Speaker 1: Welcome to the Bloomberg Penel podcast. I'm Paul Swinge you.
Speaker 1: Along with my co host Lisa Brahma Waits, each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money. Whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. We were going to talk with
Speaker 1: Austin Carr, who is a Bloomberg technology reporter next and
Speaker 1: he was going to talk about a story Silicon Valley
Speaker 1: is listening to your most intimate moments. But then we
Speaker 1: found out that Austin's fiancee's name is Alexa, and so
Speaker 1: he is the unicorn that has an Alexa and has
Speaker 1: that horrible dissonance between your soon to be wife's name
Speaker 1: and and the device. How do you function? It's difficult? Um,
Speaker 1: You know that I would say that oftentimes it's unclear
Speaker 1: who I'm talking to, the speaker or my soon topee wife,
Speaker 1: but the speaker often thinks I'm talking to it or her.
Speaker 1: But that actually gets to the heart of the story.
Speaker 1: In this week's issue of the Street, if you don't
Speaker 1: might be pivoting there, uh in that there's accidental triggers
Speaker 1: that happen all the time. If you have a device
Speaker 1: like an Amazon Echo or a Google Home or an
Speaker 1: Apple HomePod, or use Siri um and these recordings are
Speaker 1: submitted to these companies servers and from there, what you
Speaker 1: might not know is they're actually sometimes transcribed by a
Speaker 1: vast network of human listeners to help improve speech recognition
Speaker 1: on these services. This is one of the big privacy
Speaker 1: issues that really we're we're covering in the story. In
Speaker 1: addition to the relationship with my So, what are some
Speaker 1: examples of some of the content I guess our conversation
Speaker 1: that's been picked up and transcribed by these humans? Absolutely,
Speaker 1: I mean, you know, one of the fascinating things. We
Speaker 1: spoke to dozens of contractors everywhere from Ireland to India
Speaker 1: who work on these these programs or have worked on
Speaker 1: them for Apple and Google and Amazon, and it's really
Speaker 1: fascinating and also quite alarming. Some of them described instances
Speaker 1: where they often heard recordings of children sharing personal information
Speaker 1: like phone numbers or street addresses. They overheard couples engaging
Speaker 1: in sexual activity, They heard very of information is happening
Speaker 1: in your your kitchen and bedroom. And I'd say overall,
Speaker 1: they just felt incredibly uncomfortable doing this type of audio transcription,
Speaker 1: so much so that they compared it to something out
Speaker 1: of y On one hand, I get it, you know,
Speaker 1: you don't want someone hearing some things that you might
Speaker 1: say at home or do at home. On the other hand,
Speaker 1: does anyone care? I mean in terms of if someone
Speaker 1: you know in another country or across the sea is
Speaker 1: listening to someone that they don't know do something that
Speaker 1: is inherent to animals, then why why does it matter? Well?
Speaker 1: I think that's the stance that the tech companies really
Speaker 1: took when they set up these systems, which is really interesting,
Speaker 1: um that they basically spent the last couple of years
Speaker 1: being very heavily scrutinized for having privacy issues and collecting
Speaker 1: more data. And this is sort of the next level
Speaker 1: of that data collection. This is voice or audio or
Speaker 1: sonic surveillance in a lot of ways. Uh, And that
Speaker 1: audio was being rerouted to again these data associates who
Speaker 1: are transcribing this material. And the big question is not
Speaker 1: just whether or that's that's ethical, but whether or not
Speaker 1: they properly disclosed it to their customers. You might not
Speaker 1: think it was that significant of an issue, or perhaps
Speaker 1: you don't share that many intimate things if you're talking
Speaker 1: to these devices. I know you mentioned you guys use
Speaker 1: these devices that your your houses too, But the larger
Speaker 1: question is whether even customers knew this was happening. And
Speaker 1: I think that's a really significant privacy issue. So so,
Speaker 1: what are kind of some of the legal ramifications here.
Speaker 1: Do I have an expectation to privacy that extends to
Speaker 1: these devices and I'm guessing that might be different different
Speaker 1: parts of the world. Yeah, I mean, technically you did
Speaker 1: agree to opt into these services, or at least we're
Speaker 1: automatically optimated when you you sign up for let's say,
Speaker 1: at your Apple iPhone. You know, there's those broad terms
Speaker 1: and conditions, which again I'm sure very few people read.
