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Speaker 2: Joining us Jeffrey Rosenberg, Senior portfolio Manager, Systematic Multi Strategy
Speaker 2: Fund at Blackrack. So you're a temper at Carnegie mel
Speaker 2: And a million years ago, and some fancy finance guy
Speaker 2: goes regression to the mean when you is a bond guy,
Speaker 2: coupon guy. Look at the equity markers. Is it going
Speaker 2: to be one big regression to the mean over the
Speaker 2: next five years?
Speaker 3: No?
Speaker 4: I think you know, when you think about fixed income
Speaker 4: versus equities, the big difference is fixed income.
Speaker 5: Returns are a lot simpler. It's your coupon.
Speaker 4: The price appreciation over time is not really where your
Speaker 4: source of return is.
Speaker 5: In equities is different.
Speaker 4: It goes up into the right and so it isn't
Speaker 4: about regression to the mean, whereas interest rates, it's a
Speaker 4: little bit more about regression to the mean and a
Speaker 4: little bit more about income over capital appreciation.
Speaker 2: Blackrock, do we believe we see the productivity to drive
Speaker 2: all this, you know, A I mean, it's not your wheelhouse.
Speaker 2: I get it, it's off your remit, But do you
Speaker 2: see an overlay of underestimation of productivity in America?
Speaker 4: So it's a great topic, Tom, and you know it
Speaker 4: obviously reminds us of the nineties debate. Productivity is everywhere
Speaker 4: except in the statistics, and it's a similar kind of
Speaker 4: you know, hope that you're getting this productivity. I think
Speaker 4: to say that the AI impact is showing up in
Speaker 4: the productivity data, you know, in a meaningful way, maybe
Speaker 4: overstating the AI contribution to it. There's certainly a productivity boost,
Speaker 4: and there's a certainly individual areas. I mean, we're all
Speaker 4: experiencing the productivity boost individually in terms of the specific applications,
Speaker 4: but whether you're seeing that across the economy that's accounting
Speaker 4: for this productivity.
Speaker 5: I think it's a little bit too early to say that.
Speaker 6: Blackrock is the top liquid AUCS manager.
Speaker 5: What is a liquid as to say.
Speaker 4: A liquid alt is basically a strategy for delivering returns
Speaker 4: without taking on kind of your fixed income exposure or
Speaker 4: your equity exposure. You got a lot of that exposure
Speaker 4: in your portfolios already. So what we try to do
Speaker 4: is give you another source of returns without adding to
Speaker 4: fixed income or equity. In my fund, we do it
Speaker 4: with a fixed income replacement, So we try to provide
Speaker 4: a defensive bond like alternative without really relying as much
Speaker 4: on kind of duration and that total return that I
Speaker 4: was talking about before. We do it with alternative strategies,
Speaker 4: which are mostly bringing to the liquid mutual fund and
Speaker 4: ETF vehicles long short, moret neutral strategies.
Speaker 5: That's really what's kind of.
Speaker 4: Underneath the hood in those strategies. So what are the
Speaker 4: securities that get you there? So we do it across
Speaker 4: all kinds of different securities. We have fixed income securities,
Speaker 4: we have equity securities as well. We take a fixed
Speaker 4: income lens to the selection of equities. We do this
Speaker 4: from our experience in evaluating corporate credit. We turned it
Speaker 4: onto the equity side and it lends a super interesting
Speaker 4: return profile which we call defensive alpha, which is alpha
Speaker 4: returns without market direction that tend to be really strong
Speaker 4: when equity markets go down. That's the kind of alternative
Speaker 4: to fixed income.
Speaker 2: And this is curly, This is brilliant, folks. This is
Speaker 2: a global Wall Street talk. Here. Rosenberg can't go duma,
Speaker 2: so we're going fancy. Now stay with me on this, folks.
Speaker 2: I'll try to explain it. Strategies like this need a
Speaker 2: down market to achieve and excel and generate alpha. We
Speaker 2: sort of like have an add and down market. So
Speaker 2: you're stealed for what a five percent ticked down. Do
Speaker 2: these strategies click in with a correction ten percent, do
Speaker 2: they click in with a bear market eighteen percent? Or
Speaker 2: do you need something worse?
