Fed Delivers Fuzzier Rate Message

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio, or watch us on YouTube. Search Bloomberg Global News. Well the US Central Bank top of mind today next FOMC decision just nine days away. This story is among our most read on the Bloomberg terminal.

It's about how with half point interest rate increases all but certain in June and July, Photo Reserve officials are shifting the focus away from a destination on hikes to something that's trickier to determine and explain, and that is the broader impact of their policies on the economy. So let's get to it with Bloomberg News, Foederal Reserve and US Economy reporter he is Craig Tours and he's on the phone from Washington, d C. Craig, I love this

story top of mine. I feel like it. It just meshes so well after although the recession talk we heard from so many last week tell us about kind of the shift in the narrative from J. Powell and Company or J Powell specifically. Yeah, so, Carol, we really saw it in the last press conference where he called this concept of the neutral rate UM imprecise and then mentioned the word financial conditions more than a dozen times. And you know, the tricky thing about financial conditions is they

don't happen tighten, or loosen all at once. Right now, UM mortgage rates have gone up quite a bit. They're above five percent last I looked. But heck, if you were financing inventory UM and selling cars, you'd probably be financing three two right now. And that's not very tight. So you know, what they're trying to do is strict even further. And if you look at financial conditions in disease, we have one Chicago Fed as one Goldman as one

they look pretty loose. Still. You know, Craig, as a stock market guy, I think of that, and I think you know, the Fed obviously wants to continue tightening conditions. Is there any way they can do that without causing the stock market to go back down to its lows of the year? Do you think? No, That's what I thought. Um, you know, because as you're raising borrowing costs for companies um or on consumer credit cards, eventually, I think you're going to be hurting earnings sooner or later, or at

least earnings outlooks. So I mean, it's what they want to do. And part of the stock market going down that affects financial conditions by reducing portfolio wealth, which might reduce consumption a little bit. So yeah, I think they're fully intent. Um, I'm tightening further. And Carol and Mike, you know, you gotta take little brainers now the face chair and uh we had this comment from her last week.

So you remember Mr Bostick in Atlanta. Dr Bostick, he said, well, we might pause and then financial conditions eased, so that you don't want financial conditions easing. And then little brainer came back and said, nah, pause looks quote very hard.

In September, this is like one of those things like kids, look, look, this is just a reminder, right, that each of these FED speakers can kind of do their own thing right there, or is there Like I always wonder if there's a memo behind the scenes, like Leo you come out and say this, and Bostick you say this. I always wonder. Yeah, it doesn't seem like they all got the same memo this time if if there is, But you know, look, I'll say this, it's good that we not all simple

things or is decentralized as ours? Um, the unique history of the United States were small business, businessmen and farmers. I've read these documents, by the way, they're in the University of Virginia, and you know, we didn't want centralized money. We didn't want a group of seven to have all the power so reserved. Thanks should have diverse views. That's a good thing, a good craig. I wonder, you know, obviously the consensus thinking is that we'll get a half

percentage point increase at the next two meetings. Um, that's your point. Uh. Mr Bostick sort of indicated he might like to see a pause then in September. But if not a pause, is it possible that maybe they'll go back go back to basis points? Have they sort of ruled that out anyone else in the discussions lately. I think that's an interesting um possibility. Nothing's off the table. And Mike, what what I think they don't really understand is balance sheet runoff that starts this month. How that

adds to financial conditions. Some people say you may add nothing at all. I mean we you know, when the FED buys an asset, it creates a liability in the form of coush in the banking system, and right now we have all this excess reserves, so much so that banks are just reparking it at the FED at a low interest rate. So it shouldn't make that much difference, but it might. We don't understand this fully how this works.

One thing I like is how you said in your story that it may j Powell walking back from the concept of neutral, cautioning that the discussion had a sort of false precision, but he said, you're going to be kind of enquiring how all of this is affecting the economy through financial conditions. To me, that says their data dependent on everything. I'm just got thirty seconds. Is that fair? Like? I feel like they're going to go into every meeting and just kind of look at the current set of

data points. I think what we want to hear in the next pros conference, um uh is what is clear and convincing evidence means to him three months of falling inflation.

