Speaker 1: Hi, and welcome to What Goes Up, a weekly markets
Speaker 1: podcast umbled on a higher across hasset reporter at Bloomberg,
Speaker 1: and I'm Katie Greifeld filling in for Mike Reagan. I
Speaker 1: am also across asset reporter at Bloomberg. I'm also the
Speaker 1: co anchor of Quick Take Stock. It is a daily
Speaker 1: market show for Bloomberg Quick Take, and this week on
Speaker 1: the show, Thanksgiving is around the corner in Wall Street
Speaker 1: is looking back on the stellar year while also trying
Speaker 1: to predict what two might bring. Everyone's still contending with
Speaker 1: lots of things, including hotter than expected inflation, bubble talk,
Speaker 1: and projections that the portfolio is dead. We're going to
Speaker 1: get into all of that with our guest, the head
Speaker 1: of global multi assets at a major investment firm. But first, Katie,
Speaker 1: I wanted to welcome you to the show. Mike's out
Speaker 1: this week and that it's actually really perfect because you
Speaker 1: and I have a lot to talk about. We've been
Speaker 1: hanging out recently, most notably at some football games. And
Speaker 1: then just a reminder from me and you, Mike said
Speaker 1: that we must make a joke on this week's podcast. Listen.
Speaker 1: I don't have jokes I have nothing but facts. I've
Speaker 1: learned a lot about football, in particular in the last week.
Speaker 1: I've heard a lot about Josh Allen. Apparently he's really good.
Speaker 1: I've learned that in trouble you throw to Digs, He'll
Speaker 1: get it done. On the Jets, though, Mike White, I mean,
Speaker 1: next Tom Brady, I don't know. I don't think so
Speaker 1: for all of our listeners. Katie and I went to
Speaker 1: the Bills and Jets game this past weekend and we
Speaker 1: had the best time. And Katie heard a lot of
Speaker 1: really amazing catchphrases that she was using throughout the game,
Speaker 1: and I think it worked out. I think so. I
Speaker 1: mean I was soliciting cool catchphrases I could sprinkle into conversation. Um,
Speaker 1: the Bills, they had a pretty rough game the weekend before,
Speaker 1: so they really needed to come out with their hair
Speaker 1: on fire. With their hair on fire, that's right. They delivered.
Speaker 1: They delivered two touchdowns. And this is now a sports podcast,
Speaker 1: by the way, this is everybody who's tuning in for
Speaker 1: for a commentary on the stock market. You can you
Speaker 1: can delete now, well we can. We can ask our
Speaker 1: guests this week about football as well. Possibly, but let's
Speaker 1: bring in Sebastian Page, who's the head of Global Multi
Speaker 1: Asset at TRO Price and he's also the author of
Speaker 1: a new book called Beyond Diversification, which will also discuss
Speaker 1: on the podcast today. Sebastian, welcome to the show. Thank you,
Speaker 1: Vildana and Katie. Thank you for having me. Really happy
Speaker 1: to participate today. Are you a football fan? Yeah, I'm
Speaker 1: in Baltimore, Maryland, so it's the Ravens for me. Oh
Speaker 1: go Bills all the way. And I don't have any
Speaker 1: fun facts about the Ravens. Unfortunately, you'll have to let
Speaker 1: her know ahead of time next time. But Sebastian, I
Speaker 1: always hope you could help set things up for us
Speaker 1: and just give us a little bit more about your
Speaker 1: role at tro and what your strategy looks like right now. Yeah,
Speaker 1: thank you. You know my role at THRO I like
Speaker 1: to say it's the perfect job for me. I absolutely
Speaker 1: love it. I'm running a large global investment organization, in
Speaker 1: this case over four hundred and fifty billion in a
Speaker 1: u M and we oversee over two D and twenty portfolios.
Speaker 1: And by the way, we have the number one actively
Speaker 1: managed retirement product in terms of assets under management and performance.
Speaker 1: The job will Danna involves not only investment oversight, so
Speaker 1: you know, staying on top of capital markets, consuming vast
Speaker 1: amounts of research from Bloomberg of course, and so on.
Speaker 1: But I also run the business, which means setting a
Speaker 1: strategic vision, making sure it's executed well, importantly, recruiting, developing talent,
Speaker 1: managing large product development projects. I'm also a member of
Speaker 1: the firm's management committee, which means I'm representing the division
Speaker 1: at the firm wide level, and I helped manage the firm.