Speaker 5: It's a great question.
Speaker 4: So first of all, it's not directional, so it's not
Speaker 4: like put option buying where you really need the market
Speaker 4: to go down. They're balanced and we have other strategies
Speaker 4: inside that help to provide positive returns when markets are
Speaker 4: going up. But on the defensive alpha side, Tom, it's
Speaker 4: really about a quarter decline inequity markets, meaning a persistent
Speaker 4: decline in equity market's over a quarter calendar period, So
Speaker 4: it's not short term trading.
Speaker 5: It's a little bit more.
Speaker 4: Of a type of market move that is reflective of
Speaker 4: more of a recession kind of fear. That's how we've
Speaker 4: tuned the defensive alpha, and as you know, we've been
Speaker 4: doing it over ten years as a thirteen out of
Speaker 4: fourteen quarter track record of delivering that that positive alpha.
Speaker 7: It's like the Yank defensive alpha US versus non US.
Speaker 6: How do you guys allocate?
Speaker 2: There?
Speaker 6: Is that changed?
Speaker 4: Yeah, it's really about the opportunity set of what types
Speaker 4: of companies give us the ability to take credit insights
Speaker 4: into the allocation algorithm. And so what we have mostly
Speaker 4: is a US and large global universe of companies inside there,
Speaker 4: it's not really taking on the factor exposure of geographic exposures.
Speaker 4: It's really trying to neutralize to that and get to
Speaker 4: the idiosyncratic risk. And so we can extract that idiosyncratic
Speaker 4: risk out of global large issuers and US large and
Speaker 4: mid sized companies.
Speaker 2: Where's Jeff Rosenberg and rebalancing? I mean, Tempers had a
Speaker 2: whole career studying this is the question of rebalancing a portfolio.
Speaker 2: The x access the study of the when of it
Speaker 2: or is it something else?
Speaker 5: So it's an interesting, you know point.
Speaker 4: You know, we look a lot at kind of risk
Speaker 4: and risk rebalancing, and you know, one of the things
Speaker 4: that you see from kind of long term studies there
Speaker 4: is is you have this kind of countercyclical approach, and
Speaker 4: so you want to look at countercyclical risk balancing as
Speaker 4: opposed to pro cyclical risk balancing and pro risk. Pro
Speaker 4: Cyclical risk balancing tends to be that which targets short
Speaker 4: term measures of risk, so you end up kind of
Speaker 4: doing the wrong thing. When risk is going down, portfolio
Speaker 4: looks like it's less risky, you start adding notional So it's.
Speaker 5: About balancing in our approach.
Speaker 4: Balancing kind of the short term measures you can get
Speaker 4: you into a pro cycled one with a little bit
Speaker 4: longer term measure which helps you to avoid that and
Speaker 4: be anti.
Speaker 2: Fifty seconds, do you sense a leverage in the system
Speaker 2: of our bullmarket frenzy? Is there shadows of leverage in there?
Speaker 4: So you know, what's the big change here that we'd
Speaker 4: be talking about it? And the big changes You know,
Speaker 4: when you look at a kind of the AI frenzy,
Speaker 4: what was different from the nineteen nineties frenzy. The big
Speaker 4: difference was the nineteen nineties frenzy was all debt financed.
Speaker 4: Right when you think about like the Internet bubble bursting
Speaker 4: in the fixed income markets, that was the high yield
Speaker 4: telcom media technology concentration of defaults because the back end
Speaker 4: infrastructure was funded by debt, and it was funded predominantly
Speaker 4: by debt. So when you think about that two default cycle,
Speaker 4: it was sixtei verscent CMT bonds, global crossing WorldCom. You
Speaker 4: look at this cycle and up until most recently, it's
Speaker 4: all financed out a cash flow. Now the difference is
Speaker 4: some of these debt financed transactions. And that's the piece
Speaker 4: that we should kind of be paying attention to.
Speaker 2: Jeffrey Rosenberg, thank you so much with us always on
Speaker 2: the fedish sides and giving this perspective there and some
Speaker 2: of the emotions of the effervescence and exuberance of moment.
Speaker 5: Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
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Speaker 5: Here's the way it rolls.
Speaker 2: Some of our guests, like they all have an entourage.
