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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.

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Speaker 1: Along with my co host Lisa Bramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg p m L

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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Doug

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Speaker 1: Parker joins us now. He's American Airlines chairman and chief

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Speaker 1: executive officer, and he joins us through our Bloomberg eleven

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Speaker 1: three studios in New York. Thank you so much for

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Speaker 1: joining us, Doug. We started out talking about privatizing air

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Speaker 1: traffic control, and I would love your take. First of all,

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Speaker 1: do you support the privatization of this aspect of air

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Speaker 1: traffic uh? And also how much would it change your

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Speaker 1: business if this were to happen. Yeah, we do support it.

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Speaker 1: Um You know, priortization is a bit of a missing

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Speaker 1: umer here. We're not I can to put it into

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Speaker 1: a for profit corporation. We don't think that'd be a

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Speaker 1: good idea, but not for profit corporation that would allow

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Speaker 1: us to invest the way that UM A TC needs

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Speaker 1: to be invested in um to put in place the

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Speaker 1: kind of technology that exists around the world that we're

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Speaker 1: not using in the United States. And it's we believe

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Speaker 1: it's primarily due to the governance structure that we have

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Speaker 1: in place that requires the FA to go back every

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Speaker 1: year and look for you look for new authorization has

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Speaker 1: themselves to the whims of sequesters and things that just

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Speaker 1: doesn't that doesn't provide itself the right structure for long

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Speaker 1: term investment for a long period time. But Doug, do

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Speaker 1: you think that there would be fewer delays, that just

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Speaker 1: in general, that air travel would be easier and more

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Speaker 1: streamlined if there was a privatization of air traffic control

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Speaker 1: with things work better. Absolutely, That's why we're doing it

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Speaker 1: again that I describe the governance that allows you to invest,

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Speaker 1: we need to invest to but the technology in place

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Speaker 1: that indeed allows us to provide the level of service

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Speaker 1: we know we could would be much more efficient. You know,

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Speaker 1: it takes today to get from Dallas Fort Worth in

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Speaker 1: Philadelphia about forty when it's longer than it did just

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Speaker 1: fifteen years ago, and the airplanes are getten faster. What's

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Speaker 1: happened is the air traffic control space has gotten backed

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Speaker 1: up and Uh. There again, that shouldn't happen. It's not.

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Speaker 1: It's not because we've done anything as a country other

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Speaker 1: than that, we haven't invested in technology that keeps up

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Speaker 1: with the growth in the airlinesustry. Can you tell us

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Speaker 1: an example of an air traffic control system in the

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Speaker 1: world currently that you believe is the leader or a model. Um,

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Speaker 1: Canada is very good. Um. Indeed, indeed that's where that's

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Speaker 1: the model we're looking to replicate here. But but look,

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Speaker 1: it's not just Canada, it's all over the all over

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Speaker 1: the world. Um. There are countries doing a much better

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Speaker 1: job with technology in the United States. But Canada did

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Speaker 1: it almost exactly what we're looking to do here. They

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Speaker 1: had it as part of the government, they took it

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Speaker 1: in a not for profit corporation. UH, and the results

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Speaker 1: have been stunningly positive. Doug, how much would you in

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Speaker 1: your business be willing to pay to improve the uh,

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Speaker 1: the airports in metropolitan areas like New York and Chicago.

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Speaker 1: How much would it would it benefit your business to

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Speaker 1: have a nicer infrastructure in those cities? A lot? And

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Speaker 1: we're doing it actually, Um, you're personally investing money, Well,

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Speaker 1: we are, Yeah, our our airline, and are some other airlines.

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Speaker 1: I mean, part of the problem here is um that airlines,

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Speaker 1: when we weren't profitable, couldn't invest very well. And that's that.

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Speaker 1: And indeed how air how airports are financed is through

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Speaker 1: rents and landing fees from airlines. So UM, we've certainly

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Speaker 1: seen a lack of investment over time that needs to

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Speaker 1: be corrected. We we like other airlines, are investing billions

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Speaker 1: of dollars throughout the United States and airport infrastructure, which

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Speaker 1: we will then pay over time with higher rents and

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Speaker 1: landing fees. And we're happy to be doing that. I

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Speaker 1: just gotta think you've got a lot of things. It's

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Speaker 1: like you're the guy that's got to keep the plates

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Speaker 1: all spinning at the same time, right, whether it's security,

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Speaker 1: government agencies, landing slots, capacity, the issues, uh, fuel issues.

