Bonds, Markets, and Crypto

He covers all things credit, fixed income. He's a co director of research at Bloomberg Intelligence, one of the smarter dudes out there, um that we talked to. No, let's just start here. I mean, you're all over the credit space here. What do you expect and from the Federal Reserve? I guess tomorrow and then maybe going forward. Yeah, I think well, at the high level, I mean, you're looking for maybe twenty five basis points tomorrow than another twenty

five basis points. But I think one of the places where myself and uh, you know, my group kind of disagrees with broader consensus is that after that, I think the the higher for longer sort of FED holding path through the end of the year is sort of the base case for says if you look at where the rates markets are. Obviously they're looking for a little bit of retracement or pivots somewhere around mid year. So why do you think the market what what's the market maybe

looking at? And yeah, I mean, you're right, the feder reserve is pretty clear in the messaging that we're going to stay higher for some period of time, but as you mentioned, the markets not necessarily buying that. What do you think is going on there? Well, I think it's probably a decade's worth of the Fed sort of facilitating sort of the market enthusiasm combined with sort of a very mixed macroeconomic picture, right. I mean, I think it's hard to you know, pull out or distinguish sort of

the good and the bad. I mean, I think there's a lot of softness that seems to be cropping up in parts of the manufacturing sector and some of the

consumer sentiments side, uh bott the flip side. We saw a strong jobs data, so I think from a standpoint you could say, hey, listen, strong jobs, but we still got this sort of elevated inflation, and so you can kind of ignore sort of the weaker consumer thing that seems to be drawing the attention of the market, Well, it looks like the inflation may turn around even more quick Well, certainly on the good side, we're starting to see what feels like deflation in the automotive sector in

a lot of non grocery retail. What about the services and um, you know, the I guess rent component. Well I don't know because I just got my E V Hummer, But so, but now I think on the service design, it's a little bit of a mixed picture. I think

you're seeing some softness there. Um, But you know, on the rent side, I think is a you know, I think they're changing the methodology a little bit later this year, but we're seeing some moderation, but it's still going to kind of we're still running a little bit hot on that side, because I mean, remember that rents aren't necessarily related to home prices, where we're seeing a little bit

more rapid deceleration. Hey, no, I know you've had a long career on Wall Street looking at this credit business and last year you know, it's just one for the books in terms of underperformance. But you guys are bouncing back a little bit here in January. Talk to us about the performance we're seeing in January austocratic space. Yeah. So I mean in investment grade, you're gonna be looking at probably the third best uh year going back forty years.

So uh, you know, in a lot of that's going to be rates driven, right, because an investment grade you're sensitive to duration, i e. You know, the more interest rates moved, the more pricing moves. So with treasury yields coming down, that's driven a lot of you know, our performance on the investment grade side, but even high yields uh seem a pretty healthy starting pretty much anything kinidi fixed income. Uh, you know, whether you're talking municipals or

mortgage bats, etcetera. You know, all sort of keying in on what are the better starts to the year that we've seen, you know, in the last couple of decades at the very least. Um not surprising, I mean, given the prepentous year that you have for mentioned. But you know, nonetheless, I think you know, it takes the edge off for people that are still looking their wounds. What are the

biggest headwinds you think? No, I mean, if we uh, if we see a repeat of you know, everyone talks about our their burns, you know, the FED kind of calms down a little bit and then inflation starts, um poking up a bit. Is that is that very bad

for for the credit world? Well, I think it will learn a little bit tomorrow, right, I mean I think, uh, you know, if POWE comes out and sort of tries to really re established that sort of hackish under the spectrum and we start to reprice the curve, I think that's where I don't know that you'd necessarily get a big sell off, but you'd certainly get a little bit of a pause and sort of the enthusiasm that's out there, because one of the things that we've seen, you know,

early on is it's not only rates that are driving the returns, but people have been very aggressive in the risk bit, i e. Spreads have compressed quite a bit

as well, despite the macro economic headwinds. So if you get a FED that says no, no, no, no, you gotta believe us, right, you could start to see some reprice them settling in the right side, and then some repricing in the spread side that maybe you know, tempers the excitement out there and maybe you know it leaves you a little bit more with the coupon and as opposed to a bigger you know return picture. Well, because the market doesn't believe the Fed's gonna get to five percent,

not an effective FED funds rate of five percent? Is there any reason that? I mean, of course he's gonna job ow. He he has to, that's his job. But does anybody besides day traders like care? Uh you know, well, well, I mean I think everybody on the rate side cares, right, because I just mean, no, you know, if he's he can talk, uh the talk, but can he walk the walk? Twenty five basis points is just to me it feels

so weak and luke warm. I mean, if you're gonna already do that, then I'm not going to listen to the rest of the speech unless you come out with fifty I don't buy it. No, I'm not. I'm not unsympathetic to your view, but I'm also not the rate strategist, so it's not really for me to opine. Al Right. I was not here, Yeah, we can step. I was like watching a soccer soccer match somewhere, alright, So no, you know, if I'm an issuer here, like as a former bang and put my banker had on again there.