Speaker 2: One or two people got to hang out. Go to Starbucks,
Speaker 2: you know, be sure the uber gets there, cantrell ser
Speaker 2: she goes with five or six piece.
Speaker 6: Sure, why not?
Speaker 2: Levy, I gotta cut to the Chase. One of your
Speaker 2: people walks in and says, talk about the Broncos. First,
Speaker 2: is PIMCO paying for you to go to London to
Speaker 2: Tottenham steaks? I wish to watch the Broncos.
Speaker 8: I wish, sadly, no, sadly no, we do. We have
Speaker 8: a we have a recent partnership with the Boston Celtics,
Speaker 8: but not not not at ever team sadly so not not.
Speaker 8: We know where to get seen neither the NU gets
Speaker 8: north the Broncos.
Speaker 2: Okay, the Chase send. What an exciting game against the Eagles.
Speaker 8: Amazing, My goodness.
Speaker 2: What was the observation?
Speaker 8: I mean, I just I you know, it felt like
Speaker 8: it was going to be sort of a predictable end.
Speaker 8: The Eagles were going to beat us. But wow, was
Speaker 8: that last that last fourth, last quarter? Pretty pretty pretty competive.
Speaker 2: Is a shutdown going to beat America?
Speaker 3: There?
Speaker 7: Ye?
Speaker 2: I loved it.
Speaker 5: I loved it, so you know me.
Speaker 8: I think that the conventional wisdom, probably right, is that
Speaker 8: a short term shutdown doesn't really matter, doesn't matter for
Speaker 8: the economy, doesn't matter for markets. I think that the
Speaker 8: risk to that thinking is that this very likely looks
Speaker 8: like it could be a prolonged shutdown. And just remember
Speaker 8: that the last and the only real full shutdown that
Speaker 8: we've had in the last few decades was in twenty
Speaker 8: thirteen that lasted for sixteen days. The catalyst there was
Speaker 8: to to increase the debt the debt ceiling. There is
Speaker 8: no such catalyst, and so we don't really know what
Speaker 8: happens to the economy sort of after a sixteen day period.
Speaker 8: I think that that our.
Speaker 5: Concern is that.
Speaker 8: There are sort of these nonlinear economic impacts should the
Speaker 8: governments shut down for longer than in two weeks, which
Speaker 8: looks again more likely than not at this point, given
Speaker 8: both sides are pretty comfortable in their positions, is.
Speaker 7: There any I mean, what's the key issue here between
Speaker 7: the two sides here for this shut down here?
Speaker 5: Is there is there one issue that's keeping well?
Speaker 8: I think the Democrats have sort of struggled with trying
Speaker 8: to articulate the real issue. But what they seem to
Speaker 8: be coalescing around is this expiration of the Obamacare expanded
Speaker 8: subsidies that expire at the end of end of this year.
Speaker 8: Even though republic many Republicans don't like Obamacare, they don't
Speaker 8: like these enhanced subsidies. You do see some splintering among
Speaker 8: the Republican caucus last night.
Speaker 2: God, folks, this is the reality. This is ru Paul,
Speaker 2: great question and answers. Marjorie Taylor Green says, President Trump,
Speaker 2: your nuts. Two of my family members are going to
Speaker 2: get crushed by that. How prevalent is that?
Speaker 8: And also, I mean, if you look at who are
Speaker 8: the beneficiaries of these hit hand subsidies, you know, three
Speaker 8: quarters of the folks live in Trump and states that
Speaker 8: voted for Trump. So this is this is a salient
Speaker 8: political issue for the president and for you know, certain
Speaker 8: members of the Republican Caucus. I think that's whay why
Speaker 8: you saw, you know, Trump opened the window yesterday to
Speaker 8: potentially negotiating over this. So I think that you know,
Speaker 8: you know, our view is that there probably there has
Speaker 8: to be a deal on this issue, whether it's after
Speaker 8: the government reopens or before the government reopens, but this
Speaker 8: will have to be addressed because I think politically speaking,
Speaker 8: it's just too salient for again enough Republicans for them
Speaker 8: not to do at least something. Now, there could be
Speaker 8: some modifications or what have you, But again I think
Speaker 8: that's probably going to be kind of table stakes at
Speaker 8: this point.
