WEBVTT - Surveillance: Inflation Debate With Woodard 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa Brownwitz Jay Leye. We bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg 0:00:23.360 --> 0:00:30.000 dot com, and of course on the Bloomberg Terminal. Let's 0:00:30.000 --> 0:00:32.040 turn to Giant Wood at Showy Bank for America's court. 0:00:32.040 --> 0:00:34.279 He has had a research investment committee. Chard always grab 0:00:34.320 --> 0:00:36.800 to catch up with you. Muhammadal Arrian, writing in the 0:00:36.840 --> 0:00:41.199 FT this morning, the inherent instability of the goldilocks market consensus. 0:00:41.520 --> 0:00:44.720 Do you think that outlook, that nice goldie looks outlook 0:00:44.760 --> 0:00:48.879 that many people have, Jared, do you think that is unstable? Well, 0:00:49.560 --> 0:00:51.640 thanks Shan. First of all, I think that Bohammad maybe 0:00:52.120 --> 0:00:54.240 hoping for a consensus where I certainly don't see what 0:00:54.320 --> 0:00:59.560 I mean. Thinking about investor uh comments and questions this year, 0:00:59.640 --> 0:01:02.800 they have been entirely dominated by fears about things getting 0:01:02.840 --> 0:01:05.279 too hot, too much, stimulus, too much, you know, central 0:01:05.280 --> 0:01:08.520 bank easing is the is the reopening happening too quickly? 0:01:08.959 --> 0:01:11.240 You know? For for for markets, I mean, these have 0:01:11.360 --> 0:01:14.720 been the questions that have been constantly put to us, 0:01:14.760 --> 0:01:18.119 and I think that the the truth is are joking 0:01:18.120 --> 0:01:20.080 at the beginning of segment. You know, the markets have 0:01:20.160 --> 0:01:22.760 digested all this incredibly well. You know the fixes that 0:01:23.319 --> 0:01:28.240 you know sixteen thirty and and so the big takeaway 0:01:28.240 --> 0:01:30.800 for us is that, in fact, the most contrarian view, 0:01:30.840 --> 0:01:33.880 I think that the most out of consensus thought right 0:01:33.880 --> 0:01:36.240 now is that things might actually continue to go well. 0:01:36.400 --> 0:01:40.120 You may even start to see uh, some deflationary forces 0:01:40.240 --> 0:01:42.200 kind of work their way back into the system in 0:01:42.319 --> 0:01:45.360 second half of this year, in the start of next year, Jared, 0:01:45.560 --> 0:01:49.360 what percentage of long only by side, the more traditional 0:01:49.400 --> 0:01:52.960 investment is off their bogey. If they're tight, are square 0:01:53.000 --> 0:01:55.600 to the market. They want to be like the SB five, 0:01:56.080 --> 0:01:58.320 even if they're removed from it on the edge of 0:01:58.400 --> 0:02:03.520 hedge fund. How many people behind right now? I think 0:02:03.560 --> 0:02:07.320 a lot of people have gotten positioned for for reopening 0:02:07.360 --> 0:02:10.600 from reflation. They've gotten into some of these value trades, 0:02:10.639 --> 0:02:13.800 some of the cyclical sectors, especially financials and and uh 0:02:14.240 --> 0:02:18.760 energy materials a little bit um, but they're not completely offsides. 0:02:18.840 --> 0:02:21.200 And in fact, in most of our measures are internal 0:02:21.480 --> 0:02:25.120 proprietary measures suggest that investors have pulled back in positioning 0:02:25.720 --> 0:02:28.560 over the last several weeks, they're they're you know, somewhere 0:02:28.560 --> 0:02:32.519 closer to neutral from much more aggressive levels earlier this year. 0:02:32.680 --> 0:02:35.640 So I think that the fear of you know, aggressive 0:02:35.639 --> 0:02:39.519 investor positioning, people are overly exuberant about the market um 0:02:39.560 --> 0:02:41.240 and that's going to give us, you know, some kind 0:02:41.280 --> 0:02:43.440 of altility. I think that might be a little bit 0:02:43.440 --> 0:02:46.920 misplaced here a list. So this is incredibly important, and 0:02:46.960 --> 0:02:50.000 that the behavior wrapped around all this blah blah blah 0:02:50.040 --> 0:02:52.839 we do is critical. And as Mr Wardards says, they're 0:02:53.200 --> 0:02:57.160 people aren't born, are aren't on board the bull market enthusiasts. 