WEBVTT - Bloomberg Wall Street Week: September 9, 2022 0:00:00.520 --> 0:00:03.760 This is Bloomberg Wall Street Week. We turn our attention 0:00:03.840 --> 0:00:07.120 to the markets this week. U S CPI nevers, reinforcing 0:00:07.160 --> 0:00:10.639 concerns about inflation. The financial stories that chief are worth 0:00:10.720 --> 0:00:13.480 a really different reaction to mark. Its more indications of 0:00:13.640 --> 0:00:16.239 just how hot the U. S. Economy really is. Through 0:00:16.239 --> 0:00:19.520 the eyes of the most influential voices Larry Summers, the 0:00:19.560 --> 0:00:22.479 former Treatory Secretary, Katherine Keating, CEO of d n Y 0:00:22.600 --> 0:00:26.160 mom Sam's l Sharmon and founder of Equatic Group Investment 0:00:26.200 --> 0:00:30.280 in Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.920 --> 0:00:33.600 History was made this week with the death of Queen 0:00:33.600 --> 0:00:37.840 Elizabeth of Great Britain, the longest serving monarch in British history, 0:00:38.120 --> 0:00:42.320 overshadowing for a moment economics and currencies and central banks 0:00:42.560 --> 0:00:45.880 and yes, even wars. This is Bloomberg Wall Street Week. 0:00:46.040 --> 0:00:50.839 I'm David Weston. This week special contributor Larry Summers and 0:00:50.960 --> 0:01:07.720 Rick Reader of Black Rock. Queen Elizabeth a Great Britain 0:01:08.080 --> 0:01:10.839 passed away this week at the age of nine six, 0:01:11.240 --> 0:01:14.680 leaving behind a seventy year reign and a new king, 0:01:15.080 --> 0:01:19.160 King Charles the Third. Queen Elizabeth was a life well 0:01:19.200 --> 0:01:24.560 lived a promise with destiny kept, and she has mourned 0:01:24.640 --> 0:01:28.600 most deeply in her post. But even as the world 0:01:28.600 --> 0:01:31.840 took a moment to reflect on an era that has passed, 0:01:32.160 --> 0:01:36.360 it continued to contend with the current one, where war 0:01:36.440 --> 0:01:39.399 in Ukraine has led to an energy crisis in Europe. 0:01:39.760 --> 0:01:43.279 As President Putin insisted that he is not using oil 0:01:43.319 --> 0:01:46.080 and gas as a weapon, even as he shut down 0:01:46.200 --> 0:01:51.760 his nord Stream pipeline indefinitely. Nord Stream one is now 0:01:51.800 --> 0:01:55.080 practically shut down, and everyone is saying Russia is using 0:01:55.200 --> 0:01:58.480 energy as a weapon. Ship more nonsense. We deliver as 0:01:58.560 --> 0:02:01.760 much as our partner's needs, and the easy be reacted 0:02:01.920 --> 0:02:05.200 to the inflation triggered by the energy crisis by raising 0:02:05.280 --> 0:02:09.320 rates and historic seventy five basis points with more to come. 0:02:10.200 --> 0:02:14.760 The Governing Council today decided to raise the three key 0:02:14.960 --> 0:02:19.280 ECB interest rates by seventy five basis points. This may 0:02:19.360 --> 0:02:24.360 just frontloads the transition from the prevailing highly accommodative level 0:02:24.400 --> 0:02:28.080 of policy rates towards levels that will ensure the timely 0:02:28.120 --> 0:02:31.920 return of inflation to our two percent medium term target. 0:02:32.720 --> 0:02:36.080 While in the United Kingdom, just before news came the 0:02:36.160 --> 0:02:40.079 Queen's death, the Prime minister she had installed only two 0:02:40.160 --> 0:02:43.440 days before, and now has caps on household energy costs 0:02:43.520 --> 0:02:47.200 and promised to pull her economy through. I have a 0:02:47.240 --> 0:02:52.720 bowl plan to grow the economy. Three tax cuts and reform. 0:02:52.760 --> 0:02:56.200 I will cut taxes to reward hard work and base 0:02:56.280 --> 0:03:00.200 business led growth and investment. I will dry of a 0:03:00.320 --> 0:03:04.480 film in my mission to get the unitsing, Kingdom working, 0:03:04.680 --> 0:03:08.720 building and grabbing. In the United States, markets waited for 0:03:08.800 --> 0:03:12.520 the next Fed decision, now less than two weeks away, 0:03:12.680 --> 0:03:15.280 with all indications that the f m C will stay 0:03:15.280 --> 0:03:19.320 the course and keep raising rates until it's sure inflation 0:03:19.600 --> 0:03:22.240 is under control. We're in this for as long as 0:03:22.280 --> 0:03:25.880 it takes to get