WEBVTT - Surveillance: We Will See More Volatility, Warne Says 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Lee. 0:00:13.960 --> 0:00:16.960 We bring you insight from the best in economics, finance, 0:00:17.040 --> 0:00:23.480 investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.640 --> 0:00:32.239 Bloomberg dot Com, and of course on the Bloomberg. Were 0:00:32.240 --> 0:00:35.479 advantage of Queen Victoria Street to have with us Andreas Odderman, 0:00:35.560 --> 0:00:39.639 Alien's Global Investor's chief executive officer and David Harrow managing 0:00:39.640 --> 0:00:42.560 a small pot of money at Harris Associates in Chicago 0:00:42.880 --> 0:00:45.320 as well, and we bring forward the great debate of 0:00:45.400 --> 0:00:50.000 the last twenty years active and passive investment. Andreas, let 0:00:50.000 --> 0:00:53.000 me go to you first. Uh Ms Johnson over at 0:00:53.000 --> 0:00:56.080 Fidelity and others have decided. I guess it's a price 0:00:56.120 --> 0:00:59.840 war on E T F fees. Does this have critical mass? 0:01:00.040 --> 0:01:03.120 Are we going to start seeing every shop offering out 0:01:03.240 --> 0:01:09.360 Vanilla management at a vanilla zero fee. I don't know 0:01:09.400 --> 0:01:12.920 about vanilla zero fee, but certainly, as you probably remember, 0:01:13.040 --> 0:01:16.160 we we were very early in terms of launching UM 0:01:16.440 --> 0:01:18.600 in the UK and also in the US in the 0:01:18.720 --> 0:01:22.000 term in the context of folkrom fees, very low based 0:01:22.040 --> 0:01:25.360 fee funds with a performance fee attached and that's something 0:01:25.400 --> 0:01:28.440 we've been offering an institutional space for many, many years 0:01:28.480 --> 0:01:31.080 and it's been very successfully taken up by our clients. 0:01:31.560 --> 0:01:34.160 So you know, it's a it's a it's The reality 0:01:34.800 --> 0:01:38.560 is that the price of beta in most data streams 0:01:38.560 --> 0:01:41.400 has come down significantly with the advent of paths of ETFs, 0:01:42.120 --> 0:01:44.319 and I think the response of active managers that want 0:01:44.360 --> 0:01:48.080 to survive need to be to to to to acknowledge 0:01:48.080 --> 0:01:51.400 that and and figure out what that means. And of 0:01:51.400 --> 0:01:53.720 course it means that we need to earn I'll keep 0:01:53.760 --> 0:01:57.640 by aligning ourselves with client interests, which is through performance fees. David, 0:01:57.720 --> 0:01:59.560 how is this going to end up? We've been talking 0:01:59.600 --> 0:02:02.040 about it for years. You've been a staunch defender of 0:02:02.200 --> 0:02:06.520 value of buying bank stocks, etcetera. When shares her own sale, 0:02:06.520 --> 0:02:09.839 you sound like Sir John Templeton at times here? How 0:02:09.919 --> 0:02:12.080 is this going to end up? This this active and 0:02:12.160 --> 0:02:14.200 passive debate, Where are we going to be in two 0:02:14.280 --> 0:02:18.880 thousand twenty five? There will always be this debate, And 0:02:18.919 --> 0:02:22.240 I think it's actually a strong passive sector is actually 0:02:22.360 --> 0:02:27.160 a necessary and necessity for active investors because passive investing 0:02:27.480 --> 0:02:30.120 implies that you're buying things because they're in an index, 0:02:30.200 --> 0:02:32.880 and the more it goes up, the bigger space that 0:02:32.960 --> 0:02:36.160 occupies in the indext you buy more. This what is 0:02:36.160 --> 0:02:39.239 what I would call any efficient pricing of assets. And 0:02:39.400 --> 0:02:43.720 as an active investor, we need an efficiency to exploit 0:02:43.840 --> 0:02:46.560 to outperform over the medium and long term. It may 0:02:46.639 --> 0:02:48.960 hurt us in the short term, but if we want 0:02:49.040 --> 0:02:51.760 to perform in the medium and long term, we need 0:02:51.840 --> 0:02:56.079 marketing efficiency. We need misspricing of assets, and if passive 0:02:56.120 --> 0:03:01.040 investing causes more misspricing of assets, then that's good for us. 0:03:01.120 --> 0:03:04.840 So the problem is that we keep shrinking and they 0:03:04.919 --> 0:03:08.520 keep getting larger, which means the