1 00:00:00,080 --> 00:00:02,240 Speaker 1: Let's get to Nancy Davis, who was our guest for 2 00:00:02,240 --> 00:00:04,560 Speaker 1: the half hour. Nancy has founder also the c i 3 00:00:04,680 --> 00:00:09,799 Speaker 1: O AD Quadratic Capital Management. She's on the line from Greenwich, Connecticut. Nancy, 4 00:00:09,840 --> 00:00:11,880 Speaker 1: thanks for being with us. So many issues to kind 5 00:00:11,880 --> 00:00:14,640 Speaker 1: of weave together here. There's the earning story, there's the 6 00:00:14,640 --> 00:00:17,759 Speaker 1: FED story. Let's begin with the technicals, because I think 7 00:00:18,040 --> 00:00:20,520 Speaker 1: you might be able to shed some light here. Yesterday 8 00:00:20,560 --> 00:00:22,560 Speaker 1: we were making a big deal of the fact that 9 00:00:22,600 --> 00:00:25,479 Speaker 1: the S and P five, in fact, all of the 10 00:00:25,520 --> 00:00:28,360 Speaker 1: major benchmarks who are above their fifty day moving averages. 11 00:00:28,480 --> 00:00:31,320 Speaker 1: Is this significant? Have we are we beginning to put 12 00:00:31,360 --> 00:00:34,919 Speaker 1: in a bottom here for the equity market? There are 13 00:00:34,920 --> 00:00:37,520 Speaker 1: a lot of technicals going on. You're absolutely right. There's 14 00:00:37,520 --> 00:00:40,879 Speaker 1: a lot happening UM in markets, and liquidity is not 15 00:00:41,479 --> 00:00:44,720 Speaker 1: super deep. That's the one thing I think that technicals 16 00:00:44,800 --> 00:00:48,200 Speaker 1: miss is the depth of the market, and a lot 17 00:00:48,240 --> 00:00:52,120 Speaker 1: of it is just price movements and not necessarily UM 18 00:00:52,159 --> 00:00:55,440 Speaker 1: taking into account how light flows are these days. So 19 00:00:55,480 --> 00:00:59,000 Speaker 1: I think it's um. It's not necessarily a sign of 20 00:00:59,080 --> 00:01:02,640 Speaker 1: this is a or lived or anything any kind of statement. 21 00:01:02,720 --> 00:01:05,440 Speaker 1: But it's not a deep market. There's not a lot 22 00:01:05,480 --> 00:01:08,520 Speaker 1: of liquidity out there, and especially as we head into 23 00:01:08,920 --> 00:01:11,920 Speaker 1: near the end of July beginning of August, I would 24 00:01:11,920 --> 00:01:15,240 Speaker 1: expect liquidity to thin even more. Even markets like the 25 00:01:15,240 --> 00:01:19,800 Speaker 1: treasury markets are not as liquid as they were UM 26 00:01:19,840 --> 00:01:23,160 Speaker 1: earlier in this year. Do you feel that the markets 27 00:01:23,360 --> 00:01:25,640 Speaker 1: priced in what's coming down the pipe in terms of 28 00:01:25,640 --> 00:01:29,800 Speaker 1: fit tightening? Oh, yeah, definitely. I'm the FED has been 29 00:01:29,959 --> 00:01:34,440 Speaker 1: very credible with the markets with their forward guidance, So 30 00:01:34,600 --> 00:01:39,280 Speaker 1: their hawkish commentary has really moved moved interest rate markets. 31 00:01:39,319 --> 00:01:43,440 Speaker 1: Before the Fed even hikes, it's already priced in, um. 32 00:01:43,480 --> 00:01:45,759 Speaker 1: You know tonight if you if you look on your 33 00:01:46,040 --> 00:01:49,160 Speaker 1: Bloomberg terminal, you can see the number of FED hikes 34 00:01:49,200 --> 00:01:52,040 Speaker 1: that are priced in. In addition to the hundred and 35 00:01:52,080 --> 00:01:55,720 Speaker 1: fifty of actual hikes, there's another one hundred and ninety 36 00:01:55,800 --> 00:01:59,360 Speaker 1: basis points almost two hundred basis points more of FED 37 00:01:59,440 --> 00:02:03,000 Speaker 1: hikes price stin just in two thousand and twenty two. 38 00:02:03,080 --> 00:02:06,080 Speaker 1: So think about that, it's July twenty if we have, 39 00:02:06,640 --> 00:02:10,880 Speaker 1: you know, five months, ten days left UM for the 40 00:02:10,880 --> 00:02:14,679 Speaker 1: FED to hike a hundred and ninety basis points additional 41 00:02:15,080 --> 00:02:19,079 Speaker 1: just to meet the expectations for for their forward guidance. 