inflation down. So far, we've expeditiously 0:03:26.000 --> 0:03:29.440 raised the policy rate to the peak of the previous cycle, 0:03:29.800 --> 0:03:34.840 and the policy rate will need to rise further. And 0:03:34.880 --> 0:03:36.840 when all was said and done, the market has had 0:03:36.840 --> 0:03:39.080 a good week, at least if you were along with 0:03:39.160 --> 0:03:42.839 the SMP three point six in a shortened trading week 0:03:43.120 --> 0:03:45.840 with much of the game coming on Friday, while the 0:03:45.960 --> 0:03:49.760 NASDAK track the SMP nicely up over four with the 0:03:49.800 --> 0:03:52.960 game once again on Friday. And all this was despite 0:03:53.200 --> 0:03:55.400 a rise in bond yield, with the yield on the 0:03:55.440 --> 0:03:58.800 tenure and the week just over three point up about 0:03:58.800 --> 0:04:02.520 twelve basis points. Here to explain all this equity appetite, 0:04:02.560 --> 0:04:05.560 how are Sarah Malick, chief investment officer at Nuvine and 0:04:05.640 --> 0:04:09.360 Jim McDonald, Northern Trust, chief Investment Strategies. Welcome to both 0:04:09.360 --> 0:04:11.400 of you here to Wall Street Weeks. Let me start 0:04:11.400 --> 0:04:13.320 with you, Jim, what do we read into this market? 0:04:13.360 --> 0:04:15.280 Are happy days here again? I mean, we did have 0:04:15.320 --> 0:04:17.360 a really nice game this week, David. I think you 0:04:17.360 --> 0:04:19.080 could spend a couple of hours looking through all the 0:04:19.080 --> 0:04:22.080 fundamental data and not find anything that really supported a 0:04:22.120 --> 0:04:25.040 big increase in risk appetite this week. So I think 0:04:25.040 --> 0:04:26.839 you really have to attribute it to the fact that 0:04:26.880 --> 0:04:29.360 we had a couple of weeks of softness preceding this, 0:04:30.000 --> 0:04:33.440 and then sentiment is terrible, and then technically the market 0:04:33.520 --> 0:04:37.039 is making higher lows. So technically it looks okay here. 0:04:37.320 --> 0:04:38.880 But if you think about what's going to drive the 0:04:38.880 --> 0:04:41.520 market over the next six to twelve eighteen months, the 0:04:41.560 --> 0:04:45.440 growth outlook is deteriorating. Europe's likely in recession, China's is 0:04:45.520 --> 0:04:48.200 clearly in recession. In the US fifty fifty, we think 0:04:48.200 --> 0:04:50.120 over the next twelve months, the FED in the e 0:04:50.200 --> 0:04:54.000 c B or raising rates resolutely, and the inflation picture, 0:04:54.000 --> 0:04:58.280 while improving, is probably overly discounted in the markets. At 0:04:58.320 --> 0:05:00.360 one year break even on the tip, this is a 0:05:00.480 --> 0:05:03.640 two percent, so we think that the environment is probably 0:05:03.680 --> 0:05:07.040 not as robust as this week's market action might indicate. Well, 0:05:07.040 --> 0:05:09.840 I'm sorry, Sarah. When I hear two percent in one 0:05:09.920 --> 0:05:12.120 year break even, that sounds like maybe inflation is coming 0:05:12.160 --> 0:05:14.840 back down again. I think that that number is coming 0:05:14.839 --> 0:05:17.360 back down. Inflation is moderating. Will likely see a little 0:05:17.360 --> 0:05:20.039 bit more moderation when CPI comes out next week, but 0:05:20.120 --> 0:05:22.960 that slope is probably too aggressive. I think inflation will 0:05:22.960 --> 0:05:26.560 remain sticky. We have higher wages and higher shelter prices. 0:05:26.560 --> 0:05:28.520 Those likely stick around, and that's going to keep core 0:05:28.560 --> 0:05:31.359 inflation numbers probably much higher. I wouldn't would would be 0:05:31.360 --> 0:05:33.799 wouldn't be surprised to see that break even actually increase 0:05:33.880 --> 0:05:36.160 over time. The other thing we're watching for is the FED. 0:05:36.200 --> 0:05:39.080 Before we decide if this rally is sustainable, we'd want 0:05:39.120 --> 0:05:41.159 to see more signs of a FED pivot, and we're 0:05:41.160 --> 0:05:43.240 not seeing that. So we agree with Jim, this is 0:05:43.279 --> 0:05:46.000 probably not a sustainable recovery. What about the FED pivot? 