WEBVTT - Queen Elizabeth, Bond Market, Compound King ETFs 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:21.560 at Bloomberg dot com slash podcast. Throughout this morning, we've 0:00:21.600 --> 0:00:25.119 been getting perspective on the life, legacy, and the death 0:00:25.160 --> 0:00:26.880 of Queen Elizabeth the Second. We want to bring on 0:00:27.200 --> 0:00:31.639 John Authors this morning. He covers Markets, Forest, Bloomberg News. John, 0:00:31.640 --> 0:00:34.040 thanks so much for taking the time here give us 0:00:34.040 --> 0:00:37.840 a sense of how the country will mourn the queen 0:00:38.080 --> 0:00:41.600 over the coming days and I think weeks. Just explain 0:00:41.640 --> 0:00:45.319 how the whole process works. Well, yes, this has been 0:00:45.360 --> 0:00:51.400 a long long planned uh event um like literally from 0:00:51.400 --> 0:00:56.760 bacts decades place. As I understand, if we have ten 0:00:57.120 --> 0:01:03.080 days of morning before the funeral takes place, any coronation 0:01:03.200 --> 0:01:07.199 for childs will be in when Elizabeth's face. He wasn't 0:01:07.240 --> 0:01:10.520 crowned until from that sixteen months after she succeeded to 0:01:10.560 --> 0:01:14.840 suffering said, the coronation is still a ways off. In 0:01:14.920 --> 0:01:21.119 the interim the country basically shut down. So um, that's 0:01:21.200 --> 0:01:25.640 most dramatically Football is pantils or soccer, which really as 0:01:25.640 --> 0:01:31.000 American business. Yeah, it's a very big deal, but um, 0:01:31.800 --> 0:01:34.679 you know, it doesn't feel right to be going out 0:01:34.680 --> 0:01:42.919 and playing playing soccer this weekend, so that disappears. Um. Similarly, 0:01:42.959 --> 0:01:46.120 the last night of the Proms, which is this this 0:01:46.240 --> 0:01:49.720 big music festival in the Albert Hall, um, and the 0:01:49.840 --> 0:01:55.560 last night is um uh you know, a big display 0:01:55.600 --> 0:01:59.480 of patriotism. People waved their Union jack's they see land 0:01:59.480 --> 0:02:01.880 of Hope and glory Jerusalem or that kind of thing 0:02:02.320 --> 0:02:07.200 that's been canceled or I believe the first time since 0:02:07.280 --> 0:02:09.960 the shopping World War. I haven't checked that, but I 0:02:10.000 --> 0:02:14.400 don't think they have. That's another almost imponderable how could 0:02:14.400 --> 0:02:18.680 you possibly not have the last night of the Proms? Um? 0:02:18.720 --> 0:02:25.359 So yes, the country it's very strange in this this 0:02:25.480 --> 0:02:29.919 day and age, because the country still really does close down. 0:02:30.880 --> 0:02:35.919 Um knots of closed today. So if you wanted to 0:02:35.960 --> 0:02:39.600 go take advantage of the strong dollar and you're shopping 0:02:39.600 --> 0:02:41.760 in Region Street, Knox Street, this is not the day 0:02:41.800 --> 0:02:45.000 to do it. They're not going to stay close to 0:02:45.080 --> 0:02:48.799 the full ten days. Um. But a lot of stores 0:02:48.840 --> 0:02:52.000 have just such completely Today, I think the only really 0:02:52.040 --> 0:02:56.359 significant aspects of life that does continue as normal is 0:02:56.360 --> 0:03:00.320 is schools. I think primarily because one of the lessons 0:03:00.360 --> 0:03:03.440 we learned from the pandemic was that of all the 0:03:03.440 --> 0:03:07.119 different things wanted to to shut down during the pandemic, 0:03:07.160 --> 0:03:10.600 it was small closes that put the most. So are 0:03:11.360 --> 0:03:14.360 john are our financial markets expected to be open on 0:03:14.600 --> 0:03:17.960 as regular I can't actually choked on the day of 0:03:17.960 --> 0:03:22.239 the Unity. I'm not. I haven't checked us to as 0:03:22.240 --> 0:03:27.760 do exactly um what the plans are, but you would 0:03:27.960 --> 0:03:32.639 normally expect um. Britain doesn't have as many national holidays 0:03:32.639 --> 0:03:36.280 as most other panties, and it's sort of a convention that, um, 0:03:36.600 --> 0:03:39.480 when there