opportunity set for the 0:03:08.639 --> 0:03:12.920 remaining active investors actually increases. So as long as you 0:03:12.960 --> 0:03:15.399 have the staining power and the discipline to hang in there, 0:03:15.760 --> 0:03:18.200 I think it will be good for active investors. But 0:03:18.480 --> 0:03:21.720 you know, and and the relats have slices, the pie 0:03:21.800 --> 0:03:25.000 between active and passive will keep moving, I imagine, maybe 0:03:25.080 --> 0:03:29.280 still slowly towards passive. But for me, as an active investor, 0:03:29.360 --> 0:03:33.799 I'm thankful every morning that there are passive investors out there. Andrew, 0:03:33.840 --> 0:03:35.800 has it took me a little bit about outflows or 0:03:35.800 --> 0:03:38.000 we can see more outflows in twenty nineteen. Is there 0:03:38.000 --> 0:03:41.120 a correlation between volatility and the markets and people actually 0:03:41.200 --> 0:03:45.160 deciding to get their money out? Not necessarily. I think 0:03:45.680 --> 0:03:49.200 the outflows that we sold primarily in Q four across 0:03:49.240 --> 0:03:54.080 the boards were caused by specific market events, and you know, 0:03:54.920 --> 0:03:57.600 we don't anticipate that continuing in two thousand and nineteen, 0:03:57.640 --> 0:03:59.960 now that the central banks globally have sort of take 0:04:00.040 --> 0:04:01.800 in the you know, the foot of the brake a 0:04:01.800 --> 0:04:05.000 little bit. So I think as the year progresses, and 0:04:05.040 --> 0:04:08.880 Tom mentioned this earlier, the challenge of and investors with 0:04:08.960 --> 0:04:12.560 really negative interest rates, they're gonna have to start taking 0:04:12.640 --> 0:04:14.760 risk again in order to get those returns, and I 0:04:14.800 --> 0:04:19.120 think that's going to favor a slow, steady return you know, 0:04:19.160 --> 0:04:22.719 of of fun flows across the board, are you expecting 0:04:22.720 --> 0:04:25.880 more vlativity in the markets? I know the fourth quarter 0:04:26.040 --> 0:04:28.159 was a bit rough. What happens for the rest of 0:04:28.160 --> 0:04:32.279 the year. I mean, the fourth quarter of was extremely strange, 0:04:32.320 --> 0:04:34.920 and not just because of the price movement, but the outflows. 0:04:35.040 --> 0:04:38.320 And I would say this location in prices, prices that 0:04:38.320 --> 0:04:42.280 were completely divorced from reality. Now, of course it will 0:04:42.320 --> 0:04:45.520 come back at some point, who knows one, But again, 0:04:45.680 --> 0:04:48.839 even though it's painful as you go through it, it's 0:04:48.839 --> 0:04:51.560 actually good for an active investor because it enables you. 0:04:51.640 --> 0:04:54.800 It's basically the raw material which you could position your 0:04:54.839 --> 0:04:59.560 portfolios when you see emotional trading and price movement that 0:04:59.680 --> 0:05:02.800 is not reflective of reality. Andrea, I think I'm back, 0:05:03.360 --> 0:05:06.719 and I'm just brilliant on the mergers and on the 0:05:06.800 --> 0:05:10.480 combinations that we've seen in asset management. Does that just 0:05:10.560 --> 0:05:12.960 extend this year as we go into second, third and 0:05:13.040 --> 0:05:16.359 fourth quarter? Strategic planning is a mating of the industry 0:05:16.360 --> 0:05:20.400 are going to continue. I think it will continue, and 0:05:20.400 --> 0:05:23.000 I think it will accelerate. We've seen a world of pain, 0:05:23.360 --> 0:05:26.960 as I've mentioned before, in terms of in terms of 0:05:27.120 --> 0:05:30.920 you know, the stresses that many traditional asset managers are 0:05:30.960 --> 0:05:33.960 facing with their hybrid models. Are quite sure do I 0:05:34.000 --> 0:05:36.400 focus on a technology lead model? Do I focus on 0:05:36.400 --> 0:05:38.599 the distribution lead model? Do I do I go active 0:05:38.720 --> 0:05:41.479 or passive? Um? I think. I think a lot of 0:05:41.560 --> 0:05:43.880 owners of asset managers are going to have a second 0:05:43.920 --> 0:05:46.520 look at at their businesses and decide they needed to 0:05:46.839 --> 0:05:49.640 either sell it or or merge it away. And I 0:05:49.720 --> 0:05:51.839 think it's going to accelerate in two thousand and nineteen. 