1 00:00:00,120 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,239 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,680 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,280 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:37,280 Speaker 2: Terminal and the Bloomberg Business App. Brig Peters of PGM 10 00:00:37,320 --> 00:00:39,000 Speaker 2: Fixed Income is with us in a studio, just a 11 00:00:39,000 --> 00:00:41,200 Speaker 2: perfect guest to talk about what's having in the bond market. Greg, 12 00:00:41,200 --> 00:00:43,440 Speaker 2: good morning. What do you make of these moves at 13 00:00:43,440 --> 00:00:45,040 Speaker 2: the long end of the curve? I don't want to 14 00:00:45,080 --> 00:00:46,879 Speaker 2: make this too much for a big deal if it 15 00:00:46,880 --> 00:00:49,400 Speaker 2: doesn't have to be. We have sustained levels around four 16 00:00:49,440 --> 00:00:51,360 Speaker 2: to five percent for quite a number of years now, 17 00:00:51,560 --> 00:00:54,520 Speaker 2: and the economy's been okay. What does five twelve, five 18 00:00:54,520 --> 00:00:57,319 Speaker 2: point thirteen mean to you on a thirty year I. 19 00:00:57,280 --> 00:01:00,240 Speaker 3: Think it's the direction, right, not the level, And so 20 00:01:00,280 --> 00:01:04,440 Speaker 3: there is just a pushback globally on the back end 21 00:01:04,440 --> 00:01:06,640 Speaker 3: of the curves. So if you look at what's happening 22 00:01:06,680 --> 00:01:11,880 Speaker 3: in Europe, you're looking at Japan. Obviously, the US investors 23 00:01:11,480 --> 00:01:14,679 Speaker 3: are basically having a time out on the back end, 24 00:01:14,720 --> 00:01:18,240 Speaker 3: and so consequently you're just seeing, you know, the thirty 25 00:01:18,280 --> 00:01:21,959 Speaker 3: year twenty year yesterday really trade heavy just because there's 26 00:01:22,000 --> 00:01:26,360 Speaker 3: not that investor demand. I think investors concerns are manifesting 27 00:01:26,360 --> 00:01:30,240 Speaker 3: itself in term premium and kind of wait and see 28 00:01:30,280 --> 00:01:31,760 Speaker 3: mode in the back end of the curve, And that 29 00:01:31,800 --> 00:01:32,480 Speaker 3: makes sense to me. 30 00:01:32,600 --> 00:01:34,360 Speaker 2: Can you help us understand the things we should care 31 00:01:34,440 --> 00:01:36,800 Speaker 2: about and the things we should ignore. Typically, a twenty 32 00:01:36,880 --> 00:01:41,040 Speaker 2: year maturity isn't something that investors like anyway, and it's 33 00:01:41,120 --> 00:01:44,480 Speaker 2: auctions that we don't typically follow. All of a sudden, yesterday, 34 00:01:44,720 --> 00:01:47,800 Speaker 2: twenty year auctions self demand and everybody cared about it. 35 00:01:47,840 --> 00:01:49,400 Speaker 2: And I sat there and I just thought, if you 36 00:01:49,480 --> 00:01:51,640 Speaker 2: care about twenty year auctions, you have no place in 37 00:01:51,640 --> 00:01:53,920 Speaker 2: the bond market. What did you make of how much 38 00:01:53,960 --> 00:01:54,880 Speaker 2: white people put on that? 39 00:01:55,160 --> 00:01:56,400 Speaker 4: Well, so the twenty year. 40 00:01:56,440 --> 00:01:59,880 Speaker 3: Definitely is an orphan type of you know, maturity, But 41 00:02:00,720 --> 00:02:04,120 Speaker 3: what it says is about the duration. So forget about 42 00:02:04,120 --> 00:02:07,640 Speaker 3: a twenty year thirty year. It is adding duration to 43 00:02:07,760 --> 00:02:11,040 Speaker 3: the portfolio, so that's where the pushback is. And twenty 44 00:02:11,120 --> 00:02:13,800 Speaker 3: years are trading poorly everywhere as well, so it is 45 00:02:13,840 --> 00:02:17,280 Speaker 3: an anti duration trade. And what you're seeing in the 46 00:02:17,320 --> 00:02:22,040 Speaker 3: back and curve globally is that they're behaving like risk assets, 47 00:02:22,960 --> 00:02:26,600 Speaker 3: not like the typical kind of defensive risk adverse assets, 48 00:02:26,639 --> 00:02:28,640 Speaker 3: and that just kind of feeds upon itself, which is 49 00:02:28,639 --> 00:02:31,120 Speaker 3: why you have two separate bond markets. 50 00:02:31,120 --> 00:02:32,440 Speaker 4: In the front end, you have. 51 00:02:33,919 --> 00:02:37,519 Speaker 3: Yields and prices driven by central bank policy, and as 52 00:02:37,520 --> 00:02:40,240 Speaker 3: you move further out, it's driven by all these other factors, 53 00:02:40,280 --> 00:02:43,520 Speaker 3: from debt and deficits, to inflation, to the uncertainty to 54 00:02:43,560 --> 00:02:44,040 Speaker 3: all these. 55 00:02:44,200 --> 00:02:46,639 Speaker 2: What you're saying is so so important. If we've diluted 56 00:02:46,680 --> 00:02:49,760 Speaker 2: the risk mitigation characteristics of the long bond, what does 57 00:02:49,760 --> 00:02:52,200 Speaker 2: that mean for how people invest? And what are you 58 00:02:52,240 --> 00:02:54,000 Speaker 2: telling clients of PGM that they should do. 59 00:02:55,160 --> 00:02:58,000 Speaker 3: Yeah, it makes it really tricky, And what you're seeing 60 00:02:58,639 --> 00:03:01,919 Speaker 3: is kind of manifold. First, you're just investors kind of 61 00:03:01,960 --> 00:03:06,600 Speaker 3: diversified globally, so you're seeing less of a sole focus 62 00:03:06,680 --> 00:03:09,480 Speaker 3: on the US bond market. So you're seeing in guilts, 63 00:03:09,480 --> 00:03:12,880 Speaker 3: you're singing and jgbs you're singing across just to get 64 00:03:12,919 --> 00:03:14,120 Speaker 3: that diversification in. 65 00:03:15,200 --> 00:03:19,120 Speaker 4: And then second is front and the curve right. 66 00:03:19,200 --> 00:03:21,480 Speaker 3: You want to be attached to something that you think 67 00:03:21,520 --> 00:03:24,080 Speaker 3: you have a better understanding, and that is the Central 68 00:03:24,120 --> 00:03:28,160 Speaker 3: bank reaction function. So in our minds, you want to 69 00:03:28,200 --> 00:03:30,440 Speaker 3: be as close to that kind of two year front 70 00:03:30,520 --> 00:03:32,919 Speaker 3: end point as you can. To further you drift out 71 00:03:34,080 --> 00:03:37,440 Speaker 3: the more vaguers you introduce into your portfolio. So the 72 00:03:37,480 --> 00:03:40,440 Speaker 3: get defensive, I think, is to kind of stay front end, 73 00:03:40,440 --> 00:03:43,840 Speaker 3: and that includes spread and carry as well. So we're 74 00:03:43,960 --> 00:03:48,560 Speaker 3: very defensive. We think valuations are exceedingly expensive. I mean 75 00:03:48,600 --> 00:03:50,880 Speaker 3: you just kind of think about it in really simple terms. 