1
00:00:00,080 --> 00:00:02,440
Speaker 1: Let's get more perspective now from the investment side with

2
00:00:02,560 --> 00:00:04,840
Speaker 1: our question of the day, what are you feeling fear

3
00:00:04,960 --> 00:00:07,440
Speaker 1: or agreed? Joining us now as Jenny Johnson, President and

4
00:00:07,520 --> 00:00:10,840
Speaker 1: CEO of Franklin Templeton whatever one point four trillion dollars

5
00:00:10,840 --> 00:00:13,200
Speaker 1: in assets under management. She joined us now from the

6
00:00:13,240 --> 00:00:18,160
Speaker 1: Greenwich Economic Forum. Jenny, it's so wonderful to see you.

7
00:00:18,360 --> 00:00:20,640
Speaker 1: We just heard a lot from Rich Clarita on sort

8
00:00:20,720 --> 00:00:23,479
Speaker 1: of where yields could go, where inflation could go in

9
00:00:23,520 --> 00:00:26,760
Speaker 1: the labor market. Are you would you recommend investing right

10
00:00:26,800 --> 00:00:28,040
Speaker 1: now for fear or greed?

11
00:00:30,520 --> 00:00:33,640
Speaker 2: Well, you know, I think that the good news is

12
00:00:33,680 --> 00:00:37,279
Speaker 2: it feels like the big recession that people steered with

13
00:00:37,600 --> 00:00:40,760
Speaker 2: rates coming up so quickly, it feels like we at

14
00:00:40,840 --> 00:00:43,839
Speaker 2: least have a soft landing. Maybe it's recession, but it's

15
00:00:43,840 --> 00:00:48,040
Speaker 2: certainly not a bad one. The challenge, I think is

16
00:00:48,800 --> 00:00:51,800
Speaker 2: whether or not the Fed can can you know, there

17
00:00:51,840 --> 00:00:54,440
Speaker 2: are some headwinds to getting inslation down. Look at the

18
00:00:54,480 --> 00:00:59,600
Speaker 2: wage pressure on things like the auto strike, and you know, there's.

19
00:00:59,400 --> 00:01:00,000
Speaker 3: A lot of discussion.

20
00:01:00,120 --> 00:01:03,040
Speaker 2: They're successful, You'll start to see other unions striking, and

21
00:01:03,080 --> 00:01:05,600
Speaker 2: sure enough today you had the seventy five thousand employees

22
00:01:05,600 --> 00:01:09,080
Speaker 2: at Kaiser Permanentite going out on strike looking for wage increases.

23
00:01:09,480 --> 00:01:13,240
Speaker 2: Those are going to be very inflationary oil. Obviously the

24
00:01:13,280 --> 00:01:14,760
Speaker 2: price of all it shirts down a little bit, but

25
00:01:14,800 --> 00:01:18,600
Speaker 2: it's still high. So look, my gut is that the

26
00:01:19,040 --> 00:01:22,320
Speaker 2: FED raises one more time. Why not, It's built into

27
00:01:22,360 --> 00:01:26,399
Speaker 2: the market. And then the question is how quickly can

28
00:01:26,440 --> 00:01:28,800
Speaker 2: the cut? And I think that even you know, it

29
00:01:28,959 --> 00:01:31,480
Speaker 2: certainly is not going to happen before the second half

30
00:01:31,520 --> 00:01:32,199
Speaker 2: of next year.

31
00:01:33,280 --> 00:01:36,480
Speaker 3: And you know, as long as you believe that.

32
00:01:36,600 --> 00:01:40,520
Speaker 2: People are staying, probably a little bit short duration after

33
00:01:40,560 --> 00:01:44,360
Speaker 2: this cut, you know, maybe people start We're seeing investors

34
00:01:44,400 --> 00:01:46,240
Speaker 2: start to go a little further out on the curve.

35
00:01:46,720 --> 00:01:49,520
Speaker 3: But my fear is that this sticks around for longer

36
00:01:49,520 --> 00:01:51,040
Speaker 3: than the market expects.

37
00:01:52,840 --> 00:01:55,600
Speaker 4: Okay, so a little bit of caution maybe justified. Jenny,

38
00:01:55,600 --> 00:01:59,360
Speaker 4: good morning, it's guy. So what are you thinking about

39
00:01:59,360 --> 00:02:01,920
Speaker 4: doing in that kind of that kind of a scenario,

40
00:02:02,360 --> 00:02:04,560
Speaker 4: when you think about how you are going to be

41
00:02:04,600 --> 00:02:07,800
Speaker 4: setting up for that kind of a world, what are

42
00:02:07,880 --> 00:02:11,000
Speaker 4: you doing and what's your what is your degree of certainty?

