WEBVTT - A Deep Dive Into Rates, Markets, The Economy 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 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.640 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.799 at Bloomberg dot com slash podcast. Well, the story this morning, 0:00:23.040 --> 0:00:25.200 it's been the rate market. We have the tenure treatories. 0:00:25.239 --> 0:00:27.240 Charlie is just reporting one point four eight percent. We 0:00:27.280 --> 0:00:29.760 did test one point five one in the thirty year 0:00:29.760 --> 0:00:31.880 we are at a two point zero four percent. We're 0:00:31.960 --> 0:00:34.760 just about two percent right now. Um, what's that mean? 0:00:34.800 --> 0:00:37.000 What's that telling us? Here? Let's bring in Tom Purcelly, 0:00:37.360 --> 0:00:40.159 chief US economists for OURBC Capital Markets. Tom, thanks so 0:00:40.240 --> 0:00:42.480 much for joining us here. We've seen rates move up 0:00:42.479 --> 0:00:46.480 pretty significantly, just by relative standards over the last couple 0:00:46.479 --> 0:00:48.599 of years, just in the last a couple of days here. 0:00:49.040 --> 0:00:51.600 What do you take away from it? Yeah, I mean, look, 0:00:51.600 --> 0:00:55.480 I think that, um, you know, the move higher makes sense. 0:00:55.760 --> 0:00:58.639 Um that the tomming may not. You know, this all 0:00:58.680 --> 0:01:02.440 happened to day's after the the FOMC meeting but UM no, 0:01:02.720 --> 0:01:05.440 I think we're moving um sort of directionally. I think 0:01:05.440 --> 0:01:07.720 that this is all pretty consistent with you know, the 0:01:07.760 --> 0:01:10.280 idea that look, um, you know, we're moving away or 0:01:10.440 --> 0:01:13.640 going to be moving away from, you know, emergency levels 0:01:13.680 --> 0:01:16.440 of accommodation. And I mean I think that is um, 0:01:16.600 --> 0:01:19.760 you know, where we are from an economic backdrop perspective, 0:01:19.959 --> 0:01:22.080 UM growth is. You know. It's funny. So so let 0:01:22.160 --> 0:01:23.840 me freeing the conversation this way, because I think this 0:01:23.920 --> 0:01:26.600 is a really important UM idea for for people to 0:01:26.640 --> 0:01:29.280 keep in mind. You know, when when you think about 0:01:29.319 --> 0:01:32.360 the last hiking cycle, um, you know, the one that 0:01:32.360 --> 0:01:35.640 the FED started back in Uh, you know, the FET 0:01:35.720 --> 0:01:39.520 had the luxury of of going really slow, right, you know, 0:01:39.600 --> 0:01:42.440 we had the jobless recovery. UM, you know output you 0:01:42.440 --> 0:01:44.520 know I E G d P. You know, didn't get 0:01:44.560 --> 0:01:48.000 back um to the sort of the pre GFC level 0:01:48.600 --> 0:01:51.400 the Great Financial Crisis, the pre GFC level of growth. 0:01:51.400 --> 0:01:54.120 For it, it took like a decade. I mean, you know, 0:01:54.240 --> 0:01:57.560 the unemployment was elevated for years. Um, none of that's 0:01:57.560 --> 0:02:00.920 happened now, you know. Now it's taken eighteen months for 0:02:01.000 --> 0:02:03.240 us to basically get back to where we were pre 0:02:03.360 --> 0:02:06.080 pandemic level of output for the unemployment rate to you know, 0:02:06.160 --> 0:02:08.880 really show meaningful improvement. So I think that this is 0:02:08.919 --> 0:02:11.400 all going to be much more accelerated relative particularly relative 0:02:11.440 --> 0:02:13.880 to what we saw after the GFC. Well to that point, Tom, 0:02:13.919 --> 0:02:16.519 with kind of the trajectory that the FED has outlined 0:02:16.560 --> 0:02:19.320 here a taper announcement likely in November, and then rate 0:02:19.400 --> 0:02:24.120 liftoff possibly in even with that timeline, do they risk 0:02:24.200 --> 0:02:26.919 being too far behind the curve? I mean, look, you 0:02:26.960 --> 0:02:30.040 know so uh you know this is the should verse 0:02:30.120 --> 0:02:32.959 would part right, And I learned long ago, um that 0:02:33.000 --> 0:02:35.400 I'm always supposed to forecast, but the FED will do 0:02:35.520 --> 0:02:37.160 nobody I think they should do. Do I think the 0:02:37.160 --> 0:02:40.480 FED should have