Speaker 7: So Supreme Court also begins a session today. Yeah, what
Speaker 7: do we focus on there?
Speaker 8: Well, So I think the two big cases obviously for
Speaker 8: the market are going to be these AIPA tariffs, the
Speaker 8: sort of legitimacy around those. Was this a violation of
Speaker 8: this you know, broad statute and in which case? So
Speaker 8: what is the ruling like do they have to pay
Speaker 8: back the.
Speaker 2: Tariffs?
Speaker 8: And then also of course the Lisa Cook hearing, which
Speaker 8: is going to be in January.
Speaker 2: It looks like, Okay, I get the Newport Beach has
Speaker 2: that just saw ten X, So we'll say when Taylor
Speaker 2: Swift has you're flying around in the Felcon nine hundred ALEX,
Speaker 2: you're immune from the area lights. Our listeners in viewers
Speaker 2: are not immune from the shutdown. I just read CNN
Speaker 2: from twenty nineteen where ten air traffic controllers went off
Speaker 2: shutdown Atlanta, et cetera, and everybody had a Bart Simpson
Speaker 2: cow is that where we're heading? Yeah, which this is
Speaker 2: really about TSA and air traffic.
Speaker 8: I think that could absolutely be the catalyst for a reopening,
Speaker 8: right because if you look at what are the what
Speaker 8: are the inflection points. October fifteenth, that's when missed you know,
Speaker 8: pay from active military folks. November first, that's when the
Speaker 8: openrollment for ACA comes out with when people will be
Speaker 8: actually notified about that their premiums could be increasing. And
Speaker 8: then there's just the political pain and TSA. The air
Speaker 8: traffic control, I mean, in twenty nineteen was actually the
Speaker 8: issue that ended up reopening the government, so that could
Speaker 8: could very well be. But again, I think people are
Speaker 8: you know, in Washington, feel very comfortable in the fact
Speaker 8: that the House is anyven session. Yeah, I mean they're
Speaker 8: not coming back into session anytime soon and maybe not
Speaker 8: into even until.
Speaker 2: Can they be comfortable if after a cup of coffee,
Speaker 2: Newark was delayed an hour and two hours yesterday, that's.
Speaker 8: Like any you know, I actually fly, I fly Middle
Speaker 8: stat coach very often, so so I am very I'm
Speaker 8: very familiar with the Newark you know, flight delays. And
Speaker 8: I think again, I think a lot of folks will
Speaker 8: just brush that off and until this really becomes a
Speaker 8: real issue again, I think both sides are going to
Speaker 8: sort of stay stay, stay where they are.
Speaker 7: Can press any Trump fire these employees, federal employees, yees.
Speaker 8: So I think that is a big question. I mean,
Speaker 8: just to be very clear, there are no new authorities
Speaker 8: that are imparted on the executive branch to fire employees
Speaker 8: during a shutdown. I think there's a lot of confusion
Speaker 8: about that. So it's the same laws that govern pre
Speaker 8: shutdown versus during a shutdown. I think, you know, he's
Speaker 8: obviously threatened to do that. Maybe he will actually you know,
Speaker 8: go through on those threats. I think there is a
Speaker 8: political issue though, I mean, once you start really firing people,
Speaker 8: that doesn't necessarily pull particularly well. And of course, eighty
Speaker 8: percent of federal workers are outside of the DMV area,
Speaker 8: which is I think quite important. So outside of the
Speaker 8: DC Maryland Virginia area are eighty percent. So this is
Speaker 8: like not just this sort of Beltway kind of niche issue.
Speaker 8: This does affect folks, and like this is important.
Speaker 2: Seven hundred and fifty thousand people. Did you say eighty
Speaker 2: percent are outside the beltway.
Speaker 8: Eight percent of federal workers just in general, right, So,
Speaker 8: I mean of those.
Speaker 5: Kansas cities, those for a lot amounts.
Speaker 2: I own money too, I've written all of them checks.
Speaker 8: And again, like I mean, the president has vast authorities.
Speaker 8: He's obviously, you know, try to sort of test the
Speaker 8: limits of those authorities. So I'm not saying that he
Speaker 8: won't necessarily fire folks. It's just that there is some
Speaker 8: political ramifications of doing so, given that a lot of
Speaker 8: these folks are not necessarily in that.