Speaker 1: And by the way, at tour Price, we have one
Speaker 1: point six trillion in assets under management over seven thousand,
Speaker 1: eight hundred employees in sixteen countries. You know, we have
Speaker 1: a good brand, but we also have this ethos of
Speaker 1: keeping our heads down and focusing on investment performance. So
Speaker 1: for some people and maybe some people in our audience today,
Speaker 1: sometimes we're like the biggest asset manager they've never heard of.
Speaker 1: Bottom line is the job is broad. I learned something
Speaker 1: every day. There are investment challenges and leadership challenges. So
Speaker 1: if you follow me on LinkedIn, by the way, I
Speaker 1: realized I'm starting to sound like an influencer. I only
Speaker 1: have LinkedIn. I don't have Twitter, or anything else. But
Speaker 1: you'll see that I started was posting on capital markets,
Speaker 1: of course, but I started posting short articles on psychology
Speaker 1: and leadership as well because that's a part of my job.
Speaker 1: So sorry for the LinkedIn plug. I'm just starting to
Speaker 1: get a few followers and trying. We're trying to ramp
Speaker 1: up our digital brand as a firm. But yeah, the
Speaker 1: bottom line is it's a broad job. It's a leadership
Speaker 1: and an investment job. Sebastian, We've got to get you
Speaker 1: on Twitter. It's where all the action is. You would
Speaker 1: fit right in at fin Twitter. But we are in
Speaker 1: the special time of year where we have about six
Speaker 1: weeks to go until two and as such, we're starting
Speaker 1: to see a lot of your head outlooks trickle out,
Speaker 1: and I'm curious to hear your view on what we're
Speaker 1: heading into next year, because I mean, just we're still
Speaker 1: waiting on tenter hooks to see who Biden's FED nominee
Speaker 1: will be. For example, we know that inflation is at
Speaker 1: level we haven't seen in decades. Curious how you're taking
Speaker 1: all these different inputs and seeing how the year head
Speaker 1: might look Katie. A simple question right now that's on
Speaker 1: everyone's mind is our stocks in the bubble? And it's
Speaker 1: really a complicated question. They're both and this is gonna
Speaker 1: sound unusual, but I can make the statement that at
Speaker 1: the same time that stocks are both as expensive as
Speaker 1: they've ever been and as cheap as they've ever been.
Speaker 1: So how do I get to that statement? If I
Speaker 1: look at the price earnings ratio on the stock market
Speaker 1: on the S and P five, it's in the person
Speaker 1: tile compared to the last thirty years. Maybe it got
Speaker 1: more expensive around the tech bubble, but pretty much close
Speaker 1: to as expensive as they've ever been. But if you
Speaker 1: think stocks are expensive, have you looked at bonds recently?
Speaker 1: And if you compare the evaluation of stocks that PE ratio,
Speaker 1: and you can invert it and look at the yield,
Speaker 1: which makes an easier comparison with bond yields and in
Speaker 1: particular real rates, the yield you get on bonds after inflation.
Speaker 1: Then you get to the conclusion that it's it's in
Speaker 1: the bottom one. So stocks are as cheap as they've
Speaker 1: ever been. So it's a confusing time for asset allocators.
Speaker 1: We just had a debate between the bulls and the
Speaker 1: bears in our asset Allocation Committee. So as we look
Speaker 1: into the bears are arguing that we've borrowed from the recovery.
Speaker 1: In other words, valuations are a sign of that. And
Speaker 1: monetary and fiscal policy have been so extreme that one
Speaker 1: of our committee members said, look, every inch of recovery
Speaker 1: will get taken away by the Feds. Need to taper.
Speaker 1: And on the fiscal side, we're kind of at the
Speaker 1: end of the day is of sending checks to people.
Speaker 1: One reason to worry about asset valuations is that it's
Speaker 1: been liquidity driven. I listened to your podcast. I'm a fan,
Speaker 1: by the way, I listened to it every weekend. Um.
Speaker 1: I listened to your Weirdest Things in Market in markets,
Speaker 1: so you see the speculation there when you hear your
Speaker 1: comments about the weirdest things in market. Right, you mentioned
Speaker 1: at one time that someone bought the jpeg and n
Speaker 1: f T the jpeg of a rock, a dancing rock
Speaker 1: or rock with red eyes for one point one million. Right.
Speaker 1: The other one I think you mentioned was the Shiba,
Speaker 1: a new coin which is a spoof coin on a
Speaker 1: spoof coin on doche coin. Right, someone had eight thousand
Speaker 1: dollars in an account and then a year and a
Speaker 1: half later, that account was worth five point seven billion.