started this process um months ago. Yeah, 0:02:40.600 --> 0:02:43.079 I do. And I think the people that know our 0:02:43.400 --> 0:02:46.160 research well know that you know, we've that that that's 0:02:46.200 --> 0:02:50.680 the sort of the side of them, the the this 0:02:50.760 --> 0:02:52.400 equation that we will come down on the FED was 0:02:52.440 --> 0:02:54.320 supposed to start this much sooner, but again we were 0:02:54.320 --> 0:02:57.240 also acutely aware, um that that's probably not what they 0:02:57.240 --> 0:02:59.520 were going to do. So I think this is all 0:02:59.639 --> 0:03:02.720 pretty much in keeping with what Powell has um laid 0:03:02.720 --> 0:03:05.280 out in terms of the sort of the you know, 0:03:05.360 --> 0:03:08.880 starting this process in a very slow, methodical fashion. UM. 0:03:08.919 --> 0:03:11.840 I think it's all in keeping with with what Powell wanted. UM, 0:03:11.880 --> 0:03:14.720 But I again I would hasten to add UM. Just 0:03:14.800 --> 0:03:17.320 keep in mind, one day pal said they were not 0:03:17.360 --> 0:03:19.760 going to taper, and you know, the next week they said, 0:03:19.760 --> 0:03:21.760 we're going to tape it. Right, And it's the same 0:03:21.800 --> 0:03:24.000 thing is going to happen from a rate hike perspective, 0:03:24.000 --> 0:03:25.799 I mean, palatine the same thing right now, we're knock 0:03:25.800 --> 0:03:28.440 going to hike rates, but it'll it'll evolve in the 0:03:28.440 --> 0:03:31.160 same way. And so twenty two for us, UM. You know, 0:03:31.200 --> 0:03:33.880 again I think that they should at least give us 0:03:33.919 --> 0:03:35.800 one hike. I mean again, now the median has shifted 0:03:35.840 --> 0:03:37.640 for a hike. But again, just keep in mind something. 0:03:38.040 --> 0:03:42.200 If you look at their their twenty two unemployment rate forecast, UM, 0:03:42.200 --> 0:03:45.160 it's about three point eight percent. That's not very different 0:03:45.160 --> 0:03:48.280 than where we were pre pandemic. And in mind where 0:03:48.320 --> 0:03:51.680 we were pre pandemic from a funds perspective, we're to fifty, right, 0:03:51.720 --> 0:03:55.120 So two fifty then equated um to uh, you know, 0:03:55.720 --> 0:03:58.480 or it was roughly equivalent to an unemployment rate that 0:03:58.600 --> 0:04:00.320 was you know, where they expect it to be in 0:04:00.320 --> 0:04:02.520 twenty two, but now in twenty two it only equates 0:04:02.560 --> 0:04:04.600 to one hike. I mean that seems inconsistent to us 0:04:04.640 --> 0:04:06.840 again the process, and we're not going to beat up 0:04:06.880 --> 0:04:08.800 on them. I think that they do. I want to 0:04:09.200 --> 0:04:11.440 go in a very slow fashion. But I think that 0:04:11.480 --> 0:04:14.840 there's a very uh, it's very inconsistent. And Tom, we 0:04:14.840 --> 0:04:17.640 saw in the Fed's release taking down their economic growth 0:04:17.680 --> 0:04:21.800 forecast yet taking up uh their inflation outlook. Does that 0:04:22.120 --> 0:04:25.320 suggest stag inflation for this US economy? No, I think 0:04:25.440 --> 0:04:27.240 you know, I have to be honest. I hate that. 0:04:27.320 --> 0:04:29.680 I hate this conversation in that um, you know, the 0:04:29.680 --> 0:04:32.960 stagflation part of the conversation, because I can make I 0:04:33.000 --> 0:04:35.720 can get on board with deflation part, I can't get 0:04:35.720 --> 0:04:38.080 in part board with the stag part. I mean, you know, 0:04:38.080 --> 0:04:42.279 we're looking at what four or five growth UM next year? Uh? 0:04:42.320 --> 0:04:44.200 You know that. And by the way, that's our own forecast, 0:04:44.240 --> 0:04:46.279 which interestingly enough, is an inconsistent with the FED. I mean, 0:04:46.320 --> 0:04:48.160 I think the FED is around four percent for twenty two, 0:04:48.240 --> 0:04:50.919 six percent for twenty one UM numbers that are in 0:04:50.920 --> 0:04:55.560 line with us. What what what stag about that? You're 0:04:55.600 --> 0:04:59.160 still multiples above potential growth. I mean that I'm a 0:04:59.160 --> 0:05:02.120 fader of that. In higher conversation to stag part of it, 0:05:02.160 --> 0:05:04.080 the flation part of it, I can buy into more. 0:05:04.120 --> 0:05:07.159 But yeah, and obviously the Fed is looking at the 0:05:07.160 --> 0:05:08.840 flation part, and then they also have to look at 0:05:08.839 --> 0:05:10.120 the other part of their dual. Mean that it was 0:05:10.160 --> 0:05:14.120 just trying to maximize employment. As we look ahead to 0:05:14.560 --> 0:05:16.800 the job's report we're getting on October eight than that 0:05:16.839 --> 0:05:20.160 print for September, I'm wondering what you're expecting to see, 0:05:20.240 --> 0:05:22.680 given even though additional benefits have started to roll off, 0:05:22.760 --> 0:05:25.480 you haven't actually seen the corresponding return of people to 0:05:25.560 --> 0:05:27.960 the labor market. Yeah, so we don't have a Um, 0:05:27.960 --> 0:05:32.360 we'll have a forecast for next Friday's Piero report this Thursday. UM, 0:05:32.400 --> 0:05:35.360 but what I can tell you is, you know, and 0:05:35.600 --> 0:05:37.760 I have people already asking about it, as you would expect. 0:05:37.760 --> 0:05:40.760 You know, you know now that the um the kicker 0:05:40.800 --> 0:05:44.679 has expired. You know, well the generous kicker has expired. Well, Olson, 0:05:44.680 --> 0:05:47.440 we'll see this, you know, um burst of hiring. No, 0:05:47.560 --> 0:05:49.000 we we we don't think that that's how it's going 0:05:49.040 --> 0:05:51.440 to happen. Um, you know, I don't think there's another 0:05:51.560 --> 0:05:54.520 you know, sort of million plus job print waiting out 0:05:54.560 --> 0:05:56.360 there for us. I think it'll be a bit slower 0:05:56.400 --> 0:05:59.480 than that. Again, you know, is it another two thousand 0:05:59.520 --> 0:06:01.719 like we saw last month. No, I think I probably 0:06:01.800 --> 0:06:03.640 will wind up looking a little bit better than that. Again, 0:06:03.760 --> 0:06:05.479 I got to go through the numbers still, But I 0:06:05.480 --> 0:06:10.760 think more importantly, who doesn't matter? Palt basically pulled us 0:06:10.760 --> 0:06:13.760 already that it's um uh, you know, as long as 0:06:13.839 --> 0:06:16.080 we see you know, a sort of another decent pay 0:06:16.080 --> 0:06:18.040 will report, and he already had the two thirty five 0:06:18.080 --> 0:06:19.960 in hand, so I'm guessing that that sort of would 0:06:20.000 --> 0:06:23.800 meet some of the criteria quote unquote decent. Then I 0:06:23.839 --> 0:06:26.360 think that you know, tapers on and again if their 0:06:26.400 --> 0:06:28.799 forecast for the end of next year comes into play, 0:06:29.080 --> 0:06:31.440 that we're back to where we were pre pandemic um 0:06:31.520 --> 0:06:33.600 and that should be enough for the to to start 0:06:33.640 --> 0:06:35.960 the process of lifting rights. Is there as we're talking 0:06:36.000 --> 0:06:38.400 about labor, is there a point where we really need 0:06:38.440 --> 0:06:43.159 to think about realistically wage inflation? I mean, it's happening, 0:06:43.279 --> 0:06:46.200 right you know, wage inflation. Wage inflation is upon us 0:06:46.279 --> 0:06:49.120 right right now. I think you know, again, most people 0:06:49.120 --> 0:06:52.400 are aware that you know, eleven million job openings, people 0:06:52.440 --> 0:06:55.719 having a hard time finding workers. As results, wage pressures 0:06:55.720 --> 0:06:58.760 are building. But again I would hasten to add, I 0:06:59.480 --> 0:07:02.359 don't think that that means that that these games that 0:07:02.440 --> 0:07:05.800 we've seen are going to be sustained. I don't think 0:07:05.800 --> 0:07:08.280 that they are. Um. I think leisure in hospitality is 0:07:08.320 --> 0:07:10.640 sort of a great example of that. Leisure in hospitality 0:07:10.680 --> 0:07:13.640 is the biggest shortfall in jobs right now, excuse me, 0:07:14.040 --> 0:07:16.080 And once um, you start to get some of those 0:07:16.160 --> 0:07:18.360 jobs back, you know, when there's you know, three and 0:07:18.400 --> 0:07:21.480 four and five people, um applying for a job for 0:07:21.520 --> 0:07:24.680 a single job, I think that those wage pressures can abate. 