42 00:02:19,080 --> 00:02:22,280 Speaker 1: So the FED has been very credible with markets saying 43 00:02:22,480 --> 00:02:25,760 Speaker 1: um hawkish things and the market trading ahead of what 44 00:02:25,840 --> 00:02:28,679 Speaker 1: they actually do. So if you can give me your 45 00:02:28,680 --> 00:02:31,280 Speaker 1: assessment is whether or not we're going to be looking 46 00:02:31,320 --> 00:02:34,600 Speaker 1: at a FED error here that they overshoot. Give it 47 00:02:34,639 --> 00:02:36,760 Speaker 1: that to me in about forty seconds. Is that what 48 00:02:36,880 --> 00:02:39,920 Speaker 1: the message of the bond market is right now? The 49 00:02:39,960 --> 00:02:43,520 Speaker 1: bond mark is complacent that inflation expectations are going to 50 00:02:43,680 --> 00:02:46,359 Speaker 1: increase in the future. I think that's a really key thing. 51 00:02:46,400 --> 00:02:49,120 Speaker 1: The market thinks the FED hiking rates is going to 52 00:02:49,200 --> 00:02:53,919 Speaker 1: slow inflation and lower inflation expectations are placed in the future, 53 00:02:53,960 --> 00:02:58,040 Speaker 1: which is very surprising to people because realized inflation is 54 00:02:58,080 --> 00:03:00,800 Speaker 1: at a forty year high. And n see, we were 55 00:03:00,840 --> 00:03:03,840 Speaker 1: asking the a perennial question at the moment of markets bottomed. 56 00:03:04,040 --> 00:03:07,040 Speaker 1: The pattern with that question is as the US dollar peaked, 57 00:03:07,440 --> 00:03:10,880 Speaker 1: how much long do you see this rally running. I 58 00:03:10,919 --> 00:03:14,720 Speaker 1: think the big issue for a lot of currencies with 59 00:03:14,800 --> 00:03:17,680 Speaker 1: the dollar being so strong is the cost of energy. 60 00:03:18,400 --> 00:03:22,560 Speaker 1: Energy most global commodities are treated in US dollars, and 61 00:03:23,000 --> 00:03:26,800 Speaker 1: just take maybe um, German and Japanese the terms of 62 00:03:26,880 --> 00:03:29,400 Speaker 1: trades as well as the currency of the euro and 63 00:03:29,440 --> 00:03:33,960 Speaker 1: a end have collapsed due to these very high energy prices, 64 00:03:34,040 --> 00:03:36,040 Speaker 1: and so I think that is a real you know, 65 00:03:36,080 --> 00:03:38,120 Speaker 1: at the core of the issue, it comes back to 66 00:03:38,320 --> 00:03:42,760 Speaker 1: how commodities are treated and what's going on geopolitically with 67 00:03:42,840 --> 00:03:47,680 Speaker 1: the war in UM Europe. So Russian president putin signal 68 00:03:47,760 --> 00:03:50,840 Speaker 1: today that Europe will start getting natural guests, but he 69 00:03:50,880 --> 00:03:53,640 Speaker 1: did warrant at the same time that until and unless 70 00:03:53,680 --> 00:03:56,800 Speaker 1: this spat over sanctioned parts on the nord Stream one 71 00:03:56,880 --> 00:03:59,680 Speaker 1: pipeline or resolved, that flow is going to be curbed tightly. 72 00:04:00,120 --> 00:04:03,560 Speaker 1: We're definitely flirting with a recession in Europe, no doubt. 73 00:04:03,600 --> 00:04:07,680 Speaker 1: But what's the knock on effect for the global economy. Well, 74 00:04:07,680 --> 00:04:10,960 Speaker 1: the knock on effect is obviously, you know, a humanitarian 75 00:04:11,080 --> 00:04:15,440 Speaker 1: crisis and a global economic crisis UM, especially as we 76 00:04:15,520 --> 00:04:19,800 Speaker 1: head into UM, the fall and the winter. UM. The 77 00:04:20,760 --> 00:04:23,800 Speaker 1: question is really going to be what our central banks 78 00:04:23,800 --> 00:04:26,720 Speaker 1: and markets going to do. You know, we've heard we've 79 00:04:26,720 --> 00:04:30,920 Speaker 1: heard rumblings that the FED might be implementing j g 80 00:04:31,080 --> 00:04:34,760 Speaker 1: B or a euro quee with printing dollars to buy 81 00:04:34,839 --> 00:04:38,839 Speaker 1: Japanese and European bonds. I mean, there's really crazy things 82 00:04:38,839 --> 00:04:42,880 Speaker 1: that are being talked about right now, um, in trying 83 00:04:42,920 --> 00:04:48,200 Speaker 1: to resolve this this global geopolitics and and the problem 84 00:04:48,320 --> 00:04:52,000 Speaker 1: with the energy crisis. What do you stand on the 85 00:04:52,000 --> 00:04:57,520 Speaker 1: recession question? Is it essentially inevitable? Now? You know, it's 86 00:04:57,560 --> 00:05:00,880 Speaker 1: tough to say. I think globally, um, we're having inflation 87 00:05:01,240 --> 00:05:04,839 Speaker 1: all around the world, and much of it is you know, 88 00:05:05,080 --> 00:05:08,080 Speaker 1: I question whether the FED or the e c B 89 00:05:08,600 --> 00:05:11,880 Speaker 1: or any central bank hiking rates, whether it's going to 90 00:05:12,040 --> 00:05:16,480 Speaker 1: solve the inflation problem. I think it's definitely crushing demand. 