Speaker 1: So when I talk about liquidity and speculation in markets,
Speaker 1: you have these micro bubbles, and this is another ration
Speaker 1: of what makes the bears nervous. So thank you for
Speaker 1: these examples. I'm using them in some of my presentations. Now.
Speaker 1: So what are the bulls saying in our committee? Now?
Speaker 1: They're saying that, look, peak growth doesn't mean low growth.
Speaker 1: The delta situation ultimately, we hope will be better in six, nine,
Speaker 1: twelve months. Think about a back to normal world where
Speaker 1: there's less COVID supply chains maybe slowly, but still normalize services,
Speaker 1: spending increases, and so on. So the bulls are saying
Speaker 1: growth is slowed and delayed, but it's not derailed. We're
Speaker 1: still in their recovery. The number that sticks in my mind,
Speaker 1: and you hear it a lot in the financial media,
Speaker 1: is this two trillion dollars sitting in people's checking accounts, right,
Speaker 1: this concept of pent up demand and companies are flush
Speaker 1: with hash too. And there's a massive wealth effect at
Speaker 1: some point from asset price appreciation. And here's something that's
Speaker 1: not talked about much. Pent up housing single family housing
Speaker 1: units under construction at its highest level in fifteen years,
Speaker 1: and this is due to supply shortages. We know also
Speaker 1: the percentage of houses for sale but not started is
Speaker 1: at its highest level in history, almost doubled the long
Speaker 1: term average. So just that pent up housing, our economists
Speaker 1: here things that it can add seventy five basis points
Speaker 1: to GDP growth next year as some of these things
Speaker 1: start to normalize. So the bottom line is that over
Speaker 1: the next year we will face decline in growth, but
Speaker 1: still very high growth, declining liquidity, but still very high liquidity,
Speaker 1: and settle into the mid cycle game. For that game,
Speaker 1: you need earnings to sustain stocks more than rising valuations,
Speaker 1: which is what happened this year. Price earnings ratios actually
Speaker 1: went down on the margin, but earnings has been so
Speaker 1: strong that stocks have continued to make new highs. You know,
Speaker 1: it's a massively distorted economy. Ultimately, we're more bearish on
Speaker 1: bonds than stocks. So where do we settle all of
Speaker 1: this between the bears and the bulls. Is that we
Speaker 1: have taken some profits in our portfolios by selling some stocks,
Speaker 1: but on the margin, we've sold about one percent of
Speaker 1: our stock stocks exposure. But we're also long growth. We're
Speaker 1: also a long the economy, so we've added risk back
Speaker 1: into the portfolio through relative valuation, so to go along
Speaker 1: the economy long cyclicality. We have shorted treasuries, we have
Speaker 1: added on the margin to credit, and we're long small
Speaker 1: cap and value stocks. So we're adding baxiclicality into the
Speaker 1: portfolio as we're selling some stocks on the margin. That's
Speaker 1: how we settled the debate, that's how we're thinking about two. So, Sebastian,
Speaker 1: you actually stole my next question because I wanted to
Speaker 1: ask you about I saw in one of your recent
Speaker 1: notes that you guys did recently sell one percent of
Speaker 1: your equity exposure, so I wanted to ask you about that.
Speaker 1: And I wanted to ask you to look ahead to
Speaker 1: next year because my colleagues and I were thinking about
Speaker 1: what some of the strategists have been coming out with,
Speaker 1: as Katie mentioned, for their year ahead outlooks, and I
Speaker 1: wanted to ask you how true it is that a
Speaker 1: lot will depend on where rates and yields are. And
Speaker 1: then another one of your comments recently had said that
Speaker 1: you guys moved some assets into liquid alternatives, and I
Speaker 1: wanted to ask you what specifically that is. Yeah, let
Speaker 1: me start with UM the liquid alternatives questions. So as
Speaker 1: you sell some stocks, maybe you start taking a bit
Speaker 1: of profit, you pull back a little bit, You stay diversified,
Speaker 1: you stay invested, but the question becomes where do you
Speaker 1: put the money? And this relates to the six question
Speaker 1: as well. About twelve of our core bonds exposure UM
Speaker 1: has been transferred in our flagship global Allocations strategy to
Speaker 1: liquid alternatives. Those are strategies that are active management focused,
Speaker 1: so you need skilled active management to succeed here, and
Speaker 1: they allow for short positions. They're not linked to the
Speaker 1: big market trends in either equity returns or interest rates.
Speaker 1: So that's how we add some diversification into the portfolio.
