Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Data and earnings are painting a mixed picture of the economy, ism, services,
Speaker 2: ADP employment. They come in solid challenger job cuts, those
Speaker 2: jump to one of the worst octobers on record, ruining
Speaker 2: these markets. Or the rally yesterday, let's try to get
Speaker 2: a sense of direction. Bringing us that now is Rick Reader,
Speaker 2: chief investment Officer of Global fixed Income.
Speaker 3: At black Rock and Rick.
Speaker 2: We always have you on a jobs day, and today
Speaker 2: is decidedly a jobs day that should have been.
Speaker 3: Are you just flying blind? I mean, this data depends
Speaker 3: what you look at.
Speaker 2: You can say the economy is great or things are
Speaker 2: falling apart.
Speaker 1: Yeah, yeah, it's fine, Thanks for having me on. By
Speaker 1: the way, you know, it's a funny thing, you know.
Speaker 1: I found that the industry's obsession with these individual days
Speaker 1: the pay and by the way, pay reports a great,
Speaker 1: great economic indicator, the CPI report. There is so much
Speaker 1: information that comes through the system. By the way, my favorite,
Speaker 1: I read tons, maybe too many corporate earnings reports, and
Speaker 1: I look at what's happening with hiring, inventory management, receivables,
Speaker 1: et cetera. So there's still I mean, you know, would
Speaker 1: i'd rather have the data for sure. By the way,
Speaker 1: I think the markets become hem strong, and I think
Speaker 1: part of why the markets are acting in this sort
Speaker 1: of paranoid you know, what, do people know? What's the
Speaker 1: information out there manner?
Speaker 4: Today?
Speaker 1: I think the But you know, I feel pretty good
Speaker 1: about knowing that the structural direction of travel. I think
Speaker 1: the economy is in good shape. They're parts of it.
Speaker 1: It's not operating on all its cylinders, which we're talking about.
Speaker 1: Capex is great, how income is doing well, low income
Speaker 1: in the in the consumer side not so much. But
Speaker 1: I feel pretty good about understanding. And listen, I think
Speaker 1: I think, I think we have a softening of the
Speaker 1: labor market that is quite significant. And you see that
Speaker 1: as you mentioned the Challenger jobs report, you see that
Speaker 1: playing out. You certainly see that when I look at
Speaker 1: all the corporate earnings in terms of that, we have
Speaker 1: a softening labor market. And if we had the number today,
Speaker 1: I think it would have been reflective thereof.
Speaker 5: Yeah, I mean, I'm flying blind. I couldn't agree with
Speaker 5: you more and no one cares what I think. But
Speaker 5: Bob Michael of JP Morgan has made this point. Rich Clarita,
Speaker 5: former vice chair of the FED confirmed they have like
Speaker 5: five hundred economists, they have twelve regional banks. They're talking
Speaker 5: to participants, to companies, to institutions every single day, so
Speaker 5: they have a pretty good handle on the economy even
Speaker 5: without it. I wonder about what you guys have at Blackrock.
Speaker 5: I mean, you have ten trillion dollars of assets under management, right,
Speaker 5: what kind of signals are you looking at? What kind
Speaker 5: of proprietary information are you getting that helps you in
Speaker 5: your job?
Speaker 4: Rick? You know, Matt, it's a great question.
Speaker 1: By the way, this morning we went through credit card data,
Speaker 1: so you you know, it's all available information. So we
Speaker 1: end up we had a gentleman named Randy Burker with
Speaker 1: who drives every day. We look at what's happening in
Speaker 1: terms of you know, you go through the internet, you
Speaker 1: splice some of the credit card data that comes out,
Speaker 1: you get amazing amount of high frequency data.
Speaker 4: So we'll use that.
Speaker 1: We use a series of data assimilation tools, by the way,
Speaker 1: text mining.
Speaker 4: Understand what companies are saying. So anyway, we're trying.
Speaker 1: And by the way, we don't have figured it out yet,
Speaker 1: but you know, we're trying to be pretty cutting edge
Speaker 1: around the amount of tools we use and how AI
Speaker 1: is helping us, you know, by the way, also in
Speaker 1: things like how do you think about scenario analysis? How
Speaker 1: do you think about you know, the first derivative rate
Speaker 1: of change on inflation and growth?
Speaker 4: So listen.
Speaker 1: I think part of the why is most exciting times
Speaker 1: for investing ever is the amount of tools you can
Speaker 1: utilize that allow you to get more verse around what
Speaker 1: the direction to travel in is is pretty intense today.
Speaker 1: So you know, we're still working and trying to figure
Speaker 1: out more tools we could use, but there it's so
Speaker 1: much different than quite frankly five years ago, ten years ago.
