WEBVTT - Bloomberg Wall Street Week - December 15th, 2023 0:00:00.240 --> 0:00:02.960 This is Bloomberg Wall Street Week. I mean may not 0:00:03.040 --> 0:00:05.280 have an overall recession, We're having a rolling recession to 0:00:05.360 --> 0:00:07.040 kind of roll looks pretty strongly it is when it 0:00:07.080 --> 0:00:09.840 comes to jobs. The financial stories that shape our world. 0:00:09.960 --> 0:00:13.640 Three major regional bank failures send shockwaves through the banking system. 0:00:13.680 --> 0:00:15.480 We're all trying to figure out what to make of 0:00:15.600 --> 0:00:19.320 generative AI through the eyes of the most influential voices. 0:00:19.440 --> 0:00:22.400 Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America, 0:00:22.560 --> 0:00:25.279 Zebra Lair of the Paulson Institute, well then Hubbard of 0:00:25.280 --> 0:00:26.280 the Columbia Business School. 0:00:26.280 --> 0:00:30.160 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.480 --> 0:00:34.479 Moving forward? Or are we on wars in Ukraine and Israel, 0:00:34.600 --> 0:00:38.599 on climate, on college campuses, and on our fight with inflation? 0:00:39.159 --> 0:00:42.880 This is Bloomberg Wall Street Week. I'm David Weston this week, 0:00:43.000 --> 0:00:45.840 Rick Reader of Blackrock on where we're headed in twenty 0:00:45.960 --> 0:00:46.520 twenty four. 0:00:47.200 --> 0:00:50.960 I really think the US economy doesn't go into recession 0:00:51.159 --> 0:00:55.320 except for pandemic financial crisis unless there's some big exage 0:00:55.320 --> 0:00:55.640 in as. 0:00:55.560 --> 0:00:59.160 Sean former IBM had Sam Palmersano on efforts to keep 0:00:59.240 --> 0:01:01.080 tech innovation on the rails. 0:01:01.800 --> 0:01:04.560 The issue with AI is going to be responsible use. 0:01:05.200 --> 0:01:08.120 And Glenn August of Okill Advisors on what comes next 0:01:08.440 --> 0:01:09.600 in distressed investing. 0:01:10.160 --> 0:01:12.920 The extraordinary thing that we're facing is a. 0:01:13.120 --> 0:01:16.560 Trillion plus dollars of debt that's coming due over the 0:01:16.560 --> 0:01:29.280 nextly four years. 0:01:30.840 --> 0:01:33.240 It was hard for Global Wall Street to tell this 0:01:33.280 --> 0:01:35.720 week whether we were really making progress on issues that 0:01:35.760 --> 0:01:38.360 have lingered through the years and on some of more 0:01:38.440 --> 0:01:41.880 recent vintage climate certainly has been an agenda at least 0:01:41.880 --> 0:01:44.240 to talk about for a long time. This week, the 0:01:44.240 --> 0:01:46.840 COP twenty eighth summit wrapped up in the UAE, with 0:01:47.040 --> 0:01:49.760 the man who led it declaring victory that we'll have 0:01:49.800 --> 0:01:52.280 to wait to see whether actions live up to all 0:01:52.320 --> 0:01:56.240 those words. The war in Ukraine continues, with President Olenski 0:01:56.400 --> 0:01:59.160 bringing his message to Washington that he needs more help, 0:01:59.320 --> 0:02:02.560 though once again there was more encouraging talk than there 0:02:02.680 --> 0:02:07.560 was action from Congress. It was a very powerful leading presidents. 0:02:07.720 --> 0:02:10.760 It's being made so clear how we needs to tell. 0:02:11.880 --> 0:02:14.120 But if he gets then no, he can win this war. 0:02:14.720 --> 0:02:17.120 We passed the two month mark in Israel's war with 0:02:17.160 --> 0:02:21.120 Amast and pressure mounted to curtail Israeli operations in Gaza, 0:02:21.639 --> 0:02:24.280 while college presidents back in the United States face the 0:02:24.400 --> 0:02:28.120 spillover on their campuses of issues triggered by the Middle East, 0:02:28.520 --> 0:02:31.799 leading to the University of Pennsylvania losing its president. There 0:02:31.880 --> 0:02:36.720 is a real justification for the penn president stepping down, 0:02:37.320 --> 0:02:39.480 and I believe the other two should come under the 0:02:39.520 --> 0:02:42.880 exact same scrupin. The US economy kept humming along with 0:02:42.960 --> 0:02:45.960 inflation continuing to slow, but that two percent target is 0:02:45.960 --> 0:02:46.840 still evasive. 