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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

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Speaker 1: my co host Matt Miller. Every business day, we bring

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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast

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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast. Ellen Zentner, chief US

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Speaker 1: economists for Morgan Stanley, joins us here. Ellen, Matt and

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Speaker 1: I were just talking about insurance, UH, inflation, housing markets.

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Speaker 1: Let's start with inflation. What's your inflation calls? Did we

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Speaker 1: kind of peek in March April or do we have

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Speaker 1: more to go? So I think we've clearly seen a

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Speaker 1: peek in some of the categories where we were looking

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Speaker 1: for weakness. You know, you were just talking about UH,

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Speaker 1: new and used car prices, um, and there is evidence

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Speaker 1: that those are definitely topy here. UM. But you know,

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Speaker 1: inflation is going to be painful for some time here.

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Speaker 1: I mean, I think the fact that um, it is

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Speaker 1: going to be coming off these peaks that we've just

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Speaker 1: hit doesn't mean that suddenly we're back at a very

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Speaker 1: low inflationary environment. You know, in the next couple of months.

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Speaker 1: I think it's going to be a slow um decline

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Speaker 1: from from here and we're still going to end the year,

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Speaker 1: you know, fairly elevated. What do you First of all,

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Speaker 1: I can't help but say, Ellen used to do rewind

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Speaker 1: with me all the time. Those were the days Ellen,

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Speaker 1: when you me, Joe, Bruce Willis, David Rosenberg, we had

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Speaker 1: the best time on that. It was a nighttime show

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Speaker 1: at Bloomberg. It was it was. It was a good

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Speaker 1: casual conversation where we could get a little goofy that

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Speaker 1: happened occasionally. Um. So all right, we we we have

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Speaker 1: your take on inflation. I guess the next most important

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Speaker 1: thing is your take on growth. Um. You know, how

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Speaker 1: does it look? Are we just going to slow down?

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Speaker 1: Do we remain at trend growth? Are we headed for

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Speaker 1: a recession in the next you know, year and a half?

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Speaker 1: How do you see it? Yeah? So growth? Um? Look,

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Speaker 1: I think you know, I'm still concerned to have on growth.

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Speaker 1: UM on the US and especially when you look at

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Speaker 1: across other UM countries with you know, developed market central

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Speaker 1: banks that are also trying to do the same amount

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Speaker 1: of tightening, I think the US is definitely in a

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Speaker 1: good position to withstand the amount of tightening that the

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Speaker 1: FED would like to do. UM. But energy prices, while

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Speaker 1: they're not affecting UM the US as much as say

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Speaker 1: in Europe, UM and other parts of the world, UM,

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Speaker 1: it is affecting households in the US, and in particular

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Speaker 1: lower income households. And so you know, we've refreshed um

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Speaker 1: our look at the impact across the households in the US,

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Speaker 1: and we've taken consumer spending down quite a bit going

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Speaker 1: into the second quarter, where I think we're going to

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Speaker 1: get just around a one percent growth rate and consumer spending,

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Speaker 1: and that's because there's just only so much that households

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Speaker 1: can withstand, and they've got to absorb this shock of

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Speaker 1: higher energy, food and rents UH and rising interest rates. UM.

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Speaker 1: Now does that spell disasters or for the US economy, No,

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Speaker 1: but I think that that at least for the consumer,

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Speaker 1: that's going to be the slowest quarter of the year

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Speaker 1: as as we adjust UM. But I think we're in

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Speaker 1: good shape. I mean, look at jobs. Jobs have been

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Speaker 1: so incredibly steady in that five thousand range, and when

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Speaker 1: I look ahead a few weeks to the next job's report,

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Speaker 1: I don't see anything in the data that go into

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Speaker 1: those estimations. Uh, that would point to some sort of

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Speaker 1: slow down in job creation here. Um, And you can't

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Speaker 1: get a recession or a meaningful slowly down the economy

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Speaker 1: if you're going to still be printing that level of

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Speaker 1: job gains. You are a Buffalo, aren't you? Big buff?

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Speaker 1: I am a big buff fan and a big Long

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Speaker 1: Horn fan. So you grew up in Austin, Texas, like

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Speaker 1: at the Long Horn. Then you go to University Colorado

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Speaker 1: Business Administration and a master's. Yeah, well, you know the question.

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Speaker 1: The question is how did you ever get out of there?

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Speaker 1: Because most people that study in Colorado realized it's a

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Speaker 1: better place to live than everywhere else. It's the same,

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Speaker 1: you know what. Somehow I tend to to leave all

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Speaker 1: the good places, So I can't understand why I ever

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Speaker 1: left Austin Boulder, Colorado. My son just just graduated University

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Speaker 1: of Colorado, so I spent a lot of time in Boulder.

