WEBVTT - BlackRock Fixed Income CIO Rick Rieder Talks State of the Markets

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>Joining us now to talk about all that's going on

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<v Speaker 2>in the markets right now is black Global, Chief Investment

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<v Speaker 2>Officer of Global Fixed Income, Rick Reader. And Rick, we

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<v Speaker 2>book you on every Job's Day, but this is yet

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<v Speaker 2>another Friday when we don't get the jobs report because

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<v Speaker 2>of a short government shutdown. It looks like we could

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<v Speaker 2>have another one partial shutdown at the end of next week.

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<v Speaker 2>What do you make of this sort of muddy data

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<v Speaker 2>picture when we don't get the things we need in time.

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<v Speaker 3>Well, so, first of all, it hasn't been jobs Day

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<v Speaker 3>in a number of months anyway, because we're not getting

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<v Speaker 3>any of those. So I think the last three months

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<v Speaker 3>we've had negative people. We had a government shutdown, but

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<v Speaker 3>you've still have negative negative jobs.

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<v Speaker 1>Listen.

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<v Speaker 3>I mean it's a little trickier when you don't get

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<v Speaker 3>the actual published reports and markets pivot off and by

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<v Speaker 3>the way, the volatility markets, you strike a lot of

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<v Speaker 3>options in and around those dates. So I tells you

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<v Speaker 3>this creates a little bit of trickiness that being sad.

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<v Speaker 3>I mean, particularly for jobs, and we've talked about a

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<v Speaker 3>number of months on your show. You look at what

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<v Speaker 3>we got yesterday. Look at the Jolt support, look at

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<v Speaker 3>the Challenger job counts, you look at the claims data,

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<v Speaker 3>you look at the ISM services. In terms of jobs, like,

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<v Speaker 3>there's no ambiguity around where we are in the job market.

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<v Speaker 3>We're having a really tough time. We're watching productivity explode

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<v Speaker 3>higher in terms of growth being really.

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<v Speaker 1>Good, but at job market, that's that's really tricky.

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<v Speaker 4>That dichotomy, Rick is the most fascinating. Well, there's a

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<v Speaker 4>lot of interesting stuff going on, but as one of

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<v Speaker 4>the most fascinating things about this economy because it's difficult

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<v Speaker 4>for anyone to say, even with jobs looking very challenging,

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<v Speaker 4>that we're heading anywhere near a recession. As long as

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<v Speaker 4>the mag seven is spending what like two point one

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<v Speaker 4>percent of GDP on capex, as long as a government's

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<v Speaker 4>running a six percent plus deficit deficit, is this economy

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<v Speaker 4>going to be okay even if the jobs market starts

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<v Speaker 4>to have some cracks in it.

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<v Speaker 1>Yeah, the answer is yes.

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<v Speaker 3>And the you know, I think I think people don't

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<v Speaker 3>you know, look at jobs and look at this economy

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<v Speaker 3>like it was twenty thirty years ago. You have an

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<v Speaker 3>extraordinarily different economy service oriented versus goods oriented. But you've

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<v Speaker 3>got an economy that's operating incredibly well, but only on

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<v Speaker 3>a couple or three cylinders.

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<v Speaker 1>Today.

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<v Speaker 3>You've got, like you pointed out, you've got cap X

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<v Speaker 3>that is robust and will continue. You've got consumption that

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<v Speaker 3>is robust, but it's driven by wealthier, older savers. And

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<v Speaker 3>it's part of why the you know, the interest rate

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<v Speaker 3>tool is is not nearly as effective as it used

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<v Speaker 3>to be because that cohort is doing extremely well. Where

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<v Speaker 3>the burden today is is in terms of low income,

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<v Speaker 3>small business, younger people and so.

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<v Speaker 1>But if when you.

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<v Speaker 3>Aggregate the data, and I hear a lot of people

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<v Speaker 3>talking about when my god, the jobs market is softening,

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<v Speaker 3>the economy.

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<v Speaker 1>Is going to come under pressure.

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<v Speaker 3>It's actually this is an economy that's more acid oriented

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<v Speaker 3>than labor oriented, and that cohort I don't want to

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<v Speaker 3>understate this.

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<v Speaker 1>We have a problem too, is we need to employ

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<v Speaker 1>more people.

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<v Speaker 3>But that cohort isn't that much in terms of aggregate spend,

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<v Speaker 3>so the economy can continue to motor along. And productivity,

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<v Speaker 3>I mean you watch it play out every day. I

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<v Speaker 3>mean the equity market has taken it on. About where

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<v Speaker 3>is productivity manifesting itself effectively some spaces.

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<v Speaker 1>Not other Who are the winners? Who's building a moat?

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<v Speaker 1>Who's not going to be a winner in this?

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<v Speaker 3>But I mean, at the core, you're watching something play

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<v Speaker 3>out that's pretty historic.

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<v Speaker 2>Anthropic putting out another AI tool, this time for financial analysis.

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<v Speaker 2>They did earlier this week for legal services. Both of

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<v Speaker 2>them kind of rocking the market. That will affect sales

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<v Speaker 2>at big companies I imagine, big and small, as well

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<v Speaker 2>as the jobs picture. Right, we're talking to a lot

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<v Speaker 2>of people. Yesterday we're talking Mike Arraghetti from Aries, who

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<v Speaker 2>pointed out that, you know, the younger talent, the new

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<v Speaker 2>hires aren't going to be doing the same work and

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<v Speaker 2>may not be as plentiful as they once were in

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<v Speaker 2>that industry. What do you make of AI changing the

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<v Speaker 2>way we work or the fact that we work at all.