0:02:57.160 --> 0:02:59.079 And you can see this particularly in the bond market 0:02:59.160 --> 0:03:01.000 right the fact that we can get that bid into 0:03:01.000 --> 0:03:03.360 the long end, we do see a flattening yield curve. 0:03:03.400 --> 0:03:05.519 And Jared, do you think that the bond market and 0:03:05.560 --> 0:03:08.040 the message there that is a lot less bullish than 0:03:08.040 --> 0:03:11.680 the message from equities is translating into the equities. Have 0:03:11.800 --> 0:03:15.200 we seen the full play out of a less inflationary 0:03:15.280 --> 0:03:19.160 reality within the equity spectrum? No? I think I think 0:03:19.160 --> 0:03:21.560 at least it's exactly in the equity market where you see, 0:03:21.840 --> 0:03:24.600 you know, the biggest potential change over the second half 0:03:24.600 --> 0:03:26.960 of this year. You know, if it's true our economists 0:03:27.120 --> 0:03:30.079 have been suggesting, for example, you know, you could see uh, 0:03:30.120 --> 0:03:33.840 some downward pressure on price indexes from goods as people 0:03:33.840 --> 0:03:37.960 shift from goods to services. As September unemployment benefits expire 0:03:38.040 --> 0:03:41.360 and all the kind of consumer behavior changes into this fault, 0:03:41.480 --> 0:03:44.040 you could start to see, um, some of these the 0:03:44.080 --> 0:03:46.360 short term price pressures actually moderate in the way that 0:03:46.400 --> 0:03:49.840 economists and beneficials have been promising for some time. People 0:03:49.920 --> 0:03:52.280 a few months ago were you know, terrified of of 0:03:52.320 --> 0:03:54.000 the cost of lumber. You can't go to the store 0:03:54.000 --> 0:03:56.800 and buy you know, buy some plywood. Well lumbers fallen 0:03:56.840 --> 0:04:00.200 from its peak, um, and so none of the is 0:04:00.480 --> 0:04:04.800 you know, disinflationary or even to just return to normalcy. Um. 0:04:04.840 --> 0:04:06.840 Sort of economic pressures I think are factor in the 0:04:06.840 --> 0:04:09.880 equity market today. People are still you know, on one 0:04:09.920 --> 0:04:12.200 side in terms of the reflation trade of a much 0:04:12.240 --> 0:04:15.240 more balanced portfolio, which is what we've been recommending for 0:04:15.240 --> 0:04:18.599 for a while. Um. I think it's gonna suit investors 0:04:18.640 --> 0:04:22.960 better as reopening becomes normalcy in the economic market and 0:04:23.080 --> 0:04:26.719 and in financial markets. Jared always shop super Smart's gonna 0:04:26.720 --> 0:04:28.880 hear from your child Wood at their Bank America Securities 0:04:28.920 --> 0:04:36.560 head of Research Investment Committee. When you go off of Bosie, 0:04:36.800 --> 0:04:39.760 you learn that there's a complexity here. John John is 0:04:39.800 --> 0:04:44.520 just not a simple yield down, price up kind of analysis. 0:04:44.520 --> 0:04:47.320 There's some real complexity. Let's talk about that complexity now. 0:04:47.480 --> 0:04:50.480 Vista joins us. Morgan Stanley had a fixed income research 0:04:50.520 --> 0:04:52.479 and Visually, let's start with just a simple one. The 0:04:52.520 --> 0:04:56.680 headline from your research, credit is vulnerable to a negative surprise, 0:04:56.960 --> 0:05:02.080 how su Vis? Basically, the valuations in credit have gotten 0:05:02.360 --> 0:05:05.320 so tight that there is not a lot of room. 0:05:05.600 --> 0:05:09.440 There's not a lot of buffer for for any change 0:05:09.560 --> 0:05:13.679 in the defects response function. If we have a any 0:05:13.760 --> 0:05:17.640 change in the expectations about the liquidity broke backdrop that 0:05:17.680 --> 0:05:20.560 the FED has been providing for for a long time now, 0:05:20.960 --> 0:05:24.839 and any of those kinds of that a hawkish tilt 0:05:25.120 --> 0:05:27.680 from the Fed, we think it's going to be negative 0:05:27.720 --> 0:05:29.720 for credit. Macchially, what do you cite to people that 0:05:29.760 --> 0:05:32.680 think there's a massive put here from the Fed in 0:05:32.680 --> 0:05:34.800 credit at the moment that we can't have what is 0:05:34.800 --> 0:05:37.320 spread because the Fed is there to back things up. 0:05:38.320 --> 0:05:40.600 I think there is you