0:02:47.040 --> 0:02:50.359 We are seeing inflation slowing and it's consistent with what 0:02:50.520 --> 0:02:51.480 the FAED it expects. 0:02:51.639 --> 0:02:53.720 The last mile of the inflation journey is often the 0:02:53.760 --> 0:02:54.440 most difficult. 0:02:54.480 --> 0:02:57.239 And then on Wednesday, the Federal Reserve once again stood 0:02:57.280 --> 0:03:00.400 pat on rates but made it clear it pretty much 0:03:00.520 --> 0:03:03.120 is done with rate hikes and is at least starting 0:03:03.240 --> 0:03:06.239 to talk about some cuts. My question of when will 0:03:06.240 --> 0:03:07.760 it become appropriate to. 0:03:08.160 --> 0:03:10.760 Begin dialing back the amount of policy restraint in place 0:03:10.840 --> 0:03:15.200 that begins to come into view and is clearly a 0:03:15.240 --> 0:03:17.640 discush topic of discussion now in the world and also 0:03:17.840 --> 0:03:20.959 a discussion for US at our meeting today. 0:03:22.600 --> 0:03:24.360 And it was that news out of the FED that 0:03:24.440 --> 0:03:26.160 drove the markets for the week, with the S and 0:03:26.200 --> 0:03:28.560 P five hundred jumping even as the FED share was 0:03:28.600 --> 0:03:31.680 speaking and adding ultimately two point five percent for the 0:03:31.680 --> 0:03:34.600 week overall to end up at forty seven nineteen. That 0:03:34.680 --> 0:03:37.360 is way above the median number for our Bloomberg ls. 0:03:37.480 --> 0:03:39.400 They projected that for the end of this year, and 0:03:39.520 --> 0:03:41.360 is more than two hundred points above where they think 0:03:41.360 --> 0:03:44.120 we'll end up next year. The NASDAK closed on Friday 0:03:44.160 --> 0:03:47.000 at an all time high after adding two point eighty 0:03:47.040 --> 0:03:49.920 five percent, while the yield on the tenure dropped nearly 0:03:49.960 --> 0:03:52.440 thirty two basis points to end the week under four 0:03:52.440 --> 0:03:54.920 percent at three point nine to one. To take us 0:03:54.920 --> 0:03:58.520 through what we've just seen, we welcome now back Barbara 0:03:58.560 --> 0:04:02.600 reinhardtch she's Voya Investment Management CIO and multi Asset Strategy 0:04:02.800 --> 0:04:04.720 and Solutions. So Barbara, thanks for being back with this 0:04:04.800 --> 0:04:05.240 is great to ahead. 0:04:05.240 --> 0:04:05.560 Thank you. 0:04:05.800 --> 0:04:07.360 So what did we see? I don't know if the 0:04:07.400 --> 0:04:10.320 chi fitcher expected that kind of reaction, he sure got it. 0:04:10.440 --> 0:04:12.320 Did the markets overreact? Well? 0:04:12.360 --> 0:04:14.160 I think you always have to put it into context. 0:04:14.160 --> 0:04:16.839 So for just about the past seven weeks, the markets 0:04:16.839 --> 0:04:19.920 have been starting to price in much better inflation data. 0:04:20.200 --> 0:04:22.480 Just remember at the end of the third quarter in 0:04:22.520 --> 0:04:26.360 September bond markets were getting very nervous. Yields were climbing 0:04:26.360 --> 0:04:28.839 close to five percent, and there was some concern that 0:04:28.880 --> 0:04:32.000 the Fed was still going to be increasing interest rates. 0:04:32.240 --> 0:04:33.080 But I think with the. 0:04:33.040 --> 0:04:35.680 Slowing that you've seen in the economy and the slowing 0:04:35.680 --> 0:04:38.080 that you've seen in the employment data, and the good 0:04:38.160 --> 0:04:42.400 progress on inflation, the Fed was really able to bring 0:04:42.440 --> 0:04:44.839 the message home to the markets this year. It may 0:04:44.880 --> 0:04:47.240 indeed be a bit ahead of what the Fed had wanted. 0:04:47.320 --> 0:04:50.760 You saw John Williams today from the New York Fed saying, everyone, 0:04:50.839 --> 0:04:53.360 just a moment, holds your horses. But we do think 0:04:53.360 --> 0:04:55.880 that the progress is made. Inflation is real, and we 0:04:55.920 --> 0:04:57.560 do see the economy slowing. 