0:05:52.080 --> 0:05:54.360 Just allow me one further comment on the active passive 0:05:54.360 --> 0:05:57.599 debate that we just had. It just made me sometimes 0:05:57.600 --> 0:06:01.560 that the passive active debate is some focused on security selection. 0:06:02.160 --> 0:06:03.880 As we all know, and I'm sure David would agree 0:06:03.920 --> 0:06:06.680 with that. Many of our clients have concerns beyond that. 0:06:07.600 --> 0:06:09.760 You know, they want to know when to buy a 0:06:09.760 --> 0:06:12.279 particular currency exposure, when to hedget. They want to know 0:06:12.279 --> 0:06:15.600 when to get market exposure or reduce market exposure. They 0:06:15.640 --> 0:06:18.279 want to know which asset classes to invest in or 0:06:18.320 --> 0:06:21.039 which regions. Now you can't do that in a passive manner. 0:06:21.040 --> 0:06:23.440 All of these are active considerations. So I think the 0:06:23.480 --> 0:06:27.799 active passive debate is unfortunately too focused on security selection, 0:06:27.800 --> 0:06:30.839 where it's clearly an issue. It's also an issue of pricing. 0:06:31.240 --> 0:06:33.800 But there's much more to the asset management industry than 0:06:34.040 --> 0:06:37.840 than just security selection. Do you want to respond to that? 0:06:38.040 --> 0:06:40.320 I mean it it is. I guess we do focus 0:06:40.360 --> 0:06:43.680 on kind of on you know, equity analysis, but it 0:06:43.760 --> 0:06:46.080 is much bigger than that. I mean, it is much 0:06:46.080 --> 0:06:49.560 bigger than that. Especially if you're retirement plan, you have 0:06:49.720 --> 0:06:52.960 to have a diversified plan. You have to have assets 0:06:53.080 --> 0:06:57.040 that can deliver return to fund your liabilities, and so 0:06:57.120 --> 0:07:00.600 you have to look at it from my perspective. I'm 0:07:00.680 --> 0:07:04.560 just providing a service to that person who wants, you know, 0:07:04.600 --> 0:07:08.880 an active value oriented global investor. That's my job. But 0:07:09.040 --> 0:07:11.640 if I was running a big pool of money, I 0:07:11.760 --> 0:07:14.160 certainly would take some of me, take some of them, 0:07:14.240 --> 0:07:16.600 take some of them. You have to be diversified, and 0:07:16.640 --> 0:07:22.200 you have to protect your ability to fund liabilities first 0:07:22.200 --> 0:07:25.800 and foremost. All right, thank you both. David Harrod there 0:07:25.800 --> 0:07:28.000 of Hairs Associates where he's the chief investment officer and 0:07:28.000 --> 0:07:42.920 injurious Utterman Alliance Global Investors CEO. Right now with us 0:07:43.040 --> 0:07:46.440 on the political battle. Philippe RNAs who worked with Secretary 0:07:46.520 --> 0:07:51.600 Clinton and uh was boisterous during the Clinton campaign, where 0:07:51.640 --> 0:07:55.160 others maybe Finessenal. He was one of the great defenders 0:07:55.160 --> 0:07:58.520 of Secretary Clinton against this, that and the other thing. 0:07:58.720 --> 0:08:02.320 Do you expect the same boys this time, Philippe? Are 0:08:02.360 --> 0:08:06.400 we going to have a hugely verbal and physical campaign 0:08:06.640 --> 0:08:08.840 or could it even be worse than two thousand six 0:08:10.320 --> 0:08:14.560 um in the primaries? I you know, I think boisterous 0:08:14.640 --> 0:08:17.480 is a is not such a terrible thing. We want 0:08:17.520 --> 0:08:20.760 a lively debate. I think as long there's there's no 0:08:21.080 --> 0:08:24.680 you know, violence, that's what the primaries are for. And 0:08:25.200 --> 0:08:28.680 whoever it will be stronger. Well, what's interesting about this 0:08:28.960 --> 0:08:31.440 a cage match this year? Given how many there are? Yeah, 0:08:31.480 --> 0:08:33.920 well I'll go with that. But what's fascinating to me 0:08:34.360 --> 0:08:36.480 as you had the sort of the Clinton era and 0:08:36.600 --> 0:08:39.960 the Obama era, and I tell those younger that I 0:08:40.040 --> 0:08:45.679 remember a Democratic party that was normally more fractious across 0:08:45.760 --> 0:08:48.320 a wide span of history than the Republicans. Do you 0:08:48.360 --> 0:08:54.439 agree with that? I