WEBVTT - The Latest On Interest Rates, Fed Tapering, And Inflation 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.560 with essential market moving news. Find the Bloomberg Markets podcast 0:00:15.560 --> 0:00:18.479 called Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.239 at Bloomberg dot com Slash podcast. When we had the 0:00:22.280 --> 0:00:26.320 Bank of England this morning, I just wanted to point 0:00:26.320 --> 0:00:30.400 out one thing. Uh, I love I never know what 0:00:30.560 --> 0:00:35.080 to say bitcoin pricing per It's really per coin. Greg 0:00:35.120 --> 0:00:38.680 just said per bit, which is funny, but a bitcoin 0:00:38.800 --> 0:00:42.080 is made up of about a million bits, so I 0:00:42.120 --> 0:00:46.040 was going with the old per token that could work. 0:00:46.200 --> 0:00:50.120 Per token works also as as does per coin. Just 0:00:50.159 --> 0:00:52.479 saying per coin it sounds there's an echo, you know, 0:00:53.520 --> 0:00:58.000 but um, there are many, many, many bits in the 0:00:58.040 --> 0:01:00.320 line of code that make up one. Speaking of a point, 0:01:00.360 --> 0:01:06.120 it's per I'm gonna go with token down seven fifty 0:01:06.160 --> 0:01:09.000 dollars or one point five, So there you go. All right, 0:01:09.080 --> 0:01:12.880 let's check in with Megan Horneman, director of portfolio Strategy 0:01:12.880 --> 0:01:15.920 at Verden's Capital Advisors. Megan, thanks so much for joining 0:01:16.000 --> 0:01:18.800 us here. Just give us your thoughts of what we've 0:01:19.280 --> 0:01:23.280 heard and seen and read from various central banks over 0:01:23.319 --> 0:01:25.840 the past twenty four hours. How has that changed, if 0:01:25.880 --> 0:01:29.679 at all, your outlook for next year. Um, it hasn't 0:01:29.760 --> 0:01:33.399 changed our outlook. It wasn't a complete surprise what they did. 0:01:33.400 --> 0:01:34.920 I mean, they kind of told us what they would 0:01:34.920 --> 0:01:38.280 do when the Fed pivoted, when they dropped transitory last 0:01:38.280 --> 0:01:40.720 week or the week before. I think what they're doing 0:01:40.800 --> 0:01:45.000 is necessary. I think it's it's going to the Sometimes 0:01:45.000 --> 0:01:47.720 that short term pain helps with the long term gain. 0:01:48.160 --> 0:01:50.200 We need to get a little bit more aggressive about 0:01:50.200 --> 0:01:54.280 pulling back some of these emergency measures. Quantitative easing, for sure, 0:01:54.360 --> 0:01:56.880 we haven't needed that for some time now, we've been 0:01:56.960 --> 0:02:00.160 at that emergency situation. So I do agree with what 0:02:00.200 --> 0:02:03.520 they're doing there from the inflation standpoint as well, getting 0:02:03.520 --> 0:02:06.760 a little bit more aggressive now saying potentially three rate 0:02:06.840 --> 0:02:09.639 hikes next year. This is what the market wanted to hear, 0:02:09.639 --> 0:02:12.040 and you're seeing that being reflected in the equity market. 0:02:12.320 --> 0:02:15.079 If they had disappointed in coming out in any more 0:02:15.200 --> 0:02:17.959 debbish type of a tone, I think you actually would 0:02:17.960 --> 0:02:20.560 have seen a very big different story on the equity markets. 0:02:20.600 --> 0:02:22.519 I think you would have seen them sell off because 0:02:22.760 --> 0:02:26.000 there's that overwhelming fear that the FED maybe behind the curve. 0:02:26.280 --> 0:02:28.560 And what they're doing right now is showing that they're 0:02:28.600 --> 0:02:31.400 they're very um, observant of what's going on with the 0:02:31.440 --> 0:02:33.720 inflation environment and ready to hit to do what they 0:02:33.760 --> 0:02:37.240 need to do to tackle that. And um, do you 0:02:37.280 --> 0:02:38.920 have faith that they'll be able to do that without 0:02:38.919 --> 0:02:43.440 derailing economic growth? That's the that's the biggest question, right 0:02:43.560 --> 0:02:44.960 what can we do? Also, I didn't mean to use 0:02:44.960 --> 0:02:48.080 the word faith. I mean, you know, do you do 0:02:48.120 --> 0:02:52.120 you expect that? Yeah? No, no, do not worry about that. Um. 0:02:52.360 --> 0:02:54.959 So I think right now this is a very good step. 0:02:55.040 --> 0:02:57.160 I'm I'm glad they got a little bit more aggressive. 