That's the key question. All right, Well, you gave us something to think about on another countdown to another important FED meeting, which I think many of us would argue that they're all important, certainly because it's just going to determine so much as you say, FED isn't It's not part of their mission to watch the financial or not at least not watch the equity market, but they certainly

keep a watch on it. Bloomberg News Federal Reserve in US Economy reporter Craig Tourist joining us on the phone in Washington, d C. You are listening to Bloomberg Business Week Carol Master along with Mike Reagan, and we are Bloomberg Radio. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes. Tim Stinovic on Bloomberg Radio shares a Twitter though under some pressure they were down as much as five point six percent, off that low, but

still down just shy of two percent. Elon Musk as he said. Doug said believes Twitter is breaching their merger agreement but not meeting his demands for information, spam and fake accounts. There's the twists and turns of Ellen Musk in his pursuit of Twitter. It's just fascinating. Hey, let's get to it with our own. Kurt Wagner, he's technology reporter at Bloomberg News. He's with us on the phone

from San Francisco. He's writing about this. So I just want to know, Kurt, do you just like stay glued to Twitter at Elon's account to find out what's next when it comes to Twitter? Yeah, I mean just constantly being online. It's it's reminiscent of the Donald Trump days right where you're just bombarded with news over Twitter at all hours of the day. I feel like that's kind

of what we're at now, you know, Kurt. The gist of this seems to be that Twitter has stated in their filings uh with the SEC that they believe less than five percent of users are quote unquote bots, and that Ellen thinks the numbers something like or more. Is there any sort of independent third party that could you know,

chime in here that you've heard and tell us who's right. Well, a few weeks we actually we wrote a story that UM kind of outline the fact that there are third parties that try to quantify this, but unfortunately they're they're just guesses, right. I mean, the only way to really know the answer to this is to have the data that that Twitter the company has, and uh, they're clearly not willing to hand over that raw data. Now. I'm told that they have shared their methodology for calculating this

percentage with with Elon and his team. Um, they have, you know, to a certain extent, at at a very high level, even tweeted it publicly. Um, but they're not willing to hand over the actual raw data, which is I think the issue here. It's not so much that they're not willing to show their map, it's that Ellen doesn't think their approach or methodology makes much sense. I also wonder occurtis there's sort of a dispute over what

the definition of a bot actually is. You know, if I'm if I'm running a social media campaign for a big company, and I have four or five different brands and all of a sudden, they're they're all tweeting the same thing. Is that am I a bot technically at that point? Yeah, I think there's a difference between a bot and a spam bot, right, because bots on their own are actually allowed on Twitter. It's not against the rules for there to be an automated account. So there

are actually bots. I've I've written about them back when the vaccine first came out last year. There are actually some really helpful bots that would tell you when vaccine appointments were available and help people kind of get those and and at the time I was like, Hey, there are some Twitter bots that are actually pretty good and

doing helpful things. Now the issue, of course is spam bots, right, those are different, different type, and those are the types of things I think Ellen means when he talks about bots broadly. Um, But again, I think really what this comes down to is like I don't actually think this is much of an issue about bots at all. I think this is probably Elon really looking for a reason

to throw this deal into question. Um, you know, the price of Twitter is so much cheaper today than it was when he made the offer a few months ago. And if you're someone who's now in the hook to pay, you know, overpay for a company, what are you gonna do. You're gonna look to try and lower the price, and this fields like an effort to do that. Well, that's what I wanted to say, and I love what you said.

One of my favorite things in your story today is about how it's just so similar to former President Donald Trump and could use social media to kind of get what he wanted or at least get a narrative going out there. And I do feel like Elon Musk is incredibly savvy about posting things, and is he just trying to get a cheaper price for this deal? And and

we're a regulator saying you cannot do this. And where was he, you know, early on when he was doing his due diligence um and saying, hey, I got some problems with the bot stuff, let's figure that out before I actually put in an offer, Like, well, where where

was he with the due diligence? Is that he didn't do due diligence, right, And that was part of the that was part of the deal, was that he didn't want to or need to supposedly look behind the curtain that Twitter's you know, non public information, right, And so now that's obviously um apparently becoming an issue for him. But again, is it really I'm not entirely sure that this is this is the body issue. It's it's instead, to your point, kind of lowering the price. And what

does this mean for regulators? Now? I don't know about the regulation front, but I can say on Twitter side, they've said we intend to enforce this merger agreement, right, so Twitter can in theory, as long as they get shareholder approval and and other a couple other stipulations, they could go to Ellen and try to sue him to force him to complete his part of the agreement here. Now, that's obviously a ways down the road, and that could be very messy, and maybe something comes up to stop that.