is an event in the royal family, we 0:03:39.560 --> 0:03:41.520 get a you know, we get a day off for it. 0:03:41.680 --> 0:03:45.760 When when Harry and um Will got married, that was 0:03:45.960 --> 0:03:48.400 that was a day off for that, Queen Black and 0:03:48.560 --> 0:03:50.760 jubilably to see those a day off for that. This 0:03:50.960 --> 0:03:53.200 will be a day I mean the day and she 0:03:53.360 --> 0:03:56.120 is actually when when the funeral actually happens, will be 0:03:56.560 --> 0:04:00.440 a local shutdown and day. Of course you can't I 0:04:00.520 --> 0:04:06.480 can't imagine, you know, a good subject the queen, well 0:04:06.600 --> 0:04:10.880 now the king trading through um the Queen's funeral. I'm 0:04:11.240 --> 0:04:15.200 really interested to know what you expect from King Charles 0:04:15.320 --> 0:04:18.120 the Third. He's going to give an address I believe 0:04:18.480 --> 0:04:23.200 in about two and a half hours and um, you know, 0:04:23.360 --> 0:04:27.240 he's been a very outspoken Prince of Wales. But a 0:04:27.320 --> 0:04:29.040 lot of people are saying that that could very much 0:04:29.160 --> 0:04:35.160 change once he's wearing the crown. I suspect it probably 0:04:35.240 --> 0:04:39.680 has to. He does indeed have a very difficult um 0:04:40.080 --> 0:04:44.400 financing position because we don't need to rate over it 0:04:44.560 --> 0:04:48.640 yet again. But certain things we all know about his 0:04:49.120 --> 0:04:52.159 private life, which have even been dramatized in fantastic Netflix 0:04:52.200 --> 0:04:57.200 series and so unmediu that that sensible authority, that mystique 0:04:58.000 --> 0:05:00.920 that his mother had is something that you cannot be 0:05:01.040 --> 0:05:04.800 retrieved of. Him was a big as a person, uh, 0:05:05.120 --> 0:05:06.920 and that is a problem. The fact that he has 0:05:07.000 --> 0:05:12.280 already been around so long um also makes it very 0:05:12.360 --> 0:05:16.400 difficult still seems extremely straight to even be used of 0:05:16.440 --> 0:05:19.080 the word is uh. The idea that he is the 0:05:19.200 --> 0:05:21.960 king now is very difficult for a lot of us 0:05:22.520 --> 0:05:27.800 the stomach. I think he needs to make clear that um, 0:05:28.160 --> 0:05:32.440 he's going to take his his mother as a as 0:05:32.839 --> 0:05:36.240 a as a guiding light that he's he's going to 0:05:36.360 --> 0:05:40.240 try to do things the same way. And I imagine 0:05:41.080 --> 0:05:43.320 we do have William will now get to be the 0:05:43.400 --> 0:05:48.800 Prince of Wales, which will also require zone foreignation ceremony. Uh. 0:05:49.040 --> 0:05:54.080 If I were Charles, I would um trying to maintain 0:05:54.120 --> 0:05:58.280 authority by being quite a quiet figure and really put 0:05:58.839 --> 0:06:02.880 um it's some and he's you know, and his beautiful 0:06:02.920 --> 0:06:06.960 white forwards as the as the people for the nations 0:06:06.960 --> 0:06:10.800 who identify with that, that would work very well. One. 0:06:10.960 --> 0:06:13.039 We only have about thirty seconds left. But I wonder 0:06:13.080 --> 0:06:15.520 if you think this strengthens the union because the Queen 0:06:15.600 --> 0:06:20.120 did pass at Balmoral in Scotland and you know there 0:06:20.120 --> 0:06:21.840 will be a new Prince of Wales. It makes me 0:06:21.960 --> 0:06:25.880 think of the United Kingdom. Um kind of yes, I 0:06:25.960 --> 0:06:28.960 felt like it was falling apart. Does that turn around now? No, 0:06:30.200 --> 0:06:35.279 That's one of the greatest consents for me is that. Uh. Yeah, 0:06:35.320 --> 0:06:40.920 as an English person and I respect to Scotland, I 0:06:41.040 --> 0:06:43.200 really hated the idea that they would leave that they're 0:06:43.279 --> 0:06:46.960 entitled if they want to. I think the sense of 0:06:47.200 --> 0:06:49.560 total loyalty to the Queen may not be there, but 0:06:50.000 --> 0:06:52.760 I think I think this makes it easier to leave. Okay, 0:06:53.320 --> 0:06:57.200 