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<v Speaker 3>Well, Mike's a very smart guy. I would say, I

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<v Speaker 3>would say a couple of things. You know, I chair

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<v Speaker 3>the board of we have fourteen charter schools in Newark,

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<v Speaker 3>New Jersey, and we just had a discussion this week

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<v Speaker 3>at our board meeting about what is our curriculum going forward?

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<v Speaker 3>How does AI evolve how we teach kids. How do

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<v Speaker 3>we what are the disciplines we're teaching our kids for

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<v Speaker 3>going forward? How do we use AI to augment a

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<v Speaker 3>traditional teaching process? This is all new territory, and this

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<v Speaker 3>is all new land in terms of where we're going. Listen,

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<v Speaker 3>I think there's a bunch of things that are you know,

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<v Speaker 3>that have been standard operating procedure that you know that

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<v Speaker 3>we used to teach people for and quite frankly, AI

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<v Speaker 3>is going to fulfill that function going forward. I still

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<v Speaker 3>think learning and interacting with people and the core of

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<v Speaker 3>education will will be sincere to what it was.

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<v Speaker 1>But gosh, there's so many things we got to.

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<v Speaker 3>Think about about what can AI do that can make

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<v Speaker 3>the economy more efficient, make people more efficient, and then

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<v Speaker 3>move people into the zones that are going to be

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<v Speaker 3>fulfilling going forward. But that is I'll tell you'm out there.

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<v Speaker 3>There is no roadmap for this.

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<v Speaker 2>Well what do you make of I mean, I look

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<v Speaker 2>at Bink, the ETF that you manage very well, and

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<v Speaker 2>we'll show in a second how you've beaten returns of

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<v Speaker 2>the benchmarks by a lot. But there's some corporate assets

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<v Speaker 2>there right forty five percent, And I wonder how you

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<v Speaker 2>judge whether or not a company has a moat, what

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<v Speaker 2>that moat would look like so that it can defend

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<v Speaker 2>itself against AI disruption.

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<v Speaker 3>So mat there is how do I describe this by

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<v Speaker 3>the way, you know, we'll take it in a couple

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<v Speaker 3>of different rections.

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<v Speaker 1>One that's interesting. You know, you hear the.

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<v Speaker 3>Discussion about capex and the cap X was too high,

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<v Speaker 3>and you know, I would argue, there's some other things

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<v Speaker 3>that play there.

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<v Speaker 1>Cap X is your moat.

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<v Speaker 3>Cap X and R and D spend are the way

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<v Speaker 3>companies can build their moat. And it's actually data utilization

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<v Speaker 3>and the companies that are exploiting data effectively that are

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<v Speaker 3>building bigger moats.

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<v Speaker 1>That is at the core of what is happening.

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<v Speaker 3>You know, there's something also that's different today some companies,

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<v Speaker 3>the free cash flow generation that's been so robust the last.

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<v Speaker 1>Couple of years.

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<v Speaker 3>You see some of these big companies buying back a

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<v Speaker 3>huge amount of stock. Now they're spending more on capex

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<v Speaker 3>that has real ratifications for the technicals in the equity

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<v Speaker 3>market that we got to think through.

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<v Speaker 1>It's a lot of hard work, YEA.

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<v Speaker 4>Well, I just want to jump in about the other

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<v Speaker 4>hard work you do at BINK and how you're thinking

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<v Speaker 4>about positioning the fund and where on the curve. Yield

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<v Speaker 4>curve just shy of its twenty twenty two highs, somewhat

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<v Speaker 4>reverse a little bit yesterday, but some of that steepening continues.

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<v Speaker 4>We have an incoming FED chief who's been talking about

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<v Speaker 4>trying to shrink the balance sheet over at the FED.

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<v Speaker 4>When you think about the rest of this year, are

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<v Speaker 4>you thinking about changes to bank it all? Where do

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<v Speaker 4>you want to be positioned for the road ahead? And

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<v Speaker 4>fixed income?

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<v Speaker 3>Bunch of changes your point about credit. We've reduced some credit,

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<v Speaker 3>We've reduced some ig because quite frankly, it's not that fulfilling.

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<v Speaker 3>We're gonna get a lot of supply. The spread's not

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<v Speaker 3>that interesting, you know. We've cut a little bit of

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<v Speaker 3>the low quality high yield, and by the way, we're

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<v Speaker 3>running a bit less high yield than we're running overall.

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<v Speaker 3>We've added to mortgages, although recent the last couple of

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<v Speaker 3>months or there's no last couple months, last few days,

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<v Speaker 3>maybe we've cut a little bit of mortgages because the

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<v Speaker 3>balance sheet discussion becomes a little less enthusiastic than than

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<v Speaker 3>it was before.

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<v Speaker 1>But we still like mortgages.

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<v Speaker 3>We like EM a lot, and the dollar will stay

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<v Speaker 3>contained and so EM. The yield differential between EM and

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<v Speaker 3>high yield is as good as it's ever been. And

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<v Speaker 3>then the key one for us is and is securitization

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<v Speaker 3>markets that I'll allow you to structure the collateral, the covenants,

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<v Speaker 3>the you know, what's your attachment point is. So we

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<v Speaker 3>love the securitization market, but you're right, it's a different expression,

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<v Speaker 3>a little less credit, a little more EM, a little

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<v Speaker 3>more sicking the securitization zone. By the way, Europe killed

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<v Speaker 3>it last year, and now the benefit you're getting from

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<v Speaker 3>Europe is not nearly as robust as it was. So

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<v Speaker 3>we've dulled down a little bit of that and more

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<v Speaker 3>actually more Asia in the portfolio. So yeah, we've been

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<v Speaker 3>moving around a fair amount to keep a dynamic and

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<v Speaker 3>where the best we think the best opportunity is