WEBVTT - BlackRock's Rick Rieder Talks Trade Tensions 0:00:02.480 --> 0:00:07.000 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:07.720 --> 0:00:09.720 We begin the sound with trade tensions Wang on the 0:00:09.720 --> 0:00:13.280 tech sector. Rick Reader of Black Croc writing. Taking opportunistic 0:00:13.320 --> 0:00:16.240 positions in good quality companies in the equity market has 0:00:16.480 --> 0:00:19.080 and should continue to pay off for investors with longer 0:00:19.360 --> 0:00:22.000 time horizons. I'm pleased to say the Rick join us 0:00:22.040 --> 0:00:24.520 now for more. Rick Reader, it's been too long, my friend. 0:00:24.600 --> 0:00:26.840 Let's go straight to it. I just want to understand 0:00:27.320 --> 0:00:30.040 what you've been seeing with the team over the last 0:00:30.040 --> 0:00:33.080 week or so. Have the foreign buyers of treasuries been 0:00:33.120 --> 0:00:34.000 pulling back. 0:00:35.880 --> 0:00:38.600 So? I mean, boy, it's been an incredible period. 0:00:38.600 --> 0:00:40.879 I mean, so you know, to start with, I mean 0:00:40.880 --> 0:00:42.680 the treasury market to move back in the treasurer of 0:00:42.680 --> 0:00:46.159 Friday was extraordinary. This pressure on the treasury market, concern 0:00:46.240 --> 0:00:50.040 about international selling that was that was pretty amazing. And 0:00:50.040 --> 0:00:52.480 then we bounced back pretty nicely as some calm has 0:00:52.520 --> 0:00:54.680 come back in and then you know, the volatile and 0:00:54.720 --> 0:00:56.800 the equity market of the daily volatile a little bit 0:00:56.840 --> 0:01:00.360 calmer this week. Those present you know, similar to what 0:01:00.400 --> 0:01:03.200 I said there before, it does present some opportunity in 0:01:03.240 --> 0:01:03.840 these markets. 0:01:03.840 --> 0:01:04.720 It is, I will tell you. 0:01:04.840 --> 0:01:08.920 The uncertainty though has led to liquidity in these markets 0:01:09.080 --> 0:01:10.360 that's pretty rough right now. 0:01:10.360 --> 0:01:12.240 When you go to execute, you've got to be very. 0:01:12.120 --> 0:01:14.840 Thoughtful and very tactical about how you do it because 0:01:14.880 --> 0:01:17.440 markets are very jumpy and very uncertain these days. 0:01:17.520 --> 0:01:19.680 And Rick, typically the place you go FORLL liquidity is 0:01:19.720 --> 0:01:24.360 the treasury market, deep predictable. That's why people buy treasuries. Rick, 0:01:24.440 --> 0:01:25.920 can I get your view on what you think was 0:01:25.959 --> 0:01:28.760 happening last week? Do you believe that was foreigners pulling back? 0:01:28.880 --> 0:01:31.600 Is there a question mark over the US safe haven status? 0:01:31.920 --> 0:01:34.399 Or is that just certain traits and winding things blowing up. 0:01:36.160 --> 0:01:37.240 It's a great question. I. 0:01:37.400 --> 0:01:39.440 So, first of all, you know when you have this 0:01:39.560 --> 0:01:41.759 pressure on the currency market, and by the way, it's 0:01:41.760 --> 0:01:44.360 super acute when you think about equities going down the 0:01:44.440 --> 0:01:46.320 same time that the currency is going down. 0:01:46.440 --> 0:01:49.200 Usually the dollar appreciates when you're in this risk off mode. 0:01:49.400 --> 0:01:53.640 So you've unquestionably seen the pressure on equities and international 0:01:53.640 --> 0:01:58.000 disposition of the equity of a number of US equities 0:01:58.200 --> 0:02:00.960 in the rates market, it's a bit more, but there's 0:02:00.960 --> 0:02:03.880 no question about it. There is some concern we fund 0:02:04.000 --> 0:02:07.040 so much of our treasury debt internationally. There is some 0:02:07.120 --> 0:02:10.520 concern with the currency depreciating, and then quite frankly, that 0:02:10.600 --> 0:02:14.120 the back end of the curve going through these periods 0:02:14.160 --> 0:02:18.040 of spasm where inflation is higher. You know, even if 0:02:18.040 --> 0:02:20.160 the FED cuts, what does it do for the back end. 0:02:20.160 --> 0:02:22.080 There's an argument that when you've been the FED cuts, 0:02:22.320 --> 0:02:25.680 the back end becomes less tethered, and in fact you 0:02:25.720 --> 0:02:26.799 get a steepening. 