Speaker 1: But somewhere in those they did disclose that Apple could
Speaker 1: use the audio that you submit and collect the recordings
Speaker 1: in order to quote, you know, improve or enhance series
Speaker 1: speech recognition. But they didn't explicitly say that humans might
Speaker 1: be listening to this. I think the assumption that was
Speaker 1: robots were doing the vast majority of these uh, you know, requests,
Speaker 1: and that's what tech companies say that a lot of
Speaker 1: these requests are handled without human input, but they really
Speaker 1: should have disclosed that humans were the ones. That we're
Speaker 1: doing a lot of this work as well. You know,
Speaker 1: millions of recordings per year they're transcribing um and so
Speaker 1: they've updated their terms and conditions to reflect that, which
Speaker 1: is sort of a major disclaimer now that they hadn't
Speaker 1: done that before and perhaps should have. So let's talk
Speaker 1: about what you're gonna do about your soon to be
Speaker 1: wife's name. How is that? How are you going to
Speaker 1: deal with that? You know, I mean, so far we've
Speaker 1: I would say, Amazon is getting better with associate disassociated fance.
Speaker 1: It's not going to change her name. I guess one
Speaker 1: of them will have to, but yeah, no, we will
Speaker 1: say there there is an option for the Amazon Echo
Speaker 1: to change it to respond to Amazon or Echo. For
Speaker 1: some reason, we haven't done that, And I would say
Speaker 1: that sort of captures the broad approached privacy issues that
Speaker 1: that tech companies. But I would say that that's really
Speaker 1: what a lot of you know, there's a few research
Speaker 1: study recently that found that about six of UH user
Speaker 1: surveyed had very major you know serious privacy concerns about
Speaker 1: these devices. At the same time, about a quarter of
Speaker 1: Americans have them in their homes, so there is that
Speaker 1: scuge disparity. And and that's exactly that gets the heart
Speaker 1: of it right, is that people, if they're worried about it,
Speaker 1: they do have an option of not buying it and
Speaker 1: not installing it in their home. So there's sort of
Speaker 1: a question when does it become something more, When is
Speaker 1: it an invasion that goes beyond just you know, you
Speaker 1: can vote with your feet or with your money basically,
Speaker 1: and and to that same extent, you know, what is
Speaker 1: the threshold for companies to collect this data is that, hey,
Speaker 1: we can collect it so long as we're improving it
Speaker 1: for our services or could one day we use it
Speaker 1: for targeted advertising or researcher We talked to just reminded
Speaker 1: us how much information we disclose in these recordings. If
Speaker 1: a baby is crying in the background of a recording,
Speaker 1: they could just they could technically refer that infer that
Speaker 1: you have a family. If you ask a lot of
Speaker 1: questions about football, they think you're a fan of the NFL.
Speaker 1: So you can see how these could build behavior profiles
Speaker 1: for you in the Future. Austin Carr, thank you so
Speaker 1: much for joining us. Fascinating story. Austin to the technology
Speaker 1: Order for Bloomberg News, joining us on Bloomberg Interactive Broker Studio.
Speaker 1: Austin story is featured in the upcoming issue of Bloomberg
Speaker 1: Business Week magazine. You can read it now on the
Speaker 1: Bloomberg and at Bloomberg dot com. Full disclosure, I am
Speaker 1: not that great at programming these things. My ten year
Speaker 1: old son programmed by Alexa to call him lord, and
Speaker 1: so now I have to hear that all the time.
Speaker 1: The chance you've been transcribers the FED meets today, most
Speaker 1: likely it will be boring. That is certainly what they hope,
Speaker 1: but it does study tone going in when it comes
Speaker 1: to trying to figure out what credit returns will look like.
Speaker 1: Jell would we'd joining us now to talk about that
Speaker 1: Head of fixed income in senior portfolio manager at BEMO
Speaker 1: Global Asset Management, overseeing two hundred and sixty billion dollars.
Speaker 1: She's normally based in Miami, but she wanted to see
Speaker 1: what snow looked like, so she came up here to
Speaker 1: our Interactive broker studios. Janelle, I want to start with
Speaker 1: excuse me the outlook for when it comes to credit.
