby, 0:04:32.600 --> 0:04:35.200 what do you think of the market? That's where? And 0:04:35.240 --> 0:04:37.360 so I'll do it. I'll stand up in in row 0:04:37.400 --> 0:04:39.880 thirty six and say, we just got this PPI data 0:04:39.920 --> 0:04:42.560 after yesterday's CPI data, we're now pricing in about four 0:04:42.640 --> 0:04:46.520 rate hikes. Were in a new regime for inflation. What's 0:04:46.560 --> 0:04:49.400 the market call at a time when most strategists are 0:04:49.440 --> 0:04:52.880 bullets on equities. Yeah, I I think in fact, the 0:04:52.920 --> 0:04:56.680 regime change, Lisa, occurred a few months ago when we 0:04:56.720 --> 0:05:00.839 began to see data suggesting that inflation was rising, that 0:05:01.040 --> 0:05:05.120 interest rates would be moving up and underneath the surface 0:05:05.200 --> 0:05:08.280 of the market indusicries. We have seen a great deal 0:05:08.360 --> 0:05:12.320 of action, obviously the rise of volatility, but we're also 0:05:12.440 --> 0:05:15.640 seeing that investors are starting to move away from the 0:05:15.640 --> 0:05:18.440 big mo uh. And that big mo for many years, 0:05:18.440 --> 0:05:21.920 of course, was fixed income by bonds, regardless of the 0:05:21.920 --> 0:05:25.560 interest rates. We see that investors becoming much more selective 0:05:25.600 --> 0:05:28.159 and fixed income, and of course we see that in 0:05:28.320 --> 0:05:31.920 equities as well. The thing that is always so important 0:05:32.000 --> 0:05:36.840 is what's already baked in uh two expectations. UH. My 0:05:36.960 --> 0:05:41.279 feeling is that we have a few surprises ahead in 0:05:41.320 --> 0:05:44.719 the equity market, some good, some not so good. But 0:05:44.839 --> 0:05:48.000 the key for me is always the valuation support. And 0:05:48.040 --> 0:05:52.400 that valuation support is not particularly good in some segments 0:05:52.440 --> 0:05:55.360 of the market um, and some it looks pretty good. 0:05:55.520 --> 0:05:59.120 Um uh. There are some growthy areas that are not 0:05:59.240 --> 0:06:03.240 yet priced excessively. But the overall market I think will 0:06:03.279 --> 0:06:07.520 be volatile because the only valuation metrics that still look 0:06:07.560 --> 0:06:10.720 appealing are the ones that are linked to low inflation, 0:06:10.839 --> 0:06:14.240 low interest rates. As those continue to move up somewhat 0:06:14.560 --> 0:06:18.640 in two UH, the equity market comes under some pressure. 0:06:18.920 --> 0:06:24.720 I think pe ratios for the overall market compress somewhat. Um, 0:06:24.720 --> 0:06:28.520 I think there's some offset in terms of continued improvements 0:06:28.560 --> 0:06:31.640 in earnings growth, because I certainly don't see a recession. 0:06:31.880 --> 0:06:34.159 So I think the real action in the market is 0:06:34.200 --> 0:06:36.560 going to be under the surface, not so much in 0:06:36.600 --> 0:06:38.919 the indsease. And based on that, this idea of the 0:06:38.960 --> 0:06:42.000 action under the surface, how much of that is pricing 0:06:42.040 --> 0:06:46.240 in a perfect transition to a tightening cycle. This idea 0:06:46.320 --> 0:06:48.760 of an excit and threading a needle that by all 0:06:48.760 --> 0:06:50.320 accounts is going to be tough for the FED to 0:06:50.320 --> 0:06:54.880 do well. You raise two very interesting points. Number one, 0:06:55.279 --> 0:06:58.320 the needle that the FED has to thread, and they'll 0:06:58.360 --> 0:07:01.800 be doing it through a combination I believe, of increases 0:07:01.839 --> 0:07:06.120 in short rates but also adjusting that balance sheet. Could 0:07:06.160 --> 0:07:10.520 there be another temper tantrum maybe, But I think the 0:07:10.520 --> 0:07:13.600 Fed is actually doing a great job by signaling these 0:07:13.600 --> 0:07:16.000 things ahead of time. You know, when I started as 0:07:16.040 --> 0:07:19.560 a junior economist the Federal Reserve Board in Washington, the 0:07:19.680 --> 0:07:22.200 rule of thumb then was you didn't tell the markets 0:07:22.360 --> 0:07:26.480 anything about what you plan to do as policymakers, and 0:07:26.920 --> 0:07:29.720 two to three months later you'd start to tell people 0:07:29.920 --> 0:07:32.880 what in fact had already happened. That's not the way 0:07:32.880 --> 0:07:36.960 it works now. I think the signaling that gets done 0:07:37.840 --> 0:07:41.160 by the FED is actually very very helpful in that regard. 