0:05:46.120 --> 0:05:48.480 Is it dead effectively? I mean, certainly sounds like J. 0:05:48.560 --> 0:05:50.240 Powe recently has not been saying much it would be 0:05:50.279 --> 0:05:52.400 consisted of the pivot. I don't think we're going to 0:05:52.440 --> 0:05:54.719 see a pivot in early twenty three. But J Pell 0:05:54.760 --> 0:05:56.680 has been saying is that he's going to do what's 0:05:56.760 --> 0:05:59.720 necessary to fight inflation, even if that comes somewhat at 0:05:59.720 --> 0:06:02.479 the spence of the economy, and given that inflation likely 0:06:02.480 --> 0:06:05.200 has the sticky components to it, I think he continues 0:06:05.240 --> 0:06:08.679 to raise rates, likely basis points at the September meeting, 0:06:08.880 --> 0:06:11.360 and then more moderate rate increases from there. If anything, 0:06:11.400 --> 0:06:13.920 you'll see a pause in three, but you will see 0:06:13.960 --> 0:06:16.440 rate cuts until we hit a recession and we see 0:06:16.440 --> 0:06:19.599 that demand destruction. Yeah, David, we've seen in the last 0:06:19.640 --> 0:06:22.400 month a reduction in the cuts that the market is 0:06:22.440 --> 0:06:25.359 priced in. They were pricing in fifty basis points of 0:06:25.360 --> 0:06:27.719 cuts in twenty three. It's now come down to just 0:06:27.760 --> 0:06:30.800 twenty five basis points. And what I'm most interested in 0:06:30.880 --> 0:06:33.159 keeping an eye on is the labor markets. I think 0:06:33.200 --> 0:06:37.000 the FED can't stop raising rates because growth is hurt. 0:06:37.320 --> 0:06:40.080 They can't stop because the market is struggling. They need 0:06:40.120 --> 0:06:44.400 to see the unemployment rate increase to give them cover 0:06:44.720 --> 0:06:47.960 to be able to start slowing down the pace of increase. Okay, 0:06:48.000 --> 0:06:50.280 Sarah Malick and Jim McDonald will be staying with us 0:06:50.279 --> 0:06:53.039 as we get their thoughts on what the smart investor 0:06:53.120 --> 0:06:55.880 does with their portfolio given more we've just been talking about. 0:06:56.200 --> 0:07:01.440 This is Wall Street Week on Bloomberg. This is Bloomberg 0:07:01.520 --> 0:07:11.360 Wall Street Week with David Weston from Bloomberg Radio. Well, 0:07:11.400 --> 0:07:16.040 it wasn't pretty. There was unforgettable heroism among the victims 0:07:16.640 --> 0:07:20.840 and the rescuers, but the financial markets, even after what 0:07:21.000 --> 0:07:24.120 was supposed to have been a useful time out, staged 0:07:24.160 --> 0:07:32.960 a historically panicky retreat, mumbling legalistic rationalizations like fiduciary responsibility 0:07:33.600 --> 0:07:37.600 as an excuse for what rapidly descended into unchecked hysteria. 0:07:38.560 --> 0:07:41.520 That was Lewis Orchiser, of course, describing the immediate market 0:07:41.560 --> 0:07:43.840 reaction to the tragic events of nine eleven That was 0:07:43.880 --> 0:07:47.120 twenty one years ago this coming weekend, a reaction delayed 0:07:47.160 --> 0:07:48.640 by the closing at the time of the New York 0:07:48.680 --> 0:07:51.280 Stock Exchange and heroic efforts to get it back up 0:07:51.280 --> 0:07:53.880 and running after just six days. So with us are 0:07:53.920 --> 0:07:56.680 Sara Manic of Nuvine and Jim McDonald of Northern Trust. 0:07:56.680 --> 0:07:58.760 So I'm happy to say we do not have anything 0:07:58.760 --> 0:08:00.640 like the tragedy of nine eleven that we're going fronting 0:08:00.680 --> 0:08:03.240 right now at the same time, impair amount of pressure 0:08:03.280 --> 0:08:06.080 on the markets and things. Fair to say, in this environment, 0:08:06.400 --> 0:08:09.040 how does one constructive portfolio? Well, it's not all doom 0:08:09.040 --> 0:08:11.560 and gloom when we think about portfolio construction. There are 0:08:11.640 --> 0:08:14.800 waste of bl portfolios that are resilient to inflationary environments 0:08:14.800 --> 0:08:18.280 across asset classes that the typical sixty forty equities fixed 0:08:18.320 --> 0:08:21.520 income portfolio has struggled this year. But within equities there's 0:08:21.520 --> 0:08:24.000 companies that are more resilient, like dividend growers. These are 0:08:24.000 --> 0:08:26.720 companies like that continue to grow their divon is over time. 0:08:26.800 --> 0:08:29.320 Broad Com is a great example of that. In fixed