91 00:05:17,040 --> 00:05:21,000 Speaker 1: You can see it with consumer competence near levels below 92 00:05:21,040 --> 00:05:23,600 Speaker 1: two thousand and eight in the financial crisis. You can 93 00:05:23,640 --> 00:05:27,279 Speaker 1: see it with small business surveys. Um people are hurting. 94 00:05:27,480 --> 00:05:30,919 Speaker 1: It is a very, very tough time for businesses because 95 00:05:30,960 --> 00:05:34,839 Speaker 1: we're also having a labor market crisis. There so many 96 00:05:35,080 --> 00:05:38,480 Speaker 1: job openings and not enough workers to fill them. So 97 00:05:38,520 --> 00:05:40,880 Speaker 1: I think the issue that I see with what the 98 00:05:40,880 --> 00:05:44,120 Speaker 1: FED is doing in particular, is are really just hitting 99 00:05:44,160 --> 00:05:47,840 Speaker 1: demand by hiking interest rates. I don't see how you know, 100 00:05:48,080 --> 00:05:50,960 Speaker 1: hiking policy rates is going to put more truck drivers 101 00:05:51,000 --> 00:05:55,840 Speaker 1: on the road, or solve the the rush of Ukraine situation, 102 00:05:56,200 --> 00:05:59,080 Speaker 1: or or and you know, the COVID crisis, which is 103 00:05:59,120 --> 00:06:03,800 Speaker 1: still impact supply side uh disruptions, and you're hearing that 104 00:06:04,200 --> 00:06:08,799 Speaker 1: in companies as a report earnings talking about how these 105 00:06:08,839 --> 00:06:13,039 Speaker 1: supply side implications are really hurting growth and that's you know, look, 106 00:06:13,160 --> 00:06:16,800 Speaker 1: that's a dirty word, the big s words stagflation. That 107 00:06:16,960 --> 00:06:20,520 Speaker 1: is kind of the worst worst environment we could possibly face, 108 00:06:20,600 --> 00:06:24,720 Speaker 1: which is inflation. You know, higher prices but lower growth. 109 00:06:25,320 --> 00:06:28,240 Speaker 1: So I'm I think the recession, Like I'd probably be 110 00:06:28,320 --> 00:06:31,000 Speaker 1: relieved if we're in a recession. I think the really 111 00:06:31,040 --> 00:06:34,480 Speaker 1: bad thing is if we're in stagflation because like there 112 00:06:34,560 --> 00:06:37,799 Speaker 1: there's really no way out. And in that environment, stocks 113 00:06:37,839 --> 00:06:42,200 Speaker 1: and bonds sell off together. Hello two thousand twenty two, 114 00:06:42,200 --> 00:06:44,640 Speaker 1: Like we've kind of seen it right, markets are priced 115 00:06:44,720 --> 00:06:46,799 Speaker 1: that way. Well, here's the thing. You're in an industry 116 00:06:47,040 --> 00:06:50,560 Speaker 1: whose job it is UM to make money for your clients. 117 00:06:50,560 --> 00:06:53,159 Speaker 1: I mean, give me forty seconds on how you go 118 00:06:53,240 --> 00:06:56,760 Speaker 1: about doing that in an environment such as this. Well, 119 00:06:56,800 --> 00:07:00,760 Speaker 1: I'm the portfolio manager for the quadratic Interest rate Volatility 120 00:07:00,760 --> 00:07:05,120 Speaker 1: and Inflation head gt F. The ticker is eyeball, it's UM. 121 00:07:05,160 --> 00:07:11,200 Speaker 1: It's a very unique strategy because it's long interest rate volatility, 122 00:07:11,360 --> 00:07:14,480 Speaker 1: and although TIPS have been under performing this year, tips 123 00:07:14,480 --> 00:07:17,920 Speaker 1: are down, they're outperforming regular treasuries. About eighty percent of 124 00:07:17,960 --> 00:07:24,240 Speaker 1: our fund is treasury inflation protected securities UM. The volatility 125 00:07:24,280 --> 00:07:27,440 Speaker 1: component is doing quite well this year, and it's also 126 00:07:27,480 --> 00:07:31,320 Speaker 1: a way we've outperformed regular tips on their own because 127 00:07:31,440 --> 00:07:34,960 Speaker 1: ten uere interest rates have been moving higher. So I 128 00:07:35,000 --> 00:07:38,040 Speaker 1: think it's a it's a time to really be questioning 129 00:07:38,120 --> 00:07:42,880 Speaker 1: the traditional sixty forty portfolio and looking especially for inflation 130 00:07:43,360 --> 00:07:46,840 Speaker 1: outside of things that existed in the seventies. The problem 131 00:07:46,880 --> 00:07:49,920 Speaker 1: all right. Nancy Davis found a n c io Quadratic 132 00:07:49,960 --> 00:07:51,880 Speaker 1: Capital Management. Thanks so much for joining us.