76 00:03:51,680 --> 00:03:54,960 Speaker 3: You know, credit spreads are well through kind of the average, 77 00:03:55,040 --> 00:03:57,160 Speaker 3: and I think all of us would admit there's probably 78 00:03:57,240 --> 00:04:01,720 Speaker 3: above average uncertainty out there risk, and so just kind 79 00:04:01,760 --> 00:04:03,840 Speaker 3: of think of it in that simple way, and you 80 00:04:03,960 --> 00:04:05,360 Speaker 3: want to be defensive. 81 00:04:04,960 --> 00:04:07,760 Speaker 5: And the uncertainty is emanating from Washington, DC. 82 00:04:08,000 --> 00:04:09,560 Speaker 6: Can we talk about that relationship? 83 00:04:09,680 --> 00:04:12,200 Speaker 5: Is there a line you think that Congress actually starts 84 00:04:12,200 --> 00:04:14,080 Speaker 5: paying attention to it. 85 00:04:13,960 --> 00:04:15,000 Speaker 4: Has to get worse. 86 00:04:15,360 --> 00:04:18,240 Speaker 3: So the only arbiter out here right now is the 87 00:04:18,279 --> 00:04:20,760 Speaker 3: bond market. So it's kind of back to the nineties, right, 88 00:04:21,600 --> 00:04:23,240 Speaker 3: kind of Carbill's. 89 00:04:22,720 --> 00:04:23,560 Speaker 4: Revenge and so. 90 00:04:25,320 --> 00:04:28,400 Speaker 3: Absent that there's no political will. You saw this bill 91 00:04:28,720 --> 00:04:31,600 Speaker 3: last night. It was casting dogs and all these things 92 00:04:31,640 --> 00:04:33,719 Speaker 3: no one wanted to cut, and all these things were added. 93 00:04:35,960 --> 00:04:39,240 Speaker 3: It's not the political will of Congress to kind of. 94 00:04:39,200 --> 00:04:39,919 Speaker 4: Tighten the belt. 95 00:04:40,000 --> 00:04:44,040 Speaker 3: And what you're seeing from a market perspective is really 96 00:04:44,120 --> 00:04:48,719 Speaker 3: worrisome outlook on the debt and deficit, and quite frankly, 97 00:04:48,880 --> 00:04:49,640 Speaker 3: it is worrisome. 98 00:04:49,720 --> 00:04:52,000 Speaker 4: It is a really bad place. 99 00:04:52,080 --> 00:04:52,240 Speaker 7: Right. 100 00:04:52,279 --> 00:04:56,839 Speaker 4: We never took our deficit to a better place when 101 00:04:56,839 --> 00:04:58,200 Speaker 4: the economy was doing well. 102 00:04:58,560 --> 00:05:01,000 Speaker 3: And so what I really worry about is not the 103 00:05:01,040 --> 00:05:03,760 Speaker 3: hero and now, but let's say when and if we 104 00:05:03,920 --> 00:05:06,400 Speaker 3: do enter a recession, then what. 105 00:05:07,920 --> 00:05:09,839 Speaker 4: There's one or two it opens. 106 00:05:09,880 --> 00:05:12,760 Speaker 3: One is Congress doesn't do anything fiscally, which means you 107 00:05:12,839 --> 00:05:16,240 Speaker 3: have a longer, harder recession, or they do as they 108 00:05:16,240 --> 00:05:18,800 Speaker 3: always do, they spend, and then you come out the 109 00:05:18,839 --> 00:05:23,000 Speaker 3: other side and the debt and deficit is exceedingly worse, 110 00:05:23,160 --> 00:05:25,200 Speaker 3: and then you put us in a real precarious position. 111 00:05:25,240 --> 00:05:27,719 Speaker 2: Trillion dollar question, Can I just jump in quickly forgive 112 00:05:27,760 --> 00:05:30,880 Speaker 2: me what you just said is so so important. Typically 113 00:05:30,920 --> 00:05:33,400 Speaker 2: in developed markets, what happens is you go into a downturn, 114 00:05:34,120 --> 00:05:37,920 Speaker 2: yields drop, and it enables fiscal authorities to act counter cyclically. 115 00:05:38,760 --> 00:05:41,040 Speaker 2: This is also important to investors because they understand that's 116 00:05:41,040 --> 00:05:43,000 Speaker 2: the bust in their portfolio. You get into bad times 117 00:05:43,000 --> 00:05:45,000 Speaker 2: and bonds rally. That is the definition for me, at 118 00:05:45,080 --> 00:05:47,520 Speaker 2: least if a developed market, that's what happens. In DM 119 00:05:47,680 --> 00:05:50,880 Speaker 2: them you have problems, other things happen. Are you suggesting 120 00:05:50,880 --> 00:05:53,400 Speaker 2: that if we go down into a downturn and the 121 00:05:53,640 --> 00:05:58,000 Speaker 2: deficit just by definition blows out, that yields don't drop, 122 00:05:59,080 --> 00:06:00,400 Speaker 2: that they actually might time. 123 00:06:01,040 --> 00:06:02,000 Speaker 4: There's that potential. 124 00:06:03,520 --> 00:06:07,320 Speaker 3: I think it's a level of uncertainty that is introduced 125 00:06:07,440 --> 00:06:10,400 Speaker 3: that we typically don't have to worry about, right, And 126 00:06:10,480 --> 00:06:12,680 Speaker 3: just the fact that we're having that conversation and that 127 00:06:12,760 --> 00:06:16,719 Speaker 3: question just changes behavior. So you know what we saw 128 00:06:16,920 --> 00:06:21,640 Speaker 3: in twenty twenty one, twenty twenty two when inflation moves higher, 129 00:06:21,760 --> 00:06:24,760 Speaker 3: as an example, there's nowhere to hide, right, So this 130 00:06:24,920 --> 00:06:27,880 Speaker 3: is a kind of a similar story in a way. 131 00:06:28,000 --> 00:06:30,360 Speaker 4: So that's that's the worry. It's not like base case. 132 00:06:30,400 --> 00:06:32,720 Speaker 3: By the way, I don't want to show it all 133 00:06:32,839 --> 00:06:35,599 Speaker 3: darkned hour here, but at the same time that is 134 00:06:35,640 --> 00:06:38,039 Speaker 3: a real risk that investortion. 135 00:06:38,120 --> 00:06:40,160 Speaker 2: This is just a really important thought exercise I think 136 00:06:40,200 --> 00:06:42,679 Speaker 2: is happening on invest the committees around the world right now. 137 00:06:42,920 --> 00:06:44,720 Speaker 2: I just wanted to finish with the level that were 138 00:06:44,760 --> 00:06:47,560 Speaker 2: at the moment, so five point fourteen now almost on 139 00:06:47,600 --> 00:06:49,880 Speaker 2: a thirty year yield. When I started the conversation, I 140 00:06:49,920 --> 00:06:53,080 Speaker 2: talked about somewhere between four and five. We have lived 141 00:06:53,080 --> 00:06:55,599 Speaker 2: with that through this cycle so far. But when you 142 00:06:55,680 --> 00:06:57,920 Speaker 2: get to the upper ended where the ranges for the 143 00:06:57,960 --> 00:07:00,840 Speaker 2: whole cycle, which is basically through that level right now, 144 00:07:01,400 --> 00:07:04,680 Speaker 2: life up here hasn't been sustainable. It is this self limiting. 145 00:07:04,839 --> 00:07:06,440 Speaker 2: How sustainable are these levels? 