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Speaker 1: Let's get to our guest, George Bill Burris, head of

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Speaker 1: research at K two Asset Management. George, I do want

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Speaker 1: to ask you about the Japan intervention, but let's save

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Speaker 1: that for a moment. We we did actually get the

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Speaker 1: FED pivot, it's just not the one that people were

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Speaker 1: hoping for. This was a hawk ish pivot. And in

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Speaker 1: your mind, is this the type of thing that changes

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Speaker 1: everything or is it still the data that is key?

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Speaker 1: Good question, Good morning, Um, it's still data dependent with

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Speaker 1: more hawk ish overtone. And you are right, it's the

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Speaker 1: pivot that risk assets weren't anticipating to that degree. And

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Speaker 1: you can amplify it a little bit and say, is

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Speaker 1: the inversion of Mario dragon that is, whatever it takes

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Speaker 1: but to create slack in the economy and demand destruction.

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Speaker 1: So it's it's it's got the conviction of Mario drag

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Speaker 1: again inverted again, tongue in tongue in chake, of course,

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Speaker 1: but there's nothing different from the seventy five basis points.

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Speaker 1: Was a lock from six weeks ago or seven weeks

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Speaker 1: ago with their pay rolls, and and I think people

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Speaker 1: understood that we're now finally in that you know that

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Speaker 1: three and a quarter upper band restrictive territory. It's just

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Speaker 1: that it's the outlook where it takes. But I think

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Speaker 1: it's reasonable to say from inflation is that the jaw

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Speaker 1: boiling will persist. UH will get the will target that

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Speaker 1: four and a half or seventy five. Anything lower with

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Speaker 1: good data going forward is a rally for risk assets,

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Speaker 1: and anything higher is that continues this um, this weakness

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Speaker 1: to risk assets right across the capital structure. George, but

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Speaker 1: give me a sentence here of how much pain for

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Speaker 1: the economy the FED can tolerate as they try and

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Speaker 1: lay siege to the the O Greu of inflation. Yes, well,

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Speaker 1: they're making it very clear and to be fed to

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Speaker 1: the Fed. They've been the clearest communicator for central banks

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Speaker 1: pretty much all years since their pivoted late last year

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Speaker 1: or November UM and their conviction is when you're looking

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Speaker 1: at their rate high cycle, it's much quicker, of course

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Speaker 1: in the unforgiving bond year, and it's already much quicker

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Speaker 1: than the period even though Vulka started with the bang

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Speaker 1: and then plateaued out. So this is obviously suggestive again

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Speaker 1: of a very strong economy before the FED started this

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Speaker 1: aggressive right rise and before QT started, which is going

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Speaker 1: to have its impact as well. So there's many moving parts,

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Speaker 1: but it's so difficult to avoid a recession from this point.

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Speaker 1: It's possible, but highly improbable moving parts. Credit conditions are

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Speaker 1: good still, impairments are low. But it makes it point too,

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Speaker 1: but it makes it very difficult for risk assets. And

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Speaker 1: that's one of the thrusts of this program. And and actually, George,

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Speaker 1: in addition to the macro, with the turbulent currencies and

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Speaker 1: the soaring bhind yours now you're probably going to get

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Speaker 1: big earnings revisions lower to provide yet another leg down.

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Speaker 1: So this is a tough period no matter how you

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Speaker 1: slice it. Spot on, and and those EPs downgrades will

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Speaker 1: probably in essets match where the index is at the moment.

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Speaker 1: So obviously the numerators looking forward with optimism or not

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Speaker 1: to a pessimism, but will be matched by the downgrades

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Speaker 1: of course, and the denominator George, I mean you've got

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Speaker 1: ten year yields at three point two years at over

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Speaker 1: four percent. Now, of course, this one part of my

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Speaker 1: question is what are they praising in And number two,

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Speaker 1: are they now representing a buying opportunity um that are

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Speaker 1: representing buying opportunity. I think extending duration would be the

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Speaker 1: thing that we're taking on board. We've been very short

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Speaker 1: duration all year, like point five year Macauley, so we're

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Speaker 1: looking at substantial increases the duration towards that three or

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Speaker 1: three and a half with the index is so it

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Speaker 1: presents a value for the first time in a long while.