think so? I think, Um, I do. 0:08:54.600 --> 0:08:57.520 I think the Republican Party historically has probably been a 0:08:57.559 --> 0:09:02.560 little bit more monolithic, especially when they were mostly concerned 0:09:02.600 --> 0:09:07.120 with social issues, whether it was pro life or uh, 0:09:07.320 --> 0:09:10.439 anti gun control. I think that shifted a little bit 0:09:10.480 --> 0:09:16.120 as it's become less about social values more about economics. Um. 0:09:16.200 --> 0:09:18.200 And I think you can see the split within the 0:09:18.200 --> 0:09:20.680 Republican Party personally. I think the Republican Party at the 0:09:20.720 --> 0:09:24.280 dead party walk given what has happened since two thousand 0:09:24.240 --> 0:09:27.240 and ten and particularly well, this is important and let's 0:09:27.240 --> 0:09:30.000 look at that from you as a democratic perspective. The 0:09:30.080 --> 0:09:34.240 Republican Party of two thousand twenty or two thousand eighteen 0:09:34.240 --> 0:09:38.280 in reality how different is it from two thousand and ten. 0:09:38.440 --> 0:09:43.120 I would suggest it is substantially different in makeup, particularly 0:09:43.120 --> 0:09:45.960 on Capitol Hill, than it was only six years ago. 0:09:46.960 --> 0:09:50.760 You're right, it's um, you know, it's a shell of 0:09:50.800 --> 0:09:53.960 its former self. And I don't know if that's better 0:09:54.120 --> 0:09:57.319 or worse. But I don't think that they themselves, they 0:09:57.400 --> 0:10:01.280 being at least the establishment Republicans and the leaders, like 0:10:01.400 --> 0:10:04.040 you said in Congress, I don't think they've confut grips 0:10:04.040 --> 0:10:07.560 with that, and I don't think they know where it goes. 0:10:07.760 --> 0:10:11.440 I think there's a definitely sizeable bunch of them that's 0:10:11.480 --> 0:10:14.400 delusional and think they just have to ride out the 0:10:14.480 --> 0:10:20.200 Trump era and things will revert back. That doesn't seem likely. Um, 0:10:20.240 --> 0:10:23.840 you know, it's the two party system was interesting in twenties. Sixteen, 0:10:24.600 --> 0:10:29.400 Hillary Clinton ran against someone who had previously been you know, independent, 0:10:30.000 --> 0:10:35.160 self described socialists, and Donald Trump had switched parties seven times. 0:10:35.200 --> 0:10:38.400 I mean, you know, you've had presidents who have shifted parties, 0:10:38.440 --> 0:10:41.280 like even Ronald Great, but not seven times. And he's 0:10:41.320 --> 0:10:44.320 done it not just Republican Democrat, he's done a reform 0:10:44.400 --> 0:10:48.720 party independent. So you know, I think twenty years from now, 0:10:49.200 --> 0:10:51.800 we might be having a conversation where this was a 0:10:51.880 --> 0:10:56.280 moment in time that the Republican Party certain fractured and 0:10:56.360 --> 0:10:59.120 maybe the two party system. What about the Democrats? Fully, 0:10:59.160 --> 0:11:01.679 because there are many people it might think that party 0:11:01.720 --> 0:11:05.680 is fractured as well and might essentially break two. I 0:11:05.720 --> 0:11:08.880 don't think so. I mean, I know there's uh, you know, 0:11:08.920 --> 0:11:12.199 there's an appealing narrative that we like to fight. I 0:11:12.480 --> 0:11:16.640 think we're kind of the family that uh on Thanksgiving 0:11:16.720 --> 0:11:19.080 sort of does go at each other, but then hug 0:11:19.080 --> 0:11:23.959 it out and it's a healthy debate. I think, particularly 0:11:24.000 --> 0:11:28.439 this year, the Democratic Party will end up incredibly unified 0:11:28.520 --> 0:11:32.080 with the one goal, which is to now Donald Trump. 0:11:32.120 --> 0:11:34.360 And I think we saw it last year where even 0:11:34.400 --> 0:11:37.720 though many of the policy debates we're going on, we 0:11:38.080 --> 0:11:41.400 took over the House. Well that's the goal. What's the message? 