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Speaker 1: It is a fantastic town. So is Denver, of course.

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Speaker 1: So it's great to chat with a buff ellen Zitner

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Speaker 1: Sco buffs Joey, we got you on the phone. Joy

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Speaker 1: at Fladico, President of Lincoln, thanks so much for joining us. Um,

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Speaker 1: so we were just talking about, uh, what to power with?

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Speaker 1: What to power the navigator? Right now, there's only the

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Speaker 1: eco boost option. If I'm not mistaken. Are we going

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Speaker 1: to an electric version? Are we going to a hybrid version? Well,

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Speaker 1: you're correct. The Navigator is just the eco boost engine

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Speaker 1: right now, and we don't have anything to say about

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Speaker 1: electrifying that vehicle yet. It's a fantastic hicle. A lot

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Speaker 1: of our customers use it for road trips as you

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Speaker 1: well know. Um, what we were talking about last night

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Speaker 1: here that I think you stayed up for was our

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Speaker 1: Lincoln Star Concept, which is an electric vehicle concept vehicle. Yeah,

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Speaker 1: so talk us through that. Um. Like I said, Barbosa

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Speaker 1: sent me the release, I was super psyched. Please keep

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Speaker 1: me on your media list. Um. And it looks fascinating.

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Speaker 1: Uh the interior is probably more important, I guess than

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Speaker 1: the exterior. What have you got here? Yeah, So this

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Speaker 1: is our Lincoln Star Concept, and you know, we're commemorating

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Speaker 1: our hundred year anniversary and we thought what a better

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Speaker 1: time to really redefine the DNA of our vehicles for

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Speaker 1: the next hundred years. So looking at electric to your point.

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Speaker 1: The interior is super important for the Lincoln brand. We

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Speaker 1: always try to create that as sanctuary experience. So with

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Speaker 1: the extra space that we have, we're able to have

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Speaker 1: that front trunk, We're able to have a great exterior trunk,

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Speaker 1: and we're able to do incredible things uh in the

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Speaker 1: inside with a coast to coast screen UM with the

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Speaker 1: lounge seats and create a real third space for our clients.

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Speaker 1: But the exterior is also very important to clients. And

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Speaker 1: you'll see the new face of Lincoln UM and the

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Speaker 1: vision that we have for that as we moved to

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Speaker 1: e v S on this vehicle. You can see the

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Speaker 1: backlit lighting, the star that's uh behind the glass UM.

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Speaker 1: You can see the sleek design aerodynamic good for efficiency

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Speaker 1: and range UM and into the sleekness of the side

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Speaker 1: panels as well. Hey Joy, just so just broadly defined

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Speaker 1: thirty seconds here, How quickly is the Ford Motor Company

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Speaker 1: Lincoln Motor Company going to go electric? So we are

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Speaker 1: going to have three fully electric vehicles by and we'll

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Speaker 1: have a fourth in and that's all part of the

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Speaker 1: Ford plus plan where we'll be producing more than two

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Speaker 1: million vehicles globally at Ford in that's some big stuff there.

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Speaker 1: I mean, you know, once he's folks in Detroit got

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Speaker 1: into the ev story. They're moving aggressively, joyful Otico President

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Speaker 1: CMO of the Lincoln Motor Company. All right, our Federal

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Speaker 1: Reserve is in fact beginning to raise interest rates. I

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Speaker 1: guess the question investors have at this point is how much,

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Speaker 1: how quickly, and over what time frame. Let's bringing on

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Speaker 1: an expert to maybe get some thoughts there on this

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Speaker 1: area of the market. Kristoff Lash, President and c I

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Speaker 1: O of Harbor Capital Advisors. So, kristof the US Federal

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Speaker 1: Reserve has begun raising rates. How do you think the

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Speaker 1: path will look for this feeder reserve over the course

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Speaker 1: of the year. Hi, thanks for having me. So, I

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Speaker 1: think it's important to start at the top, that we

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Speaker 1: have an economy now that is overheating and it's clearly

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Speaker 1: too strong. Um. We've now got a FED that is

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Speaker 1: playing catch up, and it's trying to take some momentum um,

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Speaker 1: you know, out of the growth by tightening financial conditions,

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Speaker 1: which obviously done up rates with the lack. So, I

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Speaker 1: think the combination of today's overheating economy and typing the

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Speaker 1: financial conditions will eventually translate into a slowing economy. But

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Speaker 1: how do we get there? I think, Um, you know,

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Speaker 1: what's important to understand is this is not our father's Fed.