But there is a scenario here where Twitter actually sues Elon to try and make him buy this company that he agreed to buy a few months ago, like a really well, it's so messy, and as as Ellen has tweeted, he's gathering an army of street fighting at Arney's. I guess, uh, I guess with that in mind, but Kert quickly I wonder, um, I'm trying to think who would take the job of

CEO if Elon does this takeover? Have there been any rumblings about that and whether or not he's he might have a difficulty finding a CEO given his sort of unpredictable and and uh contentious personality. And Kurt just got about twenty seconds. Yeah, well, he said that he's going to temporarily be CEO. The only name of someone that seems to keep coming up is Jack Dorsey, although he said he'd never be CEO again. You just have to remember there are a lot of people out there who

really do still love and admire Elon Musk. So I think finding one person who's willing to take this job and work for him won't be that hard. It just depends on who that person is going to be. Well, it just continues to give and give and give. This story. Um, Kurt, thank you so much. Really appreciated, Kurt Wagner. He's technology port U Bloomberg News on the phone in San Francisco. Shares of Twitter, as I mentioned, they were down five point six percent at it's lows, still down about one

point seven per cent. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Alright, everybody. In the upcoming issue of Bloomberg business Week. Actually it's the back page. It's out later this week. It's a story on the industrial stalwart that is going all in on specialty software. So let's get to it. Bloomberg Opinion Deals and industrialist columnist brook Sutherland.

Her columns on the industrial space always a must read, and she judge us on the phone in New York City along with Bloomberg Business Week nitor Joel Webber on the access line in Brooklyn. I love these kind of stories. It's like a kind of a tell, if you will, to our audience, Um, about a company maybe we don't talk about all the time, but maybe it's got to be on our radar. Yes, so yeah, I had to tell you. Oh wait, hang on, Brook, Well, let's bring Joel.

So yeah. I'm always pleasantly surprised with what brook brings our way. And you totally uh, you described it perfectly, like Roper Industrial is not a name that I was familiar with until Brooke enlightened me. And what's interesting about this company is sort of, uh, it's leaving uh, sort of the domain of brook Sutherland and coming something else. Brooke, what what jumped out to you, and why did you

choose to write about Roper? Sure, so it's the company I've been writing about for a couple of years now. But you're completely right that it is not a household name that most people typically think of. But what always took me as interesting about it is they really were ahead of the curve when it came to investing in software. UM. You know, it was a couple of years ago now, but back in ten we had this sort of mini wave where all of these industrial companies were talking about digital,

some more instantively than others perhaps, UM. But Roper at that point was really, you know, already sort of far along down the past of really becoming a software company UM. And they did that through a takeover based strategy where they were to acquire these niche providers of software UM where there wasn't very much competition in the market. They could command high margins UM and good free cash low and then they would turn around and spend that free

cash flow on yet more deals. Rachel, I did not know. I did not know that there was software that still had white space. What kind of software are we talking about here, Brookes? Uh, it is interesting and it's really niche and so we're talking about in you know, business management software for law firms. Uh, they bought a company

that makes software that used to make visual effects for movies. Um. They have software that connects you know, different parts of the construction and building product industries, from building product manufacturers to architects. Um. It's in. All of these businesses don't necessarily have a lot to do with each other. Um. What they have in common is they tend to be software based. And then again they tend to generate very high margins and throw off a lot of free cash flow.

So there are a bit more like a private equity firm in that respect, and that they're not necessarily hunting for strategic adjacencies. They're looking for businesses that have really good financial characteristics. Draw your right. You know, whenever I read a Brook column, I know it's about an industrial company, so I love it. I felt this was almost like an obituary of an industrial company. It's kind of sad,

kind of sad. Read a little bit, But Brook, I want to get back to that notion of these companies they decided to acquire. I'm reading your story here and it sounds like the core company it makes pumps, compressors, and controls. Okay, classic industrial Uh, then business management software for law firms, and software used to create visual effects for the movie industry. So what's there a rhymer reason

for these sort of bolt on acquisitions? Or was it was just a very acquisition focused management that when they saw a good deal they couldn't resist. Um? How do you end up with this sort of conglomerate of businesses all under one roof? Sure, so it definitely was an acquisition focused company. UM. They you know, have really sort of built their strategy around takeovers in the past couple