0:11:41.400 --> 0:11:43.800 Because the policy debate in the midterms was quite a 0:11:43.800 --> 0:11:47.600 centrist message. The policy debates so far from the Democrats 0:11:47.960 --> 0:11:49.880 is way out on the left, Philly. Do you expect 0:11:49.880 --> 0:11:52.800 that to come in and why? I you know, I 0:11:52.880 --> 0:11:56.200 really don't know. I I think, Um, again, I think 0:11:56.240 --> 0:11:58.160 the debate is good. I mean, we're starting from a 0:11:58.200 --> 0:12:00.800 point where you believe everyone should have health care. If 0:12:00.800 --> 0:12:03.880 you're debating whether or not that's Medicare for all, some 0:12:04.040 --> 0:12:09.600 version of Obamacare, that's really not plously important. But we're 0:12:09.640 --> 0:12:11.400 going to end up in the right places. And it's 0:12:11.440 --> 0:12:16.080 the disparity and the distinction between those beliefs and the 0:12:16.120 --> 0:12:20.120 Republican Party that people are going to rally around. Um. 0:12:20.240 --> 0:12:24.040 Phil Philippe rains with us as we talk about politics. 0:12:24.040 --> 0:12:28.040 You represented Secretary Clinton at the State Department and worked 0:12:28.040 --> 0:12:31.679 on her campaign as well, Philippe, the Democrats in the middle, 0:12:32.000 --> 0:12:35.840 did they just wait out this burst of democratic socialism 0:12:35.920 --> 0:12:39.000 or socialism or whatever you want to call it. Do 0:12:39.080 --> 0:12:42.920 they wait it out or do they rebut it? In 0:12:43.040 --> 0:12:47.040 terms of the candidates or canidates. In terms of the candidates, 0:12:47.120 --> 0:12:50.360 there really might not be a lane to be honest. Um. 0:12:51.360 --> 0:12:53.840 And i'mm M sure if I'm a lot to say it, 0:12:53.880 --> 0:12:57.040 but someone like Mayor Bloomberg, who I personally love and 0:12:57.120 --> 0:13:01.120 voted for as a New Yorker multiple times, it's he's 0:13:01.200 --> 0:13:06.480 someone who I personally agree with more than most and 0:13:07.120 --> 0:13:10.480 it's hard to have that kind of message right now. 0:13:10.520 --> 0:13:13.800 But that's not so different. I mean, typically you have 0:13:13.880 --> 0:13:17.360 it on both parties where the primary voters are the 0:13:17.480 --> 0:13:27.880 most energetic in the Democratic Party. Whether it's particularly twoight, 0:13:28.720 --> 0:13:32.520 it's a very very left excited party. In two thousand 0:13:32.559 --> 0:13:35.839 and seven and eight, it was Iraq and now it's 0:13:36.040 --> 0:13:39.240 a variety of things that obviously getting rid of Trump 0:13:39.320 --> 0:13:41.960 is not just, you know, the only policy, but you 0:13:42.040 --> 0:13:44.480 have to do that to enact these policies. I don't know, 0:13:44.520 --> 0:13:47.640 it's it's hard to see. Um. I don't know how 0:13:47.679 --> 0:13:51.480 much you can veer from the left, from the hard left, 0:13:51.480 --> 0:13:55.640 but that's not socialism. I mean not to dance on 0:13:55.679 --> 0:13:58.920 the head of a pin um, but I think there's 0:13:58.920 --> 0:14:05.920 a difference between general purity tests on every issue. And also, look, 0:14:05.960 --> 0:14:09.280 it has a secondary effect. You know, Bernie Sanders jumped 0:14:09.280 --> 0:14:14.000 in yesterday. Reality had tremendous energy in he had an 0:14:14.040 --> 0:14:18.600 eye popping overnight fundraising. But in it was a binary 0:14:18.679 --> 0:14:22.160 choice if you want to call Hiller Clinton the centrist 0:14:22.280 --> 0:14:24.760 or matter. If you didn't like her, you want to Bernie. 0:14:24.760 --> 0:14:26.800 If you didn't like the Burnie, you went to Hillary. 0:14:27.120 --> 0:14:30.400 Now you know, if you listen to the Bernie campaign 0:14:30.400 --> 0:14:32.680 of the Bernie supporters, they are very proud and to 0:14:32.800 --> 0:14:36.359 pull the party to where they are There's a secondary 0:14:36.360 --> 0:14:39.600 effect to that in that you don't have to choose 0:14:39.640 --> 0:14:42.800 Bernie to get those policies. So you have three or 0:14:42.840 --> 0:14:47.440 four people you can choose that app and still debate 0:14:48.040 --> 0:14:51.080 between personalities. I mean, it's you've got to play where 0:14:51.080 --> 0:14:55.840 there are three understudies in every lane, which is good, 0:14:56.120 --> 0:14:59.160 but it doesn't mean anyone owns the lane. Yeah, we're 0:14:59.160 --> 0:15:00.800 gonna have to leave it there. Phlipe Brain is thank 