WEBVTT - Single Best Idea with Tom Keene: Jim Caron & Joe Davis

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news, single best idea out

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<v Speaker 1>I can't remember as well. We say to you, thank you.

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<v Speaker 1>I know you're listening to podcasts like The Big Take.

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<v Speaker 1>David Gura recently really strong in our politics as conversation

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<v Speaker 1>with different politicians. Janet Yellen I thought was the Secretary

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<v Speaker 1>of Treasury was just really prescient. But you know The

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<v Speaker 1>Big Take twenty minute podcast. We try to slip it

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<v Speaker 1>in with a five or six minute jewel for you

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<v Speaker 1>of conversation. Steve Eisman darkening the door today. You knew

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<v Speaker 1>him in The Big Short. Actually quoted a thing on

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<v Speaker 1>The Big Short on the banks. Iiceman said, the banks, Well,

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<v Speaker 1>it's better, but that's not where he is. He's focused

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<v Speaker 1>on broad themes of artificial intelligence, technology, an infrastructure. That's

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<v Speaker 1>where Steve Eisman is right now. We were focused on

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<v Speaker 1>the FED yesterday, thanks for the huge response to the

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<v Speaker 1>Fed decides really really extraordinary with no market reaction, and

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<v Speaker 1>then this morning boom up we go with a bid

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<v Speaker 1>to the market. To say the least. Jim Karen joined

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<v Speaker 1>from Morgan Stanley talk to him about all sorts of things,

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<v Speaker 1>including the boade and observatory. Here Jim caern On, Debt,

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<v Speaker 1>and Powell.

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<v Speaker 2>My view is is that if we are in an

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<v Speaker 2>inflationary environment, and I still believe that we are in one,

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<v Speaker 2>is inflation stable for now, then that means that the

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<v Speaker 2>FED does not have a free shot at just cutting

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<v Speaker 2>interest rates as aggressively without inflation picking up. And so

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<v Speaker 2>my suspicion here again, this is a suspicion one of

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<v Speaker 2>the things that triggered the FED to move as aggressively

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<v Speaker 2>as they did is that they may may think that

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<v Speaker 2>the employment situation is worse than what the data is

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<v Speaker 2>actually telling us, and that they do need to move

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<v Speaker 2>quickly today. So this goes back to the thought that

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<v Speaker 2>if they go fifty, what are they telling the markets?

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<v Speaker 2>Should we be nervous. I'm a little concerned here, and

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<v Speaker 2>I want to be very clear about that. I want

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<v Speaker 2>to admit that that I think the unemployment rate is

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<v Speaker 2>probably really higher than what is actually being forecasted in

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<v Speaker 2>the data.

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<v Speaker 1>Boy, do we have fun with this. Jim Caron is

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<v Speaker 1>prodigious in legitimate physics, mathematics, and astronomy out of Boden

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<v Speaker 1>and Caltech and I'm not going to take a lot

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<v Speaker 1>of time here, but we took it over to the

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<v Speaker 1>geometric space. And you remember a Cartesian chart you made

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<v Speaker 1>in school of a y axis and the x axis. Well,

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<v Speaker 1>think about an axis coming out of the page that's

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<v Speaker 1>a z axis, and that gets you into a thing

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<v Speaker 1>called spherical geometry. And if you have three ideas, as

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<v Speaker 1>mister Karen talks about there, the one he's looking at

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<v Speaker 1>is the mystery is the labor economy. And of all

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<v Speaker 1>our conversations today, that's sent it around to the October

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<v Speaker 1>labor report. Week of November, Anna Wong was brilliant on that.

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<v Speaker 1>To continue Jim Caron here again is he looks forward

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<v Speaker 1>in the FED.

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<v Speaker 2>This is positive for risky assets and credit spreads. Just

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<v Speaker 2>broadly speaking, Powell is basically saying that he is going

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<v Speaker 2>to stand behind and support this market. If we look

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<v Speaker 2>at default rates, default rates have been coming down, specifically,

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<v Speaker 2>Tom default rates have been coming down even in the

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<v Speaker 2>triple C space, So even in the part of the

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<v Speaker 2>credit market that people are worried about the most, so

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<v Speaker 2>the lower credit echelons, triple c's, those spreads have actually

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<v Speaker 2>started to come in as as well. Now, if that

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<v Speaker 2>starts to happen. Then what you're going to see is

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<v Speaker 2>a decline in the overall yield for high yield, and

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<v Speaker 2>it makes it a very positive setup for these assets.

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<v Speaker 2>And let's not just talk about high yield. We can

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<v Speaker 2>also talk about private credit, private assets, all of these

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<v Speaker 2>other things all are competing with each other for returns.

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<v Speaker 2>So as these bond yields and these credit spreads start

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<v Speaker 2>to come in, money is going to start to follow it.

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<v Speaker 2>And I think this becomes positive not just for bonds,

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<v Speaker 2>but also frequities.

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<v Speaker 1>Jim Caeren generous half hore with us today. He is

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<v Speaker 1>with Morgan Stanley. One of the things we've done right

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<v Speaker 1>from the beginning. And I don't I can honestly say, folks,

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<v Speaker 1>I don't know where this started. I think it just

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<v Speaker 1>started out of my curiosity. That's a curiosity is an

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<v Speaker 1>important word from Matt Winkler, who is the founder of

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<v Speaker 1>Bloomberg News, founding anitor in chief and now at chief Emeritis.

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<v Speaker 1>But the curiosity of who are these people and what

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<v Speaker 1>were there like. We talked to Anna Wong today about

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<v Speaker 1>her first moment at Berkeley with a giant Barry Keen

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<v Speaker 1>Green of International Economics, well we talked to you know,

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<v Speaker 1>Joe Davis shows up from Vanguard, always interesting looking at

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<v Speaker 1>really twisted things for the giant of index funds. And

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<v Speaker 1>you know what you got to ask Joe Davis is simple,

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<v Speaker 1>how scared were you? Were you sitting in the chair

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<v Speaker 1>with John Bogel The.

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<v Speaker 3>First question he asked me first day on the job,

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<v Speaker 3>because Joe, you need to help me help investors have

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<v Speaker 3>a coj and framework for where we're long term earnings growth, pe,

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<v Speaker 3>dividends and what drives interest rates? Right, and so he

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<v Speaker 3>you know, and Tom as you well know, we are

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<v Speaker 3>very large active fixed income managers. So our cyclical assessment

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<v Speaker 3>of risky economy matter a lot. But I think it's

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<v Speaker 3>really that long term. How do I think about debt,

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<v Speaker 3>how do I think about AI? What if any what

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<v Speaker 3>that means for corporate earnings in the portfolios we have

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<v Speaker 3>to assemble for clients. So that's that's why I've been

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<v Speaker 3>there for twenty years. And you know economists sometimes don't

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<v Speaker 3>always last that long, but that's really been the big reason.

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<v Speaker 3>And our group has grown and we have a seventy

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<v Speaker 3>five person research organization of Anger.

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<v Speaker 1>Joe Davis at Vanguard is sidecar right now, is he's

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<v Speaker 1>really really studying how much of artificial intelligence will be benefit,

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<v Speaker 1>will have impact on society looking at five and ten years.

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<v Speaker 1>Just an extraordinary day here after the FED need to

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<v Speaker 1>say thank you, to tell you and all of our

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<v Speaker 1>the FED decides meeting and also of course what we're

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<v Speaker 1>driving in the conversation each in every morning. I'm Bloomberg

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<v Speaker 1>Surveillance again. Out on YouTube record audience yesterday. Thank you

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