Speaker 1: Investment grade debt is poised for its best annual return
Speaker 1: since two thousand and nine. How much further can it
Speaker 1: go up? Over fourteen percent this year? I think it's
Speaker 1: somewhat remarkable when we look at the total returns um
Speaker 1: we are still very constructive on credit, even with valuations
Speaker 1: where they're at going into two thousand and twenty, and
Speaker 1: a lot of this comes back to the positioning the
Speaker 1: FED accommodation, what we've seen out of earnings, and some
Speaker 1: of the opportunities that exist within some of the specific
Speaker 1: quality buckets. It's interesting here you're still constructive on investment
Speaker 1: grade debt. A lot of folks that we talked to
Speaker 1: are saying, boy, we're so far into this economic cycle.
Speaker 1: You know, might be too late, we might start seeing
Speaker 1: some concerns about credit quality or something along those lines.
Speaker 1: What's kind of the foundation for your view going to
Speaker 1: you are a couple of different things. I think one
Speaker 1: of the things is this year there's been a lot
Speaker 1: of concern about triple bs in particular, but as we
Speaker 1: look at the ratio of grades versus downgrades in and
Speaker 1: out of high yield, it's actually five to one, so
Speaker 1: we've actually seen credit quality moving higher. And the other
Speaker 1: thing is, I think earning surprised flat overall for the year,
Speaker 1: but fairly resilient considering some of the pressures um and
Speaker 1: then with the expectation for earnings growth of ten percent
Speaker 1: next year, even if we see that moderate, it should
Speaker 1: be overall supportive of credit quality. So the emphasis is
Speaker 1: on investment grade over high yield, you say, and yet
Speaker 1: spreads are pretty tight. The extra yel that investors earn
Speaker 1: over benchmark rates is about the lowest since last March
Speaker 1: and more than a year. Uh. And we're also looking
Speaker 1: at sort of a questionable outlook in terms of how
Speaker 1: much further the Fed will cut. What's going to be
Speaker 1: driving the returns spread compression or benchmark rates going lower.
Speaker 1: So I think a little bit of both. Anger outlook
Speaker 1: is that rates are really fairly range bound in here,
Speaker 1: so it's largely going to come from the carry of
Speaker 1: credit as well as some additional tightening. I think what
Speaker 1: gets overlooked when we think about overall, what's the what's
Speaker 1: the option of just that spread of the index of
Speaker 1: a hundred, is really that dispersion that takes place within
Speaker 1: investment grade. And it's interesting if you move the seven
Speaker 1: notches from a triple A credit to a high triple B,
Speaker 1: you pick up less than you move to go from
Speaker 1: a high triple B to a low triple B credit.
Speaker 1: And so low triple B credit at one eighty double
Speaker 1: the yield of the ten year treasury, there's some interesting
Speaker 1: opportunities that have been overlooked for US though. This is
Speaker 1: about allocating within and not just to credit quality, and
Speaker 1: we do acknowledge where we are in the cycle. So
Speaker 1: Janelle Um, your title is global asset management ahead of
Speaker 1: global asset management globally. How are you guys thinking about
Speaker 1: allocation of your capital into Yeah, I think we are UM.
Speaker 1: We we still continue to favor the US in terms
Speaker 1: of the resilience of the overall economy UM in terms
Speaker 1: of valuations. When we go back to that, there are
Speaker 1: some interesting opportunities as we move down to the lower
Speaker 1: quality spectrum and especially an emerging market debt. Considering our
Speaker 1: rate outlook going forward, we like a flexible approach. We
Speaker 1: think you shouldn't all become completely incorporates UM, and we
Speaker 1: think that you've got to go again allocating within and
Speaker 1: not just two specific quality buckets. There was a survey
Speaker 1: that Bloomberg did of global investors that found that the
Speaker 1: consensus is that emerging market assets will outperform developing market
Speaker 1: developed market ones next year. Do you agree? So? I
Speaker 1: think part of this is just the carry where you're
Speaker 1: starting from. So you're starting from a yield that's significantly higher,
Speaker 1: and so you have that perpetual income component that supports it.
Speaker 1: So if risk stays flat, there's still an opportunity there.
