1 00:00:00,080 --> 00:00:02,560 Speaker 1: For more market analysis, Let's welcome Chris Aylman, who oversees 2 00:00:02,600 --> 00:00:04,960 Speaker 1: more than three hundred billion dollars in assets as chief 3 00:00:05,000 --> 00:00:09,000 Speaker 1: investment officer at Couster's in Sacramento. Chris, always good to 4 00:00:09,000 --> 00:00:12,760 Speaker 1: speak with you. Let's get your take here on what's 5 00:00:12,800 --> 00:00:16,919 Speaker 1: going on with the FED and their lack of consensus 6 00:00:17,040 --> 00:00:19,959 Speaker 1: on where the economy is. They're kind of obsessed with 7 00:00:20,000 --> 00:00:23,160 Speaker 1: making sure they present a unified picture to the rest 8 00:00:23,160 --> 00:00:25,120 Speaker 1: of us, even though we know that they are in 9 00:00:25,160 --> 00:00:28,000 Speaker 1: disagreement over where things stand. What does that tell us 10 00:00:28,040 --> 00:00:29,760 Speaker 1: about the policy that they enact? 11 00:00:31,240 --> 00:00:33,520 Speaker 2: Scarlett, you know, it's stay abou all over again. 12 00:00:33,920 --> 00:00:37,400 Speaker 3: If we replayed this discussion from one year ago, I 13 00:00:37,400 --> 00:00:39,920 Speaker 3: think it would be the same, which is the Fed's 14 00:00:40,040 --> 00:00:42,800 Speaker 3: uncertain about the future. They're worried about inflation, so they're 15 00:00:42,800 --> 00:00:45,600 Speaker 3: going to raise rates, not sure about the pace. 16 00:00:45,760 --> 00:00:49,519 Speaker 2: We now know what it was then, and here we 17 00:00:49,560 --> 00:00:50,000 Speaker 2: are again. 18 00:00:50,080 --> 00:00:55,200 Speaker 3: Employment is still strong, We're worried about a recession. You know, 19 00:00:55,600 --> 00:00:59,000 Speaker 3: Katie is talking about an inverted yield curve. Happy birthday 20 00:00:59,040 --> 00:01:02,320 Speaker 3: to the yield curve. It's one year of being inverted. 21 00:01:03,000 --> 00:01:07,280 Speaker 3: So it's it's uncertainty all over again. I still think 22 00:01:07,280 --> 00:01:11,320 Speaker 3: there's a recession coming like everyone else. But we're one 23 00:01:11,360 --> 00:01:13,199 Speaker 3: year into this, well. 24 00:01:13,080 --> 00:01:15,840 Speaker 1: One year into this, and you point out that Calstor's 25 00:01:15,840 --> 00:01:18,440 Speaker 1: fiscal year ended on June thirtieth, so you're at the 26 00:01:18,440 --> 00:01:21,600 Speaker 1: start of a new fiscal year. How were you positioned 27 00:01:22,160 --> 00:01:23,640 Speaker 1: through the end of last year and how are you 28 00:01:23,640 --> 00:01:25,280 Speaker 1: now positioned for this new fiscal year. 29 00:01:26,800 --> 00:01:29,840 Speaker 3: You know, it really was a challenge. We started the 30 00:01:29,920 --> 00:01:32,720 Speaker 3: year last year a little defensive. If you remember, in 31 00:01:32,720 --> 00:01:35,880 Speaker 3: the summertime we had a nice rally, then the market 32 00:01:35,920 --> 00:01:38,880 Speaker 3: bottomed out in the fall, and then we saw. 33 00:01:38,680 --> 00:01:40,679 Speaker 2: A rally obviously in the last six months. 34 00:01:41,120 --> 00:01:44,679 Speaker 3: To answer your questions, specifically, we've been slightly underweight, so 35 00:01:44,880 --> 00:01:45,960 Speaker 3: we've a little. 36 00:01:45,680 --> 00:01:48,520 Speaker 2: Bit underperformed our underlying benchmark. 37 00:01:48,920 --> 00:01:52,800 Speaker 3: With that said, we're still almost forty five fifty percent 38 00:01:52,920 --> 00:01:57,160 Speaker 3: in stocks. Both US and non US stocks did great 39 00:01:57,320 --> 00:01:59,840 Speaker 3: last year. It's a bull market. You know, US stocks 40 00:01:59,840 --> 00:02:04,400 Speaker 3: are over almost nineteen percent last year. Clearly, as you've talked, 41 00:02:04,560 --> 00:02:08,840 Speaker 3: it's the largest growth tech stocks that were up the most. 42 00:02:09,720 --> 00:02:13,000 Speaker 3: But stocks were up, so we did okay, but not smashingly. 