Speaker 2: I would be very interested to know if any of
Speaker 2: that data, any of the tools that you've been using
Speaker 2: and look and looked at, have changed some of your
Speaker 2: allocations or how you're thinking about BINK right now.
Speaker 4: So it's great us, thanks for asking that man.
Speaker 1: So Bink, you know, there is something that is I
Speaker 1: think pretty intense around so Bank you know.
Speaker 4: Has had has had a good run.
Speaker 1: We feel good about where it's going and more and
Speaker 1: more people coming into it. The thing that it's allowed
Speaker 1: us to think through is today you've got you've obviously
Speaker 1: got the way the Fed's going to interpret the data,
Speaker 1: which is not always what I agree with, but the
Speaker 1: Fed's going to interpret the data is you've got inflation
Speaker 1: that's a little sticky high, and then the employment that's moderating.
Speaker 1: So we thank you you're in this and by the way,
Speaker 1: not just the FAT, the ECB, the Bank of England,
Speaker 1: the RBA, they're in this point of let's sit back
Speaker 1: and watch the data. So the way we move our
Speaker 1: positions around is we've reduced a little bit of our
Speaker 1: interest rate sensitivity. We've pulled some of our interest rate
Speaker 1: sensitivity out of the front end of the yield curve
Speaker 1: and say, gosh, let's just get carry. We can reduce
Speaker 1: a little bit of our duration. We've reduced a little
Speaker 1: bit of our investment great more than a little bit
Speaker 1: of our investment great credit because quite frankly, today, where
Speaker 1: spreads are, it doesn't do a lot for us. And
Speaker 1: if rates are pretty stable, mortgages become agency. Org has
Speaker 1: become much more interesting in the low coupon agency mortgage
Speaker 1: has become much more interesting in the portfolio. So we've
Speaker 1: been doing that. By the way we look at the data,
Speaker 1: including last night, you're seeing with the mortgage rate coming
Speaker 1: down a bit of prepayment faster PREVAIM, so we do
Speaker 1: some high coupon mortgages. We've had a lot of technical there,
Speaker 1: but some stuff moving on.
Speaker 5: We should point out for viewers who don't know, BINK
Speaker 5: is the I Shares Flexible Income ETF that Rick runs
Speaker 5: at Blackrock. Rick is going to stay with us through
Speaker 5: the opening bell into the equities trade next.
Speaker 3: This is Bloomberg.
Speaker 5: Let's bring back Blackrock Chief Investment Officer of Global Fixed
Speaker 5: Income Rick Reader and Rick.
Speaker 3: Can I ask you about that?
Speaker 5: I mean, is this market to frothy our valuations? Are
Speaker 5: we getting too far ahead of ourselves here? Because I
Speaker 5: was looking at the other day the Warren Buffett you know,
Speaker 5: valuation awe stocks, market capital versus GDP. It's at the
Speaker 5: highest level at least since two thousand and The same
Speaker 5: is true of the case the Shielder case cape ratio. Sorry,
Speaker 5: you can see this great chart here that shows you
Speaker 5: we're pretty highly valued on these two measures. Are you
Speaker 5: worried about the AI froth?
Speaker 4: So you know there's something.
Speaker 1: By the way, this is a time of year you
Speaker 1: tend to get momentum gets chased out of the markets,
Speaker 1: particularly today, we have ambiguity around some trends that are
Speaker 1: taking place. So, by the way, I know, I don't
Speaker 1: think it's an AI bubble, and I don't think there's
Speaker 1: too much froth.
Speaker 4: And depending on.
Speaker 1: Where you go, if you look at some of the
Speaker 1: big hyperscalers that trade a twenty to twenty five twenty
Speaker 1: six times earnings and they throw off roe return on
Speaker 1: equity of thirty thirty five forty percent, and you look
Speaker 1: at their free cash flow, I've never seen in my
Speaker 1: career free cash flow generation. We can talk about top
Speaker 1: line revenue growth. When you can have that much free
Speaker 1: cash flow generation allows you to do your cap ax,
Speaker 1: which is extraordinary today, build R and D, which is
Speaker 1: your future cash flow, and then you can buy back
Speaker 1: your stock.
Speaker 4: So it's happened. I you have an unbelievable dynamic. And
Speaker 4: by the way, we're now.
Speaker 1: About to open the buyback window that you have this
Speaker 1: dynamic that you throw off immense amounts of free cash flow,
Speaker 1: and so there's multiples are not scary.
Speaker 4: There are parts.
Speaker 1: I see it in the private market, and I see
Speaker 1: it in some places where you're seeing businesses that have
Speaker 1: no cash flow for a number of years. How much
Speaker 1: would you finance those? So I do see froth in
Speaker 1: some areas, but in the traditional big market cap stuff.
