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Gina Martin Adams warned us yesterday that yesterday's rally did not give her too much comfort. I think I'm saying it's safely based on our models, their data dependent. Her view and concerns about the equity outlook has not changed. So let's just see what our thoughts are today. Gina is, of course, Bloomberg Intelligence Chief equity strategists.
Did I say it right, that's right, all right?
No?
But did did I say you're warning you?
Yeah?
Yeah, it's close enough.
You know, it's smitted to a minute these days, Carol, So so how do you make sense?
Yeah, like the rally yesterday, right, it wasn't free.
She basically you came in, You basically shook your head at the rally yesterday and you said, anytime we see a move up such as this, it's not a good thing. Yeah, And you pointed to two thousand and eight, and you said, and sure enough, the superlative was going back to two thousand and eight. You reminded all of us the market did not bottom until March of two thousand and nine.
Yeah.
This is something we did earlier this week is just looking at these major capitulation moments in the S and P. Five hundred and put them in context of what's happening in the fundamentals. And what you do find is that the big, big sell off vic Spike's capitulation moments, whatever you want to call it, in the midst of economic distress, tend to happen way earlier than the ultimate bottom occurs.
Whereas you can use things like capitulation vix, pairwise correlations, whatever technicals you love to show capitulation, you can use those for timing bottoms when the bottoms are of little minor ten percent correction that are not necessarily affiliated with
major economic distress. But the simple fact that we're in this period of extraordinary uncertainty, and our other models are more fundamentally oriented models are telling us that the economic downside has really yet to be fully priced in the S and P five hundred. That kind of context would suggest to us we could be in for a longer and more extended period of volatility, even if the volatility never reaches the levels that we got with Liberation Day.
So even though we're like off our lows, I mean, like, how how are you thinking about like how we end up today and what's important coming off of yesterday's rally.
I think the most important thing to watch right now, frankly is fundamentals. I think that the market is going to be volatile. I think it's going to jump around. It's you know, I wouldn't be surprised in any given day if we're up five thousand and down five thousands.
BIX kind of tells us that, right, hold on, hold and say that again, up what five thousand.
Or down five thousand on the Dow, not the S and P F which of course is at five thousand.
It's a huge move.
Yeah, So I would not be surprised to see extreme volatility because our sensitivity levels to any kind of policy movements right now are enormous. Right we saw that yesterday. What I think we want to keep our eye on now is what are companies telling us throughout this earning season? Are they going to start pulling guidance, because that's usually a sign of pretty extraordinary uncertainty. How are they navigating this crisis? Are they planning to push costs onto the consumer?
And then further, are they starting to change their operations in response to the tariffs that are ax.
We've kind of heard that that's happening already. We heard Carmas and Delta this week. Amazon CEO Andy Jasse said, and I'm going to get this. I'm not looking at exactly what he said, but the gist of his comments where we think that producers will pass along the increased cost to consumers. Yep, that's happening.
Yeah, And I think they'll try and then the next well, I think they'll try to put those prices out on the market below and we have accept those prices, right? Or also is there a substitution?
Right?
I think that this is very interesting in the context of China in particular, which provides an enormous amount of our consumer focus.
Is there a substitution?
There is there a substitution? Does the consumer have to take the price and then the consumer only has so much disposable income to go around. What are the alternative categories that they have to cut back on in an environment of accelerated price Because we know wages are only growing at a single digit pace, tariffs are already coming
in at twenty six percent on average. That's a whole lot faster than wage growth is, and especially for the lower income consumer, could be very very meaningful at driving the ultimate pie and how they slice up that pie of income in their.
Spending bankornings, Yes, what are you going to be watching it for?
Oh?
I think this is going to be really interesting because we've seen such a tightening in financial conditions. Our sector strategist Mike Casper runs a macro model of financial sector earnings and one of the things that that model told us earlier this week is to expect financial earnings to be about half as much as consensus is anticipating. That's in terms of a growth rate. So some sensitivity coming for financials because we've seen such tightening in financial conditions.
So what does that mean? What do we look for then? How tight are financial conditions? And are banks starting to prepare for a downturn because you would see lone loss provisions accelerate you would see bank sort of lending get tighter. You would see them talk about the credit quality, what's happening with delinquencies and default rates. Those sort of indicators are things that we want to watch for in the bank specifically.