can think of that there 0:05:40.680 --> 0:05:43.440 is a fact put. But it's I would since you 0:05:43.480 --> 0:05:45.279 put it in that language, I would say that put 0:05:45.360 --> 0:05:48.520 is significantly out of the money put. You need to 0:05:48.520 --> 0:05:50.880 see a lot you know, the put is not it's 0:05:50.880 --> 0:05:53.960 not another the money put. So you need a substantial 0:05:54.120 --> 0:05:58.360 dislocation in the create markets to occur before the put 0:05:58.440 --> 0:06:01.960 can come in. UM. So it's not a it's not 0:06:02.040 --> 0:06:05.479 that will we won't see um you know, fifteen twenty 0:06:05.520 --> 0:06:10.120 business point whymening UM under the FED put becomes functional 0:06:10.560 --> 0:06:12.920 if you need to see the order of magnitude of 0:06:13.080 --> 0:06:16.760 what we saw in March of last year, that level 0:06:16.760 --> 0:06:20.919 of dislocation in the market, you know, companies, high quality 0:06:20.960 --> 0:06:25.440 companies losing access to UH, to the CLAID markets. Those 0:06:25.480 --> 0:06:30.560 types of dislocations would you can conceivably imagine FIT stepping in, 0:06:30.839 --> 0:06:33.640 but not for a fifteen twenty you know, sort of 0:06:33.680 --> 0:06:38.200 a more UH you know business point type more investment 0:06:38.200 --> 0:06:42.400 grate spreads. Visually, your projection here has a pretty profound implication. 0:06:42.680 --> 0:06:45.840 That is that perhaps credit spread trades more in tandem 0:06:45.960 --> 0:06:49.400 with FED policy than actual credit worthiness of companies. In 0:06:49.400 --> 0:06:52.280 the past, these were two distinct issues where typically when 0:06:52.320 --> 0:06:54.920 the economy was getting better, credit would do better. The 0:06:54.960 --> 0:06:57.920 spreads would actually come in because these companies had a 0:06:57.960 --> 0:07:00.839 better chance of doing well in Thattic economy and paying 0:07:00.880 --> 0:07:03.679 back their debt. Have we moved to an area where 0:07:03.920 --> 0:07:07.120 credit does not necessarily track the ability for a company 0:07:07.160 --> 0:07:10.360 to pay back it's money. It's it's it's borrowings. I 0:07:10.400 --> 0:07:12.360 would I want to. I think it's good to distinguish 0:07:12.400 --> 0:07:15.520 between what's happening in the high quality investment grade credit 0:07:15.880 --> 0:07:19.200 versus high high yeld credit here. I think what you've 0:07:19.280 --> 0:07:22.240 just said is probably more true for the high heel 0:07:22.280 --> 0:07:26.840 company companies. But investment grade credit is really at pretty 0:07:26.920 --> 0:07:30.040 much historical tights at this point, and the Great market 0:07:30.040 --> 0:07:35.120 has been a substantial beneficiary of the of quantity releasing 0:07:35.920 --> 0:07:39.720 and the low rates, and any change to that, we 0:07:39.760 --> 0:07:42.480 think there is not enough of a buffer in terms 0:07:42.520 --> 0:07:45.480 of spreads for the Great markets to absorb. Not so 0:07:45.560 --> 0:07:48.200 much when you look at the high yeld there is 0:07:48.240 --> 0:07:50.600 some buffer there for that to happen. So as the 0:07:50.640 --> 0:07:53.640 economy gets better, the prospects for there is still some 0:07:53.680 --> 0:07:57.080 prospects for high ye low higher bonds and leverage loans 0:07:57.120 --> 0:07:59.800 to get tighter, but that room for tightening is simply 0:08:00.000 --> 0:08:03.920 on their investment grade Therefore, what we see is this 0:08:04.480 --> 0:08:08.240 um the situation where there's a clear difference between um 0:08:08.440 --> 0:08:11.480 HI yield and investment grade. This is actually a fascinating 0:08:11.520 --> 0:08:14.600 discussion and highlights why so many investment managers prefer high 0:08:14.680 --> 0:08:17.720 yield even though it's known as riskier to investment grade. 