WEBVTT - Rate Cuts and Election Policy Proposals 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.800 --> 0:00:14.880 This is the Bloomberg Surveillance Podcast. I'm Paul Sweeney along 0:00:14.880 --> 0:00:17.240 with Tom Keene. Join us each day for insight from 0:00:17.239 --> 0:00:20.760 the best in economics, geopolitics, finance, and investment. You can 0:00:20.800 --> 0:00:24.439 also watch the show live on YouTube. Visit the Bloomberg 0:00:24.480 --> 0:00:27.760 Podcast channel on YouTube to see the show weekday mornings 0:00:27.760 --> 0:00:30.400 from seven to ten Eastern Remark Global Headquarters in New 0:00:30.480 --> 0:00:33.720 York City. Subscribe to the podcast on Apple, Spotify, or 0:00:33.760 --> 0:00:36.800 anywhere else you listen, and as always on Bloomberg Radio, 0:00:36.840 --> 0:00:39.519 the Bloomberg Terminal, and the Bloomberg Business App. All right, 0:00:39.600 --> 0:00:42.080 I have my all time list of over educated guests, 0:00:42.120 --> 0:00:44.560 and our next one is certainly on this list. Okay, 0:00:44.960 --> 0:00:49.200 So Christina Hooper, chief Global Market Strategists for Invesco undergraduate 0:00:49.200 --> 0:00:50.000 degree from Wellesley. 0:00:50.360 --> 0:00:51.800 That's good. I have a lot of respect that. 0:00:52.280 --> 0:00:54.960 Then she gets some Masters and Industrial Relations from Cornell. 0:00:55.200 --> 0:00:57.120 Not sure what that is, but I know it's good. 0:00:57.600 --> 0:00:59.960 MBA from NYU. Okay, I think we're over doing it 0:01:00.240 --> 0:01:02.280 there a little bit. And then not only on that, 0:01:02.680 --> 0:01:03.920 she gets a law. 0:01:03.760 --> 0:01:05.440 Degree from Pace University. 0:01:05.640 --> 0:01:06.680 Oh my god, a law degree. 0:01:06.720 --> 0:01:08.440 I did not know this I did not know that either, 0:01:08.520 --> 0:01:10.160 so I knew she was the smartest person I talked 0:01:10.200 --> 0:01:10.360 to you. 0:01:10.400 --> 0:01:11.120 I know exactly. 0:01:11.240 --> 0:01:13.760 So we appreciate getting a few minutes at Christina Hooper's time. 0:01:13.920 --> 0:01:16.679 Hey Christina, what did you make of yesterday's trading? Was 0:01:16.720 --> 0:01:19.680 it just kind of the market kind of blowing off 0:01:19.720 --> 0:01:20.399 some steam here? 0:01:20.400 --> 0:01:21.200 What did you make of that? 0:01:22.760 --> 0:01:25.320 I think there are a lot of jitters right now, 0:01:26.000 --> 0:01:27.520 and I think a lot of it has to do 0:01:27.560 --> 0:01:32.240 with psychologically the fact that now markets are very confident 0:01:32.400 --> 0:01:36.319 that the Fed is going to cut bad news becomes 0:01:36.440 --> 0:01:39.919 bad news. You've heard it before, but it really is true. 0:01:40.040 --> 0:01:44.160 And so any signs that this economy is weakening more 0:01:44.560 --> 0:01:49.560 than we had initially thought is cause for a selloff, 0:01:49.880 --> 0:01:54.800 especially among stocks that are more closely priced for perfection. 0:01:55.320 --> 0:01:57.800 And that really is the story that we saw yesterday 0:01:57.840 --> 0:01:59.800 and we may very well see it again today. 0:02:00.360 --> 0:02:02.800 So it's a bad news is bad news situation when 0:02:02.800 --> 0:02:04.200 it comes to economic data. 0:02:04.240 --> 0:02:05.920 And then the equity market. 0:02:05.960 --> 0:02:09.359 But it's still a slowing not a downturn, right so 0:02:09.520 --> 0:02:11.200 I'm trying to understand the distinction. 