Well, we get a little clue right from Jamie Dimond being on Fox and talking about the prospect of recession.
What about basic day to day movement of customer funds, what they're doing with their debit cards, what they're doing with their credit cards, how they're doing paying this stuff off.
Yeah, I think that that's a good, great point because you can get a lot of that data now in today's world of alternative data, you can get a lot on that.
Don't need to wait for the banks, Bank in America or Brian one hand to tell us what's going on there.
How are consumers actually handling this situation? What are they spending on? You could get that out of MasterCard, You can get that out of.
Anything, anything, anything of concern there.
You know, I haven't looked in the second measure data that's available on terminal. It's something we'll all put on the to do list, the laundry list of to do something we should definitely do in advance the consumer sector earning season, especially. I think given that tariffs really just got implemented, we're at the point where we can start to really follow that data series. But it's not something I have to admit, it's not something we've really tracked too much.
You do follow the economic data. So what's the next data points you're thinking about here?
Oh? Obviously, so we have consumer prices and producer prices this week. We're sort of in the midst of getting those indicators out now. I think the FED is going to be absolutely critical to watch, you know what times of commentary once right now is the market starts to acknowledge the recession risk is real. They start to follow the earnings numbers, and the analysts will mark down their expectations, and then the market will feel so lost and confused
that it starts to look to save you. Sorry, it looks to the FED. And we've already seen how the market looked to the White House as a potential savior From this, I think the market will start to really push on the FED, and how much will the FED be able to respond in the environment of inflation and growth. It's going to be absolutely critical. I think the job
market is also really really interesting right now. Challenger layoffs are levels we only usually see in recession experiences already, So we're getting the layoffs there, but we're not seeing it in the non pharma. Why are we not seeing in the non farm employment? Why are we not seeing the unemployment rate? Some of it I think is just survey, some of it is we're still creating some jobs to
offset those layoffs. Will we see job creation then start to slow and will we also ultimately see the unemployment rates start to rise? Because those are really key triggers for the FED.
I'm going to ask you the question that I asked you yesterday, but a day has passed and we have new data. Yes, are you more or less concerned today than you were when you walked in yesterday?
Oh? I'm still very concerned. I don't think it's changed a whole lot of you know. I think, if anything, the only thing that I can say is, at the very least, it does look like we had our panic. Our major first big capitulation event has happened. Yeah. Does that make me feel really better that we won't have another one? Not necessarily? You know, I think that this whole the tariff situation is just incredibly uncertain. We're still we still have average tariffs to contend with of twenty
six percent. Even if it's ten percent on everybody, that still is a big sea change for the economy to contend.
That's what we're thinking about.
Or we had some guests yesterday, maybe it was you too, who just said, let's not forget ten percent in any given environment, tariffs would be a big deal.
Yeah, huge deal, considering we're coming from an average tariff pace that had been close to three.
All Right, we're gonna leave it there, Gina, Thank you so appreciate it. Geena Martin Adams, chief equity strategis at Bloomberg Intelligence, are go to every day in terms of the trade.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Applecarplay and the Android Auto with the Bloomberg Business app, or watch US live on YouTube.
Well, Ryan Dietrich has been a US stock optimist and right about his market in recession calls over the last couple of years. He nailed it in twenty twenty three and twenty twenty four, and when we talked to him in December. He said the bullmarket had more room to run. So given the volatility and the declines that we've seen, including today, it's time to check in with him again. Ryan Dietrich is a chief market strategist at the Carson Group.
They've got about forty two billion dollars in assets under management. He joins us from Cincinnati, Ohio. Ryan, are you still bullish?
Boy? First off, thanks for having me back. You know we are.
I know it's been rough. I know we did not expect to see a near bear market this year. I know I came on with you guys earlier this year said maybe we could get between ten and fifteen percent correction after not seeing one all of last year.
But clearly with everything like everyone's talking.
About, and we got a nineteen correction.
Yeah, we were all. We were close in your day. I know we were there.