income, 0:08:29.320 --> 0:08:31.240 an area that people may not be thinking about it 0:08:31.280 --> 0:08:33.719 for approaching our session is high yield. You can get 0:08:33.760 --> 0:08:36.080 returns of over eight percent and high yield fixed income 0:08:36.240 --> 0:08:38.560 so you're paid to wait until spreads tightened, and the 0:08:38.600 --> 0:08:40.720 companies are higher quality than they used to be. So 0:08:41.000 --> 0:08:42.679 that's a lot to chew on. But let's start with 0:08:42.760 --> 0:08:44.960 one of them, which is credit and high yield. Where 0:08:44.960 --> 0:08:47.480 are you on that? So we're very constructive on how yield. 0:08:47.520 --> 0:08:50.360 It's our largest tactical overweights with a yield the worst 0:08:50.360 --> 0:08:53.160 of eight and a half percent or so downside risk 0:08:53.200 --> 0:08:56.040 of about a third of the equity markets. UH. In 0:08:56.200 --> 0:08:58.600 the high yield markets, you need to think about high 0:08:58.640 --> 0:09:00.920 yield as a risk asset. So this is not something 0:09:00.960 --> 0:09:03.880 we're taking UH investment great bonds and putting it into 0:09:03.920 --> 0:09:07.400 high yields. It's much more of an equity substitutenous environment. 0:09:07.600 --> 0:09:10.280 But that kind of return looks really attractive here. Another 0:09:10.320 --> 0:09:14.600 aspect I would mention is geographic exposure with inequities, So 0:09:14.640 --> 0:09:17.280 we have a slight overweight to the US and underweights 0:09:17.480 --> 0:09:20.640 x US and an emerging market equities really reflecting the 0:09:20.760 --> 0:09:25.760 significant growth issues and inflation problems that are being realized overseas. 0:09:25.920 --> 0:09:28.560 That's another way to give clients some confidence that we're 0:09:28.559 --> 0:09:31.200 positioning for what we think is going to unfold over 0:09:31.240 --> 0:09:33.240 the next twelve months. And lastly, I would say the 0:09:33.240 --> 0:09:35.800 real assets side, we also very much support having some 0:09:35.840 --> 0:09:39.920 inflation exposure, whether it's in globalist and infrastructure which has 0:09:39.960 --> 0:09:43.439 that pricing power, or on a long term basis commodities, 0:09:43.640 --> 0:09:46.160 where we think you can get in a basket of 0:09:46.280 --> 0:09:50.280 listed commodity producers a yield near six percent, which is 0:09:50.280 --> 0:09:52.880 really attractive in this environment. So we're actually more concerned 0:09:52.880 --> 0:09:56.800 about commodities excluding energy because we think that commodities are 0:09:56.880 --> 0:09:59.320 very exposed to demand destruction. But energy is a different 0:09:59.360 --> 0:10:02.480 story where supply remains tight demanded to remain strong. And 0:10:02.480 --> 0:10:04.800 what we love about energy producers is that they're being 0:10:04.840 --> 0:10:07.719 very disciplined this cycle. They're returning cash to shareholders rather 0:10:07.760 --> 0:10:10.840 than just working to just increase volume. Good for those 0:10:10.840 --> 0:10:13.319 companies and to keep oil prices but beneficial to them. 0:10:13.400 --> 0:10:16.800 But Sarah put together, if you will, the slight overweight 0:10:16.840 --> 0:10:19.440 to us not much more than slight that Jim talked about, 0:10:19.520 --> 0:10:21.319 and what you just said about energy, because given this 0:10:21.480 --> 0:10:24.120 energy situation, one might say it's more than a slight 0:10:24.480 --> 0:10:26.760 overweight to U S. Where are you? We are probably 0:10:26.800 --> 0:10:28.360 more constructive on the U S and the rest of 0:10:28.400 --> 0:10:30.200 the world. We think the U S will continue to 0:10:30.240 --> 0:10:32.880 be the safe haven trade because of the resilience of 0:10:32.920 --> 0:10:35.240 the economy versus the rest of the world. Europe could 0:10:35.280 --> 0:10:38.960 run into sagflationary issues with their aggressive increases in interest 0:10:39.040 --> 0:10:42.240 rates while the economy suffers and emerging markets are challenged 0:10:42.240 --> 0:10:44.880 because of the continued lockdowns in China and some of 0:10:44.880 --> 0:10:47.120 the other areas that are having issues. So I think 0:10:47.120 --> 0:10:48.920 non US is going to be a struggle, especially with 0:10:48.960 --> 0:10:51.240 the strong dollar, and so I would add to that 0:10:51.480 --> 0:10:54.280 from a US exposure standpoint. We also like the energy 0:10:54.320 --> 0:10:57.000 sector and the other one that we like our technology stocks. 