Speaker 1: This is so interesting, Paul. It's sort of this idea
Speaker 1: that as long as there's nothing major that happens in
Speaker 1: the macroeconomic backdrop, which seems to be the consensus right now,
Speaker 1: it's just a carry game. So anything that gives you
Speaker 1: a dividend or anything that gives you interest, uh, is
Speaker 1: going to be pretty good. Yeah, And that kind of suggests,
Speaker 1: you know, kind of the mid single digit kind of
Speaker 1: return environment. So let's say it is FED day, Janelle,
Speaker 1: Let's get your thoughts on what you expect to hear
Speaker 1: from the FED and from Chairman Pal today. What is
Speaker 1: your expectations so as far the move today, as far
Speaker 1: as policy consistent with consensus, we don't expect any change
Speaker 1: in terms of rates. I think the part of policy
Speaker 1: they'll be focused on is really the forward guidance, and
Speaker 1: we'll see that both in the dots as well as
Speaker 1: the communication. I think what we're looking for is an
Speaker 1: update in terms of economic projections and also what happens
Speaker 1: if we look at the floor of the dots currently,
Speaker 1: it's really where policy is, and so how do those
Speaker 1: converge over time and how do they still keep the
Speaker 1: optionality to be able to act in an additional way
Speaker 1: of required. What do you see so far in terms
Speaker 1: of twenty predictions by some of your competitors that you
Speaker 1: think is totally wrong? Um, I think, just uh, well,
Speaker 1: we we've seen the recession um piece come down a
Speaker 1: lot um, you know, Honestly, I think that there's going
Speaker 1: to be a tremendous recovery in some of the deepest
Speaker 1: segments of high yield. I think that's one of the
Speaker 1: pieces of the market that's really surprised, and we actually
Speaker 1: see it in both emerging market debt and high yield
Speaker 1: this year. So Triple Cees returned five percent, investment grade
Speaker 1: corporates fourteen high yield as a whole bull digits and
Speaker 1: so there's definitely been pockets that have been left out
Speaker 1: as we've kind of gotten later in the cycle and
Speaker 1: we've seen this fallout, and so I think this is interesting.
Speaker 1: Am I hearing that you think that the shale patch
Speaker 1: will recover, that the energy idea is a good one
Speaker 1: to take that risk. My hearing that we think there
Speaker 1: are select there are select opportunities. Energy has been under
Speaker 1: tremendous pressure this year and that's definitely contributed to both
Speaker 1: I G and and high yield returns, But there are opportunities.
Speaker 1: Joe Woodward, thank you so much for joining us. We
Speaker 1: appreciate you're making a check up from Sunny Miami here
Speaker 1: to New York. Janelle Woodward is ahead of fixed income
Speaker 1: and senior portfolio manager for BEMO Global Asset Management. Think
Speaker 1: about two dred and sixty billion dollars under management joining
Speaker 1: us here in our Bloomberg and Director Brooker studio. So
Speaker 1: people are all looking to to try to figure out
Speaker 1: what is the outlook for benchmark rates, but also uh
Speaker 1: for business outlook, which is actually deteriorated over the year
Speaker 1: despite ongoing confidence among consumers. Joining us now Frank Sarantino,
Speaker 1: chief executive officer of Connect One Bank and Frank I
Speaker 1: want to start there. Since you do extend so many
Speaker 1: loans to businesses and commercial lenders, what has this sentiment
Speaker 1: been like over the past few months. So, good morning
Speaker 1: and thanks for having me again. And yet I think,
Speaker 1: you know, our clients are actually a little have a
Speaker 1: little bit of trepidation about, you know, what's going on
Speaker 1: in the marketplace. And so they have this sense that
Speaker 1: the economy is doing well, interest rates are low, the
Speaker 1: environment is good. Um, but there's this just sense, this
Speaker 1: wall of worry that everyone seems to be climbing today.
Speaker 1: And you know, I'm not sure it's it should be
Speaker 1: that way, but it certainly is impacting decisions going forward
Speaker 1: about expansion and capital and deployment of capital and whatnot.
Speaker 1: So your customers, you're borrowing customers are small and midsized
Speaker 1: businesses in the metro New York area. UM, So are
Speaker 1: they concerned about big issues like global trade? Or is
Speaker 1: it just that maybe the labor market is so tight
Speaker 1: I can't find people to build my stuff for going
Speaker 1: my stores. But so, you know, it's fascinating. I've actually
Speaker 1: written about this and and I talk about it a lot.