of years. And I think, you know, if you take a step back, I think what the former CEO of the company, Brian Jellison, realizes that, you know, the growth opportunities are in software. Um, it's getting very difficult to grow in industrials. We keep talking about all of these reasons to be optimistic for industrial growth, and yet here we are again talking about potentially get another recession for

this industry. UM. And I think you know, when you look at software, it's a lot less vulnerable to economic slings UM. And you know, it really preserves that free cash flow profile. But then makes this acquisition machine work UM. And what made me want to take another look at this company is they actually are doing a transaction to

finally get out of their industrial businesses. They struck a deal with private equity firm Quate, Doublia and Rice to sell a majority interest in the remaining industrial assets UM and then they intend to sell down the rest of that stake over time. So they are formally transitioning away from the industrial manufacturing sector, which is really interesting because it's the capstone of really a multi decade strategy to

transform this company here UM. And you know, one thing that's interesting is Brian Jellison had already sort of resisted getting out of these industrial businesses in part because they're not bad businesses. I mean, Rocher is a good company. They managed these assets well. These businesses, even in the oil and gas types, are tended to generate pretty good returns, even in times of uh, you know, economic cycles, and

you know, they weren't bad assets to keep around. But to your point, they really didn't ask that much to do with software. And I think his successor, Neil Hunt, has been a lot more aggressive in getting rid of some of these more traditional assets and completing the company's transformation. So you trade one sector for another, that's a pretty incredible transformation. Uh. And what do you what do you look like now that you're in a new world. What

does Roper? How does stack up with its new competitive set? I think that's what's going to be really interesting because the end their benefit of holding on to these industrial assets was that you've got to continue to be followed by industrial people like myself, but also you know Wall Street analysts and investors who have different attitudes towards business.

I mean, because Roper had so much software, they didn't really look like an industrial company, and they had you know, off the chart margins, off the chart, return on invested capital um, and you know, you would talk to the industrial analysts and they really would get sort of stars in their eyes talking about this company because it really was such a standout in the industrial wells. Now they're going to be part of the S and P five

under and Information Technology sector index. That's a little bit of a different ballgame. It's people who have different standards for what they expect from software companies. So, like I said, Roper has always been very well run. They have this fine tuned acquisition machine, This is a very good company that they are entering a different arena with different expectations.

I gotta say that book. I do wonder with IoT and you know, the Internet of Big Things, whether or not we like, does the concept to industrial change a little bit, you know, in a new era? And just got about thirty seconds left. Sure, I mean it definitely is changing. Like I said, you had sort of that rush of industrial companies getting into digital and that is only continued. I will say these strategies have gotten a

little bit more fine honed over the years. So I think it is sort of table stakes that industrials will have a digital strategy. But it fits um, you know, handed glove with their manufacturing, whereas ropers really going all in on software like we talked about, you know, business management software for law firms, where for the movie industry. It's not really industrial anymore. Transformation is happening all around us,

all right. Brook Sutherland deals in industrials columnist Bloomberg Opinion on the phone in New York City. As we mentioned, this story we feature in the upcoming issue of Business Week magazine. You can read it now on the Bloomberg and a Bloomberg dot com slash business Week, and our thanks always to Tell Webber, he's the editor of Bloomberg Business Week magazine. Joining us from Brooklyn. You're listening to

Bloomberg Radio. This is Bloomberg. This is Bloomberg Business Week with Carol Master and Bloomberg Quick Takes Tim Stenovic on Bloomberg Radio. We have seen so many Americans die from drug overdoses. Between nineteen yearly half a million Americans dying as part of the opioid epidemic. Opioid drugs probably contributed to an unprecedented decline in US life expectancy from seventeen. They've also hit the labor markets. We've seen a lot of estimates about the cost in so many different levels

when it comes to opioids. Well, here with the latest on the settlements and more, we welcome William Tongue. He's Attorney General of the State of Connecticut with us in our Interactive Broker studio. General Tongue, it's so nice to have you here with us. I do feel like there's two big issues right now affecting the safety and well being of our citizens, and I think about guns and opioids, and if I may, let's talk about guns. First, Um, you were key and helpful in passing gun control measures

after the Sandy Hooks massacre. I think we all thought after that, oh, things are going to change dramatically. I'm not even sure what the smart conversation is about gun control in this country when we see tragedy after tragedy, just in the last month alone, what is the smart conversation? Recognize that this is a public health emergency and an epidemic, and nobody knows it better than Texas right now, and