0:02:57.280 --> 0:02:59.200 The biggest thing that we will have to see in 0:02:59.240 --> 0:03:01.520 the first half of next year to see if they 0:03:01.560 --> 0:03:05.359 can successfully do this is, um, is there something that's 0:03:05.360 --> 0:03:07.600 going to give? Will the demand side of it from 0:03:07.600 --> 0:03:10.360 the consumers start to slow a bit? Um? Will that 0:03:10.440 --> 0:03:13.600 help us catch up on the supply side of things 0:03:13.639 --> 0:03:16.880 that may help alleviate some of the inflationary pressures in 0:03:16.880 --> 0:03:20.359 the second half of next year. That time will tell. 0:03:20.440 --> 0:03:23.840 With the consumer. We saw retail sales yesterday they were 0:03:23.840 --> 0:03:26.440 a little bit disappointing. There is some evidence that the 0:03:26.520 --> 0:03:30.680 higher prices from either the gas pump or the food prices, 0:03:31.040 --> 0:03:34.560 this is starting to affect consumers. You're seeing it with 0:03:34.680 --> 0:03:37.480 credit card debt pick up as well. So if we 0:03:37.600 --> 0:03:40.840 see some poolback in that demand side of things, then 0:03:40.880 --> 0:03:43.200 the FET is doing the right thing. It's doing its job. 0:03:43.880 --> 0:03:46.040 I still think it's a little bit too early to tell. 0:03:46.080 --> 0:03:51.840 Can we successfully land this economy in in Megan, So, 0:03:52.240 --> 0:03:56.480 given that backdrop, are you suggesting to your clients in 0:03:57.280 --> 0:04:00.240 that they focus on again some many cyclical names that 0:04:00.800 --> 0:04:04.280 will I guess perform well in a reopening economy, or 0:04:04.760 --> 0:04:07.120 kind of sticking with a tried and true big cap 0:04:07.160 --> 0:04:12.200 growth names. Um No, we're still recommending to stick with 0:04:12.240 --> 0:04:15.880 those cyclical type of sectors that will benefit from the 0:04:16.040 --> 0:04:19.400 global recovery. These also are the areas of the market 0:04:19.560 --> 0:04:21.760 that have lagged over the past six months by a 0:04:21.800 --> 0:04:26.080 significant amount. They from evaluation perspective, they're more they're more 0:04:26.080 --> 0:04:30.640 attractive than those large cap growth, mega cap tech type 0:04:30.640 --> 0:04:32.919 of names. And keep in mind that a lot of 0:04:32.960 --> 0:04:37.559 these very expensive investments, whether you're looking at mega tech 0:04:37.680 --> 0:04:40.360 or some of these momentum type of investments that you've 0:04:40.400 --> 0:04:44.640 seen materialized in two. They've been hurt over the past week, 0:04:45.080 --> 0:04:47.599 and that's been primarily because of the fact that the 0:04:47.760 --> 0:04:51.920 easy money policy that has fueled some speculative, speculative types 0:04:51.960 --> 0:04:54.320 of trades over the past year, that's going to be 0:04:54.360 --> 0:04:57.720 fading in the two. So you're seeing some profit taking there. 0:04:58.200 --> 0:05:00.960 You're seeing that today as well in seeing a rotation 0:05:01.040 --> 0:05:03.520 back into those areas that actually have values that can 0:05:03.560 --> 0:05:07.440 benefit from UM not only higher interest rates when you're 0:05:07.440 --> 0:05:10.560 looking at financials, they can benefit from the resumption of 0:05:10.600 --> 0:05:14.039 economic growth with industrials. So those are some areas that 0:05:14.040 --> 0:05:16.600 we still focus on going into next year. Drum Pal 0:05:16.680 --> 0:05:21.440 didn't seem terribly concerned about oh, Macron, although drinking havoc 0:05:21.600 --> 0:05:26.160 in Europe, UM, how does that factor into your strategy? 