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Speaker 1: What's the most pressing issue for you that you'd like

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Speaker 1: to get across to individual travelers, because we I just

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Speaker 1: cited the JD Power survey that says that people buy

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Speaker 1: and large when they're asked really service, they like airlines.

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Speaker 1: It's getting better. Yeah, that that'd be That would be

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Speaker 1: the message I'd like to get across the two travelers

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Speaker 1: is look, we all know, um, you know, some high profile, hope,

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Speaker 1: high profile events in the last couple of months, UM,

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Speaker 1: have to say the least, yeah, exactly have highlighted some

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Speaker 1: customer service issues that need to be addressed. But please

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Speaker 1: don't think that's due to the to the team members

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Speaker 1: that American Airlines or the other airlines we have. We

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Speaker 1: have phenomenal people out there who who do amazing things

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Speaker 1: for our customers, who provide safe travel around the globe

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Speaker 1: that makes our country run. Uh. And they're doing it

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Speaker 1: every day, UM, in sometimes difficult circumstances. They're doing phenomenal

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Speaker 1: jobs and all they want to do is have the

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Speaker 1: tools they need to take care of customers to extend

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Speaker 1: their customer service issues. That's because we the airlines that

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Speaker 1: put those people in difficult circumstances and that's for us

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Speaker 1: to fix. UM. But you know, in this world where

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Speaker 1: people are trying to you know, figure out how to

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Speaker 1: be the next viral video by filming someone doing something

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Speaker 1: on an airpoint, UM, that that doesn't disservice to our

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Speaker 1: team who is really out there doing great stuff all

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Speaker 1: the time. We're extremely proud of them, and that what

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Speaker 1: they're doing. We as airlines, uh, need to make sure

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Speaker 1: we put in place policies and procedures that don't put

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Speaker 1: them in difficult positions, but indeed rather to give them

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Speaker 1: the tools they need to do the jobs they know

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Speaker 1: how to do so well. So JUG, I'm looking right

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Speaker 1: now at crude oil at a little bit more than

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Speaker 1: forty four dollars barrel, and I'm wondering how much does

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Speaker 1: it increase the profitability of American airlines if oil prices

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Speaker 1: were to stay at this level for say another year

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Speaker 1: or two. Yeah, look, of course it helps. It's our

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Speaker 1: second largest expense behind behind employee costs. So um, a

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Speaker 1: drop in oil prices tends to you know, obviously falls

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Speaker 1: to the bottom line in terms of expenses in today's

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Speaker 1: In today's world, though we we we seem much of

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Speaker 1: that go to the consumer, uh, much of not all,

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Speaker 1: certainly in the longer term, because what happens as as

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Speaker 1: we've seen recently. You know, someone pointed out to me

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Speaker 1: the other day that inflation is one of the primary

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Speaker 1: reasons inflation is as low as it is in the

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Speaker 1: United States because air fares have fallen so much. Well,

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Speaker 1: air fairs have fallen so much because fuel prices have fallen,

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Speaker 1: and when fuel prices fall, capacity comes in in nexcess

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Speaker 1: demand and ferris fall. So, um, we get a benefit,

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Speaker 1: there's no doubt about it, but much of that benefit

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Speaker 1: of cruised to consumers. All Right, I'm gonna give you

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Speaker 1: it's almost like a game a game show here, duck

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Speaker 1: be because I'm gonna give you the names of some

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Speaker 1: of your hubs and I just want you to give

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Speaker 1: me like two words each of three words each to

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Speaker 1: describe what's going on and what's the most pressing issue.

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Speaker 1: Let's start with Looguardia the Guardians. Guardians an infrastructure issue. Um,

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Speaker 1: we need we need to improve the airport. We also

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Speaker 1: need to improve the airspace ATC performance help then all right,

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Speaker 1: so that's look, Guardia, tell me what's going on in Miami.

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Speaker 1: Miami great international hub for American airlines, struggling somewhat because

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Speaker 1: of the economies, um in Latin America and South America,

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Speaker 1: but they're rebounding nights. They were very encouraged. Can I

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Speaker 1: can I interrupt the quiz? I'd love to get this.

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Speaker 1: I'm are I was going to get the but a second,

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Speaker 1: but I want to get to it. To sort of

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Speaker 1: the immigration and the whole concept of uh, the travel

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Speaker 1: ban or the travel restrictions that are still being fought

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Speaker 1: uh in courts. I'm just wondering, you know, all of

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Speaker 1: this talk about limiting immigration has that affected international travel?