We can get into a lot of lott of the lot of the different things here, but I think the key thing that we're really stressing is, yes, we like stocks are going to do okay when all of a sudden done this year, but you know, to be diversified. I know it's kind of boring to say, but you know, just yesterday, right, you manage. We manage a lot of money, right just yesterday, we actually went into a little more
international stocks. We specifically like Europe here. We think, you know, when times of stressed uncertainty, you want to be diversified. We have some bonds, we've had some gold for a while. We've had gold for two years now, okay, and it wasn't quite as popular. So be diversified here when things are like this.
But at the end of this year, do you see the S and P five hundred having a gain or a loss?
No, I'd say again, and that's really unique because we were just down fifteen percent for the year, not that long ago. You look in history when you're down at least fifteen percent at any point during the year, it's kind of rare.
You're looking at like.
Eighty two, two thousand and nine, and twenty twenty, and I think by memory that might be about it years that were down at least fifteen percent for the year to come back to positive.
But we can get into the weeds of it. There's so much negativity.
We we think if any potential good news, we saw what happened yesterday, do we go into recession or not, it's still our base case. No, you know, but again I get, we get all of the worries. Now, let me just touch one thing. I know you guys talking about technicals here. Yesterday we look at the NYC New York Stock Exchange. I've got data back to nineteen eighty on this. If you look at the volume up versus down, it was sixty eight times up volume versus down volume.
That's a record. We've never seen a day with that much up volume versus down volume.
What does that mean?
Well, listen, you're talking like August of eighty two, you're talking like March of two thousand and nine. Those are some other times we saw days like yesterday, which kind of tells us the sellers went on strike. And I know the sellers came back a little bit today.
It wasn't a lot of it's short covering yesterday. Yeah, I mean, this is what we've talked about with our team. I mean, there was a lot of short covering going on.
No, they're exactly right, and that's how bottoms start. We hear that every time it's short covering, it's short covering, and then it tends to go a little bit further.
So it's a fundamental trade.
It's not like you're, Okay, I'm buying this because I think you know, their earning's outlook is great.
It's I got to cover my short.
Yeah, you're right in the for the shorts, that's true. But again, what's the market doing right right, Carol? It's all what's baked And by the way, you said it feels like Friday. I think Monday morning felt like Friday, didn't it Just like wait, wait is it Friday around here?
But anyway, you know what's baked in what's not. I mean there is some all your guests a point of these things out huge, but the call ratio spikes over the top negative sentiment rightfully, So, I mean, look a look at the headlines, and it's been unfortunate what's happened for a lot of investors. At the same time, we're stressing, your best days of the year tend to happen around
your worst days of the year. So if you just sold because you had a ten percent drop Thursday and Friday, then boom, you have a nine percent bounce just yesterday. I mean, that's some important things to remember. And again to us, what's being priced in is so over the top negative that there's probably still more a good deal more upside. To be honest, maybe it's not gonna happen tomorrow, but when we look up and avoid a recession, we.
Think things are still gonna be okay. When all of a said and done this year.
What changes your view? What would have to happen between now and let's say six weeks from now when you come back on with us and I ask you, Ryan Dietrich, are we going to end the dear with the S and P five hundred higher or lower? And you tell me lower? Why are you going to tell me that?
Yeah?
One of the few great question there. One of the things I really like to follow the credit markets. I know you've had a lot of good credit guests on last several weeks. Also, when you look at spreads right, keep this simple, triple B spreads, high yield spreads, they are not anywhere near what they were in twenty twenty two. So if the smartest people in the room and I grew up thinking this is the credit markets, they're not as worried right now about a monster under the bed
as what the stock market is. It's shocking Honestly, it's shocking to me. Right now, you're to date high yield the corporate bonds are down about three percent. If you would say the stock market's done what it's done with the headlines we've seen, I would expect to see more stress in high yield corporate bonds. Well, we're not seeing that now. That can change in a hurry, We get that. But I think if the credit markets really spiral out of control, tim, that's what would worry me.
And we're not seeing that ass off today. Knock on wood.
We do have a headline that crust around two twenty US leverage Loan fund seeing a record six and a half billion dollar weekly outflow. Just wanted to throw that out there. The thing is, you know, we had an economy that was doing well. We were still dealing with a little bit of inflation.
We know.
The game in town right now is concerns about tariffs, and if we stay at ten percent, as most people have assessed, Ryan, that.
Is a tricky thing.