43 00:02:13,320 --> 00:02:17,120 Speaker 3: I expect probably, you know, an upper single digit kind 44 00:02:17,160 --> 00:02:20,200 Speaker 3: of year, and looking forward, I think the best we 45 00:02:20,240 --> 00:02:21,880 Speaker 3: can hope for is a single digit year. 46 00:02:22,080 --> 00:02:25,680 Speaker 4: M okay, single digit year, not too bad. I know, 47 00:02:25,720 --> 00:02:27,760 Speaker 4: the your fiscal year just started. But if you think 48 00:02:27,800 --> 00:02:30,840 Speaker 4: about coming into twenty twenty three, the big call was 49 00:02:30,880 --> 00:02:33,640 Speaker 4: that this was going to be the year of fixed income, 50 00:02:33,720 --> 00:02:35,720 Speaker 4: and so far it looks like it's turning into just 51 00:02:35,760 --> 00:02:39,320 Speaker 4: another year for big tech. Is it still the year 52 00:02:39,360 --> 00:02:43,200 Speaker 4: of the bond or have we moved past that narrative, Katie? 53 00:02:43,240 --> 00:02:45,760 Speaker 3: You know, I would say it's the year to pay 54 00:02:45,800 --> 00:02:49,280 Speaker 3: attention to bonds and to pay attention to the bond market. 55 00:02:50,320 --> 00:02:51,680 Speaker 2: I think it's still going to be a mixt year. 56 00:02:51,720 --> 00:02:54,600 Speaker 3: I mean, we're talking about the Fed debating to raise rates, 57 00:02:54,919 --> 00:02:59,240 Speaker 3: not cutting debating to raise rates. So you know, when 58 00:02:59,280 --> 00:03:02,800 Speaker 3: I think about the the Bloomberg Aggregate index, it's going 59 00:03:02,840 --> 00:03:04,200 Speaker 3: to have another challenging year. 60 00:03:04,240 --> 00:03:07,320 Speaker 2: It was negative last year, not by much but a 61 00:03:07,320 --> 00:03:07,760 Speaker 2: little bit. 62 00:03:08,600 --> 00:03:11,680 Speaker 3: The difference is now look at the yield curve last 63 00:03:11,760 --> 00:03:14,359 Speaker 3: year to this year and how we're talking about yields, 64 00:03:14,800 --> 00:03:17,600 Speaker 3: you know, close to five percent in the two year. 65 00:03:18,240 --> 00:03:20,760 Speaker 3: Those are attractive income levels. So I think you're going 66 00:03:20,800 --> 00:03:23,240 Speaker 3: to be able to like money, buy and hold. In 67 00:03:23,320 --> 00:03:25,480 Speaker 3: terms of trading in fixed income. It's going to be 68 00:03:25,480 --> 00:03:26,000 Speaker 3: a tough year. 69 00:03:26,200 --> 00:03:28,720 Speaker 4: Going to be a tough year trading those bonds. I 70 00:03:28,760 --> 00:03:32,160 Speaker 4: want to talk about the credit market specifically, though, because 71 00:03:32,240 --> 00:03:35,280 Speaker 4: when you say pay attention to bonds, I'm looking at spreads, 72 00:03:35,320 --> 00:03:37,920 Speaker 4: both junk and investment grade that have just been grinding 73 00:03:37,960 --> 00:03:41,920 Speaker 4: tighter and tighter. It feels like every single month. Do 74 00:03:41,960 --> 00:03:44,520 Speaker 4: you what message do you take from that? And do 75 00:03:44,560 --> 00:03:47,840 Speaker 4: you think it actually matches up with the fundamentals. 76 00:03:48,720 --> 00:03:52,200 Speaker 3: Katie, It's back to the old adage of sad to say, 77 00:03:52,280 --> 00:03:55,520 Speaker 3: but sheep gets shared and pigs get slaughtered. I think 78 00:03:55,560 --> 00:03:57,920 Speaker 3: that people are getting a bit greedy when they're tightening 79 00:03:57,920 --> 00:04:02,360 Speaker 3: in those spreads. They want yield. People are hunting for yield. 80 00:04:03,040 --> 00:04:06,120 Speaker 3: That's usually not a good sign. But I have to 81 00:04:06,120 --> 00:04:10,480 Speaker 3: say the fundamentals in the stock market are almost equally baffling. 82 00:04:11,200 --> 00:04:14,960 Speaker 3: We are still seeing earnings. I mean, employment is at 83 00:04:14,960 --> 00:04:18,200 Speaker 3: a fifty year low. The market or the US economy 84 00:04:18,240 --> 00:04:23,320 Speaker 3: added four million jobs last year. So it's tough to 85 00:04:23,360 --> 00:04:26,120 Speaker 3: say that investing into corporate won't do okay, But I 86 00:04:26,120 --> 00:04:30,360 Speaker 3: wouldn't trade it again. Buy and hold for a period, 87 00:04:30,160 --> 00:04:31,720 Speaker 3: but don't try and trade it. 88 00:04:31,720 --> 00:04:32,880 Speaker 2: It's going to be a tough market. 89 00:04:33,040 --> 00:04:35,600 Speaker 1: You said, the fundamentals in the equity market are baffling. 