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Speaker 1: It are you seeing declines as a result of that

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Speaker 1: to the US? You know, we haven't, not that we

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Speaker 1: can see. You know. The fact of the matter is

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Speaker 1: we don't. We don't. American doesn't fly to any of

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Speaker 1: the countries that would be affected by the proposed ban. Um,

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Speaker 1: so we haven't. We haven't seen anything that we can

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Speaker 1: tell anyway, h that is that is affecting demand for

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Speaker 1: air travel. But we certainly um, you know, but what

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Speaker 1: we know is, um, you know, our business is all

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Speaker 1: about being global and being inclusive and connecting the world,

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Speaker 1: not not shutting down the world. So UM, we're we're

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Speaker 1: always uh. We would prefer to see a world where

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Speaker 1: it's easier to fly, not harder. I was gonna just

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Speaker 1: ask you you don't want to do the quiz to

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Speaker 1: I was worried about some where you're up No, no, no,

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Speaker 1: Well you want to about our nation's capital. I mean,

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Speaker 1: would they benefit from a new air traffic control system. Absolutely. Yeah,

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Speaker 1: there's there's a huge adclis in and out of DC. Yeah.

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Speaker 1: All right. I want to thank you very much for

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Speaker 1: spending time with us. I guess you could just send

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Speaker 1: Doug an email when you know next time you're on

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Speaker 1: the tar Max. Also also person, listen, don't worry Doug time.

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Speaker 1: Let's see all right, Doug Parker, thank you, American Airlines

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Speaker 1: Chairman and chief executive. We are here broadcasting live from

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Speaker 1: Pershing's Insight Conference at the Manchester Grand Hide in San Diego,

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Speaker 1: and David Masa walked by David Mazes, head of Beta Solutions,

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Speaker 1: Investment marketing and E t F specialists at Oppenheimer Funds

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Speaker 1: US joined from State Street. Uh, David, it's so good

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Speaker 1: to have you. And you know, I'm struck by the

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Speaker 1: shift that's going on in the e t F and

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Speaker 1: the exchange traded fund industry right now. Moving from broad

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Speaker 1: indexed funds, an easy cheap way to get access to

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Speaker 1: stocks and bonds, moving now to I guess index that

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Speaker 1: have perhaps a little bit of higher fees and somewhat

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Speaker 1: a little bit more complicated strategies. What's the risk here

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Speaker 1: that you know in some ways there's a sort of

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Speaker 1: uh vasterization of the sort of beauty of what the

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Speaker 1: e t F industry was. You're touching on one of

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Speaker 1: the most important trends that we're seeing in the et

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Speaker 1: F industry, where there's now seven eighty five billion of

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Speaker 1: assets and management in what are called smart beta strategies.

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Speaker 1: And that's a term that nobody likes, but effectively, what

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Speaker 1: it tells you is that it takes index like characteristics,

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Speaker 1: so that's transparency, rules based and generally low cost, but

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Speaker 1: combines it with some of the elements that active managers

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Speaker 1: have used for years. So and that's of course potentially

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Speaker 1: looking at outperforming index maybe have lower volatility or increased diversification.

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Speaker 1: So I just wanted to ask, can you just explain

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Speaker 1: how they end up being categorized, in other words, in

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Speaker 1: these portfolios if you have, as you describe both the

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Speaker 1: best of both worlds to a certain extent, what the

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Speaker 1: give us an example of the roles of each Yeah, exactly,

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Speaker 1: so effectively, managers of course have been value managers for

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Speaker 1: a long time, right or growth managers. So these are

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Speaker 1: individuals who have used a team of analysts or their

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Speaker 1: own expertise to say I'm gonna look for the cheapest

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Speaker 1: stocks in the universe, or I'm gonna look for stocks

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Speaker 1: without best growth potential. But guess what, you can actually

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Speaker 1: create rules around these strategies. So let me screen a

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Speaker 1: universe for the least expensive stocks, or screen a universe

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Speaker 1: for stocks with the best momentum or the best quality.

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Speaker 1: And that's really the beauty of it. You take um

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Speaker 1: this evidence that have existed, these premiums that are out there.