0:05:27.920 --> 0:05:31.200 So UM, we're going to deal with the different variants 0:05:31.200 --> 0:05:34.359 of this virus forever. This this isn't going away. What 0:05:34.440 --> 0:05:36.920 I would like to see INO is that we learned 0:05:36.960 --> 0:05:40.080 to live with it as opposed to locking down. Right now, 0:05:40.120 --> 0:05:44.160 we're still in that concern of lockdown phase. But if 0:05:44.200 --> 0:05:46.360 we can learn to live with this and get through 0:05:46.400 --> 0:05:49.560 these humps, because we will deal with more variants this, 0:05:49.720 --> 0:05:53.240 Oh Macron. Apparently there is a knee jerk reaction at first. 0:05:53.320 --> 0:05:56.720 That's because it's more transmissible, it's more dangerous. We're not 0:05:56.800 --> 0:06:00.560 seeing that right now. Um, it is definitely I've it's 0:06:00.560 --> 0:06:04.719 been more transmissible, but we're not seeing it necessarily increase 0:06:04.760 --> 0:06:09.080 the Hospitalization's. The one thing that we think will be 0:06:09.120 --> 0:06:14.080 a big focus in is therapeutics for for coronavirus. This 0:06:14.160 --> 0:06:16.440 will help us to get further to that living with 0:06:16.480 --> 0:06:18.839 it as opposed to locking down because of it. So 0:06:18.880 --> 0:06:21.200 I think that's going to be a focus in two. 0:06:21.640 --> 0:06:24.480 I'm not concerned at this point of Amcron's railing on 0:06:24.600 --> 0:06:27.160 the economic recovery. All right, Megan, thank you so much 0:06:27.160 --> 0:06:29.719 for joining us. Megan Hornham and director of Portfolio Strategy 0:06:29.720 --> 0:06:33.240 of Verden's Capital Advisers, talking about locking down just coming 0:06:33.240 --> 0:06:36.680 across the Bloomberg Terminal City tells New York, New Jersey 0:06:36.720 --> 0:06:40.480 staffers to work from home again. So we'll see how 0:06:40.520 --> 0:06:44.760 this plays out as a COVID nineteen continues and the 0:06:44.880 --> 0:06:51.600 Amicron variant is the driver here. I want to bring 0:06:51.640 --> 0:06:54.680 in Mark Douglas now, he is the president and CEO 0:06:55.040 --> 0:06:58.520 at Mountain. He works with Ryan Reynolds to put out 0:06:58.600 --> 0:07:00.880 ads like the one we saw over the weekend with 0:07:00.960 --> 0:07:06.160 Chris Noth still alive and well and writing his Peloton. 0:07:06.720 --> 0:07:10.080 Um bark talked to me about that fast turnaround. Did 0:07:10.120 --> 0:07:12.360 you have any heads up that um, the sex in 0:07:12.360 --> 0:07:16.600 the city, Uh, you know, death was going to happen 0:07:16.640 --> 0:07:20.840 in the days proceeding. Um none, So we had no 0:07:20.960 --> 0:07:25.040 head up, and Peloton had no head up, And we 0:07:25.160 --> 0:07:28.120 learned about it just like everyone else by just watching 0:07:28.160 --> 0:07:32.760 television and um, you know, in the basically on the show, 0:07:33.120 --> 0:07:38.080 HBO essentially implies that exercise is not healthy. And because 0:07:38.160 --> 0:07:40.320 one of the main characters missed the big dies and 0:07:40.480 --> 0:07:45.480 so UM, Peloton had just become a customer with a service. 0:07:45.560 --> 0:07:47.720 We new service we have we called Creative as a 0:07:47.720 --> 0:07:51.400 subscription where we can just mobilize quickly to include Creative 0:07:51.480 --> 0:07:55.800 and the media by and we actually on Saturday flew 0:07:55.880 --> 0:07:59.000 to New York and Ryan is a chief creative officer 0:07:59.080 --> 0:08:02.320 essentially UM with it with the team here, his team 0:08:02.320 --> 0:08:05.640 and Mountains just wrote this ad and UM filmed it 0:08:05.800 --> 0:08:08.440 and edited it and released it on Sunday. And I 0:08:08.480 --> 0:08:12.400 woke up Monday to all this news. So it was 0:08:12.400 --> 0:08:15.840 pretty amazing. Yeah, yeah, no advance about this whatsoever. Yeah, 0:08:15.880 --> 0:08:17.840 that was extraordinary. And what kind of said to me 0:08:17.880 --> 0:08:19.680 a little bit, Ryan, is we often talked to you, 0:08:19.720 --> 0:08:23.520 I'm sorry, often talked to you about you know, digital 0:08:23.720 --> 0:08:27.520 ad tech, digital advertising. It's still the importance of a 0:08:27.560 --> 0:08:34.240 good old TV ad can really generate a lot of buzz. Yeah, absolutely, 0:08:34.320 --> 0:08:36.559 I mean it's something I say all the time. And 0:08:36.600 --> 0:08:42.520 a Mountain