all right, John, great perspective appreciated. John authors. He covers 0:06:57.520 --> 0:07:00.960 markets for Bloomberg News Bloomberg Opinion, UH, as you can 0:07:01.000 --> 0:07:02.600 tell by Zac and he is a British so we 0:07:02.680 --> 0:07:05.080 love getting his perspective here on the news of the 0:07:05.080 --> 0:07:11.760 passing of Queen Elizabeth. A second, I end go that 0:07:11.920 --> 0:07:13.760 is a function Matt turning me onto recently. That is 0:07:13.800 --> 0:07:17.120 a Bloomberg Index browser gives you all the you know, 0:07:17.240 --> 0:07:21.840 the bond fixed income in disease, uh, gives you kind 0:07:21.880 --> 0:07:24.600 of a sense of where they're going. And the US aggregate, 0:07:24.640 --> 0:07:27.720 the Bloomberg US aggregate corporate you know in the index 0:07:27.840 --> 0:07:30.440 is down eleven point five percent on a global basis. 0:07:30.760 --> 0:07:35.120 It's not like, I mean, just brutal, brutal returns in 0:07:35.240 --> 0:07:37.760 the fixed income market. I'm kind of thinking it can't 0:07:37.760 --> 0:07:39.200 get any worse. I'm gonna go in there and buy 0:07:39.280 --> 0:07:42.760 some bonds. Adam Coon's portfolio manager went through Capital Management. Adam, 0:07:42.800 --> 0:07:44.440 what do you think of my call there? I think 0:07:44.480 --> 0:07:45.920 I might be going in on the bondom mark. I 0:07:45.960 --> 0:07:50.200 can't get any worse in it. I mean, it can't 0:07:50.240 --> 0:07:53.880 get worse but from our viewpoint, bonds are the tray 0:07:54.000 --> 0:07:55.920 for the next year. And when you when you look 0:07:55.960 --> 0:07:59.080 at um just kind of where markets are right now, 0:07:59.560 --> 0:08:01.320 we kind see three and a half percent of the 0:08:01.360 --> 0:08:06.000 ten years the peak for this cycle and rates and 0:08:06.240 --> 0:08:10.240 in the long term secular bullet trend to continue. This 0:08:10.480 --> 0:08:13.600 is just kind of a blip and we've gotten pretty 0:08:13.680 --> 0:08:16.360 used to easy returns and fixed income of the last 0:08:16.440 --> 0:08:19.240 ten years, so this should be expected to have a 0:08:19.280 --> 0:08:22.600 sell off. This has definitely been more aggressive than than 0:08:22.680 --> 0:08:25.760 what we expected. But when we look across the universe 0:08:25.880 --> 0:08:30.960 of of corporate bonds, specifically higher grade corporate bonds, we 0:08:31.120 --> 0:08:33.960 we we really like what we see. Um. We've been 0:08:34.080 --> 0:08:37.839 using the phrase kids kids in the candy store, but 0:08:37.960 --> 0:08:40.480 I mean when you're looking at a names like Alphabet 0:08:40.559 --> 0:08:43.640 and Apple trading well but four percent, and then you've 0:08:43.679 --> 0:08:48.120 got Facebook and Meta bonds trading above five. Um. There's 0:08:48.160 --> 0:08:51.920 just a lot of opportunities in the corporate world right now. UM, 0:08:52.120 --> 0:08:58.000 in terms of the indexes or in terms of the 0:08:58.400 --> 0:09:00.480 rapper what what do you like? Do you've owned by 0:09:00.600 --> 0:09:03.760 the bonds themselves? Do you buy a tracking fund? You 0:09:03.920 --> 0:09:06.000 buy e t F? How do you get into that? Trade. 0:09:06.600 --> 0:09:10.120 So so for us, we're we do buy individual bonds 0:09:10.559 --> 0:09:14.400 and specifically we are not shying away from duration right now. 0:09:14.960 --> 0:09:18.000 Uh Over the last several years we have been a 0:09:18.160 --> 0:09:21.560 shorter duration till to cross our strategies. But right now 0:09:21.679 --> 0:09:25.200 we are adding to our A and double A rated 0:09:25.280 --> 0:09:29.760 corporate uh corporate paper by buying individual bonds UM adding 0:09:29.800 --> 0:09:32.120 to the basis now you can add through e t 0:09:32.280 --> 0:09:35.600 F carticular like l q d UM just to get 0:09:35.679 --> 0:09:38.080 corporate exposure is a great way to do it if 0:09:38.160 --> 0:09:40.439 if you don't want to buy individual bonds. But like 0:09:40.520 --> 0:09:43.319 I said, we are looking at adding to duration um 0:09:43.840 --> 0:09:45.880 you know, ten years and now. So when you kind 0:09:45.920 --> 0:09:50.240 of look at at the landscape from a monetary policy standpoint, 0:09:50.320 --> 0:09:53.760 we kind of see there two scenarios and both of 0:09:53.800 --> 0:09:57.640 which we think farewell for interest rates and bonds in general. 