0:07:41.440 --> 0:07:44.680 So that's one needle that has to be threaded. I 0:07:44.720 --> 0:07:47.560 think the FED has begun to do a very good job. 0:07:47.960 --> 0:07:50.560 The other needle that has to be threaded is how 0:07:50.640 --> 0:07:56.000 to position portfolios. And I think that institutional investors UM 0:07:56.280 --> 0:07:59.200 have been talking about this, they haven't been doing it. 0:07:59.600 --> 0:08:03.960 I worry much more so about individual investors, many of 0:08:03.960 --> 0:08:07.400 whom haven't yet figured out the damage that could occur 0:08:07.920 --> 0:08:11.920 to their personal portfolios as interest rates begin to rise 0:08:12.480 --> 0:08:15.040 UM and and that to me is concerning. And so 0:08:15.080 --> 0:08:17.800 when we think about, you know, shocks to the system 0:08:17.840 --> 0:08:21.040 when the valuation supports not so good, we can't assume 0:08:21.240 --> 0:08:24.680 a smooth transition. There are some risks out there that 0:08:24.720 --> 0:08:28.520 could knock us off balance. People talk for always about 0:08:29.360 --> 0:08:32.320 the pandemic, which is not over. We need to worry 0:08:32.320 --> 0:08:36.559 about what's happening in other countries were vaccine distribution has 0:08:36.559 --> 0:08:39.400 been quite limited. We also need to worry about a 0:08:39.480 --> 0:08:42.800 disruption and fixed income markets and what that could do. 0:08:43.280 --> 0:08:45.160 UM and I know that there are some people out 0:08:45.160 --> 0:08:48.880 there who are concerned about what happens when people recognize 0:08:49.040 --> 0:08:52.320 that there's now been a big difference between cap market 0:08:52.400 --> 0:08:57.439 performance and equally, and then when they ask you for 0:08:57.480 --> 0:09:00.240 your market calle, just tell them yield up, price down 0:09:00.240 --> 0:09:02.360 and leave it at that. Professor Cohen, thank you so 0:09:02.440 --> 0:09:11.000 much for joining us today with Columbia Business School. Let's 0:09:11.000 --> 0:09:13.040 get right to it. Lisa Shallott joins us the chief 0:09:13.080 --> 0:09:16.600 investment officer Morgan Stanley Wealth Management. Lisa, I want to 0:09:16.600 --> 0:09:19.480 cut to the chase. How much cash do you need 0:09:19.600 --> 0:09:23.120 right now? As cash a negative thing, or as cash 0:09:23.160 --> 0:09:28.360 and a portfolio a positive construct. So we're looking at 0:09:28.400 --> 0:09:31.719 cash as an opportunistic asset right here. Um, if you 0:09:31.920 --> 0:09:35.600 look underneath the surface of these indices, you know you've 0:09:35.600 --> 0:09:40.760 got of the stocks in the market have actually corrected 0:09:40.760 --> 0:09:43.120 from fifty two week highs, and many have corrected as 0:09:43.200 --> 0:09:46.920 much as ten or so. UM. We think that this 0:09:47.000 --> 0:09:50.480 is an opportunistic stock picker's market. But you have to 0:09:50.520 --> 0:09:54.840 do your homework, and that homework really requires understanding UH. 0:09:54.960 --> 0:09:58.040 If if you've got enough defensiveness in your names, if 0:09:58.080 --> 0:10:00.920 you've got quality, if you've got the potential to beat 0:10:01.440 --> 0:10:04.520 UH profit forecasts, if you've got the potential to raise 0:10:04.640 --> 0:10:08.800 dividends and do buybacks, because those are the types of things, uh, 0:10:08.840 --> 0:10:10.960 that are going to allow your