Speaker 1: We've also added on the margin two loans as an
Speaker 1: asset class. Bank loans tend to do okay when rates
Speaker 1: rise really too long treasuries for example. And we've also
Speaker 1: added but not too much, but on the margin to
Speaker 1: credit more broadly, high high yield in particular. So that's
Speaker 1: how we're positioned from a tactical perspective at the moment,
Speaker 1: So sepassion. It's been about fourteen minutes that I've been recording.
Speaker 1: Haven't brought up crypto yet. But I'm going to do
Speaker 1: that right now, because when you think about a diversified portfolio,
Speaker 1: obviously the bitcoin is an infleation hedge narrative has reared
Speaker 1: up again, especially after that really really hot cp I
Speaker 1: figure that we got for October. How do you think
Speaker 1: about crypto as an asset class? First of all, just
Speaker 1: look at the size of crypto, and it's hard to
Speaker 1: disagree with the idea that it is an asset class. Overall,
Speaker 1: it's bigger than say, the high yield bond market in
Speaker 1: the US, So it is a force to be reckoned
Speaker 1: with in most of our portfolios in our business or
Speaker 1: clients aren't giving us the mandate to invest in crypto,
Speaker 1: but we do research in that space because it's going
Speaker 1: to influence how a lot of companies do business in
Speaker 1: multiple sectors. We have an army of stock analysts at
Speaker 1: Tyro Price, and so some of them are following the space.
Speaker 1: We're looking at it at this point personally, I can
Speaker 1: say not from an inflation hedge perspective, simply because it's
Speaker 1: just still such a speculative asset class and it's really
Speaker 1: driven by technicals sentiment. Sometimes crypto moves and that's why
Speaker 1: I don't envy being in your business, Katie and Bill Donna,
Speaker 1: because it's just hard to actually explain. Right, Oh, it's
Speaker 1: down ten percent, or maybe it's the sweet and it's
Speaker 1: a little bit mysterious, nebulous. This is a sign that
Speaker 1: it's still an asset class that moves on sentiment and speculation.
Speaker 1: I'm just gonna throw a number. I haven't done the map,
Speaker 1: but let's suppose the volatility of crypto really is speculation
Speaker 1: trend chasing sentiment. Well, that doesn't make for a really
Speaker 1: good inflation hedge, unless maybe you think about it from
Speaker 1: a very, very long term perspective. It's an evolving space.
Speaker 1: It's an important space for asset allocators to think about.
Speaker 1: The fact that it's highly volatile is not necessarily an issue.
Speaker 1: It means that it's more capital efficient, all else being equal.
Speaker 1: But it's still, for us, not an inflation hedge um
Speaker 1: as we would think of a traditional inflation hedge. Sorry
Speaker 1: I'm sounding a bit old school here. Now, this is
Speaker 1: this is great and I'm really glad. I'm really glad
Speaker 1: that we brought inflation because Katie wrote the cover of
Speaker 1: Business Week this week, and it's all about the idea
Speaker 1: that technically digital. Dohna wasn't on it too, so I
Speaker 1: was part of it. But her story it was so good.
Speaker 1: If you haven't seen it, you have to go see it.
Speaker 1: It's all about how important it is to get the
Speaker 1: inflation call right for portfolio manager heading into two and
Speaker 1: so I wanted to ask you where you fall on
Speaker 1: the transitory or not debate, and then what some potential
Speaker 1: inflation hedges are, because that was what was part of
Speaker 1: my article for for Business Speak. It was about, you know,
Speaker 1: do you buy bitcoin or gold or reads or whatever else?
Speaker 1: So what might you recommend as an inflation hedge? Yeah,
Speaker 1: really good question Bill that. In fact, it's kind of
Speaker 1: become the question right now. Uh. COVID is an absolute disaster,
Speaker 1: but it's almost taken a back seat to the inflation question.
Speaker 1: First of all, I'll say, well, you've solved the riddle
Speaker 1: of how to create inflation in the developed world. It's
Speaker 1: fiscal policy, not monetary. Right. We've dropped i don't know,
Speaker 1: four hundred million checks of over a thousand dollars right
Speaker 1: from the helicopters. So there's too much money demand chasing,
Speaker 1: too little stuff to buy, especially goods, which creates supply issues.
Speaker 1: This is not new. Everybody's talking about the mother of
Speaker 1: all traffic jams at this point. You know, at TiO,
Speaker 1: we don't have a house view. Sup Portfolio managers across
Speaker 1: our investment platform actually divided on the question as to
Speaker 1: whether will face runaway inflation, which Bill Donna. The trick
Speaker 1: with the transitory question is that everyone has a different
Speaker 1: definition of transitory, so you sort of need to define
Speaker 1: transitory first and then express your view. So here I'm
Speaker 1: gonna say, maybe rephrase the question, are we going to
Speaker 1: face runaway, out of control inflation that will force the Feds?