It's you know, any other moment in time where if we just impose the United States ten percent tariffs and all of our trading partners that's a problem.
So if that stays in place.
What does a problem that kind of problem look like in terms of the equity trade and the corporate earnings trade and the US economy.
Yeah, you're right. I mean it's the uncertainty factor, right.
I mean, obviously we got the decent news yesterday with the ninety day kind of punt, if you will.
But the ten percent is still in place.
It absolutely is.
And again, nobody for the most part thought nine days ago that we'd be here.
Where we are.
When President Trump held up that little piece of paper with all those countries, all those numbers on it, we zoomed in and realized, oh, my goodness, this is an effective tear rate of you know, maybe twenty three, twenty four to twenty five percent. But you're right, it's all about art of the deal and and going back and forth. But the truth again, that's why we're getting this, you know, kind of revaluation right of markets, why we've had one of the quickest corrections we've ever seen.
We were almost in a bear market.
I'm with you, but again, I mean you have to think the resourcefulness of the US, the ingenuity of the US. If we if we just know it's ten percent, and I think we'll be okay, we can get through that. Yes, if it's over twenty Carol, that's that's not going to be good. We've all talked about the consumer confidence levels, small business conference levels. People are just confused. And when you have uncertainty, this is what you have a self first,
ask questions later mentality. We just need a little more, you know, a positive news on this trade front like we saw yesterday. They have to be majorly positive news, but I think it's just some decent news and one one more thing on this, you know, look at the labor market. I know this can change in a hurry, but we weddential claims today wasn't all that bad, right. The labor market is still hanging in there. So it's hard to have a recession if you're not laying off a bunch of people.
Now, we get it. That will change.
That can change. And I should note that we did just speak to Gena mar N Adams on our Bloomberg Intelligence Team, chief equity strategist, and she noted that although the claims are holding up and non farms are holding up, she's seeing some weakness when it comes to the challenger Grand Christmas numbers that is concerning to her. I do want to remind everybody where we are in the trade today. The S and P five hundred was down as much as six point three percent. It's bounced off those lows.
We're down three point five percent, the naas that can Posit down four point four the Doubt down two point six three percent, the RUSS two thousand, those small caps down about four percent. Ryan to kind of go with Carol's point when it comes to tariffs, you love talking technicals, but at what point in your view do fundamentals overrule technicals? Because tariffs aren't technical, these are fundamental, and this is
now affecting companies here in the US. So at what point do fundamentals overrule technicals?
Yeah, I grew up with the old saying, you know news, Trump's charts, Trump's being the keyword there, so we know news matters, and I mean, believe me, from a macro point of view. On the Carson invest Research team, we look at technicals, valuations, and fundamentals, So fundamentals are clearly in there.
It's gonna be really interesting.
I mean, get your popcorn ready, right when we got these banks coming up tomorrow, Right, We've got a lot of companies coming out of me is real unique.
What Delta just said.
Delta said, we're not going to give you any guidance because we don't even know what to say, you know what I mean. So that's really interesting that that's what that's what that company is doing. How many other companies are going to do that, We'll have to wait and see. But I'm anxious to hear what Corporate America has to say here, Tim about you know, kind of the h one other thing. I mean, I'm sure you guys talk
about this the dollar, I mean the dollar action. I mean that this is one of the first crisis we've seen in our lifetime most listeners lifetime, where the dollar would did not get a bit, people did not flock to the dollar, so listen, I truly don't know what exactly it means. Is a dollar losing reserve currency status? I'd like to think not. But it's really unique what
we're seeing with the dollar being this week. I mean, this last comment here March of twenty twenty, gold down, stop down, bonds down dollar was the only thing that went up March the first half of March twenty twenty.
We're really not seeing that dollars.
Yes, So what does that tell you about about this environment? If we're seeing gold serge but weakness in those other areas that you mentioned, what does that tell you?
Well, again, I'm gonna put my investor hat on my portfolio manager Hacke. This is what we just did yesterday, and we've been talking about this for a while. If the dollars a week, you want to own some international exposure. You want to have some international stocks because they tend
to do better in a week dollar. Yes, a week dollar does a little bit better for commodities on the whole, but specifically in our tactical models, we've had a four percent allocation of gold for I think it was March thirty first of two years ago when we added that, so almost two years ago.
