WEBVTT - The Great Dollar Slowdown 0:00:00.440 --> 0:00:03.840 Strap on your parachute. It's time for What Goes Up 0:00:04.120 --> 0:00:13.800 with Sarah Ponzick and Mike Reagan. Hello and welcome to 0:00:13.840 --> 0:00:17.600 What goes Up, a Bloomberg Weekly Markets podcast. I'm Sarah Pons, 0:00:18.040 --> 0:00:21.000 reporter on the Cross Asset team, and I'm Mike Reagan, 0:00:21.160 --> 0:00:24.120 a senior editor at Bloomberg. This week on the show, 0:00:24.440 --> 0:00:27.360 the week before Election night was a volatile one. At 0:00:27.400 --> 0:00:29.479 one point, the SMP five hundred was on track for 0:00:29.560 --> 0:00:32.240 its worst week since March, with tech giving into the 0:00:32.280 --> 0:00:35.440 selling pressure. But at the same time, haven's didn't really 0:00:35.479 --> 0:00:38.720 work as they should, gold fell while bond yields rose, 0:00:38.880 --> 0:00:42.479 So what gives? And as always, we will close out 0:00:42.520 --> 0:00:45.720 this episode with our tradition the craziest thing I saw 0:00:45.840 --> 0:00:48.479 in markets this week, and by all means, if you 0:00:48.479 --> 0:00:51.360 saw something crazy and markets, give us a call on 0:00:51.400 --> 0:00:56.480 the Bloomberg Podcast hotline at six four six three to 0:00:56.720 --> 0:01:00.800 four three four nine zero and leave us voicemail and 0:01:00.880 --> 0:01:03.880 maybe we'll play your voicemail on the show and we 0:01:03.960 --> 0:01:07.080 will appreciate your crazy things. I think Sarah especially will 0:01:07.120 --> 0:01:09.920 appreciate them, because I think she struck out this week 0:01:10.000 --> 0:01:13.959 on crazy things I did. I had a pretty crazy week, 0:01:14.040 --> 0:01:17.720 and I just took cover because luckily, so many listeners 0:01:17.760 --> 0:01:20.000 wrote into us this week, so we had a plethora 0:01:20.080 --> 0:01:21.720 to choose from. So I said, you know what, Mike, 0:01:21.760 --> 0:01:23.840 I'm going to stand down this week. I'm going to 0:01:23.920 --> 0:01:28.319 take a bye week, and I'm just this is my 0:01:28.400 --> 0:01:32.480 bye week, and uh, someone this week. All right. I 0:01:32.560 --> 0:01:35.080 was a little jealous that people seem to be directing 0:01:35.120 --> 0:01:37.360 their crazy things more to you than to me. But 0:01:37.840 --> 0:01:39.760 you know, then I realized, maybe they realized you just 0:01:39.800 --> 0:01:42.000 need to help. I guess, I guess is it that 0:01:42.120 --> 0:01:44.880 I'm gonna say, that's not the reason why. But you know, 0:01:45.080 --> 0:01:47.120 next time anyone reaches out, if you reach out to me, 0:01:47.200 --> 0:01:48.880 let's let's find out why. Let let us know why 0:01:48.920 --> 0:01:52.960 you're not hitting my cup. Okay, fair enough. Well, joining 0:01:53.040 --> 0:01:55.040 us this week on the show for the first time. 0:01:55.560 --> 0:01:58.600 Very excited to have him. He's a fund manager at 0:01:58.640 --> 0:02:02.920 Westwood Holdings. His name is Adrian Helper. Adrian, welcome to 0:02:02.920 --> 0:02:05.280 the show. Thank you for having me and Adrian, I 0:02:05.320 --> 0:02:08.480 gotta say I was reading some of your talking points 0:02:08.480 --> 0:02:10.959 they sent along to prepare for the interview, and I 0:02:11.040 --> 0:02:13.919 got excited about one thing. It's you were talking about 0:02:13.919 --> 0:02:16.760 the Velocity of Money. And the reason I got excited 0:02:16.840 --> 0:02:20.079 is I love this data series. Not many people track 0:02:20.200 --> 0:02:23.200 this or follow this, and whenever I ask anyone about 0:02:23.240 --> 0:02:25.799 it that they give me a blank stare. So I'm 0:02:25.800 --> 0:02:27.720 gonna start off. We're gonna talk about the election and 0:02:27.760 --> 0:02:30.040 the volatility, like Sarah said, but I wanted to talk 0:02:30.400 --> 0:02:32.840 start off talking about the velocity of money because I'm 0:02:32.840 --> 0:02:34.919 not sure I'll ever get a chance to talk with 0:02:34.960 --> 0:02:38.240 someone who who tracks it. And for listeners who aren't 0:02:38.240 --> 0:02:41.320 familiar with the velocity of