Wars software platform and essentially um distribute television 0:08:42.559 --> 0:08:47.160 media commercials on streaming media. But I always say, you know, 0:08:47.160 --> 0:08:49.920 it's advertising first, mad you know, the age of Madmen, 0:08:50.000 --> 0:08:53.240 all of that, it matters, and the message matters and 0:08:53.320 --> 0:08:57.360 so um and this literally essentially proved it. I mean, 0:08:57.720 --> 0:09:01.640 nothing beat just putting something and of consumers that is 0:09:01.720 --> 0:09:05.839 and attaining and watchable and and you know that that 0:09:06.080 --> 0:09:09.080 they can really consume and enjoy. And that's exactly what 0:09:09.400 --> 0:09:13.240 happened here. So it was. I can't stress how how 0:09:13.360 --> 0:09:18.599 unbelievable it was between Saturday and essentially Monday morning. It 0:09:18.800 --> 0:09:21.079 is pretty amazing. By the way, do people Mark, do 0:09:21.120 --> 0:09:27.040 they often confuse you with Brian not yet, has not yet, 0:09:27.040 --> 0:09:29.840 I've heard, but I was on CNBC with him. Well 0:09:29.840 --> 0:09:32.559 maybe I shouldn't mention that on Blue Work the other day, 0:09:32.600 --> 0:09:37.760 and I thought I was holding up pretty well. We 0:09:38.120 --> 0:09:41.880 are platform agnostic, but you know, speaking of TV, and 0:09:41.960 --> 0:09:44.600 Paul makes an interesting point, there's a lot of people 0:09:44.640 --> 0:09:48.120 who still watch the boob tube, UM, but most of 0:09:48.200 --> 0:09:51.480 us are going to see your ads on Instagram and 0:09:51.600 --> 0:09:57.120 YouTube rather than television. Right, where do you get the 0:09:57.160 --> 0:10:03.400 most exposure? Right? So, so from Mountains, we're basically just 0:10:03.520 --> 0:10:08.439 how television is new it's on demand, it's streamed. UM. 0:10:08.600 --> 0:10:12.520 That's where Mountains delivers the ad experience, the word performance 0:10:12.520 --> 0:10:16.920 platform for streaming television UM, and any brand can come 0:10:16.960 --> 0:10:20.120 to our website and sign up, you know, essentially use 0:10:20.160 --> 0:10:23.480 our platform and reach consumers. So we we are not 0:10:23.640 --> 0:10:29.079 on We obviously use social media ourselves, but our platform 0:10:29.200 --> 0:10:32.240 is on streaming. It's on when you're watching ABC, or 0:10:32.280 --> 0:10:35.640 you're watching the Bloomberg chatl on television or you know 0:10:35.760 --> 0:10:42.480 any essentially involved the teaving networks in America. But not well, UM, 0:10:42.520 --> 0:10:44.560 I think you know, we do have a ded we 0:10:44.679 --> 0:10:47.599 do serve an NBC. It sounds like we shouldn't be, 0:10:47.679 --> 0:10:50.240 so I'll keep that in mind. Mark, give us a 0:10:50.280 --> 0:10:53.640 sense of kind of how your conversations with your clients 0:10:53.640 --> 0:10:56.360 have kind of evolved over the past couple of years 0:10:56.360 --> 0:10:59.520 of this pandemic, is it How have they changed? If 0:10:59.720 --> 0:11:03.959 at all, It's it's the main thing. It's all about results. 0:11:04.000 --> 0:11:06.600 I mean, I think that we're in kind of a 0:11:06.600 --> 0:11:10.200 golden age of television. It's just so much great content. 0:11:10.640 --> 0:11:13.800 I don't know anyone who you know, actively watches TV 0:11:13.920 --> 0:11:17.520 who can literally keep up with all the shows that 0:11:17.559 --> 0:11:20.600 are available on all the great content. Um. But for 0:11:20.760 --> 0:11:25.520 the advertisers, what really matters, especially during the pandemic, is 0:11:25.800 --> 0:11:28.679 they have to have provable results. And so that's kind 0:11:28.720 --> 0:11:30.720 of been the big ship to see this big shift 0:11:31.160 --> 0:11:35.040 going from brand advertising, UM, where companies just kind of 0:11:35.080 --> 0:11:37.199 take a leap of faith in terms of results to 0:11:37.280 --> 0:11:41.360 that spend so now kind of performance advertising and so 0:11:41.840 --> 0:11:45.360 you know, Mountain we've jumped really into performance advertising space. 