0:02:26.440 --> 0:02:26.880 Of the curve. 0:02:27.000 --> 0:02:30.200 So yes, I think there's some international disposition for sure 0:02:30.240 --> 0:02:33.040 as the currency weakens. But I think broadly it's its 0:02:33.160 --> 0:02:35.360 uncertainty and it's just hard. You see you watch days 0:02:35.360 --> 0:02:38.120 like Friday. You know, it's just hard stepping in, particularly 0:02:38.160 --> 0:02:40.440 in the back end, with this uncertainty still out there. 0:02:40.639 --> 0:02:42.160 So rack, at what point would you step in? 0:02:44.320 --> 0:02:47.440 So so I like gowning the belly of the yield curve, 0:02:47.440 --> 0:02:49.679 and I like gowning you know, the front end has 0:02:49.760 --> 0:02:52.560 gotten pretty well priced. I mean, you've got to and 0:02:52.600 --> 0:02:54.679 I think the way you all described it, you know, 0:02:54.720 --> 0:02:56.720 the FED you're pricing an awful lot of cuts for 0:02:56.760 --> 0:03:00.400 the FED this year and you haven't seen that hard datauration. 0:03:00.480 --> 0:03:03.200 I do think you'll see that in labor over the 0:03:03.240 --> 0:03:05.640 next two or three months. You'll see some pullback of 0:03:05.880 --> 0:03:09.079 probably some significance in place like healthcare and education, leisure 0:03:09.120 --> 0:03:10.880 and hospitality, but we've got. 0:03:10.800 --> 0:03:11.240 To see it. 0:03:11.560 --> 0:03:13.920 But the ability of the Ueld curve, there are some opportunities, 0:03:13.919 --> 0:03:16.760 and quite frankly, Europe is more interesting because you don't 0:03:16.760 --> 0:03:18.720 have the inflation impact in Europe. 0:03:18.880 --> 0:03:20.919 The ECB has got to cut more aggressively. 0:03:21.200 --> 0:03:23.160 So I actually think, you know, we've you know where 0:03:23.200 --> 0:03:24.600 we've seen some real opportunities. 0:03:24.600 --> 0:03:26.560 Actually European rates very different. 0:03:26.600 --> 0:03:28.240 And by the way, you don't you don't have the 0:03:28.240 --> 0:03:31.360 international disposition there. In fact, that's where you have probably 0:03:31.440 --> 0:03:33.480 international I'm sure you have international buying. 0:03:33.520 --> 0:03:36.080 So European rates is a place recently we've liked quite 0:03:36.080 --> 0:03:36.320 a bit. 0:03:36.480 --> 0:03:38.920 Can we take this a step further? You talk about 0:03:38.960 --> 0:03:42.280 how US treasury markets tend to be the deepest, most liquid, 0:03:42.320 --> 0:03:44.640 and then you talk about how rocky liquidity has been 0:03:44.680 --> 0:03:48.280 and how execution risk has become an increasing consideration for you. 0:03:48.800 --> 0:03:50.920 Have we gone to the point where on some of 0:03:50.960 --> 0:03:54.360 these days the European rates market has actually been more 0:03:54.440 --> 0:03:56.480 liquid than the US rates market. 0:03:58.480 --> 0:04:02.640 Good question, More quid. I don't know if you know 0:04:02.720 --> 0:04:05.520 certainly the back end of the yield curve. It takes 0:04:05.600 --> 0:04:08.440 price to get to get execution. I don't know if 0:04:08.480 --> 0:04:11.360 it's more liquid, it certainly feels to me like you 0:04:11.480 --> 0:04:15.080 have this ballast of you've got an ECB moving, you've 0:04:15.120 --> 0:04:17.320 got a yield curve that's also that's already pretty steep 0:04:17.360 --> 0:04:19.520 in Europe. And by the way, if you're a dollar investor, 0:04:19.600 --> 0:04:22.560 you get a cross currency swap benefit, and because of 0:04:22.640 --> 0:04:25.080 curves so steep, you roll down. So you know, there 0:04:25.080 --> 0:04:27.040 are a lot of reasons why I'm sure others as 0:04:27.040 --> 0:04:29.880 well as ourselves have felt like it's a it's a 0:04:29.920 --> 0:04:32.800 safer place to be, even though you're going to get 0:04:32.800 --> 0:04:35.240 European funding of fiscal and issues over the next couple 0:04:35.240 --> 0:04:35.560 of years. 