43
00:02:11,120 --> 00:02:14,000
Speaker 4: Right now? It feels as if there's a lot of

44
00:02:14,040 --> 00:02:17,359
Speaker 4: competing forces at play right now that are really difficult

45
00:02:17,360 --> 00:02:18,400
Speaker 4: to sort of tease a pot.

46
00:02:20,160 --> 00:02:22,800
Speaker 2: So I think there's some real opportunities out there. I mean,

47
00:02:22,840 --> 00:02:25,120
Speaker 2: first of all, let's face it, you actually get paid

48
00:02:25,320 --> 00:02:27,040
Speaker 2: to be in fixed income. I mean, even if you're

49
00:02:27,080 --> 00:02:29,840
Speaker 2: in cash and A money markets, you're getting five and

50
00:02:29,840 --> 00:02:33,400
Speaker 2: a half percent yield. But I think there's some great

51
00:02:33,400 --> 00:02:35,560
Speaker 2: areas in the market. I love if you can withstand

52
00:02:35,560 --> 00:02:37,600
Speaker 2: the illiquidity risk of private credit.

53
00:02:37,639 --> 00:02:38,919
Speaker 3: I love private credit.

54
00:02:38,639 --> 00:02:42,520
Speaker 2: You know, and especially now as regional banks have even retreated,

55
00:02:43,240 --> 00:02:45,680
Speaker 2: we're seeing in our private credit team anywhere from eleven

56
00:02:45,720 --> 00:02:47,600
Speaker 2: a half to twelve and a half percent yields us

57
00:02:47,760 --> 00:02:54,119
Speaker 2: or equity yields in the fixed income market. So you're

58
00:02:54,160 --> 00:02:59,120
Speaker 2: seeing that as an opportunity. Sure, they're you know, I

59
00:02:59,200 --> 00:03:01,200
Speaker 2: tend to believe the years actually going to stay up

60
00:03:01,240 --> 00:03:04,600
Speaker 2: a little bit longer, just because of the macroeconomic environment

61
00:03:04,639 --> 00:03:07,760
Speaker 2: where you know, the deficit's gone from thirty percent GDP

62
00:03:08,360 --> 00:03:10,640
Speaker 2: up to one hundred percent of GDP where it's thirty

63
00:03:10,680 --> 00:03:14,240
Speaker 2: one trillion dollars, and you need buyers of that, and

64
00:03:14,400 --> 00:03:16,320
Speaker 2: if we don't have enough buyers, it's going to keep

65
00:03:16,320 --> 00:03:18,400
Speaker 2: interest rates on the long end a little bit higher.

66
00:03:19,320 --> 00:03:21,600
Speaker 2: So you know, I think sixth incomes a great place

67
00:03:21,600 --> 00:03:23,760
Speaker 2: to be. How much of that's all built in a

68
00:03:23,840 --> 00:03:26,560
Speaker 2: longer cycle of higher rates. How much is that built

69
00:03:26,560 --> 00:03:27,480
Speaker 2: into the equity markets.

70
00:03:27,560 --> 00:03:28,200
Speaker 3: I'm not sure.

71
00:03:28,520 --> 00:03:30,440
Speaker 2: So if I'm in the equity markets, I actually like

72
00:03:30,440 --> 00:03:34,560
Speaker 2: a little more conservative, good cash flow generating companies with

73
00:03:34,639 --> 00:03:35,400
Speaker 2: good dividends.

74
00:03:35,960 --> 00:03:39,280
Speaker 1: So based on that point, sixty to forty portfolio just

75
00:03:39,320 --> 00:03:42,040
Speaker 1: straight up now in doing them great. We're seeing stocks

76
00:03:42,040 --> 00:03:44,680
Speaker 1: and bonds kind of move together over the last three months.

77
00:03:44,680 --> 00:03:46,480
Speaker 1: So I'm wondering with your view on private credit. Is

78
00:03:46,480 --> 00:03:49,760
Speaker 1: it like sixty thirty ten, is it fifty? It's like

79
00:03:49,800 --> 00:03:51,400
Speaker 1: fast math, fifty forty ten?

80
00:03:52,200 --> 00:03:55,320
Speaker 3: What do you think? It all depends on the individual.

81
00:03:55,880 --> 00:03:57,560
Speaker 1: Sure you're the individual.

82
00:03:59,520 --> 00:04:02,440
Speaker 2: You know, like, like I said, you know, high yield

83
00:04:02,480 --> 00:04:05,360
Speaker 2: you're getting, you know, just under nine percent.