So there are some things that you can do okay with a lower dollar.
Also, one of the things we just added again yesterday in the money we run low volatility low volatility. If you look at that, it's pretty much an ETF that has everything really except for tech.
Really except for tech.
I mean it's like the high flyers, and that is up one and a half percent on the year. I'm not saying that spectacular, but compared to where we were so low volatility, international exposure, maybe some commodities, some gold. We've got some managed futures too. Yes, we are still about seventy four percent or so equities and our unconstrained models we run, so we've got some equities. But when you look at what we have inequities, it's not just
you know, crazy over the top aggressive stuff. There's some other things like low vall that we still like your tim.
Hey, Ryan, one thing I want to ask you, and you mentioned international equities and you said Europe specifically. I'm looking at our market's live blog and it talks about how US equity valuations have fallen more than there are peers today extending their decline since January twentieth, and they talked about the rally yesterday was full of strange distortions, with traders ignoring the fact that the overall level of tariffs in the US hadn't changed all that much, a
reality that seems to be registering now. But when you do look around the world, you mentioned more in Europe. Are you looking to possibly even increase that exposure overseas at this point?
Well, given me, just increase a little bit yesterday, Carol, probably not quite right now, but I will say this. I mean I've done this for twenty five years. And twenty five years i've heard Europe is cheap, right, Developed international is cheap. Well, sometimes you're cheap for a reason. But again we've seen Germany came out, oh what maybe six weeks ago with kind of the big bazooka really trying to use a lot of fiscal policy to get
their economy going. There are some things that you know, again, in times of uncertainty, you kind of want to diverse five. And that's again just why we've moved a little bit more into international, specifically Europe. Now EM just quickly on EM. We're still not too warm and fuzzy by EM. We're still I know China had a big balance, but it's rolling back over. So we'd stick more developed international, kind of the European side of things versus emerging markets versus emerging markets.
Hey, one thing I want to ask you flows.
What are you seeing in terms of flows in and out right now or over the last week or two or a couple of weeks.
Yeah, I mean a lot of good deal outflows. I mean there's been a good deal of worry still, you know, I mean there there truly is some panic in the air.
We know that. I mean, the vis is the one we like to talk about. I know you guys like to talk about it.
We just had the first VIC spike above fifty in a long time. I took a look, like, when you have that initial VIC spike above fifty, like the last six times going back like twenty years. Well, not surprisingly one in three months later, it's volatility and honestly some weakness, but six to twelve months later you tend to be pretty strong. One more on this, we as everybody knows, a really big update. Yesterday I found twenty three times the S ANDP was up at least five percent in
one day. So those are like the best days we've seen. And yes, a lot of them took place in bear markets, and nearly all of them took place beneath the two and to day moving average, where volatility kind of rains. Still, when you look at those twenty three six months later to a year later, you're talking some really solid returns. One year later, SMP's up ninety one percent of the time.
A year after it an entire trade war, Well, I mean, hey, listen, some of those took place in a great financial crisis. Some of those took place during the flash crash. I mean, I get totally get what you're saying. But a lot of times when we all are worried and then we price in all this negativity, Carol, maybe we can get some I'm a glass half full guy.
You know that. You ask have you ever.
Been a bear? But I'm not sure.
I've asked that before, and I think you have.
I've been. Yeah. I mean, we could be more neutral. Honestly, we manage money.
We have models that we have to have certain allocations to equities, right, so I can't just say go all in gold, but we totally can can position things a little more defensively and honestly, goodness, when I came on with you two years ago, we had more growthy things. We had more aggressive things. Now with the money, with the equities we own, like I'm talking, I mean, we've got some low volatility in there, you know, so that's not something we had two years ago.
I think what Carol's asking, and it's a question that a lot of friends have actually been asking me. People who are not in the markets in and out of the markets. They're just like normal people with four oh one k's and who have investment accounts. Is is this time different? Yes or no?
Well, the foremost dangerous words, this time is different, Sir John Templeton.
Here, here's what I've done.