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Speaker 1: So those are things like stocks that are inexp sensibly

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Speaker 1: valued tend to perform well. Those are stocks with strong momentum,

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Speaker 1: tend to continue to have strong momentum, and you just

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Speaker 1: you create rules around them, and you can then package

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Speaker 1: those as strategies for investors to use in their portfolio

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Speaker 1: alongside maybe a traditional index fund. But data, they are

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Speaker 1: usually higher costs, right, yes, so you tend to have

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Speaker 1: to pay a little bit of a premium. But for example,

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Speaker 1: uh you know, e t s of course have actually

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Speaker 1: pushed down the price effectively for all um strategies that

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Speaker 1: we're seeing actually active management go lower. And generally when

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Speaker 1: we're thinking about smart data, these are an average about

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Speaker 1: twenty five basis points to fifty so net net that's

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Speaker 1: actually still pretty attractive. You know. I'm wondering is this product,

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Speaker 1: the smart beta. Is it being driven by the asset

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Speaker 1: managers looking to pitch something to the investors, or is

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Speaker 1: this coming from investors demanding a little bit more NUANCEDTF

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Speaker 1: So I actually think it's coming from both areas. So

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Speaker 1: certainly asset managers are looking to take their strategies that

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Speaker 1: they've used, packaged them differently, and and for them as products.

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Speaker 1: But if we look at the demand for this, it's

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Speaker 1: really coming from clients. We're seeing people who are skeptical,

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Speaker 1: of course, of active management and saying, hey, we've had

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Speaker 1: ten years. Every year comes out, this is your active

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Speaker 1: especially in the US market's gonna return and guess what,

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Speaker 1: we haven't really seen that. But some folks, some investors

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Speaker 1: want the potential to outperform and if I can do

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Speaker 1: so not paying a hundred basis points so a percent,

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Speaker 1: but I can potentially do so at five that's where

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Speaker 1: they see the beauty of it. So a recent survey

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Speaker 1: came out where cost used to not be a main

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Speaker 1: driver of actual why you'd invest in smart beta. So

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Speaker 1: this is looking at four years of data and now

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Speaker 1: this year. Actually it's one of the top concerns that

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Speaker 1: investors had. So in an environment where returns are hard

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Speaker 1: to come by when economic growth is low, when other

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Speaker 1: than the stock market potentially continuing to go up all

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Speaker 1: the time, but seemingly the risk is that it that

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Speaker 1: will stop at some point. Investors are very of course,

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Speaker 1: cognizant of what they're paying to get those returns. You know,

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Speaker 1: in the presenting this, I'm wondering if being using the

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Speaker 1: idea of smart beta is at this point in the

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Speaker 1: life cycle of these kinds of products, almost a misnomer

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Speaker 1: because it's not about smart beta, it's about having these

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Speaker 1: specific strategies that you can execute. Yeah, I think you're right.

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Speaker 1: That's why I mentioned earlier that nobody likes his term,

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Speaker 1: but that's what the market's coalesced around. Really, what you're right,

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Speaker 1: it's about I think about the outcome, right, there's no

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Speaker 1: one strategy that's going to be best for anyone, uh,

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Speaker 1: whether or not that's cap weighted passive that you can

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Speaker 1: get it very low cost or active management, and of

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Speaker 1: course smart betafits of the intersection. It's what are we

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Speaker 1: looking to get out of my particular outcome? Am I

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Speaker 1: looking to get a strategy that seeks inexpensively priced stocks,

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Speaker 1: but maybe they also have quite high quality learnings. If

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Speaker 1: I can do that systematically package at and generally low cost,

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Speaker 1: that's a great benefit for invest because typically you would

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Speaker 1: have to engage a very sophisticated organization that would charge

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Speaker 1: you a very sophisticated fee, and that's the only way

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Speaker 1: you'd be able to access that strategy. Exactly. Can you

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Speaker 1: give us a sense of how strong the adoption of

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Speaker 1: smart beta, however much people dislike the and what they're

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Speaker 1: and what they're adopting. I wonder what strategy they're all

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Speaker 1: going for? How how how how big have the flow

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Speaker 1: has been? How much is it run? Yeah? So total

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Speaker 1: assets anw or close to seven five billion dollars if

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Speaker 1: which so that that's significant from what from effectively nothing

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Speaker 1: a few years ago. Uh, and so it's grown rapidly

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Speaker 1: and and and the categories that have grown the most,

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Speaker 1: of course, which would be consistent to the market environment,

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Speaker 1: are strategies focused on low volatility stocks. And of course

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Speaker 1: there's been a lot of attention paid to this. There's

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Speaker 1: work well, I mean, do they deliver on the promise

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Speaker 1: if you're going to buy a lots been nowhere, so

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Speaker 1: it doesn't really matter what you buy. Ltility hasn't anywhere.

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Speaker 1: Everything's love altility, well, it does exactly, So you have

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Speaker 1: to be when investing in these strategies. You have to

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Speaker 1: know what you own and think about how long you

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Speaker 1: want to own it. So low Altility is a good example.