money, UM, it's basically a 0:02:41.360 --> 0:02:44.760 calculation done to try to take a stab at estimating 0:02:44.800 --> 0:02:48.440 how often every dollar in the money supply turns over. 0:02:48.840 --> 0:02:51.280 The whole data series to me, Adrian is fascinating. Let 0:02:51.280 --> 0:02:53.400 me let me just go through it to explain what 0:02:53.400 --> 0:02:56.359 the chart looks like to to listeners. UM. Bloomberg has 0:02:56.480 --> 0:02:58.959 a calculation of it that goes back to the late 0:02:59.080 --> 0:03:02.640 nineteen fifties, and if you look at the chart, it's 0:03:02.680 --> 0:03:06.840 interesting because it stays pretty stable for most of the 0:03:06.919 --> 0:03:10.960 series from the late nineteen fifties through say the early nineties. 0:03:11.400 --> 0:03:14.280 Then in the nineties it really starts shooting higher reaches 0:03:14.320 --> 0:03:17.960 about peak of about two point two in n then 0:03:18.000 --> 0:03:20.880 it kind of reverts back to the mean, picks up 0:03:20.919 --> 0:03:24.880 again a little bit before the financial crisis peaks it 0:03:24.880 --> 0:03:28.520 around two and two thousand and six. What's really interesting, then, 0:03:28.560 --> 0:03:32.200 is it it then it really crashes hard, uh, mainly 0:03:32.200 --> 0:03:35.080 in the global financial crisis, but even in the recovery 0:03:35.120 --> 0:03:39.760 after that, the trend is still pretty solidly down UM. 0:03:39.800 --> 0:03:43.720 And then it breaks below that range was in previously 0:03:44.080 --> 0:03:48.560 UM into the less than two areas. Obviously, at the 0:03:48.560 --> 0:03:51.520 beginning of this year it crashes really hard to about 0:03:51.560 --> 0:03:54.480 one point one. So a lot of that I get 0:03:54.600 --> 0:03:57.880 Like this year, obviously, the savings rate just exploded, so 0:03:57.960 --> 0:04:01.520 money is not changing hands as much. What I'm curious 0:04:01.520 --> 0:04:05.720 about is that overall trend since the since the nineties. UM, 0:04:05.760 --> 0:04:09.839 it's the steady trend down that sort of peaked sort 0:04:09.880 --> 0:04:12.240 of close to the height of the dot com bubble 0:04:12.360 --> 0:04:16.279 and then trends down all the way until this massive 0:04:16.880 --> 0:04:19.400 drop in it at the beginning of this year. I Mean, 0:04:19.400 --> 0:04:21.719 my guess is, and I'm curious what you think, but 0:04:22.000 --> 0:04:24.920 my guess is that is it just that the Internet 0:04:24.960 --> 0:04:28.640 has sort of eliminated a lot of the middlemen and 0:04:28.640 --> 0:04:31.920 and sort of you know, each dollar changes hands less 0:04:31.920 --> 0:04:34.599 than it used to. Is that a crazy theory or 0:04:34.640 --> 0:04:36.680 do you think that makes sense? There may be part 0:04:36.800 --> 0:04:40.919 of that, and you know, this is where economics meets investing, 0:04:41.760 --> 0:04:44.240 as there's a lot of theory here about you know 0:04:44.320 --> 0:04:48.800 what that impact is on markets themselves. And certainly we 0:04:48.839 --> 0:04:51.040 can have all of the monetary creation in the world 0:04:51.120 --> 0:04:54.799 and liquidity that's created, but unless that money changes hands, 0:04:55.400 --> 0:04:58.280 it's going to be very hard for us to see inflation. 0:04:58.480 --> 0:05:00.760 It's going to be hard to see on yields rise 0:05:01.360 --> 0:05:04.719 um And finally enough it's it's been getting on the 0:05:04.720 --> 0:05:08.719 train of concurrent with bond yields continuing to fall. I 0:05:08.760 --> 0:05:11.960 think there may be part of the explanation around a 0:05:12.080 --> 0:05:16.240 changing context of payment systems that some degree is a 0:05:16.240 --> 0:05:18.680 little bit more even barter even though we don't call 0:05:18.760 --> 0:05:22.080 it barter um. The way we do transactions in an 0:05:22.160 --> 0:05:25.720 internet age is at least part of it is an 0:05:25.720 --> 0:05:29.600 exchange of goods without monetary influence um. I do think 0:05:29.640 --> 0:05:33.200 that's a small part. I think that especially since two 0:05:33.240 --> 0:05:36.760 thousand and