84
00:04:05,480 --> 00:04:06,600
Speaker 3: That's a really nice yield.

85
00:04:06,920 --> 00:04:10,680
Speaker 2: We're not seeing increase in defaults, so it feels like

86
00:04:10,800 --> 00:04:15,160
Speaker 2: that that spread is actually pretty comfortable. And you know,

87
00:04:15,200 --> 00:04:18,360
Speaker 2: as long as the economy doesn't go into recession, you're

88
00:04:18,400 --> 00:04:20,400
Speaker 2: not going to see the faults in the fixed income market.

89
00:04:21,800 --> 00:04:24,200
Speaker 3: Again, how much have we priced in? I think.

90
00:04:26,640 --> 00:04:29,839
Speaker 2: I think actually this recent uh you know, correction in

91
00:04:29,880 --> 00:04:32,720
Speaker 2: the equity market has priced in some of the interest

92
00:04:32,800 --> 00:04:36,680
Speaker 2: rate in some of the more growth these stocks, So

93
00:04:37,000 --> 00:04:41,520
Speaker 2: you know that's that's corrected itself a bit. But you know, again,

94
00:04:41,680 --> 00:04:46,200
Speaker 2: I feel like right now it is possible that we

95
00:04:46,279 --> 00:04:48,480
Speaker 2: will have that the inflation is going to be harder

96
00:04:48,520 --> 00:04:52,200
Speaker 2: for the FED to get under control. You're definitely seeing it.

97
00:04:52,600 --> 00:04:54,520
Speaker 2: But with that, you're probably going to have rates to

98
00:04:54,560 --> 00:04:56,440
Speaker 2: stay a little bit higher for longer.

99
00:04:57,800 --> 00:04:59,840
Speaker 4: Jenny. That kind of goes to a little bit about

100
00:05:00,120 --> 00:05:03,719
Speaker 4: Ray Dalio was saying at a Gratuge forum yesterday. He

101
00:05:03,880 --> 00:05:06,599
Speaker 4: was talking about the high rates that are achievable in

102
00:05:06,720 --> 00:05:09,200
Speaker 4: high yield and maybe elsewhere talking a little bit about

103
00:05:09,200 --> 00:05:11,599
Speaker 4: private credit as well. But the point he was making

104
00:05:11,800 --> 00:05:16,600
Speaker 4: was are these really good rate? They're high rates relative

105
00:05:16,640 --> 00:05:22,360
Speaker 4: to recent experience POSTGFC. Are they really good rates relating

106
00:05:22,400 --> 00:05:25,320
Speaker 4: to the environment we are in now? Do you still

107
00:05:25,360 --> 00:05:28,039
Speaker 4: think that the yields that are being offered right now

108
00:05:28,120 --> 00:05:32,480
Speaker 4: are compensating in investors for what they're seeing and are

109
00:05:32,600 --> 00:05:35,760
Speaker 4: going to be compensating for that slightly higher inflation rey

110
00:05:35,839 --> 00:05:37,000
Speaker 4: environment that you're alluding to.

111
00:05:39,400 --> 00:05:42,279
Speaker 2: So I would say yes, because I think that we're

112
00:05:42,320 --> 00:05:44,800
Speaker 2: not going to have an economy that has a hard landing.

113
00:05:44,800 --> 00:05:47,400
Speaker 2: I think as long as we have a soft landing,

114
00:05:48,279 --> 00:05:50,640
Speaker 2: we're going to be able to withstand. You're not going

115
00:05:50,640 --> 00:05:53,320
Speaker 2: to start to see defaults on the credit cycle. A

116
00:05:53,360 --> 00:05:58,320
Speaker 2: lot of the equity market companies actually went long duration

117
00:05:58,440 --> 00:06:01,159
Speaker 2: on their debts, so their debts really sheep compared to

118
00:06:01,440 --> 00:06:04,240
Speaker 2: what the market is. And so you know, as long

119
00:06:04,279 --> 00:06:06,400
Speaker 2: as you have a good cash flowing company, you're gonna

120
00:06:06,400 --> 00:06:08,760
Speaker 2: be able to with stand an environment of higher interest rates.

121
00:06:09,720 --> 00:06:11,000
Speaker 2: And you know, as long as you don't have a

122
00:06:11,000 --> 00:06:14,000
Speaker 2: lot of defaults, you're actually getting paid really well compared

123
00:06:14,040 --> 00:06:15,520
Speaker 2: to where inflation is today.

