Spotlight on Buffett’s Annual Letter

with Berkshire's full year twenty twenty two results. This is coming about eleven days after we got news that Buffett had slashed his holding of TSM. We're talking about Taiwan Semiconductor Manufacturing, just months after disclosing a major stake, an unusually quick reversal by the legendary stock picker who tends to buy and hold in a big way. Yeah. And also, just Berkshire is such a beloved like we love to

watch it, We love to analyze this letter. So we're going to break it down with Bloomberg News Regional Banks and Insurance reporter at Max Reyes. He's here with us in our Bloomberg Interact of Broker's studio. Max, thank you so much for joining us to talk about this. First of all, just to give us the breakdown on why we know and love this annual letter so much. Sure, I mean, I think there are a lot of executives who do these, but Warren Buffett really sort of set

the template. He set the mold when it comes to doing them. Buffett is known for talking about any number of things. Very often returns to his love for and his major bets on the US economy, but you know, literally anything could come up. The one thing I would say is that he's become a bit more reserved in terms of what he talks about. But it's I'm still expecting to see some surprises tomorrow. You never know. Last year, for the first time, he gives them space to Greg Abele,

who's sort of the air apparent there. So I'm just curious to see what he has in store for us. Okay, real quickly, on that succession plan, do you anticipate any more of that coming up in the letter coming out tomorrow? I really don't want to jinx it, but that's what you're hoping for, So I think I don't think we'll hear more about what Buffett is wanting to do. I think Buffett will you know, he's there for the long term, right.

But what we what we have been hearing, what we have been wondering about, is whether or not there might be plans around declaring or noting Joe Brandon, who runs Allegheny the the insurer they bought last year, whether or not that might make it clear that he's ready or

trime to take over the insurance business. Right. Um, currently a g Jane runs that, but it's unclear how long he'll be there, how long he'll stay, and whether or not there are thoughts about making a sort of clear indication as to who's going to be in that role next. But we know really who the successor is, right for Buffett, Yeah, Yeah, that's that's Greg. That's Greg Gabel And so we think Jane will ultimately leave because that those two were in the running for a while sort of. Yeah, so so

right now they're both vice chairmen. Essentially, Jane runs all of the insurance. Greg Abele runs everything else, ventially non insurance as they call it. But insurance has been a big business for it's sort of the business, and that it is what allowed Berkshire to be Berkshire. Right. They use the cash that the insurance businesses generate to do all of the deals and all of the stock picks

that we love to talk about. Right. So, but having said that, are we expecting at some point Jane, because yeah, just as he gets older, you know, as as the company evolves, and kind of going back to what we were saying about Taiwan semi right, that's another sign of how Berkshire is changing, not just in terms of the leadership, but in how those stock decisions are being made, what stocks are picking, how long they are in them when

they rotate out. That kind of comes down to very often Buffet's deputies, you know, Todd Combs and then Ted Weschler. So I think what we're seeing is Berkshire slowly but surely moving towards this era where a lot of the folks at the top who have been there basically forever eventually are not How are your sources reading the swift change on TSMC? Is it as big of a deal

as it seems? It's a big question mark. A lot of folks who I spoke to say that they think it's indicative of a bet, that that bet was made by Todd or Ted, because again Buffett is known for really sticking around there are some exceptions to that he did something that looks kind of similar on Oracle. The real thing that makes this difficult to sort out is the fact that unless Buffett talks about it, either in the letter or the annual meeting, we just won't know

who made the call. He's gone out of his way on some occasions to spell out this is my chunk of the portfolio, this is someone else's, but it's not always clear. So that's the thing that we also have to sort of wonder about well. And it's interesting because for such a long time, right, Berkshire was really kind of your old line companies, right. We know. It was jewelry, it was chocolate, it was trained, it was like things that you felt like the old time economy, if you will.

And then when it made the Apple investment a few years ago, we realized, okay, things were a little bit different. Right now, the younger generation, if you will, at Berkshire was certainly making it's mark. Yeah, I mean to your point, right, Buffett in Berkshire are kind of infamous for how late that they woke up to the sort of value of tech. But we are definitely seeing changes there. There's right, there's any kind of number of metaphors about how a ship

is slow to turn or that sort of thing. What we are seeing at turn, We're seeing these changes coming about. I do wonder in terms of bigger, broader macro like if you think about it, I still remember during the financial crisis when I want to say, I can't remember was it who Buffett was on with? Was it Jamie

Diamond on sixty minutes? And I remember working in like the dark depths, but who basically went on and like provided some comfort for everyone, you know, in terms of talking about the US economy it's going to exist, and my faith in America and those kinds of things. And we've seen him in times of stress certainly come out and lend his support. We're at this interesting juncture of trying to figure out what post pandemic life is like, right, and we talk a lot about the FED and high inflation.

