WEBVTT - Now, the Hard Part 0:00:13.480 --> 0:00:16.840 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:17.079 --> 0:00:19.280 My name is Mike Reagan. I'm a senior editor at 0:00:19.280 --> 0:00:23.840 Bloomberg and I'm gonna hir across acid reporter also at Bloomberg, 0:00:24.239 --> 0:00:26.079 and this week on the show, Well, this was a 0:00:26.160 --> 0:00:29.160 monumental week because it marked the point where the US 0:00:29.200 --> 0:00:34.040 stock market actually doubled from the pandemic lows of at 0:00:34.080 --> 0:00:36.559 least if you're looking at the main benchmark, the SMP five. 0:00:37.680 --> 0:00:40.560 What does that mean going forward? Have easy gains already 0:00:40.600 --> 0:00:42.560 been made? And are we do for a rough patch 0:00:42.680 --> 0:00:45.160 next year? We'll get into it with the co chief 0:00:45.159 --> 0:00:49.519 investment strategist at a major asset management firm and uh Vltana. 0:00:49.600 --> 0:00:53.239 I gotta tell you, I'm very excited this week. Um, 0:00:53.400 --> 0:00:55.800 I'm excited most weeks for the podcast. I gotta say 0:00:55.840 --> 0:00:58.760 I'm I'm very easily excitable, but I'm especially excited this 0:00:58.760 --> 0:01:02.080 week because we got a call a voicemail to the 0:01:02.080 --> 0:01:06.440 Bloomberg podcast hotline. Now, granted it was someone who works 0:01:06.440 --> 0:01:09.199 for Bloomberg, so the call literally was coming from inside 0:01:09.200 --> 0:01:11.759 the house, but it still counts and I'm very excited 0:01:12.080 --> 0:01:14.399 and that that's sort of a reminder to me that 0:01:14.440 --> 0:01:17.080 I have not been reminding people to call the hotline, 0:01:17.160 --> 0:01:20.640 so hopefully you're more organized than me and have the 0:01:20.760 --> 0:01:22.800 number handy. What is what is the hotline number of 0:01:22.800 --> 0:01:24.640 Bill Dona? This is a quiz, This is a test 0:01:24.680 --> 0:01:27.320 for you. I'm way more organized than you, and thankfully 0:01:27.360 --> 0:01:29.760 I have it on hand. So if anybody has the 0:01:29.840 --> 0:01:34.160 craziest thing that they saw internally from Bloomberg or fans 0:01:34.200 --> 0:01:36.800 outside of Bloomberg, you can give us a call at 0:01:36.800 --> 0:01:40.160 six four six three two four three four nine zero 0:01:40.520 --> 0:01:42.559 and we may even play the voicemail on the show. 0:01:43.000 --> 0:01:45.319 Great and you know what, I'm going to start with 0:01:45.360 --> 0:01:48.040 a crazy thing. It's not market related, but I've just 0:01:48.160 --> 0:01:51.040 been informed that our guest this week is up north 0:01:51.080 --> 0:01:54.560 of Boston where they're actually getting tornado warnings, which I 0:01:54.600 --> 0:01:58.880 did not think Boston was a very tornado prone place. 0:01:58.960 --> 0:02:01.640 But tell about that. Our guest this week, her name 0:02:01.680 --> 0:02:05.080 is Emily are Roland. She's the co chief investment strategist 0:02:05.160 --> 0:02:08.280 at John Hancock Investment Management. Emily, are you on a 0:02:09.080 --> 0:02:11.400 bunker right now? Shelter? What what's going on? I'm worried 0:02:11.400 --> 0:02:14.800 about you. This podcast is far too important for me 0:02:14.919 --> 0:02:18.000 to be sheltering from this tornado. I'm willing to be 0:02:18.040 --> 0:02:21.960 blown over for Bloomberg. But yeah, we're we're in a 0:02:22.000 --> 0:02:24.600 tornado watch right now. It looks like the weather is 0:02:24.600 --> 0:02:26.880 starting to improve, so we should be in pretty good 0:02:26.880 --> 0:02:29.960 shape here. I have a swage that children's fears, and 0:02:30.000 --> 0:02:33.320 I think we everybody should be okay, alright, good, good 0:02:33.320 --> 0:02:36.400 to know if you so. If your screen suddenly goes dark, 0:02:36.440 --> 0:02:38.720 I'm gonna I don't know what. We'll send Voldonta up 0:02:38.720 --> 0:02:40.679 to dig you out. Is that all right with you? 0:02:40.760 --> 0:02:44.639 Voldona happy to help. Let's hope it doesn't come to that. 0:02:45.720 --> 0:02:48.880 It's crazier for weather that we had a bunch of 0:02:48.919 --> 0:02:52.040 tornadoes in New Jersey. I don't remember that before. I 0:02:52.080 --> 0:02:54.480 know you had one, your parents had one year Trenton. 