124
00:06:16,200 --> 00:06:19,240
Speaker 1: Jenny, how do you view the dysfunction in Washington? And

125
00:06:19,279 --> 00:06:21,680
Speaker 1: I'll tie this back to long term yield. Clearly there's

126
00:06:21,680 --> 00:06:25,000
Speaker 1: fiscal dysfunction. Clearly it looks like we are heading more

127
00:06:25,040 --> 00:06:27,159
Speaker 1: towards the government shutdown now in November, since there's no

128
00:06:27,200 --> 00:06:30,000
Speaker 1: House speaker right now, And I'm wondering, does this just

129
00:06:30,240 --> 00:06:33,160
Speaker 1: permanently increase the term premium we're going to have to

130
00:06:33,200 --> 00:06:37,160
Speaker 1: see in the long term bond market because of this,

131
00:06:37,320 --> 00:06:39,680
Speaker 1: because of the fiscal deficit, the fiscal spend and the

132
00:06:39,680 --> 00:06:42,640
Speaker 1: inability for Washington to get stuff done. And how does

133
00:06:42,640 --> 00:06:44,760
Speaker 1: that sort of frame any long term thinking.

134
00:06:46,480 --> 00:06:48,479
Speaker 3: So I actually tend to think a lot of that

135
00:06:48,640 --> 00:06:49,080
Speaker 3: is noise.

136
00:06:49,160 --> 00:06:52,760
Speaker 2: Obviously it's not this funtional, but you know, let's face it,

137
00:06:52,800 --> 00:06:56,680
Speaker 2: even if the government, you know, couldn't come to agreement,

138
00:06:57,080 --> 00:06:58,960
Speaker 2: you know, an IOU from US government is probably the

139
00:06:58,960 --> 00:06:59,960
Speaker 2: best io you you can get.

140
00:07:00,279 --> 00:07:04,640
Speaker 3: I think the longer term issue and story is just

141
00:07:04,640 --> 00:07:05,560
Speaker 3: just this year.

142
00:07:06,000 --> 00:07:09,400
Speaker 2: The US deficit this year is going to be two

143
00:07:09,440 --> 00:07:12,000
Speaker 2: trillion dollars, up from a trillion dollars last year.

144
00:07:12,120 --> 00:07:13,360
Speaker 3: That all gets.

145
00:07:13,080 --> 00:07:17,360
Speaker 2: Added to the US government debt, and the trajectory continues

146
00:07:17,400 --> 00:07:20,160
Speaker 2: to increase, So you know you're gonna have to find

147
00:07:20,200 --> 00:07:20,800
Speaker 2: buyers of that.

148
00:07:20,920 --> 00:07:22,000
Speaker 3: So who are the buyers?

149
00:07:21,760 --> 00:07:24,320
Speaker 2: If the debt's thirty one try and twenty five trillion

150
00:07:24,320 --> 00:07:27,960
Speaker 2: of it is required today to have buyers. That's the

151
00:07:28,000 --> 00:07:30,880
Speaker 2: FED is twenty five percent. You take you know, foreign investors,

152
00:07:30,920 --> 00:07:33,880
Speaker 2: Japan's only one point one trillion, the largest foreign investor.

153
00:07:34,080 --> 00:07:37,440
Speaker 2: Then you're looking at corporates, mutual funds, pension funds, they're

154
00:07:37,440 --> 00:07:40,640
Speaker 2: all gonna have to support that US government debt. And

155
00:07:40,720 --> 00:07:43,760
Speaker 2: so I actually think that's the bigger worry is just

156
00:07:43,840 --> 00:07:48,880
Speaker 2: the pace in which we're taking on debt as a country.

157
00:07:49,200 --> 00:07:51,280
Speaker 4: Does that mean you want to look outside the United States?

158
00:07:51,360 --> 00:07:56,239
Speaker 2: Jenny, Well, I do think there's some really interesting stories

159
00:07:56,280 --> 00:07:58,120
Speaker 2: outside of the United States. And you know, we look

160
00:07:58,120 --> 00:08:00,920
Speaker 2: at it in the emergency markets that China US one story, right,

161
00:08:00,960 --> 00:08:04,000
Speaker 2: you know, we learned companies learned that that during COVID

162
00:08:04,040 --> 00:08:06,960
Speaker 2: you can't rely your supply chain, can't rely on a

163
00:08:07,000 --> 00:08:09,560
Speaker 2: single country. And so you know, it's not that they're

164
00:08:09,640 --> 00:08:13,720
Speaker 2: leaving China. These China's actually uh, you know, a cheap

165
00:08:13,800 --> 00:08:19,880
Speaker 2: source of supply chain, but they're going to places like Vietnam, India, Indonesia,

166
00:08:19,960 --> 00:08:23,280
Speaker 2: and so all those become opportunities to uh to be

167
00:08:23,320 --> 00:08:24,160
Speaker 2: able to invest in.