0:11:45.480 --> 0:11:48.600 We may create a front and center by merging with 0:11:48.679 --> 0:11:53.480 Maxim MEFA Bryant's company, and um, it's just been a great, 0:11:53.720 --> 0:11:56.400 you know, kind of great journey in doing that. It's 0:11:56.440 --> 0:12:01.480 fantastic content, and UM, it doesn't seem to me that 0:12:01.480 --> 0:12:04.800 there are a lot of people as smart and good 0:12:04.800 --> 0:12:09.440 looking as Ryan Reynolds. It seems unfair almost that did 0:12:09.440 --> 0:12:11.240 you do you shign him with your deal? Do you 0:12:11.280 --> 0:12:16.120 get a piece of him? I know Ryan is chief 0:12:16.200 --> 0:12:21.360 creative officer of Mountains UM and obviously founded Maximum Effort, 0:12:21.400 --> 0:12:24.880 and you know, I'm touching on just a small part 0:12:24.880 --> 0:12:29.000 of his old career. UM. It's been amazing UM to 0:12:29.840 --> 0:12:34.000 work with him and continues to be amazing, and he recently, 0:12:34.360 --> 0:12:36.520 you know, kind of took a sabbatical from films to 0:12:36.640 --> 0:12:41.160 just focus on building mountains and and the other things 0:12:41.200 --> 0:12:44.319 he has going on. So it's UM, I feel privileged 0:12:44.360 --> 0:12:47.200 to be able to UM have that kind of talent. 0:12:47.360 --> 0:12:49.319 And you know, one of the things on going back 0:12:49.360 --> 0:12:52.679 to Peloton and the ad that we put out this weekend, 0:12:52.760 --> 0:12:55.240 I mean, it's almost an unfair advantage to have Ryan. 0:12:55.240 --> 0:12:58.480 It's a chief grative officer and and the team UM 0:12:58.640 --> 0:13:00.760 Maximum Efforts. It's now part of noun to see that, 0:13:00.920 --> 0:13:03.280 So it's it's UM. Uh. You know, we're just a 0:13:03.280 --> 0:13:07.320 big belief in creative as part of media and you know, 0:13:07.559 --> 0:13:10.880 UM bad media, so we're it's just it's kind of 0:13:10.920 --> 0:13:13.520 amazing to watch Mark. It's great having you on. I 0:13:13.520 --> 0:13:15.719 always love talking to you. Thanks so much for dropping by. 0:13:15.760 --> 0:13:23.880 Mark Douglas there, president and CEO at Mountain. Interest rates 0:13:23.880 --> 0:13:25.600 are on the rise. We saw the action by the 0:13:25.640 --> 0:13:28.960 Beau the Bank of England today. We heard FED Chairman 0:13:29.120 --> 0:13:32.880 Pal yesterday as he talks about accelerating tapering and then 0:13:32.920 --> 0:13:36.520 raising rates next year and into three. What is a 0:13:36.559 --> 0:13:39.400 fixed income manager to do? Where the opportunities in that 0:13:39.440 --> 0:13:41.559 kind of environment. Let's check in them with a pro 0:13:41.760 --> 0:13:45.640 Kevin Nicholson, Global Fixed Income Co c i OH. He's 0:13:45.679 --> 0:13:49.680 also co head of Investment committee at Riverfront Investment Group. Kevin, 0:13:49.679 --> 0:13:52.720 thanks so much for joining us here. All right, given 0:13:52.760 --> 0:13:57.080 what we now know from an interest rate perspective, what's 0:13:57.120 --> 0:14:02.400 your outlook for My outlook for two is that we 0:14:02.400 --> 0:14:05.280 should see the ten year move higher by year. In 0:14:05.720 --> 0:14:08.360 our base case scenario is for the ten year to 0:14:08.440 --> 0:14:11.840 yield two percent by the end of the year UM. 0:14:12.280 --> 0:14:16.440 And as far as where we're looking for opportunities, UM, 0:14:16.679 --> 0:14:20.720 we're going to focus on trying to get some higher 0:14:20.800 --> 0:14:25.080 yields into the portfolio. We're going to look at high yield, 0:14:25.600 --> 0:14:28.760 even though UM we would stay up at the higher 0:14:28.840 --> 0:14:33.040 quality high yield at this juncture because as the FED 0:14:33.320 --> 0:14:36.000 begins its tightening cycle, I think it will put some 0:14:36.040 --> 0:14:39.160 pressure on some of the lower yielding companies out there, 0:14:39.960 --> 0:14:42.240 but you think it's safe. But you think it's safe 0:14:42.240 --> 0:14:44.360 to go back in the water now. I mean the 0:14:44.360 --> 0:14:46.800 second half of November was rough, um, not just for 0:14:46.920 --> 