six, what we've seen is a rising savings rate, 0:05:36.800 --> 0:05:39.520 at least a stable to a rising savings rate, and 0:05:39.720 --> 0:05:41.440 that savings right of course, if you look back to 0:05:41.480 --> 0:05:45.600 the nineteen fifties, has been coming down significantly, kind of 0:05:45.640 --> 0:05:49.080 like the you know, the opposite of home ownership, and 0:05:49.240 --> 0:05:51.400 it almost looks like we're going back to the nuclear 0:05:51.920 --> 0:05:54.320 family kind of economy. Savings rates have been going up, 0:05:54.680 --> 0:05:57.120 and maybe that had to do with before you know, 0:05:57.160 --> 0:05:59.920 your house was your was your saving you didn't. We're 0:06:00.160 --> 0:06:01.760 too much about having the money in a bank for 0:06:01.800 --> 0:06:04.359 losing your job. That's been a bigger part of it. 0:06:04.400 --> 0:06:06.599 I think of we need the money changing hands. We 0:06:06.680 --> 0:06:10.560 need consumers to find their save things and leverage funnily 0:06:10.720 --> 0:06:13.560 enough to get the economy going. So it's something that 0:06:13.600 --> 0:06:15.880 I watch of. We can have all the monetary creation 0:06:15.880 --> 0:06:18.840 in the world until that money changes hands, it's going 0:06:18.880 --> 0:06:21.640 to be hard to see inflation and and a push 0:06:21.680 --> 0:06:24.880 for economic growth from monetary creation. Yeah, I was gonna 0:06:24.920 --> 0:06:27.560 ask you, do you think that that sort of deceleration 0:06:27.600 --> 0:06:30.640 in the velocity of money does it explain why inflation 0:06:30.680 --> 0:06:34.800 has stayed so low us say, in this century? Where 0:06:34.880 --> 0:06:37.080 is it sort of to two sides of the same coin, 0:06:37.920 --> 0:06:40.800 being the the you know, technology and just trends in 0:06:40.839 --> 0:06:44.880 general that are causing both things at wance. A good question. 0:06:44.960 --> 0:06:49.240 I think inflation is influenced by both of those things. 0:06:49.600 --> 0:06:53.560 I think it's influenced by your savings rates, by low 0:06:53.640 --> 0:06:56.599 velocity of money. So this is not just consumers, This 0:06:56.680 --> 0:06:59.640 is corporations, This is a lack of capital expenditure, things 0:06:59.640 --> 0:07:02.960 that have since the crisis. Inflation itself is influenced by that, 0:07:03.160 --> 0:07:07.160 of course, but it is also heavily influenced by changing 0:07:07.400 --> 0:07:12.240 modes of transaction, which comes from technology. So what could 0:07:12.280 --> 0:07:15.640 possibly spark change? And our investors missing something because I 0:07:15.640 --> 0:07:18.480 feel like the predominant narrative over the past couple of 0:07:18.520 --> 0:07:21.240 weeks is that we are going to see this reflation 0:07:21.280 --> 0:07:25.119 trade take hold because we may see a blue wave 0:07:25.280 --> 0:07:27.240 or no matter what the election outcome is, we are 0:07:27.280 --> 0:07:30.200 going to see more fiscal spending that's going to feed 0:07:30.240 --> 0:07:32.160 itself into the system. At some point, you're going to 0:07:32.240 --> 0:07:36.800 get an economic rebound and COVID nineteen will reconcile itself 0:07:36.840 --> 0:07:40.680 and you'll see inflation take shape. Our our investors who 0:07:40.680 --> 0:07:45.040 believe in that narrative truly missing the point that, yes, 0:07:45.280 --> 0:07:48.040 all of those factors might be in play, but the 0:07:48.120 --> 0:07:51.600 velocity of money just still remains low. And what would 0:07:51.640 --> 0:07:55.320 possibly change that I think that is part of things 0:07:55.360 --> 0:07:58.520 that in some investors are missing this so much data 0:07:59.040 --> 0:08:02.560 instruction or round all of this creation of money, of 0:08:02.560 --> 0:08:06.000 the larger balance sheet that we're operating with monetary policy 0:08:06.040 --> 0:08:09.080 pushing the portfolio balance channel, and then you know what 0:08:09.200 --> 0:08:12.040 that means for perspective inflation in the future. This gets 0:08:12.080 --> 0:08:14.440 down to whether you know when bond deals rise and 0:08:14.480 --> 0:08:17.680 what that means for balanced portfolios, things of those natures. 