your stock to be 0:10:11.040 --> 0:10:15.440 resilient in against a tape where the FED is raising 0:10:16.080 --> 0:10:18.640 rates and the cost of capital is drifting higher, which 0:10:18.640 --> 0:10:21.559 means price earnings ratios are drifting lower at least. So 0:10:21.600 --> 0:10:24.040 this cycle has moved at a rapid pace. Is it 0:10:24.160 --> 0:10:27.000 too early still to say this is light cycle? It's 0:10:27.000 --> 0:10:31.600 a light psychodynamic now, UM, I think it's a little 0:10:31.880 --> 0:10:34.000 I think it's a little early to say that. You know, 0:10:34.080 --> 0:10:37.520 we've we've been um, you know, pretty consistent saying that 0:10:37.600 --> 0:10:41.440 this is a mid cycle transition. Um. Certainly the labor 0:10:41.520 --> 0:10:46.520 market with unemployment below four percent is starting to feel 0:10:46.679 --> 0:10:49.280 late cycle to us. We are in the camp that 0:10:49.400 --> 0:10:52.679 says structural changes have happened in the labor market that 0:10:52.720 --> 0:10:56.640 are going to prevent participation rates from you know, rapidly 0:10:56.880 --> 0:11:00.480 mean reverting to to where we were pre pandemic. UM. 0:11:00.520 --> 0:11:02.880 But we do think that that there's a big trunk 0:11:02.920 --> 0:11:06.120 of the economy that has yet to recover, and that's 0:11:06.160 --> 0:11:09.920 really the consumer services part of the economy. So we're 0:11:09.960 --> 0:11:12.840 still in that you know, it's a late mid cycle 0:11:12.920 --> 0:11:16.320 as opposed to explicitly late cycle, well late mid cycle, 0:11:16.440 --> 0:11:19.040 at a time when the market is currently pricing in 0:11:19.360 --> 0:11:23.840 about four rate hikes in two I keep asking investors 0:11:24.080 --> 0:11:27.440 have equities fully priced this in yet? And frankly, the 0:11:27.440 --> 0:11:30.000 answer has come back, Yeah, everybody knows it's priced in. 0:11:30.120 --> 0:11:34.679 Do you agree? I don't. I I think that the 0:11:35.240 --> 0:11:41.839 stock market has been extraordinarily skeptical of the FED. I 0:11:41.880 --> 0:11:44.880 think that that, you know, when you have had as 0:11:45.000 --> 0:11:48.600 powerful a FED put as we have had in this 0:11:48.679 --> 0:11:52.920 market quite frankly for the past thirteen years, going all 0:11:52.960 --> 0:11:55.240 the way back to the Great Financial Crisis and in 0:11:55.320 --> 0:11:58.400 March of two thousand and nine, UM, it's really hard 0:11:58.440 --> 0:12:02.480 to convince people that that the regime is shifting. Uh. 0:12:02.720 --> 0:12:06.400 So we do think that that certainly the indices, some 0:12:06.480 --> 0:12:09.840 of the more richly valued names, uh that we all know, 0:12:10.000 --> 0:12:13.720 those those Taflon megacap tech names, uh, you know, still 0:12:13.760 --> 0:12:17.520 need to reprice UM a decent amount, maybe maybe ten 0:12:17.600 --> 0:12:22.120 to fifteen percent to reflect What we do think is is, uh, 0:12:22.200 --> 0:12:24.839 you know, the distance forward on rates. So you think 0:12:24.880 --> 0:12:27.800 that big tech still needs to correct ten to fifteen 0:12:27.880 --> 0:12:31.319 percent from here. Just to make that very clear, I 0:12:31.480 --> 0:12:33.560 have to think what's the trigger Given the fact that 0:12:33.559 --> 0:12:35.600 we just got c p I coming in at the 0:12:35.640 --> 0:12:38.040 hottest level in thirty nine years, we're about to get 0:12:38.160 --> 0:12:41.880 a similar read from p p I. Yeah. Look, I 0:12:41.920 --> 0:12:45.800 think it's a question of actually seeing the Fed follow through. Um. 0:12:45.840 --> 0:12:49.080 You know, certainly we now planted the seeds that not 0:12:49.240 --> 0:12:52.320 only are rate hikes on the table, and rate hikes 0:12:52.360 --> 0:12:55.160 on the table as early as March, but you know 0:12:55.240 --> 0:12:58.880 the Fed minutes really planted the seeds that perhaps we're 0:12:58.880 --> 