0:04:57.440 --> 0:04:59.520 Well looking into next year because it's time not start 0:04:59.520 --> 0:05:03.000 thing next year. Have they steered that difficult course between 0:05:03.040 --> 0:05:05.720 recession on the one hand and continued inflation on the 0:05:05.760 --> 0:05:07.960 other Have they managed that? Do you think? We think 0:05:08.000 --> 0:05:09.039 so a voya. 0:05:09.160 --> 0:05:13.760 We have a number of inflation probability indicators and models 0:05:13.800 --> 0:05:16.120 that we'd like to look at, and we're forecasting less 0:05:16.160 --> 0:05:18.880 than a thirty percent chance of a recession in twenty 0:05:18.920 --> 0:05:22.680 twenty four. In fact, if the data continues on this road, 0:05:22.680 --> 0:05:25.359 that it's on. We think it's probably even likely that 0:05:25.360 --> 0:05:27.960 you wouldn't see a recession much before twenty twenty five. 0:05:28.400 --> 0:05:30.240 Wow, So what does that say to the investor going 0:05:30.279 --> 0:05:33.080 into twenty twenty four? I mean, what is different now 0:05:33.120 --> 0:05:34.400 than it was six months ago? 0:05:34.440 --> 0:05:36.920 For example, Well, let's put some things in context, David. 0:05:37.120 --> 0:05:39.680 Over the past two years, the S and P five 0:05:39.760 --> 0:05:42.560 hundred has made very little headway. While stocks are up 0:05:42.600 --> 0:05:45.920 almost twenty percent this year, they were down almost twenty 0:05:45.960 --> 0:05:49.360 percent last year. So since December of twenty twenty one, 0:05:49.480 --> 0:05:52.160 you've basically been flat on the equity market, which is 0:05:52.240 --> 0:05:55.359 very unusual. We do see earnings able to climb about 0:05:55.400 --> 0:05:58.680 ten percent over the course of twenty twenty four, and 0:05:58.760 --> 0:06:03.080 if bond yields continue you to fall modestly. You know, 0:06:03.120 --> 0:06:04.640 if you can get rates down to about three and 0:06:04.680 --> 0:06:06.120 a half percent, you might be able to get a 0:06:06.160 --> 0:06:09.160 little bit of multiple expansion that should give you ten 0:06:09.200 --> 0:06:11.320 to twelve percent in equities over the course of twenty 0:06:11.320 --> 0:06:14.479 twenty four. I would say it will not be smooth, 0:06:14.560 --> 0:06:16.960 and there will be bumps along the way, but there's 0:06:17.040 --> 0:06:18.360 reasons to be optimistic. 0:06:18.960 --> 0:06:21.400 Well, that's the case for equities. If I'm trying to 0:06:21.400 --> 0:06:24.240 decide that sixty forty split between equities and bonds going 0:06:24.240 --> 0:06:26.680 into twenty twenty four, which do you think you tilt 0:06:26.720 --> 0:06:28.960 more towards the bonds, because bonds are looking more attractive 0:06:29.000 --> 0:06:30.719 than they did, certainly in recent years. 0:06:31.200 --> 0:06:33.480 Over the very short term, I would say this, over 0:06:33.600 --> 0:06:36.839 the past seven weeks, most people have really started to 0:06:36.839 --> 0:06:39.560 pile into the equity market. Most of our sentiment indicators 0:06:39.640 --> 0:06:42.440 that we look at in terms of short term temperature 0:06:42.480 --> 0:06:44.960 of the markets are looking quite extended at this point. 0:06:45.400 --> 0:06:48.359 You're susceptible to any type of garden variety pullback at 0:06:48.400 --> 0:06:50.440 this point, just like we had in the summer there 0:06:50.480 --> 0:06:53.640 was a ten percent peach atrough decline. But I would 0:06:53.680 --> 0:06:57.000 say the reason that bonds have really yields at this point, 0:06:57.000 --> 0:06:59.360 you're about one point seven percent on a real ten 0:06:59.440 --> 0:07:02.559 year treasure. That is great news to acid allo cators 0:07:02.560 --> 0:07:05.520 and investors alike. It means that you're getting a return 0:07:05.640 --> 0:07:08.520 on bonds in excessive inflation. It's the first time I 0:07:08.520 --> 0:07:12.320 could tell you we've had positive real yields sustainably since 