0:02:11.360 --> 0:02:13.840 Then when we do have some sort of big equity move. 0:02:15.160 --> 0:02:17.720 Well, it is a slowing but keep in mind we 0:02:17.840 --> 0:02:23.639 don't exactly know how this monetary policy tightening plays out 0:02:23.760 --> 0:02:29.359 because of the long, variable lagged effects of monetary policy, 0:02:30.000 --> 0:02:35.280 and so that is the underlying fear that gives markets 0:02:35.600 --> 0:02:39.760 pause and jitters when we do get, for example, a 0:02:39.840 --> 0:02:46.720 disappointing manufacturing PMI, or we see earnings warnings from companies, 0:02:46.840 --> 0:02:49.840 or whatever the case may be. So I think that 0:02:50.080 --> 0:02:54.359 right now markets are walking on eggshells, and we could 0:02:54.480 --> 0:02:58.640 very well see this leading up to the FEDS meeting, 0:02:59.120 --> 0:03:02.920 and again we lead up to the election. So this 0:03:03.080 --> 0:03:07.880 should be I think a more volatile fall, one where 0:03:07.919 --> 0:03:13.800 there's more downside potential. But I think ultimately we end 0:03:14.400 --> 0:03:17.960 six months after the start of easing, I think we 0:03:18.160 --> 0:03:21.400 end in a better place because that is an environment 0:03:21.400 --> 0:03:23.840 that's supportive of risk assets. 0:03:23.800 --> 0:03:24.560 In the near term. 0:03:24.760 --> 0:03:27.600 Christina, how are you positioning or how are you suggesting 0:03:27.639 --> 0:03:31.320 to your portfolio managers at Invesco that they position themselves 0:03:31.360 --> 0:03:34.079 for I don't know the next three to six months. 0:03:34.080 --> 0:03:36.400 Whereas you say there may be some volatility. 0:03:37.240 --> 0:03:40.040 Well, I think there has to be. What we've been 0:03:40.040 --> 0:03:43.240 saying to clients is it's really important to have diversification. 0:03:43.560 --> 0:03:46.480 Sometimes you can look at periods of time and decide 0:03:47.160 --> 0:03:52.560 it doesn't make sense anymore to be well diversified among equities, 0:03:52.600 --> 0:03:57.000 fixed income, and alternatives. But this is a reminder that 0:03:57.560 --> 0:04:02.720 diversification helps to smooth out follow utility, and so having 0:04:02.720 --> 0:04:07.000 that exposure outside the US in the equity space, and 0:04:07.240 --> 0:04:10.120 keep in mind that there are many many investors who 0:04:10.160 --> 0:04:14.160 probably are overweight the US simply because they're not rebalancing 0:04:14.280 --> 0:04:16.840 frequently enough and we've had such a strong run up. 0:04:17.600 --> 0:04:20.400 There are many clients that are likely overexposed to large 0:04:20.400 --> 0:04:26.400 caps versus small caps, overexposed to growth versus cyclicals, overexposed 0:04:26.839 --> 0:04:30.960 to equities versus fixed income and alternatives. So this is 0:04:31.000 --> 0:04:35.680 an opportunity, I think, or a reminder at least to 0:04:35.760 --> 0:04:40.560 be well diversified, but also don't be afraid of equities, 0:04:40.640 --> 0:04:43.760 don't be afraid of risk assets. I look to ninety 0:04:43.800 --> 0:04:46.680 five ninety six as a guide. That was the last 0:04:46.880 --> 0:04:50.800 time the FED was actually successful and avoiding a recession 0:04:51.480 --> 0:04:54.720 when it tightened. Now there are some conditions that are 0:04:54.839 --> 0:04:58.640 very different than they are today, but my key takeaway 0:04:59.040 --> 0:05:04.360 is that it easing provides a tailwind for risk assets. Now. 0:05:04.360 --> 0:05:07.240 There wasn't much of a tailwind in ninety five ninety six. 0:05:07.320 --> 0:05:10.839 Because the FED only gave seventy five basis points and 0:05:10.920 --> 0:05:14.800 cuts for hiking rates three hundred basis points. We're looking 0:05:14.839 --> 0:05:20.320 out on expectations around two hundred basis points and cuts 0:05:20.560 --> 0:05:23.600 over the coming year, so we could have a far 0:05:23.680 --> 0:05:29.160 more powerful engine, far more fuel to support risk assets 0:05:29.520 --> 0:05:30.320 this time around. 0:05:30.640 --> 0:05:34.719 I have a question, which degree did you like getting best? 0:05:35.920 --> 0:05:39.240 I actually loved getting my MBA in finance. That was 0:05:39.279 --> 0:05:42.840 my sweet spot, and I love taing. I did it 0:05:42.880 --> 0:05:45.040 at night while I was working during the day, and 0:05:45.920 --> 0:05:47.720 I found it to be a virtuous circle. 