Speaker 1: And you know, from a long term perspective, technology globalization
Speaker 1: have put downward pressures on prices. And if you go
Speaker 1: back to say two thousand and you look at the
Speaker 1: trends in different components of inflation. Uh, look at say,
Speaker 1: flat screen TVs, computers, all that stuff has gotten really
Speaker 1: cheaper and cheaper since UM two and before. And so
Speaker 1: you have you have China made stuff you can buy
Speaker 1: on Amazon, really cheap stuff, apparel, furnitures, toys. You know,
Speaker 1: maybe we'll buy less stuff from China. But globalization is
Speaker 1: sort of unstoppable, right, So maybe in Vietnam and Malaysia
Speaker 1: and Yea. So those long term trends technology, globalization persists
Speaker 1: in the background. We don't really think about them right
Speaker 1: now because we have supply issues and other more pressing
Speaker 1: concern to address. So from a shorter term perspective, there
Speaker 1: are reopening effects. We just had a print at six
Speaker 1: point two headline. You see a big component of it
Speaker 1: was used cars up about thirty but also inflation is
Speaker 1: becoming more broad based. You see rents, rents lag real estate.
Speaker 1: Real estate is up by about expect rents to go
Speaker 1: up based on the historical relationship when people get to
Speaker 1: renew their lease um, they will most likely see a
Speaker 1: price increase. And then there's energy, which is also a puzzle.
Speaker 1: So gasoline is up fifty percent over the last twelve months,
Speaker 1: So if you're looking at projecting inflation into next year,
Speaker 1: it could say, look, it's unlikely that gasoline will be
Speaker 1: up another fifty percent and news cars probably won't be
Speaker 1: up another But if you look at shelter, a third
Speaker 1: of the CPI, you know it was up only three
Speaker 1: point five cent over the period for that last print
Speaker 1: of six so it kind of doesn't add up with
Speaker 1: real estate being up. That is more structural, and of
Speaker 1: course wage inflation is more structural. So I think overall,
Speaker 1: I think we're close to pick and peak inflation, but
Speaker 1: we won't settle back down to pre COVID sub two
Speaker 1: percent numbers in the foreseeable future. Right now, as we speak,
Speaker 1: five year break even inflation is trending up. It's at
Speaker 1: three point two, and that seems reasonable to me. But
Speaker 1: it's a problem because the FED is you know, you
Speaker 1: can be flexible. The FED can be flexible targeting two.
Speaker 1: But there's flexible, and then there's as break events are implying,
Speaker 1: letting inflation average above three over the next five years,
Speaker 1: something has to give just to quickly hit Bill down
Speaker 1: on how do you hedge those risks? We hold short
Speaker 1: term tips in the portfolio. Interestingly, those are up about
Speaker 1: seven percent this year compared to minus one for the
Speaker 1: Barkley Zagg but overall expected returns on short short short
Speaker 1: term tips are are fairly low where we sit now.
Speaker 1: We also hold people talk about gold crypto we've just
Speaker 1: talked about. We also hold a fund of real asset equities.
Speaker 1: So these are stocks, Katie and Bill Dana, these are stocks,
Speaker 1: but these are stocks that are inflation sensitive. So think
Speaker 1: about real estate reads, metals and mining companies, precious metals,
Speaker 1: energy companies. So what you get with this real asset
Speaker 1: equity strategies is a levered response to inflation. Right, so
Speaker 1: if you get an inflation shock, it will go up
Speaker 1: by five six x and you also get stock exposure
Speaker 1: in the long run that tends to pay off. And
Speaker 1: so that's strategies up significantly over the last year as
Speaker 1: it's done its job of hedging the surprises. Uh in inflation.
Speaker 1: Now everyone's worried about what the Fed will do. We're
Speaker 1: all scared of rising rates. I'm gonna end my answer
Speaker 1: to this really important question on inflation with a riddle
Speaker 1: for for you, Um, Katie Vildanna, what do egg, yolks,
Speaker 1: red wine, coffee, and rising rates have in common? You
Speaker 1: can have them all for breakfast. Well, yeah, we could
Speaker 1: quibble on wine, but not on this podcast. So so,
Speaker 1: so the idea is that you don't really if you
Speaker 1: look at research and you're into health and fitness, you
Speaker 1: don't really know if these things are good or bad
Speaker 1: for you. Right, It kind of can go both ways.