146 00:07:07,200 --> 00:07:10,280 Speaker 3: I think to a degree it is so I do 147 00:07:10,360 --> 00:07:11,120 Speaker 3: believe there'll be a. 148 00:07:11,080 --> 00:07:12,480 Speaker 4: Crowding out effect, so to speak. 149 00:07:12,560 --> 00:07:15,960 Speaker 3: So if you continue to move yields higher, that just 150 00:07:16,080 --> 00:07:19,880 Speaker 3: changes the incentive structure. Right, so investors are much more 151 00:07:19,920 --> 00:07:24,760 Speaker 3: apt or willing to invest in treasuries let's say VSV 152 00:07:24,880 --> 00:07:28,120 Speaker 3: investment great corporates and equities, and so there is this 153 00:07:28,920 --> 00:07:33,880 Speaker 3: great kind of modulator regulator function with yields itself. But 154 00:07:34,600 --> 00:07:36,280 Speaker 3: at the end of the day, you have to have 155 00:07:36,640 --> 00:07:39,480 Speaker 3: a higher level of certainty of what you're investing in, 156 00:07:39,760 --> 00:07:43,040 Speaker 3: and so yes, as yields go higher, that compensates you 157 00:07:43,160 --> 00:07:47,520 Speaker 3: more for that uncertainty. But typically you don't see investors 158 00:07:47,840 --> 00:07:50,560 Speaker 3: jump in when they don't know what they're jumping into. 159 00:07:50,600 --> 00:07:52,400 Speaker 2: They're not jumping in right now, that's for sure. I 160 00:07:52,400 --> 00:07:54,320 Speaker 2: can appreciate your time. As always said, thank you, great 161 00:07:54,360 --> 00:08:06,600 Speaker 2: pit A patient. Native Richardson of IDPAS drop boy to 162 00:08:06,600 --> 00:08:08,400 Speaker 2: catch up with us this morning, Native, good morning. 163 00:08:08,360 --> 00:08:08,760 Speaker 1: Good morning. 164 00:08:08,840 --> 00:08:12,280 Speaker 2: Let's stop it. Jobs claims two twenty seven. Just continued resilience, 165 00:08:12,280 --> 00:08:15,040 Speaker 2: which is a thing that you keep going back to repeatedly. 166 00:08:15,440 --> 00:08:17,200 Speaker 2: One depends that resilience of the moment. 167 00:08:17,480 --> 00:08:20,280 Speaker 1: Well, the labor market, if you look at it in 168 00:08:20,320 --> 00:08:25,600 Speaker 1: a snapshot, is really really stable. Companies are keeping their workforce, 169 00:08:25,640 --> 00:08:28,320 Speaker 1: they're not letting them go. That's why we see the 170 00:08:28,320 --> 00:08:31,440 Speaker 1: such low initial jobless claims, and workers are buying large 171 00:08:31,480 --> 00:08:34,840 Speaker 1: staying put. So the snapshot of the US labor market 172 00:08:34,920 --> 00:08:37,599 Speaker 1: is solid. The problem is if you look at the 173 00:08:37,679 --> 00:08:41,559 Speaker 1: labor market in motion, the churn is gone. People are 174 00:08:41,600 --> 00:08:44,920 Speaker 1: not leaving, firms are not hiring in mass, and so 175 00:08:45,000 --> 00:08:48,160 Speaker 1: you don't see the dynamism that has defined not no, 176 00:08:48,640 --> 00:08:51,839 Speaker 1: not only the labor market but productivity growth, And if 177 00:08:51,840 --> 00:08:53,840 Speaker 1: you really want to look for the crack in the 178 00:08:53,920 --> 00:08:58,199 Speaker 1: labor market, go back to the last measure of labor 179 00:08:58,240 --> 00:09:02,040 Speaker 1: market productivity output worker was down one point four percent 180 00:09:02,120 --> 00:09:05,240 Speaker 1: year over year. That's a sign of the drag that's 181 00:09:05,280 --> 00:09:06,200 Speaker 1: going on right now. 182 00:09:06,360 --> 00:09:08,319 Speaker 2: When you see a load chain dynamic like the one 183 00:09:08,360 --> 00:09:10,800 Speaker 2: you describe start to grip the labor market, typically when 184 00:09:10,840 --> 00:09:13,680 Speaker 2: you look back, how long is that sustained before things 185 00:09:13,720 --> 00:09:15,079 Speaker 2: break one way or the other. 186 00:09:16,040 --> 00:09:18,959 Speaker 1: I don't think we can go back to pryors. I mean, 187 00:09:19,000 --> 00:09:22,160 Speaker 1: if I look at the Great Financial Crisis, for example, 188 00:09:22,559 --> 00:09:26,600 Speaker 1: the unemployment rate was above seven percent for several years. 189 00:09:27,080 --> 00:09:29,679 Speaker 1: Now we're not even at the starting point of that 190 00:09:29,720 --> 00:09:32,720 Speaker 1: Great Financial crisis. We're at four point two percent. The 191 00:09:32,840 --> 00:09:36,200 Speaker 1: unemployment rate has been remarkably stable, and I think that's 192 00:09:36,200 --> 00:09:39,240 Speaker 1: because there's so many demographics that are shaping that rate. 193 00:09:39,600 --> 00:09:43,280 Speaker 1: Lots of retirees, slow down in immigration, there's going to 194 00:09:43,320 --> 00:09:44,920 Speaker 1: be labor shortages. 195 00:09:44,440 --> 00:09:45,439 Speaker 6: That are persistent. 196 00:09:45,720 --> 00:09:48,400 Speaker 1: So it's hard to really capture the labor market in 197 00:09:48,440 --> 00:09:50,959 Speaker 1: one number, harder than it has been in the past. 198 00:09:51,040 --> 00:09:51,880 Speaker 6: When you think about. 199 00:09:51,640 --> 00:09:55,000 Speaker 5: Immigration policy, do you see the unemployment rate actually going down? 200 00:09:55,559 --> 00:10:00,000 Speaker 1: I don't see that Actually, I actually see those shortage 201 00:10:00,480 --> 00:10:04,000 Speaker 1: in certain pockets of the labor market. What's interesting about 202 00:10:04,280 --> 00:10:07,360 Speaker 1: this labor market versus twenty twenty two or twenty twenty 203 00:10:07,360 --> 00:10:10,560 Speaker 1: three is that they're no superheroes. We could rely on 204 00:10:10,640 --> 00:10:14,120 Speaker 1: leisure and hospitality to be the stalwart in the labor's market, 205 00:10:14,360 --> 00:10:15,840 Speaker 1: or healthcare more recently. 206 00:10:16,000 --> 00:10:18,280 Speaker 6: We're not seeing that now. So who's going to. 207 00:10:18,240 --> 00:10:21,640 Speaker 1: Save the day and boaster or jobs into the future. Well, 208 00:10:21,679 --> 00:10:25,080 Speaker 1: there's no sector that's doing that. Immigration is actually the 209 00:10:25,200 --> 00:10:28,320 Speaker 1: lack of the labor supply is likely to keep wages 210 00:10:28,440 --> 00:10:31,640 Speaker 1: very tight and robust, which is a problem for the FED, 211 00:10:31,679 --> 00:10:33,400 Speaker 1: who's looking to bring inflation down. 212 00:10:33,480 --> 00:10:35,280 Speaker 5: If there was to be a superhero, though, wouldn't it 213 00:10:35,280 --> 00:10:38,839 Speaker 5: be AI and the supply chains around that these data 214 00:10:38,880 --> 00:10:39,959 Speaker 5: center build. 