Speaker 1: I tell people stop reading the news, you know, like
Speaker 1: focus on what's really going on? And no, but no.
Speaker 1: But you know, when you start thinking about all all
Speaker 1: the all that's in the news, all that you get
Speaker 1: from Twitter, all that you get you know, from various sources. Um,
Speaker 1: you know, people start worrying more than I think they
Speaker 1: need to. And then when they look at their actual
Speaker 1: environment and where they're functioning, uh, they see a lot
Speaker 1: of strength. And actually, one of the issues you just
Speaker 1: raised was what was this concept of being able to
Speaker 1: hire to fill all the positions you have? That is
Speaker 1: the number one concern we have today is that people
Speaker 1: can't fill all the positions they have opened today? And
Speaker 1: is it a salary issue? In other words, if they
Speaker 1: just jack up the prices, they would be able to
Speaker 1: find the talent. So for a while, I think it
Speaker 1: was that, and I think we are seeing some wage
Speaker 1: inflation coming into the marketplace, which would be a good thing. Um,
Speaker 1: But today, I don't care what you pay, you can't
Speaker 1: it's it's becoming difficult to hire, to hire to fill positions.
Speaker 1: And I believe this fact is accurate. I think it's
Speaker 1: we're at the highest level of people voluntarily leaving jobs.
Speaker 1: So that's a good sign for the economy. But there's
Speaker 1: a dark side to that. We can't fill all the
Speaker 1: open positions. So so what are some of the areas
Speaker 1: of borrowers that are maybe active right now or maybe
Speaker 1: even some that are kind of pulling back a little bit. So,
Speaker 1: you know, I think for our manufacturers and people that
Speaker 1: are in service businesses, UM, they've got basically a green
Speaker 1: light ahead of them. There's a lot going on in
Speaker 1: the economy. There's a lot of efficiencies. Technology is really
Speaker 1: changing the face of business today in a positive way.
Speaker 1: And those are good things, and those are creating really
Speaker 1: great jobs in the economy. Um, you know, in the
Speaker 1: in the construction and real estate trades. You know, certainly
Speaker 1: here in the New York metro market and that's where
Speaker 1: Connect one Bank is located. Uh, there's been some there's
Speaker 1: been some headwinds, whether it's the rent you know, the
Speaker 1: rent regulation that came into into place in New York City. Uh,
Speaker 1: the the length of time it takes to get something
Speaker 1: approved from his zoning perspective. You know, these things are
Speaker 1: are dampeners on the economy. We need more housing, we
Speaker 1: need places for people to live. Uh, there is definitely
Speaker 1: a shortage of that. The replacement of new homes in
Speaker 1: the United States is at near and all time low. Uh.
Speaker 1: So there's a lot of pent up demand for product,
Speaker 1: but there's a lot of policies that are that are
Speaker 1: that are hindering that. I'm so glad that Frank Sorrentino
Speaker 1: is here today because we can talk about the intersection
Speaker 1: of these theoretical aspects of the market, like the yield curve,
Speaker 1: and talk about the tangibles of how that actually affects
Speaker 1: the bottom line when you're extending loans to these businesses,
Speaker 1: to the commercial real estate developers and lenders. I'm just
Speaker 1: trying to understand and your profit margins and how much
Speaker 1: uh you know, I change in the yield curve affects that.
Speaker 1: What's that been like? So for us, it's been a challenge.
Speaker 1: Uh certainly for the last year or two. Uh the
Speaker 1: yield curve is definitely tightened. It's gotten close to inverted,
Speaker 1: if not slightly inverted. UM low interest rates on the
Speaker 1: long end, actually you're good for the economy, right. We
Speaker 1: we see that UM people are investing in capital intensive businesses,
Speaker 1: whether that's real estate or others because of low interest rates.
Speaker 1: So you gotta hand it to the Fed they've almost
Speaker 1: in my opinion, flawlessly manage the economy over the last
Speaker 1: number of years. UM. I think they might have gotten
Speaker 1: a little ahead of themselves with short term rates earlier
Speaker 1: in the year, where they were raising maybe a little
Speaker 1: bit too quickly, and but again, let's hand it to them,
Speaker 1: they reverse course and have brought rates probably about where
Speaker 1: they should be. And we're seeing a neutral stance today,
Speaker 1: and I think everyone expects we're going to see a
Speaker 1: neutral stance going forward from here for the foreseeable future.