0:15:00.800 --> 0:15:04.440 you so much, greatly, greatly appreciated formally working with Secretary Clinton, 0:15:04.800 --> 0:15:06.960 And as he mentions Mayor Bloomberg, we should mention that 0:15:07.000 --> 0:15:11.280 Michael Bloomberg is a principal owner of Bloomberg LP and 0:15:11.840 --> 0:15:25.320 of course Bloomberg Television and Radio. This is if you're 0:15:25.480 --> 0:15:29.040 on Global Wall Stands, the conversation it is, this is 0:15:29.080 --> 0:15:31.360 the interview of the day because this is about this 0:15:31.400 --> 0:15:33.920 is gonna push aside all of the bologna, the bs 0:15:34.400 --> 0:15:37.840 about about the hedge fund business. At Credit Suitees, they 0:15:37.880 --> 0:15:41.320 have a jewel. His name is Mark Connor's Global head 0:15:41.320 --> 0:15:44.480 of Portfolio and Risk Advisory, which is a fancy name 0:15:44.720 --> 0:15:47.160 for he writes the smartest letter on hedge funds in 0:15:47.160 --> 0:15:49.360 the business as well. Wonderful day have you here, we 0:15:49.440 --> 0:15:52.200 get a huge response when you're on is the concept 0:15:52.240 --> 0:15:56.320 of two and twenty two percent fee? And what's left 0:15:56.360 --> 0:16:00.280 over is that concept dead for hedge funds. It's it's 0:16:00.000 --> 0:16:02.760 it is uh, it's gone away for a fair amount 0:16:02.760 --> 0:16:05.360 of hedge funds. So there's something that we wrote called 0:16:05.840 --> 0:16:08.440 the vital few. So there's some folks who can still 0:16:08.480 --> 0:16:11.560 do it, and maybe their margins are even higher than that. 0:16:12.120 --> 0:16:14.760 So what's happened is we talked about distributions and you know, 0:16:14.800 --> 0:16:16.920 I know there's a that jingle word you have you 0:16:16.960 --> 0:16:19.320 We can't do fancy words on the can on the 0:16:19.360 --> 0:16:23.600 program once awhile where a bell rings. The jargon the 0:16:23.600 --> 0:16:30.920 Peretto principle very cool. So people are there's a segmentation 0:16:31.040 --> 0:16:34.040 where as markets have gotten harder, there are only a 0:16:34.080 --> 0:16:36.480 few who are making that money and they're doing it. 0:16:36.600 --> 0:16:38.520 John's got like eight questions. Let me get one more 0:16:38.560 --> 0:16:42.200 in Here is most of the agony and hedge funds 0:16:42.240 --> 0:16:48.360 because they're less diversified. Um, I think no. The agony 0:16:48.520 --> 0:16:52.320 was that there was no alpha um for many people 0:16:52.360 --> 0:16:56.200 because there's less liquidity and there's what we call untradeable volatility. 0:16:56.240 --> 0:16:58.720 So people love all they say, where's the vaal, where's 0:16:58.760 --> 0:17:02.080 that dispersion where there's movement in the market that we 0:17:02.120 --> 0:17:05.320 can proust you from that we can write monetize Where 0:17:05.400 --> 0:17:08.360 is it? And what happens is it comes in moments 0:17:08.359 --> 0:17:11.880 like the swissy Euro, It comes in moments like June eighth, 0:17:12.080 --> 0:17:16.479 trade talks, and it comes in moments like fed October three, 0:17:16.520 --> 0:17:18.359 and they can't trade it and all they do is 0:17:18.400 --> 0:17:20.840 take a mark and there's no liquidity. So they wake 0:17:20.920 --> 0:17:22.639 up with the two percent gain and then they go 0:17:22.680 --> 0:17:26.760 to bed with a two percent loss. That's hard. We 0:17:26.840 --> 0:17:32.640 de risk aggressively in December, trying to try to much 0:17:32.760 --> 0:17:36.040 we have re risked through the new year from the 0:17:36.040 --> 0:17:38.359 people you speed to, from the numbers, you see any 0:17:38.400 --> 0:17:41.399 evidence that we have no So this is this is 0:17:41.600 --> 0:17:45.680 in our ten years of data, we've never seen a 0:17:45.760 --> 0:17:49.280 run in the market where the hedge funds have not participated. 