0:07:12.360 --> 0:07:15.360 the global financial crisis. So it's a great time for 0:07:15.440 --> 0:07:17.960 investors to be looking at the actual value and the 0:07:17.960 --> 0:07:20.560 material value that's in the fixed income markets right now. 0:07:20.600 --> 0:07:23.120 Let's say we have a rising tide which are lifting 0:07:23.280 --> 0:07:25.120 most of the boats, and I think it's fair to say, 0:07:25.280 --> 0:07:26.800 as you look at twenty twenty four, where do you 0:07:26.800 --> 0:07:28.640 think some boats might get more of a lift and 0:07:28.800 --> 0:07:29.440 some less. 0:07:30.160 --> 0:07:32.400 Well, it's interesting, David, So when you think about the 0:07:32.440 --> 0:07:35.280 Federal Reserve cutting interest rates, you immediately go to some 0:07:35.400 --> 0:07:38.040 really heavy cyclical parts of the market that should do 0:07:38.200 --> 0:07:40.800 very well. The US small capst but on a tear 0:07:40.920 --> 0:07:43.560 since the Federal Reserve started to say that they were 0:07:43.600 --> 0:07:46.240 going to be potentially not raising interest rates and even 0:07:46.320 --> 0:07:48.920 nudging them down. But there are some other parts of 0:07:48.920 --> 0:07:50.960 the market that should have been doing better but they're not. 0:07:51.360 --> 0:07:53.880 So something like the emerging markets, you would expect them 0:07:53.880 --> 0:07:56.200 to do very well when the Fed is taking their 0:07:56.200 --> 0:07:58.520 boot off the neck of the markets. They have lagged 0:07:58.560 --> 0:08:02.080 behind significantly, in part because while they're leveraged to the 0:08:02.120 --> 0:08:06.240 global interest rates cycle, their underlying fundamentals are not particularly 0:08:06.280 --> 0:08:08.280 strong at this time. So I think you had to 0:08:08.280 --> 0:08:10.960 be careful when you're talking about the rising tides lifting 0:08:11.040 --> 0:08:14.760 all the votes. We would definitely stay allocated more towards 0:08:14.760 --> 0:08:17.360 the US than the rest of the world. Europe is 0:08:17.400 --> 0:08:20.360 still in recession. I'm concerned that the yen may not 0:08:20.560 --> 0:08:23.000 rally as much as everyone expects this year, and I 0:08:23.000 --> 0:08:25.880 think the emerging markets are still in trouble. So for us, 0:08:25.880 --> 0:08:28.480 we're keeping our US home country bias very much alive 0:08:28.520 --> 0:08:29.800 and well for twenty twenty four. 0:08:29.920 --> 0:08:32.200 Within that US home country bias, one of the biases 0:08:32.240 --> 0:08:34.600 we've all had is the FED. It seems like every 0:08:34.600 --> 0:08:36.040 single day all we care about is the FED. Is 0:08:36.040 --> 0:08:37.480 that going to continue in twenty five four? Are we 0:08:37.480 --> 0:08:39.040 ever going to get pass the point where all we 0:08:39.080 --> 0:08:40.760 care about is what the FED thinks it's doing or 0:08:40.800 --> 0:08:41.520 we think it's doing. 0:08:41.920 --> 0:08:44.360 David, that's a great question, and we all have had 0:08:44.400 --> 0:08:47.400 the FED on the brain since really twenty twenty one. 0:08:48.080 --> 0:08:49.520 I think the real issue that we're going to have 0:08:49.520 --> 0:08:51.559 to face in twenty twenty four that's going to change 0:08:51.600 --> 0:08:54.480 the market's view is going to be the US presidential election. 0:08:55.400 --> 0:08:57.920 Over the past couple of elections that we've had, say 0:08:58.000 --> 0:09:02.760 twenty twenty, twenty sixteen, two thousand and four to two 0:09:02.800 --> 0:09:05.360 thousand as well, it's kind of been this pattern that 0:09:05.400 --> 0:09:08.000 follows the market tends to make some decent gains into 0:09:08.000 --> 0:09:10.280 the beginning of the year, really the first half, and 0:09:10.320 --> 0:09:14.000 then right around the June primaries, the market starts to say, hmm, 0:09:14.040 --> 0:09:16.120 there's some things that could be uncertain about this election. 