Speaker 1: That's the same thing for a rising rates. We actually
Speaker 1: did a study and we looked at nine times that
Speaker 1: the FED pivoted towards higher rates since nineteen seventy nine,
Speaker 1: and that included the two thirteen paper. And we looked
Speaker 1: at stock returns twelve months before the pivot and twelve
Speaker 1: months after the pivot, which gave us eighteen observations. Seventeen
Speaker 1: of those saw positive stock returns, and the stock returns
Speaker 1: to were fifteen percent on average. So everyone's you know there,
Speaker 1: everyone's freaking out about rising rates. But the FED is
Speaker 1: only comfortable hiking and pivoting in a strong economic environment.
Speaker 1: The FED doesn't raise rates in a recession, so the
Speaker 1: initial pivot is usually not as damaging as you might
Speaker 1: think to risk assets. This is historical evidence. Things could
Speaker 1: play out differently based on what we just talked about
Speaker 1: around inflation, but it just gives you some perspective about
Speaker 1: rising rates. I like that all three of us agree
Speaker 1: we can have rates for breakfast. Absolutely delicious. Uh, you know,
Speaker 1: a little bit of cinnamon, But I didn't want to ask.
Speaker 1: You know, you mentioned that everyone is worried about rising grates.
Speaker 1: It feels like, you know, on and all of everyone
Speaker 1: is also worried about um rising long term bond yields.
Speaker 1: But if you look at the bond market, I feel
Speaker 1: like that has almost become a pain trade because I'm
Speaker 1: looking at thirty year treasury yields right now, especially for
Speaker 1: the past six months or so, it feels like they
Speaker 1: just can't hold above two per cent. Uh. Same with
Speaker 1: ten year yields, I mean one point seven five got
Speaker 1: there for a second, and we went right back down.
Speaker 1: What's going on in that market? Because I mean, inflation
Speaker 1: is here and it's hot, but yet long term treasury
Speaker 1: yields still quite low. It's remarkable, isn't it? What an
Speaker 1: important question? Ten year yield at one point six in
Speaker 1: flay and running at six percent, growth running at five
Speaker 1: six percent, so you talking about nominal growth above ten
Speaker 1: with the ten year yield at one point six it's
Speaker 1: a really big unusual spread. And then when you subtract
Speaker 1: the inflation from the ten year yield, you get an
Speaker 1: all time low number less than minus one. So what's
Speaker 1: going on? Many things influence the direction of rates. Probably
Speaker 1: the most important isn't extremely debbish fed even in the
Speaker 1: face of everything that's happening with inflation in the recovery.
Speaker 1: The other thing is that there is a lot of
Speaker 1: demand from outside the United States for treasuries, And if
Speaker 1: you're an investor based in Japan, for most of the
Speaker 1: last twelve months, treasuries were hovering towards on a hedged
Speaker 1: basis back to your home country, kind of like close
Speaker 1: to a ten year high. So you actually rates are
Speaker 1: so low in some countries that this creates demand even
Speaker 1: for the long end um for treasuries. It keeps rates
Speaker 1: low when all is said and done, right now, our
Speaker 1: largest tactical position in our portfolios is to underweight treasuries,
Speaker 1: and Katie, to your question, underweight the long end. It's
Speaker 1: starting to look like a coiled spring this valuation. And
Speaker 1: if you look forward over the next twelve months, it's
Speaker 1: possible that the direction of rates is higher. If break
Speaker 1: even inflation, as I mentioned earlier, over five years is
Speaker 1: three point two, the Fed has to do something even
Speaker 1: under flexible average inflation targeting to stay around two. So's
Speaker 1: there's a little bit of an asymmetry, right how much
Speaker 1: lore can they go from here? And how much higher
Speaker 1: can they go from here? I'd rather be on the
Speaker 1: side of pie. So Sebastian, I wanted to ask you
Speaker 1: one more question before we get into the weirdest thing,
Speaker 1: and it's about your book called Beyond Diversification. I'm hoping
Speaker 1: you can set up for us how you're thinking about
Speaker 1: never certification considering all of the things that we were
Speaker 1: just talking about, and granted those are, you know, some
Speaker 1: more short term things, but how should people be thinking
Speaker 1: about diversification? Why did you feel it's important to write
Speaker 1: this book? Yeah, thank you for the question. Think about
Speaker 1: the is the sixty forty portfolio dead? Question? In a sense,
Speaker 1: that's a question the book addresses. I cover asset allocation
Speaker 1: for the long run, how you do tactical asset allocation,
Speaker 1: and how you think about risk, and I revisit how
Speaker 1: we think about the concept of diversification. So around COVID
Speaker 1: the book was still in production and the media all
Speaker 1: of a sudden latched on this question. Is the sixty
Speaker 1: forty dead? I called McGraw hill and tried to change
Speaker 1: the title too, is the sixty forty Dead? But unfortunately
Speaker 1: it was too late, so it would have been a
Speaker 1: better title than Beyond Diversification. But Bill Donard gives you
Speaker 1: an idea what the book is about. How do you
Speaker 1: construct a portfolio given current conditions? I review about two
Speaker 1: hundred academic articles, but I make it really really user friendly.