0:10:57.040 --> 0:11:00.280 They have really struggled this year, improved the valuation. Is 0:11:00.559 --> 0:11:03.719 clearly a long term growth leader globally, and so it's 0:11:03.720 --> 0:11:06.679 a bit of a balanced approach within a US equity portfolio, 0:11:06.960 --> 0:11:11.040 liking both energy and technology stocks. Interesting technology socks tend 0:11:11.080 --> 0:11:13.959 to struggle though when interestrates are increasing because they're considered 0:11:14.000 --> 0:11:17.040 long duration stocks. An area for example Sema Connectors, which 0:11:17.040 --> 0:11:20.160 have even underperformed the technology benchmark. But I think you 0:11:20.200 --> 0:11:22.200 can find value in some of these areas. This this 0:11:22.240 --> 0:11:25.160 goes back to dividend growers. Abroad Coms, a company that 0:11:25.360 --> 0:11:27.280 within the Sema conactor space, tends to be kind of 0:11:27.280 --> 0:11:32.120 offenses and defensive, more resilient business with their enterprise demand 0:11:32.160 --> 0:11:34.760 and also with their software mix and a nice dividend 0:11:34.800 --> 0:11:37.400 that's growing over time. So so as you're putting together 0:11:37.440 --> 0:11:40.079 your portfolio, do you take into account the possibility or 0:11:40.120 --> 0:11:42.920 even some say likelihood of recession or not, Because, for example, 0:11:42.920 --> 0:11:44.720 when you say hi yield, HI, it's a good thing, 0:11:44.880 --> 0:11:46.920 I get a little nervous if we're going into anything. 0:11:47.120 --> 0:11:49.280 But it's a real recession, right Jim. So you have 0:11:49.320 --> 0:11:51.199 to have a view on what the recession will be 0:11:51.240 --> 0:11:53.839 if it unfolds. We're at a fifty fifty probability in 0:11:53.840 --> 0:11:56.200 the US, but we think it will be shallow. The 0:11:56.200 --> 0:11:59.480 baggage system is in dramatically better situation than it was 0:11:59.720 --> 0:12:03.120 during global financial crisis, so credit creation won't really be 0:12:03.240 --> 0:12:06.200 hurts howlshold balance sheets are not in bad shape, so 0:12:06.240 --> 0:12:09.359 it's much more likely to be a shallow cyclical recession. 0:12:09.640 --> 0:12:12.000 And how yield with a starting yield the worst of 0:12:12.000 --> 0:12:14.040 eight and a half percent gives you a very nice 0:12:14.080 --> 0:12:16.200 question in that environment, I agree with that. I mean, 0:12:16.200 --> 0:12:18.719 we're looking for areas, given the environment out there, where 0:12:18.800 --> 0:12:21.000 you're getting the best bang for your book. And so 0:12:21.200 --> 0:12:23.480 even though we do predict a recession, now you're getting 0:12:23.480 --> 0:12:25.520 paid to weight and how yield with that kind of return, 0:12:25.760 --> 0:12:28.680 you can have that resilient income producing portfolio and equities 0:12:28.679 --> 0:12:31.160 with divining growers, and then look for those asset classes 0:12:31.280 --> 0:12:34.079 that actually can benefit from inflation, like within real assets. 0:12:34.200 --> 0:12:36.200 How important is liquidity in all this? When you start 0:12:36.240 --> 0:12:38.680 talking about real estate, for example, farmland, things like that, 0:12:38.679 --> 0:12:40.960 that sounds like I'm giving up something on duration, Right, 0:12:41.160 --> 0:12:44.080 You're giving up something, You're giving up some liquidity, um, 0:12:44.120 --> 0:12:46.680 you're also dampening your volatility. That's why we recommend a 0:12:46.679 --> 0:12:48.840 balanced portfolio. You want to make sure that you have 0:12:48.880 --> 0:12:51.280 your publics and your privates within your portfolio so that 0:12:51.320 --> 0:12:53.880 you do have warries where you can get liquidity if 0:12:53.880 --> 0:12:56.480 you need it, but also the resilience and less volatile 0:12:56.480 --> 0:12:59.640 pieces of the private asset classes can be beneficial, especially 0:12:59.640 --> 0:13:02.080 in this year which is unique where the sixty forty 0:13:02.080 --> 0:13:04.960 typical equity and fixed income portfolios, if people have have 0:13:05.040 --> 0:13:08.280 been highly correlated, all fixed income obviously has not created 0:13:08.280 --> 0:13:10.959 equal Where are you in investment grade, Jim? So we're 0:13:11.000 --> 0:13:13.800 significantly underweight investment grade. We just don't think that the 0:13:13.880 --> 0:13:18.359 nominal yield or the real yield opportunity looks particularly attractive. 