90 00:04:35,800 --> 00:04:38,600 Speaker 1: What do the fundamentals in private equity and private credit 91 00:04:38,760 --> 00:04:42,359 Speaker 1: look like to you? Now, given that we are maybe 92 00:04:42,400 --> 00:04:45,039 Speaker 1: going into recession, maybe not. Either way, we're going to 93 00:04:45,080 --> 00:04:48,320 Speaker 1: kind of bump along this slow growth mode. 94 00:04:48,600 --> 00:04:51,440 Speaker 3: Yeah, that recession, Scarlett, we said what I even said, 95 00:04:51,480 --> 00:04:52,720 Speaker 3: what's going to happen a year ago? 96 00:04:52,760 --> 00:04:54,160 Speaker 2: It's still looming out there. 97 00:04:54,640 --> 00:04:57,800 Speaker 3: You know. Private equity, that market is still almost shut down. 98 00:04:57,920 --> 00:05:01,400 Speaker 3: We're not seeing many acquisitions. You guys aren't having the 99 00:05:01,440 --> 00:05:04,960 Speaker 3: classic merger Monday like we used to. We're seeing a 100 00:05:04,960 --> 00:05:08,400 Speaker 3: few of those. Financing has gone up very high, so 101 00:05:08,440 --> 00:05:11,880 Speaker 3: it's much more expensive than it was before. And conversely, 102 00:05:11,920 --> 00:05:15,400 Speaker 3: then we're not seeing distributions. So private equity is sitting 103 00:05:15,400 --> 00:05:19,080 Speaker 3: on a lot of capital. Fundraising is going very slowly, 104 00:05:19,880 --> 00:05:23,680 Speaker 3: and everything's still somewhat priced to perfection. So they're not 105 00:05:23,839 --> 00:05:29,520 Speaker 3: rushing out there because they see this looming recession as well. Credit, 106 00:05:29,560 --> 00:05:31,400 Speaker 3: on the other hand, that's the other side of the 107 00:05:31,440 --> 00:05:35,000 Speaker 3: balance sheet, and that is looking attractive. You know, after 108 00:05:35,240 --> 00:05:38,560 Speaker 3: eight the banks really stepped away from the private markets 109 00:05:39,360 --> 00:05:43,640 Speaker 3: and loaning corporation's money, and so Asset backed loans are 110 00:05:43,760 --> 00:05:45,279 Speaker 3: very attractive. 111 00:05:45,480 --> 00:05:46,479 Speaker 2: Any kind of loan. 112 00:05:46,560 --> 00:05:49,400 Speaker 3: But again, you've a private loan, You've got to do 113 00:05:49,480 --> 00:05:51,800 Speaker 3: your due diligence and understand your credit. 114 00:05:52,279 --> 00:05:53,880 Speaker 2: But there are lots of opportunities. 115 00:05:53,920 --> 00:05:57,680 Speaker 3: Now there's a lot of money in that marketplace, and 116 00:05:57,720 --> 00:06:01,960 Speaker 3: it's fairly fragmented with lots of different players. But corporations 117 00:06:02,040 --> 00:06:04,760 Speaker 3: are borrowing even at these rates, and that's attractive. 118 00:06:05,120 --> 00:06:07,880 Speaker 4: Chris, thirty seconds before we let you go, you said 119 00:06:08,120 --> 00:06:10,719 Speaker 4: multiple times, this is not the time to trade bonds. 120 00:06:10,720 --> 00:06:13,240 Speaker 4: Would you ever trade bonds? What is the environment to 121 00:06:13,360 --> 00:06:14,960 Speaker 4: trade bonds? 122 00:06:15,279 --> 00:06:18,240 Speaker 3: You know, Katie, we're a buy and hold kind of investor, 123 00:06:19,120 --> 00:06:21,760 Speaker 3: you know, because I have a thirty year investment horizon. 124 00:06:21,800 --> 00:06:24,880 Speaker 3: If I have to, I can hold a maturity. We're 125 00:06:24,960 --> 00:06:28,800 Speaker 3: always adjusting duration. But so to your audience, that's really 126 00:06:28,839 --> 00:06:31,360 Speaker 3: what I mean is that somebody is either trading a 127 00:06:31,400 --> 00:06:33,520 Speaker 3: bond in and out or trying to mess with duration 128 00:06:33,680 --> 00:06:36,680 Speaker 3: or credit exposure to try and take advantage of it. 129 00:06:37,200 --> 00:06:39,320 Speaker 2: Look at the Bloomberg agg. 130 00:06:39,360 --> 00:06:43,160 Speaker 3: Has been very low returns two years ago, negative, last 131 00:06:43,240 --> 00:06:46,960 Speaker 3: year slightly negative. It's a really tough market to make 132 00:06:47,000 --> 00:06:50,279 Speaker 3: a lot of money, and fixed income yep as rates rise, 133 00:06:50,520 --> 00:06:53,640 Speaker 3: buy and hold you can make a decent high single 134 00:06:53,640 --> 00:06:56,960 Speaker 3: digit return, which is what should satisfy people given the risk. 135 00:06:57,560 --> 00:07:00,440 Speaker 1: Chris, always a pleasure speaking with you. Chris al is 136 00:07:00,640 --> 00:07:03,800 Speaker 1: cio of Cousetors and he joins us from Sacramento.