I've every fifteenth I put a little money in my kids five twenty nine, I actually put a little bit more in right, four to one k. Actually try to put a little bit more. And I have no idea when this is going to bottom. But if you don't need that money for five to ten years. The old saying the stock market's the only play. Things go on sale, everybody runs out of the store screaming. There's a lot
of that. Okay, so there's some really good companies you can get a lot cheaper that everybody probably loved eight months ago, and who knows where they're going to be three months from now. But I think, you know, if longer term investors out there listening that have time, this is going to be a time we look back and say, wow, Liberation Day was not fun.
That was not a good time. But boy, I'm glad I didn't panic. And one more.
Little cheeky one. You know, plans are useless. Planning is everything. President Eisenhower, have a plan, stick with it, and a lot of people, unfortunately don't stick with their plans when you have scary headlines like this and we get why, but then you look back and you realize, oh my, I should have probably stuck with my plan.
Yeah, provided the long term outlook or the economic outlook, the US economy hasn't changed fundamentally as a result of maybe long standing tariffs. Like, there's so much at play here, because we've heard from some super smart part people like yourself, but also like Howard Marx, who's saying that you know, there could be certainly longer term impact because of the tariffs and the volatility that we've seen in the market.
Hey, so glad we could get some time with you.
Ryan Dietrich, he's chief market strategist at the Carson Group, joining us there from Cincinnati.
This is the Bloomberg Business Week Podcast. Listen live each weekday starting at two pm Eastern on Applecarplay and the Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, just Say Alexa played Bloomberg eleven.
Thirty we've got a great next guest who's got a global view, has seen a bunch of market cycles with us as Mike Siegel. He is a partner at Goldman Sachs Asset Management, serves as global head of the insurance, asset management and liquidity solutions businesses, as well as co head of the Client Solutions Group in Asia Pacific. You do see a lot also with us as Bloomberg TV Global Finance correspondent Shanali Bassa, who actually brought us Mike.
So we're so grateful because there's so much going on, Mike, and we want to dig into your specific worlds.
But you do watch.
Everything globally and I'm assuming everything is connect. Did you watch a lot of different markets at this point? Let's start with the environment. We had one Auto Parts CEO describe it to us as the Great financial Crisis, the COVID set down, and the auto strike all rolled into one, at least for him specifically, How do you see today's market environment?
Well, Carol, thanks thanks for having me and thanks for that question. I think that people are clearly on edge and are reluctant to make any significant decisions until we get better clarity as to where the tariffs are going to end, where that situation is going to end. Once we have more clarity to that, you can then go back and see the markets will react. They'll adjust, the
FED will react. It will adjust, and so will companies in terms of how they're going to invest, including my insurance clients and including the liquidity clients.
We don't know how it's going to end, but I'm curious if you've mapped likely scenarios for how they'll end, what do you think is going to happen.
Well, we do maps in it, and so first I'll stick with the insurance industry, which is very well capitalized and not levered in the sense that they're not over their skis. They don't hold a lot of equities on the balance sheet, so the equity market volatility that we've been seeing is not creating a capital strain. They are primarily fixed income investors. And by the way, we're seeing the intermediate and long end of the curve rise, we're
seeing credit spreads widen, so on reinvestment. That's a pretty good situation as long as it just doesn't continue to cascade into something much more significant.
Yeah, it's good for the longer term. For people who are reinvesting in bonds. You have insurance clients that are holding long term bonds and ten year, thirty year notes are really blown out at this point. Are they suffering through a lot of pain because of it?
Yeah, so, Soniali, You're absolutely right that on a mark to market basis, these bonds have lost value. But most of these institutions don't have to report on a marked to market basis. They're able to hold their bonds to maturity, So really they are more benefiting from the ability to reinvest at higher yields than what's been happening to their
to the current holdings. Not the same thing being true for hedge funds example, or other institutions that are marked on a daily basis may have to provide collateral as their asset values are dropping. But that's not the case for the insurance industry.
But do they feel that there is a certainty that
this does get resolved sooner rather than later. I think I love your interview you did with Boaz Weinstein, who I thought, you know is assessing the situation and saying the thing is here we have a president who's in for just under four years here, and that he said, the uncertainty genie is out of the bottle, So do we continue to in your view, and you've got to think about short term, longer term, medium term, that uncertainty will be with us throughout this tenure.
I think uncertainty will be with us, hopefully not at the level that we have right now. And again it's it's our companies in a position where they're forced to act or or not. And to the extent that they're not over levered, they're not forced to act. They could sit watch and look for opportunities.