Is it safe to assume that he will dress some of these in terms of high inflation, some of the big macro stories that are out there. I wish I could say yes, and we'll definitely see that, I know, we hope. So yeah, again, it's the kind of thing where but he tends to touch on the exactly. So our assumption is it he'll talk the macro picture, he'll walk us through what he sees there, what he thinks there.

But I don't want to commit to any promises that I won't be able to keep come tomorrow morning when we see what the case actually is. Well, another story I love and the Buffet space is I think it was Lebron James. He gave him the investment advice to play basketball, right, like, just be good at what you're good at, put your money in an index fund. Do you mean if it wasn't for Warren, we wouldn't have Lebron James. I mean it's possible that he's responsible for Lebron. Right,

I can't believe I'm talking about sports. This is so out of character. But is that investment advice of just like stick to a traditional index fund still the mainstay of Warren Buffet in Berkshire or do you think it is starting to modernize a bit? I think I think this is might be not a super helpful answer. But what you're saying about sports there, Buffett and people in a circle have always stuck to this sort of stick

to what you're good at ideology. There's actually Charlie Munger once said something along lines of, you know, Buffett just keeps his head down and focuses on what he needs to do to make the company run well and does lets the other stuff fall to the side. The same reason Buffet's good at his job. It's the same reason

that Roger Federer is good at a tennis right. It's an idea that if you're focusing on what makes sense to you and what you know well, and you just knock that out right, that's the best thing you can do. So if those strategies have been working for you, that makes sense. I feel like Berkshire thinks that its strategies have been making sense. That's that kind of thing. So his strategy is not shifting, then this isn't ye, I would say. I would say that Buffett's doing his own thing.

His deputies are doing what they're doing, that sort of thing. Yeah, he definitely has. He does his thing for sure. Shares a Berkshire. I'm just looking at them Class A shares. They're just down about one percent so far here in twenty twenty three. They were up about four percent last year. We're going to get full year results what are you watching out for it in that regard? Well, So I also cover the insurance world pretty closely, so I'm I'm

kind of an insurance nerd. I'm really curious about what we see with Geico. Overall, the results for auto insurers across the board have been really difficult because inflation has squeezed margins, squeezed out the profitability, And what people really want to see is a better sense of what Berkshire is doing to combat that, whether that's rate hikes, whether that's cutting back on advertising that sort of thing. We've gotten a lot of granularity, say advertise so much as yeah, yeah,

the Gecko all that. So we've gotten a lot of granularity in visibility into that from other insurers. I'm keen to see what, if anything Berkshire has to say about that and how results compare to the sort of difficult period we've seen the last few years. Is there one particular data point or choice that's gonna be really critical for you that you're really on the lookout for on that? Uh, it's funny you said the press are here just because

I control f It's just like succession buffett able. But on underwriting specifically, it's just whether or not you know, how how the bottom line looks, how underwriting profitability is shaping up. Just those factors are going to be what determines kind of trajectory at Ico just twenty seconds, which of his businesses are doing the best right now? Because he's got energy, he's got railroad, he's got manufacturing, He's got a lot. Obviously the bets on energy have really

been paying off. The railroad is a consistent performer, right, and that's that's what he looks for. He looks for utilities, the sorts of things that will bring in the cash in the long term consistently. Well, we really want to know, Max, is what time do you have to get up in the morning to like read this? What time doing am Eastern? Okay? Sorry, tough Friday night for you. We'll be looking forward to it because it's certainly a must read. Max. That was

a great comprehensive background. Uh and and breakdown if you will, Max ray As he's Regional Banks and Insurance for Porter here at Bloomberg News, joining us in our interactive Brokers studio. You're listening to the Bloomberg Business Week podcast. Catch us live weekdays from two to five pm Eastern on Bloomberg Radio, The Bloomberg Business a band you two. You can also listen live to our flagship New York station, Just Say

Alexa play Bloomberg eleven thirty. All right, speaking of pain, we know the strong dollar has created a lot of pain across global markets. We talk a lot about the dollar, it's impact on earnings, on emerging markets, and so much more. This is the US currency has been on a global rampage since the Fed started hiking interest rates. Now some of the world's biggest investors are saying, Mattie, we talked about this at the US dollars rain is finally over.