0:13:18.400 --> 0:13:21.840 And our number one risk case around sticky inflation, investment 0:13:21.840 --> 0:13:23.840 grade bonds are not going to do well in that environment, 0:13:23.920 --> 0:13:28.160 so that's an underweight in our tactual portfolios. Do you agree, Sarah? 0:13:28.200 --> 0:13:30.640 Generally we would prefer high yield over investment grade for 0:13:30.640 --> 0:13:32.800 the same thing. You're getting greater returns, more bank for 0:13:32.840 --> 0:13:34.800 your buck from high yield. And where are you on tech, 0:13:34.920 --> 0:13:37.360 Jim Teddy? Tech might be a good idea, although, as 0:13:37.360 --> 0:13:39.600 you said, if the interests are going up, typically that 0:13:39.720 --> 0:13:42.040 hurts tech. Yeah, I mean generally, bigger picture, the macro 0:13:42.120 --> 0:13:45.040 environment is not good for long duration technology socks. That's 0:13:45.040 --> 0:13:47.360 why you need to be selective, and we're looking for 0:13:47.480 --> 0:13:49.960 what we said, kind of offensive and defensive tech together 0:13:50.000 --> 0:13:52.640 the companies that either or more resilient because they have 0:13:52.679 --> 0:13:55.480 healthy growing dividends or they have pricing power so they 0:13:55.520 --> 0:13:58.560 can survive the environment. The trade of pre pandemic where 0:13:58.559 --> 0:14:00.840 all technology socks kind of all did well, I think 0:14:00.920 --> 0:14:03.280 that's over. I would just add that the market knows 0:14:03.320 --> 0:14:05.560 that interest rates are going up and have gone up, 0:14:05.559 --> 0:14:09.000 and that has killed evaluations within the technology sector. So 0:14:09.080 --> 0:14:12.000 we think that's what's set up the opportunity today. Tech 0:14:12.000 --> 0:14:15.000 stocks have discounted a great amount of the higher rates. 0:14:15.000 --> 0:14:18.280 But it's interesting if you look at markets are actually 0:14:18.360 --> 0:14:21.240 less less hawkish than the FED. So there's a mismatch 0:14:21.280 --> 0:14:23.520 there in markets. If now caught up to the Fed 0:14:23.600 --> 0:14:26.440 same level of hawkishness, markets are saying, you know what, 0:14:26.680 --> 0:14:29.240 we expect less rate hikes in the FED expects, and 0:14:29.240 --> 0:14:31.400 we'll see if that happens. Probably depends on if we 0:14:31.480 --> 0:14:34.600 hit that recession and inflation finally dropped significantly. Okay, this 0:14:34.640 --> 0:14:36.920 is really, as I say, really truly discussion. Thank you 0:14:37.160 --> 0:14:40.000 so very much. That's Sarah Mallick of now Vene as 0:14:40.000 --> 0:14:45.120 well as Jim McDonald of Northern Trust coming up. It's 0:14:45.120 --> 0:14:48.400 an uncertain time for investors, full of risk without a 0:14:48.400 --> 0:14:52.200 lot of certain return, but Rippery or black Rock thinks 0:14:52.240 --> 0:14:54.880 that there's the potential for the patient investment to really 0:14:54.880 --> 0:14:58.800 do quite well. That's going up next on Wall Street 0:14:58.800 --> 0:15:03.800 Week on Bloomberg. This is Bloomberg Wall Street Week with 0:15:03.880 --> 0:15:10.480 David Weston from Bloomberg Radio. They say it's always darkest 0:15:10.600 --> 0:15:13.280 before the dawn, and there's plenty of dark out there 0:15:13.320 --> 0:15:16.800 for investors right now. With the stock market off, overall 0:15:16.840 --> 0:15:19.920 positioning has still been pretty depressed, and sentiment reflects that 0:15:20.160 --> 0:15:24.680 inflation still raging. Inflation seekiness is not going away anytime. Soon, 0:15:25.040 --> 0:15:28.640 and the FED intent on continuing to hike rates was 0:15:28.680 --> 0:15:30.920 fairly obvious coming a year that the FED would tighten. 