0:05:48.400 --> 0:05:51.320 Half of Wall Street has their MBA from the Start 0:05:51.400 --> 0:05:52.640 School in NYO. 0:05:52.680 --> 0:05:53.360 I'm convinced. 0:05:53.560 --> 0:05:56.880 Yeah, I mean it unbelievable program. Now not what to do, 0:05:56.920 --> 0:05:59.800 but David, just a fantastic program. Christina, What do I 0:05:59.800 --> 0:06:03.160 do here with fixed income? Do I sit with my 0:06:03.200 --> 0:06:05.640 two year treasury close to four percent? Or do I 0:06:05.640 --> 0:06:07.400 try to take some credit risk? 0:06:09.520 --> 0:06:12.600 So I think you do both in the spirit of diversification. 0:06:13.760 --> 0:06:17.520 There when I look at the numbers, For example, in 0:06:17.560 --> 0:06:20.279 that six month period after the FED began easing in 0:06:20.400 --> 0:06:25.279 ninety five, high yield did very well. But I believe 0:06:25.360 --> 0:06:30.000 very strongly that history can often rhyme, but it's not 0:06:30.040 --> 0:06:33.920 repeating itself. So in my opinion, I think it's important 0:06:33.920 --> 0:06:38.560 to have some exposure to investment grade, and I also 0:06:38.760 --> 0:06:42.599 think there's a place for treasuries. I would go longer 0:06:42.680 --> 0:06:47.000 duration in this environment, locking in these higher yields, but 0:06:47.480 --> 0:06:50.440 this should be an environment in which we could see 0:06:50.440 --> 0:06:53.480 a variety of different asset classes perform well, as we 0:06:53.520 --> 0:06:56.640 did in that six month following the FED start of 0:06:56.640 --> 0:06:58.200 easing in July of ninety five. 0:06:59.360 --> 0:07:01.680 All right, thank you so much for joining us, Christina. 0:07:01.680 --> 0:07:03.200 We always love getting a few minutes of your time. 0:07:03.279 --> 0:07:18.440 Christina Hooper, she's a chief Global market strategist at Invesco. Politics. 0:07:18.480 --> 0:07:22.680 The election, it's here, I think three days to go 0:07:22.800 --> 0:07:25.480 or something. I think it's important for Global Wall Street. 0:07:25.480 --> 0:07:27.560 So let's try to figure out what it means for 0:07:27.600 --> 0:07:30.120 Global Wall Street. Libby Control she joins it. She's a 0:07:30.120 --> 0:07:33.200 managing director, head of Public Policy for Pimcoach. She joins 0:07:33.240 --> 0:07:35.960 us here in our studio in New York City. Libby, 0:07:36.400 --> 0:07:38.400 you were just mentioning how you've been traveling all over 0:07:38.440 --> 0:07:41.120 the place talking to Pimco clients. They want to know 0:07:41.160 --> 0:07:44.240 what you think about the election. Maybe what it means 0:07:44.240 --> 0:07:46.880 for markets, what's been your message, Yes, so. 0:07:46.840 --> 0:07:49.720 I would say, but there are non US clients are 0:07:49.760 --> 0:07:55.040 really interested in both the election promise and implications, particularly 0:07:55.040 --> 0:07:58.320 implications for debt sustainability. 0:07:57.720 --> 0:08:00.640 For the US dollar, and then taxation. 0:08:01.040 --> 0:08:03.160 I think what we're telling them, what we've been telling them, 0:08:03.480 --> 0:08:06.240 is that they really needed to wait until after September 0:08:06.280 --> 0:08:09.120 because that's actually when the polling starts firming up. It 0:08:09.120 --> 0:08:12.720 becomes a lot more predictive in terms of kind of 0:08:12.760 --> 0:08:14.960 providing some clarity in the race. Now we are in 0:08:15.000 --> 0:08:16.400 September and there is no clarity. 