So now we have to figure out what this ultimately means and what this means for global markets. Yeah, it's it's absolutely critical, and we've got an amazing voice on our program to talk about this. It's the amn or most read on the Bloomberg. It's today's big take. Here to discuss is Liz McCormack, chief correspondent for Global macro Markets, joining us from zoom here in NYC. Liz, thank you for being here with us. Tell us about just the

status of the dollar. Give us the big context here. Yeah, so my colleague Ruth Carson, like you said, it had a great big take today that you know, there's a lot of investors and of course today was a crazy day, right, this hot data even talking about and yields one up and the dollar one up. But all that noise said, you know that investors are really a lot of them leaning into that. Really you know, huge high we saw last year and the dollar is just the peak. You

know that things have gotten more inline. Other central banks are tightening as fast as the Fed. That maybe we've seen the worst of it. And like Carol said that it's been a lot of pain for a lot of folks, the strong dollars. So maybe you know, nois aside the worst of the dollar strength is over. That's the theme that people feel, Liz. How much of this is just what's going on with the Fed and the expectations that okay, we know the Feds on it's you know, fight against inflation.

We're going to see some more higher rates. It's going to go on for a little while, but ultimately we're starting to see the end of the Fed's right rate hiking cycle. How much of that is impacting the dollar at this point, Well, I think that's a lot of it, right, Like like we said, when there's some noise and hot day,

that moves around. But you know, I was talking to a fund manager yesterday, Carroll and kind of asked him the same exact thing, and he said, yeah, a lot of it is that that the FEDS may be closer to done. But then he was leaning and we're not seeing that yet. Into that, you know, the FEDS closer to done and all this tightening, which as we know,

has a lagged effect. He sees a recession coming at the end of this year early twenty twenty four, and that the US is going to weaken sharply and that's going to be bad for the dollar, right, So I think it's the global mac we're all outlook, and you know, things globally've gotten a little better than they were, right. You know that Europe has done a good job at replacing Russian energy sources, right, and so that was better. China has reopened faster than some thought, So kind of

things are helping the other currencies. As of course, the dollars always against a pair, right, And then the factors we're talking about with the fit and maybe a US recession coming faster is kind of kind of taken the dollar down. But we just got this paper from investors saying that we should go up to potentially a six point five percent terminal rate. I have to wonder, and I'd love for you to help me understand this, Liz. If we're going to get a higher terminal rate, why

does that not mean a stronger green back? How have we already reached the peak then? And what are you and the people you speak with thinking about that? Well, Maddie, that's like the million dollar question. People saying where the terminal? Right? Right? So I saw that paper was great. They're saying six and a half. We've had some people on TV and

on the radio saying it could be higher. But there's a lot of people saying, listen, the Fed's probably going to get to five and a quarter five and a half and maybe just stay there for a long time. So I think the jury's out from economists investors of actually, really, how high does the FED have to go? Like I think, in fact, Ruth had it in her story. One investor we talked to that said, listen, I don't think the Fed's got to get to six percent. Those were his

exact words. I'm forgetting his name right now, but that some people think that five and a half. I mean, think about where we were about a year ago at zero, right five and a half. They've done a lot of tightening. So I think that's why they stepped down from fifty to twenty five, and of course I've gone from seventy

five to fifty. That I don't know. That's the big question that maybe the FED doesn't have to get to six or seven, and if they get to five and a half and stay there for a year, that may not be enough to keep the dollars stronger relative to

its global peers. You know, Liz, I think the person who're talking about is Eric Stein, chief and investment Officer of fixed income at Morgan Stanley Investment Management, who said the FED says they're going to get inflation to two percent, but in reality, I'd say they get more to a

level of like three percent. I don't think that they will continue to port rate to six percent just because of that, you know, Can I ask you something, you understand these markets and the FED really really well and investor sentiment does the FED? Can they come back now and say, yeah, we got it wrong. It's not going to be two percent, Like, can they how do they do that? How do they unwind? Or does it really matter? Can they continue to stick to two percent even though