0:07:24.800 --> 0:07:28.600 But again, the benefit has already has already materialized, right. 0:07:28.640 --> 0:07:30.720 I mean we're now well above where we were a 0:07:30.720 --> 0:07:33.560 pre pandemic from a wage pressure perspective. So I think 0:07:33.560 --> 0:07:37.240 the level of wages is going to matter very much 0:07:37.280 --> 0:07:39.280 so in the months to come, more so than than 0:07:39.320 --> 0:07:41.040 the rate, because again I just don't think that that 0:07:41.120 --> 0:07:43.920 these rates can be maintained. All right, Tom, Hey, we 0:07:44.000 --> 0:07:46.960 really appreciate getting your thoughts here, Tom. Lots of data, 0:07:47.040 --> 0:07:48.920 lots of moving parts out there, so it's good to 0:07:48.920 --> 0:07:52.640 get your perspective. Tom, Percelly, chief US economists for OURBC 0:07:52.880 --> 0:07:56.320 Capital Markets, joining us here, and and uh Kaylee, you 0:07:56.360 --> 0:07:59.320 just reminded as Amazon target cut it Morgan Stanley on 0:07:59.400 --> 0:08:03.560 impact from rising wages. So yeah, exactly, the cost of 0:08:03.640 --> 0:08:05.680 labor is going up for a lot of companies. And 0:08:05.720 --> 0:08:08.240 that's not just a conversation for the FED and wage inflation. 0:08:08.640 --> 0:08:11.080 That's earnings and what that's going to mean for margins. Yeah, 0:08:11.120 --> 0:08:13.280 that's a great point. And so the question is how 0:08:13.320 --> 0:08:16.360 transitory are some of these factors versus you know, how 0:08:16.480 --> 0:08:18.800 longer term we'll have more certainly coming up on all 0:08:18.840 --> 0:08:24.800 of those issues. This is Bloomberg, Good morning. All right, 0:08:24.840 --> 0:08:26.720 let's bring in Frank Holmes. Frank is the CEO and 0:08:26.760 --> 0:08:30.400 chief investment officer of US Global Investors. He's also executive 0:08:30.440 --> 0:08:34.319 chairman of Hive Blockchain Technologies. Joining us on the phone 0:08:34.400 --> 0:08:37.400 from San Antonio, Texas. Franks, thanks so much for joining 0:08:37.440 --> 0:08:40.480 us again here. I want to start with crypto. I 0:08:40.520 --> 0:08:42.400 just want to get your thoughts because since the last 0:08:42.400 --> 0:08:45.840 time we chatted, China has taken a decidedly different approach 0:08:45.920 --> 0:08:50.760 to kind of all things crypto. What's your take, Well, 0:08:50.800 --> 0:08:55.600 it's it's the leadership actually believes that they allowed under 0:08:55.640 --> 0:08:59.439 Danks helping capitalism was a transitory phase to the road 0:08:59.520 --> 0:09:03.160 to social and socialism is all about centralized and control. 0:09:03.840 --> 0:09:08.200 And when we're witnessing an attack on all technology, limits 0:09:08.240 --> 0:09:12.720 on capital returns and capital for risk taking um and 0:09:12.760 --> 0:09:16.080 so you're seeing that this is now going into crypto 0:09:16.160 --> 0:09:18.880 because they're coming up with their own digital money and 0:09:18.920 --> 0:09:20.800 they and they just do not want to have anything 0:09:20.840 --> 0:09:23.960 to compete with it um and next will be They've 0:09:23.960 --> 0:09:25.959 been trying to push to compete against the US dollar, 0:09:27.120 --> 0:09:29.880 but oil nations like Saudi Arabia, so they won't take 0:09:30.120 --> 0:09:33.120 their currency want dollars. So now they're trying to buy 0:09:33.120 --> 0:09:35.400 a lot of gold. You're seeing huge gold movements going 0:09:35.440 --> 0:09:39.520 to China to try to create legitimacy behind their currency. 0:09:39.559 --> 0:09:41.800 But they're further along in the path of having their 0:09:41.840 --> 0:09:45.200 own digital money. But they become a non event. You know, 0:09:45.320 --> 0:09:48.880 the markets bounced right back. It's been a big boom 0:09:48.920 --> 0:09:52.120 for America UH in taxes in particular. I know that 0:09:52.400 --> 0:09:56.800 building one point to gigabytes of UH energy that's stranded 0:09:56.920 --> 0:10:00.079 from natural gas, which they can turn around to do 0:10:00.200 --> 0:10:04.240 bitcoin mining. And you're seeing that more and more people 0:10:04.760 --> 0:10:08.240 nodes are growing in America, so it's very very positive 0:10:08.280 --> 0:10:11.720 this shift is happening here. Is that why we've seen 0:10:11.760 --> 0:10:15.320 the crypto market basically take around trips since that China 0:10:15.400 --> 0:10:17.360 news came out on Friday. I mean Bitcoin is back 0:10:17.360 --> 0:10:22.400 around forty dollars like it never even happened, and Ethereum 0:10:22.440 --> 0:10:27.120 jump twelve from those lows. Yes, you know that's a good, 0:10:27.200 --> 0:10:29.439 you know, good observation. The same thing out of Europe. 