0:09:57.760 --> 0:10:00.240 So let's say they act to aggressively and they break 0:10:00.320 --> 0:10:03.320 the economy. Ultimately that's going to lead to a decline 0:10:03.320 --> 0:10:07.520 in interest rates. Or they pivot and say, you know what, 0:10:07.720 --> 0:10:10.280 we've We've done our job and inflation is waning, so 0:10:10.400 --> 0:10:13.200 we're going to pull back and and and may even 0:10:13.600 --> 0:10:17.000 begin to uh cut interrut rates, which the euro are 0:10:17.240 --> 0:10:19.320 your euro dollar curve is thing. They're going to cut 0:10:19.360 --> 0:10:22.959 interest rates in the first quarter, So in either of 0:10:23.080 --> 0:10:25.760 those scenarios, you're going to see interest rates decline. And 0:10:25.800 --> 0:10:29.000 when you look at balance sheets and just credit in general, 0:10:29.920 --> 0:10:32.800 it looks fairly firm and stable. So we don't see 0:10:32.800 --> 0:10:35.199 any credit issues hitting the market, which is why we're 0:10:35.200 --> 0:10:38.280 adding to credit exposure to not only get the duration 0:10:38.360 --> 0:10:42.080 but also the credit spread exposure. Adam, some economists are 0:10:42.120 --> 0:10:44.920 telling me I need to be ready for a recession 0:10:45.040 --> 0:10:46.920 in the not too distant future. So what does that mean. 0:10:47.000 --> 0:10:51.320 I have to actually look at leverage ratios and interest coverage. 0:10:51.360 --> 0:10:53.680 Do I have to be really focused on credit quality? 0:10:55.600 --> 0:10:58.760 I mean, if you're if you're a fixing income investors, 0:10:58.760 --> 0:11:01.280 you need you need to understand out of quality. Um. 0:11:01.440 --> 0:11:04.000 But I think where we're at in the cycle, and 0:11:04.120 --> 0:11:07.559 when you look at where spreads of actually widened too, 0:11:08.440 --> 0:11:10.800 you're compensated for that risk right now. So we we 0:11:10.960 --> 0:11:15.760 view right now an asymmetric return profile where the risk 0:11:15.880 --> 0:11:19.760 reward is in favor of going along credit versus a 0:11:19.840 --> 0:11:21.840 year ago when we were if we had this conversation, 0:11:21.880 --> 0:11:23.920 we were struggling to get three percent and spreads were 0:11:23.920 --> 0:11:26.480 an all time type, so it was asymmetric in the 0:11:26.520 --> 0:11:28.040 other direction, where there were in a lot more you 0:11:28.080 --> 0:11:30.280 could squeeze out of the markets, UM, but a lot 0:11:30.360 --> 0:11:33.080 more downside. So we we have run through that cycle. 0:11:33.200 --> 0:11:35.959 Right now, we're looking at the markets, we're seeing that 0:11:36.559 --> 0:11:39.080 this reward you're you're getting for the risk you're taking, 0:11:39.440 --> 0:11:43.680 you are being compensated. I have a listener who wants 0:11:43.720 --> 0:11:46.040 to know what your take is on the volatility we've 0:11:46.040 --> 0:11:49.560 seen in currency, specifically the yen and the Taiwan dollar 0:11:50.240 --> 0:11:56.880 UM and foreign investors reducing exposure to US assets. Yeah, 0:11:56.920 --> 0:12:00.400 I mean I look with the dollar, STRING think that's 0:12:00.400 --> 0:12:03.240 exactly what we should expect. I think that the US 0:12:03.280 --> 0:12:08.240 dollar has kind of reached its maximum of evaluation relative 0:12:08.280 --> 0:12:11.680 to other currencies. So if we see the US economy 0:12:11.840 --> 0:12:14.880 begin to roll over, which there's plenty of evidence for that, 0:12:14.920 --> 0:12:16.559 I think we'll start to see the U S Dollar 0:12:17.160 --> 0:12:20.400 decline on a relative basis, which will move more assets 0:12:20.480 --> 0:12:22.920 back to the U S. So, so that's that's