0:02:55.200 --> 0:02:58.560 Very strange year for weather. But hopefully, uh, once the 0:02:58.600 --> 0:03:01.760 summer is over, we'll get back normal. But Emily, let's 0:03:01.760 --> 0:03:04.639 get to that market discussion. You know, someone pointed out 0:03:04.680 --> 0:03:08.200 to me this week. Um, it's kind of hard to believe, 0:03:08.240 --> 0:03:10.600 but the US stock market, at least looking at the 0:03:10.800 --> 0:03:17.120 sp has doubled since the pandemic lose, which you know, 0:03:17.160 --> 0:03:19.560 we all sat here on our screens watching it happened. 0:03:19.600 --> 0:03:20.880 So I don't know why it should be such a 0:03:20.919 --> 0:03:23.120 surpriser shock to me. But I think when you hit 0:03:23.160 --> 0:03:26.359 that milestone of a doubled market, it's it's a good 0:03:26.360 --> 0:03:29.240 time to reflect and just sort of get your take 0:03:29.440 --> 0:03:32.040 on you know, what did we learn? What did did 0:03:32.080 --> 0:03:34.400 you learn anything that you didn't know about the market 0:03:34.400 --> 0:03:37.760 in the past year. I'm not sure anyone really would 0:03:37.760 --> 0:03:40.800 have guessed we'd see the market double from the lows 0:03:40.960 --> 0:03:42.800 if if you took a time machine back to March 0:03:42.840 --> 0:03:46.480 of But what's your takeaway about just sort of this 0:03:46.800 --> 0:03:50.200 crazy rally we've seen in equities um and and are 0:03:50.240 --> 0:03:52.920 there any lessons that we should sort of stow away 0:03:52.920 --> 0:03:55.680 for the future from this? Yeah, I mean, I think 0:03:55.720 --> 0:03:58.200 the lesson learned is if you want to stimulate the 0:03:58.240 --> 0:04:02.880 stock market, spend about fIF of GDP on fiscal stimulus 0:04:02.920 --> 0:04:05.680 and have the Fed double the size of their balance 0:04:05.720 --> 0:04:09.160 sheet in pretty short order. So certainly those have been 0:04:09.320 --> 0:04:12.760 the two biggest tail winds for the market since the 0:04:12.840 --> 0:04:16.159 March low of last year. And I think one of 0:04:16.160 --> 0:04:20.120 the most interesting and notable things about this bull market 0:04:20.279 --> 0:04:24.360 that's been unfolding is that it's made of Teflon. There 0:04:24.400 --> 0:04:28.120 have not been any corrections really to speak up, or 0:04:28.200 --> 0:04:30.960 draw downs of more than five percent. The dip buyers 0:04:30.960 --> 0:04:34.440 have come out in full force now. Usually when we 0:04:34.520 --> 0:04:39.440 look at previous bull markets coming off of bear market lows, 0:04:40.040 --> 0:04:42.800 year two is a lot harder than year one. So 0:04:42.839 --> 0:04:46.240 in year one we see this meaningful asset appreciation. We 0:04:46.279 --> 0:04:50.080 see basically the rally and everything, any type of risk 0:04:50.120 --> 0:04:52.920 you want to take is rewarded. Typically in year two 0:04:53.000 --> 0:04:55.640 markets become a bit more choppy, and certainly we saw 0:04:55.680 --> 0:04:58.400 that after oh eight and oh nine where we saw 0:04:58.440 --> 0:05:01.520 a big correction and coming into year two of that 0:05:01.920 --> 0:05:04.839 of that bowl market, and this time we simply have 0:05:05.040 --> 0:05:08.840 not seen the volatility. So markets are looking past it. 0:05:09.120 --> 0:05:12.919 We've got easy central banks still in place, still, fiscal 0:05:12.960 --> 0:05:16.360 stimulus tail winds, and earnings growth is just going through 0:05:16.640 --> 0:05:20.039 the roof. So those have been really powerful factors I 0:05:20.080 --> 0:05:23.799 think driving markets higher. And then at the same time, 0:05:23.839 --> 0:05:27.080 I had a story earlier this week that said options 0:05:27.160 --> 0:05:30.599 tape for virus traders picked their poison, and I am 0:05:30.640 --> 0:05:32.800 hearing from a lot more people that there's just some 0:05:33.680 --> 0:05:37.359 worries swirling around. So I'm wondering how you guys are positioning. 