0:15:31.200 --> 0:15:33.800 But there may also be some early rays of light 0:15:34.240 --> 0:15:38.160 with commodity prices coming back down. If the Fed continues 0:15:38.240 --> 0:15:41.160 to tighten, and we believe the dollar will turn back 0:15:41.360 --> 0:15:44.440 up and these commodities will continue to fall. So the 0:15:44.520 --> 0:15:47.560 question is whether this is a false dawn or whether 0:15:47.600 --> 0:15:50.600 it's actually a good time for the patient investor to 0:15:50.680 --> 0:15:55.280 position for a rosier future. And that till tell us 0:15:55.320 --> 0:15:57.920 which of those it is. We welcome back now, Rick Reader, 0:15:58.040 --> 0:16:01.360 black Rock ce IO for Global Income and also ahead 0:16:01.400 --> 0:16:04.200 of the Global Allocation Investment team, which includes the black 0:16:04.280 --> 0:16:08.640 Rock Strategic Income Opportunities Fund, rated five stars and gold 0:16:08.680 --> 0:16:10.280 by morning Star. I'm sure you don't want to brag 0:16:10.320 --> 0:16:12.360 about that, but I think we should read for your 0:16:12.440 --> 0:16:15.360 Rick there. So we're very good. Rick. Give us your 0:16:15.360 --> 0:16:17.160 sense of this market from your point of view. I mean, 0:16:17.200 --> 0:16:19.280 you're putting the money to work all the time, both 0:16:19.280 --> 0:16:21.760 on fixed income and also inequities. What do you make 0:16:21.760 --> 0:16:24.840 of this market right now? So I mean, David, I 0:16:24.880 --> 0:16:26.560 mean you're thinking about We came in the beginning of 0:16:26.560 --> 0:16:28.840 this week and so We've got energy caps, You've got 0:16:28.840 --> 0:16:33.120 the turning off of nord Stream. You've got China growth, China, COVID, China, Taiwan. 0:16:33.320 --> 0:16:36.400 You've got a series of issues, uh that are that 0:16:36.440 --> 0:16:38.080 are hard to get your arms around. By the way, 0:16:38.240 --> 0:16:41.440 the good sector of the US economy is softening, So 0:16:41.480 --> 0:16:43.840 there's a lot of challenges out there in the world. 0:16:43.880 --> 0:16:45.720 That being said, you know, if you take a step 0:16:45.720 --> 0:16:49.280 back and you think about as an investor, you know, 0:16:49.280 --> 0:16:51.560 with the FED moving rates higher, all of a sudden, 0:16:51.960 --> 0:16:55.040 you could buy short end interest rates at levels we 0:16:55.080 --> 0:16:57.040 haven't seen a really long time. I was thinking about 0:16:57.040 --> 0:16:59.360 a year or two ago. You know, you had to 0:16:59.360 --> 0:17:02.920 pay less than one percent of fund companies fifty basis points, 0:17:02.960 --> 0:17:06.280 so Amazon twenty five basis points. In three years, all 0:17:06.320 --> 0:17:08.280 of a sudden, you could buy You could buy short 0:17:08.400 --> 0:17:12.160 end assets at four or four and a half five cent, 0:17:13.119 --> 0:17:16.080 Put some money to work, get some carry, and then 0:17:16.280 --> 0:17:18.840 tactically look at areas that are that are where there's 0:17:18.840 --> 0:17:22.639 opportunity and listen. I mean, you can get really really 0:17:22.840 --> 0:17:24.960 concerned about where the world is when you when you 0:17:25.000 --> 0:17:27.960 step back and think about US economy, we think is 0:17:28.000 --> 0:17:31.240 going to have nominal GDP this year five nominal GDP 0:17:31.320 --> 0:17:33.520 of five. You know, you've got a service sector that's 0:17:33.520 --> 0:17:35.480 doing well. I've got a healthcare sector that's doing well. 0:17:35.480 --> 0:17:37.800 You've got parts of the economy. So there's things to do. 0:17:37.920 --> 0:17:39.240 I mean, you know, while it is one of the 0:17:39.280 --> 0:17:42.720 most challenging uncertain times that we've seen in markets in 0:17:42.720 --> 0:17:45.560 a long time, with central banks tightening, there's some things 0:17:45.560 --> 0:17:47.439 to do in the markets, and there's some there's some 0:17:47.480 --> 0:17:50.320 reason to look at some some opportunities out there. So 0:17:50.400 --> 0:17:53.040 there's just as my math works, from a quarter of 0:17:53.040 --> 0:17:55.240 a percent to five cents, pretty big difference. That sounds 0:17:55.240 --> 0:17:57.360 pretty good. You get that kind of return. The same time, 