And I could tell you they nervous at all.
Oh, absolutely so. So I would say, you know, when you gain plan out. You know, right now this has primarily been an equity market event. Concerns that it becomes a bond market event. Rising fields are not that much.
Of a problem.
Draining liquidity becomes a problem, and you know, so there's there's a concern or watch for that. Also, I would say for our insurance clients, they are long term holders of corporate debt, how are those corporation's going to fare? And certainly some corporations are going to be much more affected by tariffs, which would we can credit others are
immune to it. So we're we and our clients are doing a lot of work right now going literally bond by bond, security by security, What is the sensitivity to the tariffs or not?
Well, on a micro level, some of that uncertainty has already led companies on a case by case basis to pull guidance CarMax today certain financial goals that it's just not giving delta. Earlier this week, you mentioned a lot of uncertainty, and I know yesterday Goldman Sachs rescinded its call for a recession this year? Are you seeing signs of a recession?
So let me say this.
So one of the things we want to talk about was the survey, And first I would say on the insurance survey, it's.
About fourteenth annual Global Insurance Survey, four hundred and five companies representing over fourteen trillion dollars in balance sheets assets combined.
That's a lot.
That's a lot.
It's about half the global industry's asset base. I bring that up because one of the questions we said is what are you concerned about? And that question they got absolutely right. They're concerned about inflation, They're concerned about geopolitics that aren't concerned about tariffs and market volatility.
Welcome to our world. In a nutshell.
What they didn't get right and nobody did, was the magnitude of the tariffs and the implications for that. So they didn't see recession this year. That view is changing, including at Gold and Saxson. Within our clients, they thought the equity markets would be well behaved, not riproaring, but
well behaved. That view is changing quite dramatically. That they also thought that rates were had peaked and would be coming down slowly, both at the short end of the long end, and I still think that that's the prevailing view. So this backup in longer term rates is looking like an investing opportunity. None of our clients have been selling or directing us to sell on their behalf. They are looking for opportunities to get into the market, but they're not in a rush. You know, they want to see
how things settle out. Once they see how things settle out, then they'll know where to put capital to work.
You know, you mentioned that you're looking bond by bond right now, and the reason that's so interesting to me is because you're already seeing somewhat of a capital market's freeze. And if you're worried about corporate debt at all in this environment, what does it mean for the way people have confidence in investing in corporate debt in the future and new issuance for example.
Yeah, so, Sonali, that's really going to be industry by industry, case case by case. And that gets back to this uncertainty until we know how this unfolds, and it may not, it may not unfold to a point where we have definition, is that this is the way it's going to work. You've you've elevated elevated the amount of uncertainty, which is elevating the amount of risk I need to get paid a bigger risk premium to hold any of these instruments. And that's why we see credit spreads widening out.
You know, a lot of people are saying this is also a Goalden opportunity for a while public capital markets are freezing, to look at private capital because you're seeing these private credit giants just float right in as the public markets are closed. But are you concerned that there are still a lot of pain under the surface in private markets given that you know, they call it the
denominator effect. These companies are seeing their public portfolios really shrink and their private portfolios therefore become a bigger proportion of their holdings.
So let me take that question into two break that into two parts. One is the underlying asset values themselves. And so we've got private equity, we've got real estate, we've got infrastructure, we have private credit. At the moment, we're not seeing any of this flow through to the existing investments that have been made, but we have to see how things unfold, and if we end up in a deeper recession or deeper recession, that's going to weaken
the underlying asset values. Now, the thing you said about the denominator effect is the ability to put new capital to work, and there's two components to that. One is, I already have a private equity portfolio. I was hoping to get realizations give me fresh cash to put back to work. And if the public markets are closed, particularly the IPO market, You're not going to see as many of those realizations. So I'm going to keep keeping more
of my capital tied up in those assets. And then the second point you're making, which is more applicable quite frankly, to pension plans and sell from wealth funds is as as the public assets, particularly the equity assets, decline and value, all of a sudden, my exposure on an asset allocation basis to the private assets has increased. Again reduces my willingness to invest more.
So this was supposed to be the year, right that all of a sudden we could tap the public markets, sell, sell some assets, IPO whatever, right or M and A and it.