0:05:37.360 --> 0:05:39.480 If you're positioning more defensively, maybe you can tell us 0:05:39.480 --> 0:05:42.120 a bit more about your strategy. Yeah. I think the 0:05:42.279 --> 0:05:46.680 spread of the delta Varrian has been exacerbating a backdrop 0:05:46.720 --> 0:05:50.000 that was already in place, which is that economic growth 0:05:50.120 --> 0:05:52.760 continues to be strong, and we've seen that this week 0:05:52.800 --> 0:05:55.760 with the leading indicators coming in at ten percent growth 0:05:55.839 --> 0:05:59.039 year every year. That's a great reading. But it's starting 0:05:59.040 --> 0:06:01.640 to moderate, and it's become clear to us that the 0:06:01.680 --> 0:06:05.560 peak and the economic data was probably back in April. 0:06:05.720 --> 0:06:09.239 Now it's not an extraordinarily bearished message. You can still 0:06:09.960 --> 0:06:13.720 be a powerful driver for risk assets as the economy 0:06:13.760 --> 0:06:18.200 continues to improve, but we are seeing that moderation and 0:06:18.240 --> 0:06:20.680 growth play out, and what that means to us from 0:06:20.680 --> 0:06:24.760 an investment positioning standpoint is that it's time to be 0:06:24.839 --> 0:06:28.279 more thoughtful about what you own. We talked before about 0:06:28.800 --> 0:06:32.360 kind of the risk everything rally. It didn't matter what 0:06:32.400 --> 0:06:35.480 you bought over the last twelve months or so. Now 0:06:35.520 --> 0:06:38.440 as we sort of head into the mid cycle environment, 0:06:38.760 --> 0:06:41.719 it becomes harder, and that's one of the reasons we've 0:06:41.720 --> 0:06:44.880 been really focused on things like the quality factor, so 0:06:45.040 --> 0:06:48.640 looking for companies and sectors and have great balance sheets, 0:06:48.720 --> 0:06:53.839 good return on equity, the ability to maintain margins regardless 0:06:53.880 --> 0:06:56.360 of the economic growth backdrop. To us, that's going to 0:06:56.440 --> 0:07:00.480 be increasingly important. I've been thinking about this analogy. Summer's 0:07:00.520 --> 0:07:03.479 winding down here in Boston. My my kids were on 0:07:03.520 --> 0:07:07.159 the swim team this year. Um, they weren't very good, 0:07:07.880 --> 0:07:10.120 but I noticed the other day they handed out all 0:07:10.160 --> 0:07:13.160 the ribbons, right or the medals that they want in 0:07:13.240 --> 0:07:15.520 all their swim team races, and I noticed they came 0:07:15.560 --> 0:07:17.800 home with a bunch of them. I thought, well, every 0:07:17.920 --> 0:07:21.239 kid really does get a ribbon. And then I started thinking, 0:07:21.280 --> 0:07:23.480 it's kind of like the market over the last fifteen 0:07:23.480 --> 0:07:26.280 months or so, everybody gets a ribbon. And I think 0:07:26.320 --> 0:07:29.760 as we transition into this mid cycle environment, it's going 0:07:29.840 --> 0:07:32.080 to be more like the Olympics, where it's just going 0:07:32.160 --> 0:07:34.840 to be the best who are really rewarded. So again 0:07:34.920 --> 0:07:37.560 that's the reason for the focus on fundamentals and the 0:07:37.600 --> 0:07:42.080 focus on that quality factor as we evaluate the investment opportunities. 0:07:43.120 --> 0:07:46.480 God bless you, Emily. I uh, thankfully none of my 0:07:46.560 --> 0:07:49.520 kids were swimmers, but I know that every swim meet 0:07:49.640 --> 0:07:55.040 is approximately thirty seven hours long. Somehow, somehow, so I'm 0:07:55.080 --> 0:07:59.200 sure it's been a long summer, and congratulations on the ribbons, said, 0:07:59.240 --> 0:08:01.640 I think that the reason for the many ribbons is 0:08:01.640 --> 0:08:04.400 there's also about eight hundred events that every swim meet, 0:08:04.480 --> 0:08:06.840 so there's plenty of plenty of chance to to Uh. 0:08:08.640 --> 0:08:10.280 I wanted so I was, I was reading one of 0:08:10.280 --> 0:08:14.040 your recent pieces of commentary, and I wanted to ask 0:08:14.080 --> 0:08:17.000 you about something in it. Um and you, as you 0:08:17.000 --> 0:08:20.000 put it out, you know this the fiscal stimulus that's 0:08:20.040 --> 0:08:23.440 in the rear view mirror, I mean, unprecedented, the five 0:08:23.480 --> 0:08:25.720 trailing as you point out the direct payments, you know 0:08:25.760 --> 0:08:29.840 what they used to call helicopter money basically, and um, yes, 0:08:29.880 --> 0:08:34.120 we've got some more coming from the infrastructure spending bills. 