0:08:16.400 --> 0:08:17.200 I will just say I. 0:08:17.120 --> 0:08:19.800 Think our message to clients now is that this really 0:08:19.920 --> 0:08:22.480 is a is a jump ball. It will likely come 0:08:22.520 --> 0:08:24.640 down to those six swing states that everyone has been 0:08:24.680 --> 0:08:27.840 reading quite a bit about, particularly Pennsylvania. Pennsylvania is the 0:08:27.880 --> 0:08:32.360 most important state in our view. There are some themes 0:08:32.400 --> 0:08:35.040 though that sort of regardless of the election outcome, are 0:08:35.080 --> 0:08:37.840 going to be common between the candidates. One is that 0:08:37.920 --> 0:08:41.560 the deficits are going up regardless, and that's because the 0:08:41.640 --> 0:08:44.040 Trump task cuts and the individual side I'll expire at 0:08:44.040 --> 0:08:46.959 the end of next year. Maybe some of them are 0:08:47.000 --> 0:08:50.720 going to be paid for if they are extended will 0:08:50.720 --> 0:08:53.080 be extended, but most of them won't be, and so 0:08:53.160 --> 0:08:55.360 that will add to the deficit. And then also importantly, 0:08:55.400 --> 0:08:57.760 and I think people sort of forget this, but if 0:08:57.760 --> 0:09:00.000 you just look at sort of the base case scenario 0:09:00.280 --> 0:09:04.960 under the CBO's estimate for the nonpartisan Budget Scorekeeper in Washington, 0:09:05.080 --> 0:09:08.920 I mean, deficits are just structurally high because of entitlement spending, 0:09:08.960 --> 0:09:11.960 because of Medicare, of Social Security. These are really important programs, 0:09:11.960 --> 0:09:14.880 but they're also really expensive, and neither candidate is going 0:09:14.880 --> 0:09:16.600 to reform those. So I think the kind of the 0:09:16.640 --> 0:09:19.160 main takeaway here is deficits are going up regardless of 0:09:19.160 --> 0:09:21.640 who's actually going to win. And then we also think 0:09:21.679 --> 0:09:23.800 the direction of travel on tariffs is also clear, and 0:09:23.880 --> 0:09:26.520 export controls and sort of some of this protectionism. Of 0:09:26.520 --> 0:09:29.040 course they're gonna be shades of gray Trump most likely 0:09:29.360 --> 0:09:31.840 sort of more draconian than Harris, but still again. 0:09:31.720 --> 0:09:33.080 Direction of travel here is clear. 0:09:33.480 --> 0:09:35.480 Do you think that any of this is yet reflected 0:09:35.520 --> 0:09:38.080 in the market. I keep obsessing about like the low 0:09:38.200 --> 0:09:41.800 tax and high tax companies, to see if there's something 0:09:41.840 --> 0:09:43.760 there within this and just nothing. 0:09:44.120 --> 0:09:46.720 I would say that the only time we really started 0:09:46.720 --> 0:09:49.440 seeing this actually price in the market was that very 0:09:49.480 --> 0:09:52.320 short period of time in early July when it did 0:09:52.400 --> 0:09:57.160 look like, after the debate and after the assassination attempt 0:09:57.160 --> 0:10:00.720 of a former President Trump, that there the odds would 0:10:00.720 --> 0:10:03.319 be a red you know, red Republican sweep. That's when 0:10:03.360 --> 0:10:06.480 you start seeing sort of the term premium reinsert itself, 0:10:06.480 --> 0:10:10.199 and the and the US yield curve. You started seeing 0:10:10.240 --> 0:10:13.200 some of the sort of sector differentiation. But all of 0:10:13.240 --> 0:10:16.280 that basically is kind of you know, collapse has gone 0:10:16.280 --> 0:10:20.080 away effectively as this race has basically tightened and gone 0:10:20.080 --> 0:10:20.920 back to really where. 0:10:20.720 --> 0:10:22.679 It was in the spring, which is again just just 0:10:22.720 --> 0:10:23.280 to jump. 0:10:23.160 --> 0:10:27.839 Off, how about the down ballot? What happens to two 0:10:27.920 --> 0:10:29.360 houses of Congress? What's the thinking? 0:10:29.559 --> 0:10:31.880 Yeah, well so, and I you know, I used to 0:10:31.880 --> 0:10:33.400 work in Washington, used to work on the Hill, so 0:10:33.440 --> 0:10:36.600 I have a bias towards really focusing our clients on 0:10:36.679 --> 0:10:38.640 the importance of Congress. But I really think from a 0:10:39.160 --> 0:10:42.080 from an investor's perspective, what happens down ballot is just 0:10:42.160 --> 0:10:44.720 as important as what happens at the top of the 0:10:44.320 --> 0:10:47.640 ticket in many ways, particularly from a fiscal policy perspective, 0:10:47.679 --> 0:10:48.520 tax and spending. 