0:17:49.720 --> 0:17:52.879 This is the biggest gap between a when is it 0:17:52.920 --> 0:17:56.800 a move off the bottom of you know, Christmas Eve 0:17:56.840 --> 0:18:01.359 bottom and hedge funds are still lying in wait. We 0:18:01.440 --> 0:18:05.080 are thirty one. I did the math today. We're round 0:18:05.080 --> 0:18:09.480 trip from the first week of December down and back up. Basically, 0:18:10.400 --> 0:18:16.560 it's a huge move. So what's holding them back? Um? 0:18:16.560 --> 0:18:19.760 In speaking to them, they're not really showing their cards 0:18:19.800 --> 0:18:23.359 to be honest about why. Um. What they're doing is 0:18:23.359 --> 0:18:26.480 they're renting the market. So hedgephones play with two things. 0:18:26.480 --> 0:18:29.200 They play with a gross exposure longs and shorts called 0:18:29.200 --> 0:18:32.080 the footprint, and they make money on both sides. That's 0:18:32.080 --> 0:18:34.600 their game. Or they can do it with their net 0:18:34.800 --> 0:18:37.720 that tilts, so their net long and they're renting. They 0:18:37.760 --> 0:18:41.159 are a low small footprint, but they're covering shorts like 0:18:41.240 --> 0:18:45.480 you see the semis run and they're getting longer, smaller amounts. 0:18:45.520 --> 0:18:48.679 So there as we say renting, they're not convicted that 0:18:48.760 --> 0:18:51.479 this has duration. Does this explains some of the tension 0:18:51.520 --> 0:18:54.119 we see between the self in debt market, which it 0:18:54.160 --> 0:18:58.000 has treasury ye, it's rolling go investors clamoring for duration 0:18:58.000 --> 0:19:00.399 because they don't believe in the global growth story. The 0:19:00.480 --> 0:19:02.760 tension between that and what we see on risk assets. 0:19:02.760 --> 0:19:05.119 Does this explain some of that? The sentiment really hasn't 0:19:05.119 --> 0:19:09.520 recovered yet, and it almost is too tight a narrative 0:19:09.560 --> 0:19:12.119 to to believe because it fits so well. It's like 0:19:12.280 --> 0:19:16.080 yields have set the highs and they're coming in because 0:19:16.240 --> 0:19:20.119 there's a defensive posture. People are not constructive on global 0:19:20.160 --> 0:19:23.000 growth right now. I want to go back to diversification 0:19:23.320 --> 0:19:25.760 because you know, you know, we have these major head funds, 0:19:26.000 --> 0:19:28.440 you know, like six guys get all the ink. I mean, 0:19:28.440 --> 0:19:30.359 that's basically the way it isn't as you know everything 0:19:30.400 --> 0:19:37.040 else out there. Is it an underdiversified asset class. Does 0:19:37.080 --> 0:19:39.640 that mean that every three years, whatever hedge fund you own, 0:19:39.760 --> 0:19:43.600 you're gonna blow up? By definition? So I would I 0:19:43.600 --> 0:19:46.040 would say that there's some people who really have a 0:19:46.119 --> 0:19:50.240 structural advantage there. They're faster there, they have a tight team, 0:19:50.320 --> 0:19:52.920 they have a through and through model where they can 0:19:53.359 --> 0:19:57.040 move faster. I think that is the case. So structurally, 0:19:57.359 --> 0:19:59.560 there's just a better teams out there. There's just that's 0:19:59.600 --> 0:20:01.960 just a I mean, take a good friend of the 0:20:02.000 --> 0:20:04.360 show and someone I did wonderful work with John Boglan, 0:20:04.440 --> 0:20:07.040 Cliff Fastness and a QR. I mean, he's doing a 0:20:07.119 --> 0:20:09.920 quant kind of thing, a factor based kind of thing, 0:20:10.320 --> 0:20:13.359 and even he struggled last year with one of his funds. 0:20:13.400 --> 0:20:17.000 It was a significant double digit loss for someone as 0:20:17.040 --> 0:20:20.000 bright as Cliff Fastness. For Mark Connor's at Credit Sweeze 0:20:20.200 --> 0:20:23.360 what does it signal when someone like Mr Aston stumbles 0:20:23.600 --> 0:20:26.360 um So without speaking about specific clients, you understand you're 0:20:26.400 --> 0:20:30.520 dead on that some factor investing quote didn't work. And 0:20:30.520 --> 0:20:33.159 and what we saw, we we called it um um 0:20:33.560 --> 0:20:36.520 a matter of trust. When things go wrong, you buy 0:20:36.520 --> 0:20:38.840 sovereign bonds when things go wrong and buy gold. Well 0:20:38.880 --> 0:20:42.480 in Q four, those things didn't work. There was something amiss, 0:20:42.680 --> 0:20:46.880 so historical price patterns didn't happen. And back to your point, 0:20:46.920 --> 0:20:50.880 John's about sovereign debt. We think that