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Speaker 1: Um the inversion is disturbing and it's very good at

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Speaker 1: being predictive. Notwithstanding that it didn't it it flattened while

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Speaker 1: everything's higher right across the curve last night, but it's

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Speaker 1: an indicative of the inflation risks. But we believe they'll

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Speaker 1: get on top of the inflation risk again. Second order

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Speaker 1: condition the US dollar strength all year, doing some of

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Speaker 1: the FED policy for it, it's just not coming through

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Speaker 1: in the data as yet, and that's that that needs

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Speaker 1: to be noted. So we believe, particularly seventy five four

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Speaker 1: is where you really want to be extending the duration

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Speaker 1: senior unsecured quality, et cetera. And in the high you'll

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Speaker 1: keep it short, keep it that to three year duration

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Speaker 1: because of obviously the credit risk from the bottom up

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Speaker 1: component of that part of the curve. If you're trying

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Speaker 1: to get capital appreciation. I mean for the bond market

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Speaker 1: to be all in on recession, you'd probably more likely

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Speaker 1: expect an eighteen basis point drop in in yields on

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Speaker 1: the tent. So where is the crossover line where the

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Speaker 1: action switches and people start buying bonds because they fear recession. Yeah,

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Speaker 1: the cross over is looked at every day. Obviously every

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Speaker 1: day future conditions are changing in expectations and that crossover.

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Speaker 1: It's very difficult to call the the timing of it,

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Speaker 1: but you'd have to say within the next six months

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Speaker 1: we're going to get that clarity of is FED funds right,

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Speaker 1: really going to get to four and a half hourth

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Speaker 1: of five or five. If it does get to any

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Speaker 1: of those levels, it will stay notably higher. And the

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Speaker 1: days of sub two percent a well going behind us

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Speaker 1: regardless of the research and going forward. But the crossover

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Speaker 1: is sometime in the next six months extending that duration. Again,

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Speaker 1: we've got to see weakness in the data in the

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Speaker 1: labor market in wage, We're going to see weakness in

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Speaker 1: credit growth across North America, and we're going to see

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Speaker 1: saving draw down a little bit more, which creates removes

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Speaker 1: that cushion. So that demand destruction. Unfortunately, it's more painful

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Speaker 1: for the economy and aggregate. So all those moving parts

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Speaker 1: looking at extending that. But you are right last night's

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Speaker 1: movies and not not conducive to them point point towards

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Speaker 1: the slow down or hard recession immediately. But but every

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Speaker 1: the jaw boning and the direction of the swap and

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Speaker 1: implied futures all indicative of more chance of a hard

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Speaker 1: landing than not. And let's just keep looking at the data.

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Speaker 1: It's all macro. Look at the data and leading indicators.

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Speaker 1: Is it almost impossible to make the bull case here

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Speaker 1: for risk assets? Oh yeah, don't make that ball case

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Speaker 1: at the moment um. Just get comfortable being uncomfortable and

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Speaker 1: look at the data month to month, bottom up, and

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Speaker 1: let their c t a s have their year of

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Speaker 1: their one and seven year glory year. They've done very well.

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Speaker 1: This is why you have it in the portfolio from

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Speaker 1: an SSA a benchmark. But yes, the ball case, no

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Speaker 1: one's going to listen to you. Maintain your maintain your

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Speaker 1: your your risk budget allocation. The whole time mandates we have.

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Speaker 1: We have to be long with retail. We spent some

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Speaker 1: of that cash from the June correction, So we've got

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Speaker 1: a little bit of cash in there. But no one's

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Speaker 1: going to make the case again high yield, all the

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Speaker 1: way down to convertible notes, cocoa bonds, whatever it may be,

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Speaker 1: all the way to equity at the bottom of capital structure.

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Speaker 1: No one's going to listen at the moment. But maintain

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Speaker 1: in your your commitment, you know, focus on you know,

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Speaker 1: whatever part of the capital structure. Are there going to

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Speaker 1: be impairment increases? Yes, how much would it infect my

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Speaker 1: portfolio on the bottom up when you're looking at dividends,

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Speaker 1: there a cushion, et cetera. But again reinforcing the point,

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Speaker 1: it's macro data depended. And I always tell the team

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Speaker 1: get comfortable being uncomfortable and just persevere Georgia. Many people

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Speaker 1: said that the whole sort of allocation, because you just

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Speaker 1: mentioned allocation of sixty forty is essentially dead. But I

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Speaker 1: put it to you that it's still alive if you

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Speaker 1: go sixty in bonds and fourty in equities. Yes, and

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Speaker 1: that switch is a very good way to get people

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Speaker 1: with attention. And that's the extension of duration narrative that

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Speaker 1: should fit into that. But but the sixty forty inverted.

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Speaker 1: But at the end of the day, most pension funds

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Speaker 1: on the planet do have a very good allocation of

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Speaker 1: risk assets, and outside of the bond and the and

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Speaker 1: the equities, they do have really good hedge funds, diversification, property, infrastructure, commodity,

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Speaker 1: c t A. It's all in there, so that's what

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Speaker 1: you're gonna do. Diversified low ar squares across the portfolio. George,

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Speaker 1: thank you so much for joining us. George baburis there

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Speaker 1: from Cato Asset Management. His investment advices get comfortable being

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Speaker 1: uncomfortable