another 0:12:23.040 --> 0:12:27.679 case for Bobs. Alright, Adam, good stuff. Appreciate getting your perspective, 0:12:27.720 --> 0:12:30.480 your thoughts there, Adam Coon's he's a portfolio manager. At 0:12:30.520 --> 0:12:34.880 Winthrop Capital Management, located in beautiful Carmel, Indiana, just outside 0:12:34.920 --> 0:12:39.480 of Indianapolis. Carmel's are very nice burb of Indianapolis. Getting 0:12:39.520 --> 0:12:43.040 his thoughts on fixed income here. Uh, they're pretty bullish here. 0:12:43.360 --> 0:12:46.040 Interesting to see, all right, that's Adam Coon's portfolio manager 0:12:46.080 --> 0:12:51.400 with our capitol manager. Nice kind of little rip here 0:12:51.480 --> 0:12:53.640 to the market. Sharre I wasn't really expecting it. It's 0:12:53.679 --> 0:12:58.959 interesting as well because we had um uh Bullard come 0:12:59.000 --> 0:13:02.280 out and say he's leaning towards seventy five basis points 0:13:02.320 --> 0:13:06.640 to the next meeting that is coming up September twenty one. 0:13:08.640 --> 0:13:11.200 You can always see when the FED meetings are if 0:13:11.280 --> 0:13:13.560 you just type f E d GO on your Bloomberg 0:13:13.679 --> 0:13:15.439 term auld. The same goes for b O E B 0:13:15.640 --> 0:13:19.560 O j E C b b OC Bank of Canada nice, 0:13:19.600 --> 0:13:22.240 which we follow closely here of course, Well they're so 0:13:22.360 --> 0:13:24.199 close exactly. But that is a good one. That's f 0:13:24.400 --> 0:13:26.199 E D go is a good one in the next 0:13:26.280 --> 0:13:30.160 right decision. September twenty one, at two pm Wall Street Time, 0:13:30.200 --> 0:13:32.680 let's check out Ted Oakley, founder and managing partner at 0:13:32.679 --> 0:13:36.400 Oxbow Advisors and a prod alum of the Texas Tech. 0:13:36.520 --> 0:13:39.199 I think their long Long Horns, is that, right, Ted Longhorns? 0:13:39.960 --> 0:13:42.960 The University of Texas Longhorns, University of Texas Long There's 0:13:42.960 --> 0:13:46.080 a very big difference between the University of Texas Texas Tech. 0:13:46.360 --> 0:13:49.280 Is Texas tex a great school? And I know what 0:13:49.760 --> 0:13:51.920 what under God did my undergrad there? It's a it's 0:13:51.920 --> 0:13:55.120 a right engineering school, right, Actually, it's a it's a 0:13:55.160 --> 0:13:58.080 real good college. Excellent. Hey, Ted, what do you I mean? 0:13:58.120 --> 0:13:59.920 You've been around the block a few times here, You've 0:14:00.000 --> 0:14:03.080 seen markets come and go. Um, what do you make 0:14:03.280 --> 0:14:07.040 of these equity markets, these fixed income markets at sixty 0:14:07.440 --> 0:14:09.280 portfolio that a lot of us were kind of brought 0:14:09.400 --> 0:14:11.920 up on. What do you make of that whole concept? 0:14:11.960 --> 0:14:16.480 Given what we've seen so far this year? Well, you 0:14:16.559 --> 0:14:18.800 know what happened on the sixty forty is really it 0:14:18.920 --> 0:14:22.120 came into play where people really got hooked on it. 0:14:22.640 --> 0:14:24.840 You know, the last twelve years or so prior to that, 0:14:25.080 --> 0:14:26.920 you know, you would come and go, but nothing like 0:14:27.120 --> 0:14:29.360 this last time because they could just plug and play 0:14:29.440 --> 0:14:32.440 on sixty and it worked. Now you're in a situation 0:14:32.560 --> 0:14:34.880 where we, like I've seen it many times, where you're 0:14:34.880 --> 0:14:38.320 in a true bearer market and you can't lean on anything, 0:14:38.400 --> 0:14:41.680 and necessarily you've got to be able to be reasonably nimble. 