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Speaker 1: This FED tightening cycle we think is going to be

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Speaker 1: a sprint and not a marathon. So we think it's

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Speaker 1: going to be pretty abrupt, um compared to certainly previous

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Speaker 1: tightening cycles. Sorry, do they do they remain on this

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Speaker 1: tightening path until they break the back of inflation? Is

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Speaker 1: this a FED that is hell bent on turning inflation around,

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Speaker 1: even at the risk of, um, you know, a recession

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Speaker 1: or even a market crash. Yes, So I think, look

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Speaker 1: that this is a different FED than what we've had

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Speaker 1: to contend with over the last couple of decades. You know,

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Speaker 1: the market's change, it's very different. You look at the

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Speaker 1: FED jewel mandate of in full employment and price stability.

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Speaker 1: We think they're worry about price stability. So we think

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Speaker 1: they're not only going to talk tough on inflation, we

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Speaker 1: think they're going to beat us on inflation. Um. You know,

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Speaker 1: you saw saw Billard come out a couple of days ago,

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Speaker 1: even talking about seventy five basis points at the next meeting.

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Speaker 1: We don't think it will be that, but I think

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Speaker 1: that's just indicative of how worried they are about inflation,

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Speaker 1: and we think it would be a mistake to underestimate

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Speaker 1: their resolve in tackling this this year. Do you think

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Speaker 1: the Federal Reserve has a credibility problem? I think they

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Speaker 1: had a big credibility problem a few months ago. I

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Speaker 1: think when PAL finally retired the term transitory at the

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Speaker 1: end of November. You know, they were very, very late,

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Speaker 1: and then the market was worried that they weren't taking

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Speaker 1: inflation seriously, which is in part why we think they're

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Speaker 1: going to have to be so tough, because they are

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Speaker 1: in the midst of wrestling back credibility. Yeah, it does

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Speaker 1: seem like now the markets by that they're willing to

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Speaker 1: do whatever it takes in a sense to fight inflation.

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Speaker 1: As long as that's the case, I mean, if everyone

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Speaker 1: believes them, they won't have to do too much. Right, So,

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Speaker 1: what's your expectation for the terminal rate? So I think

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Speaker 1: the with regards to the FED tightening, we think the

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Speaker 1: terminal rate will probably fall out somewhere in the freeze.

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Speaker 1: And if you think about where we've we've already tightened significantly,

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Speaker 1: So the markets, as you said, believe what the FED

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Speaker 1: has been has been saying, and we've seen a significant

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Speaker 1: tightening in financial conditions. You know, we look at various

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Speaker 1: indicators of financial conditions and we actually see that they've

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Speaker 1: tightened already. I think today's mortgage rates coming in at

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Speaker 1: five point one A is a great example of how

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Speaker 1: quickly financial conditions have tightened. So given that backdrop, Christoph,

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Speaker 1: how are you positioning your portfolio? What are you telling

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Speaker 1: your clients? So at the moment, I think the the

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Speaker 1: asset class that people are under allocated to the kind

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Speaker 1: of forgotten asset classes commodities. We all talk about sixty

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Speaker 1: investing across equities and bonds, but we think right now

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Speaker 1: is prime for a diversified approach to commodities in client

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Speaker 1: portfolios at this point of the cycle, when it is overheating,

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Speaker 1: tends to be when commodities do best. When inflation is

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Speaker 1: running hot above three percent as it is today, tends

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Speaker 1: to be when commodities do best, and they offer great

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Speaker 1: diversification benefits from from equities and figs income. And we

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Speaker 1: just think that's an asset class that have been largely

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Speaker 1: ignored over the past decade. Obviously not the past couple

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Speaker 1: of months, right, I mean, hasn't that ship sailed at

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Speaker 1: this point? I'd only get sailed. No, far from it. Um,

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Speaker 1: you know, I think the the issue with inflation is

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Speaker 1: their cyclical and structural dynamics at play here and coming

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Speaker 1: into this year before obviously the tragic situation and in Ukraine,

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Speaker 1: you know, the commodities markets were already very tight um

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Speaker 1: suffered from a lack of investment, and we were already

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Speaker 1: looking at coming into a squeezing commodity prices that's now

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Speaker 1: been exacerbated by what's happened. So we don't think that

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Speaker 1: commodities are sort of done here. We think this is

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Speaker 1: earlier innings, and we think the old two percent world

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Speaker 1: of inflation that we used to live in is a

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Speaker 1: thing in the past, and there are plenty of drivers

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Speaker 1: of structural inflation now, such as deglobalization, decarbonization, energy security,

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Speaker 1: and things like that. So one of the commodities obviously

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Speaker 1: that I guess people's attention is crude oil. Brent crude

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Speaker 1: still and well north of a hundred dollars of barrel.