215 00:10:39,679 --> 00:10:42,560 Speaker 1: Out, You know, that is a long term play. I 216 00:10:42,640 --> 00:10:48,080 Speaker 1: do think that AI increases what contributes to American exceptionalism, 217 00:10:48,280 --> 00:10:51,400 Speaker 1: which is productivity growth. And so if AI can make 218 00:10:51,440 --> 00:10:55,120 Speaker 1: workers more productive, then there is a chance that we 219 00:10:55,200 --> 00:10:57,760 Speaker 1: grow our way out of some of these problems. But 220 00:10:57,800 --> 00:11:01,040 Speaker 1: the problem is it's not just the technology, it's the people, 221 00:11:01,480 --> 00:11:04,760 Speaker 1: and right now there's a gap between the two. Is 222 00:11:04,800 --> 00:11:08,000 Speaker 1: the technology hitting the workforce in a way that increases 223 00:11:08,080 --> 00:11:09,120 Speaker 1: labor productivity. 224 00:11:09,240 --> 00:11:10,160 Speaker 6: We have yet to see that. 225 00:11:10,320 --> 00:11:12,680 Speaker 2: Let's talk about a potential problem this morning. Yields are 226 00:11:12,720 --> 00:11:15,240 Speaker 2: higher by five basis points the very long end of 227 00:11:15,280 --> 00:11:17,000 Speaker 2: the curves, getting all the attention the thirty year. At 228 00:11:17,000 --> 00:11:21,040 Speaker 2: the moment of five fourteen, we've sustained this expansion. We've 229 00:11:21,040 --> 00:11:24,680 Speaker 2: been running GDP around three percent with rates close to 230 00:11:24,679 --> 00:11:26,920 Speaker 2: where they are now. These are cycle highs were through 231 00:11:26,920 --> 00:11:29,559 Speaker 2: those levels, granted, but between four and five percent. We've 232 00:11:29,559 --> 00:11:31,760 Speaker 2: seen fed funds between those levels now for a couple 233 00:11:31,800 --> 00:11:34,880 Speaker 2: of years, and we've sustained the expansion. Is there any 234 00:11:34,880 --> 00:11:37,160 Speaker 2: reason to believe that this break out puts the brakes 235 00:11:37,320 --> 00:11:38,600 Speaker 2: on this economy? 236 00:11:38,720 --> 00:11:40,880 Speaker 1: You know, there's so much, as Anne Marie was saying, 237 00:11:40,920 --> 00:11:43,960 Speaker 1: there's so much to be determined in this particular bill. 238 00:11:44,840 --> 00:11:47,240 Speaker 1: We can't think that the levels are sustained at the 239 00:11:47,760 --> 00:11:48,560 Speaker 1: where they are today. 240 00:11:48,640 --> 00:11:50,160 Speaker 6: There's going to be a lot of movement. 241 00:11:51,400 --> 00:11:53,760 Speaker 1: And I think it's also the speed of the increase 242 00:11:53,880 --> 00:11:56,680 Speaker 1: that matters in terms of yields. So it's not just 243 00:11:56,720 --> 00:11:59,880 Speaker 1: the levels, it's the churn and the volatility in those 244 00:12:00,360 --> 00:12:06,120 Speaker 1: numbers that will ultimately decide the short term, but longer term. 245 00:12:06,200 --> 00:12:09,560 Speaker 1: This country is built right now. The economy is based 246 00:12:09,600 --> 00:12:12,080 Speaker 1: on interest rates that are much lower than where they 247 00:12:12,080 --> 00:12:17,360 Speaker 1: are now. Yes, housing mortgage rates for higher in the 248 00:12:17,440 --> 00:12:21,240 Speaker 1: nineteen eighties, but house prices were a lot lower. And 249 00:12:22,040 --> 00:12:24,800 Speaker 1: now we live in a world where house prices are 250 00:12:24,920 --> 00:12:28,160 Speaker 1: very very high, and you match that with higher interest rates, 251 00:12:28,360 --> 00:12:30,960 Speaker 1: you're really going to get a cold breeze in the 252 00:12:30,960 --> 00:12:33,800 Speaker 1: housing market, which trickles into other parts of the economy. 253 00:12:33,800 --> 00:12:35,240 Speaker 2: This is the problem for Federal Reserve guys, you know 254 00:12:35,360 --> 00:12:37,640 Speaker 2: need they cut rates by one hundred basis points and 255 00:12:37,640 --> 00:12:40,160 Speaker 2: mortgage rates went up. Have they lost control of the 256 00:12:40,160 --> 00:12:41,959 Speaker 2: long end of the curve? If they ever had control 257 00:12:42,320 --> 00:12:43,400 Speaker 2: of the long end of the curve. 258 00:12:43,280 --> 00:12:45,480 Speaker 1: That's not their sweet spot. That's not where they make 259 00:12:45,520 --> 00:12:47,400 Speaker 1: those money moves. They make it at the short end 260 00:12:47,440 --> 00:12:50,520 Speaker 1: of the curve and maybe at best the two year, 261 00:12:50,840 --> 00:12:54,559 Speaker 1: but really the ten year that is reflective of not 262 00:12:54,679 --> 00:12:57,400 Speaker 1: just the US economy, but the global economy. 263 00:12:57,600 --> 00:12:58,040 Speaker 6: And if the. 264 00:12:58,000 --> 00:13:01,800 Speaker 1: Global economy shrinks away from you set, not necessarily because 265 00:13:01,800 --> 00:13:04,880 Speaker 1: of preferences, but a slowdown, then you're likely to see 266 00:13:04,880 --> 00:13:07,720 Speaker 1: those mortgage rates continue to high at the hole at 267 00:13:07,760 --> 00:13:09,680 Speaker 1: the levels they are, or even edge higher. 268 00:13:09,720 --> 00:13:10,160 Speaker 6: Well nearly. 269 00:13:10,160 --> 00:13:11,800 Speaker 5: When it comes to the Fed, they've been talking about 270 00:13:11,800 --> 00:13:14,240 Speaker 5: the fact that they don't have all the you know, 271 00:13:14,559 --> 00:13:18,120 Speaker 5: dotting the eyes criss crossing the t's, but they have some. 272 00:13:18,280 --> 00:13:20,040 Speaker 5: Now they have a little bit of a blueprint of 273 00:13:20,120 --> 00:13:22,320 Speaker 5: what's going to happen fiscally in Washington. 274 00:13:22,800 --> 00:13:24,120 Speaker 6: Do they start talking about that now? 275 00:13:25,800 --> 00:13:28,040 Speaker 1: It depends on how much they want to show their 276 00:13:28,120 --> 00:13:31,280 Speaker 1: hand in terms of whether the rates, whether they increase 277 00:13:31,360 --> 00:13:33,800 Speaker 1: rates or lower rates. And I still think that's an 278 00:13:33,840 --> 00:13:36,480 Speaker 1: open question for the Federal Reserve because, as you know, 279 00:13:36,880 --> 00:13:38,680 Speaker 1: there are a lot of things that are changing in 280 00:13:38,720 --> 00:13:42,400 Speaker 1: the macro economy, and those changes right now look to 281 00:13:42,480 --> 00:13:46,360 Speaker 1: be inflationary, and so I think they want to give 282 00:13:46,360 --> 00:13:48,600 Speaker 1: it a little more time to be certain that the 283 00:13:48,640 --> 00:13:51,959 Speaker 1: next move is a rate cut before they start contemplating 284 00:13:52,000 --> 00:13:53,079 Speaker 1: that publicly. 