0:14:50.920 high yield, but for I G two and UM. Now 0:14:51.120 --> 0:14:54.800 now you think uh investors will cotton too, that they're 0:14:54.840 --> 0:14:57.920 gonna need some of that yield. Well, I think that. 0:14:58.160 --> 0:14:59.960 I mean when you look at where treasures are heal 0:15:00.080 --> 0:15:01.480 thing right now, I mean we have the tenure at 0:15:01.480 --> 0:15:04.200 a one forty two, you're not really you're not keeping 0:15:04.280 --> 0:15:07.080 up with inflation, and so you have to look at 0:15:07.120 --> 0:15:09.240 a place that you're at least going to get closer 0:15:09.280 --> 0:15:11.840 to it. Um. There's very few places in the in 0:15:12.040 --> 0:15:15.960 the fixing income market that can keep up with inflation 0:15:16.200 --> 0:15:18.920 at at current levels. A matter of fact, there's only 0:15:18.960 --> 0:15:20.720 one place you can really go, and that's to the 0:15:20.720 --> 0:15:26.080 tips market. UM. So from my perspective going into next year, 0:15:26.200 --> 0:15:30.840 we have to continue to be underweight fix income. If 0:15:30.880 --> 0:15:33.960 you're looking at it in a balanced portfolio, you're going 0:15:34.040 --> 0:15:38.840 to continue to have your duration shorter because interest rates 0:15:38.840 --> 0:15:42.280 are going up, so you don't want to, you know, 0:15:42.560 --> 0:15:46.240 put more pressure on your portfolio. By having a long 0:15:46.360 --> 0:15:50.120 duration in there at this point. So, Kevin, if I'm 0:15:50.160 --> 0:15:52.720 searching for yield and I venture into the high old market, 0:15:52.760 --> 0:15:55.120 what are some of the sectors, uh, that you guys 0:15:55.160 --> 0:15:57.760 think will be interesting next year? I mean, if we're 0:15:57.760 --> 0:16:01.960 going to continue to uh look at you know, your 0:16:02.320 --> 0:16:06.680 consumer UM services more from like your financial m consumer 0:16:06.760 --> 0:16:11.600 financial services, as well as we will look you know 0:16:11.680 --> 0:16:15.200 in the high yell space at energy see where how 0:16:15.280 --> 0:16:18.920 that goes. UM. Those are the probably the main UM 0:16:19.200 --> 0:16:22.800 areas that we will look at going into the year. 0:16:23.040 --> 0:16:27.360 And as if we get past this COVID uh you 0:16:27.400 --> 0:16:32.240 know lockdown that we're seeing um transpire over in Europe, UM, 0:16:32.360 --> 0:16:36.160 we will start also looking at some of your leisure 0:16:36.560 --> 0:16:40.080 UM stocks more for the excuse me, bonds that are 0:16:40.280 --> 0:16:44.920 more for the reopening is I guess el macron must 0:16:44.920 --> 0:16:50.000 be one of the biggest worries other than the FED. Yes, UM, 0:16:50.040 --> 0:16:53.120 I think that you know, I'm not concerned about on 0:16:53.280 --> 0:16:56.000 the cron so much here in the US because they 0:16:56.040 --> 0:16:59.040 don't think that we're going to shut down our economy again. 0:16:59.360 --> 0:17:02.920 But when I look across the pond and you know, 0:17:03.040 --> 0:17:07.359 work for fixed income ideas that are outside of the US, 0:17:07.640 --> 0:17:11.440 I do indeed worry about Um. You know, I'm a 0:17:11.520 --> 0:17:16.280 cron because they're tending to shut down. Their economies are 0:17:16.440 --> 0:17:19.119 a lot faster than you know we're thinking about in 0:17:19.160 --> 0:17:21.080 the US. I think we've learned our lesson and we're 0:17:21.119 --> 0:17:24.600 just gonna live with it going forward. All right, you're 0:17:24.640 --> 0:17:26.880 not the first person to tell us that today, Kevin, 0:17:26.920 --> 0:17:29.280 it seems to be a consensus for you. Kevin Nicholson 0:17:29.840 --> 0:17:32.399 is a global fixed income co c i O and 0:17:32.440 --> 0:17:36.160 co head of the Investment Committee at Riverfront Investment Group, 0:17:36.200 --> 0:17:40.520 giving us his outlook for two as well as his 0:17:40.640 --> 0:17:43.359 take on what we heard from Jerome Powell and the 0:17:43.400 --> 0:17:48.959 FED yesterday and uh, the current situation with the coronavirus. 