0:10:49.559 --> 0:10:50.959 Again, I think it's gonna be very close. 0:10:51.640 --> 0:10:54.520 So this is really unsatisfying, I realized, And we're not 0:10:54.600 --> 0:10:56.240 just trying to punt on not making a call. 0:10:56.280 --> 0:10:58.920 I really do think it's going to My grands were 0:10:58.920 --> 0:11:00.240 talking about the Senate, the. 0:11:00.200 --> 0:11:01.120 Senate and the House. 0:11:01.800 --> 0:11:03.560 I think that you know, the Senate right now controlled 0:11:03.559 --> 0:11:05.040 by one vote by Democrats. 0:11:05.320 --> 0:11:07.559 The Senate map for Democrats. 0:11:07.120 --> 0:11:09.000 In terms of the number of seats that they're defending, 0:11:09.679 --> 0:11:14.000 much more difficult than for Republicans, and so very likely, 0:11:14.760 --> 0:11:17.240 you know, possible that the Democrats hold their majority, but 0:11:17.760 --> 0:11:20.760 unlikely at this point, so likely that the Senate flips, 0:11:20.800 --> 0:11:23.000 but again by probably just one vote, so that that 0:11:23.040 --> 0:11:25.440 actually has implications in twenty twenty five, and then the 0:11:25.480 --> 0:11:29.120 House again, maybe the House flips from Republican control the 0:11:29.120 --> 0:11:32.240 Democratic control. But regardless of actually who wins, it's going 0:11:32.320 --> 0:11:34.280 to be a very narrow majority. And what we have 0:11:34.400 --> 0:11:36.880 seen this session of Congress is that when you have 0:11:36.880 --> 0:11:39.960 a narrow majority of especially particularly we have divided chambers, 0:11:40.000 --> 0:11:42.800 but even if you have a Republican or Democratics sweep, 0:11:42.840 --> 0:11:44.640 it is just difficult to get a lot done. 0:11:45.520 --> 0:11:49.559 So exactly that gets exactly so then to that point, 0:11:49.880 --> 0:11:52.000 does it I'm going to get a lot of hate 0:11:52.000 --> 0:11:52.440 mail from this. 0:11:52.520 --> 0:11:54.119 Does it matter who's in the White House. 0:11:54.840 --> 0:11:57.960 I mean, it does matter, and particularly I just can't underscore. 0:11:58.920 --> 0:12:00.840 I'm just you know, everybody just needs to buckle up 0:12:00.840 --> 0:12:03.000 for next year. It is going to be a you know, 0:12:03.320 --> 0:12:06.840 tax palooza, if you will, There will be because of 0:12:06.880 --> 0:12:09.000 all the individual tax cuts on the Trump you know, 0:12:09.040 --> 0:12:11.520 the Trump Task cuts from twenty seventeen expiring at the 0:12:11.600 --> 0:12:13.800 end of twenty twenty five. Everything is going to be 0:12:13.840 --> 0:12:15.880 on the table. The corporate tax rate is going to 0:12:15.920 --> 0:12:17.600 be on the table, the child task credit is going 0:12:17.640 --> 0:12:19.280 to be on the table, Carried interest is going to 0:12:19.280 --> 0:12:21.080 be on I mean everything. So there will be a 0:12:21.080 --> 0:12:23.880 lot of headline risk. So it does it does matter 0:12:24.360 --> 0:12:26.320 because a lot of those things will go the way 0:12:26.360 --> 0:12:29.800 of the White House in terms of ideology. But outside 0:12:29.840 --> 0:12:31.079 of that, alex and this is what we're sort of 0:12:31.120 --> 0:12:33.720 guiding our clients to is outside of the debt ceiling 0:12:34.600 --> 0:12:37.920 you know issue, which it will be an issue sadly 0:12:38.200 --> 0:12:42.360 early next year, always an issue, right, unfortunate, especially as 0:12:42.400 --> 0:12:46.000 if you're a debt investor. And then also then tax 0:12:46.080 --> 0:12:47.679 I don't I just don't think Congress is going to 0:12:47.720 --> 0:12:49.960 be able to get very much, again, regardless of who's. 0:12:49.720 --> 0:12:50.160 The White House. 0:12:50.160 --> 0:12:52.439 But the White House does matter as obviously as it 0:12:52.480 --> 0:12:54.720 relates to many other things outside of fiscal policy. 