Speaker 1: There's no math, no equations. I also refer to our
Speaker 1: own experience managing portfolios, and in the third section you
Speaker 1: get model portfolios too, to give you an idea of,
Speaker 1: depending on what you're trying to do, what the asset
Speaker 1: allocation would look like. Stand clear of the craziest things
Speaker 1: we saw in markets this week. We talked about a
Speaker 1: lot of weird things on the podcast so far, but
Speaker 1: we have to get to our weirdest things that we
Speaker 1: all saw this week. I know Mike usually does this
Speaker 1: section and sets us up and plays little games, and
Speaker 1: I'm not as fancy as my kiss, so I think
Speaker 1: we'll just have to go around and go over the
Speaker 1: weirdest things that we saw each of us. Sebastian, if
Speaker 1: you'd like to start, Oh, thank you, I'm glad to start.
Speaker 1: I've asked my entire strategy team for ideas for this segment,
Speaker 1: and here's the problem, Uh, Katie, I got too many,
Speaker 1: and I didn't know which one to choose. So people
Speaker 1: talked about the size of Avis and the index, the
Speaker 1: squid coin, which went up millions of percent then crashed zero,
Speaker 1: how big the fangma's have gotten I heard Rob Arna
Speaker 1: on your podcast talk about that Amazon collecting thirty five
Speaker 1: cents of every dollar spent online and so on, So
Speaker 1: I it is just like which one am I going
Speaker 1: to choose? I know you always talk about crypt not always,
Speaker 1: but often talk about crypto some items that are selling
Speaker 1: at auction, right. I hear Mike sometimes trying to make
Speaker 1: people guess how much the items are selling for. So
Speaker 1: those ideas were off the table. I settle on one
Speaker 1: that I read this week. But I cheated, and I
Speaker 1: know Mike he's not on the show right now, so
Speaker 1: maybe we can we can say he cheats sometimes. Um
Speaker 1: so I he cheats all the time, so you can
Speaker 1: you can cheat this week too, thank you. So it's
Speaker 1: something I read this week, but it actually occurred in
Speaker 1: the eighties, and it's more broadly related to marketing than
Speaker 1: markets per se. And um, I guess I can make
Speaker 1: it a game a quiz. So McDonald's, this is going
Speaker 1: to be a quiz. Back in the eighties, McDonald's had
Speaker 1: so much success with their quarter pounder that apparently A
Speaker 1: and W decided to offer a bigger, juicier third pound
Speaker 1: burger at the same price. The product was a huge flop.
Speaker 1: It was a bigger what third pounder juicier? It was
Speaker 1: to compete with the quarter pounder. It was the same price,
Speaker 1: but it was a huge flop. So my quiz for
Speaker 1: you is, guess why I know this one? I have
Speaker 1: the answer, pill Donna, do you have the answer. I
Speaker 1: don't have the answer. Okay, here's the answer. It's because
Speaker 1: four is bigger than three. So people heard quarter pounder
Speaker 1: and said, oh, that has a foreign it that's bigger
Speaker 1: than three. That that's right. That is that. That is
Speaker 1: the reason it went down in history as a huge
Speaker 1: marketing fail because after the fact A w realized that people,
Speaker 1: a lot of people, too many. I thought that a
Speaker 1: quarter pounder was bigger than a third pounder. Wow. I'm
Speaker 1: pitiful at math, but I at least know that this
Speaker 1: is amazing. I think you win. I mean, Katie and
Speaker 1: I don't even have to go. You win, Katie. Katie
Speaker 1: will get to go. But it's the best. You have
Speaker 1: so many good ones. This is why you need a
Speaker 1: Twitter so you can tweet about these weird things. I
Speaker 1: don't have a thick enough skin to get on Twitter.
