Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: We begin the sound with trade tensions Wang on the
Speaker 2: tech sector. Rick Reader of Black Croc writing. Taking opportunistic
Speaker 2: positions in good quality companies in the equity market has
Speaker 2: and should continue to pay off for investors with longer
Speaker 2: time horizons. I'm pleased to say the Rick join us
Speaker 2: now for more. Rick Reader, it's been too long, my friend.
Speaker 2: Let's go straight to it. I just want to understand
Speaker 2: what you've been seeing with the team over the last
Speaker 2: week or so. Have the foreign buyers of treasuries been
Speaker 2: pulling back.
Speaker 1: So? I mean, boy, it's been an incredible period.
Speaker 3: I mean, so you know, to start with, I mean
Speaker 3: the treasury market to move back in the treasurer of
Speaker 3: Friday was extraordinary. This pressure on the treasury market, concern
Speaker 3: about international selling that was that was pretty amazing. And
Speaker 3: then we bounced back pretty nicely as some calm has
Speaker 3: come back in and then you know, the volatile and
Speaker 3: the equity market of the daily volatile a little bit
Speaker 3: calmer this week. Those present you know, similar to what
Speaker 3: I said there before, it does present some opportunity in
Speaker 3: these markets.
Speaker 1: It is, I will tell you.
Speaker 3: The uncertainty though has led to liquidity in these markets
Speaker 3: that's pretty rough right now.
Speaker 1: When you go to execute, you've got to be very.
Speaker 3: Thoughtful and very tactical about how you do it because
Speaker 3: markets are very jumpy and very uncertain these days.
Speaker 2: And Rick, typically the place you go FORLL liquidity is
Speaker 2: the treasury market, deep predictable. That's why people buy treasuries. Rick,
Speaker 2: can I get your view on what you think was
Speaker 2: happening last week? Do you believe that was foreigners pulling back?
Speaker 2: Is there a question mark over the US safe haven status?
Speaker 2: Or is that just certain traits and winding things blowing up.
Speaker 1: It's a great question. I.
Speaker 3: So, first of all, you know when you have this
Speaker 3: pressure on the currency market, and by the way, it's
Speaker 3: super acute when you think about equities going down the
Speaker 3: same time that the currency is going down.
Speaker 1: Usually the dollar appreciates when you're in this risk off mode.
Speaker 3: So you've unquestionably seen the pressure on equities and international
Speaker 3: disposition of the equity of a number of US equities
Speaker 3: in the rates market, it's a bit more, but there's
Speaker 3: no question about it. There is some concern we fund
Speaker 3: so much of our treasury debt internationally. There is some
Speaker 3: concern with the currency depreciating, and then quite frankly, that
Speaker 3: the back end of the curve going through these periods
Speaker 3: of spasm where inflation is higher. You know, even if
Speaker 3: the FED cuts, what does it do for the back end.
Speaker 3: There's an argument that when you've been the FED cuts,
Speaker 3: the back end becomes less tethered, and in fact you
Speaker 3: get a steepening.
Speaker 1: Of the curve.
Speaker 3: So yes, I think there's some international disposition for sure
Speaker 3: as the currency weakens. But I think broadly it's its
Speaker 3: uncertainty and it's just hard. You see you watch days
Speaker 3: like Friday. You know, it's just hard stepping in, particularly
Speaker 3: in the back end, with this uncertainty still out there.
Speaker 4: So rack, at what point would you step in?
Speaker 3: So so I like gowning the belly of the yield curve,
Speaker 3: and I like gowning you know, the front end has
Speaker 3: gotten pretty well priced. I mean, you've got to and
Speaker 3: I think the way you all described it, you know,
Speaker 3: the FED you're pricing an awful lot of cuts for
Speaker 3: the FED this year and you haven't seen that hard datauration.
Speaker 3: I do think you'll see that in labor over the
Speaker 3: next two or three months. You'll see some pullback of
Speaker 3: probably some significance in place like healthcare and education, leisure
Speaker 3: and hospitality, but we've got.