I mean, just a few months ago, I was I was issuing paper like close to zero percent. Now rates are a lot higher. This isn't as much fun anymore. Talk to us about kind of the new issuance market year to date and kind of what you expect this year. Yeah, So on the investment grade sign, I mean, I mean both markets have gotten off to a reasonably healthy start.

I think last year for investment grade, we saw about one point two trillion, which is sort of in keeping if you look at years outside of the media post pandemic when things went crazy, that's sort of like an average year. I think we're gonna come down a little bit from that, maybe closer to one point one trillion, which is one owing to the higher rates that you mentioned, but also you just have a kind of a weaker maturity calendar this year. High yields a little bit different

story because last year was basically shut down. Uh, you know, when we got a hundred twenty billion out of there versus you know, mid twos to low threes, which is more common. Uh. This year, I still think we're gonna not quite make it to two billion, but we're gonna start pulling forward some of that talents because high yield, you know, anytime you get a market opening any majority that's sort of within that eighteen month window, you got to start looking at uh and so we'll see some

of that this year. We've actually already seen some of that in January. You know, we're a little over twenty billion for January this year, which is down from last January, but still other than last January would be the strongest month in the last year and change. Alright, the bankers are gonna get paid. That makes that warms my heart. All right, No, thanks so much for joining us. Noel Hibert, Bloomberg Intelligence chiefs Credit Strategists. He's co director of research

for that. All that credit research coming out of Bloomberg Intelligence, and Bloomberg Intelligence was one of the few shops on Wall Street that still provides credit research, and they do it across the board. More than two thousand companies, hundred twenty industries. Lots of earnings this week, lots of eco data, We got the Fed tomorrow, Lots for investors to chew on. You can call for your financial bias and say what

am I doing now? After the brutal let's check out with somebody who does this stuff for living Gene Bolvin. She's a president of Bovin Wealth Management. Gina, thanks so much for taking the time here. Um, boy, after what was just a brutally and the old sixty portfolio, I'd love to know kind of what your initial communication was to your clients about what to do in twenty three. Yeah, thanks for having me. It's great to see you. Um. You know, we are having a great year so far.

We have the S and P up about five point four percent, the nastacks up about ten two. We've been telling our clients to sit tight because if you miss those great days in the market, you're really not going to participate in the upside. And um, we're expecting more of the same for this year. Outlook. Our base case is to be up by by the year end, but expect by year end, but we think it's going to take all year to get there. Well good, I mean, if you're gonna find that high, you don't want to

do it in a month, right, Um, you want to build. Yeah, So we do think that it's going to be another choppy year. Um. This is as you know, as you've been talking about. It's a pivotal week with the FED meeting. Tomorrow's the first f o MC meeting of this year. The markets are expecting UM to base point hike and another and you know, well, we know that we've reached peak inflation, but I think the main question is have we have we reached peak hawkishness? Interesting, Well, we'll part

that a little bitmorrow. We'll see a little bit tomorrow, we'll see what kind of tone, uh, this takes. I've certainly been talking tough, So, Gina, it give us a sense of kind of who your average client is and maybe what an average portfolio looks for your client these days a two year in terms of your talk in return,

what a portfolio should look like? Yeah, yeah, just kind of you know, when you sit down with somebody for the first time, how do you think about, you know, constructing your portfolio, given given the year we just had in given that we've got so much you know, across winds out there. Well, I think it's really important to take a look at what your income needs are right before you build a portfolio. You have to get a sense of somebody's risk tolerance, time horizon, and what income

needs that they have. So we would start by doing a financial plan and doing an intake of UM, what they're looking for, and aggressive or conservative mean different things to different people. I think that's what was so difficult about last year is it was one of the worst bond markets ever in the history, and conservative investors really

didn't see any diversification that helped their portfolio. But we do think that's going to change this year, and we do think it will be a better year for stocks and for bonds. So, Gina, you were named one of the top advisors, top female advisor and Forbes. Um, what do you think got you those accolades? Great clients, hard work, being honest with my clients, trying to do the best things for them. I've a great research team, and really not making um the wrong decision at the long time.

You know, not panic buying, but not panic selling. So here's this kind of a it sounds like, if I hear correctly, it's kind of a you're kind of a buy on the weakness here for this market. You think we're gonna move higher this year, but you know, are you adding capital to the market today? Are you waiting for pullbacks? How are you tactically getting that done? Well? Um, so right now, we and in the past year, we've had a value kilt. So what that means we've been

investing in like quality blue chip stocks that paid dividends. UM. That would be oil stocks. In We like industrials, erro space, defense. You know, we see an uptrend in defense spending. Capital spending has been resilient. They are strong technicals. We like healthcare, farmer, biotech, medical equipment. Because of COVID, there's been a lot of pent up demand for procedures. UM, there's a good demographic kale wind. We also like UM banks, big banks, and

pokerage farms. There are some cheap evaluations. UM. We think their recession resistant and UM, you know, think about what happened in two thousand and eight when they had to go through Since two thousand and ate a lot of stress tests, so they're in really good shape. And UM we think earnings growth for the banks were likely to continue this year. And we also like oil oil UM stocks.