0:17:53.480 --> 0:17:55.600 As promise, we're gonna bring you Marcus show mur chief 0:17:55.920 --> 0:17:59.120 economist at pine Bridge Investment, to talk about the hawk 0:17:59.200 --> 0:18:03.360 is pivot first off and then um and then Marcus, 0:18:03.359 --> 0:18:05.920 we saw the b o E actually go the whole 0:18:06.000 --> 0:18:09.399 nine yards or almost I guess, fifteen basis point points 0:18:09.400 --> 0:18:12.000 of an increase. What do you think about these central 0:18:12.040 --> 0:18:16.960 banks getting more and more hawkish on inflation? They guys, 0:18:16.960 --> 0:18:19.520 it's nice to be back on the show. Um, Yes, 0:18:19.600 --> 0:18:22.360 what a what a few days or two days here 0:18:22.400 --> 0:18:25.600 for central bank watchers. I mean, we knew that this 0:18:25.640 --> 0:18:28.480 would be busy when we saw the schedule that everything 0:18:28.560 --> 0:18:32.080 was punching up here. The week for most people, I 0:18:32.080 --> 0:18:34.960 guess shutdown for Christmas, but that would get so much 0:18:35.000 --> 0:18:37.560 action probably was a little bit of a surprise. Um 0:18:37.720 --> 0:18:42.679 yet the Fed clearly in a hawk ish pivot. The 0:18:42.720 --> 0:18:46.440 Bank of England probably even more surprising and more confusing, 0:18:46.840 --> 0:18:50.520 after disappointing expectations last month where they was supposed to 0:18:50.640 --> 0:18:53.960 raise rate it didn't for kind of no really apparent reason, 0:18:54.760 --> 0:18:59.200 and then this time with storing COVID cases again clouding 0:18:59.200 --> 0:19:01.760 the economic out brogan p mind numbers this morning not 0:19:01.880 --> 0:19:06.080 particularly exciting. They decided to do race rates. So I 0:19:06.080 --> 0:19:09.480 think what we're having here's just an environment where central 0:19:09.480 --> 0:19:14.040 bank communication has become very, very inconsistent. And I think 0:19:14.080 --> 0:19:17.920 that's something that I would have thought as an economist. 0:19:17.960 --> 0:19:19.920 I'm not a portformio manager, but as an economist, I 0:19:19.920 --> 0:19:22.760 would have thought that would really impact financial markets and 0:19:22.800 --> 0:19:25.880 that we would start to pric in greater risk premiums. 0:19:25.920 --> 0:19:29.360 Again for central bank surprises, but so far they look 0:19:29.400 --> 0:19:32.919 at the markets, none of that really is happening. Marcus, 0:19:32.960 --> 0:19:36.320 what is your view of inflation as we head into 0:19:36.560 --> 0:19:40.360 the transitory term has been retired by the US FED chair, 0:19:40.480 --> 0:19:44.560 But what is your view? Well, I mean, there is 0:19:45.760 --> 0:19:49.240 the idea that inflation can be transitory was always just 0:19:49.960 --> 0:19:53.240 out there to placate markets. I think the central banks 0:19:53.240 --> 0:19:56.119 were just too afraid to suddenly talk about inflation as 0:19:56.119 --> 0:19:58.239 a problem, but that could mean the financial markets. That's 0:19:58.240 --> 0:20:00.760 why they sort of came up with transiti aations. Never 0:20:00.840 --> 0:20:05.720 transitory inflation is one of the worst economic trends that 0:20:06.480 --> 0:20:11.199 makes income inequality worse than anything else. Yes, we know 0:20:11.280 --> 0:20:14.000 it's kind of good for debt because you know, if 0:20:14.040 --> 0:20:16.359 you have a lot of phenomenal debt, higher inflation eats 0:20:16.359 --> 0:20:19.760 a way that that amount of debt faster vality to 0:20:19.840 --> 0:20:24.320 GDP over income. But with our pivot away from that 0:20:24.480 --> 0:20:29.359 towards more income in equality related problems, inflation is really 0:20:29.359 --> 0:20:31.800 really bad. It makes which people richer and poor people poor. 0:20:32.040 --> 0:20:35.359 That's a huge problem. So that the fact finally pivots. 