Speaker 1: Frank word, you know, ten plus years into this economic cycle,
Speaker 1: and I know some UH investors when they look at
Speaker 1: the credit markets, had a little concerned about credit quality.
Speaker 1: And when you look at your portfolio, how's the credit
Speaker 1: quality right now trending? So when you look across excuse me,
Speaker 1: the entire industry, you know, we've we've probably never seen
Speaker 1: a better stretch of time relative to credit quality for
Speaker 1: all financial institutions. UH. As I look out, I don't
Speaker 1: see a whole lot that's going to change that. Short
Speaker 1: term again, interest rates are low, liquidity is there, people
Speaker 1: can refinance. UM, jobs are strong and getting stronger. Wages
Speaker 1: are on the increase, So really you know, most of
Speaker 1: the factors that sort of put negative pressure on credit
Speaker 1: quality just aren't there right now. So where are you
Speaker 1: looking to expand? Well, connect one UM since its inception
Speaker 1: has been pretty much a New York metro market bank. UM.
Speaker 1: You know, parts of northern New Jersey, all around New
Speaker 1: York City. We believe this is the greatest market in
Speaker 1: the country. And this is exactly where we want to be.
Speaker 1: But as far as size and scale, is there an
Speaker 1: advantage to being mid sized or smaller or or do
Speaker 1: you see an advantage of getting bigger? So I would
Speaker 1: tell you today that size, in my opinion, does matter.
Speaker 1: I know that's cliche, but UM today the biggest thing
Speaker 1: and this is not just for banking, this is probably
Speaker 1: for all businesses. Technology is no longer something that's a
Speaker 1: wow thing anymore. It is part of what your business
Speaker 1: needs to be. And the more money you can invest
Speaker 1: in technology, the more efficient you can get, I think,
Speaker 1: the better you can be in your and whatever your
Speaker 1: business is. And that holds true for connect One Bank
Speaker 1: and so size and I want to spend more of
Speaker 1: our revenue on technology. Yeah, And that's kind of one
Speaker 1: of the things we hear about quickly when we see
Speaker 1: when we whenever we hear at bank buying another bank,
Speaker 1: they say, we gotta get bigger, got to get scale
Speaker 1: because this technology spend is so great. So how does
Speaker 1: a small, smaller bank deal with that technology investment requirement?
Speaker 1: We have to get bigger, as you you know, as
Speaker 1: I'm sure you've seen. We we completed an acquisition UH
Speaker 1: in January of two thousand nineteen. We're about to close
Speaker 1: on one UH in January. UH so we've grown probably
Speaker 1: between those two thirty five in size. And part of
Speaker 1: that rationale is taking out costs, and not taking out
Speaker 1: costs to save money, but taking out costs to reinvest
Speaker 1: it in in better technology, more efficient ways of doing business.
Speaker 1: Frank Sarrantino, thank you so much for joining us. Frank
Speaker 1: as the chief executive officer of Connect One Bank symbol
Speaker 1: on the NASDACS c n o B based on Englewood Cliffs,
Speaker 1: New Jersey, but joining us here in our Bloomberg Interactive
Speaker 1: or broker Student little preview, we welcome our next guest,
Speaker 1: Marvin Low. Marvin is a senior global macro strategist for
Speaker 1: State Street, that little firm up in Boston. Marvin, thanks
Speaker 1: so much for joining US. I think the consensus here
Speaker 1: is for a relatively benign FED UH decision and press
Speaker 1: conference today. What are your thoughts? Yeah, you know, I
Speaker 1: think I think that UM, the Fed has pretty clearly
Speaker 1: signaled that, UM, you know, they've done what they wanted
Speaker 1: to do this year. The markets are being cooperative. Uh.