0:04:35.560 --> 0:04:36.559 That just takes some time. 0:04:37.120 --> 0:04:39.760 But I don't, you know, I still say the traagery 0:04:39.760 --> 0:04:45.080 market generally is much deeper, but you know, Europe, you 0:04:45.200 --> 0:04:48.000 definitely see more buyers coming in internationally as well as 0:04:48.040 --> 0:04:49.000 what we see in the States. 0:04:49.400 --> 0:04:52.000 It seems like the picture that you're painting is a 0:04:52.040 --> 0:04:55.120 regime change. The picture that you're painting is shifting away 0:04:55.160 --> 0:04:58.520 from the United States and following a real flood of 0:04:58.560 --> 0:05:01.880 money into some of the or markets, and frankly not 0:05:02.120 --> 0:05:04.280 betting that the long end of the yield curve will 0:05:04.320 --> 0:05:07.520 provide the ballast that it has in the past. Can 0:05:07.560 --> 0:05:10.120 you talk about what else has changed? Does this really 0:05:10.240 --> 0:05:13.479 undermine or reshape the way you look at sixty forty 0:05:13.560 --> 0:05:15.480 or the position of gold in your portfolio? 0:05:17.800 --> 0:05:19.680 That is a long it's a great discussion. That's a 0:05:19.680 --> 0:05:21.760 long discussion. A ton has changed. 0:05:22.200 --> 0:05:24.480 Like you say, we've added in the portfolio, is not 0:05:24.560 --> 0:05:26.920 in our fixed income. At other portfolios we've added gold. 0:05:27.320 --> 0:05:29.640 We think gold is a is a is a good 0:05:29.800 --> 0:05:33.360 hedge generally, you know, quite frankly, you have to do 0:05:33.440 --> 0:05:35.920 during periods like this, you tactically hold more cash. 0:05:35.680 --> 0:05:36.520 In the portfolios. 0:05:36.960 --> 0:05:39.040 We've done that back end of the yield curve and 0:05:39.120 --> 0:05:41.520 interest rates and as a hedge when you've got inflation 0:05:41.680 --> 0:05:45.640 moving potentially signmularly higher, not really a big benefit to 0:05:45.680 --> 0:05:48.000 the portfolio. So and then the other one, when you 0:05:48.000 --> 0:05:51.560 get rates backing up, you can get your yield much 0:05:51.600 --> 0:05:55.200 more attractively using high quality assets. So even though you 0:05:55.240 --> 0:05:57.120 know you're you know, some pressure on parts of the 0:05:57.160 --> 0:05:59.279 high yield market, pressure is in the left loan market, 0:05:59.800 --> 0:06:02.120 can actually still create them. In one of our ETF 0:06:02.200 --> 0:06:05.040 is bing ETF, we're able to create over seven percent 0:06:05.120 --> 0:06:08.680 yield and actually improve the quality of portfolio. Run more cash. 0:06:08.920 --> 0:06:11.240 That becomes super attractive. As long as you're not stretching, 0:06:11.680 --> 0:06:15.480 go down the credit structure into the triple C rated 0:06:15.520 --> 0:06:17.479 high yield, you can actually create more yield today. 0:06:17.520 --> 0:06:19.719 So I like the idea, build some more. 0:06:19.560 --> 0:06:22.640 Cash, use some tools that are different than in the past, 0:06:23.040 --> 0:06:25.240 and then quite frankly, just get higher quality and more 0:06:25.279 --> 0:06:26.520 liquidity in the portfolio. 0:06:26.920 --> 0:06:29.400 Do you think the rhetoric around the fact that some 0:06:29.520 --> 0:06:32.640 investors are saying they're dumping dollar, dumping treasuries, that the 0:06:32.720 --> 0:06:36.679 US is losing safe haven reserve asset level. 0:06:36.760 --> 0:06:38.080 Do you think that rhetoric is overblown. 0:06:40.640 --> 0:06:43.039 I'd say sentiment can change really quickly. 0:06:43.160 --> 0:06:45.880 I mean, we're in this period now where there's clearly 0:06:46.360 --> 0:06:49.240 a concern about the currency, and there's clearly a concern 0:06:49.320 --> 0:06:51.680 about how do we bring the debt down, how do 0:06:51.720 --> 0:06:53.440 we get how do we get interest rates down? 0:06:53.480 --> 0:06:55.520 So I'd say near term, you know, there is a 0:06:55.600 --> 0:06:56.200 question listen. 