168
00:08:24,200 --> 00:08:26,040
Speaker 3: And so yes, I think there are opportunities.

169
00:08:26,080 --> 00:08:28,000
Speaker 2: You go to Latin America, where you have you know,

170
00:08:28,160 --> 00:08:31,400
Speaker 2: much of the raw materials for batteries are going to

171
00:08:31,400 --> 00:08:33,800
Speaker 2: be supplied out of Latin America. So I think there's

172
00:08:33,800 --> 00:08:36,160
Speaker 2: a lot of interesting opportunities in those markets as well.

173
00:08:37,160 --> 00:08:39,880
Speaker 1: It feels though, if if yield stay higher, dollar is

174
00:08:39,880 --> 00:08:44,000
Speaker 1: also stronger, that em is where things break. As Jenny

175
00:08:44,080 --> 00:08:46,920
Speaker 1: Johnson looks at the landscape, what are you worry about breaking?

176
00:08:50,200 --> 00:08:56,240
Speaker 2: Don't worry about break, you know, I you know, here's

177
00:08:56,280 --> 00:09:00,640
Speaker 2: the fight. You really can predict abby. As I said,

178
00:09:00,640 --> 00:09:03,880
Speaker 2: I'm worried about US debt. But I think the most

179
00:09:03,880 --> 00:09:06,560
Speaker 2: important lesson that we learn over and over is have

180
00:09:06,679 --> 00:09:10,560
Speaker 2: a diversified portfolio, because you cannot predict all these things.

181
00:09:10,640 --> 00:09:13,320
Speaker 2: Usually when people are predicting it, it's already built into

182
00:09:13,320 --> 00:09:14,320
Speaker 2: the prices in the market.

183
00:09:14,559 --> 00:09:16,439
Speaker 3: So the best message I can give to everybody is

184
00:09:16,600 --> 00:09:18,880
Speaker 3: make sure you have a very diverse portfolio.

185
00:09:20,120 --> 00:09:21,800
Speaker 4: But the problem, Jenny at the moment is that that

186
00:09:21,880 --> 00:09:26,160
Speaker 4: diversified portfolio isn't really working. Alex was talking about sixty

187
00:09:26,240 --> 00:09:28,520
Speaker 4: forty a little bit earlier on bonds and equities are

188
00:09:28,520 --> 00:09:31,080
Speaker 4: moving in the same direction. Yeah, you can probably get

189
00:09:31,120 --> 00:09:36,360
Speaker 4: some diversification by being in private markets and maybe in

190
00:09:36,720 --> 00:09:40,240
Speaker 4: real assets as well. But people are struggling to diversify

191
00:09:40,760 --> 00:09:42,680
Speaker 4: in a world where bonds and equities are doing the

192
00:09:42,679 --> 00:09:43,160
Speaker 4: same thing.

193
00:09:45,400 --> 00:09:47,360
Speaker 3: Yeah, I mean, that's always a challenge. It's unusual that

194
00:09:47,360 --> 00:09:47,959
Speaker 3: that happens.

195
00:09:48,720 --> 00:09:51,720
Speaker 2: But you know, again, you're actually getting paid pretty well

196
00:09:51,760 --> 00:09:53,679
Speaker 2: in the fixed income market, you know, I mean of

197
00:09:53,760 --> 00:09:57,760
Speaker 2: inflation's what four percent or so, you know, you're getting

198
00:09:57,760 --> 00:10:01,720
Speaker 2: in high yield almost nine percent. Those are not bad returns.

199
00:10:02,160 --> 00:10:04,439
Speaker 2: And even if ratescope a little bit. You just can

200
00:10:04,520 --> 00:10:07,800
Speaker 2: have a little degradation of that U. So I actually

201
00:10:07,840 --> 00:10:10,800
Speaker 2: think that you're getting paid in these markets for, you know,

202
00:10:10,840 --> 00:10:11,400
Speaker 2: for the risk.

203
00:10:12,040 --> 00:10:14,640
Speaker 1: Jenny, we love talking to you. You're so honest, you're thoughtful.

204
00:10:14,720 --> 00:10:18,680
Speaker 1: We really enjoy the conversation. Jenny Johnson, Franklin Templeton CEO.

205
00:10:18,720 --> 00:10:19,600
Speaker 1: We'll see you next time.