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Speaker 1: You still think there's room to go there? Yeah, absolutely, Um,

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Speaker 1: you know, we think the risk at the moment to

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Speaker 1: Brent is certainly to the upside. Um. Look, there's there's

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Speaker 1: been a lot of financial market disruption in the commodity space,

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Speaker 1: um so the Russian invasion of Ukraine. But what we're

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Speaker 1: yet to see are the physical disruptions. You know, a

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Speaker 1: Chelo jewel of energy is not fungible, and even individual

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Speaker 1: UM commodities are not fungible when you try and reconfigure um.

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Speaker 1: You know, whether it was Russian oil and gas typically

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Speaker 1: shipped to Europe is now on its way to the

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Speaker 1: Far East, as we saw with COVID. That causes all

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Speaker 1: sorts of supply chain headaches, which is ultimately inflationary. All right, Christoph,

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Speaker 1: thank you so much for sharing some of your time.

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Speaker 1: We appreciate getting your insights. Kristoph Glaish, president and ce

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Speaker 1: IO of Harbor Capital Advisors, giving us his thoughts and markets,

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Speaker 1: and he's suggesting, hey, folks, take a look at commodities.

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Speaker 1: There's more room to go. David Coodla, founder, CEO and

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Speaker 1: c i O of Mainstake Capital Management joins is here. David,

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Speaker 1: we've got rising interest rates. Um. You know, the question

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Speaker 1: is how fast, how how much? How do you position

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Speaker 1: your portfolio for an environment that we haven't seen in

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Speaker 1: quite sometime. You know, Good morning, Matt and Paul. And

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Speaker 1: that is UH, that's a very good question. I think

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Speaker 1: a lot of investors are asking themselves because if you

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Speaker 1: look at the U sixty forty that that classic six

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Speaker 1: mix this year as an investor or anything around that

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Speaker 1: that it has you know, stocks of the S and

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Speaker 1: P five hundreds, some stocks of the NASDAC UH and

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Speaker 1: you know, look at the US aggregate US aggregate bond index,

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Speaker 1: you're pushing a negative ten percent return or close to

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Speaker 1: that or a little bit more depending on your mix

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Speaker 1: of stocks. With the US aggregate bond index down over

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Speaker 1: nine this year, you know, we we we know the statistics,

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Speaker 1: it would be the worst year on record. So UM,

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Speaker 1: we're tactical asset allocators at mainstake Capital Management it so

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Speaker 1: we have been in the first part of this year,

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Speaker 1: we have been short bonds and that specifically treasuries, high

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Speaker 1: grade corporates that are very interest rate sensitive. I think

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Speaker 1: that was prudent with what we know is coming from

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Speaker 1: the FAT and we've seen all along the curve from

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Speaker 1: tunes to tens anticipate that. UH. And in stocks. You know,

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Speaker 1: we're we're in, We're long commodities were significantly overweight commodities

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Speaker 1: most we've ever been in the history of the firm,

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Speaker 1: and then in stocks were picking our places. At what point, uh,

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Speaker 1: David time, we've heard commodities today day, Yeah, we have.

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Speaker 1: And I'm gonna ask David the same question that I

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Speaker 1: just asked a few minutes ago, um, in a different way,

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Speaker 1: because Okay, you've you've made the right bets and you've

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Speaker 1: profited on that. At what point do you take some

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Speaker 1: money off the table, Because now everyone is saying get

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Speaker 1: into commodities, And at that point I start to ask myself,

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Speaker 1: you know, um, is the trade over? Yeah, And I've

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Speaker 1: you've mentioned before my presence on Twitter and I've you know,

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Speaker 1: tease controlled but tease some some of the people talking

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Speaker 1: about commodities. Now it's like, good call, but you're a

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Speaker 1: little bit late to the game. And that's you know,

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Speaker 1: commodities has been a good play for a year, but

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Speaker 1: especially this last you know, for you know, four or

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Speaker 1: five months, it's been incredible. We had all the reasons

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Speaker 1: for coming into that space that was heightened by Ukraine,

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Speaker 1: UH and COVID lockdowns in China. We've seen the Ukraine

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Speaker 1: premium get built in and taken back out, but we

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Speaker 1: think the fundamentals are still there for commodities to go

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Speaker 1: and none at the rate they have been maybe in

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Speaker 1: the first four four and a half. But you know,

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Speaker 1: if you look at the environment we're in, we're an

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Speaker 1: inflationary environment for a while. Here we have the some

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Speaker 1: of the elements of nineteen seventies nineteen seventy styles stag inflation.