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Speaker 1: It had done significantly well uh in the last last

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Speaker 1: year up until the summer, and the money float into

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Speaker 1: the strategies, but those stocks got increasingly more expensive, and

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Speaker 1: then if you look at the performance post July to

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Speaker 1: the end of the year, they underperformed. So I recommend

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Speaker 1: you look at these strategies, use them, but don't chase

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Speaker 1: performance with them. If you want low volatility, you should

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Speaker 1: probably own that for ten years because I want to

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Speaker 1: smoother ride. That's a good thing. Smart data just with

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Speaker 1: equities or is it another asset classes? So so smart

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Speaker 1: beta is primarily with equities right now, but all of

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Speaker 1: these things can actually be done for other asset classes.

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Speaker 1: So fixed incomes a great example, and we're just seeing

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Speaker 1: products being launched here. Is that there are some anomalies

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Speaker 1: that exist in the fixed income market that managers have

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Speaker 1: used for years. Carry right. Of course, you get paid

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Speaker 1: to own higher yielding parts of the bottom market term premium.

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Speaker 1: You can create rules around all of this, the challenges

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Speaker 1: the data is a lot harder to come by in

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Speaker 1: the bottom market than it is in equities. Wow, so

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Speaker 1: there's gonna be a carry trade smart beta ETF some

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Speaker 1: time in the future. I can't I can't tell you

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Speaker 1: if that's going to happen or not. But I can

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Speaker 1: tell you is that there's a lot of work being

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Speaker 1: done to identify if it can. I do have to

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Speaker 1: wonder whether e t F providers are a little bit

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Speaker 1: nervous that they're gonna throw the baby out with the bathwater,

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Speaker 1: because as ETFs get more complicated, there's more risk involved

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Speaker 1: as well, and there's more potential for a potential sinkhole

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Speaker 1: that investors will will be sort of shaken out of

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Speaker 1: their their love for e t S that's in that sinkhole.

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Speaker 1: That's a great point. That's that's so that's what we

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Speaker 1: have to be cognizittive. Is that you know, I'm a

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Speaker 1: I'm a huge believer of e t F s. I've

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Speaker 1: committed my career to it, if you will. But when

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Speaker 1: we're looking to launch these new products and to the

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Speaker 1: research around them. You have to be cognizant that you

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Speaker 1: can create a rule around something, but it has to

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Speaker 1: be a rule that's formidable and that actually works in

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Speaker 1: a multitude of markets. So when we're just testing it,

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Speaker 1: we're not just throwing the proverbial spaghetti against the wall.

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Speaker 1: We're saying, hey, does this work if I look at

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Speaker 1: this ten year period or this twenty year period, thirty

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Speaker 1: year period. Doesn't work in the US, does it work

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Speaker 1: in emerging markets? Does it work in the United Kingdom?

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Speaker 1: And if all of that comes to first and you

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Speaker 1: can say, all right, there's actually something here, there's actually

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Speaker 1: something that works, and then we can make an investment product.

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Speaker 1: All right, I'm gonna give you fifteen seconds. Is there

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Speaker 1: a filter that you can apply to all these e

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Speaker 1: t f s about what happens to them if interest

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Speaker 1: rates increase? Well, that's that's the great question, right I'll

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Speaker 1: I'll tell you if if we see interest rates increase,

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Speaker 1: you're gonna want to be looking at if you've bought

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Speaker 1: these low volatility e t s or divided ets for example,

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Speaker 1: some of them have a lot of concentration in these

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Speaker 1: bond like stocks, utilities, consumer staples, So be cognizant of that.

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Speaker 1: I'm not saying that that means you should sell them,

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Speaker 1: because who knows. If interest rates are going to go up,

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Speaker 1: these predictions are now going to go down again, and

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Speaker 1: you know what, maybe more money will flow into those products.

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Speaker 1: The area that's of course been out of favor is

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Speaker 1: value UH and what we've seen in the last couple

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Speaker 1: of days may change that, but who knows. We saw

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Speaker 1: that of course after the election in the US. I

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Speaker 1: want to thank you very much for joining us. David

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Speaker 1: Masa is head of Beta Solutions, investment marketing and E

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Speaker 1: t F Specialists for Oppenheimer Funds. Joins us here at

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Speaker 1: Pershing's Inside at the Manchester Grand Hyatt in San Diego.

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Speaker 1: We are broadcasting live from Pershing's Inside conference at the

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Speaker 1: Manchester Grant Hyatt in San Diego. And there is a

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Speaker 1: big debate raging in the bond world right now. It

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Speaker 1: is the perhaps fifth year of this debate, which is

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Speaker 1: our interest rates headed upwards or are they headed downwards?