0:08:17.800 --> 0:08:20.880 Right now, visually, can you walk us through the pathway 0:08:20.920 --> 0:08:23.400 of transmission the idea here of if the Fed does 0:08:23.440 --> 0:08:27.080 get more hawkish, does that mean higher benchmark yields, higher 0:08:27.160 --> 0:08:30.400 spreads or wider spreads and then all in losses that 0:08:30.440 --> 0:08:33.360 are really substantial? Is that what you're projecting here? Actually, 0:08:33.400 --> 0:08:36.400 I'm not suggesting any all in credit losses. We're not 0:08:36.440 --> 0:08:39.880 suggesting a forceful pick up. We are. What we are 0:08:39.920 --> 0:08:45.920 suggesting is the compensation for investment grade. The spread is 0:08:45.920 --> 0:08:49.160 the compensation for taking all that great risk. It's the 0:08:49.440 --> 0:08:51.760 if you it's if you look at can it get 0:08:51.760 --> 0:08:55.679 tighter as economy gets better? Can the markets actually accept 0:08:55.880 --> 0:09:00.120 lower compensation for taking on investment grade credit? Um? That's 0:09:00.160 --> 0:09:02.600 that that it's really not that much a scope there. 0:09:02.880 --> 0:09:06.320 On the other hand, if the economy debates get higher, 0:09:06.720 --> 0:09:11.040 the amount of liquidity in the market eas somewhat um 0:09:11.120 --> 0:09:13.920 could they get wider um. We think that they very 0:09:14.000 --> 0:09:16.920 much the case that they could get wider without affecting 0:09:17.400 --> 0:09:20.520 the verall default rate visually, in that we think the 0:09:20.600 --> 0:09:22.680 false will go up in the equity market, and I 0:09:22.679 --> 0:09:24.280 want to pick up on that theme in just a moment. 0:09:24.520 --> 0:09:26.760 In the equity market, when you bring up the prospect 0:09:26.800 --> 0:09:29.960 of exuberance and bubbles, people always benchmark it's what happened 0:09:29.960 --> 0:09:32.360 in two thousand and say, well, it's nothing like then, 0:09:32.400 --> 0:09:35.120 so there's nothing to worry about now. In the credit market, 0:09:35.120 --> 0:09:36.959 they'll look at spreads and say things are tight, but 0:09:36.960 --> 0:09:39.520 they're the tightest since two thousand and seven, and this 0:09:39.600 --> 0:09:41.760 is not two thousand and seven. Could you do me 0:09:41.800 --> 0:09:44.640 a favor, Can you adjust where spreads are at the moment, 0:09:44.720 --> 0:09:47.400 for quality, for duration, and give me a better picture 0:09:47.440 --> 0:09:50.640 of the parallel between now and oh seven. Right, we 0:09:50.720 --> 0:09:54.079 do that, and my my colleagues just recently published a 0:09:54.160 --> 0:09:58.560 piece just addressing that. So adjusting for for everything, we 0:09:58.720 --> 0:10:02.360 still think we at pretty close to kicking all of 0:10:02.400 --> 0:10:05.240 those factors into account. Um, you are at all time 0:10:05.320 --> 0:10:08.160 tights in investment grade, not so much in HILD. There 0:10:08.240 --> 0:10:11.840 is a substantial room in HILD, roughly hundred basis points 0:10:12.000 --> 0:10:14.800 in terms of gestured spreads in high yield the hail 0:10:14.880 --> 0:10:18.040 want but investment grade. We are through the Kites of 0:10:18.120 --> 0:10:22.680 two thousand seven all time sites on i G potentially visual, unreal, 0:10:22.840 --> 0:10:25.240 gonna catch out visually through Morgan Stanley had a fixed 0:10:25.280 --> 0:10:27.360 income research on a bit of a clinic TALM and 0:10:27.520 --> 0:10:36.080 was happening in the credit market at the moment. Let's 0:10:36.120 --> 0:10:40.240 save ourselves as Semasha here June thirty, two thousand, twenty 0:10:40.240 --> 0:10:44.120 one SEAS with principle global Semen, What did you change 0:10:44.120 --> 0:10:48.480 in your mid year outlook? Hi, tom Um in terms 0:10:48.480 --> 0:10:50.559 of the changes, you know, I think that how we 0:10:50.640 --> 0:10:53.080 started the year, isn't you different? You know, we we 0:10:53.200 --> 0:10:55.760 came in. I think most people are expecting inflation to 0:10:55.800 --> 0:10:59.480 pick up. UM. We we had a timeline for tapering. 0:10:59.559 --> 0:11:02.800 I don't think anything has changed in UM. If anything, 0:11:02.840 --> 0:11:04.240 that the summer is going to be a little bit 0:11:04.280 --> 0:11:06.120 more difficult with I think you should see a bit 0:11:06.160 --> 0:11:08.280 more volatility. I think there's a lot of vulnerabilities in 0:11:08.320 --> 0:11:11.319 the market, but we're still holding on to our tenure 0:11:12.160 --> 0:11:14.120 target of around one eighty five by the end of 0:11:14.160 --> 0:11:15.920 the year, and I don't be much changed on that. 0:11:16.160 --> 0:11:18.160 This goes to the quote from Pita Cheer of Academy. 