0:13:02.360 gonna see balance she run off. Now, balance sheet runoff 0:13:03.240 --> 0:13:09.559 really contributes to actual tightening and really ultimately translates into 0:13:09.600 --> 0:13:14.000 the equivalent of additional rate hikes. So I think once 0:13:14.040 --> 0:13:17.360 there's more clarity on that, that will be quote unquote 0:13:17.400 --> 0:13:22.360 the last down leg in the market among those names 0:13:22.400 --> 0:13:25.800 that again here tofore have have you know, proven um 0:13:25.880 --> 0:13:30.120 kind of resilient teflon like Lisa three to five years out. 0:13:30.240 --> 0:13:34.360 How do you rationalize double digit revenue growth at the 0:13:34.840 --> 0:13:38.760 at the technology profit makers, not the ones where there's 0:13:38.800 --> 0:13:41.760 a story, but the ones that are minting free cash 0:13:41.880 --> 0:13:44.880 law every day? How do you approach those with a 0:13:44.920 --> 0:13:49.520 longer term time arizon. Well, Tom, I love your question 0:13:49.640 --> 0:13:52.920 because this is the conversation we're having with clients every 0:13:52.960 --> 0:13:56.400 single day. What we're trying to get folks to understand 0:13:56.480 --> 0:13:59.640 is it's not a question of whether these are great companies. 0:14:00.040 --> 0:14:02.800 It's a question of whether they're great stocks and what's 0:14:02.840 --> 0:14:07.240 priced in and how realistic is it that some of 0:14:07.280 --> 0:14:10.200 the growth rates that we've seen, much of which have 0:14:10.320 --> 0:14:15.640 included a pull forward, a pull forward of demand because uh, 0:14:15.840 --> 0:14:19.320 many of these themes were linked to work from home 0:14:19.600 --> 0:14:23.400 or were linked to some of the the unique dimensions 0:14:23.440 --> 0:14:26.840 of this pandemic. Um, can you really make the case 0:14:27.400 --> 0:14:30.760 that those double digit type growth rates are going to sustain? 0:14:30.920 --> 0:14:34.440 And history is just not kind on this point. Uh. 0:14:34.480 --> 0:14:38.560 You know, innovation is terrific, but so is disruption. Uh. 0:14:38.560 --> 0:14:42.880 And it's very rare for companies decade after decade to 0:14:42.920 --> 0:14:46.920 be able to sustain these levels of growth without quite frankly, 0:14:47.000 --> 0:14:50.960 being uh disrupted by competition. And think, yeah, this is 0:14:51.000 --> 0:14:52.840 really important. I wish we had an hour for this, 0:14:52.880 --> 0:14:55.160 but we've got such a great hour, Lisa for you 0:14:55.240 --> 0:14:58.360 to start. Can they go play Christiansen and bring the 0:14:58.440 --> 0:15:04.800 disruption inside? Um? Looks certainly they can, uh, and and 0:15:04.840 --> 0:15:08.440 perhaps they may transform themselves. Obviously a lot of these 0:15:08.520 --> 0:15:11.640 high flyers are are now you know, they've gone beyond 0:15:11.760 --> 0:15:15.000 betting on on you know, social media, they bet on 0:15:15.160 --> 0:15:18.640 the cloud UH and cloud services and and now they're 0:15:18.640 --> 0:15:21.200 betting on metaverse and and you know, some of the 0:15:21.600 --> 0:15:25.520 virtual UH services. Look, perhaps some of these companies will 0:15:25.560 --> 0:15:29.440 make that transition to UH you know, leadership yet again 0:15:29.480 --> 0:15:33.480 in these emerging markets. But we continue to believe that 0:15:33.760 --> 0:15:36.840 the next set of market leaders are going to be 0:15:36.920 --> 0:15:40.560 a different set of six or seven companies if we look, 0:15:40.720 --> 0:15:43.200 you know, three to five years from now. Lisa Shount 0:15:43.360 --> 0:15:46.240 of Morgan Stanley Wealth Management, Lisa, wonderful to catch up 0:15:46.280 --> 0:15:48.320 with you. You know that we always enjoy it. Thank you. 0:15:54.040 --> 0:15:56.120 Joining us now is Tony for sense markets trying to 0:15:56.120 --> 0:15:59.040 just and pull folio manager and Pimco. Tonny, great to 