0:08:18.680 --> 0:08:22.920 That said, until we see money change hands, it's going 0:08:22.960 --> 0:08:28.280 to be hard to see inflation and rising prices take hold. Now, 0:08:28.320 --> 0:08:30.920 money will start changing hands if we see that differentiation 0:08:31.000 --> 0:08:35.079 between the core basket of goods demanding stable but wage 0:08:35.120 --> 0:08:39.160 inflation which keeps taken up and as people make more 0:08:39.200 --> 0:08:42.360 money than they are able to pay a little bit 0:08:42.360 --> 0:08:44.880 of extra for that xbox, for the new one that's 0:08:44.880 --> 0:08:48.480 coming out that my son ones, whichever it is. So 0:08:49.120 --> 0:08:52.640 we do see that potential happening. And I would say 0:08:52.640 --> 0:08:55.400 it's just a it's a it's a metric that is underappreciated. 0:08:55.400 --> 0:08:57.840 As you mentioned, it's a confluence of economics and markets. 0:08:58.280 --> 0:09:01.920 Investors should be watching that more closely for inflation and 0:09:02.320 --> 0:09:04.600 a measure I mean that could be a spark to 0:09:04.679 --> 0:09:08.680 the fireplace or given the amount of monet creation we've had, 0:09:09.040 --> 0:09:12.560 that would be much larger influence than in the past. 0:09:13.080 --> 0:09:17.280 It's the place my kids been bugging me for the PlayStation? Uh, Sarah, 0:09:17.320 --> 0:09:18.680 what is it that I don't even know what it 0:09:18.720 --> 0:09:22.920 is now? The PlayStation PS PS PS five PS where 0:09:22.960 --> 0:09:24.760 I don't know, I don't know, I've lost track. As 0:09:24.760 --> 0:09:27.520 you can tell, I'm not exactly ready to go out 0:09:27.679 --> 0:09:30.439 and buy that for her. But well, this is how 0:09:30.440 --> 0:09:34.200 you know. The holiday season's right around the corner. But 0:09:34.200 --> 0:09:39.320 they're already getting asked. That's a good segue into sort 0:09:39.360 --> 0:09:43.000 of what you're you've been doing with your funds this year? Um, 0:09:43.040 --> 0:09:44.760 you know, that's the kids call it. Whenever they look 0:09:44.840 --> 0:09:47.520 up someone on social media, they call it stalking, which 0:09:47.559 --> 0:09:51.000 I I feel like it's a bit of a strong term, Sarah. 0:09:51.040 --> 0:09:53.760 But I was doing a little stalking of Adrian's funds 0:09:53.800 --> 0:09:57.959 on the terminal and that was good some Bloomberg. Yes, yes, dude, 0:09:58.040 --> 0:10:01.439 due diligence, I'll call it not stalking. Uh. And and and hey, 0:10:01.480 --> 0:10:04.559 everyone under your bio is up for the year. Congratulations. 0:10:04.559 --> 0:10:08.480 That's uh, that's good. Total Westwood Total Return fund up 0:10:08.760 --> 0:10:13.040 twelve percent year today, pretty good, pretty good. Um. Poking 0:10:13.120 --> 0:10:17.880 around in the holdings, I noticed, um, you had some tips. 0:10:17.880 --> 0:10:21.719 Some treasury inflation protected securities were among sort of the 0:10:21.720 --> 0:10:24.840 bigger holdings in some of the funds. And it's been 0:10:24.880 --> 0:10:29.040 an interesting sort of dialogue about tips this year. Uh, 0:10:29.200 --> 0:10:32.559 people were piled into you know, obviously during the whole 0:10:32.760 --> 0:10:35.800 crisis in March, I mean, the bond market just went berserk, 0:10:36.280 --> 0:10:38.839 and you could buy tips for a song. I guess, 0:10:38.880 --> 0:10:42.760 you know, the market was basically discounting what looked like deflation, 0:10:42.960 --> 0:10:44.400 or at least that's what it looked like. I might 0:10:44.400 --> 0:10:46.840 it might have just been a liquidity story in the 0:10:46.880 --> 0:10:49.600 bond market. And I think there was a big discussion 0:10:49.600 --> 0:10:53.040 at least among you know, some of my colleagues saying, well, 0:10:53.760 --> 0:10:57.120 tips then did really well. Uh, you know break evens 0:10:57.120 --> 0:11:00.920 are upper people where people just bargain hunting hunting with 0:11:01.000 --> 0:11:05.720 tips or was it uh, really based on