0:08:34.440 --> 0:08:36.640 We don't know exactly how much yet, but there's something 0:08:36.720 --> 0:08:40.080 in the pipeline. Um obviously not going to be as 0:08:40.200 --> 0:08:43.319 big of a a sort of injection of money into 0:08:43.320 --> 0:08:46.319 the economy as as we saw last year. But um 0:08:46.440 --> 0:08:49.160 um And you make a good point, you say, uh, 0:08:49.559 --> 0:08:52.000 you know this and your not this stimulus is unlikely 0:08:52.040 --> 0:08:55.439 to be matched talking about last year's um and if 0:08:55.440 --> 0:08:58.160 that's stimulus that we just did not create a higher 0:08:58.200 --> 0:09:01.000 tenure treasury yield it is n likely that a smaller 0:09:01.040 --> 0:09:04.200 package that is less direct in dissemination into the economy 0:09:04.640 --> 0:09:09.480 creates a meaningful higher yield than where we are. You 0:09:09.480 --> 0:09:12.040 know from sort of the supply of treasuries that that 0:09:12.080 --> 0:09:14.240 makes sense to me. But I do wonder about the 0:09:14.280 --> 0:09:16.800 other side of the ledger with you know, who's buying 0:09:16.800 --> 0:09:19.560 the treasuries. We we have the Fed buying eighty billion 0:09:19.600 --> 0:09:23.160 a month in treasuries forty billion in mortgage backed securities. 0:09:24.679 --> 0:09:27.880 The tapering, The time to talk about talking about tapering 0:09:27.960 --> 0:09:29.480 is over, and now I think it's the time to 0:09:30.040 --> 0:09:33.600 actually start tapering very soon. Um. If you listen to 0:09:33.679 --> 0:09:37.720 James Bullard of the Fed this week, uh he said, 0:09:37.800 --> 0:09:39.520 And I don't know if this is just sort of 0:09:39.640 --> 0:09:42.400 bravado talk, but he said he wants the tapering to 0:09:42.440 --> 0:09:45.280 be finished by the end of the first quarter of 0:09:45.400 --> 0:09:50.000 next year, which would imply a very aggressive uh pace 0:09:50.040 --> 0:09:53.079 of tapering, at least compared to the last time they 0:09:53.120 --> 0:09:55.560 tried to get out out from under QUEI and which 0:09:55.640 --> 0:09:59.200 you know famously caused the taper attention. UM, So I wonder, 0:09:59.360 --> 0:10:02.200 you know, I guess there's two ways that could play out. 0:10:02.280 --> 0:10:04.920 You know, you remove this huge buyer from the treasury 0:10:04.920 --> 0:10:08.880 market in the fed UM And my first instinct would be, well, 0:10:08.880 --> 0:10:11.640 obviously yields are gonna go higher. But then you know, 0:10:12.080 --> 0:10:13.840 on the second thought, it's like, well, is it going 0:10:13.880 --> 0:10:16.800 to create this risk off environment everyone's going to freak 0:10:16.840 --> 0:10:19.480 out about the tapering And is that actually gonna cause 0:10:19.520 --> 0:10:22.280 people to pile back into treasuries and yields to go lower? 0:10:22.400 --> 0:10:26.040 So how much is the tapering sort of play into 0:10:26.120 --> 0:10:29.000 your view and yields and which side you know it could? 0:10:29.080 --> 0:10:30.680 Could both of those sort of be true and that 0:10:30.720 --> 0:10:32.439 we see a spike and yields and then sort of 0:10:32.440 --> 0:10:34.360 a risk off environment. I don't know, how do you 0:10:34.400 --> 0:10:37.160 all see it playing out once we do push the 0:10:37.160 --> 0:10:40.920 button on tapering? Can I just say sorry? Can I 0:10:40.960 --> 0:10:43.000 just say, Mike, you get ribbons for the longest question 0:10:43.040 --> 0:10:48.200 in the industry of the world. That's nothing much longer. 