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Speaker 1: And I'm when I say interest rates, I mean benchmark rates,

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Speaker 1: I mean the ten year treasury yield, the thirty year

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Speaker 1: treasury yielding. With us UH. To solve this all for

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Speaker 1: us and make it all clear. Marvin Low, senior global

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Speaker 1: market strategist at BNY Melon joins us here in Santiago

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Speaker 1: and Marvin, where do you stand on this? Because we

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Speaker 1: have some people saying, look, you know, yields will creep

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Speaker 1: upward heading into the year, and people like Jeff Gunlock

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Speaker 1: of Double Line, and then you have other people saying, no,

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Speaker 1: nothing is different. People have overestimated growth. We see this

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Speaker 1: by the shrinking yield curve and yield are going to

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Speaker 1: go down. Yeah, you know it certainly is a big

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Speaker 1: de bait right now. Um. You know, I think the

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Speaker 1: Fed has expressed its resolved that they want to increase rates. Um.

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Speaker 1: There certainly are economic concerns around inflation, around those growth numbers.

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Speaker 1: But you know, we have to remember that we're looking

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Speaker 1: at trying to get healed into this new normal type

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Speaker 1: of world. And when we have this new normal type

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Speaker 1: of world, I think that we're going to creep up slightly, um, slowly,

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Speaker 1: but you know, certainly not um the big jumps that

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Speaker 1: I think a lot of people expected after the election.

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Speaker 1: If you will, so where is where are we going

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Speaker 1: to end a year? But the tenure, you know, I'll

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Speaker 1: put my dart board and say about to fifty or

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Speaker 1: so to Marvin, A pleasure to see you. Uh. We uh,

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Speaker 1: we run into each other at these kinds, at these

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Speaker 1: events on a regular basis, regular basis. I'm wondering if

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Speaker 1: you could maybe characterize what you have, let's say, over

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Speaker 1: the past twelve months, and uh, what that may portend

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Speaker 1: for actual you know, investors who have to make a

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Speaker 1: decision about what to do with some money, let's say

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Speaker 1: over the next quarter. Yeah, you know, the last twelve

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Speaker 1: ones certainly have been UM interesting from the perspective of

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Speaker 1: investors needing to deal with UM things that don't necessarily

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Speaker 1: get modeled very easily into you know, all of our spreadsheets. UM.

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Speaker 1: By that, you know, I primarily think about political risk

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Speaker 1: and the confusion that it causes in when I see

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Speaker 1: UM the reflation trade effectively, you know, move these asset

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Speaker 1: classes by large amounts and then slowly creep back. It

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Speaker 1: just really shows how difficult it is to UM put

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Speaker 1: that into an economic growth perspective. UM. We certainly are

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Speaker 1: dealing with asset values around the world that are very

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Speaker 1: very rich. UM. I think that's you know, pretty universal,

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Speaker 1: if you will, UM risk assets certainly have done, done

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Speaker 1: its run, I think, Um, the announcer earlier said the

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Speaker 1: NASDAC was on, you know, the longest multi decade run

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Speaker 1: starting at already a fairly high point um. So investors

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Speaker 1: really need to keep that in perspective. And we kind

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Speaker 1: of have this volatility, but it always comes and then

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Speaker 1: goes really really quickly. You know, Marvin, you said that

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Speaker 1: you think that the ten year treasure yield is gonna

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Speaker 1: end at two and a half percent, is currently almost

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Speaker 1: less than two point two percent two point six roughly.

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Speaker 1: I'm wondering what will it take for people to sell bonds?

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Speaker 1: If you think about it. We were talking earlier about

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Speaker 1: how big US companies just had their best earnings quarter

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Speaker 1: for five years. We've already seen that, and a lot

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Speaker 1: of people are expecting that the best news is behind us.

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Speaker 1: The economic data is a weakening. What will it take

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Speaker 1: for for treasure yields to to really rise? You know, Um,

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Speaker 1: what's what's driven yields lower and what's kind of driven

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Speaker 1: the commentary now with the flatter curve maybe looking at

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Speaker 1: some of the recession numbers, is inflation, and it, you know,

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Speaker 1: certainly is always a big component of how you price

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Speaker 1: a bond, and I would just take the contra argument

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Speaker 1: that nobody expects inflation, so we're supposed to look at

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Speaker 1: it a little bit more closely. UM. I've been certainly

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Speaker 1: noodling the concept that populism, which is I think a

429
00:22:16,160 --> 00:22:19,239
Speaker 1: trend that's here to stay, has inflationary components to it.