nobody knows it better than Connecticut. You know, it's been barely ten years that we suffer the same tragedy that people and you bold you are experiencing now. And Um, we're grateful for our own home state Senator Chris Murphy, who's leading the charge in Washington. We do hope that those discussions will bear fruit, but hopeful, but are in the reality. I mean, we're realistic. Why has it become so much a right about bearing arms versus protecting the

broader society? No, I don't know. I have a sixteen year old and a thirteen year and a ten year old, and I think all of us are asking how many more children have to die? I mean, what's what's hard about doing what we have to do to keep our children safe? What's polarizing? What's political all about that? Nothing? Nothing? You know, all of us put our kids on our buses or drop them off at school every single day,

and we hope we get them back safe. And and that that hope is is now not a given, but in question is terrifying for all of us who have children in this country. And so after Newtown, we took strong action, effective action. We have some of the strongest gun laws in the nation, some of the lowest rates of gun violence in the nation. After Sandy Hook. It still happens in Connecticut, as it happens everywhere. But we're blessed to have a ban on large capacity magazines UM

on the A R fifteen. We have UM a ban on ghost guns in Connecticut. I wrote UM the domestic violence gun law, which a lot of people referred to as a red flag law. I did that before, and I became attorney general when sense so common sense. UM hard to understand what the objections are. But still, William, I wonder you know, if you pass these measures in Connecticut, UM, you still run the risk of some state next door two states over having looser laws and someone you know,

buying a gun there smuggling it in. So it must be frustrating in a way. I mean ultimately from where you sit, is this really a job that DC has to undertake? So we we we don't run that risk. We live there right there, there's the iron pipeline, um, that comes up from the South to Connecticut and literally people with guns in the back of their trunks and they go in often into urban areas and in Connecticut, pop the trunk and say what are you looking for?

It's terrible and and it's terrible, UM, on some very real level, it's totally nuts that we have a system like this. And um, as so many of us have said over and over again, I bet you have in the past couple of weeks. This happens nowhere else in the world but here. And um that we're unable to stop stop it, not that we're powerless to stop it. Right.

Remember what, Remember what Justice Scalia and Justice Alito said in Heller and McDonald, the two big um gun control for lack of a better description cases before the Supreme Court. They said states have a role in the name of public safety to regulate gun ownership and gun use UM to keep people safe. And this is Justice Alito and Justice Scalia saying this. And so if it's obvious that we have a role, then let's take UM, let's take

on our responsibility to keep people safe. I do want to point out Michael Bloomberg, the founder majority owner of Bloomberg LP, the parn of Bloomberg Radio, and of course Bloomberg Philanthropy is a donor to groups that's up our gun control, including every Town for Gun Safety. UM. We're

talking with William Tong, Attorney General the State of Connecticut. UM, we might do wonder if we see more Americans I think about what's going on with abortion, where individuals can kind of go after you know, kind of almost become like public sheriffs if you will, in going after things or vigilant. If Americans can start and aggressively so start suing more gunmakers, might that bring about a change, and

should they be allowed to it might? And And there's the case against Remington's in Connecticut that broke new ground UM in the law. And basically what the Supreme Court of Connecticut said is that UM people can bring consumer protection lawsuits against the gun manufacturers UM. Notwithstanding UM the federal law known as Placa, which UM is a huge

liability shield for the gun industry, and and so that's encouraging. UM. We you know, we're prepared UM for the Supreme Court to issue a decision in the Brewing case that's coming. So all the focuses on abortion right now in Dobbs, but Bruin is coming to and it affects New York States gun laws, and so that will that may be bad, and that may have a direct impact on connecticuts laws. Just kind of segues into opioids because I do feel

about like liability. Why is it that you have companies that create products that put so many Americans at risk? And I think about opioids. UM, you held that with the state settlement in Connecticut UM for Connecticut Base Perdue Pharma, UH and the Sackler family, and I think doubled or

more so the amount in terms of their responsibility. But why is it though that when it comes down to it, they're not really held liable as individuals or you know what I mean, Like we have these settlements and companies, well, we did no wrong, we didn't. They're extraordinarily powerful these companies because of lobbying that they're extraordinarily well connected. Um they have great lawyers and I'm a lawyer too, and um, um they behind a system, a bankruptcy system that is broken.