0:11:18.160 --> 0:11:19.960 I'll be catching up with him in an hour or so. 0:11:21.120 --> 0:11:23.360 Take some gains, reduced risk, and enjoy a few weeks 0:11:23.360 --> 0:11:26.720 with less stress. Do you agree with that, Sema? Well, 0:11:26.760 --> 0:11:28.760 I think the thing is that for investors, they need 0:11:28.800 --> 0:11:32.319 to look through some of the noise over the coming months. 0:11:32.760 --> 0:11:34.960 You know, there isn't too much be worried about. If 0:11:35.000 --> 0:11:36.920 you're looking at taking a six month to one year 0:11:36.920 --> 0:11:40.880 of you there is still a strong economic recovery underway. 0:11:41.280 --> 0:11:43.400 You may get a few concerns around the fair, the 0:11:43.480 --> 0:11:48.400 concerns about inflation, and given how expensive equities are, you know, 0:11:48.440 --> 0:11:50.840 there's certainly vulnerability for a bit of a bit of 0:11:50.880 --> 0:11:53.439 a kind of a tumble here and there. But the 0:11:53.520 --> 0:11:56.439 long term view is certainly continued to rand an ecture market, 0:11:56.480 --> 0:11:58.920 how many people believe continue strength and cyclicals as well. 0:11:58.960 --> 0:12:02.520 And Seema, it continues to and either or cyclicals, value 0:12:03.000 --> 0:12:05.199 or growth, which basically for many people comes down to 0:12:05.280 --> 0:12:08.079 big tech, energy or financials. Take your pick on a 0:12:08.120 --> 0:12:10.920 sector that's your style, your factor. And I'm trying to understand, Sema, 0:12:10.920 --> 0:12:13.800 can you envision a scenario where the SMP five hundred 0:12:13.840 --> 0:12:16.040 just finishes the year lower from where we are right now. 0:12:17.679 --> 0:12:21.000 I mean, I think it's entirely possible, um and this 0:12:21.040 --> 0:12:22.960 is one of the reasons why I think increasingly invested 0:12:23.040 --> 0:12:25.720 me to look under the surface, start thinking about the 0:12:25.760 --> 0:12:27.800 sectors the company that you're looking at. And the reason 0:12:27.840 --> 0:12:29.600 for that is that, look, you know, we still have 0:12:29.640 --> 0:12:32.800 a generally positive long term view for secular growth dogs, right, 0:12:32.840 --> 0:12:35.360 so essentially technology. But if you get to a point 0:12:35.400 --> 0:12:37.720 where cyclical start doing really well and you have the 0:12:37.800 --> 0:12:40.760 yield can of wants again taking or just generally yield rising, 0:12:40.800 --> 0:12:43.120 then tech gets into a bit of difficulty. And given 0:12:43.120 --> 0:12:45.840 its waiting in in the SMP five hundred, that is 0:12:45.920 --> 0:12:48.600 a possibility that you have a lower SMP five hundred, 0:12:48.679 --> 0:12:51.880 even a ruly strong growth environment where cyclicals do well. 0:12:52.160 --> 0:12:54.400 So this is the time that investors need to really 0:12:54.480 --> 0:12:57.080 understand not just look at the index, but look at 0:12:57.120 --> 0:12:59.520 the various sectors that they're investing in SEEMA and a 0:12:59.520 --> 0:13:03.280 broader level. I'm wondering to muhammadalarians point, do you see 0:13:03.320 --> 0:13:06.240 goldilocks being a perilous zone to be in that it 0:13:06.320 --> 0:13:09.679 has an expiration date that one point one thing will 0:13:09.679 --> 0:13:11.520 have to break either inflation will either have to break 0:13:11.559 --> 0:13:13.640 out too high or the credit cycle will have to 0:13:13.640 --> 0:13:18.280 start rolling over. Well, I think with his point it 0:13:18.400 --> 0:13:21.320 was interesting in that, you know, I'm kind of disagree. 0:13:21.320 --> 0:13:23.200 I feel like people have become more and more aware 0:13:23.280 --> 0:13:26.720 of the very various risks. We have a client asking 0:13:27.080 --> 0:13:29.160 how do we have the inflation protection to our portfolio? 