Well, this was supposed to be the year.
It is only April, Okay, So you are hopeful that it gets better.
Well, I'm always hopeful, but we shall see.
I guess that.
I'm just saying in an environment where if we expect more and certainty over the next three and a half years, that makes it tricky, right.
It makes it tricky. I think you know right now the administration is in the middle of trying to rebalance trade through tariffs. At some point that will settle and then the markets can assess what does it all mean? And then I think you will see markets open up again. You'll see more flow of capital.
We're talking about the risky stuff. Yeah, I'm also wondering you have one of the biggest money market businesses in the world under your purview.
So how are those behaving?
What are they being used for in an environment like this, because it's generally safer than a lot of the debt markets that we're talking about.
Yeah, so, Sonali, we manage over seven hundred billion of short term liquidity products. We consider that to be the canary in the coal mine, so we're always watching what's happening with flows there and at the moment things have been very stable. The vast majority of the assets are government assets, you know, short term short term treasury.
Bills, et cetera.
And we don't see flows coming into that market. We take that as a good sign. Another part of the market, which is called prime, includes a lot of commercial paper and other short term debt of corporations, and we don't see we don't see companies moving out of prime. So at the moment, and we watch very closely, things feel calm at that end of the market.
When money leaves your money market funds, where does it go.
Well, over the last several crises, if I could say like that, it's been actually coming into the money market funds. Basically, you know, the two competing forces would be bank deposits, and money market funds, and you know, some of the crises have called into question, you know, credit worthiness of banks, so it comes into the money market funds. If people are very nervous, it's going to go into government money market funds, so primarily T bills and other government guaranteed forms of debt.
Are you calling this a crisis right now?
Are you seeing money coming into money markets?
No?
As I said, we're watching on a daily and a minute by minute basis, and we haven't seen any flows come in unusual flows, nor have we seen flows moving out of prime into government guys.
By the way, every single crisis for the last decade or so, Mike has been one of my first calls, which is exactly how's.
It going, Sally? I hope that's not why you called.
Is there any money going outside the US? Increasingly?
So, you know you've seen so coming into the beginning of the year, it looked like the US economy, who was going to be the fastest outside of China, the fastest growing economy in the world.
Exceptionals, right, We talked about American exceptional.
Exceptionalism, and you also saw the dollar strengthening over a long period of time, so it if I took foreign money and put it into the US market, I had probably a underlying market that was going to rally and I pick up the currency appreciation a double owami. Right now, the dollar's weakening and the US markets are selling off, so I'm sure that that's putting a damper on those flows.
I want to go to China and specifically the US relationship with China. You spent a lot of time in China, you live partly in Hong Kong, You're head of the you're co head of the Client Solutions group in Asia Pacific. Is the relationship between the US and China broken?
That's really not in my Bailey Wick. But I will tell you our relationships with the government, entities and the companies that are there. You know, between our firm and those entities is very strong. What's playing out is just pellying out above everybody's head, and we're leaving it to play out at that level.
But it has significant implications for the way that companies do business with one another. If one country has tariffs that exceed one hundred and I mean one hundred and twenty five percent, If it exceeds that, that's a big deal.
Yeah, it's very important for the two countries to have good relationships, and then that translates down into the entities that we work with and the relationships we have with them.
Can I ask you one last question.
Oak Tree Capital Management co founder Howard Marks wrote today that Donald Trump's tower policies have the potential to be the biggest economic event of our lifetimes, and warned that reversing them could still have consequences.
Do you agree.
I don't know if I agree with that statement, but I will say this that volatility has a cost, and it's undermining people's confidence to invest, whether it's corporations building plant and equipment, whether it's investors putting money to work. So there is a cost of volatility, and we're seeing that by the declines in the market and the widening out of spreads.
So appreciate this. Thank you so much, so much.
Mike Siegal, partner at Golmansach's Asset Management Global head of the insurance, Asset Management and Liquidity Solutions business, also co head of the Client Solutions Group in ASA Pacific. Mike, thank you very much, really appreciate it. And Janellie, thanks for bringing us. Mike Bloomberg TV Global Finance correspondence. So she calls you. You know what it's about. Is this a crisis?
But he says no, for now here, for now all right, let us know if that view changes.
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