0:14:42.240 --> 0:14:44.000 And you keep going to lower lows and you get 0:14:44.040 --> 0:14:46.800 good bounces like but in July. Maybe you're getting one 0:14:46.920 --> 0:14:49.600 right now, But then they go to lower lows, and 0:14:50.040 --> 0:14:52.520 I think that's what frustrates people the most. And then 0:14:53.080 --> 0:14:55.360 on the bond side, you know, you can have bonds 0:14:56.080 --> 0:14:58.520 raids peak and start down like you did, no aid 0:14:58.640 --> 0:15:01.720 like you did, and no one and the market still 0:15:01.760 --> 0:15:03.880 goes on down. And I think that's what a lot 0:15:04.000 --> 0:15:06.880 of the what I should say the novice, the younger 0:15:06.920 --> 0:15:09.760 players don't understand is that you know, there's a lot 0:15:09.800 --> 0:15:12.360 of things that happened here, nuances that you've gotta do. 0:15:12.400 --> 0:15:13.880 You have to know a little bit about what you're 0:15:13.880 --> 0:15:16.560 doing in this kind of market. What are you expecting 0:15:17.600 --> 0:15:21.880 um in terms of the US stock market over the 0:15:21.960 --> 0:15:26.320 next year, you know, into two into three. I guess 0:15:26.680 --> 0:15:29.960 your FED call is pretty important in that aspect, in 0:15:30.000 --> 0:15:34.400 that in that respect, isn't it? Well? It is. I 0:15:34.520 --> 0:15:37.040 think I think what people forget is that if the 0:15:37.120 --> 0:15:40.400 FIT is serious about keeping you know, the funds rate 0:15:40.680 --> 0:15:42.680 half a point over the inflation, right, we leave interest 0:15:43.280 --> 0:15:45.800 drift back to you know, three and a half or 0:15:45.880 --> 0:15:49.320 four uninflation, you're still you're still well behind on the 0:15:49.360 --> 0:15:51.520 funds rate at two and a half, and on the 0:15:51.600 --> 0:15:54.760 market itself, we're thinking, uh, we think we don't get 0:15:54.800 --> 0:15:56.600 a low in the market until the first or second 0:15:56.720 --> 0:16:01.440 quarter of twenty three more than likely, because it's just look, 0:16:01.480 --> 0:16:03.520 we're nine months end of the year and nobody's ahead 0:16:03.520 --> 0:16:06.160 of the market right now. So there. I don't think 0:16:06.200 --> 0:16:08.200 they can catch up in ninety days. Maybe we're wrong, 0:16:08.640 --> 0:16:10.360 but I've seen it before. It gets hard to do, 0:16:11.360 --> 0:16:14.200 and then they start protecting, and then you go into 0:16:14.240 --> 0:16:16.520 the new year, we think the earnings will be lower. 0:16:16.680 --> 0:16:19.480 Companies are just now coming into what's going to be trouble, 0:16:19.880 --> 0:16:22.760 and then real estate is just now coming into the 0:16:23.320 --> 0:16:25.720 tough part. And we think both of those will come together. 0:16:25.960 --> 0:16:28.440 So what do you do? Well, you gotta hold a 0:16:28.480 --> 0:16:31.560 lot of cash. I mean we hold in our three strategies, 0:16:31.640 --> 0:16:34.360 we hold on average, we hold more than fifty percent 0:16:34.520 --> 0:16:36.440 cash all of them right now. And and when I 0:16:36.520 --> 0:16:40.560 take cash, you know, we're getting on a variable rate treasury, 0:16:40.680 --> 0:16:43.200 which is a ninety day reset. We get three now, 0:16:44.000 --> 0:16:47.880 which is pretty good, you know, fully guaranteed we're getting 0:16:48.240 --> 0:16:51.200 three fifty three sixty on a two year treasury, you know, 0:16:51.360 --> 0:16:54.120 three and a half on eighteen months. We can hold 0:16:54.160 --> 0:16:57.360 it in places and make some money. Um, And we 0:16:57.440 --> 0:16:59.240 don't buy into this idea that well, I don't want 0:16:59.280 --> 0:17:01.640 to hold cash because I can't make any money three 0:17:01.720 --> 0:17:04.080 per cents better than a minus twenty the way we 0:17:04.200 --> 0:17:07.000 look at it, Yeah, exactly, that's where we are. What 0:17:07.040 --> 0:17:09.000 do you typically hold? Ten? Like, what's what would be 0:17:09.000 --> 0:17:12.720 your average cash holding relative to what you're doing now? Well, 0:17:12.800 --> 0:17:14.840 on the stock side, it would be, you know, five 0:17:14.960 --> 0:17:18.119 to seven uh in m BE ten it was a 0:17:18.119 --> 0:17:21.920 little higher last year. We started raising cash in twenty one. UM. 0:17:22.520 --> 0:17:24.639 On the income accounts, we move up and down the 0:17:24.720 --> 0:17:28.359 yield curve, particularly on the bond accounts, and you know, 0:17:28.440 --> 0:17:30.200 