0:09:16.559 --> 0:09:19.080 Could it be another Supreme Court decided election. Is it 0:09:19.120 --> 0:09:22.160 too difficult to determine who the winner is going to be? 0:09:22.720 --> 0:09:24.720 And the market tends to get a little bit nervous. 0:09:24.760 --> 0:09:28.160 The equity market generally has a week third quarter, and 0:09:28.200 --> 0:09:31.960 then right around October there starts to be enough information 0:09:32.040 --> 0:09:33.880 that the market starts to sniff out who the winner 0:09:33.920 --> 0:09:36.640 is going to be, and then equities generally march higher 0:09:36.640 --> 0:09:38.520 into the end of the year, and we would see 0:09:38.559 --> 0:09:40.520 that as likely replaying this year. 0:09:40.800 --> 0:09:44.280 That June timing could be tricky because everybody, even the Fed, 0:09:44.360 --> 0:09:46.480 agrees we're going to be slowing down the economy through 0:09:46.520 --> 0:09:48.200 the first half of the year. You could have a 0:09:48.240 --> 0:09:50.760 slowing economy. I'm not necessarily going into negative, but a 0:09:50.800 --> 0:09:52.840 lot more modesty is now. At the same time, you 0:09:52.880 --> 0:09:55.000 have that market uncertainty in the middle of the year. 0:09:55.160 --> 0:09:57.960 What you're saying, I think is it could be tricky. 0:09:57.280 --> 0:10:00.360 It could be very choppy. For sure, we think that 0:10:00.400 --> 0:10:02.680 you're going to make decent gains in twenty twenty four, 0:10:02.760 --> 0:10:06.200 in part because your starting point is relatively good. It 0:10:06.200 --> 0:10:08.040 could be a bumpy twenty twenty four for sure. 0:10:08.320 --> 0:10:11.120 It's fascinating. Okay, any hedges, you would recommend. 0:10:11.320 --> 0:10:12.120 None at this moment. 0:10:12.160 --> 0:10:14.920 But thank you, Thanks so much. Gra Always great to 0:10:14.920 --> 0:10:19.480 have you with us. Barbro Reinhardt of Voyem coming up. 0:10:19.559 --> 0:10:22.440 Rick Reader of Blackrock joins us to explain his latest venture, 0:10:22.960 --> 0:10:26.600 Rick's second fixed income ETF from the leader in the field. 0:10:54.840 --> 0:10:59.000 This is Bloomberg Wall Street Week with David Weston from 0:10:59.160 --> 0:10:59.960 Bloomberg Radio. 0:11:06.679 --> 0:11:09.800 This is Wall Street. I'm David Weston. Exchange traded funds 0:11:09.840 --> 0:11:13.599 have grown dramatically, hitting a record ten trillion dollars in 0:11:13.679 --> 0:11:16.720 assets this year. Blackreck is the leading provider of ETFs, 0:11:16.800 --> 0:11:19.560 and we welcome back now Rick Reader. He's Blackrock Chief 0:11:19.600 --> 0:11:22.400 Investment Officer of Global Fixed Income and head of the 0:11:22.480 --> 0:11:25.080 Global Allocation Team. Rick, welcome back to Wall Street Week. 0:11:25.080 --> 0:11:26.679 Good to have you, thanks sir having me so this 0:11:26.800 --> 0:11:30.199 week you announced a second ETF. You announced one back 0:11:30.240 --> 0:11:33.640 in May that was flexible income. As I recall, now 0:11:33.720 --> 0:11:36.040 this is total return. Why'd you do it? 0:11:36.760 --> 0:11:36.800 So? 0:11:36.840 --> 0:11:37.440 A couple of hanks? 0:11:37.480 --> 0:11:39.640 As you said, I mean there's been an explosion of 0:11:39.720 --> 0:11:42.000 demand for ETF. So it's a pretty incredible how the 0:11:42.040 --> 0:11:45.160 industry is developed and how clients are looking more for 0:11:46.080 --> 0:11:49.439 things that are liquid, transparent, use them for tax strategies, 0:11:49.480 --> 0:11:52.880 build models, and the models allow you to be dynamic 0:11:53.000 --> 0:11:56.240 around putting ETFs in, and so there's a whole new 0:11:56.400 --> 0:12:00.199 cohort of investors and existing clients. It's like, gosh, the 0:12:00.280 --> 0:12:03.360 ETF rapper is a really effective one. So we are 0:12:03.440 --> 0:12:04.960 taking a lot of our strategies. So the one we're 0:12:05.000 --> 0:12:08.400 launching now is our total return strategy, very close to 0:12:09.000 --> 0:12:12.640 what is the mutual fund, but it gives people who 