285 00:13:53,440 --> 00:13:55,199 Speaker 2: NATA, it's going to say, as always a lot to 286 00:13:55,240 --> 00:14:07,120 Speaker 2: think about NATA riches in that of id page, nature 287 00:14:07,120 --> 00:14:08,800 Speaker 2: of sounds. Where to say in New York now joining 288 00:14:08,840 --> 00:14:10,320 Speaker 2: us from parametric nature, good to see it. 289 00:14:10,280 --> 00:14:10,880 Speaker 4: Has been too long? 290 00:14:11,080 --> 00:14:13,120 Speaker 2: Yes it has good to be here the long end 291 00:14:13,160 --> 00:14:15,480 Speaker 2: of its curve. Does it get bored? Can we sustain 292 00:14:15,559 --> 00:14:17,520 Speaker 2: levels at these kind of levels? 293 00:14:19,200 --> 00:14:21,360 Speaker 7: I think we're starting to hit that ceiling. Right, You 294 00:14:21,640 --> 00:14:25,080 Speaker 7: start to hit he yields north of five percent, and 295 00:14:25,120 --> 00:14:27,040 Speaker 7: you take a look at everything that's been priced into 296 00:14:27,040 --> 00:14:29,360 Speaker 7: the equity market, right, we've seen in a very sharp rebound. 297 00:14:29,720 --> 00:14:33,360 Speaker 7: Equity market is saying, look, everything's good, nothing to worry about, 298 00:14:33,720 --> 00:14:35,880 Speaker 7: a lot of optimism. I think in the equity market, 299 00:14:36,120 --> 00:14:38,320 Speaker 7: I would argue in the bond market, we've almost priced 300 00:14:38,320 --> 00:14:41,960 Speaker 7: in a lot of what has been feared, right, especially 301 00:14:41,960 --> 00:14:44,040 Speaker 7: in the deaths and deficit side. So I think this 302 00:14:44,320 --> 00:14:48,800 Speaker 7: is kind of a ceiling where you start seeing buying opportunities. Look, 303 00:14:48,840 --> 00:14:51,360 Speaker 7: I think for fixed income investors, the biggest thing we've 304 00:14:51,360 --> 00:14:54,120 Speaker 7: been lacking for many years has been the income aspect. 305 00:14:55,200 --> 00:14:58,800 Speaker 7: The duration plays another story, right, So going on on 306 00:14:58,840 --> 00:15:01,960 Speaker 7: the long end your tape, a duration play which you 307 00:15:02,040 --> 00:15:04,760 Speaker 7: can make an argument at this point in time, with 308 00:15:05,080 --> 00:15:08,120 Speaker 7: no slowdown or recession risks in the market's being priced in. 309 00:15:08,640 --> 00:15:12,480 Speaker 7: I almost think that that's being undervalued, right. Fixing investors 310 00:15:12,520 --> 00:15:15,760 Speaker 7: may not be positioned for this slowdown. We had a 311 00:15:15,800 --> 00:15:18,720 Speaker 7: claims number this morning came in maybe right in line 312 00:15:18,760 --> 00:15:21,360 Speaker 7: with expective. If we start seeing any cracks on the 313 00:15:21,480 --> 00:15:25,400 Speaker 7: job side in labor markets, in consumer spending. I don't 314 00:15:25,440 --> 00:15:27,720 Speaker 7: think we've seen that being pricing in the bond market, 315 00:15:28,320 --> 00:15:31,280 Speaker 7: and that's something that I think we're not fully taking 316 00:15:31,280 --> 00:15:32,200 Speaker 7: into account. 317 00:15:31,920 --> 00:15:33,360 Speaker 2: In years gone by, that would be a good argument 318 00:15:33,400 --> 00:15:35,080 Speaker 2: to anticipate level yields on the long bond. 319 00:15:35,280 --> 00:15:35,480 Speaker 6: Yeah. 320 00:15:35,600 --> 00:15:37,640 Speaker 2: But now people are coming on the program suggesting that, 321 00:15:37,760 --> 00:15:40,080 Speaker 2: given the concerns that are dominant at the moment, that 322 00:15:40,120 --> 00:15:42,200 Speaker 2: if we go into a downturn, you could see and 323 00:15:42,240 --> 00:15:44,240 Speaker 2: I don't think it's the base case of the consensus 324 00:15:44,320 --> 00:15:46,920 Speaker 2: view right now, but you could see yields climb, not 325 00:15:47,000 --> 00:15:50,560 Speaker 2: full because the dominant concern right now is the deficit. YEA, 326 00:15:50,600 --> 00:15:52,800 Speaker 2: how much comfort can you take from the tenure and 327 00:15:53,000 --> 00:15:54,400 Speaker 2: out in a downturn? 328 00:15:55,160 --> 00:15:57,880 Speaker 7: Yeah, I mean look, I think also you've had kind 329 00:15:57,880 --> 00:16:00,600 Speaker 7: of this trifecta of three things happening in a short 330 00:16:00,600 --> 00:16:02,480 Speaker 7: period of time, which is why you've been seeing kind 331 00:16:02,520 --> 00:16:05,400 Speaker 7: of long end pricing in a lot of concerns around deficits. Right, 332 00:16:05,440 --> 00:16:08,160 Speaker 7: so Moody's downgrade, You have a tax bill which is 333 00:16:08,200 --> 00:16:10,320 Speaker 7: coming in nowhere near the amount of cuts that that 334 00:16:10,360 --> 00:16:14,880 Speaker 7: people were expecting or wanted to see, and know you 335 00:16:15,040 --> 00:16:18,200 Speaker 7: have kind of just further concerns in regards to tariffs 336 00:16:18,600 --> 00:16:20,640 Speaker 7: and that not coming in anywhere close to the revenue 337 00:16:20,640 --> 00:16:23,280 Speaker 7: that was originally being generated. So I do think that 338 00:16:23,280 --> 00:16:25,560 Speaker 7: that ten plus year part of the curve, look, you're 339 00:16:25,600 --> 00:16:27,080 Speaker 7: going to continue to see some volatility. 340 00:16:27,200 --> 00:16:27,360 Speaker 2: Right. 341 00:16:27,440 --> 00:16:29,240 Speaker 7: Finding natural bias in that part of the space is 342 00:16:29,280 --> 00:16:31,240 Speaker 7: going to be very tricky, but I think this is 343 00:16:31,280 --> 00:16:33,800 Speaker 7: an entry point where you do start to see again 344 00:16:33,880 --> 00:16:36,840 Speaker 7: looking at real yields, you're starting to see very attractive 345 00:16:36,880 --> 00:16:38,680 Speaker 7: yields in that part of the curve. I think for 346 00:16:38,720 --> 00:16:41,320 Speaker 7: a fixed income investors with you know, come of an 347 00:16:41,360 --> 00:16:44,480 Speaker 7: income bias, we would even argue stay in the belly 348 00:16:44,520 --> 00:16:46,880 Speaker 7: of the curve. Right, It's all about stepping out of cash, 349 00:16:47,280 --> 00:16:49,280 Speaker 7: moving out a little bit in the ill curve, and 350 00:16:49,320 --> 00:16:52,040 Speaker 7: there's I think a tremendous opportunity from an income perspective. 351 00:16:52,200 --> 00:16:54,760 Speaker 5: Since Trump won the presidency, everyone just kept telling me 352 00:16:55,400 --> 00:16:56,840 Speaker 5: this tax bill is priced in. 353 00:16:57,240 --> 00:16:58,560 Speaker 6: So why all the consternation? 