0:12:54.800 --> 0:12:56.480 But from a tax perspective, it does matter. 0:12:57.160 --> 0:13:00.440 Are our election is going to be this close like forever? 0:13:00.760 --> 0:13:03.040 I mean, it seems like the last couple elections have 0:13:03.080 --> 0:13:05.960 been you're counting votes like starting. 0:13:05.640 --> 0:13:08.280 In two thousand. Is that kind of where the new 0:13:08.280 --> 0:13:09.320 world is today? 0:13:09.600 --> 0:13:10.320 I mean, it's possible. 0:13:10.320 --> 0:13:12.520 I think it's really difficult to prognosticate this sort of 0:13:12.559 --> 0:13:15.640 a super secular but you know, because of the geographic 0:13:15.720 --> 0:13:18.640 sort of self sorting that we've seen in the United States, 0:13:19.760 --> 0:13:22.079 you know, it has become and because of our sort 0:13:22.080 --> 0:13:26.680 of highly polarized nature, it has become you know, very close, 0:13:26.880 --> 0:13:28.560 particularly at the top of the ticket, and I do 0:13:28.640 --> 0:13:31.000 think that will likely, you know, that will likely continue. 0:13:31.800 --> 0:13:33.199 I mean, if you just look, you know, since the 0:13:33.280 --> 0:13:37.200 nineteen eighties, just the number of elections where one candidate 0:13:37.240 --> 0:13:38.840 has won the popular vote and the other candidate has 0:13:38.840 --> 0:13:40.600 won the electoral college. But I mean, it's really quite 0:13:40.880 --> 0:13:43.559 sort of staggering, and that is just because of sort 0:13:43.600 --> 0:13:46.800 of the kind of polarized nation of our country. The 0:13:47.280 --> 0:13:48.840 Senate and the House, I think are quite a little 0:13:48.880 --> 0:13:52.000 bit different the Senate in particular, just because that is 0:13:52.040 --> 0:13:55.040 more predicated on which seats are up and sort of 0:13:55.200 --> 0:13:56.640 the Senate map. But in terms of the top of 0:13:56.640 --> 0:13:59.080 the ticket, yeah, I think this is probably likely. 0:13:58.880 --> 0:14:00.760 To But even when the stake the Senate, it's still 0:14:00.760 --> 0:14:01.920 going to not Senate. 0:14:01.960 --> 0:14:05.079 But the House is me zoning like it's all redistricting, right, 0:14:05.160 --> 0:14:06.680 Like it's still all it. 0:14:06.760 --> 0:14:09.199 Redistricting happens once every ten years, and we just went 0:14:09.200 --> 0:14:11.920 through a registrating taking period, so that won't happen for 0:14:11.960 --> 0:14:14.040 another ten years. But yeah, that people are, you know, 0:14:14.160 --> 0:14:17.000 the way that state legislatures are right, are drawing these 0:14:17.000 --> 0:14:19.880 districts more blue and more red. But I think the 0:14:20.000 --> 0:14:23.560 upshot here for investors, maybe the silver lining is actually 0:14:23.560 --> 0:14:25.360 that this isn't such a bad thing, right, And I 0:14:25.360 --> 0:14:27.600 think that usually if you just look at how the 0:14:27.640 --> 0:14:31.080 SMP market at SMP has fared since nineteen thirty three, 0:14:31.760 --> 0:14:35.640 the market is actually does better under divided government under 0:14:35.760 --> 0:14:39.120 very narrowly controlled government. And that's, of course that's intuitively 0:14:39.120 --> 0:14:39.520 makes sense. 0:14:39.600 --> 0:14:39.680 Right. 0:14:39.760 --> 0:14:42.160 We like checks, checks and balances, and so does the market. 0:14:42.240 --> 0:14:44.560 All Right, we had sixty three days ago more or 0:14:44.640 --> 0:14:46.320 less Lebby Kentrell, thank you. 0:14:46.280 --> 0:14:49.800 So much for jacky Kin as a managing. 