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00:22:19,600 --> 00:22:21,920
Speaker 1: When we look at France and we kind of look at, um,

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00:22:21,920 --> 00:22:24,920
Speaker 1: how the vote arose, there were still ten million people

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00:22:25,320 --> 00:22:28,320
Speaker 1: that felt this populism type of movement. That's something that

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00:22:28,359 --> 00:22:31,199
Speaker 1: politicians aren't going to, um, just turn their back on.

434
00:22:31,280 --> 00:22:33,040
Speaker 1: They want to make sure that they bring these people

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00:22:33,040 --> 00:22:35,720
Speaker 1: in the fold. And is wage pressure is kind of

436
00:22:35,840 --> 00:22:39,679
Speaker 1: pressure on greater social services part of that response, and

437
00:22:39,720 --> 00:22:42,800
Speaker 1: does that have an inflationary component? Also have to remember that,

438
00:22:42,880 --> 00:22:44,800
Speaker 1: you know, several of the FED members think that the

439
00:22:44,840 --> 00:22:47,680
Speaker 1: unemployment rate is going to go below four percent within

440
00:22:47,720 --> 00:22:52,560
Speaker 1: the next year. UM. You know, maybe maybe there's certain

441
00:22:52,680 --> 00:22:55,639
Speaker 1: certain questions about what or not the Phillips curve is accurate,

442
00:22:55,840 --> 00:22:58,359
Speaker 1: but that Phillips curve is, by the way, the idea

443
00:22:58,400 --> 00:23:01,600
Speaker 1: that there's an inverse relationship with unemployment rate and inflation. Right, yes,

444
00:23:01,680 --> 00:23:04,119
Speaker 1: thank you, thank you, thank you. UM, if we if we,

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00:23:04,200 --> 00:23:06,280
Speaker 1: if we don't if we don't start seeing wage pressure

446
00:23:06,280 --> 00:23:09,200
Speaker 1: when unemployment gets below three percent, I guess we'll revisit

447
00:23:09,200 --> 00:23:11,479
Speaker 1: the concept of the Phillips curve. You know, having said that,

448
00:23:11,520 --> 00:23:16,240
Speaker 1: the FED has a multi decade um focus obsession about

449
00:23:16,240 --> 00:23:18,879
Speaker 1: the unemployment rate, so they're going to continue along that route.

450
00:23:19,520 --> 00:23:22,080
Speaker 1: So does that mean that there are like parallel strategies

451
00:23:22,119 --> 00:23:25,080
Speaker 1: at work here that may actually be contradictory at the

452
00:23:25,119 --> 00:23:29,760
Speaker 1: same time, Well, you know, UM volatility is really an

453
00:23:29,840 --> 00:23:33,080
Speaker 1: interesting aspect of kind of that UM very easy and

454
00:23:33,200 --> 00:23:36,840
Speaker 1: ultimately very difficult question to answer. UM. As long as

455
00:23:36,920 --> 00:23:40,560
Speaker 1: volatility remains low, it's certainly UM is going to push

456
00:23:40,640 --> 00:23:42,600
Speaker 1: kind of this risk asset trade that's out there. And

457
00:23:42,600 --> 00:23:44,639
Speaker 1: while we've got a couple of days of altility, you know,

458
00:23:44,680 --> 00:23:46,280
Speaker 1: we have to remember that over the course of the

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00:23:46,320 --> 00:23:48,720
Speaker 1: last six months, you know, since the beginning there, however

460
00:23:48,800 --> 00:23:50,800
Speaker 1: you want to look at it, these risk assets are

461
00:23:50,840 --> 00:23:54,240
Speaker 1: still outperforming by a very large margin. UM. It's probably

462
00:23:54,240 --> 00:23:56,399
Speaker 1: an opportunity to look at para trades. It's probably an

463
00:23:56,400 --> 00:23:59,400
Speaker 1: opportunity to look at UM curve flattening type trades. UM.

464
00:23:59,440 --> 00:24:02,360
Speaker 1: It seems like you would be able to balance various

465
00:24:02,480 --> 00:24:05,880
Speaker 1: risk calls with maybe some other calls that would give

466
00:24:05,880 --> 00:24:08,440
Speaker 1: you a little bit of protection. It's hard to see

467
00:24:08,520 --> 00:24:10,760
Speaker 1: just an outright by kind of given where valuations have

468
00:24:10,840 --> 00:24:12,720
Speaker 1: moved over the last six months or so. What about

469
00:24:12,760 --> 00:24:15,800
Speaker 1: cash do you recommend people boost their cash allocations? Um?