markets maybe see something ultimately a little bit differently? Well, you know, I don't think, and you know we have Mike McKeon, who's our expert, how we talked about this. Yes, I don't think that they want to come out and say that, especially now where they're really talking. We had one of the FED officials today talking about we have much more credibility. So if I think if they design to god, I say, well we're at three percent, that's

pretty good. I think for now they're going to keep talking that, you know, we're still on course to eventually get to two percent, Like I think it was Romaine and your previous segment was saying eventually we get to two percent. But I don't think they want to lose that credibility. So maybe at some point, we know a lot of people have said that. I think Muhammad Alarian has talked about that that going for two percent is

just not the right number. But like you said, they've got to be very careful because so much about the FED winning on inflation is credibility the market believing they'll do what they say. So, I mean that might be a big rethink, but I suspect they want to get through this year before they even kind of flick at that they're thinking about thinking about thinking about that. Yeah, yeah, Well I just have to wonder too about the Fed's ability to achieve that goal with the tools that they have.

I mean, we would all love for inflation to come down, Liz, but can the FED do that with the tools that they currently have at their disposal. Well, it's funny that one thing, you know, an investor said to me, and I always love when they bring something up because they're supposed to be smarter than me, and they are, but I'm not asking that about they are. Well at least

they say. Well Liz, by the way, and one guy said to me, an investor, listen, Liz, you know, rate hikes are one thing, but I'm really worried about the quantitative tightening, which we've kind of forgotten about, which is the FED rolling off its balance sheet, which is at full speed now. And you know what if that does continue on for another year or so, like the FED would like, there's some saying if the Fed, of course has to eventually cut, they'll stop that. But so you

do have these two tools going. The rate tool is the most blunt. Chair pals made that very clear. But they also are like pretty quickly trying to bring that balance sheet down. So there is a lot of tightening in the system. And like you said, none of us feel too good. My vegetables are still more expensive than ever, but eventually they should get there. We hope to bring

down inflation. Hey, Liz, when you look at the trade, especially in the treasury trade over the last couple of weeks, it does feel like investors have gotten religion to some extent in terms of what the FED officials and FOEMC members have been saying. So what do you think our audience has to kind of note when it comes to that treasury trade. I mean, right now I'm looking at a two year note. It's off its highs of the day,

but we're still at four point eight. What is it that they need to understand about the action that we've seen over the last week or so. Well, you know, it's interesting you bring that up because we were looking because, like you said, this month has been brutal for bonds, right,

feel just took off. Remember how January was also the everything rally, everything round, including bonds, And I remember one investment manager saying to me it was like January twenty fifth, Well, if we could stop the year now, I've had a great year, you know. Unfortunately it doesn't work that way, right, But so I think you know, remember all the street analysts called this the year of the bond, right, you know, things are better, yields are better, So I don't think

we want to write that off yet. This was a brutal beating this month. Rates are very high, like you said, but what if it does prove the FED gets to five and a quarter or five and a half and stop sin platient starts to come down. You know, six months time, things could be looking better. So I don't think a lot of people who are bullish on bonds are willing to give up. They're kind of like willing

to basically take the pain for a while. That may not be true if this keeps up for another three six months, But for now, I think the bullish bond people are saying, Okay, yeah, I'm not doing so great now, but I do think it'll be better. I'm making some decent income. I don't think fed's going to six percent. You know, they're in that camp, you know, So we'll

see really quickly here, Liz. The thing that I would love for you to help me be smarter on is the FED updating it's basic model of understanding in like thirty seconds. Can you tell me do you think that update was enough? Do they understand our current economy? Well, that's another million dollar question. Let's talk about their update

on what they think. The neutral rate is kind of that standard based rate where they're not adding stimulus or removing it, and they haven't updated that yet, and a lot of people think it's higher now. So fed's long run rate is like a two and a half. People in the market think, like you're saying, it's a different world now, that might be higher. So that could be a game changer. So there are some questioning some of the FENS models. You know, the jury's out on who's

right or if they adjust, but it's an open question. Yeah, there's a lot going on, and certainly for the FED to have to kind of figure out, Liz McCormick, you always figure out so much for us here. So appreciative, Liz, McCormick. She's Chief correspondent for Global Macro Markets at Bloomberg News, joining us via zoom in New York City. Yeah, I think she's probably smarter than a bunch of people. I think she's smarter than a lot of people. Should probably