0:12:12.679 --> 0:12:13.000 want to. 0:12:13.080 --> 0:12:15.240 Use that rapper, it gives them the ability to do it. 0:12:15.320 --> 0:12:17.800 And you know, we launch this income fund that is 0:12:18.160 --> 0:12:21.800 roughly similar to a fund we run called SiO Strategic 0:12:21.840 --> 0:12:25.360 Income Opportunities. But boy, it's gotten the receptivity to it, 0:12:25.480 --> 0:12:27.880 the rate at which it's grown. Some of it is 0:12:28.000 --> 0:12:30.920 because it's an income producing seven percent yield an environment 0:12:31.040 --> 0:12:34.320 like this with a low volatility to it. Similar people 0:12:34.320 --> 0:12:35.680 are coming in the high yield, but this is actually 0:12:35.720 --> 0:12:38.720 lower volatile. So it's gotten a tremendous amount of attention 0:12:39.280 --> 0:12:41.920 people putting money in, and so we're launching this one, 0:12:41.960 --> 0:12:44.839 which is more of total return. Like when people do 0:12:44.960 --> 0:12:48.720 sixty forty, this would be the forty and so an 0:12:48.800 --> 0:12:52.120 AG index like, but we use a lot of strategies 0:12:52.120 --> 0:12:54.640 to generate more return than the index. So that's why 0:12:54.679 --> 0:12:56.439 it's gotten a lot of attention. And I think you'll 0:12:56.440 --> 0:12:59.000 see a lot of people say, particularly now with rates 0:12:59.000 --> 0:13:01.839 heaven backed up, gosh, equities have had a good go, 0:13:02.559 --> 0:13:05.120 I'm gonna look for some fixed income and total return 0:13:05.280 --> 0:13:07.600 is a nice match to your equity portfolio. 0:13:07.800 --> 0:13:10.079 If I'm putting together the portfolio and let's assume I 0:13:10.120 --> 0:13:13.240 want some ETFs in it, how do I choose your 0:13:13.360 --> 0:13:15.559 ETFs as supposed some others? I mean, how does this 0:13:15.640 --> 0:13:18.240 fit into my portfolio? What does it balance against? So? 0:13:18.440 --> 0:13:20.120 I mean it said one thing about fixed income, and 0:13:20.760 --> 0:13:23.599 I run a lot of equity portfolios and fixed income portfolios. 0:13:23.880 --> 0:13:26.760 The one thing about fixed income is there sixty eight 0:13:26.960 --> 0:13:30.680 thousand fixed income securities versus you know the SMP five hundred, 0:13:31.240 --> 0:13:34.040 there are sixty eight thousand, and your ability to create 0:13:34.160 --> 0:13:37.480 additional return. They're using your research, your analytics, your quant 0:13:38.120 --> 0:13:41.800 fixed income market, to most investors is a pretty opaque market. 0:13:41.920 --> 0:13:43.520 It's just hard to figure out should I buy a 0:13:43.559 --> 0:13:48.240 double a colo, a trip la commercial mortgage backed security. 0:13:48.760 --> 0:13:51.120 So the benefit of and one of the secrets to 0:13:51.200 --> 0:13:53.800 fixed income for so many years, is if you can 0:13:53.920 --> 0:13:57.160 run more income than the index, but then manage your 0:13:57.240 --> 0:13:59.640 volatility because a lot of parts of the index are inefficient, 0:14:00.080 --> 0:14:03.079 too rich, and so you cut out the bad stuff 0:14:03.480 --> 0:14:05.000 and then you build a lot of income and you 0:14:05.080 --> 0:14:08.800 can outperform. And most managers ourselves included post managers and 0:14:08.880 --> 0:14:12.440 fixing them outperform, outperform indicies. You know what we think 0:14:12.559 --> 0:14:16.520 we're pretty good at is we use so much analytics, 0:14:16.679 --> 0:14:21.880 risk management, increasingly artificial intelligence, looking at data signals. You know, 0:14:21.880 --> 0:14:27.520 our research allows us to look at collateral under a mortgage, residential, commercial, mortgage. 0:14:27.560 --> 0:14:30.320 So you know, the ability to tap into our resources 0:14:30.400 --> 0:14:32.640 to try and create you know, real return when income 0:14:32.760 --> 0:14:36.400 is now so beneficial is something that I think, you know, 0:14:36.480 --> 0:14:38.160 why why I think people will. 0:14:38.040 --> 0:14:41.240 Invest in it if I'm looking at various alternatives. How 0:14:41.360 --> 0:14:43.440 much of this is betting on Rick Reader and his 0:14:43.640 --> 0:14:47.000 team being able to manage that complicated world of bonds 0:14:47.040 --> 0:14:49.040 that you just describe. Yeah, so it's a great question. 