Speaker 1: To see it.
Speaker 3: But the ability of the Ueld curve, there are some opportunities,
Speaker 3: and quite frankly, Europe is more interesting because you don't
Speaker 3: have the inflation impact in Europe.
Speaker 1: The ECB has got to cut more aggressively.
Speaker 3: So I actually think, you know, we've you know where
Speaker 3: we've seen some real opportunities.
Speaker 1: Actually European rates very different.
Speaker 3: And by the way, you don't you don't have the
Speaker 3: international disposition there. In fact, that's where you have probably
Speaker 3: international I'm sure you have international buying.
Speaker 1: So European rates is a place recently we've liked quite
Speaker 1: a bit.
Speaker 4: Can we take this a step further? You talk about
Speaker 4: how US treasury markets tend to be the deepest, most liquid,
Speaker 4: and then you talk about how rocky liquidity has been
Speaker 4: and how execution risk has become an increasing consideration for you.
Speaker 4: Have we gone to the point where on some of
Speaker 4: these days the European rates market has actually been more
Speaker 4: liquid than the US rates market.
Speaker 3: Good question, More quid. I don't know if you know
Speaker 3: certainly the back end of the yield curve. It takes
Speaker 3: price to get to get execution. I don't know if
Speaker 3: it's more liquid, it certainly feels to me like you
Speaker 3: have this ballast of you've got an ECB moving, you've
Speaker 3: got a yield curve that's also that's already pretty steep
Speaker 3: in Europe. And by the way, if you're a dollar investor,
Speaker 3: you get a cross currency swap benefit, and because of
Speaker 3: curves so steep, you roll down. So you know, there
Speaker 3: are a lot of reasons why I'm sure others as
Speaker 3: well as ourselves have felt like it's a it's a
Speaker 3: safer place to be, even though you're going to get
Speaker 3: European funding of fiscal and issues over the next couple
Speaker 3: of years.
Speaker 1: That just takes some time.
Speaker 3: But I don't, you know, I still say the traagery
Speaker 3: market generally is much deeper, but you know, Europe, you
Speaker 3: definitely see more buyers coming in internationally as well as
Speaker 3: what we see in the States.
Speaker 4: It seems like the picture that you're painting is a
Speaker 4: regime change. The picture that you're painting is shifting away
Speaker 4: from the United States and following a real flood of
Speaker 4: money into some of the or markets, and frankly not
Speaker 4: betting that the long end of the yield curve will
Speaker 4: provide the ballast that it has in the past. Can
Speaker 4: you talk about what else has changed? Does this really
Speaker 4: undermine or reshape the way you look at sixty forty
Speaker 4: or the position of gold in your portfolio?
Speaker 1: That is a long it's a great discussion. That's a
Speaker 1: long discussion. A ton has changed.
Speaker 3: Like you say, we've added in the portfolio, is not
Speaker 3: in our fixed income. At other portfolios we've added gold.
Speaker 3: We think gold is a is a is a good
Speaker 3: hedge generally, you know, quite frankly, you have to do
Speaker 3: during periods like this, you tactically hold more cash.
Speaker 1: In the portfolios.
Speaker 3: We've done that back end of the yield curve and
Speaker 3: interest rates and as a hedge when you've got inflation
Speaker 3: moving potentially signmularly higher, not really a big benefit to
Speaker 3: the portfolio. So and then the other one, when you
Speaker 3: get rates backing up, you can get your yield much
Speaker 3: more attractively using high quality assets. So even though you
Speaker 3: know you're you know, some pressure on parts of the
Speaker 3: high yield market, pressure is in the left loan market,
Speaker 3: can actually still create them. In one of our ETF
Speaker 3: is bing ETF, we're able to create over seven percent
Speaker 3: yield and actually improve the quality of portfolio. Run more cash.