no dabt about it. Check out her stories on the Bloomberg terminal. You can find amat Bloomberg dot com. You can also check her out on Twitter at McCormick. Liz. All right, you are listening watching Bloomberg Business Week Karl Masser along with Mattie Mills, and this is Bloomberg Radio. You're listening to the Bloomberg Business Week podcast. Catch us live weekdays from two to five pm. Easter Bloomberg Radio,

the Bloomberg Business Band. You too. You can also listen live to our flagship New York station, Just say Alexa play Bloomberg eleven thirty. Be Vancume out with her last month they did, and it was about our favorite topic here, Carol Master, digital currencies. We thought maybe with Sam and

Be going away, but it is not. Some might say it's hard to imagine this report from Bank of America saying that central Bank digital currencies otherwise known as CBDCs, along with stable coins, are the future of money and payments. But alas here we are, especially after you know the corners that we've seen right, especially in the latter half of twenty twenty two. It's interesting to see that report.

So let's get to it. We have a good guest in our weekly look at the world of cryptocurrencies joining us once again. Delighted to have him back, Tony Saliba. He's founder and CEO of Liquid Mercury. They work with coin base, Crack and SeeMe Group and more, and he joins us via zoom from Chicago to Tony. Good to have you back here on Bloomberg Business Week. Do me a favor, just set the stage, remind our audience about what you all do at Liquid Mercury. Hi, Carol, thank you.

Loquid Mercury delivers institutional technology for traditional finance Wall Street, if you will, and for crypto natives to trade all range of digital currencies. We have a product that we're partnered with Gemini with for individuals. So we're a fintech company that focuses on everything digital currencies, digital assets. So it's the actual platform, technology, advice or all of the

above just technology and the platform is technology. We do training and options because we're options people, and crypto options are coming to the US, but most of our clients doing crypto options are non US. Okay, but no advice really, just fast best execution. Okay. So I can tell by your background that you're you're doing great. But Tony, I have to bring up some of the scary aspects of crypto from this year. We've got gem and I you mentioned you got fintech, some scary words there. Where are

you at right now with crypto? Well, so, one of the things I've learned. I've been in the crypto space for about six years and one of the things I've learned is that after forty years in traditional finance, cycles are much faster in crypto and the scam bankman fraud as I like to refer to it announcement of November, and to be fair, that's your opinion. They're still exploring it and investigating. It's just my opinion to be fair. Yeah, but clearly there was some problems and that caused a

lot of issues that rippled throughout the industry. Prices collapse in a lot of respects, and most of them have rebounded at least fifty percent off of the lows for our business and businesses like ours. There's been a little bit of delay in terms of closing deals and onboarding and things, but nobody said that's it. I'm walking away. In fact topic, as you mentioned, the cdbcs are definitely

top of mind with everybody because they're moving forward. The bank, you know, Bank and Japan just announced before last that they're moving forward with theirs. So yes, it is. As much as I hate to say that the central bank digital currencies is the cash of the future, it's pretty much a fact. Okay, But why why do you hate to say that? Because it's really interesting because CBDCs, if I'm correct, they would still be pegged to the dollar, right.

Is that why you're not a fan? Well, well, no, I'm I'm cautious because it's coming from the government and from central banks, where that's not very crypto world is. Yeah, it's really ladies. It's the issue of privacy, right. So right now people know that they can put money in a vaulter in their mattress if they so want to, if they're afraid of other things, and that really won't

be the case. So much With the central bank digital currencies, they'll and I'm just given the worst case scenario, right, they'll be able to track your purchases. It could get political, it could get social where but they already do, they already do, right, It's it's just like you know, electronic money in a bank account, using cards, smartphone, you know, right, I mean, well, they absolutely, but this will become much

more absolute. Right now forever you know, we've all known we can't take more than ten thousand dollars out of the country without letting the fagans know about that. That number has been the same for fifty years. Clearly that is an infringement on some levels of your privacy, of your own freedoms. But with the CBDCs it becomes more absolute. They could turn you off, you know, your buying power off should you violate some here to afford unknown set of rules that may they may come come up with.