Speaker 2: Paul and I read like over the weekend of the
Speaker 2: Cook Political Report, that's somebody's doing well in the polls.
Speaker 2: I'll pick on Spanberg or Virginia is doing well. How
Speaker 2: does that play in Libby Cantrell's belt play right now?
Speaker 4: Yeah?
Speaker 5: I think.
Speaker 8: I mean my own view is that we kind of
Speaker 8: over index to these off cycle elections. Obviously there's a
Speaker 8: gubernatorial race, both in Virginia and New Jersey. I think
Speaker 8: the Democrats look like they're pulling better. That should we
Speaker 8: should we extrapolate too much from that? No, I don't
Speaker 8: think so. If they lose, then maybe that is a
Speaker 8: canary in the coal mine. But again, I think there's
Speaker 8: sort of too much inc that is.
Speaker 2: Jere Schneider just emailed in and says I'll carry Liz's
Speaker 2: bags that Todd him. It's a great stadium, Broncos Jets.
Speaker 2: Libby Cantrell in London coming up in the NFL. Libby
Speaker 2: Cantrell with Pimcot right now, stay with us. More from
Speaker 2: Bloomberg Surveillance coming up after this.
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Speaker 2: Mark creatures Storry right now from the Royal Bank of
Speaker 2: Canada RBC here on the Outlook Forward. What's great about this, Mike,
Speaker 2: is you actually did a tour duty in the dark
Speaker 2: climbs of the Bureau of Economic Analysis. Now it's not
Speaker 2: BLS but BA. They use the same folders, the same
Speaker 2: roll of decks, the same desks. Is BLS. What do
Speaker 2: we not capture about the good people working at BLS
Speaker 2: right now? With the shutdown and with the inability to
Speaker 2: create a jobs.
Speaker 3: Report, Well, we're just missing a lot of data that
Speaker 3: we need. And you know, I think you can get
Speaker 3: the general trends right now. There's a lot of alternative data.
Speaker 3: When you think about the labor.
Speaker 2: Mark trusted, is it a value?
Speaker 3: I put more weight in the payroll report and the
Speaker 3: employment report than I do these alternatives I think you
Speaker 3: can still use them directionally, but the magnitude right now
Speaker 3: is what matters. And you don't get a good reading
Speaker 3: on magnitude from some of these alternative sets.
Speaker 2: You just explain magnets. It's like a fancy where you'll learn
Speaker 2: at it. Northeastern help me out here with what magnitude
Speaker 2: means to our viewers and listeners.
Speaker 5: So I'll give a good example.
Speaker 3: We look a lot at the ISM surveys, you know,
Speaker 3: ISM manufacturing and ISM services, and they have these diffusion indices,
Speaker 3: and specifically for the employment report, and it's really just
Speaker 3: a matter of reporting whether or not your employment levels
Speaker 3: are going up, down, or staying the same. So you
Speaker 3: don't know if it's increasing, did you hire ten people
Speaker 3: one hundred people? So again you get a direction, but
Speaker 3: you don't get the volume there. So it does mask
Speaker 3: the ultimate impact on what you might estimate, for say
Speaker 3: the unemployment rate.
Speaker 7: So, in the absence of some real time data, how
Speaker 7: do you think the US economy is doing these days?
Speaker 5: I still think it's very foggy.
Speaker 3: And what I mean by that is the signal we're
Speaker 3: getting from data is unclear. And I'll give you a
Speaker 3: good example of what's going on. We've talked a lot
Speaker 3: about the pull forward of some activities, whether it's imports
Speaker 3: that inventory build up. Right now, my wife and I
Speaker 3: are pulling forward some purchases of furniture and some cabinets
Speaker 3: because of the threat of tariffs. So you know, right
Speaker 3: now I have a delivery coming to my house, and
Speaker 3: in fact it's there right now. It's probably not a
Speaker 3: purchase I would have made had the tariff threat been
Speaker 3: off the table, but because they announced it, and I said,
Speaker 3: you know, let's just go ahead and do this now,
Speaker 3: and it'll probably sit in my garage for a couple
Speaker 3: of months before it gets installed, but at least we'll
Speaker 3: have it at a better price.