we have brought a lot of things in short the 0:17:30.280 --> 0:17:34.639 last two years and now we've actually started just gradually 0:17:35.240 --> 0:17:38.800 moving back out the yield curve some. So it just 0:17:38.920 --> 0:17:42.159 depends on what which strategy it is. Really. How are 0:17:42.200 --> 0:17:45.600 things down in Corpus Christie where you are? Ten, Well, 0:17:45.640 --> 0:17:49.720 I'm in Austin, Corpus Christie, but I'm in Austin. Austin 0:17:49.840 --> 0:17:53.200 is different than any other city in Texas. It's sort 0:17:53.200 --> 0:17:56.520 of like a California city in a way, but for 0:17:56.640 --> 0:17:59.800 better for worse. You got influx of people like crazy, 0:18:00.280 --> 0:18:02.480 Yeah it's good or good and bad. Now on the coast, 0:18:03.240 --> 0:18:05.119 uh you know, they're doing okay because they have a 0:18:05.160 --> 0:18:06.639 lot of you know, they have ports and they have 0:18:07.119 --> 0:18:12.800 a lot of the energy is really keeping those sports busy. Houston, Brownsville, Corporus, screw, 0:18:12.920 --> 0:18:15.840 they all keep the sports busy. So they're they're they're 0:18:15.880 --> 0:18:19.119 pretty busy right now. And is it still I mean, 0:18:19.520 --> 0:18:22.679 you know, just being in Texas in general, oil up. 0:18:22.800 --> 0:18:24.960 You know, oil is eight six dollars a barrel. That's 0:18:25.080 --> 0:18:27.879 that's a pretty good price historically. How are people feeling 0:18:27.880 --> 0:18:31.320 about energy down there? They feel okay. I think the 0:18:31.480 --> 0:18:33.879 energy people, and I've said this before, they're not very 0:18:33.960 --> 0:18:38.040 good at a sentiment on where they should be. But 0:18:38.520 --> 0:18:41.159 but I will say this, they're a little surprised. I 0:18:41.240 --> 0:18:44.440 think that it's at five. But it doesn't you know, 0:18:44.520 --> 0:18:46.960 I think it's okay. I mean they they can still drill, 0:18:47.040 --> 0:18:50.239 they can still do projects, um that sort of thing. 0:18:50.640 --> 0:18:53.320 Uh Um. I know we're getting ready to purst this 0:18:53.400 --> 0:18:55.040 a personal thing, but I'm getting ready to go into 0:18:55.080 --> 0:18:56.879 a project that we think we'll do pretty well. But 0:18:57.400 --> 0:19:01.640 it's you know, it depends on depends on whether it's 0:19:01.680 --> 0:19:04.840 gas or oil where they are, but generally it's staying 0:19:04.920 --> 0:19:07.720 fairly steady. Yeah, it looks like that way, all right, Ted, 0:19:07.760 --> 0:19:10.600 Thanks so much for joining us. Always appreciate getting your 0:19:10.600 --> 0:19:12.960 thoughts on these markets, your perspective, Ted Oakley. He's a 0:19:13.000 --> 0:19:16.239 founder and manager part of ox Bow Advise. Great new 0:19:16.320 --> 0:19:19.720 movie by the way, called Vengeance, which I rented on 0:19:19.800 --> 0:19:24.359 Apple yesterday, and it's about um kind of you know, 0:19:24.440 --> 0:19:27.960 like an arrogant New York City hipster who goes down 0:19:28.040 --> 0:19:31.160 to Texas for a funeral and he thinks he knows 0:19:31.280 --> 0:19:36.359 everything and they're all country bumpkins. Ye, Robert can't well, 0:19:36.440 --> 0:19:39.960 Founder and portfolio manager of Upholdings, Robert was, was I right, 0:19:40.040 --> 0:19:42.840 are you guys the ones behind the first hedge fund 0:19:42.880 --> 0:19:45.080 to go through a conversion to an e t F structure? 