It's just another link. Now. Having said that, I think companies like ours will come up with solutions that'll try to help break that chain and allow you to have a little bit more freedom. That's the only ominous aspect of this, ladies. I think generally it is gonna make currency much more efficient. I think it'll become more ubiquitous. People will learn how to use these sort of apps

much faster. But because it isn't that kind of tony the whole point like it just it would make it maybe more efficient, right, cut out the intermediaries and bummer for them, right in terms of their industry. I'm not making a call here or anything, but I mean the point is efficiency and transparency and clarity, and would also mean that you know, no funny agents right can do something like it would be much more clear, hopefully, and I feel like it just takes the existing system up

several notches. Probably you're already in digital world. Yeah we started with the only possible worst case scenario, but you're absolutely right, this makes it much more efficient. I think regional banks like things could be settled faster, right, like think about that maybe more cheaply, Like there are benefits totally. Anybody try to do a wire transfer lately, the charges are really outrageous, takes three days or whatever. So you know,

this is definitely a positive. We, like I said, we landed on the one square on the board that maybe private citizens shouldn't be concerned about and when you work backwards from there and everything I think is much more positive, much more modern, much more efficient and definitely cost effective. Does potential regulation from Washington change that calculation for you at all? Well, it does in that they dictate to the Central Bank, so it'll be you know, their rules

that you know we adhere to. I think I think we're all kind of waiting for more guidance in the US on crypto in general, which would be very helpful. So we could, you know, sort of lay out the white lines on the playing field and know where everybody is safe, rather than deal with you know, regulation by enforcement, which is what what's happening. Oh you stepped over the line taking you down versus oh you're fine because we've

defined the rules. I think those are coming hopefully this year. Actually, So net net Tony, good idea, bad idea. You've laid out nicely the pros and cons, and we've had that this discussion. I feel like, so people are getting kind of both sides. Here is their net net takeaway for you, UMA that that good idea, that Net. I'm an optimistic person and I'm hoping that um, the you know, positives will far outway the one, you know, sell on the board playing playing surface that we don't want to land

on is sort of shuffled into the background. Um, but you know there there are definitely, uh, some privacy concerns we all have to be aware. Now. Having said that, as long as people your audience for sure is enlightened know those pitfalls, we go in with eyes wide open and try to embrace the new technology and make the most of it. Is it good for the crypto die hards, like does Bank of America give them, you know, yea credibility or or is it that's institutional No, No, I

think it does. I think it's good for it. Apparatus like ours is going to be used for both, so that definitely puts a floor under that for the players that are in there today. Curists will say, oh, it's too centralized, but you don't have to play. You can take your money out of the bank by eth or bitcoin or some other popular token to utilize and trade with and be sort of outside of the orbit in

that regard. But yeah, generally, I think it's going to be enlightening for burd All right, gon leave it there, hey, Tony, have a good weekend. Thanks Tony. Salibahi's chief executive officer, founder of Liquid Mercury, which, as we said, worked with Kraken Cme Group and Moore. Joining us a via zoom from Chicago. You're listening to the Bloomberg Business Week podcast. Catch us live weekdays from two to five pm Eastern on Bloomberg Radio, The Bloomberg Business a band you Doo.

You can also listen live to our flagship New York station, Just Say Alexa play Bloomberg Eleve and Dirty a Journal. Yeah but you let me drive? Oh no, no, no no, who's going to drive home? Honey? Please, I'll do the riding gravels. I want to drive. A question the drive, This is the drive to the clobe. Commulate thing well, Brier up, other down on Bloomberg Radio. All right, everybody just got about sixteen and a half minutes left in today's trading session, getting ready to wrap up what's been

a holiday short and trading week. Remember we had a long weekend, so just Tuesday through Friday. Carol Master along with Madison Mills and Maddie We're looking at an equity market that has definitely been bouncing around. We're off our highs and lows of the session, and this is once again a day where we've seen yields move up, and this is once again on a hot inflation print and other red hot inflation print this morning in that PC. It's interesting. I loved this data point that Abigail had

earlier today. She was showing kind of some of the selloffs that we've seen over the past week from Bank of America. She showed US I think nine billion in US stocks and then even four billion sold off in the US dollar, all going into the bond market. So that really feels like the big focus right now. Yeah, I mean, this is what we love to do, is watch where the money flows, and specifically when investors are a little nervous, worried about even higher rates for longer.