0:06:56.200 --> 0:06:59.440 I think reserve currency status status is something that is 0:06:59.560 --> 0:07:01.719 absolutely critical to the United States. 0:07:01.720 --> 0:07:03.880 We fund a lot of deck globally. The number of 0:07:04.040 --> 0:07:05.880 you know, the percentage of trades in the world. 0:07:05.640 --> 0:07:09.440 That happen in dollars bills as a collateral for for 0:07:09.440 --> 0:07:11.640 for many of the transactions in the world. I think 0:07:11.640 --> 0:07:15.600 reserve currency status is absolutely critical. Are you denting it? 0:07:16.000 --> 0:07:18.640 You're definitely denting it. And listen, I think that I 0:07:18.640 --> 0:07:19.000 think this. 0:07:19.040 --> 0:07:20.200 Year is going to change. 0:07:20.400 --> 0:07:22.080 I think we've got a couple of months here where 0:07:22.080 --> 0:07:25.240 there's a lot of uncertainty an economy that's probably in 0:07:25.240 --> 0:07:28.040 the recession today in terms of certainly where corporate spend 0:07:28.080 --> 0:07:30.120 will be. And then but I think as you get 0:07:30.120 --> 0:07:32.320 to the back half of the year, things can really evolve. 0:07:32.400 --> 0:07:35.320 So listen, I think you're chipping away at reserve currency, 0:07:35.640 --> 0:07:38.040 but I don't think there's a natural alternative. 0:07:38.240 --> 0:07:40.080 So and I, you know, and I think I think 0:07:40.120 --> 0:07:41.600 things can change. Hopefully they do. 0:07:41.800 --> 0:07:43.680 Rick hopefully they do. But that last point there, I 0:07:43.680 --> 0:07:46.920 think is important. If we are in recession today, do 0:07:46.960 --> 0:07:50.480 you think risk assets are approprily priced for that scenario? 0:07:52.760 --> 0:07:56.000 So I would say, I would say today, listen, I 0:07:56.040 --> 0:07:58.080 think that I think the tail, the tail has the 0:07:58.120 --> 0:08:01.920 taist has gotten fatter. I think quality assets there they 0:08:01.920 --> 0:08:04.200 are pretty reasonable. There's a lot of quality assets we've 0:08:04.280 --> 0:08:07.440 added to agency mortgages, et cetera. Listen, I think you've 0:08:07.480 --> 0:08:09.800 got to put a wider range on the equity market 0:08:09.840 --> 0:08:12.720 today than you've had before. You've got an economy that's 0:08:12.720 --> 0:08:15.960 pretty uncertain, and you've got to you know, I think 0:08:16.000 --> 0:08:18.360 you've got to keep your beta a bit more restrained today. 0:08:18.520 --> 0:08:20.360 Quite frankly, one of the most interesting trades in the 0:08:20.440 --> 0:08:22.760 last couple of weeks has been to sell puts. You know, 0:08:22.800 --> 0:08:25.480 not to necessarily increase, but you know, the best time 0:08:25.560 --> 0:08:27.880 to sell insurance is after a hurricane. 0:08:27.840 --> 0:08:30.800 And they've been some great trades. Actually sell downside. We 0:08:30.880 --> 0:08:31.280 are Gosh. 0:08:31.320 --> 0:08:32.920 You know, if we go down another ten to fifteen 0:08:33.040 --> 0:08:36.280 twenty depending on single name, go down ten fifteen twenty percent, 0:08:36.679 --> 0:08:39.520 you get paid handsomely for taking that. So keep your 0:08:39.559 --> 0:08:42.040 beta restrained, hunker down a bit in terms of risk, 0:08:42.400 --> 0:08:44.600 but then find someplace like Gosh. I would add if 0:08:44.600 --> 0:08:47.160 we came down, if we if markets went down significantly. 0:08:47.200 --> 0:08:49.480 So anyway, a bunch of things to do in this market. 0:08:49.559 --> 0:08:50.760 And I think, but I just think you have to 0:08:50.800 --> 0:08:54.839 expand your the where you think your return objectives are 0:08:54.840 --> 0:08:56.400 going to be, in the probability around it. 0:08:56.760 --> 0:08:59.480 In an environment like this, things have changed a lot. 0:08:59.559 --> 0:09:01.800 Rick is good to see you as always Rick Reader 0:09:01.800 --> 0:09:03.320 of black Rock there, Rick, Thank you sir. We'll doing 0:09:03.320 --> 0:09:03.800 it again soon.