0:15:59.040 --> 0:16:01.400 have you bank with, especially stop right here. So we've 0:16:01.400 --> 0:16:03.280 got the strongest print we've seen going all the way 0:16:03.280 --> 0:16:05.840 back too. We've talked a lot about it in the 0:16:05.920 --> 0:16:08.480 last twenty four rounds. The question lasked Tom just moments ago, 0:16:08.560 --> 0:16:10.600 I'll ask you to view how hard would it be 0:16:10.680 --> 0:16:13.120 for the FED to deliver more than what this market 0:16:13.160 --> 0:16:17.640 is already looking for in twenty two Quite difficult, but 0:16:17.720 --> 0:16:20.440 you could see the power. The power of communications. One 0:16:20.480 --> 0:16:22.560 of the chief tools the FED has. It can use 0:16:22.640 --> 0:16:25.360 words and then perhaps use action later, so it doesn't 0:16:25.360 --> 0:16:29.120 have to deliver that action this year necessarily indicated may 0:16:29.160 --> 0:16:31.200 have to do more. So we're in the future. And 0:16:31.480 --> 0:16:34.800 of course the quantitative tightening, which we see not occurring 0:16:34.880 --> 0:16:38.200 until September who knows, could be pulled forward as one 0:16:38.240 --> 0:16:41.600 other tool and perhaps use that in place of of 0:16:41.640 --> 0:16:43.960 a hike. We're looking for three to four heights this year, 0:16:44.040 --> 0:16:46.600 rich Jonathan. One of the key things stories for the 0:16:46.640 --> 0:16:49.120 bond market, for the stock market, for the credit markets, 0:16:49.280 --> 0:16:52.720 markets more broadly, is the market price for enough in 0:16:52.800 --> 0:16:56.000 terms of the terminal rate the markets thing the FED 0:16:56.000 --> 0:16:58.640 will have will stop somewhere around one or three quarters 0:16:58.680 --> 0:17:01.280 to the FED things mutual is two and a half. 0:17:01.880 --> 0:17:04.640 So there's a battle out there in the future. Potentially, 0:17:05.160 --> 0:17:07.160 if the inflation rate stays high and the JAVA strate 0:17:07.200 --> 0:17:10.480 keeps falling, we reach late cycle dynamics with the FED 0:17:10.600 --> 0:17:12.600 has to tell markets we need to do more, and 0:17:12.600 --> 0:17:15.400 then that's when is more trouble. Let's go to page 0:17:16.040 --> 0:17:18.520 two of your claimed book. How far out as a 0:17:18.680 --> 0:17:21.560 terminal rate given a natural disaster. You can't go out 0:17:21.640 --> 0:17:23.840 seven years now, you can't go out ten years as 0:17:23.880 --> 0:17:28.360 a terminal rate. Fourth of July. Well, as you said 0:17:28.400 --> 0:17:30.960 Tom earlier, you've all been talking about the amount of 0:17:31.040 --> 0:17:33.480 hikes built into this year. You see, the comfort level 0:17:33.640 --> 0:17:37.040 is pretty good right now. With the four hikes. The 0:17:37.200 --> 0:17:40.399 stock market, the bond market didn't react to Powace Hawfishness 0:17:40.680 --> 0:17:45.240 didn't react to the new highs and the CPI. The 0:17:45.280 --> 0:17:49.000 markets also priced for three hikes three but then nothing, 0:17:49.480 --> 0:17:54.240 uh pretty much? Is that? Nothing? Too little? That's the 0:17:54.240 --> 0:17:58.399 big the money, the money question, with great respect to 0:17:58.440 --> 0:18:02.760 the gazillion dollars at him go manages. Are you managing 0:18:02.840 --> 0:18:06.879 the short term? Tony krissenzis space for the end of 0:18:06.920 --> 0:18:09.920 the world. You're all in cash, your wicked short duration. 