0:13:29.240 --> 0:13:32.080 So I think there is recognition that there are many 0:13:32.160 --> 0:13:34.679 different risks out there at the moment. But I think 0:13:34.679 --> 0:13:37.480 the really interesting part of our areas um comments were 0:13:37.520 --> 0:13:40.280 about the very structural changes that are taking place in 0:13:40.320 --> 0:13:43.520 the economy, which may funny end up in slightly higher 0:13:43.520 --> 0:13:45.960 inflation that we've had in the last decade, things like 0:13:46.000 --> 0:13:49.400 the supply change. How are people, however, as companies thinking 0:13:49.400 --> 0:13:52.920 about their inventories, um, just even with regards to central 0:13:52.920 --> 0:13:55.720 banks of the way that they're reviewing inflation. These are 0:13:55.760 --> 0:13:58.440 fundamental changes which you're gonna take some time to play out, 0:13:58.679 --> 0:14:00.120 and I think that's where we need a bit more 0:14:00.160 --> 0:14:02.959 focused from the time. How do they weigh into your 0:14:02.960 --> 0:14:05.080 investment thesis? In other words, how do you price in 0:14:05.480 --> 0:14:10.200 the very specific inflationary pressures of this modern era. Yeah, 0:14:10.200 --> 0:14:11.920 so we still think that Look, you know, we do 0:14:12.000 --> 0:14:14.800 have elevating inflation, and even after this, you know, the 0:14:14.840 --> 0:14:17.280 so called transitory effect. Said, now we still think we'll 0:14:17.280 --> 0:14:19.000 have inflation higher than what we've had it for the 0:14:19.040 --> 0:14:21.840 last decade, not a worrying height, but certainly around there 0:14:21.880 --> 0:14:24.520 two to two and a half percent level. And in 0:14:24.560 --> 0:14:28.200 the medium term, when we have elevating inflation, investors need 0:14:28.280 --> 0:14:30.720 to have that inflation protection. You know, we can talk 0:14:30.720 --> 0:14:33.680 about man who we talk about cyclicals and do the 0:14:33.720 --> 0:14:36.080 best area to you have that protection. It was in 0:14:36.200 --> 0:14:39.160 real estate because you don't suffer that volatility, and as 0:14:39.200 --> 0:14:42.440 long as it's accompanied by a strong growth environment, real 0:14:42.520 --> 0:14:44.640 estate tends to do better in these kinds of environments. 0:14:44.680 --> 0:14:48.920 So that's where are our favorite picking for this inflation environment. 0:14:49.600 --> 0:14:53.600 What do you do on a strategy basis with profitable 0:14:53.720 --> 0:14:59.680 technology companies? So we have actually maintained an overweight to tech. 0:15:00.040 --> 0:15:02.200 That's a couple of reasons. One is that you know, 0:15:02.240 --> 0:15:04.680 from a long term basis, these companies they have this 0:15:04.760 --> 0:15:07.920 strong cash flow, they have the balance sheet, and they 0:15:07.920 --> 0:15:10.760 are where most companies if they cann't survive over this 0:15:10.880 --> 0:15:13.600 difficult period last year and this year, probably next year, 0:15:13.960 --> 0:15:16.200 they need to use technology to pivot their business models. 0:15:16.200 --> 0:15:18.800 So tech is not going away. The other thing is 0:15:18.800 --> 0:15:20.720 is that it's a differensive trade. You know, when we 0:15:20.760 --> 0:15:24.760 have concerns about hawk ish fed growth out the tech 0:15:24.800 --> 0:15:26.240 tends to do well. Just as were saying over the 0:15:26.360 --> 0:15:29.000 last few weeks, So as to as it makes sense 0:15:29.040 --> 0:15:32.320 to have that as a defensive portions within your portfolio 0:15:32.360 --> 0:15:34.760 and hold it through the long term. The key rist 0:15:34.760 --> 0:15:37.680 because obviously regulations. But as you were discussing before, um 0:15:37.840 --> 0:15:39.840 text seems to be able to deal with those kind 0:15:39.880 --> 0:15:42.160 of pressures. Can I get everything you just said by 0:15:42.200 --> 0:15:48.160 just owning the index? Really good question? Sorry I misheard that. 0:15:48.200 --> 0:15:49.920 What was up? Can I get everything you've just said 0:15:49.920 --> 0:15:52.000 in the last ten minutes by just owning the index 0:15:52.080 --> 0:15:57.200 on the s No, I think you need to. You 0:15:57.280 --> 0:16:00.400 really need to actively look at what you're investing in. 0:16:00.480 --> 0:16:02.680 