0:10:48.880 --> 0:10:50.960 I'm about to say the same thing. And there were 0:10:51.080 --> 0:10:55.600 so many juicy nuggets and questions in there, and I 0:10:55.640 --> 0:10:59.960 think you've hit on something that is so crucial tomorrow 0:11:00.040 --> 0:11:03.360 gets right now, which is you know, what impact does 0:11:03.440 --> 0:11:06.480 tapering have? And if you look back at the last 0:11:06.559 --> 0:11:09.480 two examples when QWI ended so if you look at 0:11:09.640 --> 0:11:14.840 you know, QUE two QWE three UM. Actually what happened 0:11:15.120 --> 0:11:17.800 was that when the FED started to taper or started, 0:11:18.080 --> 0:11:21.720 you know, stopped increasing the size of its balance sheets sheet, 0:11:22.120 --> 0:11:25.000 the tenure treasury yield actually fell. And it's for the 0:11:25.000 --> 0:11:27.720 exact reason that you pointed out, which is that the 0:11:27.760 --> 0:11:31.880 Fed's basically removing the punch bowl, which is feeding risk 0:11:31.920 --> 0:11:35.040 assets and causing investors to want to take more risks. 0:11:35.440 --> 0:11:38.120 So when the FED starts to pull the punch bowl away, 0:11:38.160 --> 0:11:42.400 that creates this risk off environment where investors actually start 0:11:42.480 --> 0:11:46.240 to embrace treasuries again. So that's one reason we actually 0:11:46.280 --> 0:11:49.640 see ultimately the path of the ten year treasury moving 0:11:49.840 --> 0:11:53.079 lower for here from here, another thing to think about. 0:11:53.440 --> 0:11:56.680 Typically what happens in terms of the ten year treasury 0:11:56.840 --> 0:12:01.160 is the yield peaks right after a risk session, and 0:12:01.280 --> 0:12:03.680 we saw and that's true if you look back at 0:12:03.679 --> 0:12:06.680 the last four recessions in the US, and so what 0:12:06.760 --> 0:12:10.520 we saw in terms of a closing yield of one 0:12:10.640 --> 0:12:13.760 seventy four on March thirty one of this year, and 0:12:13.880 --> 0:12:16.680 our view, it's got to be on the table in 0:12:16.720 --> 0:12:20.840 the conversation that that was potentially the peak in the 0:12:20.920 --> 0:12:23.240 yield of the ten year treasury. Now we might see 0:12:23.280 --> 0:12:26.960 some further backup, maybe an infrastructure package. Personally, I don't 0:12:26.960 --> 0:12:30.320 think it's gonna be potent enough to really accelerate growth. 0:12:30.360 --> 0:12:33.240 It's going to be spread out over a number of years. Um. 0:12:33.280 --> 0:12:36.280 It's not going to be done via direct transfer payments 0:12:36.320 --> 0:12:40.720 or stimulus checks. I think it'll probably be less stimulative. UM. 0:12:40.760 --> 0:12:44.720 So I just don't see the catalyst to move the 0:12:44.760 --> 0:12:57.400 ten year treasury higher from here in a meaningful way. Emily, 0:12:57.440 --> 0:12:59.600 what about the stock market? Because I was wondering what 0:12:59.600 --> 0:13:03.120 you're playing book might be for FED tapering. Obviously this 0:13:03.160 --> 0:13:05.439 week we had the minutes and they showed that a 0:13:05.520 --> 0:13:09.560 lot of the officials see a taper potentially starting this year. 0:13:09.600 --> 0:13:13.240 So what what will be your playbook for this scenario? Yeah, 0:13:13.280 --> 0:13:14.760 I mean I think it would be a risk to 0:13:14.800 --> 0:13:18.000 the markets. I think the Fed has been so transparent. 0:13:18.200 --> 0:13:21.480 You know, Powell has been so resolute in his messaging 0:13:22.040 --> 0:13:25.320 and crystal clear to us that you know they're they're 0:13:25.440 --> 0:13:29.480 very much committed to this average inflation targeting framework. They're 0:13:29.559 --> 0:13:34.240 very much committed to making substantial progress on their economic goals, 0:13:34.360 --> 0:13:38.440 you know, letting the jobs market fully heal. We just 0:13:38.520 --> 0:13:41.680 had two great jobs reports. Is that enough to create 0:13:41.760 --> 0:13:45.600 this sort of quote unquote string of good economic data 0:13:46.080 --> 0:13:48.320 that the FED would like to see? And we're on 0:13:48.360 --> 0:13:50.680 our way there. So there has been a bit of 0:13:50.679 --> 0:13:54.040 a shift to a more you know, hawkish approach from 0:13:54.040 --> 0:13:57.360 the Fed, but it's been well telegraphed. So I think 0:13:57.720 --> 0:14:01.520 equity markets can handle it. Um. And you know, you've 0:14:01.559 --> 0:14:04.200 got to remember that as the said starts easing up here, 0:14:04.600 --> 