Speaker 1: It's a rough it's it's brutal out there. It can
Speaker 1: be toxic, but you find your nice little niches and
Speaker 1: people will People are generally nice, Katie, and I will
Speaker 1: follow you. Yeah, okay, thank you, Katie. What's your weirdest thing? Okay,
Speaker 1: it's not so much like a crazy thing that I saw,
Speaker 1: but it is a fun fact. So Sweet Green Salad
Speaker 1: chain it went public this past week valuation but almost
Speaker 1: three billion dollars, and Bloomberg had a great story. Drew
Speaker 1: Singer wrote it. So there's been eleven food and beverage
Speaker 1: I p o s this year. That is the most
Speaker 1: since n did not know that there's only one. I
Speaker 1: mean pretending that Sweet Green hasn't happened. There's only one
Speaker 1: food or beverage I p O that's treating higher this year.
Speaker 1: It's a winemaker called duck Corn Portfolio, and the ticker
Speaker 1: is NAPA, which is adorable. Wow, what a great ticker.
Speaker 1: I think it's up thirty percent this year, so outperforming
Speaker 1: the S and P five hundred at this point. Well,
Speaker 1: I will say, I think the last time I went
Speaker 1: to Sweet Green, I spent like seventeen dollars for one salad.
Speaker 1: So inflation, they everywhere they better and they better be
Speaker 1: making money with with those types of prices. You have
Speaker 1: to imagine so or they're doing something wrong. It's your turn, though,
Speaker 1: Oh yes, it's my turn, that's right. So this one
Speaker 1: is courtesy of Stacy Marie Ishmael, who's the head of
Speaker 1: crypto for us over here at Bloomberg, and she shared
Speaker 1: this story from earlier in the week. It's titled Barbados
Speaker 1: is to become the first sovereign nation with an embassy
Speaker 1: in the Metaverse. Oh my god, Wow, I mean just wow.
Speaker 1: The article says Barbados is preparing to legally declare digital
Speaker 1: real estate sovereign land with the establishment of a metaverse embassy.
Speaker 1: And I just had this great, you know picture in
Speaker 1: my head of people going in, you know, in this
Speaker 1: digital metaverse, lining up at the embassy for their passport
Speaker 1: whatever needs. I don't even know so that that's gassport
Speaker 1: in the metaverse, or their countries and borders in the metaverse?
Speaker 1: Do I have to pay rent in the metaverse? Thinking
Speaker 1: about the metaverse makes me spiral. I think you and
Speaker 1: I should just start a business now about, you know,
Speaker 1: getting everybody settled in the meta worth yea move in service. Yeah,
Speaker 1: I don't know, Sebastian, what you think about the metaverse.
Speaker 1: Katy and I have many thoughts. Yeah, it's um, it's puzzling.
Speaker 1: I think about I think about my kids who just
Speaker 1: through covid, if just spent so much time on mine
Speaker 1: Craft and you know, those types of games, And I
Speaker 1: think about ten years from now, what really all of
Speaker 1: this will look like. And I don't know. It's it's
Speaker 1: a it's puzzling exactly where this is going. And the
Speaker 1: fact that Facebook is leading the charge is is also puzzling.
Speaker 1: So we'll see, we'll see how it plays out. I
Speaker 1: don't know. I'm not ready to If I'm going to
Speaker 1: visit Barbados, I think I'm going to go in person.
Speaker 1: And I mean, you're not even on Twitter, how are
Speaker 1: you gonna get into the metal exactly? I'm way behind here,
Speaker 1: way behind. UM. I think we'll have to leave it
Speaker 1: at that. Thank you both so much for joining us. Sebastian,
Speaker 1: thank you for joining the podcast. We're looking forward to
Speaker 1: having you back on. And Katie, I think I think
Speaker 1: we just don't call my creaking back ever again for
Speaker 1: the podcast. I think who's were welcome to be the
Speaker 1: who is he? I don't know that man. Me neither.
Speaker 1: I've already forgotten about him. So thank you both so
Speaker 1: much for joining the show. Thank you, thank you. What
Speaker 1: Goes Up. We'll be back next week. Until then, you
Speaker 1: can find us on the bloomboog terminal website and app,
Speaker 1: or wherever you get your podcasts. We'd love it if
Speaker 1: you took the time to rate and review the show
Speaker 1: Apple Podcasts so more listeners can find us. And you
Speaker 1: can find us on Twitter, follow me at Vildanna Hirich,
Speaker 1: Katie Greifeld is at k Greifeld, and our guest, Sebastian
Speaker 1: pagees on Linington. You can find him at Sebastian dash page.
Speaker 1: You can also follow Bloomer Podcasts at at podcast and
Speaker 1: thank you to Charlie Pellett of Bloomer Radio. What Goes
Speaker 1: Up is produced by tofar forheas the head of Bloomer Podcasts.
Speaker 1: It's Francesca Levi. Thanks for listening and see you next time.