You know, there's gonna be some secretical sectors that do well. 0:16:02.720 --> 0:16:04.320 You need to have a little bit of valuance, a 0:16:04.480 --> 0:16:07.480 little bit of growth that you absolutely need to pick well. 0:16:07.880 --> 0:16:12.240 Because over the coming months, as the restation trade becomes 0:16:12.520 --> 0:16:14.600 I remember one of the beautiful saying, it becomes a 0:16:14.640 --> 0:16:17.560 bit more normal, some of those companies are not going 0:16:17.600 --> 0:16:19.520 to do as well. They've been enjoying over the last 0:16:19.560 --> 0:16:21.280 few months. So we need to be a little bit 0:16:21.280 --> 0:16:23.680 more competent, a bit more active in a way that 0:16:23.760 --> 0:16:26.000 invested are looking at the SAMA. Thank you. It's going 0:16:26.040 --> 0:16:35.960 to hear from the Principal Club Investors chief strategist right now. 0:16:35.960 --> 0:16:38.800 He is from the sixth district election to Kentucky. Must 0:16:38.840 --> 0:16:41.680 be a Republican, We know that. Andrew Barr joins, it's 0:16:41.720 --> 0:16:44.440 Andy Barr. And what Andy Barnos is The Fayette County 0:16:44.480 --> 0:16:48.040 Board of Elections is run a little bit better than 0:16:48.080 --> 0:16:51.320 the New York City Board of Elections. They can count 0:16:51.360 --> 0:16:54.280 the votes down there. Andy, to go to the votes 0:16:54.320 --> 0:16:58.120 in your election, you're not a borderline congressman. You won 0:16:58.240 --> 0:17:02.880 fifty seven point three percent to fort for the evil Democrat. 0:17:03.520 --> 0:17:06.280 What do the Republicans need to do right now that 0:17:06.280 --> 0:17:09.600 they are in much tighter districts to make two thousand 0:17:09.640 --> 0:17:13.840 twenty two a good outcome. I think we need to 0:17:13.840 --> 0:17:16.480 address the concerns of the American people. You just we're 0:17:16.520 --> 0:17:20.000 talking about the labor shortage crisis in the country, concerns 0:17:20.040 --> 0:17:23.520 about inflation. These are real. The Fed says and Janet 0:17:23.600 --> 0:17:26.680 Yellen say that it's transitory. I'm not so sure when 0:17:26.680 --> 0:17:29.000 you talk to the homebuilders, when you talk to people 0:17:29.040 --> 0:17:31.359 who have to purchase the lumber and the steel, and 0:17:31.400 --> 0:17:34.960 you you talk to um the restaurateurs who are buying food, 0:17:34.960 --> 0:17:38.600 and the trucking companies that are dealing with higher fuel costs. 0:17:38.640 --> 0:17:41.160 Inflation is real and it's a crisis. So I think 0:17:41.200 --> 0:17:44.760 speaking to those basic pocketbook concerns of the American people 0:17:44.840 --> 0:17:48.120 is what's going to deliver the majority back to us. 0:17:48.119 --> 0:17:51.080 But it's not about the politics. It's about solving these problems. 0:17:51.080 --> 0:17:53.760 And and we do have challenges facing us in the country. 0:17:54.240 --> 0:17:58.200 What should your own Powell do in his policy? Should 0:17:58.200 --> 0:18:02.040 he address Lexington, contut Ucky? Or should he address something 0:18:02.119 --> 0:18:04.600 like New York City. He's got to address us all. 0:18:04.920 --> 0:18:07.919 How does he do that well? I think what the 0:18:07.960 --> 0:18:10.359 FED should be doing is listening to Robert capp On, 0:18:10.440 --> 0:18:12.639 the president of the Dallas FED, who has been the 0:18:12.640 --> 0:18:16.639 most hawkish on this inflation question, and to his credit, 0:18:16.720 --> 0:18:20.359 Chairman Poal has encouraged um UH, these dissenting voices to 0:18:20.400 --> 0:18:23.639 talk about the real issue of inflation. And and we 0:18:23.720 --> 0:18:26.720 do not need to be buying forty billion dollars a 0:18:26.760 --> 0:18:30.040 month and mortgage backed securities with home prices going through 0:18:30.080 --> 0:18:32.600 the roof. Uh, this is fuel to what could be 0:18:32.640 --> 0:18:36.680 another bubble, and we need to watch and guard against that. Look, 0:18:36.920 --> 0:18:40.280 we've had historic levels of monetary and fiscal stimulus pushed 0:18:40.280 --> 0:18:43.919 into this economy. We are in recovery, but this is 0:18:44.000 --> 0:18:48.760 