concerns about 0:11:05.720 --> 0:11:08.920 inflation going forward? And maybe your funds always have tips 0:11:09.000 --> 0:11:11.600 up there in the in the sort of high weightings 0:11:11.760 --> 0:11:13.720 of the fund I don't know, but walk us through 0:11:13.760 --> 0:11:17.360 basically what your your outlook is for tips right now 0:11:17.400 --> 0:11:20.960 and how you're thinking about, you know, inflation linked bonds 0:11:20.960 --> 0:11:24.520 in general. Sure, well, you know, during the global financial 0:11:24.559 --> 0:11:28.319 prices the DFC, we saw TIPS really crap at that point, 0:11:28.360 --> 0:11:30.960 and that was liquid room. That was a market that 0:11:31.040 --> 0:11:34.319 dried up. That was a use of capital on bank 0:11:34.400 --> 0:11:37.280 balance sheets and in a large way for which created 0:11:37.320 --> 0:11:42.080 exist location. We didn't see that this time. Maybe parts 0:11:42.120 --> 0:11:45.080 of Dodd Frank and clean up and liquidity rules did 0:11:45.120 --> 0:11:47.280 their job. We did, we saw less of that disconnect. 0:11:47.360 --> 0:11:49.120 I think that means that when you looked at what 0:11:49.160 --> 0:11:52.320 happened with TIPS, it is more reflective of what you know, 0:11:52.360 --> 0:11:55.480 what we saw there in the duldrums was more reflective 0:11:55.520 --> 0:11:58.920 of a very dire apploic on inflation, and so we 0:11:59.000 --> 0:12:01.040 have seen that come up a little bit. Of course 0:12:01.280 --> 0:12:03.679 at Jackson Hole of FED did tell us that they 0:12:03.720 --> 0:12:08.680 are going to continue to let inflation run hot. That 0:12:08.720 --> 0:12:10.679 doesn't mean inflation is going to get there. And maybe 0:12:10.679 --> 0:12:14.000 that actually even means the Fed thinks that they don't 0:12:14.040 --> 0:12:17.400 see perspective inflation coming. But for folks like myself that 0:12:17.520 --> 0:12:20.560 have a multi asset representation, that's their long term view. 0:12:21.120 --> 0:12:25.040 It means I'm always going to have likely some degree 0:12:25.080 --> 0:12:29.160 of inflation protection in case we see they say that 0:12:29.160 --> 0:12:31.400 that velocity of money could be the spark to the 0:12:31.400 --> 0:12:34.640 fireplace when there's a lot of monetary creation. So I 0:12:34.640 --> 0:12:37.880 want some degree of inflation protection on the fund if 0:12:37.920 --> 0:12:39.720 we see that, I want the compensation to come in 0:12:39.760 --> 0:12:44.280 for heightened inflation. You over just my straight nominals. So 0:12:44.640 --> 0:12:46.400 it's always a decent protection to have on and I 0:12:46.400 --> 0:12:49.520 think that's that's where investors are really appining now, less 0:12:49.559 --> 0:12:53.320 that they see inflation, but more than inflation protection itself 0:12:53.360 --> 0:12:57.440 may be becoming attractive because of the rapidity with which 0:12:58.160 --> 0:13:01.000 inflation could change. I mean, we've got wage inflation that 0:13:01.120 --> 0:13:03.920 it has been increasing over core um I should say 0:13:03.960 --> 0:13:06.200 it's just been ticking up. At the same time, you've 0:13:06.360 --> 0:13:08.400 you've got a lot of liquidity in the environment and 0:13:08.480 --> 0:13:11.360 a lack of velocity. If we were to see the 0:13:11.400 --> 0:13:14.400 stimulant that we're trying to achieve from the Fed and 0:13:14.520 --> 0:13:18.720 from the Treasury take hold, then I want to be 0:13:18.760 --> 0:13:36.960 protected in some ways for the portfolio. So where does 0:13:37.000 --> 0:13:40.280 the outlook for nominal bond yields stand? Then on one end, 0:13:40.400 --> 0:13:43.360 you have the velocity of money conversation, But it feels 0:13:43.400 --> 0:13:47.320 as that the narrative has just been shifting very quickly lately. 