Speaker 1: And I would say related to that in semis in
Speaker 1: healthcare technology, where you're seeing rapid change but real cash
Speaker 1: flow alongside of it. It is the exact dichotomy I
Speaker 1: think you saw in two.
Speaker 2: Why then do you have these large cap giants tapping
Speaker 2: the bond market to the degree they are, and not
Speaker 2: just the broadly syndicate market, but also raising capital off
Speaker 2: balance sheet too. If they were so confident and have
Speaker 2: such robust cash flows, is that not a concerning turn
Speaker 2: of events that they're instead building up on debt piles.
Speaker 1: So so, first of all, when you look at the
Speaker 1: when you look at any measure debty, but you look
Speaker 1: at their debt to book cap, debt to market cap,
Speaker 1: these companies are under geared or under levered. Their cap
Speaker 1: structure is so low in terms of leverage relative certainly
Speaker 1: relevant their market cap, but relevan their book cap. If
Speaker 1: you were running a big mature company and you think
Speaker 1: about what does your normal cap structure look like, and
Speaker 1: if you're going to fund near term cap X over
Speaker 1: the next couple of years, if you can do it
Speaker 1: out the yields curve, which is where you see a
Speaker 1: lot of that financing take place to say, gosh, I am.
Speaker 4: Throwing off a lot of cash flow.
Speaker 1: But if I can lock in these rates, and if
Speaker 1: I'm as a shareholder of any of these companies, I say,
Speaker 1: why in a world would you fund everything with equity
Speaker 1: or why wouldn't we put a little bit of debt,
Speaker 1: get a little bit of gear, and get your ROE higher.
Speaker 1: So I just think it's a natural evolution of Gosh,
Speaker 1: this is how you run a big company, and this
Speaker 1: is what a normal cap structure looks like.
Speaker 5: I mean, we were just talking about global bond sales
Speaker 5: hitting six trillion dollars, an all time record.
Speaker 3: That's pretty incredible.
Speaker 5: And the and the and the return on fixed income
Speaker 5: has been great this year as well.
Speaker 3: Finally, how how.
Speaker 5: Could we be in a world with tight financial conditions
Speaker 5: when this is happening. It just doesn't make any sense
Speaker 5: to me why the FED would want to be cutting
Speaker 5: into this.
Speaker 1: So, uh so you got good, You've got I would argue,
Speaker 1: there's an immense amount of cash that came from certainly
Speaker 1: years ago at fiscal monetary stimulus. So you know, I
Speaker 1: don't think financial conditions drive financial business are great for
Speaker 1: older savers in the economy. The interest rate tool today
Speaker 1: is incredibly powerful on parts of the economy that are
Speaker 1: really struggling, low income, small business, the housing market. By
Speaker 1: the way, the government debt since eighty nine percent of
Speaker 1: what the government funds is and zero a two year
Speaker 1: part of the yield curve, so it has a huge
Speaker 1: influence on what tax payers are paying for for debt today.
Speaker 1: So my view today, what the interest rate tool does.
Speaker 1: You know the idea it affects in place. I've been
Speaker 1: saying this for months. It's very hard for the Fed
Speaker 1: to bring down sticky inflation. Healthcare, education, insurance not terribly robust,
Speaker 1: but you do Actually, if you bring the rate down,
Speaker 1: we'll bring down the mortgage rate, which you're seeing play out.
Speaker 3: Well, but for more Americans.
Speaker 5: Rick Diane Swank has said, you know, bringing down these
Speaker 5: rates is not going to affect subprime rates, and twenty
Speaker 5: five percent of the country is below six ninety with
Speaker 5: a credit score. Also, I don't see how a lower
Speaker 5: rate adds jobs in an environment where companies are cutting
Speaker 5: headcount to try and offset higher tariffs to their margins.
Speaker 1: So you know, I've said this for months now. I
Speaker 1: would say one thing The FED doesn't create jobs directly,
Speaker 1: but you think about what happens small business does forty
Speaker 1: four percent of the hiring in.
Speaker 4: The US a small business. The rate's too high for
Speaker 4: small business.
Speaker 1: Second, you think about what happens in the housing market.
Speaker 1: We put three point one people to work for every
Speaker 1: home built in this country. If you get the mortgage rate,
Speaker 1: by the way, you don't have to get it down
Speaker 1: that much. But if you've got it down twenty five
Speaker 1: to fifty basis points, you increase labor mobility. Your point
Speaker 1: is right, companies, we are in a productivity revolution. Companies
Speaker 1: are going to cut jobs. But if you increase labor
Speaker 1: mobility because people can sell our house, move to another
Speaker 1: state where.
Speaker 4: They get a job.