0:14:49.400 --> 0:15:03.360 Director, head of Public Policy at Pimcoke. All right, my 0:15:03.400 --> 0:15:06.800 finance professor Cam Harvey at Duke, he penned this paper 0:15:06.800 --> 0:15:10.000 about the inverted yield curve, leaving recessions and all that 0:15:10.040 --> 0:15:11.680 kind of stuff. I don't know, we've had an inverted 0:15:11.720 --> 0:15:13.280 yield curve for like a couple of years now. It 0:15:13.320 --> 0:15:17.040 seems like although today the two's tens the two three 0:15:17.080 --> 0:15:19.680 point eight five percent, the tenure three point eight three percent, 0:15:19.760 --> 0:15:22.760 So it's kind of uninverted or kind of flattened what 0:15:22.760 --> 0:15:26.800 the bond geeks called all astley almost disinverted, disinverted. Yeah, 0:15:26.840 --> 0:15:29.160 I like that very good. Andrew Sizarowski, he does his 0:15:29.160 --> 0:15:32.280 stuff for a living. He is a senior portfolio manager 0:15:32.320 --> 0:15:35.760 Morgan Stanley Investment Management. Hey, Andrew, what does it mean 0:15:35.840 --> 0:15:39.040 to you if anything that this yield curve is Alex 0:15:39.240 --> 0:15:42.000 just told me is kind of disinverted right here? 0:15:42.040 --> 0:15:42.880 Does that mean anything to you? 0:15:44.160 --> 0:15:44.360 Yeah? 0:15:44.400 --> 0:15:46.600 Look, I think it's the market kind of sending a 0:15:46.600 --> 0:15:49.320 signal that the Fed's about to kind of embark on 0:15:49.320 --> 0:15:52.680 this easing policy. You know, I myself have never kind 0:15:52.680 --> 0:15:55.400 of been a believer in the inverted yield curve being 0:15:55.440 --> 0:15:58.160 a kind of predictor of recessions. I think there's been 0:15:58.160 --> 0:16:00.360 a lot of distortions over the last couple year years 0:16:00.960 --> 0:16:03.400 between monetary policy. We had kind of QI and then 0:16:03.520 --> 0:16:06.320 QT and just to kind of a ton of supply 0:16:06.440 --> 0:16:07.840 it at the front end. So I think that the 0:16:07.920 --> 0:16:10.480 inverted yeal curve this time doesn't send the same signal 0:16:10.520 --> 0:16:12.760 that it's sent in past past cycles. But I think 0:16:12.840 --> 0:16:14.560 the one thing that's been happening, as you mentioned, the 0:16:14.560 --> 0:16:17.480 curve has been uninverting, and that's been sending investors a 0:16:17.520 --> 0:16:19.280 signal that, hey, you can actually go out the yeal 0:16:19.360 --> 0:16:22.040 curve now without giving up that same yield that you 0:16:22.040 --> 0:16:23.760 would have just a year ago or so. So I 0:16:23.760 --> 0:16:25.920 think that as you extend out the curve, it's getting 0:16:25.960 --> 0:16:27.960 more and more attractive, and I think that's something that 0:16:28.000 --> 0:16:30.320 investors should be looking to do. With the FED about 0:16:30.360 --> 0:16:31.640 to embark on this cutting. 0:16:31.320 --> 0:16:34.120 Cycle, with the set about to embark on a cutting cycle, 0:16:34.280 --> 0:16:35.600 what do I do with my money? 0:16:35.600 --> 0:16:37.200 Send it's yielding still that fu Yeah. 0:16:37.200 --> 0:16:39.960 Look, look there's over six trillion dollars that's sitting in 0:16:40.120 --> 0:16:42.880 money markets and that's money that again, not all of 0:16:42.920 --> 0:16:44.920 it's going to move out the curve. But if you 0:16:45.040 --> 0:16:48.200 stayed in that money market fund over the next sixteen 0:16:48.280 --> 0:16:51.880 months and the FED cutting cycle played out as the 0:16:51.920 --> 0:16:54.800 market's expecting, by the end of twenty twenty five, you're 0:16:54.840 --> 0:16:57.480 looking at a three percent T bill rate and by 0:16:57.560 --> 0:16:59.920 March of twenty by March of twenty five, you're looking 0:17:00.000 --> 0:17:02.600 at four percent people rate. So while you collect that 0:17:02.640 --> 0:17:04.679 five and a quarter percent today, if you just go 0:17:04.720 --> 0:17:06.960 out six months or so, it's going to be dramatically lower. 0:17:07.000 --> 0:17:08.440 So I think you do want to be moving out 0:17:08.440 --> 0:17:10.159 the curve. I think there's a lot of places that 0:17:10.200 --> 0:17:11.719 you can still lock in if you like that five 0:17:11.760 --> 0:17:13.760 and a quarter percent yield today, you can actually lock 0:17:13.800 --> 0:17:16.640 in over five percent yields without taking any credit risk 0:17:16.680 --> 0:17:19.119 by going out into the agency mortgage backed security market. 