0:14:07.560 that's not a necessarily a bad thing. It means the 0:14:07.559 --> 0:14:10.559 economy is continuing to heal, and it means growth is 0:14:10.600 --> 0:14:14.000 picking up. Um. So that's a good thing. Um. So 0:14:14.040 --> 0:14:17.200 I think equity markets could take it in stride. Um. 0:14:17.240 --> 0:14:19.200 I think you know, one of the bigger risk that's 0:14:19.320 --> 0:14:22.160 not being priced into the equity market right now is 0:14:22.240 --> 0:14:27.080 potential tax increases, particularly on the corporate tax side. Um. 0:14:27.120 --> 0:14:29.520 You know, markets tend we we look at some great 0:14:29.720 --> 0:14:33.200 research and Dan Clifton over its strategious research partner, just 0:14:33.240 --> 0:14:36.280 put Partners just put a note out uh this week 0:14:36.320 --> 0:14:40.360 that you know, basically suggests markets worry about higher corporate 0:14:40.360 --> 0:14:43.720 tax rates when it's time to worry about higher corporate 0:14:43.720 --> 0:14:47.000 tax rates, meaning that when they're actually kind of you know, 0:14:47.040 --> 0:14:49.120 it looks quite likely that they're going to be put 0:14:49.120 --> 0:14:52.800 in into into law, so that might be sometime this fall, 0:14:52.880 --> 0:14:55.360 and you might see equity markets get a little bit 0:14:55.480 --> 0:14:59.720 big jetty around that as it might knock uh you know, 0:15:00.040 --> 0:15:03.560 maybe five or even ten percent off that corporate earnings outlook. 0:15:03.960 --> 0:15:05.760 So something to think about there in terms of what 0:15:05.960 --> 0:15:09.680 might create the volatility in the stock market going forward. 0:15:10.640 --> 0:15:14.560 So is it the type of scenario that perhaps investors 0:15:14.600 --> 0:15:19.480 have already priced in to some degree the infrastructure stimulus, 0:15:19.520 --> 0:15:21.600 but not this notion that we're gonna have to go 0:15:21.640 --> 0:15:25.040 back and talk about paying for government spending again and 0:15:25.320 --> 0:15:28.240 not just run deficits to free fall? Is you know, 0:15:28.800 --> 0:15:31.000 sort of a two sided coin and the market is 0:15:31.000 --> 0:15:33.680 only looking at one at this point. I think that's right. 0:15:33.880 --> 0:15:36.800 And you know, markets were continuing to hit you know, 0:15:36.880 --> 0:15:39.320 new all time Hiyes, recently we've seen a little bit 0:15:39.320 --> 0:15:42.520 of choppiness UM as of late. But I think right 0:15:42.560 --> 0:15:47.640 now markets are not thinking about that, They're not anticipating that, um. 0:15:47.680 --> 0:15:50.640 They're they're focused on some of these these keytail winds 0:15:50.720 --> 0:15:55.160 that continue to exist around reopening, around that strong earnings 0:15:55.200 --> 0:16:01.560 back drop, and around continued supportive policy. I covered the 0:16:01.640 --> 0:16:04.800 Robin Hood earnings earlier this week, and essentially they said 0:16:04.840 --> 0:16:07.400 that retail mania is cooling. I think they warned about 0:16:07.600 --> 0:16:10.400 seasonal headwinds. So I'm wondering if you agree with that 0:16:10.440 --> 0:16:13.800 and what it means for markets. So we look at 0:16:13.840 --> 0:16:17.880 the activity in retail trading, particularly around the meme stocks, 0:16:18.120 --> 0:16:22.280 as our kind of gauge of sentiment, of market sentiment. 0:16:22.320 --> 0:16:25.360 And when you start to see these pockets of frothiness 0:16:25.520 --> 0:16:29.520 or these pockets of speculation building in the market, you know, 0:16:29.680 --> 0:16:33.360 that's a that's a notch against wanting to embrace equities. 