Speaker 1: If we actually put people to work in building houses,
Speaker 1: you bring down shelter inflation. The FED can't create jobs,
Speaker 1: but you can ameliorate some of the stress that's happening
Speaker 1: because of productivity. And people talk about productivity is like AI.
Speaker 1: It is happening everywhere. We talk about freight, how we
Speaker 1: do logistics, how we do inventory management, how we do
Speaker 1: customer procurement. Productivity is exploding. We don't need as much
Speaker 1: labor collectively in the country, you know, bringing that rate
Speaker 1: down in the places that can actually help will actually
Speaker 1: at the margin help help a labor dynamic. I think
Speaker 1: today you'll see not just where you're seeing in the
Speaker 1: last four months, what you're going to see for the
Speaker 1: next couple of years.
Speaker 2: And with these conversations and especially your viewpoint is made
Speaker 2: all the more important. We have to ask because last week,
Speaker 2: the beginning of last week, Secretary of Scott Besson confirmed
Speaker 2: his list for FED picks, your name among them. How
Speaker 2: have those conversations gone?
Speaker 1: No, I can't, you know, I can't really comment. I
Speaker 1: wake up in the morning and I try to figure
Speaker 1: out the supline of the yield curve and what your
Speaker 1: comments about fast food versus FED like, should we be
Speaker 1: buying this stock or that stock?
Speaker 4: That's what I got to focus on.
Speaker 1: That and so anyway, that's uh, that's what I'm doing today,
Speaker 1: the most.
Speaker 4: Exciting time to do it.
Speaker 3: Rick, Even if.
Speaker 5: You're not confirmed his FED chair, everybody has a view
Speaker 5: about what they would do differently at the FED.
Speaker 3: What what what are some of the changes that you
Speaker 3: would make?
Speaker 4: You know, I'm a listen.
Speaker 1: I mean, I'll all point to is what I've said
Speaker 1: for many months now is I think there are some
Speaker 1: things too that you can do that to create velocity
Speaker 1: in the system. You know, nobody borrows off the overnight
Speaker 1: funds right anymore. Velocity happens where financing happens out the
Speaker 1: yield curve. Things you could do to keep that stability
Speaker 1: of the back end of the yield curve, to keep
Speaker 1: the mortgage rate in a place where we get real
Speaker 1: velocity existing home sales moving. So I think there's some
Speaker 1: things that are that are that can be done, that
Speaker 1: are that are that are interesting and listen, mat I mean,
Speaker 1: you know, I've said it publicly for many months now.
Speaker 1: I think if we're running break even, you can buy
Speaker 1: in the market that a five year inflation break evens
Speaker 1: a two point three five percent. I think the funds
Speaker 1: rate should be a three and I just think you
Speaker 1: could move it there and then you don't have to
Speaker 1: go much further. I just think the price. You know,
Speaker 1: in markets, if something's price wrong, you get it there.
Speaker 1: I just think we can get it there and then
Speaker 1: and then look at when then take another view on
Speaker 1: where are we today and do you have to move
Speaker 1: higher or lower? But anyway I would I think we
Speaker 1: could move right a bit lower.
Speaker 2: Well, you know, it does have this feeling that whoever
Speaker 2: is next and whoever's next leading the FED, that there
Speaker 2: will be this difference in tone when we have the
Speaker 2: scenario where Chair Powell's term is up and we have
Speaker 2: our next chair and waiting, whoever that might be. How
Speaker 2: should that person hand that kind of lame duck gray period.
Speaker 4: From an investor point of view or just communication.
Speaker 2: To the markets, how should that look when Shairpala's term
Speaker 2: is over and we're waiting for the newly confirmed FED chair.
Speaker 1: Listen, I think it's trick, Jim, And you know, I
Speaker 1: have incredible sympathy for and frankly, you know the sanctity
Speaker 1: of what that institution is. I think what they will
Speaker 1: continue to do and I think what they do today
Speaker 1: is they make judgment based on here's the data that
Speaker 1: we have to interpret, what is the right thing for
Speaker 1: the population at large in terms of managing that policy.
Speaker 1: And you know, I really believe in this, and I
Speaker 1: certainly believe in this Fed, Shair and this FED committee
Speaker 1: that I think they're going to make the decision based
Speaker 1: on let's evaluate the data, interpret the data and make
Speaker 1: a decision based on that. And I don't think there's
Speaker 1: any reasonab believe that happens any other way than that.
Speaker 2: Well, Rick, you certainly do that for us, and we
Speaker 2: are very appreciated, appreciative of it to get all of
Speaker 2: your thoughts from what's going on with Bink to the
Speaker 2: labor market and beyond, Rick Reader, thank you so much
Speaker 2: for joining us.