0:14:49.200 --> 0:14:51.720 I've never asked that in a couple of different So 0:14:51.760 --> 0:14:53.920 we launched the first one, which is this income fund, 0:14:54.560 --> 0:14:58.240 and that is very much and aggressive. We'll look at 0:14:58.360 --> 0:15:02.040 things like European invests, European high yield, to merging markets, 0:15:02.360 --> 0:15:04.160 and so it is very much in aggresive because they're 0:15:04.160 --> 0:15:06.040 trying to keep our income high, you know, seven percent 0:15:06.120 --> 0:15:09.640 income when an index is five ish. So that is 0:15:09.880 --> 0:15:12.800 very much tapping into because we're taking risk to get 0:15:12.880 --> 0:15:16.560 that to get that yield. Total return is still you know, 0:15:16.640 --> 0:15:19.120 we're trying to we're trying to beat the index, but 0:15:19.280 --> 0:15:21.920 we're more tethered to the index. I mean, it should 0:15:21.920 --> 0:15:24.760 be much more sincere to the aggregate index. So people 0:15:24.800 --> 0:15:28.600 should count on it doing interest rate wise, credit wise 0:15:28.640 --> 0:15:30.320 relative to the index. When people put it in their 0:15:30.360 --> 0:15:33.280 portfolio against equities, they should look at it relative to that. 0:15:33.880 --> 0:15:36.320 We've had a really good track record knock wood of 0:15:36.680 --> 0:15:40.600 beating the index and so, you know, but the differentiation 0:15:40.760 --> 0:15:43.440 and total return, we are going to be more index oriented. 0:15:43.720 --> 0:15:45.800 We're just going to try and create an extra hundred 0:15:45.880 --> 0:15:48.480 basis points or so over that index over time versus 0:15:48.600 --> 0:15:50.760 my income one. We're just going to try and create 0:15:50.800 --> 0:15:52.520 a lot of income for you persistently. 0:15:52.760 --> 0:15:55.680 We had a very eventful twenty twenty three. Let's look 0:15:55.680 --> 0:15:57.400 forward to twenty twenty four, and I guess one thing 0:15:57.440 --> 0:15:59.840 setting it up is actually what Jay Powell said here 0:16:00.120 --> 0:16:02.200 just this week at the end of twenty twenty three 0:16:02.400 --> 0:16:05.360 about the possibility of rate cuts. Boy, he really embraced it. 0:16:05.440 --> 0:16:07.480 If anything, it was pretty incredible, David. 0:16:07.880 --> 0:16:10.880 You know, it was very different than we were literally 0:16:10.880 --> 0:16:13.200 a couple of weeks ago, certainly in the last meeting, 0:16:13.760 --> 0:16:15.440 and that was you know, that was pretty aggressive. I 0:16:15.480 --> 0:16:18.160 think it is the right direction to travel. You know, 0:16:18.240 --> 0:16:20.960 you do look at inflation. I mean six month CPI 0:16:21.120 --> 0:16:23.920 core PC are all trending down aggressively. I mean, we 0:16:24.000 --> 0:16:27.120 look at numbers over six month moving averages. Service inflation 0:16:27.200 --> 0:16:29.680 is still a bit sticky, but the averages are coming 0:16:29.760 --> 0:16:31.920 down well into the twos. Core PC we think by 0:16:32.000 --> 0:16:34.080 January is in the two So I think it was 0:16:34.120 --> 0:16:36.360 the right thing to move it. What was surprising is 0:16:36.440 --> 0:16:38.880 how fast I thought there would be a more of 0:16:38.960 --> 0:16:41.840 a transition to it. Listen to long term funds rate 0:16:41.960 --> 0:16:44.320 is two and a half percent. The Fed projections what 0:16:44.400 --> 0:16:47.640 they put in that data yesterday they had real GDP 0:16:47.760 --> 0:16:49.640 of one and a half and they have core PC 0:16:49.800 --> 0:16:52.320 at two and a half. That's pretty normal. I mean 0:16:52.360 --> 0:16:54.880 that is, if you said, over time one and a 0:16:54.920 --> 0:16:57.760 half growth, two and a half inflation, maybe get two 0:16:57.800 --> 0:16:59.640 inflation down to two at some point, but it's not 0:16:59.680 --> 0:17:02.600 that far are We've got a funds rate that's. 0:17:02.480 --> 0:17:03.920 Five and three ace percent. 