0:13:47.400 --> 0:13:50.360 It was just last week that we were discussing bond 0:13:50.440 --> 0:13:54.400 yields breaking through eight basis points, people talking about possible 0:13:54.520 --> 0:13:57.440 upside towards one percent, that we were going to see 0:13:57.440 --> 0:14:00.120 this reflation trade. Then all of a sudden, heading to 0:14:00.240 --> 0:14:04.079 this week, as we saw COVID cases rising, in particular, 0:14:04.200 --> 0:14:07.360 more restrictions overseas in Europe, concerns about what that could 0:14:07.400 --> 0:14:11.160 mean for the US, we saw that completely reverse itself 0:14:11.760 --> 0:14:14.840 with the tenure breaking back through a basis points and 0:14:14.880 --> 0:14:18.080 below it. Where do we currently stand and is it 0:14:18.120 --> 0:14:20.880 reasonable to expect that we are going to see much 0:14:20.920 --> 0:14:23.400 movement either which way? Or is the reality that we're 0:14:23.440 --> 0:14:31.600 just stuck in this trading range funny all of a sudden, Yeah, 0:14:31.760 --> 0:14:34.440 it's amazing. Really, you have to put everything in perspective. 0:14:34.920 --> 0:14:39.280 Plushing my curls over here. You know, the base rate, 0:14:39.360 --> 0:14:45.479 the short end of the curve is anchored, and the 0:14:46.000 --> 0:14:48.280 is very clear that it is going to be anchored 0:14:48.360 --> 0:14:51.880 for a while. As I mentioned, to let inflation run 0:14:51.920 --> 0:14:56.360 hot or too. You know, the average inflation targeting. If 0:14:56.400 --> 0:14:59.080 you look at the ducts that they produce, they give 0:14:59.160 --> 0:15:01.240 us an idea that we're not going to move rates 0:15:01.320 --> 0:15:05.640 until probably two thousand three, could be longer, which means 0:15:05.640 --> 0:15:08.640 we're really talking about the curve. We're talking about whether 0:15:08.680 --> 0:15:12.960 economic growth comes up, and you are seeing the potential 0:15:13.000 --> 0:15:17.600 for inflation, you want to be compensated for a term premium, etcetera. 0:15:17.960 --> 0:15:21.480 In your tenure body field. And it's hard for me 0:15:21.560 --> 0:15:25.840 to see a tenure body fielding yield above one percent 0:15:26.000 --> 0:15:30.920 significantly without exorbiting economic growth. And you know, while I 0:15:30.960 --> 0:15:34.840 do see the potential for good economic growth, it's supported 0:15:34.920 --> 0:15:40.440 by the necessary physical stimulus and by monetary policy. This 0:15:40.600 --> 0:15:43.640 is not an engine running by itself. This is us 0:15:43.640 --> 0:15:45.680 pouring gas. I'm an I'm an old old man that 0:15:45.720 --> 0:15:47.120 I used to work on cars back when the head 0:15:47.120 --> 0:15:51.080 carburetors and not infectors. This is us pouring gas directly 0:15:51.080 --> 0:15:53.880 into the carburetor. The car will start and you'll see 0:15:53.920 --> 0:15:56.920 some fire come out when you close the lid, you close. 0:15:57.000 --> 0:16:00.160 The bondum is the same the UK. Does the car 0:16:00.240 --> 0:16:03.400 stay started? We're not there yet. The hoods still open. 0:16:03.600 --> 0:16:06.480 We've got the car started, but it's not running on 0:16:06.520 --> 0:16:09.200 its own just yet. Until we see that, it's gonna 0:16:09.240 --> 0:16:12.920 be hard to see bond yields above, they're going to 0:16:13.000 --> 0:16:18.120 be inordinately low. And that's just if the Fed doesn't 0:16:18.160 --> 0:16:20.200 do what it did in the last in the GFC, 0:16:20.360 --> 0:16:22.120 which is, you know, how quickly we pulled out the 0:16:22.120 --> 0:16:25.360 old playbook. If we need to stimulate the economy further, 0:16:25.640 --> 0:16:28.600 we could go down to buying out the curve, so 0:16:28.680 --> 0:16:32.720 called twist. We're not calling that route yet. We are 0:16:33.520 --> 0:16:35.800 increasing the size of the balance sheet. We're buying a 0:16:35.840 --> 0:16:39.920 shoulder average maturity. But if need be, if we felt 0:16:39.960 --> 0:16:43.560 like that that portfolio balance channel was needed, we could 0:16:43.560 --> 0:16:46.480 do that as well, which which I think constrains bond 0:16:46.560 --> 0:16:48.920 yields to where you know, you hold bonds treasury bonds 0:16:48.920 --> 0:16:51.040 for two reasons. You hold it for the income and 0:16:51.120 --> 0:16:53.400 you hold it for the insurance policy. There's a lot 0:16:53.440 --> 0:16:55.840 of questions right