0:10:29.600 --> 0:10:32.959 What we noticed is that the number of miners in fact, 0:10:33.040 --> 0:10:38.280 Etherorium is more decentralized than Bitcoin, because when China came 0:10:38.280 --> 0:10:42.480 down with the hammer, uh, the mining, the number of 0:10:42.679 --> 0:10:46.120 miners in the world dropped dramatically. So the difficulty there's 0:10:46.120 --> 0:10:48.920 no competition felt greatly. So even though bitcoin felt the 0:10:49.000 --> 0:10:53.000 thirty thousand, the profit margins we had were growing because 0:10:53.000 --> 0:10:56.439 there's no competition because it basically it's limited to nine 0:10:56.520 --> 0:10:58.839 hundred coins a day that you've run and it's a 0:10:58.920 --> 0:11:00.839 jump ball to see if you can touch that ball, 0:11:01.360 --> 0:11:03.079 and you got to touch that ball, then you can 0:11:03.120 --> 0:11:05.640 mind coin. So we're minding close to eight coins a 0:11:05.760 --> 0:11:09.800 day a bitcoin uh and and that difficulty only helped it. 0:11:09.920 --> 0:11:13.760 Now it's been growing slightly because they would shift the Kazakhstan. 0:11:14.080 --> 0:11:16.160 But the big move has come to the US, and 0:11:16.200 --> 0:11:20.439 I think that's very positive. Ethereum hardly came off that difficulty. 0:11:20.800 --> 0:11:23.360 All the gamers in the world when etherium rises, they 0:11:23.440 --> 0:11:25.960 basically try to turn the machines on. They run up 0:11:26.000 --> 0:11:31.400 their parents electrical bill and they take that GPU chip 0:11:31.480 --> 0:11:33.880 they need and they minded an ethereum coin and then 0:11:33.880 --> 0:11:37.360 they go off in a holiday. So Frank's I'm wondering, 0:11:37.559 --> 0:11:40.960 you know that strategy for China here, because you know, 0:11:41.080 --> 0:11:43.680 if you listen to the bowls of crypto and bitcoin, 0:11:43.760 --> 0:11:47.800 it's the future, It's the future of decentralized finance. If 0:11:47.880 --> 0:11:50.079 that is in fact the case, does China not run 0:11:50.120 --> 0:11:53.520 the risk of just falling behind the global you know, 0:11:53.559 --> 0:11:59.400 competitive landscape in terms of crypto, absolutely and in other technologies. 0:11:59.440 --> 0:12:03.719 To mean it's return to socialism, is a return to 0:12:03.800 --> 0:12:06.079 trying to drive your car looking out the review mirror 0:12:06.760 --> 0:12:10.640 um and and there's nothing but guilt and shame and attack, 0:12:10.679 --> 0:12:14.240 and everyone's looking out the review meer. You can't drive forward. Uh, 0:12:14.280 --> 0:12:17.280 And so I think it's it's quite dangerous. Well, but 0:12:17.320 --> 0:12:19.560 for in China also is in the process of rolling 0:12:19.559 --> 0:12:21.920 out a digital you want, right, So in some way 0:12:21.960 --> 0:12:25.000 you could argue maybe they're making space for that. How 0:12:25.040 --> 0:12:29.800 do you think about kind of government controlled centralized digital 0:12:29.840 --> 0:12:33.000 currencies versus the crypto world and the likes of bitcoin. 