Speaker 6: Interesting.
Speaker 7: So, but we haven't necessarily seen inflation from these terrors
Speaker 7: really at all. On one could argue, well, what's happening there,
Speaker 7: because a lot of folks thought we'd see it.
Speaker 3: Yeah, I think that's the interesting story right now, and
Speaker 3: I think that's going to show up in two ways. First,
Speaker 3: we do suspect that it's still early days for that
Speaker 3: to show up. In terms of consumer prices, we saw
Speaker 3: a bit of a surge in the producer prices. When
Speaker 3: you look at the PPI that came out two months
Speaker 3: ago came in very hot. So ultimately we think those
Speaker 3: increased prices are going to be passed through to the consumer. Alternatively,
Speaker 3: if we don't see that full extent of the pass through,
Speaker 3: that's going to weigh on margins, and that really puts
Speaker 3: a risk that labor really starts to weaken beyond what
Speaker 3: we've already seen.
Speaker 2: I look at where we are, and, as you say brilliantly,
Speaker 2: the fog of it all, the overwhelming fog of the
Speaker 2: last three quarters is we were wrong, wrong, wrong on
Speaker 2: animal spirit, nominal, GDP eight, other issues, productivity, tech or that.
Speaker 2: Do you see any ending to how wrong we've been
Speaker 2: the last three quarters which leads to a successful outcome.
Speaker 3: I'd like to hope that as economists and forecasters, we're
Speaker 3: going to be wrong. But I still think there's a
Speaker 3: situation in our view where we continue down this road
Speaker 3: of kind of a stagflationary we call it stackflation light.
Speaker 3: So what does that mean whether growth is coming in
Speaker 3: at one percent one and a half percent, I think
Speaker 3: you're going to continue to see the consumer slow, and
Speaker 3: I think that's really important when you think about the economy.
Speaker 3: The consumers is really the biggest driver here in the US,
Speaker 3: and so these whether it's higher prices or loss of income,
Speaker 3: that means a lot of consumers are going to have
Speaker 3: to pull back.
Speaker 2: Macreed, Thank you so much, senior US economist RBC here
Speaker 2: stay with us. More from Bloomberg Surveillance coming up after this.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each week
Speaker 1: day starting at seven am Eastern on Applecarplay and Android
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Speaker 2: Joining us out to drive the conversation forwards. Do we
Speaker 2: agree it's less frienic than yesterday? Yes, it's not like
Speaker 2: yesterday was nuts. This is really timely. With Brent Shuddy
Speaker 2: coming up later, Dan Skelley had a Morgan Stanley Take
Speaker 2: two asprin call me in the morning. The Wealth Management
Speaker 2: market research and strategy team. The frenzy that was there yesterday,
Speaker 2: do you see it in your clients?
Speaker 9: So we saw tom about one hundred billion dollars in
Speaker 9: retail buying in the equity market in the past month.
Speaker 6: That's a historic run.
Speaker 9: So the frenzy is certainly starting to foment I wouldn't
Speaker 9: say that Foment.
Speaker 2: Like Fomo, you learned it from Lisa Shllett, continue.
Speaker 9: Foment I wouldn't say it's completely overdone, because keep in
Speaker 9: mind there's still seven trillion dollars money market allocation sitting
Speaker 9: out there, so people aren't fully invested. But you're starting
Speaker 9: to see the frenzy ramp up.
Speaker 7: Are you concerned about this AI?
Speaker 6: I had a concentration to MAG seven.
Speaker 7: It's the consentration about this AI story seems to be
Speaker 7: really just kind of kicking into a higher gear in
Speaker 7: the last several weeks.
Speaker 2: Paul.
Speaker 9: It's great to see you as well, And look, it
Speaker 9: is kicking into higher gear the more and more spending
Speaker 9: announcements you hear, and how that spending is funded. Right,
Speaker 9: we're starting to see leverage used in that ecosystem, which
Speaker 9: is really a departure from the last year or two
Speaker 9: where cash flow funded all the investing.
Speaker 5: So we're keeping an eye on that.
Speaker 9: But the second thing I would say is, though to
Speaker 9: your point, at first, MAG seven is not only the
Speaker 9: biggest spender but the biggest beneficiary of AI.