Speaker 3: That becomes super attractive. As long as you're not stretching,
Speaker 3: go down the credit structure into the triple C rated
Speaker 3: high yield, you can actually create more yield today.
Speaker 1: So I like the idea, build some more.
Speaker 3: Cash, use some tools that are different than in the past,
Speaker 3: and then quite frankly, just get higher quality and more
Speaker 3: liquidity in the portfolio.
Speaker 4: Do you think the rhetoric around the fact that some
Speaker 4: investors are saying they're dumping dollar, dumping treasuries, that the
Speaker 4: US is losing safe haven reserve asset level.
Speaker 3: Do you think that rhetoric is overblown.
Speaker 1: I'd say sentiment can change really quickly.
Speaker 3: I mean, we're in this period now where there's clearly
Speaker 3: a concern about the currency, and there's clearly a concern
Speaker 3: about how do we bring the debt down, how do
Speaker 3: we get how do we get interest rates down?
Speaker 1: So I'd say near term, you know, there is a
Speaker 1: question listen.
Speaker 3: I think reserve currency status status is something that is
Speaker 3: absolutely critical to the United States.
Speaker 1: We fund a lot of deck globally. The number of
Speaker 1: you know, the percentage of trades in the world.
Speaker 3: That happen in dollars bills as a collateral for for
Speaker 3: for many of the transactions in the world. I think
Speaker 3: reserve currency status is absolutely critical. Are you denting it?
Speaker 3: You're definitely denting it. And listen, I think that I
Speaker 3: think this.
Speaker 1: Year is going to change.
Speaker 3: I think we've got a couple of months here where
Speaker 3: there's a lot of uncertainty an economy that's probably in
Speaker 3: the recession today in terms of certainly where corporate spend
Speaker 3: will be. And then but I think as you get
Speaker 3: to the back half of the year, things can really evolve.
Speaker 3: So listen, I think you're chipping away at reserve currency,
Speaker 3: but I don't think there's a natural alternative.
Speaker 1: So and I, you know, and I think I think
Speaker 1: things can change. Hopefully they do.
Speaker 2: Rick hopefully they do. But that last point there, I
Speaker 2: think is important. If we are in recession today, do
Speaker 2: you think risk assets are approprily priced for that scenario?
Speaker 3: So I would say, I would say today, listen, I
Speaker 3: think that I think the tail, the tail has the
Speaker 3: taist has gotten fatter. I think quality assets there they
Speaker 3: are pretty reasonable. There's a lot of quality assets we've
Speaker 3: added to agency mortgages, et cetera. Listen, I think you've
Speaker 3: got to put a wider range on the equity market
Speaker 3: today than you've had before. You've got an economy that's
Speaker 3: pretty uncertain, and you've got to you know, I think
Speaker 3: you've got to keep your beta a bit more restrained today.
Speaker 3: Quite frankly, one of the most interesting trades in the
Speaker 3: last couple of weeks has been to sell puts. You know,
Speaker 3: not to necessarily increase, but you know, the best time
Speaker 3: to sell insurance is after a hurricane.
Speaker 1: And they've been some great trades. Actually sell downside. We
Speaker 1: are Gosh.
Speaker 3: You know, if we go down another ten to fifteen
Speaker 3: twenty depending on single name, go down ten fifteen twenty percent,
Speaker 3: you get paid handsomely for taking that. So keep your
Speaker 3: beta restrained, hunker down a bit in terms of risk,
Speaker 3: but then find someplace like Gosh. I would add if
Speaker 3: we came down, if we if markets went down significantly.
Speaker 3: So anyway, a bunch of things to do in this market.
Speaker 3: And I think, but I just think you have to
Speaker 3: expand your the where you think your return objectives are
Speaker 3: going to be, in the probability around it.
Speaker 2: In an environment like this, things have changed a lot.
Speaker 2: Rick is good to see you as always Rick Reader
Speaker 2: of black Rock there, Rick, Thank you sir. We'll doing
Speaker 2: it again soon.