354 00:16:58,760 --> 00:17:03,800 Speaker 7: Now, Yeah, I think it's a few things. Up until 355 00:17:03,920 --> 00:17:06,679 Speaker 7: this morning last night, we really didn't know what was 356 00:17:06,720 --> 00:17:08,640 Speaker 7: going to be kind of fully implemented, and we still 357 00:17:08,640 --> 00:17:10,560 Speaker 7: don't know, right. I mean, this is the House version. 358 00:17:10,960 --> 00:17:14,440 Speaker 7: There's a lot that's going to be changed so even 359 00:17:14,480 --> 00:17:16,879 Speaker 7: early on, Again, what I would say is, while a 360 00:17:16,880 --> 00:17:19,080 Speaker 7: lot of these components were known, I think it's a 361 00:17:19,119 --> 00:17:21,560 Speaker 7: little bit of a confluence with the Moody's downgrade, right, 362 00:17:21,640 --> 00:17:25,040 Speaker 7: and you have kind of now these reignition of debt 363 00:17:25,119 --> 00:17:28,280 Speaker 7: and deficits concerns. Keep in mind, the economic data has 364 00:17:28,440 --> 00:17:30,960 Speaker 7: held up fairly well, right, So it's like the bond 365 00:17:30,960 --> 00:17:33,480 Speaker 7: market's like, look, we're not worried about that for now, 366 00:17:34,040 --> 00:17:36,159 Speaker 7: so we're going to focus really on the dest and 367 00:17:36,160 --> 00:17:38,400 Speaker 7: deficit side. So I think you're seeing that now being 368 00:17:38,400 --> 00:17:41,040 Speaker 7: priced in, and again there is this worry that this 369 00:17:41,080 --> 00:17:43,920 Speaker 7: bill again does not have enough and that's basically what 370 00:17:44,000 --> 00:17:45,440 Speaker 7: the bond market is saying, right, So it's going to 371 00:17:45,480 --> 00:17:48,600 Speaker 7: be very tricky for the Senate. Look, they don't have 372 00:17:48,640 --> 00:17:50,920 Speaker 7: to take any of these components, but to really come 373 00:17:51,000 --> 00:17:54,040 Speaker 7: up with something that is going to satisfy not only 374 00:17:54,080 --> 00:17:57,000 Speaker 7: bond markets but overall markets, to really suggest that the 375 00:17:57,000 --> 00:17:59,960 Speaker 7: administration's doing, you know, kind of a significant enough job here. 376 00:18:00,400 --> 00:18:03,240 Speaker 7: And then again the tax cuts aspect, that's something that 377 00:18:03,280 --> 00:18:06,679 Speaker 7: this illustration definitely wants to do. It's getting very challenging 378 00:18:07,119 --> 00:18:09,720 Speaker 7: to come up with the pay force on the other 379 00:18:09,800 --> 00:18:10,679 Speaker 7: end to make up for it. 380 00:18:10,760 --> 00:18:13,480 Speaker 2: You mentioned the downgrade from Moody's in the last week. 381 00:18:13,520 --> 00:18:15,520 Speaker 2: If I go back to the previous down grade from FETCH, 382 00:18:15,840 --> 00:18:17,840 Speaker 2: I think that was back in twenty three and that 383 00:18:17,960 --> 00:18:20,640 Speaker 2: landed around the same time we had the quarterly refunded announcement, 384 00:18:20,680 --> 00:18:23,720 Speaker 2: which spooked this bomb market and ultimately forced the degree 385 00:18:23,720 --> 00:18:26,640 Speaker 2: of corrective action from the Treasury Secretary then Treasury Secretary 386 00:18:26,720 --> 00:18:29,639 Speaker 2: Janet Yellen, who tightened up the average maturity and started 387 00:18:29,640 --> 00:18:31,840 Speaker 2: issuing a ton of tea bills. Do you think we 388 00:18:31,960 --> 00:18:35,320 Speaker 2: need this time around also corrective action either from Treasury 389 00:18:35,840 --> 00:18:39,080 Speaker 2: or from Congress in some form, maybe reshaping this tax 390 00:18:39,119 --> 00:18:41,720 Speaker 2: bill going through Congress right now, to put a lid 391 00:18:41,960 --> 00:18:43,760 Speaker 2: on some of the volatility some of the moods we're 392 00:18:43,760 --> 00:18:45,080 Speaker 2: seeing at the long end of the curve. 393 00:18:45,560 --> 00:18:47,400 Speaker 7: I think those tools are definitely there, and I think 394 00:18:47,440 --> 00:18:49,720 Speaker 7: that's a great example. It might be too soon to 395 00:18:49,800 --> 00:18:52,520 Speaker 7: really come out and say anything needs to be implemented, 396 00:18:52,920 --> 00:18:56,480 Speaker 7: but I think this is where kind of your Treasury auctions. Again, 397 00:18:56,520 --> 00:18:58,439 Speaker 7: to your point, you're going to have to see a 398 00:18:58,440 --> 00:19:02,360 Speaker 7: different structure of issuance, a debt financing to really help 399 00:19:02,359 --> 00:19:04,879 Speaker 7: support the long end of the curve. This shot up 400 00:19:04,920 --> 00:19:07,720 Speaker 7: in yield tests happened, I would say relatively kind of recently, 401 00:19:07,720 --> 00:19:10,480 Speaker 7: in a short period of time. But I think we 402 00:19:10,520 --> 00:19:13,200 Speaker 7: need to see a little bit more again, more economic data. 403 00:19:13,280 --> 00:19:15,960 Speaker 7: I don't expect anything to happen over the next two 404 00:19:15,960 --> 00:19:18,880 Speaker 7: to three months, whether it's from a monetary policy standpoint 405 00:19:19,280 --> 00:19:22,400 Speaker 7: or even in terms of Treasury Secretary coming to kind 406 00:19:22,400 --> 00:19:25,119 Speaker 7: of step in. I think the economic data here is 407 00:19:25,160 --> 00:19:27,879 Speaker 7: going to be the focus. July fourth time frame is 408 00:19:27,880 --> 00:19:31,080 Speaker 7: going to be very important, and I think that's you know, 409 00:19:31,119 --> 00:19:33,280 Speaker 7: we're all hoping for a quiet summer here, but I think. 410 00:19:33,160 --> 00:19:35,159 Speaker 6: We're that may not be the case. 411 00:19:35,600 --> 00:19:38,320 Speaker 7: So I mean, look for our clients that again have 412 00:19:38,359 --> 00:19:40,880 Speaker 7: a higher quality kind of typically mandate that are looking 413 00:19:40,920 --> 00:19:45,280 Speaker 7: at fixing come as a ballast. Look, we're suggesting if 414 00:19:45,280 --> 00:19:48,240 Speaker 7: we haven't been kind of if you've been underweight, fix income. 415 00:19:48,640 --> 00:19:51,479 Speaker 7: Here's an opportunity to at least step out locking some income. 