0:18:10.160 --> 0:18:12.960 Let's see if they talk, folks, or are you guys 0:18:13.000 --> 0:18:15.639 saying no, the gloom is wrong and we're going to 0:18:15.720 --> 0:18:19.640 extenderation to find a coupon in some total return. Which 0:18:19.720 --> 0:18:24.040 is it? It's more of the former, but there's a 0:18:24.080 --> 0:18:25.639 little bit of the ladder, a lot of it's the 0:18:25.680 --> 0:18:29.399 portfolio context, and investors should always have the portfolio in mind. 0:18:29.480 --> 0:18:32.439 The credit beta, the equity beta, the correlation to the 0:18:32.480 --> 0:18:36.600 other assets in the portfolio when buying bonds, think about 0:18:36.640 --> 0:18:40.080 that idea you just brought up tom uh In In 0:18:40.119 --> 0:18:43.439 a sense you said, are you considering market timing? Uh 0:18:44.240 --> 0:18:47.400 in a portfolio that's balanced and market timing the diversification 0:18:47.520 --> 0:18:49.760 benefits of bonds is akin to getting in a car 0:18:49.840 --> 0:18:52.159 and saying today, I think I would be safe. I 0:18:52.160 --> 0:18:55.120 don't need car insurance. Not to say that bonds are insurance, 0:18:55.160 --> 0:18:57.800 but they do provide some benefit in the case that 0:18:57.840 --> 0:19:01.399 there's a so called accident. So we are underweight duration. 0:19:01.400 --> 0:19:05.040 We do think markets are a bit underpriced for the 0:19:05.040 --> 0:19:09.199 potential for an increase in the terminal rate from the 0:19:09.240 --> 0:19:11.800 one and three quarters or so that's built into what 0:19:11.920 --> 0:19:14.439 the Fed thinks is neutral, but it probably would not 0:19:14.520 --> 0:19:17.760 get much beyond the two's. And so when looking out 0:19:18.520 --> 0:19:21.520 on the Bloomberg terminal at the five year five year, 0:19:21.560 --> 0:19:23.600 as they say, where's the where is the market think 0:19:23.640 --> 0:19:27.680 the five year treasury will be in five years? Most 0:19:27.800 --> 0:19:30.960 yields across the yield curve the term structure as they 0:19:31.000 --> 0:19:35.200 call it in the books, are around two pretty flat curve, 0:19:35.280 --> 0:19:37.720 which is a way of saying the Fed will will 0:19:37.760 --> 0:19:41.320 be successful in the long run, any kids moves policy 0:19:41.440 --> 0:19:43.520 rate up much. So that's what the market saying. We 0:19:43.680 --> 0:19:46.000 we disagree to an extent, but not a lot tony. 0:19:46.160 --> 0:19:49.520 In the meantime, we're looking at actual yield, at actual 0:19:49.560 --> 0:19:52.359 return in cash, at the actual return in the short 0:19:52.480 --> 0:19:54.639 term space. Do you think that this is going to 0:19:54.760 --> 0:19:57.119 be one of the best years in a while for 0:19:57.359 --> 0:19:59.760 people who are keeping their money? Uh in it that's 0:19:59.760 --> 0:20:05.320 sort of cash like space. Yes, because we've had already 0:20:05.359 --> 0:20:07.399 seen an increasing looking look at the two year Treasury 0:20:07.440 --> 0:20:10.080 note at ninety basis points, historically I would have said, well, 0:20:10.119 --> 0:20:12.720 when the two year treasury gets to a hundred basis 0:20:12.800 --> 0:20:15.359 points over the fideral fronds rate, that's kind of it 0:20:15.560 --> 0:20:18.520 for yields in general. There are times though when it 0:20:18.600 --> 0:20:21.239 can be higher than that. Even as why there's two 0:20:21.320 --> 0:20:23.960 hundred basis points, so there maybe more in terms of 0:20:24.160 --> 0:20:28.000 yield increases if the market thinks the FEDS actions aren't enough. 0:20:28.480 --> 0:20:30.920 But stepping outside of what they call the to A 0:20:31.160 --> 0:20:34.520 seven world, the regulated world, that's for the money market. 0:20:35.880 --> 0:20:39.920 We all do. It's an exciting thing to do, isn't it, 0:20:40.280 --> 0:20:44.080 uh Tom At the two A seven world dictates that 0:20:44.200 --> 0:20:47.639 money market funds have a mature average maturities around sixty days. 0:20:48.000 --> 0:20:51.480 UH should cap their cap there. And there's limitations on 0:20:51.560 --> 0:20:53.600 the types of credits, so stepping outside that a little 0:20:53.600 --> 0:20:56.520 bit can get an investor a little more yield, but 0:20:56.600 --> 0:20:59.520 you've got to be judicious about it. So any wonderful 0:20:59.560 --> 0:21:02.040 to catch you up and send out to put this 0:21:02.119 --> 0:21:05.480 cyclical outlook this week. Brilliant rad Thank you Sonny, Tony 0:21:05.560 --> 0:21:14.320 Christency that of Pim cog Looking at the many fronts 0:21:14.480 --> 0:21:16.680 of Russia right now. It used to be simple math. 0:21:16.760 --> 0:21:19.920 There was one front, there were two fronts. This morning 0:21:19.960 --> 0:21:22.720 there are three or four fronts. For Lisa brand Woods 0:21:22.720 --> 0:21:25.200 and myself for all of you on radio and television. 