now as to whether that insurance policy 0:16:55.920 --> 0:16:58.120 is still useful. The S and P five hundred or 0:16:58.240 --> 0:17:01.480 some risk asset drops significant lead. Do I make money 0:17:01.480 --> 0:17:03.880 on the bomb lid by prices going up and rates 0:17:03.920 --> 0:17:06.199 going down? I think you still do. I think it's 0:17:06.240 --> 0:17:09.639 an attractive asset to hold for the insurance policy, and 0:17:09.680 --> 0:17:11.680 you hold up for the income, and I say, real 0:17:11.760 --> 0:17:14.920 rates are still significantly negative. We don't have to look 0:17:15.040 --> 0:17:17.439 very far to our foreign partners to see what, you know, 0:17:17.440 --> 0:17:19.720 where other bond yields are in the developed markets to 0:17:19.800 --> 0:17:22.840 say that, gosh, let's say one percent, all of a sudden, 0:17:22.880 --> 0:17:27.359 doesn't seem so bad. Who would have ever thought you'd 0:17:27.480 --> 0:17:29.760 be thinking along those lines. Huh. By the way, Star, 0:17:30.000 --> 0:17:32.520 that was a nice twelve part question for Adrian there. 0:17:32.520 --> 0:17:34.040 I'm proud of you. That was that. That was a 0:17:34.040 --> 0:17:36.840 good one. You know, I was originally going to say, 0:17:36.880 --> 0:17:39.439 earlier in the show, your first question to Adrian, I 0:17:39.440 --> 0:17:41.359 was gonna say, you really outdid yourself with that one. 0:17:41.400 --> 0:17:44.760 I think that might have been an all time record. 0:17:46.480 --> 0:17:48.320 I had to I had to play my part. We'll 0:17:48.320 --> 0:17:52.159 put a time around that. But uh as uh agent 0:17:52.200 --> 0:17:56.399 is Sarah pointed out, there is um the minor little 0:17:56.920 --> 0:18:01.000 event risk coming up known as the US election. Um. 0:18:01.040 --> 0:18:03.600 I feel like, you know, obviously, all the polls, all 0:18:03.640 --> 0:18:06.679 the betting markets, whatever metric you look at, makes it 0:18:06.720 --> 0:18:10.240 look like Biden's a pretty good chance to win. The 0:18:10.359 --> 0:18:12.879 Senate looks more like a toss up. I mean, the 0:18:12.880 --> 0:18:16.080 House is likely going to stay under Democratic control. The 0:18:16.119 --> 0:18:19.120 Senate looks more like a toss up. Yet, I feel 0:18:19.119 --> 0:18:21.800 like a lot of investors sort of talk themselves into 0:18:21.840 --> 0:18:25.240 this notion of a blue wave coming, that the Dems 0:18:25.240 --> 0:18:28.159 would sweep both the House, Senate and the White House, 0:18:28.640 --> 0:18:31.160 and that as a result, we'd get this massive fiscal 0:18:31.240 --> 0:18:35.399 stimulus early in And so, you know, a lot of 0:18:35.400 --> 0:18:38.000 people for that are sort of, you know, positioning for 0:18:38.040 --> 0:18:41.680 this idea of a reflation, a steeper yield curve, perhaps 0:18:42.160 --> 0:18:48.280 that proverbial rotation from growth to value and cyclicals that 0:18:48.760 --> 0:18:52.960 sort of is seems to always be someone's positioning for 0:18:53.040 --> 0:18:55.960 that somewhere. But I wonder, you know, for a guy 0:18:56.080 --> 0:18:58.560 like you, I mean, does it make sense to try 0:18:58.560 --> 0:19:00.959 to get ahead of this result next week or do 0:19:01.040 --> 0:19:04.600 you sort of stand back and and try to, you know, 0:19:04.680 --> 0:19:06.800 let the cards fall where they may. You know, how 0:19:06.840 --> 0:19:08.879 are you sort of approaching this event risk coming up? 0:19:09.359 --> 0:19:11.800 I think it does make sense, And and my prediction 0:19:11.840 --> 0:19:14.080 for who's gonna win is I'm just kidding, I'm not 0:19:14.119 --> 0:19:19.480 gonna It's very hard to say the outcome of the election. 