And this has certainly been what the message has been from the Federal Reserve and FED members. Mike McKee talking about him, he's at an event here in New York and where he continuing to hear where they are saying inflation needs to get under control. We're sticking to that two percent target. Then as a result rates we're going to continue to see the markets at this point still pricing in quarter point moves for the next three meetings,

no doubt about that. They've been really kind of getting rid of that thought and market expectations that we could see rate this year that's moving into twenty twenty four. And so as a result, you know, you've got investors thinking, Okay, what can I yield or what kind of yields are we getting in the treasury trade versus what we see on the equity side of things, where there's some risks in terms of corporate profit growth, in terms of pressures on margins. So that's why you continue to see or

increasingly you're seeing investors move into the treasury trade. Yeah, and I love Tom McKee put it really well in one of his commentaries on surveillance this morning. He was saying, you know, what's the lesson from the bond market from treasuries for equities? And I feel like that's the big question right now. I know we've made this joke all the time about it is the bond market smart and equities are dumb? If it feels also though, like there's not a lot to predict right now because so much

is moving around. Even it was so interesting the Macroman column from this morning, he basically the headline was like soft landing equals no landing. Well, this is the tricky part and it's funny as we talk about with our TV colleagues in our simulcast, this whole idea of you targets by the FED. And you know, I've said it a million times and I mean it because the FED will tell you too, this is not an exact science and they can set out projections and targets. They have

repeatedly said, we are data dependent. When we go into any FED FOMC meeting, we are going to look at all the data points up to that point and make a decision and that's ultimately what we see. Having said that, we talk to a lot of investment professionals that are making investment decisions on a daily basis for their clients, and one of them is our next guest our Drive to the Closed guest his Charlie Massimo. He is back with us, senior VP and financial advisor at Wealth Enhancement Group.

They specialize in planning for families impacted by autism, so they do have to think about those long term investment needs. He is joining us on the phone from Washington, DC. Charlie, good to have you back on Bloomberg Business Week with myself and Maddie Mills tell us about this environment. Isn't making it more difficult for you to figure out how to play spence or are you increasingly moving money into shorter term investments and cash to kind of write it out? Yeah, well,

thanks for having back, Kyle. I think for many consumers and investors, this is a very difficult time, but it's a necessary time. I think, no matter what has to be done, we need to get inflation of the control. And you're talking about data. The data just seems to be somewhat inaccurate and changing all the time. But to answer you a question, you know absolutely. You know, a couple of years ago, four percent bonds you know for

ten to twenty years look pretty enticing. But now when you have a one year Treasury bill paying over five percent, it makes absolute sense to cut your losses on the long term, bring them down into the short and try to eliminate as much risk as you can, especially for those people that are in or nearing retirement, Right, you get that yielding to get liquidity at the same time, Yeah, you're just taking risk off the table, and I think for most people they just have to take as much

risk off the table without making major changes to their overall allocations. Can I ask you a question, Charlie. I was just mentioning that our Macroman had a column this morning saying that a soft landing is actually just a delay of an inevitable hard landing. Can you give me your perspective on that. Well, you know, I think that's

fairly accurate. I think a lot of the talk you're starting to hear now is that they want to get more aggressive with raising rates instead of this twenty five basis points at a time, because what you're finding, until you can change consumer behavior, you're really not going to bring down inflation. And what I mean by that people aren't really feeling a lot of pain yet. People are still buying homes with a five to six percent mortgage,

they're still buying cars, they're still taking luxury trips. But when mortgage rates go to eight percent, when borrowing for a car goes to twelve or thirteen percent, that's when consumer behavior is going to change, and that's where we're going to start bringing down in inflation. So a soft landing may be very difficult, because again I think we're at a point we're gonna have to get much more aggressive and raising rates. Yeah. I mean, just look at

the data points. New home sales surged to a one year high. A lot of it was, you know, buying in the South, but that was a pretty strong number. And when we talked with our Mike McKee earlier, you know, you had income up, you had spending up, and you also had personal savings up, which is really interesting. And sentiment is up, so you've got that along with those inflation area. It's interesting to see individuals kind of holding up. Charlie, thank you so much. Have a good and safe weekend.

Charlie Massimo, He's senior VP and financial advisor and Wealth Enhancement Group, joining us on the phone from Washington, DC. This is the Bloomberg Business Week podcast, available on Apple, Spotify, and anywhere else you get your podcast. Listen live each weekday starting at two pm Eastern Pond, Bloomberg dot Com, the iHeartRadio app, tune In, and the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the blue Berg terminal M