0:12:34.600 --> 0:12:36.800 It's a complete opposite. And if you notice that the 0:12:36.840 --> 0:12:40.319 more socialist the country is, the more they are anti 0:12:40.360 --> 0:12:44.120 gold and they're anti bitcoin. Um, they wish to control 0:12:44.200 --> 0:12:46.400 everything that has to do with money. Money is basically 0:12:46.440 --> 0:12:49.840 evil unless the government is in control of it in 0:12:49.880 --> 0:12:52.560 every part of it. When you just look around the 0:12:52.559 --> 0:12:54.800 world for that idealist and that takes place, and that's 0:12:54.800 --> 0:12:58.840 what happens, and and bitcoin is the opposite. About something 0:12:58.880 --> 0:13:01.840 else is really important for all your listeners, is bitcoin 0:13:01.960 --> 0:13:05.360 validated the blockchain. The blockchain was created by telecom companies 0:13:05.400 --> 0:13:09.120 to move money in and it wasn't really validated to 0:13:09.160 --> 0:13:13.200 the Bitcoin came along and showed this triple entry accounting 0:13:13.600 --> 0:13:17.200 is a major breakthrough, an accounting that hasn't taken place 0:13:17.280 --> 0:13:21.040 since the Medici's uh they created banking and the Venetians 0:13:21.360 --> 0:13:25.839 in the four hundreds. So the bottom line is a 0:13:25.880 --> 0:13:30.040 blockchain is going to grow and the adoption of bitcoin 0:13:30.800 --> 0:13:34.520 is so decentralized as thirteen thousand nodes around the world. 0:13:34.880 --> 0:13:38.640 So we're and and Hive is the first public company 0:13:38.640 --> 0:13:41.920 to mind mot bitcoin etherory. And we only use green energy, 0:13:42.240 --> 0:13:45.400 so we're not consumed with these other difficulties some of 0:13:45.400 --> 0:13:47.400 the other miners have had. All right, Frank, thank you 0:13:47.440 --> 0:13:49.160 so much for joining us. As always, we appreciate a 0:13:49.200 --> 0:13:52.240 Franklin CEO and Chief Investment Officer of US Global Investors 0:13:54.520 --> 0:13:59.040 Mo Hagmen, chief operating officer for Investo Investment Solutions. He 0:13:59.200 --> 0:14:02.000 joins us to day. They've got their sixth annual Global 0:14:02.280 --> 0:14:05.640 Global Factor Investing Study that's released today. We're gonna talk 0:14:05.679 --> 0:14:08.440 to them all about that. Factor investing has become a big, 0:14:08.480 --> 0:14:11.800 big way for folks to look at investing in these markets. Well, 0:14:11.840 --> 0:14:13.559 thanks so much for joining us here. I love to 0:14:13.640 --> 0:14:17.040 get your thoughts the highlights the takeaways from your Global 0:14:17.400 --> 0:14:21.920 Factor Investing Study. Thank you for having me. Good morning. Yes, 0:14:21.960 --> 0:14:26.040 as you mentioned, we released our sixth annual Factor Investing 0:14:26.080 --> 0:14:30.840 Study today and the study basically interviews two forty or 0:14:30.880 --> 0:14:34.520 so institutional and retail investors around the world. Roughly about 0:14:34.840 --> 0:14:37.760 one trillion in assets by those ascid owners held by 0:14:37.800 --> 0:14:40.800 those asset owners, and what's interesting is we continue to 0:14:40.840 --> 0:14:45.080 see no surprise that factor investing continues to gain adoption, 0:14:45.720 --> 0:14:50.880 both institutionally and more recently in the retail market. And specifically. 0:14:50.960 --> 0:14:53.320 What was interesting this year as we saw a lot 0:14:53.360 --> 0:14:57.840 of rotation within kind of the factor strategy landscape, given 0:14:57.920 --> 0:15:00.280 kind of the markets and what we saw post the 0:15:00.400 --> 0:15:04.720 presidential election last year, we've seen a very large shift 0:15:04.920 --> 0:15:08.960 towards value and more procyclical factors at the expense of 0:15:09.000 --> 0:15:12.680 defensive and low volatility factors which had been gaining a 0:15:12.680 --> 0:15:15.400 lot of traction over the years. Well, and then when 0:15:15.440 --> 0:15:17.440 we talk about the momentum factor as well, there was 0:15:17.480 --> 0:15:19.800 a lot of conversation, particularly in kind of the first 0:15:19.880 --> 0:15:21.760 quarter of the year when we saw that huge rush 0:15:21.840 --> 0:15:25.440 into value, that value was then the new momentum when 0:15:25.440 --> 0:15:27.360 it had been growth before. How do you think about 0:15:27.360 --> 0:15:30.560 the momentum factor now given some of those dynamics. Yeah, 0:15:30.600 --> 0:15:34.400 it's a very interesting observation. So momentum is a technical factor, 0:15:34.520 --> 0:15:37.240 so it kind of shape shifts, it actually takes the 0:15:37.320 --> 0:15:41.200 characteristics of other factors. And what we have seen over 0:15:41.240 --> 0:15:43.880 the last twelve months is momentum looks very much like 0:15:44.080 --> 0:15:48.160 value in size, whereas historically it had been very much 0:15:48.200 --> 0:15:51.680 growth and kind of low volatility oriented, as the mega 0:15:51.760 --> 0:15:55.720 cap tech companies were the best price performers. You're absolutely right. 