416 00:19:52,200 --> 00:19:54,879 Speaker 7: And again, this bond market I think has become almost 417 00:19:54,880 --> 00:19:59,160 Speaker 7: too optimistic. We have completely priced out any I would 418 00:19:59,160 --> 00:20:01,480 Speaker 7: say slow down risks. I hesitate on the word recession, 419 00:20:02,560 --> 00:20:04,040 Speaker 7: but any risk of slow down. 420 00:20:03,880 --> 00:20:06,920 Speaker 2: Great PSPGM said that Jamie Damer and JP Morgan said 421 00:20:06,960 --> 00:20:08,560 Speaker 2: that in the last week as well, and Niche Patel 422 00:20:08,800 --> 00:20:10,080 Speaker 2: a parametric Just set it right now. 423 00:20:10,280 --> 00:20:10,960 Speaker 4: Sure he's going to see you. 424 00:20:11,040 --> 00:20:11,800 Speaker 6: Yes, good to see you too. 425 00:20:11,800 --> 00:20:23,600 Speaker 2: You're in good company, that's for sure. It's got cron 426 00:20:23,640 --> 00:20:26,159 Speaker 2: at a city right in the following. Recent signs of 427 00:20:26,160 --> 00:20:29,159 Speaker 2: consumer slowing are concerning we Bus in favor of a 428 00:20:29,160 --> 00:20:32,640 Speaker 2: combination of defensive names and secular growers that have been 429 00:20:32,680 --> 00:20:35,639 Speaker 2: more heavily investing in their businesses. Scott, John just now 430 00:20:35,680 --> 00:20:37,840 Speaker 2: for more, Scott, Welcome to the program, sir. We need 431 00:20:37,880 --> 00:20:39,240 Speaker 2: to take a bit of a bee and talk about 432 00:20:39,280 --> 00:20:41,600 Speaker 2: what's developing in the bond market and what ultimately it 433 00:20:41,600 --> 00:20:44,080 Speaker 2: means to you and the team in equity. Scott, what 434 00:20:44,200 --> 00:20:46,399 Speaker 2: happens when we get to these kind of levels in bonds? 435 00:20:46,520 --> 00:20:48,440 Speaker 2: What does it mean to you? 436 00:20:48,600 --> 00:20:50,320 Speaker 4: Nahan, Well, it means a couple of things. 437 00:20:50,760 --> 00:20:53,600 Speaker 8: I think, first and foremost, you look at the potential 438 00:20:53,640 --> 00:20:56,280 Speaker 8: impact of higher rates in terms of a slowing effect 439 00:20:56,520 --> 00:20:57,960 Speaker 8: in terms of demand. 440 00:20:57,720 --> 00:20:59,640 Speaker 4: For a new credit. That's pretty straightforward. 441 00:21:00,320 --> 00:21:05,639 Speaker 8: Additionally, from an equity perspective, it's mostly about valuations, and essentially, 442 00:21:05,680 --> 00:21:08,639 Speaker 8: when you're looking at how to value securities, it's a 443 00:21:08,680 --> 00:21:11,639 Speaker 8: combination of where you think near term fundamentals are going, 444 00:21:11,880 --> 00:21:16,360 Speaker 8: but it's also how you discount future earnings five ten 445 00:21:16,440 --> 00:21:21,320 Speaker 8: years down the road and assign a valuation to terminal values. 446 00:21:21,640 --> 00:21:23,320 Speaker 6: And so what ends up happening. 447 00:21:22,960 --> 00:21:25,280 Speaker 8: Here is when you backup yields, you begin to change 448 00:21:25,320 --> 00:21:28,960 Speaker 8: the math and those future earnings are worthless now. So 449 00:21:29,040 --> 00:21:33,120 Speaker 8: the bottom line is that from a valuation impact, when 450 00:21:33,160 --> 00:21:36,520 Speaker 8: you look at this current trajectory in ten years in 451 00:21:36,560 --> 00:21:40,480 Speaker 8: particular where we focus, it's a gating factor potentially on 452 00:21:40,560 --> 00:21:45,440 Speaker 8: future economic activity, but essentially real time it's an overhang 453 00:21:45,480 --> 00:21:48,000 Speaker 8: in terms of the evaluation set up for US equities. 454 00:21:48,160 --> 00:21:50,760 Speaker 5: When you look at the policy down in Washington, scott 455 00:21:50,760 --> 00:21:53,160 Speaker 5: we do have the one big beautiful bill passing through 456 00:21:53,240 --> 00:21:55,440 Speaker 5: on the House side, and the bond market seems to 457 00:21:55,480 --> 00:21:57,520 Speaker 5: be pushing back on a number of issues. But what 458 00:21:57,520 --> 00:21:59,280 Speaker 5: if they didn't do anything and we would have a 459 00:21:59,520 --> 00:22:01,320 Speaker 5: tax at the end of the year, what would the 460 00:22:01,359 --> 00:22:01,960 Speaker 5: bond market do? 461 00:22:02,040 --> 00:22:05,000 Speaker 8: Then it's kind of pick your poison, right, So what 462 00:22:05,160 --> 00:22:07,600 Speaker 8: you would get with the tax hike, which was where 463 00:22:07,600 --> 00:22:09,359 Speaker 8: we were a year ago at this time looking at 464 00:22:09,359 --> 00:22:14,080 Speaker 8: potential presidential election outcomes, is that you would have a 465 00:22:14,080 --> 00:22:17,360 Speaker 8: different influence where you would probably begin to slow aggregate 466 00:22:17,400 --> 00:22:22,400 Speaker 8: spending levels. You would crowd out essentially expenditures because more 467 00:22:22,400 --> 00:22:25,280 Speaker 8: of your income is going to taxation. 468 00:22:25,880 --> 00:22:27,960 Speaker 4: So essentially, to be careful, what. 469 00:22:27,880 --> 00:22:29,880 Speaker 8: You wish for the bottom line memory is that we've 470 00:22:29,920 --> 00:22:34,360 Speaker 8: been living in a fairly fiscally stimulative environment going back 471 00:22:34,400 --> 00:22:37,080 Speaker 8: to the pandemic. That's when you really began to see 472 00:22:37,119 --> 00:22:40,680 Speaker 8: your debt to GDP rise. And now with the Fed 473 00:22:40,760 --> 00:22:43,719 Speaker 8: rate policy in the rearview mirror, you're also looking at 474 00:22:43,760 --> 00:22:46,960 Speaker 8: the debt service component kick in it as well. So 475 00:22:47,359 --> 00:22:51,000 Speaker 8: essentially from my perch, from an equity perspective, you get 476 00:22:51,080 --> 00:22:55,160 Speaker 8: the deficit spending that's fiscally stimulative. That's actually pretty good 477 00:22:55,200 --> 00:22:58,680 Speaker 8: for economic activity and probably for corporate fundamentals. 478 00:22:58,960 --> 00:23:00,680 Speaker 4: But the offset is what you're doing. 479 00:23:00,520 --> 00:23:03,280 Speaker 8: In terms of uh, you know, you know, paying forward 480 00:23:03,320 --> 00:23:06,560 Speaker 8: now for future pain, in terms of the risk of 481 00:23:06,640 --> 00:23:10,080 Speaker 8: higher for longer rates, the valuation impact and the ultimate 482 00:23:10,119 --> 00:23:12,400 Speaker 8: slowing effect that could have an economic activity. 483 00:23:12,520 --> 00:23:14,639 Speaker 2: So Scott, as you know, the economists over sets in 484 00:23:14,680 --> 00:23:17,879 Speaker 2: your colleagues are worried about downturn hits the labor market 485 00:23:17,880 --> 00:23:19,480 Speaker 2: and they think we're going to see a real reduction 486 00:23:19,840 --> 00:23:22,720 Speaker 2: in interest rates. I continue in fixed income. The conversations 487 00:23:22,720 --> 00:23:26,000 Speaker 2: we keep hearing is that they don't know what defense 488 00:23:26,119 --> 00:23:28,400 Speaker 2: really looks like anymore, and they don't want to plan 489 00:23:28,520 --> 00:23:29,680 Speaker 2: on the long end of the curve. They want to 490 00:23:29,720 --> 00:23:33,320 Speaker 2: aggressively shortened duration. Scott, how does that apply to equities? 