And and that's why that's part of the reason why Connecticut continued to fight and held out. As you say, um, when we said the first settlement offer a three billion and then four and a half billion wasn't enough, because um, it wasn't enough. And it's not just about the money, right, it's about doing justice. It's about not creating the wrong incentives that if you're a gazillionaire and you do something horrible and you kill people, you're in Connecticut Still that

number is going up. And more than ten billion dollars in damage every year to one state of three million people. How much money did they make. Yeah, they took out conservatively eleven twelve billion dollars out of the company. You know it's much more than that. And by the way, you also know they're getting richer right now by the minute, I'm looking at the ticker tape here right on the screen. Every day they're in the market, they're making more money

and and and should the individuals the family be held responsive. Yes, yes, and and we have encouraged criminal authorities in the Department of Justice to do the same. Um. I don't have that authority as the state attorney general in Connecticut, and so I did everything I could to push a deal um that was at four and a half billion, to increase it to six billion as at increase to make them the Sacklers face the victims and have victims and

survivors speak directly to members of the Sacklo family. That was a specific ask by Connecticut that that happened. That was a big deal. You know, William, I'm trying to put myself in your shoes as the state attorney general in Connecticut. And and don't worry, I'm not a lawyer, so no competition. You don't have to worry about me. It is an election here. But but you know, I'm thinking of both of these problems. You're big, big, huge problems.

You're trying to solve opioids and guns. And in Connecticut, you know that ensure in industry is so crucial to the state of Connecticut. And I'm wondering is there any role for insurance companies in both of these issues. And the reason I asked is, you know, when I got a trampoline at my house, I got notified by my insurance company that they were dropping my homeowners because of the trampoline. Is there a case to be made that if someone has an A R fifteen in their house

that the insurance company should be alerted. Uh, Or if a doctor is prescribing too much opioids that they're in malpractice insurance company. You know, given your position in Connecticut with a lot of insurance companies, I wonder if these issues ever come up, and they do. They do. There's a lot of creative thinking around that, around ways in

which insurance can step in and require coverage. UM. Then there are counter arguments UM that that that somehow infringes on the right UM and and there are some arguments when you put pressure on the insurance companies that that's

somehow bad for business and bad for the economy. What's interesting, though, is not only does Connecticut have a long standing and traditional, deep relationship with the insurance industry insurance industry, we also have a deep and long standing relationship with the gun manufacturing industries. Right and on top of that produce farm of the Sacklers pharmaceutical companies also based in Connecticut. So

a lot of interested parties for better or worse. Well, right, because there's the upside to the economy, right jobs like like you bring in these companies, but you do wonder, you know at the end of the day, like where's the ultimate responsibility. We've learned this with cigarettes, with climate change, the oil industry, like right, like things that we know

do harm. And people ask me when I first got elected and I started to get really aggressive on opioids and on the the Sacklers in Purdue Pharma, and they said, William, you know, what does it mean to you that they're from Connecticut or based in Connecticut. And I think they expected me to be like a homer, right that, oh, well, there are law jobs at stake, and you know, good Connecticut company. I said that what it means to me is that Connecticut and the state attorney General has a

special obligation to be aggressive. It's on me, it's on us. Well, great to get your perspective, and we certainly will follow your efforts. Thank you so much. William Tong, He's Attorney General of the state of Connecticut. Joining us here in our Interactive Broker Studio. I'm room a journal now, but you let me drive. Oh no, no, no no, no, honey, please, I'll do the ride revels. I want to drive. It's a good question. Drive. This is good Drive to the

Globe on blue Bird Radio. Just about ten minutes left in today's trading session on this Monday, June six, Let's get to it to drive to the close with Jason Greenblack, Senior portfolio manager American Century Investments. They've got some two hundred sixteen billion in assets under management. He joins us on the phone from New York City. He's also involved in the management of several funds. Hey, Jason, is so great to have you here on Bloomberg Business Week with

myself and Mike Regan. How are you? And tell me why investors should care about fixed income at this juncture? Hi, Carol, Hi Mike. It's nice to speak with you today. So that's a question that we often get is why why fixed income? Why now down double digits in most asset classes within UH fixed income? Why should I care? And our response to that is is, um, We've we've repriced a lot. It certainly depends on your time horizon. If you're trying to to make short term asset allocation plays.