470
00:24:15,920 --> 00:24:17,600
Speaker 1: You know, I think powder is always I think powder

471
00:24:17,640 --> 00:24:20,800
Speaker 1: is always good. Um, you know, certainly you know, waiting

472
00:24:20,920 --> 00:24:23,439
Speaker 1: for a little bit of a correction, But you know,

473
00:24:23,680 --> 00:24:27,760
Speaker 1: I kind of really look at the amount of liquidity

474
00:24:27,760 --> 00:24:29,959
Speaker 1: that's still coming out of the central banks as keeping

475
00:24:30,160 --> 00:24:32,679
Speaker 1: that volatility attempt. Do you think that the Bank of

476
00:24:32,720 --> 00:24:35,040
Speaker 1: Japan and the European Central Bank and the fact that

477
00:24:35,040 --> 00:24:37,480
Speaker 1: they've purchased more than a trillion dollars of assets in

478
00:24:37,480 --> 00:24:41,159
Speaker 1: the past twelve months, It is just stunning. And you know,

479
00:24:41,240 --> 00:24:43,359
Speaker 1: do you think that this basically makes the FED or

480
00:24:43,400 --> 00:24:45,240
Speaker 1: relevant at this point? Is it really all about the

481
00:24:45,240 --> 00:24:47,960
Speaker 1: b O J and the e c B until we

482
00:24:48,080 --> 00:24:52,359
Speaker 1: get um an actual decrease in the amount of liquidity

483
00:24:52,400 --> 00:24:55,080
Speaker 1: that you're adding into the system. I think that it is.

484
00:24:55,240 --> 00:24:58,600
Speaker 1: I think that there's a lot of insight into that statement.

485
00:24:58,920 --> 00:25:01,720
Speaker 1: We've had years, multi years at this point where we've

486
00:25:01,760 --> 00:25:04,960
Speaker 1: been adding half a trillion a trillion over a trillion,

487
00:25:05,000 --> 00:25:07,320
Speaker 1: Like you said, um coming into the system. Even though

488
00:25:07,320 --> 00:25:11,120
Speaker 1: the FED hasn't purchased single security in years. Next year,

489
00:25:11,200 --> 00:25:13,960
Speaker 1: the Fed's going to start taking liquidity out. Next year,

490
00:25:14,280 --> 00:25:16,320
Speaker 1: the e c B is not going to be buying

491
00:25:16,359 --> 00:25:18,480
Speaker 1: as much as it buys now. Next year, the Bank

492
00:25:18,520 --> 00:25:21,840
Speaker 1: of Japan is probably not going to increase its purchases.

493
00:25:21,840 --> 00:25:24,240
Speaker 1: When you look at that on a year over year basis,

494
00:25:24,240 --> 00:25:27,040
Speaker 1: you're looking at a five hundred to six seven billion

495
00:25:27,040 --> 00:25:31,960
Speaker 1: dollar contractional liquidity. That to me is an underappreciated aspect

496
00:25:32,000 --> 00:25:34,399
Speaker 1: of kind of the thought process. Having said that, the

497
00:25:34,400 --> 00:25:36,680
Speaker 1: market is not focused on it right now. Volatility I

498
00:25:37,200 --> 00:25:39,000
Speaker 1: you know, I feel that vaulatility is going to remain

499
00:25:39,040 --> 00:25:41,880
Speaker 1: low until um, you actually have that occurring and people

500
00:25:41,920 --> 00:25:44,480
Speaker 1: start to focus on it. Well, that's certainly something that

501
00:25:44,480 --> 00:25:46,280
Speaker 1: we're going to be turning to you to help us

502
00:25:46,359 --> 00:25:50,080
Speaker 1: understand when that happens. When much appreciated. Marvin Lowe is

503
00:25:50,119 --> 00:25:52,679
Speaker 1: Senior Global Market Strategies for b N Y Melon and

504
00:25:52,720 --> 00:25:57,720
Speaker 1: he joins us here at the Persian Inside in San Diego.

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00:26:00,320 --> 00:26:02,840
Speaker 1: Thanks for listening to the Bloomberg P and L podcast.

506
00:26:03,200 --> 00:26:07,080
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,

507
00:26:07,200 --> 00:26:10,680
Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm

508
00:26:10,720 --> 00:26:14,240
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa

509
00:26:14,280 --> 00:26:17,439
Speaker 1: Abramoids One before the podcast, you can always catch us

510
00:26:17,480 --> 00:26:19,040
Speaker 1: worldwide on Bloomberg Radio