0:17:04.800 --> 0:17:07.200 That real rate is really high. The Fed has to 0:17:07.280 --> 0:17:09.640 get rates down, has to start to move them down. 0:17:10.160 --> 0:17:11.880 I thought they would take a bit of time because 0:17:11.880 --> 0:17:15.399 of financial conditions, managing financial conditions. I thought they'd take 0:17:15.440 --> 0:17:17.560 a bit more time. But I think the direction travel 0:17:17.680 --> 0:17:19.119 is right, and I think they are moving in a 0:17:19.160 --> 0:17:20.679 direction that is that is the right thing. 0:17:20.800 --> 0:17:23.160 By the way, that real rate actually climbs its inflation 0:17:23.359 --> 0:17:25.639 goes down, right, So to some extent they have to 0:17:25.680 --> 0:17:28.520 come down to just keep the same level of restrictiveness. 0:17:28.680 --> 0:17:30.359 So much your power set, And he said at the 0:17:30.440 --> 0:17:32.439 last meeting too, they asked, so you focus on nominal 0:17:32.520 --> 0:17:34.800 or real rates? And he said it again, he focus 0:17:34.880 --> 0:17:36.639 on the real rate of interest. If they focus on 0:17:36.680 --> 0:17:40.240 the real rate of interest, definitionally inflations two and a half, 0:17:40.960 --> 0:17:42.720 you know, you think about over time, the real rate 0:17:42.760 --> 0:17:47.479 of interest is closer to zero to one running three percent. 0:17:47.680 --> 0:17:50.200 Real rates too high. He's got to at least get. 0:17:50.119 --> 0:17:52.320 It down one hundred base points, and I think he's 0:17:52.359 --> 0:17:54.800 got to get it down two hundred basis points because 0:17:54.880 --> 0:17:57.600 growth is slowing, and he talked about you're starting to 0:17:57.640 --> 0:18:00.280 see more balance in the labor force. Virtually every cater 0:18:00.440 --> 0:18:03.879 is showing still solid, but more balanced alongside of inflation 0:18:04.040 --> 0:18:07.880 coming down. So the real rate definitionally per the way 0:18:07.920 --> 0:18:11.040 they've described, their focus has to come down. And I 0:18:11.080 --> 0:18:13.159 think they're going to get started quite frankly, you know, 0:18:13.200 --> 0:18:14.520 I think they're gonna ge started in may be. 0:18:14.560 --> 0:18:17.040 Could they start a little bit earlier if possible? What 0:18:17.119 --> 0:18:19.040 does that tell me as an investor? I mean, bonds 0:18:19.080 --> 0:18:21.119 of had a tough time as those rates went up. 0:18:21.520 --> 0:18:23.760 The bonds really took it on the chin, so to speak. 0:18:24.000 --> 0:18:25.600 But what does that say for twenty twenty four in 0:18:25.720 --> 0:18:26.359 terms of bonds? 0:18:26.760 --> 0:18:28.080 So I'd say one thing, I don't know. I brought 0:18:28.119 --> 0:18:29.400 a chart. I don't know if you have that chart 0:18:29.440 --> 0:18:32.280 that shows that there was we just went through the 0:18:32.400 --> 0:18:36.480 most extraordinary draw down on the bond market. So for 0:18:36.600 --> 0:18:40.000 three years you had this extraordinary draw down that was 0:18:40.080 --> 0:18:43.040 literally a twenty percent return down. I mean we were 0:18:43.119 --> 0:18:45.719 to the point where long bonds were trading. There's one 0:18:45.720 --> 0:18:47.040 of the long line trades at forty seven and a 0:18:47.080 --> 0:18:49.639 half cents on the dollar. Nobody thinks triple A treasury 0:18:49.640 --> 0:18:51.600 should trade forty seven and a half cents on the dollar. 0:18:51.640 --> 0:18:54.400 But they were issued in twenty post COVID, and now 0:18:54.520 --> 0:18:56.280 they've they've come under this incredible pressure. 0:18:56.400 --> 0:18:59.440 So now I did this presentation today. 0:18:59.240 --> 0:19:01.080 Where I called it, you know, the only way to 0:19:01.119 --> 0:19:03.600