0:16:33.920 --> 0:16:36.280 So when we start to see some of that sentiment cool, 0:16:36.360 --> 0:16:39.320 you know, we we also watch things like cryptocurrencies is 0:16:39.360 --> 0:16:43.440 another sort of sentiment indicator. When that starts to cool, 0:16:44.000 --> 0:16:46.280 to us, that's a sign that you know, potentially this 0:16:46.320 --> 0:16:50.440 equity market actually has more legs and sentiment is not 0:16:50.680 --> 0:16:54.000 moving against it. So we still want to own equities here. 0:16:54.000 --> 0:16:56.680 And I'm not totally upset about the fact that, you know, 0:16:56.760 --> 0:16:59.680 maybe some of that frenzy and retail spending is starting 0:16:59.720 --> 0:17:03.080 to cool. Hey, maybe people are just getting back to work. Um, 0:17:03.120 --> 0:17:06.760 you know, we know some of the some of the 0:17:07.280 --> 0:17:11.440 additional jobless benefits are starting to expire in many states, 0:17:11.920 --> 0:17:14.680 or maybe people are getting back to school. I can 0:17:14.720 --> 0:17:17.200 tell you that my eleven year old begged me if 0:17:17.200 --> 0:17:19.240 he could open up a robin Hood account so he 0:17:19.280 --> 0:17:22.560 could start trading using his hundred dollars from his first 0:17:22.600 --> 0:17:26.000 communion money. So now that he's getting back into the classroom, 0:17:26.040 --> 0:17:29.480 maybe his interest in a day trading is starting to 0:17:29.800 --> 0:17:34.359 uh subside. Here something to think about, Oh boy, eleven 0:17:34.480 --> 0:17:37.720 years old, and once though for the rabbit I had 0:17:37.760 --> 0:17:40.840 my seventh year senior old wanted open one and I 0:17:40.880 --> 0:17:43.240 thought that was young. But eleven boy, I'd love to 0:17:43.280 --> 0:17:45.440 know the stock picks of your eleven year old sometime 0:17:45.480 --> 0:17:48.120 though you can. I think you can guess you can 0:17:48.160 --> 0:17:51.520 have anything that's wildly risky. And by the way, his 0:17:51.720 --> 0:17:54.359 I realized this the other day. You know, his entire 0:17:54.520 --> 0:17:57.960 experience with investing, which started in the beginning of the lockdowns, 0:17:58.440 --> 0:18:02.480 involves every everything going up. So he hasn't had the 0:18:02.560 --> 0:18:05.440 experience that the rest of us had and have had 0:18:05.480 --> 0:18:08.600 in terms of thinking about risk tolerance and trying to 0:18:08.640 --> 0:18:11.240 figure out how much you can stomach in terms of losses. 0:18:11.280 --> 0:18:13.959 So I think it's going to be an interesting period 0:18:14.080 --> 0:18:17.320 for him to to learn and grow. But speaking of 0:18:17.359 --> 0:18:19.320 that as well, we were looking at some data that 0:18:19.440 --> 0:18:22.880 was showing cash is actually slowly starting to build up 0:18:23.000 --> 0:18:25.520 in portfolios and potentially, as you said, some of that 0:18:25.520 --> 0:18:30.720 euphoric buying from earlier in the year is potentially fading away. 0:18:30.840 --> 0:18:33.399 So what would that mean for for markets? But what 0:18:33.440 --> 0:18:36.440 do we make of the idea that potentially we don't 0:18:36.520 --> 0:18:40.080 have the buy the dip mentality anymore going forward? Yeah, 0:18:40.119 --> 0:18:42.680 we are seeing if you look at the fun flow data. 0:18:42.720 --> 0:18:45.400 I think it's a great point, Bill Donna, because you're 0:18:45.440 --> 0:18:49.520 seeing investors continue to have a more conservative mindset in 0:18:49.640 --> 0:18:52.800 terms of where they're investing. We saw money market balances 0:18:53.400 --> 0:18:56.320 UM hit something like six trillion dollars at the height 0:18:56.359 --> 0:18:59.480 of the pandemic. That they started to come back down again, 0:18:59.480 --> 0:19:02.080 which they typically do coming out of an election, coming 0:19:02.080 --> 0:19:04.680 out of a recession, but we've actually started to see 0:19:04.720 --> 0:19:08.120 the interest in money market funds go back up. The 0:19:08.200 --> 0:19:12.400 number one asset gathering category UM is tax free bonds, 0:19:12.880 --> 0:19:15.400 and as we know, that's a huge challenge right now 0:19:15.400 --> 0:19:19.359 in terms of finding a way to generate yield in 0:19:19.400 --> 0:19:23.639 an environment which yields are extraordinary look extraordinarily low, and 0:19:23.680 --> 0:19:26.880 in our view, they're probably going to stay that way. Um, 0:19:26.960 --> 0:19:28.960 you know, we don't see the Fed going anywhere. We 0:19:28.960 --> 0:19:31.520 think they're going to have a really hard time raising rates. 