You probably lost in the last week and a half. If you look back a week and a half ago, the tenure treasury was at two and three quarters were now up thirty basis points, and you would have lost two and a half percent UM. If you think about it longer term, though, in our minds, we think now

is actually an interesting time to to start dipping in. UH. Spreads have certainly repriced in a lot of spread sectors, and treasury yields have really doubled this year, So we think on a longer term basis it makes sense, UM. But we also think it makes sense to have dry powder. UM. You know, we know that that we don't have a crystal ball. You know that volatility is high. We want to take advantage of opportunities, UM, on an active basis here.

You know, Jason, I've noticed you say you're underweight mortgage backed securities and underweight both investment grade and high yield credit. I'm curious, um, sort of what the rationale is for that. Is it strictly a matter of rates are gonna keep going up? Or are you worried about any sort of credit risks starting to percolate in the economy as we as we cool down a little bit from the growth spurt we had and see these interest rate rise Are

we looking at some deteriorating credit quality? Do you think we think it's the latter. We think that, Um, we are starting to see some cracks. We heard last week from from Jamie Diamond at JP Morgan Elon Musk making some comments. But the quote that I think is is really um you know most relevant today is is from

Restoration Hardware CEO. UM. He made a comment saying that, you know, we have a long way to go and in rising rates to fight inflation, and none of us have a crystal ball, and we have to be prepared for anything right now. And we agree. We think that if the FED is still pushing forward with rates, inflation is still a problem. That we've heard on numerous occasions from many CEOs and management teams on first quarter earnings calls that we do think that that credit does have

some some room to crack here. Um, it's not going to be at the upper tier of of the market. We think it's probably more so and those that are more highly levered, those companies that have a higher rate of ating rate um interest expense, and at some point we think that, you know, companies are going to be having difficult times passing along these price increases to consumers and it's not We think we're seeing evidence of that today.

And we think that, you know, credit does have a propensity to widen from here, and at some point we want to use that built up liquidity to to buy when valuation is cheap en up. You know, it's funny that you say that about r H because our Romaine Bostick last week, you know, I think listened a lot to the earnings call and just said it was like listening to a FED call, Like it was just fascinating

the amount he was talking about. You wouldn't have thought it was this high end, you know, furniture company because they were talking so much about interest rates in the economic outlook. But is it is interesting to see how the the tone has changed. Um, are you setting up your investors for some kind of you know, deep recession or recession at all? Recession? Certainly a question that we keep asking ourselves internally. At this point, that is not

our central case scenario. We we think that stagflation is more likely the outcome here where growth is slowing um and flation will remain stubbornly high. However, I do think that is fixed income investors. We we typically model our cash flows and our assumptions to say, well, how will company why or Z perform in a recession and a

risk off environment. And when you come to valuations and you look at corporate O A, S and I G at one thirty and about four hundred for high yield, we just don't think we're being compensated for that stagflation or even the recessionary risk that that could be looming

um in the next twelve to eighteen months. You know, Jason, Obviously everyone is talking about how the FED wants to see financial conditions tighten a little bit further before they're comfortable that they're they're getting the job done on the inflation side. What kind of credit market turmoil do you think it would take to cause the FED the sort of back off of their tightening campaign. Um, I think we need to look at the very front end of

the curve. The liquidity markets and funding in particular had had tightened back in March. That to us was an indication that maybe the FED the expectations coming off the beginning of the war in the Ukraine was starting to perhaps um influence the FED a bit. Um. However, I think just listening to the FED governors and even the chair over the last couple of weeks, they want to continue to push harder and and push forward with their

rate hikes. So I think the liquidity that we're feeling at the moment, and and it is a less liquid market than we were in six months ago, it's just not enough. And I think conditions need to tighten up quite a bit more for them too, to perhaps put that um great hike on pause. Jason, really quickly thirty seconds. Um. In terms of green money and E s G. It does feel like a reckoning. You guys don't have a dedicated kind of green money space necessarily, but this is

part of your process. Is this an opportunity for investors, especially as we look at what's going on to you politically with energy markets just so much kind of being disrupted and again just quickly sure, UM, I do think that there are opportunities. We see them every day in new issuance as far as certain sectors go. Um. You know, I think that where the cash flows go is where we should be looking, Um, we want to make sure

that we're getting paid for taking those risks. And you know, as E. S. G goes, it's it's embedded in our process and I think that that's you know, key to to the analysis. Well, good to have you on come back, because we'd love to continue this conversation. Jason Green black Over at American Century Investments. Thanks for listening to Bloomberg

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