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Speaker 1: But if you look back in the nineteen seventies when

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Speaker 1: inflation was running, you know at a very high rate,

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Speaker 1: what asset class did the best during that time frame,

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Speaker 1: and it was it was commodities. Now, the short treasuries,

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Speaker 1: we're going to be scaling that back because we've seen

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Speaker 1: a lot of that get built in already. And I

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Speaker 1: think we're gonna see, you know, interest rates more leveling out,

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Speaker 1: maybe some more risk to the upside. It's certainly not

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Speaker 1: the run up we've had since December. Do you are

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Speaker 1: you in the camp that has you know, a reasonable

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Speaker 1: concern that this field reserve is going to move too quickly,

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Speaker 1: too much and in fact push this economy not into

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Speaker 1: a slowing growth rate but into actual recession. Yeah, that

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Speaker 1: is that is our fear. And you know, if I

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Speaker 1: had to put odds on it right now, I'd say

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Speaker 1: it's maybe still fifty fifty. But it depends on um

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Speaker 1: how they actually execute. I mean, if if you look

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Speaker 1: at how far behind the curve they are, and maybe

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Speaker 1: how slow and deliberate we're gonna hear from Jerome Pile

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Speaker 1: later today, but how slow and deliberate you know they've been.

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Speaker 1: They literally let qt every time of sorry q E

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Speaker 1: run right to the first rate hike in the first

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Speaker 1: week of March. They were still buying four point one

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Speaker 1: billion and and UH and assets and it ran literally

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Speaker 1: and right up to the meeting, and it was a

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Speaker 1: quick pivot to qt UH And now we're talking about

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Speaker 1: fifty basis point rate rate hikes. And with Bullard, maybe

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Speaker 1: we've got a couple in there. And so when they

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Speaker 1: moved that far that fast, that's when we're concerned about

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Speaker 1: them breaking something. We had, you know, portions of the

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Speaker 1: yield curve and inverting earlier, you know, several weeks ago,

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Speaker 1: and and that's you know, there are some historical presence there,

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Speaker 1: but aside from that, it's it's just that they could

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Speaker 1: move far enough and fast enough that they could lead

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Speaker 1: us into session or a meaningful slowdown. Right now. You know,

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Speaker 1: things still look good. Corporate profits are coming in very

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Speaker 1: well for the first quarter. Economy still coming along, but

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Speaker 1: there's concerns. We get the second part of are really

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Speaker 1: into David, you're the founder sponsor of Engage, which is

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Speaker 1: the world's largest student stock competition and conference at the

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Speaker 1: University of Michigan. Are we having one of those this year?

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Speaker 1: He's gonna be in person? Give us what's the status?

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Speaker 1: It's virtual. We're still trying to be uh, you know,

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Speaker 1: respect for you know, the concerns about the ongoing COVID

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Speaker 1: issue and so virtual again, virtual last year, Virtual again

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Speaker 1: this year. But we will certainly be back to an

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Speaker 1: in person conference next year, which I like for students

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Speaker 1: so that when we bring in all these professionals, they

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Speaker 1: have a chance to interact with them and network with

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Speaker 1: them one on one. Yep, that's some great stuff, David,

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Speaker 1: that you do there with that conference again at the

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Speaker 1: University of Michigan. David Coudlaf founder CEO c i O

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Speaker 1: of Mainstay Capital Management Grand Blanc Michigan. But he got

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Speaker 1: his master's degree at Stanford. Yeah, uh so, it's good

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Speaker 1: stuff that, but that the Engage Conference is really good.

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Speaker 1: I know a lot of schools participate that and they

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Speaker 1: get some real good experience in terms of the markets

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Speaker 1: and investing, and they get to interact with a lot

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Speaker 1: of profess sational investors. So there are some good things

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Speaker 1: to do in an harbor. Sure, absolutely go see a

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Speaker 1: football game. Speaking from the man from the great state

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Speaker 1: of Ohio here, thanks for listening to the Bloomberg Markets podcast.

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Speaker 1: You can subscribe and listen to interviews with Apple Podcasts

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Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm

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Speaker 1: on Twitter at Matt Miller three pt on Fall Sweeney

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Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast. You

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Speaker 1: can always catch us worldwide at Bloomberg Radio.