0:17:57.400 --> 0:17:59.080 it depends on what's going on inflation, Right we get 0:17:59.080 --> 0:18:01.280 cp I nembers come out next week. If we've got 0:18:01.359 --> 0:18:04.040 a headline inflation around eight and we've got core around 0:18:04.040 --> 0:18:06.560 five or six, that five percent doesn't look quite so good, 0:18:06.600 --> 0:18:09.680 does it. It actually doesn't look good at all. And 0:18:09.880 --> 0:18:11.959 if you assume that we're going to be running at 0:18:11.960 --> 0:18:13.760 those sort of levels for a period of time. But 0:18:13.840 --> 0:18:15.840 you look at where the inflation markets are, where the 0:18:15.960 --> 0:18:19.960 where real capital including ourselves, are transacting, and today we 0:18:19.960 --> 0:18:23.360 were we were locking in inflation in two years at 0:18:23.440 --> 0:18:26.639 under two point two percent, for two years, five years, 0:18:27.080 --> 0:18:29.360 five years around two and a half percent, ten years 0:18:29.359 --> 0:18:31.639 around two point four. So if you say, gosh, I 0:18:31.640 --> 0:18:34.840 can buy one in two year high quality assets at 0:18:34.960 --> 0:18:38.439 four and a half to five, I'm projecting my inflation 0:18:38.640 --> 0:18:42.840 risk in the low two's. Boy, I'm locking in real rates. 0:18:42.880 --> 0:18:46.240 I'm financing company by the way, not just companies commercial mortgages, 0:18:46.760 --> 0:18:49.680 UM financing companies with a real rate. That's pretty attractive. 0:18:49.720 --> 0:18:51.920 And you can actually people can talk about the stickiness 0:18:51.960 --> 0:18:55.560 of inflation, which is real shelter inflations, high wages are high. 0:18:55.880 --> 0:18:58.040 But boy, you can do some things in the market 0:18:58.320 --> 0:19:01.280 that can that can certainly hedge your your inflation risk 0:19:01.359 --> 0:19:04.280 and then carried quite well in the market today. So 0:19:04.400 --> 0:19:07.320 it's the inflation risk is not what some people fear, 0:19:07.320 --> 0:19:09.720 it is is actually coming down. Why is that? Is 0:19:09.720 --> 0:19:12.280 that because the feed is tightening and tightening the money 0:19:12.359 --> 0:19:14.520 or is it actually is there something the notion the 0:19:14.520 --> 0:19:17.840 supply chain is loosening up some So I think it's 0:19:17.840 --> 0:19:19.920 two parts. One. I think the Fed deserves an awful 0:19:19.960 --> 0:19:21.520 lot of credit, don't So now is there was enough 0:19:21.520 --> 0:19:24.520 criticism to go around myself included that last year they're 0:19:24.520 --> 0:19:26.879 waited too long, Kui. I think that's been well chronicled. 0:19:27.480 --> 0:19:31.080 This year. They cannot be anymore clear. They cannot be 0:19:31.840 --> 0:19:35.520 uh more more strident in inflation is what they're doing, 0:19:35.560 --> 0:19:37.240 and they're not going to back off that. And you know, 0:19:37.280 --> 0:19:39.280 I think they're going to get the funds rate to 0:19:39.640 --> 0:19:42.240 four or three and three quarters of the four probably four, 0:19:42.640 --> 0:19:44.320 and then I think they're gonna let long and variable 0:19:44.400 --> 0:19:47.680 lags of montary policy do their things. So they're pretty clear. 0:19:47.720 --> 0:19:50.919 So I think there's a credibility from the Fed that 0:19:50.960 --> 0:19:52.800 I think you've you've got to uh, you've got to 0:19:52.800 --> 0:19:56.359 applaud in terms of what they're doing today. Second is, 0:19:56.400 --> 0:19:59.480 as you said, supply chain. You see real, real improvement 0:19:59.520 --> 0:20:01.960 and supply change. You see in some of the PPI numbers. 0:20:02.240 --> 0:20:04.679 You see freight costs coming down, you see commodity costs 0:20:04.680 --> 0:20:07.919 coming down. So there are some reasons to see you 0:20:08.280 --> 0:20:11.720 to see that they cash some of this inflation. You know, 0:20:11.760 --> 0:20:13.560 by the way, you also see an inventory levels look 0:20:13.600 --> 0:20:15.840 at retailers or inventory levels are up quite a bit. 0:20:16.200 --> 0:20:17.959 In fact, there's not there's not places to put some 0:20:18.040 --> 0:20:21.000 things that I see you'll see some price discounts. Um 0:20:21.160 --> 0:20:23.560