Speaker 1: You know, we've got inflation that's firming if anything, from
Speaker 1: today's data. So I think they're happy to start the
Speaker 1: holiday season a little bit earlier and kind of make
Speaker 1: this a quiet meeting. It will be boring, right, you
Speaker 1: know what, UM. I think from the rate and monetary
Speaker 1: policy perspective, UM, the consensus is pretty accurate. There's really
Speaker 1: no reason for them to signal UM that they're ready
Speaker 1: to either cut or raise at this point. But you know,
Speaker 1: there's still the funding issues that are out there UM
Speaker 1: and looking a little further which you know, sometimes the
Speaker 1: market doesn't whether or not they still think, UM, you know,
Speaker 1: hikes are going to be possible, and whether or not
Speaker 1: if we look longer term, if you will that UM,
Speaker 1: the terminal rate is still going to be as high
Speaker 1: as UM the last set of dots indicated. So talking
Speaker 1: about boring, UM, I mean, yes, we're gonna get some
Speaker 1: interesting things. But but but you know, for the for
Speaker 1: the most part, it's going to be set as quo
Speaker 1: probably that's what everyone's expecting and UM going to it
Speaker 1: seems like increasingly the forecasts that we're hearing are pretty
Speaker 1: humdrum too. Nothing's going to really change in the macro backdrop.
Speaker 1: Things will be fine, good enough, maybe decelerating, and returns
Speaker 1: will be lower than they were this year, but not terrible,
Speaker 1: not amazing. Do you agree? You know what it's it's
Speaker 1: it's hard to argue with that at this point. UM,
Speaker 1: you know, I do think that there still is risk
Speaker 1: that UM economic activity UM, you know, really shows its age,
Speaker 1: and you know, certainly the risk is still to the downside.
Speaker 1: But in terms of what we're seeing now and how
Speaker 1: the FED is going to position it later this afternoon,
Speaker 1: I think they're just gonna grab ahold of that and
Speaker 1: you know, say they're ready. Um, you know, we've got
Speaker 1: more of an asymmetric curve where uh, you know, cuts
Speaker 1: are more likely and everyone you know, from a risk
Speaker 1: taking perspective, be somewhat happy with that. UM, Marvin, you
Speaker 1: mentioned they might make some commentary about the short term
Speaker 1: repo funding market what do you expect they could say
Speaker 1: or should say, you know what, UM, it's certainly a
Speaker 1: point of UM contention. Certainly maybe a degree of confusion
Speaker 1: in terms of just how stressed a year end and
Speaker 1: really more important beyond year end UM, the whole short
Speaker 1: end funding market is beyond that. I don't think the
Speaker 1: FED really fully appreciates UM what maybe some of the
Speaker 1: more tail risk type discussions are out there. So I
Speaker 1: think they'll say that they are on top of the situation,
Speaker 1: that the operations that they have will continue to run
Speaker 1: UM as we kind of get through year end UM
Speaker 1: and once again they stand ready at the switch. I
Speaker 1: think if UM, you believe that there are you know,
Speaker 1: some more longer term issues, we're gonna need regulation, We're
Speaker 1: gonna need things like standing repo, and we actually might
Speaker 1: need UM an acceleration of their bond buying to kind
Speaker 1: of get us out of some of these funding issues.
Speaker 1: But UM, I don't think that they want to show
Speaker 1: that degree of fear in a couple hours. And do
Speaker 1: you think that that type of scenario where there is
Speaker 1: some sort of funding pressure could materialize in a way
Speaker 1: that affects risk markets going into your end UM It's
Speaker 1: not my base case, because I really haven't seen anything
Speaker 1: that appears that stressed at the moment. But certainly what
Speaker 1: we learned in September is that it can come around
Speaker 1: fairly quickly. UM. And you know, just kind of thinking back,
Speaker 1: you know, ten years ago, if you will, um, how
Speaker 1: quickly or ten plus years ago, how quickly? UM it
Speaker 1: candid terry risk markets, It certainly is a risk there,
Speaker 1: particularly given um how rich a lot of asset values
Speaker 1: are at the at the moment. So Marvin, when I
Speaker 1: think State Street, I think big global macro kind of
Speaker 1: house up there in Boston. What is your view as
Speaker 1: you think about globally in terms of allocation of capital?
Speaker 1: So um. You know, one of one of the trends
Speaker 1: that we've seen over the course of the year is
Speaker 1: just how um high cash levels have gotten. So um.
Speaker 1: You know, the discussion around the rally, if you will,
Speaker 1: whether it's been on the credit side of things or
Speaker 1: equity side of things, being someone under owned. The flip
Speaker 1: side of that is that cash levels are pretty high.
Speaker 1: So you know, we're we are looking for um if
Speaker 1: the risk environment remains supportive, those cash levels potentially moving
Speaker 1: off the sidelines and it winds up being um, you know,
Speaker 1: slightly greater allocation towards the fixed income and the equity component,
Speaker 1: which has come down since the beginning of the year.