0:17:19.160 --> 0:17:22.879 So again, triple a government agency yielding north of five percent. 0:17:22.920 --> 0:17:25.119 That's a place that investors should be kind of moving to, 0:17:25.560 --> 0:17:27.320 even if they're worried about a recession. This is a 0:17:27.480 --> 0:17:29.159 this is a kind of a natural place to go. 0:17:29.480 --> 0:17:31.480 The other nice thing about extending out the curve is 0:17:31.480 --> 0:17:35.800 that bonds once again as inflation declines acts as a 0:17:35.840 --> 0:17:38.119 hedge on your risk portfolio again, and we're starting to 0:17:38.160 --> 0:17:40.199 see that. You saw it yesterday as equity sold off, 0:17:40.240 --> 0:17:44.119 bonds rallied. I think that's something that when inflation is moderating, 0:17:44.359 --> 0:17:47.040 bonds kind of fit in that balanced portfolio much better. 0:17:47.080 --> 0:17:47.320 Again. 0:17:48.040 --> 0:17:51.320 So I'm just looking at the Bloomberg US MBS index 0:17:51.359 --> 0:17:54.639 total return about three point eight percent year to date, 0:17:55.040 --> 0:17:56.240 but I can do a lot better than in the 0:17:56.320 --> 0:17:58.240 US corporate high yield market. How do you think about 0:17:58.320 --> 0:18:01.399 high yield versus maybe again some of the mortgages that 0:18:01.440 --> 0:18:02.560 you were talking about. 0:18:02.960 --> 0:18:05.199 Yeah, look, I think that there's kind of when you 0:18:05.240 --> 0:18:07.760 look at spreads and high yield, the aggregate spreads are 0:18:07.760 --> 0:18:09.199 a bit tighter when you look on a kind of 0:18:09.240 --> 0:18:11.840 historical average. But you got to be as I mentioned, 0:18:11.840 --> 0:18:13.399 I think that we're heading for a kind of a 0:18:13.480 --> 0:18:15.720 shallow kind of slow down in the economy here. So 0:18:15.760 --> 0:18:17.840 I think this is a bond pickers market. In the 0:18:17.920 --> 0:18:19.840 high yield market, I think you've got to be selective, 0:18:20.200 --> 0:18:21.679 you know. We think that at the end of the day, 0:18:21.720 --> 0:18:23.119 you want to be kind of up in quality in 0:18:23.160 --> 0:18:25.119 that market and wait for spreads to widen out. We 0:18:25.240 --> 0:18:26.920 just had a kind of dramatic tightening over the last 0:18:26.960 --> 0:18:28.880 couple of weeks, and then we just saw spreads wide 0:18:28.920 --> 0:18:31.520 out about seventeen basis points yesterday. So I think there's 0:18:31.520 --> 0:18:34.240 going to be opportunities to kind of move more into 0:18:34.280 --> 0:18:36.600 the high yield market. You know, I run a multisector 0:18:36.640 --> 0:18:38.879 fund right now. We're a little underweight high yield, but 0:18:38.880 --> 0:18:40.560 it's a space that we're looking to kind of add 0:18:40.560 --> 0:18:42.240 on dips, and it's a space that we think will 0:18:42.240 --> 0:18:44.320 remain attractive as yields come down. That's going to be 0:18:44.320 --> 0:18:47.080 great for kind of companies that are borrowing and have 0:18:47.119 --> 0:18:49.080 to kind of roll over this debt. But it's something 0:18:49.080 --> 0:18:50.960 that again you got to kind of pick and choose 0:18:51.040 --> 0:18:53.040 over time kind of where to add, and we think 0:18:53.040 --> 0:18:54.720 that's a space that will get more attractive as the 0:18:54.760 --> 0:18:55.280 year goes on. 0:18:55.480 --> 0:18:57.560 What's so interesting in August is when we saw the 0:18:57.600 --> 0:18:59.399 melt on and equities that spike and vicks. 0:18:59.400 --> 0:19:01.400 We saw a little to widening out in. 0:19:01.400 --> 0:19:04.040 Credit spreads, but not a lot, not that we'd normally 0:19:04.080 --> 0:19:06.600 see with a jump in the VIX like that. Are 0:19:06.600 --> 0:19:08.639