0:15:55.760 --> 0:15:59.200 We've seen actually some more concentration within the value and 0:15:59.200 --> 0:16:03.280 momentum factor, and those two historically have been negatively correlated, 0:16:03.560 --> 0:16:07.040 but more recently there's a positive correlation between those two factors. 0:16:08.080 --> 0:16:09.880 So MO would just I'd love to take a step 0:16:09.880 --> 0:16:12.280 back here. When I was an equity analyst and I'd 0:16:12.280 --> 0:16:14.480 be walking into a meeting with a fun manager in Boston, 0:16:14.520 --> 0:16:16.880 my salesperson returned to me and say, Oh, this person 0:16:16.960 --> 0:16:19.760 is a growth investor. Or, This fund managers a value investor, 0:16:20.920 --> 0:16:24.280 isn't So how is that different from this factor investing 0:16:24.280 --> 0:16:27.800 we talk about. It's really not that different. I think 0:16:27.800 --> 0:16:30.120 it's very much a different lens of looking at the 0:16:30.160 --> 0:16:32.840 same thing. I think for a very long period of time, 0:16:32.880 --> 0:16:34.920 we thought about the world in like the Morning Star 0:16:34.960 --> 0:16:38.480 style box, where managers really had a discipline whether you're 0:16:38.480 --> 0:16:42.200 a value fundamental manager or a growth manager. Factors are 0:16:42.240 --> 0:16:45.680 actually a very precise way of capturing some of those 0:16:45.720 --> 0:16:49.800 same outperformance characteristics. We know factors over the very long 0:16:49.920 --> 0:16:52.600 term have a premier attached to them, very much like 0:16:52.680 --> 0:16:55.400 asset classes have premiers attached to them, and you're actually 0:16:55.440 --> 0:16:59.200 able to capture that by focusing in systematic ways on 0:16:59.240 --> 0:17:01.960 parts of the equity market. So when you want value, 0:17:02.000 --> 0:17:04.879 for example, in your portfolio, you look at fundamental metrics 0:17:04.920 --> 0:17:08.240 such as earnings and revenues and cash flows, and you're 0:17:08.240 --> 0:17:11.080 looking for cheapness in the market. When you look at momentum, 0:17:11.080 --> 0:17:14.640 it's a technical factor which really looks at price appreciation 0:17:14.800 --> 0:17:18.119 over the recent, recent past. So you know, it's not 0:17:18.240 --> 0:17:20.280 really that much different. I think it's a new lens 0:17:20.320 --> 0:17:22.320 of thinking about it. And what we've seen is that 0:17:22.359 --> 0:17:25.760 adoption is actually moved, as you mentioned, from the equity 0:17:25.800 --> 0:17:28.840 markets into fixed income. So this this year's factor study 0:17:29.280 --> 0:17:32.479 was really interesting and that we saw investors looking at 0:17:32.520 --> 0:17:35.520 fixed income factor strategies as a way to reduce cost 0:17:35.640 --> 0:17:38.440 and a low yield environment. Well we're talking about fixed income. 0:17:38.480 --> 0:17:40.399 I would love to just get your take on the 0:17:40.400 --> 0:17:42.960 bond market and the action we've seen over the last 0:17:43.000 --> 0:17:45.919 couple of days post FED decision, this dramatic move upward 0:17:45.960 --> 0:17:49.000 and yields to test one fifty again. Just do you 0:17:49.040 --> 0:17:51.080 think the bond market in the equity market are now 0:17:51.160 --> 0:17:55.040 in sync? What's interesting is you know, we talk a 0:17:55.080 --> 0:17:58.080 lot about rates, but rates are still historically very low, 0:17:58.520 --> 0:18:01.080 and I think at this point in the economic cycle, 0:18:01.200 --> 0:18:04.320 you should actually expect some steeping of the yield curve. 0:18:04.920 --> 0:18:08.280 We actually think that's actually quite healthy for the bond market. 0:18:08.880 --> 0:18:12.000 Although when we look at certain sectors within the equity market, 0:18:12.040 --> 0:18:15.560 obviously there's going to be more sensitivity to rising rate environment. 