491 00:23:33,320 --> 00:23:36,439 Speaker 2: How are you thinking about defense now compared to maybe 492 00:23:36,720 --> 00:23:37,560 Speaker 2: years gone past? 493 00:23:38,280 --> 00:23:40,840 Speaker 8: You know, Jonathan, we pulled out you know, a month 494 00:23:40,920 --> 00:23:41,360 Speaker 8: or so ago. 495 00:23:41,880 --> 00:23:43,959 Speaker 4: Are in old playbook. 496 00:23:44,960 --> 00:23:48,320 Speaker 8: Tactic of ours where when you go into these periods 497 00:23:48,359 --> 00:23:51,880 Speaker 8: of economic concern we like to pull out growth as 498 00:23:51,920 --> 00:23:55,240 Speaker 8: defensive as our approach here, And so what I'm getting 499 00:23:55,280 --> 00:23:58,240 Speaker 8: at is that you're dealing with lots of issues in 500 00:23:58,320 --> 00:24:01,280 Speaker 8: terms of economic activity that affect the way you think 501 00:24:01,320 --> 00:24:05,480 Speaker 8: about traditional cyclical parts of the market and also traditional 502 00:24:05,480 --> 00:24:06,960 Speaker 8: defensive parts of the market. 503 00:24:07,280 --> 00:24:08,960 Speaker 6: However, when you look at. 504 00:24:08,960 --> 00:24:13,119 Speaker 8: Longer term, longer term, where are the best underlying structural 505 00:24:13,280 --> 00:24:16,160 Speaker 8: growth dynamics at work? There's still the AI play here, 506 00:24:16,160 --> 00:24:18,840 Speaker 8: but you can broaden it across sectors. We've been writing 507 00:24:18,840 --> 00:24:23,040 Speaker 8: more recently within the consumer discretionary sector as an example. 508 00:24:23,160 --> 00:24:25,960 Speaker 8: But my point here is at one antidote to a 509 00:24:25,960 --> 00:24:28,520 Speaker 8: lot of the issues that we're discussing right now in 510 00:24:28,600 --> 00:24:31,919 Speaker 8: terms of rates economic activity deficit is show me the 511 00:24:31,960 --> 00:24:35,240 Speaker 8: growth where I've got more confidence in longer term structural 512 00:24:35,280 --> 00:24:38,280 Speaker 8: growth drivers at a company specific up to a sector 513 00:24:38,280 --> 00:24:41,480 Speaker 8: maybe even market level, that in our view, is the 514 00:24:41,520 --> 00:24:45,320 Speaker 8: more appropriate way for navigating the current period of uncertainty 515 00:24:45,320 --> 00:24:48,199 Speaker 8: that we've got from a fiscal and economic perspective. 516 00:24:47,800 --> 00:24:50,359 Speaker 2: Scott, when you screen for those things, does it scream 517 00:24:50,560 --> 00:24:51,159 Speaker 2: MAC seven? 518 00:24:52,520 --> 00:24:56,240 Speaker 8: It has to start there, because where you go with this, Jonathan, 519 00:24:56,359 --> 00:24:59,920 Speaker 8: is let's look at where companies are spending capital spending 520 00:25:00,840 --> 00:25:04,800 Speaker 8: for the most part is very concentrated within the S 521 00:25:04,840 --> 00:25:08,359 Speaker 8: and P. The megacap growers that are attached to the 522 00:25:08,400 --> 00:25:11,840 Speaker 8: AI trend are certainly driving the bus right now, and 523 00:25:11,920 --> 00:25:14,080 Speaker 8: what we saw with Q one earnings is that there's 524 00:25:14,160 --> 00:25:18,760 Speaker 8: not much of a risk to that materially changing in 525 00:25:18,800 --> 00:25:21,880 Speaker 8: the short term. However, when you look across sectors again 526 00:25:21,920 --> 00:25:25,840 Speaker 8: I mentioned consumer discretionary, you can find companies that are 527 00:25:25,640 --> 00:25:30,280 Speaker 8: are showing capital expenditure profile as well above depreciation, where 528 00:25:30,359 --> 00:25:34,920 Speaker 8: their fundamentals are also less cyclical and the correlation of 529 00:25:34,960 --> 00:25:38,679 Speaker 8: their fundamentals is less high economic activity. Those are the 530 00:25:38,680 --> 00:25:41,680 Speaker 8: types of names that we want to keep a focus on, 531 00:25:42,000 --> 00:25:44,560 Speaker 8: and I think that's an appropriate way for thinking about 532 00:25:44,600 --> 00:25:47,600 Speaker 8: the valuation issue we have with broader equities, as well 533 00:25:47,640 --> 00:25:50,439 Speaker 8: as how to think about navigating this current macro setup, 534 00:25:50,480 --> 00:25:53,120 Speaker 8: which certainly is noisy at the very least. 535 00:25:52,960 --> 00:25:55,800 Speaker 2: Scott, When you put consumer discretionary and you break it up, 536 00:25:55,800 --> 00:25:58,720 Speaker 2: how much performance dispersion are you seeing within that group 537 00:25:58,720 --> 00:25:59,639 Speaker 2: of stocks at the moment? 538 00:26:00,600 --> 00:26:03,600 Speaker 8: There's a lot because at the same time consumer discretionary 539 00:26:03,600 --> 00:26:07,080 Speaker 8: and stables right alongside that's ground zero for where terriff 540 00:26:07,080 --> 00:26:09,480 Speaker 8: effects are kicking in, particularly as it relates to the 541 00:26:09,600 --> 00:26:11,000 Speaker 8: China aspect on this. 542 00:26:11,480 --> 00:26:13,600 Speaker 4: So what we've seen through the. 543 00:26:15,080 --> 00:26:18,680 Speaker 8: Tariff discussion over the past several months is a very 544 00:26:18,720 --> 00:26:22,360 Speaker 8: strong dichotomy and performance within the consumer part of the market, 545 00:26:23,040 --> 00:26:25,359 Speaker 8: where you've got companies that are more directly exposed to 546 00:26:25,440 --> 00:26:28,880 Speaker 8: China feeling the real brunt of that. But again i'd 547 00:26:28,880 --> 00:26:32,159 Speaker 8: come back here, it's less about the inflationary component of terrorists. 548 00:26:32,160 --> 00:26:35,360 Speaker 8: It's more about the gross margin pressure that potentially emanates 549 00:26:35,400 --> 00:26:38,320 Speaker 8: from your higher cost of goods that you're importing. So 550 00:26:38,760 --> 00:26:41,359 Speaker 8: bottom line is it's a lot of performance dispersion, and 551 00:26:41,400 --> 00:26:44,080 Speaker 8: so we're kind of cutting through all that noise with 552 00:26:44,240 --> 00:26:47,080 Speaker 8: let's keep a focus on companies that we think structurally 553 00:26:47,400 --> 00:26:51,440 Speaker 8: are in a pretty good position to perpetuate ongoing growth. Again, 554 00:26:51,560 --> 00:26:53,960 Speaker 8: regardless of the macro circumstance Right now. 555 00:26:53,880 --> 00:26:56,639 Speaker 2: Scott, appreciate your input. 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