Speaker 5: Right, Max seven.
Speaker 9: Earnings up twenty eight percent in Q two, rest of
Speaker 9: market up four percent in an economy that did like
Speaker 9: seven percent nominal GDP. So I think the market is
Speaker 9: really waiting, waiting when is the rest of the economy
Speaker 9: in the market to monetize AI and is there a
Speaker 9: wily coyote moment in the market before that happens.
Speaker 2: How do you hedge equity? How do you provide protection
Speaker 2: and equity and a retirement plan right.
Speaker 9: Now for retirees or retirement planning yield?
Speaker 2: Right?
Speaker 5: Dividend yield has been out of.
Speaker 2: Do Barbell sixty forty.
Speaker 5: You could do Barbell sixty forty.
Speaker 9: We want to add a little bit of energy, infrastructure
Speaker 9: and real assets in addition to fixed income. We want
Speaker 9: to generate income in some non traditional ways given all
Speaker 9: the deficit spending.
Speaker 2: In the other master limited partnership.
Speaker 9: Correct dividend, correct contracted contracted cash flows, but also leverage
Speaker 9: to AI spending empowering AI. So there's idiosyncratic upside there
Speaker 9: as well. But coming back to how do you hedge, listen,
Speaker 9: dividends and dividend yield has been out of favor for
Speaker 9: two plus ye years. We see that as a really
Speaker 9: reasonable traditional hedge at the moment.
Speaker 2: You see dividend excuse me playing this? Is you see
Speaker 2: dividend growth? Absolutely?
Speaker 9: Quarter Absolutely, I think companies are spending a lot of
Speaker 9: bive ax.
Speaker 5: We're also set.
Speaker 2: I mean, Paul's nuts about this. Could you imagine the
Speaker 2: tech earning calls the end of October where they go,
Speaker 2: We're going to initiate a dividend and go halfway to
Speaker 2: a traditional dividend. I mean, Paul would be unreal.
Speaker 7: An Apple computer. I keep talking Tim Cook here. When
Speaker 7: you look at dividends, is it dividend growth? Is a
Speaker 7: dividend payout? Is a dividend yield? How do you think
Speaker 7: about it?
Speaker 9: Excellent point Paul, And look in our dividend strategy, which
Speaker 9: I actually have managed the past sixteen years. We do
Speaker 9: a combination of both. We do traditional yield and dividend growth,
Speaker 9: and that helps smooth out returns over cycles. Today where
Speaker 9: I would buyas is more towards the dividend yield factor. Right,
Speaker 9: particularly in a world where markets are pushing up against
Speaker 9: all time highs and everyone's been risk gone, we think
Speaker 9: some of that traditional defensive exposure makes sense.
Speaker 6: So what are we doing here with valuation here? How
Speaker 6: do you think about that? When you talk to your
Speaker 6: Morgan Stanley clients.
Speaker 9: Listen, two and a half years ago, we said the
Speaker 9: market looks very different than it does data in nineteen
Speaker 9: ninety and two one thousand thou thus you need to
Speaker 9: trough and peak.
Speaker 5: At higher levels of valuation.
Speaker 9: That has been the case this whole rally, that being
Speaker 9: set at twenty three times forward earnings. Now with inequity
Speaker 9: risk premium trading at like fifteen or twenty basis points,
Speaker 9: we would say valuation looks very full to rich, and
Speaker 9: so we want to be hedging across some of these
Speaker 9: exposures in the news yesterday.
Speaker 2: I don't want you to talk about an individual stock.
Speaker 2: I'm sure Morgan stealing compliance won't let you in the building.
Speaker 2: But I look at Verizon, Okay, ten years total return, Paul,
Speaker 2: they killed it four point five five percent yep, Verizon,
Speaker 2: complete failure of a stock. Switch to CEO. Yesterday they
Speaker 2: got the guy from PayPal in now. I got a
Speaker 2: dividend of six point sixty six percent. It's trading like
Speaker 2: a Banana Republic yield. And I got a five year
Speaker 2: dividend growth rate of one point ninety five percent, Dan scaley,
Speaker 2: how does our audience, our viewers are our listeners, how
Speaker 2: do they avoid a trail like Verizon?