0:19:45.119 --> 0:19:50.159 And if so, why we were? Uh? You know, the 0:19:50.600 --> 0:19:54.080 two thousand nineteen et F rule adjustments really open the 0:19:54.119 --> 0:19:57.800 floodgates for for active managers to bring their strategies inside 0:19:57.800 --> 0:20:00.600 of e t F s. And the short answer is, um, 0:20:01.080 --> 0:20:04.080 the e t F is the most efficient vehicle in 0:20:04.200 --> 0:20:07.240 the world to manage money. You know, the tax efficiency 0:20:07.280 --> 0:20:09.560 of it, the liquidity and the low fee structure, and 0:20:09.600 --> 0:20:11.879 the access that you get. It was just a no 0:20:12.000 --> 0:20:15.320 brainer for us because if your goal is to maximize 0:20:15.440 --> 0:20:17.800 you know, long term compounded returns to investors, you've got 0:20:17.920 --> 0:20:20.400 to minimize fees and taxes. And you know, we saw 0:20:20.520 --> 0:20:22.560 no other vehicle than that that could beat the e 0:20:22.640 --> 0:20:24.520 t F and doing that, that's not why you run 0:20:24.560 --> 0:20:27.639 a hedge fund. You run a hedge fund again super 0:20:27.800 --> 0:20:31.840 super rich. I mean you're giving away two and twenty Uh. 0:20:32.000 --> 0:20:33.600 You know it makes sense for a buyer of the 0:20:33.640 --> 0:20:38.240 e t F, But what's what's your motivation? It depends 0:20:38.280 --> 0:20:40.720 on your time horizon. You know, I I turned thirty 0:20:40.800 --> 0:20:42.679 nine last week. You know, I've got a thirty year 0:20:42.720 --> 0:20:45.720 investment career ahead of me. And uh, if you the 0:20:45.960 --> 0:20:49.560 more you you backload your your earnings and your winnings, 0:20:49.600 --> 0:20:51.399 that the larger of a firm that you can build. 0:20:51.560 --> 0:20:53.920 So uh, you know, our focus is not on extracting 0:20:53.960 --> 0:20:55.640 all the value in the first ten years of running 0:20:55.680 --> 0:20:58.040 this business. It's it's focusing on, you know, the decades 0:20:58.040 --> 0:21:00.800 ahead of us. It's a relatively low expense ratio as well. 0:21:00.840 --> 0:21:04.800 I'm looking at point six here, Um, that's got to 0:21:04.840 --> 0:21:09.520 be very competitive. How are you doing? So what was 0:21:09.600 --> 0:21:11.520 interesting is, yeah, we looked at the at the when 0:21:11.560 --> 0:21:13.760 we did the conversion, we looked at the history of 0:21:13.840 --> 0:21:18.240 active management, going back to mutual funds in the forties, fifties, sixties, seventies, 0:21:18.280 --> 0:21:21.040 and over any period of time, the long term average 0:21:21.119 --> 0:21:23.560 that you know, investors are willing to pay for active 0:21:23.600 --> 0:21:26.960 management was about sixty basis points. So people were there's 0:21:27.000 --> 0:21:29.159 discussion out there about you know, race to bottom with 0:21:29.280 --> 0:21:32.520 indexes that charge zero, indexes strip charge zero. You know, 0:21:32.560 --> 0:21:35.000 there's no there's no research, there's no management, there's there's 0:21:35.040 --> 0:21:38.080 nothing that's happening underneath the surface. So we thought that 0:21:38.200 --> 0:21:40.240 the fair thing to do was was charged What what 0:21:40.320 --> 0:21:42.800 has been the industry norm now for for almost eighty years. 0:21:43.320 --> 0:21:48.160 What do you think about Amazon? It's a question. Amazon 0:21:48.280 --> 0:21:51.760 has clearly built an incredible company. It's a it's a 0:21:51.800 --> 0:21:53.919 it's a mid size holding in our portfolio right now. 0:21:54.040 --> 0:21:57.280 But but I gotta be honest that um there, Uh, 0:21:57.760 --> 0:22:01.119 capital intensity is a real problem and one of the 0:22:01.200 --> 0:22:03.639 things that we focus really intensely on is what is 0:22:03.680 --> 0:22:06.159 the return on invested capital that companies are generating. So 0:22:06.600 --> 0:22:10.399 when a company has new capital expenditures or new operating expenses, 0:22:11.000 --> 0:22:13.760 what what is the new operating cash flow that has 0:22:13.800 --> 0:22:16.320 generated off of that incremental spend in the in the 0:22:16.400 --> 0:22:19.359 coming years. And the problem with Amazon is that if 0:22:19.400 --> 0:22:21.680 you were to take a Google, every new dollar that 0:22:21.760 --> 0:22:24.720 Google puts in capex, they're generating sixty more cents of 0:22:24.760 --> 0:22:27.680 operating cash flow in the subsequent year. For Amazon that 0:22:27.760 --> 0:22:30.200 numbers about ten cents. And so they are in a 0:22:30.359 --> 0:22:34.520 structurally lower return on invested capital business. And even the 0:22:35.520 --> 0:22:39.000