0:19:19.560 --> 0:19:21.560 What I what I can do as an investors, I 0:19:21.600 --> 0:19:25.480 can look at the various potential outcomes, and you know, 0:19:25.480 --> 0:19:27.240 while I don't I don't have an Excel model that 0:19:27.280 --> 0:19:30.080 probability waits those I can get an idea of what 0:19:30.240 --> 0:19:34.119 I think the outcome might be in different scenarios. And 0:19:34.520 --> 0:19:37.159 I think you're exactly right on what is consensus right 0:19:37.200 --> 0:19:41.600 now as far as Biden win less you know, the 0:19:41.600 --> 0:19:46.480 potential but less consensus of a Blue sweep, or you know, 0:19:46.520 --> 0:19:50.680 really just the Democrats take the center, and if that happens, 0:19:50.720 --> 0:19:53.800 I think there, you know, that's a positive potential event 0:19:54.240 --> 0:19:59.080 from fiscal rise. You're exactly right that that will just 0:19:59.119 --> 0:20:02.679 as we talked about the economic activity and the push 0:20:02.720 --> 0:20:06.399 on nominal interest rates further out, that will push up 0:20:06.440 --> 0:20:08.879 the curve. So we'll see a rising interest curve, we'll 0:20:08.880 --> 0:20:14.040 see rising inflation expectations, we'll see rising commodity prices where 0:20:14.359 --> 0:20:18.280 you know, stimulus means we're going to pump money into 0:20:18.600 --> 0:20:23.040 infrastructure and roads and buying copper for wires and things. 0:20:23.800 --> 0:20:26.720 That is where we'll start to see some activity there. 0:20:26.720 --> 0:20:32.120 So that's that's a positive offset by the taxes where 0:20:32.119 --> 0:20:35.440 the corporate tax rate would go from all the things 0:20:35.480 --> 0:20:37.720 we know, and we can see some shift around in 0:20:37.760 --> 0:20:39.879 some sectors. So there's a there's a great opportunity for 0:20:39.960 --> 0:20:43.359 investors to think about individual companies in their reactions and 0:20:43.400 --> 0:20:47.520 the sector rotations. Places like healthcare are going to be impacted. 0:20:47.880 --> 0:20:51.240 That's probably the number one place where there's a complete 0:20:52.200 --> 0:20:55.120 difference between what the two candidates would would like to see. 0:20:56.119 --> 0:21:00.239 The other option is that we see Trump won the election. Um. 0:21:00.359 --> 0:21:02.280 Then as you say, the Senate's kind of a kind 0:21:02.280 --> 0:21:04.320 of a toss up, and if we see Trump win 0:21:04.400 --> 0:21:07.600 the election and just things stay the same, then actually 0:21:07.680 --> 0:21:10.200 that's probably a good outcome as well, because we both 0:21:10.240 --> 0:21:13.199 candidates would like to see a lot of fiscal stimulus. 0:21:14.320 --> 0:21:16.320 One of those candidates doesn't want to raise taxes at 0:21:16.359 --> 0:21:19.760 the same time, so maybe that's a positive, more positive 0:21:19.800 --> 0:21:24.440 outcome that center outcome, which is where you have a 0:21:24.480 --> 0:21:27.880 Senate that remains read and a blue president. There's one 0:21:27.920 --> 0:21:30.200 aspect of that that scares me, and usually that's the 0:21:30.240 --> 0:21:34.879 good outcome. Usually that means okay, less policy volatility. A 0:21:34.920 --> 0:21:37.480 lot of things don't make it through, and the market 0:21:37.520 --> 0:21:41.960 likes less uncertainty and less volatility on policy. Um. One 0:21:41.960 --> 0:21:44.399 thing that does scare me around that of anything that 0:21:44.480 --> 0:21:47.600 does is because of all this partisanship that we have, 0:21:48.119 --> 0:21:50.399 will there be a pushback and an elongation of the 0:21:50.440 --> 0:21:53.600 time frame to get to a phase for stimulus. UM, 0:21:53.640 --> 0:21:55.399 that's what I think the market will be focused on 0:21:55.520 --> 0:21:57.840 for for the big risk on risk off afterwards is 0:21:58.480 --> 0:22:01.760 can we come to agreement on providing the necessary stimulus 0:22:01.880 --> 0:22:05.360 to the economy? Um. Secondary questions will be okay, well, 0:22:05.760 --> 0:22:08.320 depending on the candidate that wins, will we see taxes 0:22:08.440 --> 0:22:12.399 or or no taxes? Will we see UM A, c 0:22:12.600 --> 0:22:16.520 A or some other healthcare plan? The primary thing right now, 0:22:16.640 --> 0:22:20.639 because of the visibility of COVID, is going to be okay. Well, 0:22:21.000 --> 0:22:24.920 then can we come to fruition on our phaise for Well, 0:22:24.960 --> 0:22:27.840 if there's anything that we learned four years ago, almost 0:22:27.880 --> 0:22:30.119