that parachute didn't 0:20:50.880 --> 0:20:52.639 open for a reason. And where I think people are 0:20:52.640 --> 0:20:54.920 still wondering why. MARCN has always great to catch oup 0:20:54.920 --> 0:20:57.320 with you again and in the window into the into 0:20:57.359 --> 0:20:58.639 the world of hedge funds, want to bring you some 0:20:58.680 --> 0:21:01.720 breaking news just very quickly. At another exit at Tesla, 0:21:02.040 --> 0:21:03.760 the stock is down by a little more than one 0:21:03.800 --> 0:21:07.320 percent in the pre market, losing its general council two 0:21:07.359 --> 0:21:13.600 months after hiring him. Tom the general council is leaving. 0:21:14.400 --> 0:21:17.080 In a statement, he looks forward to returning to Washington 0:21:17.080 --> 0:21:20.200 to continue his work with Tesla in an outside council 0:21:20.280 --> 0:21:23.320 role as in the past. People familiar with the matter 0:21:23.359 --> 0:21:27.920 said he found that Tesla wasn't the right cultural fit. 0:21:29.200 --> 0:21:31.760 That's the actual language in the headline that story, just 0:21:31.840 --> 0:21:34.520 dropping across them like you and me. We mean people 0:21:34.600 --> 0:21:38.160 understand you and me. There's no the wrong cultural fit. 0:21:39.680 --> 0:21:41.159 And then this is part of a wider story with 0:21:41.200 --> 0:21:44.360 a series of high profile exits at the company. Don't 0:21:44.760 --> 0:21:47.000 delve deep into the round of speculation. But it's the 0:21:47.000 --> 0:21:49.520 optics of this that I think signals a little bit 0:21:49.520 --> 0:21:51.920 of negativity. So the stock down by about one point 0:21:52.000 --> 0:21:55.119 three five pc. I don't think it's necessarily dramatic, just 0:21:55.160 --> 0:22:00.400 plays into a much wider story about Tesla's semically inability 0:22:00.480 --> 0:22:04.120 to keep hold of some senior names after they've hired them. 0:22:04.560 --> 0:22:08.119 So just a couple of months after hiring the general council, 0:22:08.160 --> 0:22:11.720 he leaves Tom, I'm looking at the Barns and you 0:22:11.720 --> 0:22:14.280 know you I watched the Barns, should say. This is 0:22:14.280 --> 0:22:16.479 according to the to the Wall Street Journal. So this 0:22:16.520 --> 0:22:19.119 is the Wall Street Journals reporting Headlin flow out there. 0:22:19.119 --> 0:22:22.600 And again the UBS find in France earlier as well, 0:22:22.680 --> 0:22:26.040 futures at negative three down, futures UH negative thirty three. 0:22:26.040 --> 0:22:28.680 And again I'm watching that yield. Germany now solid under 0:22:28.680 --> 0:22:32.320 point one zero point zero nine percent, John, and the 0:22:32.720 --> 0:22:35.320 Germany tenure yield. I'm looking at it a Blackpletat market, 0:22:35.359 --> 0:22:37.399 they continues to do well, the hangs staying overnight up 0:22:37.400 --> 0:22:39.840 by one percent in China, equities a little bit firmly 0:22:39.880 --> 0:22:43.119 in Japan too. In Europe they're okay stocks. The higher 0:22:43.200 --> 0:22:47.640 futures here a little saggy. And you just wonder about that, 0:22:47.680 --> 0:22:51.720 you you you wonder, uh, the way we recovered yesterday, 0:22:51.720 --> 0:22:53.640 and as you said earlier, it's a grind higher as 0:22:53.680 --> 0:22:56.199 we drift towards the Federal Reserve minutes to come out 0:22:56.240 --> 0:22:59.879 at two pm Eastern, a huge Federal Reserve retreat in Ja. 0:23:00.000 --> 0:23:03.439 And you reformalized in the statement communicated by the chairman 0:23:03.480 --> 0:23:05.080 in the news conference. And we'll get the color in 0:23:05.119 --> 0:23:06.680 the minutes a little bit la Mark Connor is the 0:23:06.720 --> 0:23:08.840 credits were still with us. I mean as you say 0:23:08.880 --> 0:23:12.720 that the hatch funds have not participated in this lift, right, 0:23:13.040 --> 0:23:17.520 what will it take for them to participate? Um? I 0:23:17.520 --> 0:23:19.680 I think that if when we get we we're through earnings, 0:23:19.680 --> 0:23:21.520 as we start to get a little bit of a 0:23:21.560 --> 0:23:25.560 window on how this this next quarter of earnings will happen, 0:23:25.760 --> 0:23:28.720