0:19:31.600 --> 0:19:34.240 Is the yield curve is actually flattening right now. The 0:19:34.280 --> 0:19:37.560 stead doesn't want to risk raising rates into potentially an 0:19:37.960 --> 0:19:42.440 inverting yield curve. So as we watch this investor behavior 0:19:42.480 --> 0:19:46.920 of looking to money market funds, looking to bond strategies, 0:19:47.000 --> 0:19:50.960 we've got to be really careful here about the approach 0:19:51.040 --> 0:19:55.399 to risk while still giving investors the ability to generate yield. 0:19:55.880 --> 0:19:58.520 So for us, the sweet spot really has been going 0:19:58.640 --> 0:20:02.959 into in some grade corporate bonds, looking at the higher 0:20:03.080 --> 0:20:05.720 rungs of the high yield bond market, the double bees 0:20:05.800 --> 0:20:09.200 that have the ability to be upgraded as this economic 0:20:09.280 --> 0:20:13.240 recovery continues to unfold. And then look, every little bit 0:20:13.400 --> 0:20:16.280 counts in terms of generating yield right now. So when 0:20:16.320 --> 0:20:19.240 we put a you know, a potential portfolio together, we're 0:20:19.280 --> 0:20:21.640 trying to get to something like two or three percent. 0:20:21.720 --> 0:20:26.480 I know it doesn't sound exciting. Fixed incomes not always exciting, um, 0:20:26.600 --> 0:20:30.040 but we're looking at that without going over our skis 0:20:30.080 --> 0:20:33.640 too much and taking risk within fixed income and not 0:20:34.160 --> 0:20:37.920 getting ourselves over exposed to just plain old equity market risk. 0:20:37.960 --> 0:20:39.560 So when you look at the lower rungs of the 0:20:39.640 --> 0:20:42.399 high yeld bond market, that's really what you're getting. So 0:20:42.440 --> 0:20:47.000 it's this combination of investment grade corporate bonds, high high 0:20:47.080 --> 0:20:50.280 yield bonds, and then still an allocation to higher quality 0:20:50.320 --> 0:20:54.400 bonds to protect during those periods where you know, equity 0:20:54.440 --> 0:20:57.679 market volatility wears its ugly head. I don't know if 0:20:57.720 --> 0:20:59.239 you can get it to two or three percent. That's 0:20:59.280 --> 0:21:01.760 pretty exciting these days, Emily, is if you can denominate 0:21:01.800 --> 0:21:03.240 that in Euros, I think you'll have a lot of 0:21:03.240 --> 0:21:06.560 people knocking on your door, especially to UH to get 0:21:06.560 --> 0:21:09.199 on that. But I wanted to ask you about you know, 0:21:09.320 --> 0:21:14.000 and uh Vlbonna and her colleagues recently wrote about this. Um. 0:21:14.400 --> 0:21:16.640 Katie grit Felt, one of our colleagues especially, I think, 0:21:16.680 --> 0:21:20.840 wrote about this dirty word that I I I gotta say. 0:21:20.920 --> 0:21:23.160 Earlier in the year, I was afraid to even say 0:21:23.200 --> 0:21:25.200 this word out loud. I was afraid I would get 0:21:25.320 --> 0:21:29.359 chased off of the zoom call or wherever I was speaking. 0:21:29.400 --> 0:21:33.560 But the notion of stag inflation, and I think you know, 0:21:34.240 --> 0:21:36.959 earlier in the year, it seemed like such a ridiculous 0:21:37.000 --> 0:21:40.639 sort of tail risk to worry about because the everyone 0:21:40.680 --> 0:21:43.600 assumed the GDP growth would just be off the charts 0:21:43.920 --> 0:21:46.719 as everyone got vaccinated and got back to the world. 0:21:47.320 --> 0:21:50.040 And I'm I'm winding up here. I'm like a supervillain 0:21:50.040 --> 0:21:52.200 here in a movie. I'm monologue a little bit here. 0:21:52.200 --> 0:21:54.480 But but bear with me. I'll get to the question eventually. 0:21:55.000 --> 0:21:59.840 But you know, you look now, and okay, everyone is 0:22:00.000 --> 0:22:05.400 still sort of confident that the FEDS right inflations transitory. 0:22:05.520 --> 0:22:07.200 I don't know if they're as confident as they were 0:22:07.240 --> 0:22:10.159 about that. Um. And at the same time, you know, 0:22:10.320 --> 0:22:13.080 this delta variant is unlikely to cause sort of these 0:22:13.160 --> 0:22:16.720 draconian lockdown measures that we saw last year. I don't 0:22:16.720 --> 0:22:19.359 think anyone in the country or in the world really 0:22:19.359 --> 0:22:22.160