Speaker 9: Keep an eye on the dividend growth, right, so we
Speaker 9: if we even have high dividend or above average event yield,
Speaker 9: you need a modicum of growth as well, because that's
Speaker 9: a signal that's happening in other care nominal GDP fair,
Speaker 9: that's happening in other telco carriers number one, Number two.
Speaker 9: There are other sectors where you can source decent yield
Speaker 9: and growth banks. One of them healthcare another example. So
Speaker 9: what sectors are screening well for you? What factors are
Speaker 9: screening wealth for you?
Speaker 6: I'm not sure how you guys kind of do.
Speaker 9: That, yeah, Paul. So it's been a very momentum bias market.
Speaker 9: As we all know, it's been a junkier market, particularly
Speaker 9: since April expectations around fiscal spend FED cuts. What we
Speaker 9: want to do today is favorite quality, no doubt, as
Speaker 9: defined by high profit margins and strong balance sheets, and
Speaker 9: we're finding that today with a catalyst. Finally is healthcare.
Speaker 9: I mean, look at the action and healthcare over the
Speaker 9: last week or two. This is a sector we've been
Speaker 9: pitching for the last three months. We think we're finally
Speaker 9: past the point of maximum policy fee, and we're seeing
Speaker 9: positive revisions on the earnings line, not.
Speaker 2: You, but your securities. In analysis, what do they say
Speaker 2: about the train wreck known as UNH.
Speaker 9: So our analysts have been positive on you and ah,
Speaker 9: it's been a bumpy road. Look, they had eighteen quarters
Speaker 9: in a row, going back many years of beaten raised
Speaker 9: a Swiss watch, like many themes, and you just mentioned
Speaker 9: earlier one a minute ago, Like many examples. This year
Speaker 9: they had a management change, and the new management is
Speaker 9: the old management who took them through the previous era.
Speaker 9: We've seen tremendous CEO change this year, I think record change.
Speaker 9: And you've probably noted this as well. I just think
Speaker 9: it speaks to how dynamic and challenging the environment is UNH.
Speaker 2: The yield, even with a trouble marked down here with
Speaker 2: all their challenges, two point five percent yield, thirteen percent
Speaker 2: dividend growth rate. So it's like you polar opposite of
Speaker 2: a Rizon.
Speaker 5: Yep.
Speaker 2: Yeah, But I want to make clear folks, I'm bringing
Speaker 2: these names up. Mister Skelley, Good morning Ted. I'm bringing
Speaker 2: the names up, not Dan Skelley.
Speaker 6: Get my little down compliance over there more and Stanley
Speaker 6: s ANDP.
Speaker 5: Healthcare index.
Speaker 7: You know, it's up like eleven to twelve percent since
Speaker 7: early August. So a nice little pop there, Dan, What
Speaker 7: are we doing with earnings coming up here in a
Speaker 7: week or so. Earnings have to be I think they
Speaker 7: have to be pretty darning good to support this multiple here.
Speaker 9: Yeah, Paul, we're going to continue to see mag seven
Speaker 9: earnings momentum. All of our digital ad checks, for example,
Speaker 9: have checked very strong in the last week or two.
Speaker 9: Number one, Number two consumer spending continues to power onwards,
Speaker 9: so that should be positive. E commerce number three, cloud
Speaker 9: acceleration in that cohort has been positive for several quarters.
Speaker 5: We see no end in sight. So here's the key question.
Speaker 9: The dollar less of a tail when this quarter versus
Speaker 9: last quarter. And secondly, we collected more tariff revenue this
Speaker 9: quarter versus last quarter. So those are two potential challenges
Speaker 9: that did not exist in two Q, meaning we probably
Speaker 9: don't have as much of a beat this quarter.
Speaker 5: We have somewhat of a beat.
Speaker 6: Interesting, Yeah, I didn't think about the dollar there be.
Speaker 9: Sent flat flat line exactly exactly.
Speaker 6: Yeah, into that big saw.
Speaker 2: This was brilliant, Dan Scully, don't be a stranger. I'm really,
Speaker 2: really good on and dividend growth. Mr Skelly sells on
Speaker 2: mortgage Stanley's Wealth Management, market research and strategy team.
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