0:20:35.359 --> 0:20:38.080 So this is not a big surprise. And we know 0:20:38.280 --> 0:20:41.480 from previous inflation periods that even if it lasts only 0:20:42.119 --> 0:20:45.480 twelve months or eighteen months, it has an impact. So 0:20:45.600 --> 0:20:49.000 the call it. To have called it transitory at the beginning, 0:20:49.480 --> 0:20:53.600 I think basically was an attempt by central banks to 0:20:53.600 --> 0:20:57.240 play defense in an environment where they are so far 0:20:57.440 --> 0:21:01.720 leaning towards excessive emergency stimulus that couldn't really dial back 0:21:01.760 --> 0:21:04.960 that may that fast, so they rolled up this word transitory. 0:21:05.000 --> 0:21:07.840 And the fact that they actually that Powell even used 0:21:07.840 --> 0:21:11.240 the word let's retire that expression or made me really 0:21:11.280 --> 0:21:14.920 cringe last time, because it meant it has served its 0:21:14.920 --> 0:21:18.200 purpose and it took this purpose to confuse you all 0:21:18.560 --> 0:21:21.119 or placate you all. But now we don't need to 0:21:21.160 --> 0:21:23.000 do this anymore because we're ready to raise rate, so 0:21:23.040 --> 0:21:28.200 we could retire in inverted commas that were transitory. Um, 0:21:28.680 --> 0:21:32.720 I think it was never actually an honest description of 0:21:32.760 --> 0:21:35.639 the inflation backdrop. You hate inflation almost as much as 0:21:35.720 --> 0:21:39.360 Ronald Reagan did. He said he said inflation is as 0:21:39.480 --> 0:21:42.240 violent as a mugger, as frightening as an arm drobber, 0:21:42.240 --> 0:21:45.080 and as deadly as a hit man. What I've been 0:21:45.119 --> 0:21:48.360 thinking about a lot lately, Marcus, is what it forces 0:21:48.400 --> 0:21:51.800 investors to do, Especially with so much liquidity, so much 0:21:51.840 --> 0:21:55.040 cash out there, you don't want to just leave it 0:21:55.280 --> 0:22:00.280 in dollars and you know, have it being reduced by 0:22:00.320 --> 0:22:03.360 a tent every year. Right, Um, you need to put 0:22:03.359 --> 0:22:04.679 it to work, and when you need to put it 0:22:04.680 --> 0:22:09.119 to work, that's when dangerous things can happen. Well, that 0:22:09.320 --> 0:22:11.960 is true, but that isn't it exactly what we're doing, 0:22:12.040 --> 0:22:14.280 or what investors are doing with the market is doing. 0:22:14.720 --> 0:22:17.560 I mean, why would you buy at ten year bond 0:22:17.600 --> 0:22:20.680 at one point four percent when the current inflation wright 0:22:20.840 --> 0:22:23.879 is six And yeah, eventually we will get back to 0:22:24.000 --> 0:22:26.800 one point four percent, but but who really believes that 0:22:26.840 --> 0:22:29.359 over the next ten years inflation will ever be below 0:22:29.440 --> 0:22:32.359 one point four percent so that you can average to 0:22:32.560 --> 0:22:36.040 something that makes sense in terms of the novel returns 0:22:36.080 --> 0:22:38.280 and interest in getting on that investment in a ten 0:22:38.400 --> 0:22:41.640 year bond visa. The the inflation that will eat up 0:22:42.080 --> 0:22:45.119 the investments you just made in that bond um and 0:22:45.160 --> 0:22:47.280 a lot of money is still going into those markets, 0:22:47.320 --> 0:22:50.880 a lot of money is sustaining those markets. It really 0:22:50.920 --> 0:22:53.160 tells you have to be in equities, right. That's the 0:22:53.200 --> 0:22:58.040 inflation story being housing all the assets that have some 0:22:58.520 --> 0:23:03.080 inflation protection because that it reacts to nominal economic activity, 0:23:03.119 --> 0:23:05.320 which is what equity markets are doing. That's what the 0:23:05.359 --> 0:23:07.600 money is that's what the market the money is still going, 0:23:08.200 --> 0:23:10.760 but it is not that that's what everybody is doing. 0:23:10.840 --> 0:23:14.480 I'm surprised that we have not seen a greater reaction 0:23:14.600 --> 0:23:16.960 in the bond market as a result of all this 0:23:17.080 --> 0:23:21.399 inflation and the fact that the Fed is removing the 0:23:21.440 --> 0:23:25.640 policy support four bonds. Hey, Marcus, thank you so much 0:23:25.760 --> 0:23:29.160 for joining us. Really appreciate getting your thoughts and perspective 0:23:29.200 --> 0:23:31.800 here as we try to digest, uh, some of what 0:23:31.840 --> 0:23:34.000