0:21:25.600 --> 0:21:29.000 A wonderful time to speak to Ambassador Hormats. Robert Hormats 0:21:29.280 --> 0:21:32.480 is managing director of Titaman Advisers, but far far more 0:21:32.880 --> 0:21:37.640 with his experience from Northern Ireland deep to kazakh Stun 0:21:37.800 --> 0:21:40.040 as well. Bob, I don't even know where to start, 0:21:40.520 --> 0:21:43.480 but I guess I'll start with kazakh Stun because I 0:21:43.520 --> 0:21:48.400 would suggest that is where Americans are most ignorant. Explained 0:21:48.560 --> 0:21:54.000 from a diplomacy standpoint, the importance for America of kazakh 0:21:54.000 --> 0:21:59.919 stun Well, kazak Stand first of all, is a large supply, 0:22:00.000 --> 0:22:05.919 ire and transit vehicle for natural gas and for oil, 0:22:06.119 --> 0:22:09.680 some of which goes to China, but some but also 0:22:09.880 --> 0:22:14.760 particularly from the Caspian, goes to um Western Europe and 0:22:14.960 --> 0:22:22.320 the West. So Second, energy energy, particularly uranium where they 0:22:22.359 --> 0:22:26.600 are however, you measured between forty and of the world's 0:22:26.720 --> 0:22:32.280 uranium production comes from lu Stand and now we're building 0:22:32.359 --> 0:22:36.040 up nuclear power, they're extremely important. And third is they're 0:22:36.119 --> 0:22:39.879 very strategically located. Other than Mongolia, which is sort of 0:22:39.920 --> 0:22:43.920 sandwiched in between Russia and China, they're the only country 0:22:44.080 --> 0:22:47.159 in the world that has a border with both China 0:22:47.480 --> 0:22:52.360 and UH. So the fact that their Russian troops there 0:22:52.440 --> 0:22:55.920 for the moment is not worrisome because they'll probably even 0:22:55.960 --> 0:22:59.560 their stability, but they could be another, as you put it, 0:23:00.119 --> 0:23:04.240 front on the on the Russian desire to expand its 0:23:04.280 --> 0:23:09.960 influence Bob, what is our diplomatic inertial force forward, China's 0:23:10.000 --> 0:23:13.760 got a view, Russia's got a view. Our view is 0:23:13.800 --> 0:23:16.720 an isolation as toned back two hundred and fifty years, 0:23:17.200 --> 0:23:19.520 and the idea that Kazakhstan's on the other side of 0:23:19.560 --> 0:23:23.879 the world. What is the diplomatic omph that Republicans and 0:23:24.000 --> 0:23:27.879 democrats can generate towards this important part of the world 0:23:29.160 --> 0:23:33.080 very little. Um. In fact, there's a curiosity here, and 0:23:33.160 --> 0:23:37.040 that is, we don't want the Russians, don't want the Chinese, 0:23:37.080 --> 0:23:42.240 don't want instability in Kazakhstan for various reasons. And that is, 0:23:42.640 --> 0:23:45.359 you know, it's on the borders of Russia and China 0:23:45.400 --> 0:23:48.639 and and and if it weren't unstable, it would be 0:23:48.920 --> 0:23:54.280 an opportunity for the Russians in particular to expand their influence. 0:23:54.320 --> 0:23:58.000 But we really have have had very good relations with 0:23:58.119 --> 0:24:00.080 the Kasacks. I've been there when I was in and 0:24:00.200 --> 0:24:03.600 several times, and Altobia have tried to play a very 0:24:04.119 --> 0:24:07.520 clever role between Russia, the US and China. But um, 0:24:07.800 --> 0:24:11.560 if it becomes an unstable place and a lot of instability, 0:24:12.040 --> 0:24:14.600 it affects the world's energy supplies and your fect the 0:24:14.640 --> 0:24:19.800