fueling a potential asset bubble that could create major problems 0:18:48.760 --> 0:18:50.720 going forward. And we don't need a situation where the 0:18:50.720 --> 0:18:53.760 Fed is forced to slam on the brakes and push 0:18:53.800 --> 0:18:57.760 us into recession. Congressman, let's talk about the infrastructure spending plan, 0:18:57.880 --> 0:19:02.560 the five billion dollar bipartisan deal that was struck. At 0:19:02.600 --> 0:19:05.040 what point would you be willing to sign off on 0:19:05.160 --> 0:19:08.480 that even if there were a reconciliation bill that was 0:19:08.560 --> 0:19:11.200 sort of attached to it the Democrats were pushing through. 0:19:11.560 --> 0:19:13.560 Do you have a price tag on how high you 0:19:13.560 --> 0:19:17.399 would be willing to accept for that bill. It's not 0:19:17.480 --> 0:19:20.360 as much about a specific price tag, Lisa. It's more 0:19:20.480 --> 0:19:24.520 about are we focused on core, real infrastructure and we're 0:19:24.560 --> 0:19:28.520 not tying it to an unrelated um green New Deal 0:19:28.760 --> 0:19:31.560 or social spending agenda that has nothing to do with 0:19:31.640 --> 0:19:34.840 the needs of the country. Look, we need a bipartisan 0:19:34.880 --> 0:19:38.120 deal to rebuild our country's infrastructure. Look no further than 0:19:38.160 --> 0:19:41.880 seventy five miles north of my home district in Lexington, Kentucky. 0:19:42.119 --> 0:19:45.720 You see the Brent Spence Bridge falling into the Ohio River. 0:19:45.800 --> 0:19:48.880 This is a major source of interstate commerce, tying Detroit 0:19:48.960 --> 0:19:53.440 to Tampa, through Cincinnati and northern Kentucky. This is a 0:19:53.520 --> 0:19:56.680 critical infrastructure project. But there's more of these all around 0:19:56.680 --> 0:19:59.960 the country. And we need to rebuild our country's infrastry 0:20:00.040 --> 0:20:04.400 ructure for growth, for safety, for the efficiency of our 0:20:04.400 --> 0:20:08.040 economy and productivity. But the key is are we going 0:20:08.119 --> 0:20:10.080 to do so the right way? Are we going to 0:20:10.160 --> 0:20:13.680 do so so through streamlining, permitting and regulatory reform and 0:20:13.760 --> 0:20:17.120 slashing red tape which would save three point seven trillion dollars? 0:20:17.760 --> 0:20:20.480 Are we going to do it through private capital as 0:20:20.480 --> 0:20:23.960 opposed to imposing huge new taxes on the American people 0:20:23.960 --> 0:20:27.280 that would make us uncompetitive and forced US corporations to 0:20:27.880 --> 0:20:31.920 uh move towards inversions again and move capital and jobs overseas. 0:20:32.000 --> 0:20:34.359 That's the question. What does it look like and is 0:20:34.400 --> 0:20:38.159 it really focused on core infrastructure? Congressman, would you be 0:20:38.240 --> 0:20:40.439 willing to sign off in the five D seventy nine 0:20:40.480 --> 0:20:43.879 billion dollar plan regardless of what happens elsewhere because of 0:20:43.920 --> 0:20:46.280 the need that you're talking about to rebuild some of 0:20:46.280 --> 0:20:50.199 those bridges and rows. Yeah, the bipartisan deal struck in 0:20:50.200 --> 0:20:53.840 the Senate looks good. But what was very discouraging is 0:20:53.880 --> 0:20:56.679 when President Biden, I think forced by his hand, was 0:20:56.720 --> 0:20:59.360 forced by the the extreme far left and the Progressives 0:20:59.359 --> 0:21:03.359 to iy it to this reconciliation bill that would massively 0:21:03.440 --> 0:21:06.680 expand the welfare state. I think him walking that back 0:21:06.720 --> 0:21:09.680 gives us more hope. Um, but look, the Democrats are 0:21:09.680 --> 0:21:12.680 having a really hard time around right now internally deciding 0:21:13.080 --> 0:21:16.800 what it is that they can do. Would you sign 0:21:16.840 --> 0:21:20.200 off on the billion dollar plan regardless of what happens 0:21:20.200 --> 0:21:23.280 on the other side. Yeah. I I've looked at the 0:21:23.720 --> 0:21:27.680 over the kind of the broad parameters and it looks positive, 0:21:28.080 --> 0:21:31.159 much better than what where the administration started. So the 0:21:31.280 --> 0:21:33.560