Speaker 1: Do you do you really think that coming off the
Speaker 1: sidelines is an accurate way to to talk about I've
Speaker 1: heard so much controversy about the idea of cash on
Speaker 1: the sidelines, with some people saying that that's a fiction
Speaker 1: and that you know that it's not just held in
Speaker 1: buckets of cash, that it's held in maybe treasuries or
Speaker 1: you know, fixed income which have gotten which has gotten
Speaker 1: so much, uh by way of influences here, what's your
Speaker 1: view on that? Yeah, so so you know, UM, I
Speaker 1: have a fairly narrow definition of cash. It certainly is
Speaker 1: more on the money markets side of things, and kind
Speaker 1: of the shape of the curve and kind of um,
Speaker 1: you know, how flat the um the short end part
Speaker 1: of the curve I think kind of plays into this
Speaker 1: reboat discussion and plays into the fact that returns aren't
Speaker 1: that bad in the bill market. Um, it does require
Speaker 1: some steepening of kind of that short end of the
Speaker 1: curve I think to pull money off the sidelines. You know,
Speaker 1: cash is a decent asset class, but you know, as
Speaker 1: we kind of just look at where returns are going
Speaker 1: to be going forward, I think that, you know, people
Speaker 1: do need to consider what the appropriate degree of risk
Speaker 1: is UM in order to generate those returns that they
Speaker 1: need to retire and everything else that goes along with it.
Speaker 1: This is actually really interesting in other words, to flatter
Speaker 1: the curve, the more quote cash there will be on
Speaker 1: the sidelines because you don't get anything for for taking
Speaker 1: that extra risk. Is that basically the idea? Yeah? Yeah, absolutely,
Speaker 1: you know, whether it's duration risk or um, you know,
Speaker 1: the risk in the market. UM. You know, kind of
Speaker 1: looking at the short end of the curve again, whether
Speaker 1: it's money market you know, again kind of playing into
Speaker 1: that reboat discussion. UM yeah, you know, certainly keeping it short,
Speaker 1: you're not giving up that much. So Marvin, just quickly,
Speaker 1: do I take on more risk in I've had a
Speaker 1: pretty good year in nineteen Do I go emerging markets,
Speaker 1: leverage loans, things like that? UM? I I do like
Speaker 1: the emerging markets. UM. You know, I think that what
Speaker 1: we've seen is the lack of FX folatility, which kind
Speaker 1: of supports the emerging markets. UM. The inflation kind of
Speaker 1: profile around the e M has certainly changed in terms
Speaker 1: of not being that um uh demonstrative to to some
Speaker 1: of your returns. So so the E M complex is
Speaker 1: something that I like. Leverage loans um and and I've
Speaker 1: spoken to Lesa about this. You know, certainly a lot
Speaker 1: is a little bit more of a challenge, particularly giving covenants,
Speaker 1: particularly given how aggressive some of um those loans have become.
Speaker 1: Um that that I say a bit more on the sidelines.
Speaker 1: Marvin low thank you so much for being with us.
Speaker 1: Marvin Lowe is global macro Strategists at State Street and H.
Speaker 1: He joins a number of strategists actually talking about leverage
Speaker 1: loans next year. UBS is Matthew Mish coming out this
Speaker 1: morning and saying that he expects a decline of one
Speaker 1: to two cent next year for leveraged loans. Yeah, you
Speaker 1: think about you know, ten plus years into this economic cycle,
Speaker 1: you think start thinking about credit quality, and if you're
Speaker 1: going to see credit issues, that will be certainly one
Speaker 1: of the markets where you may see it first. Yeah,
Speaker 1: although you have seen such an underperformance already among certain loans,
Speaker 1: you have to wonder whether perhaps that's already reached a bottom.
Speaker 1: We shall see. Thanks for listening to the Bloomberg P
Speaker 1: and L podcast. You can subscribe and listen to interviews
Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney,
Speaker 1: I'm on Twitter at pt Sweeney. I'm Lisa Abram Woyds.
Speaker 1: I'm on Twitter at Lisa Abram woids One. Before the podcast,
Speaker 1: you can always catch us worldwide on Bloomberg Radio