0:18:15.640 --> 0:18:18.200 You know, tech has always been very sensitive to rates, 0:18:18.480 --> 0:18:21.840 and if you think about what really drives tech valuations, 0:18:21.840 --> 0:18:24.520 it's the discount rate and future cash flows. We know, 0:18:24.640 --> 0:18:27.600 future cash flows are kind of priced for perfection, so 0:18:27.680 --> 0:18:30.840 any move in rates has a very very big impact 0:18:31.240 --> 0:18:33.960 on kind of the pricing of those of those particular 0:18:34.280 --> 0:18:37.480 securities within the market. Alright, So Moe, it looks like 0:18:37.840 --> 0:18:39.600 a lot of folks are kind of thinking about a 0:18:39.760 --> 0:18:44.760 re reopening trade here. Uh um, You know, the vaccination 0:18:44.840 --> 0:18:48.480 numbers continue to trend in the right direction. You know, 0:18:48.520 --> 0:18:50.680 how are you thinking about that here as you take 0:18:50.680 --> 0:18:52.560 a look at the some of the factors that you're 0:18:52.600 --> 0:18:57.480 hearing from your clients. Sure, so the economic backdrop is 0:18:57.480 --> 0:19:00.800 still very supportive of risk as sets. Although what I 0:19:00.800 --> 0:19:04.040 will tell you is that our economic indicators are leading 0:19:04.080 --> 0:19:07.280 indicators are showing into showing a little bit of softening 0:19:07.320 --> 0:19:11.760 and growth, and that deceleration is actually noticeable across every 0:19:11.800 --> 0:19:15.920 region around the world. That said, investor sentiment and risk 0:19:15.920 --> 0:19:19.200 appetite in the market has been improving, which we kind 0:19:19.200 --> 0:19:22.760 of look at as possibly pointing to a rebound in 0:19:22.800 --> 0:19:25.680 growth as we go into year end. And there's really 0:19:25.680 --> 0:19:27.879 a couple of reasons that I think that is a 0:19:27.960 --> 0:19:31.480 very plausible outcome. One, we still have a very accommodative 0:19:31.480 --> 0:19:34.800 policy backdrop. I know that FED tapering has been a topic, 0:19:34.880 --> 0:19:38.120 but it has been very well socialized, and I don't 0:19:38.119 --> 0:19:40.639 actually think the market was surprised by a lot of 0:19:40.640 --> 0:19:44.400 that commentary. What we do think is more important, though, 0:19:44.560 --> 0:19:46.879 is lift off right and if there's any change in 0:19:46.920 --> 0:19:50.760 that accommodation around rates rising, you know, if it's end 0:19:50.800 --> 0:19:53.480 of two, that could be very impactful. All Right, we'll 0:19:53.520 --> 0:19:55.199 keep an eye on that. Mo hag been chief operating 0:19:55.200 --> 0:19:58.840 officer for invest Go Investment Solutions giving us his thoughts 0:19:58.880 --> 0:20:02.760 on these markets. End factor investing more coming up this 0:20:02.880 --> 0:20:08.440 is Bloomberg. We'll talk about our performance. We're starting to 0:20:08.480 --> 0:20:11.560 get some of the big universities endowments they're reporting their 0:20:11.560 --> 0:20:15.880 fiscal their returns for their fiscal year ended June. Boys 0:20:15.920 --> 0:20:18.440 some big, big numbers and again kind of the pandemic 0:20:18.520 --> 0:20:21.000 impacting the returns given the timing there, but still some 0:20:21.440 --> 0:20:26.080 pretty solid fort returns. And I see my boys down 0:20:26.080 --> 0:20:28.560 at Duke University, Neil Triplet from the Duke University Management 0:20:28.600 --> 0:20:34.399 Company six percent return. So I will buy Neil a 0:20:34.440 --> 0:20:37.080 beverage of his choice when I see him soon. Down 0:20:37.080 --> 0:20:40.880 in Derham. Janet Lawn, higher education finance reporter for Bloomberg News, 0:20:40.960 --> 0:20:44.000 joins us on the phone. Janet universities endowments are putting 0:20:44.040 --> 0:20:48.080 up just some stellar numbers in this most recent fiscal year. Yes, 0:20:48.320 --> 0:20:51.679 it's really once in a generation that you're seeing some 0:20:51.760 --> 0:20:54.679 of these members. We reported wash you last week and 0:20:54.680 --> 0:20:59.480 they added, are you sitting down six billion dollars value 0:20:59.680 --> 0:21:02.719 what the go into unless they made that money in 0:21:02.960 --> 0:21:07.439