They've volatile, but there's good valuations. UM. However, you know, so those are the more conservative stocks that we have been tilted in. However, as we get closer to interest rate hike hikes ending, UM, we are going to be a buy you more on some of the technology stocks. You know they've had a fabulous year. We wouldn't chase that just yet. They've up about the nastacks up about over ten this year, so it's one of the best

years since nine. But we might see a little bit of weakness as we get closer to the FED easing or pausing even that that would be benefit tech stocks, but we do expect them to be volatile. Well. They've definitely done well in the first month, that is for sure, up almost ten percent on the last trading day of January. S and P s up uh five. Gina, thanks so much for joining us. Pleasure having you on the program. Gina Bolden there from Bolden Wealth Management talking to us

about her view on the markets. A fifteen percent gain by year end would be that would be good. I think everybody would take that. Think back to October coming off of those lows. It's been a nice move up in these markets. Here A lot of folks are saying is that it is this the beginning of another bullmark and another leg up in the market. Katrina Simonettie, she's a senior vice president private wealth advisor at Morgan Stanley, joins us. How do you for you this equity market here.

I mean, you know, as such a brutal last year, but if you kind of, you know, just kind of got into the game in October, it's been a good market here. What are you telling your clients? Well, it has been a good market. And you know, you can't blame the investors for wanting to be optimistic. You know, we're just so desperately, you know, kind of just clinging

for that little bit of a release. And you know, the fact of it is is that for the entire twenty two we have been focused on the FED on inflation, and we can't really ignore the fact that, you know, following inflution shows the effectiveness of the FED quality. In our view, though this optimism is highly premature. We think

that there is a lot more volatility ahead. And in our review, the story for twenty three is not the story of the fat or installation, or even the fact the CPI is getting under control, which is good news. This is the story about the earning since, specifically earnings revisions, because the earnings has to be properly revised and be set at the realistic level in order for us to pivot into the next is exactly what I was thinking. You know, I get in trouble a lot here at work.

He does with my wife legally, um, but I never feel any better than when I've told everyone what I've done. I've been completely open about it, and I can start making amends. Then it's off to the races, right. That's kind of why I was hoping for a kitchen Sinc. What people call a kitchen Sinc. Quarter this earning season,

but we haven't really seen that. Nonetheless, with the horrible, terrible, no good year we had last year and equities and bonds, maybe all the bad news is priced in, you know, and it's it's a really good point, and I think that that we have to separate the actual fourth quarter earnings from the earnings estimates. You know. It is really the forward looking projections that we need to be looking at because the fact is that the cost of running

the businesses are high. And the high inflation on some level was really positive for many businesses because it allowed those broader profit margins. It was easier to be profitable

in the environment of higher inflation. But what it is going to be going forward, and while the earnings are actually coming in mixed and positive in many ways, when we're looking at the revisions when we're looking at the new levels and the profit margins that are getting tight, you know in labor market is you know, is quite complex. You know. The issue is that what is the new normal? What are the levels that are going to be realistic?

Because in order for our companies here in the US to be able to meet and exceed the earnings, you know, we have to be um, you know, adequately pricing them. And therefore we think that they're going to be this you know, revisions that are going to be mostly to the negative and it will catch a lot of investors by surprise. And we're expecting for this market to be

worth before it gets better, you know. And I think that if we go into this market with that level of an expectation and stay defensive and stay high quality and focus on dividend being stocks, you know, will be good to go for the next bull market when it's when it gets here. Katarina, it talked us about fixed income here. I like income as much as the next person, and you know, I look at some of these I can actually get a yield now in the fixed income market. Um,

how do you think about bonds? What are you telling your clients about bonds. You got the year treasury at four. Well, that's actually good news. You know, the environment last year was challenging because for the first time in many years, both stocks and bonds were down at the same time Dad was raising race. That was pressure on bonds. It was really difficult to invest in fixed income. It's a

very different environment right now. Yields are actually high. You know, how how many years have it been when we can get excited about what even the money markets are paying right not to mention the treasuries and you know, high quality corporates, you know, just well diversed about fixed income portfolio right now is saying field in a significantly higher that we had seen for years to investors that are looking for yield, investors that are looking for safety, you know,

for this cushion in their portfolio. You know, this is the time where they're actually getting the value out of their fixed income portion of their portfolio. You know. But the diversification is the key on the fixed income site as much as it is it's on the equities. I mean, Paul is excited. He's in a genuinely good mood. He's driving home every day in the BMW he switches serious X time the yacht rock. You know. Uh, he's listening to as much Michael McDonald as he can because he's

got those munis. And now he gets a chance to put all of his dry powder into fixed income, dividend growing stocks, value stocks. This is a Paul Sweeney market right now. Um, is this the do you think this is a chance to pounce? Like do we do? We look at this period of higher rates as you know, uh, once in a decade opportunity to get in or or

is this the new normal? Well? Absolutely, you know, investors for years we're saying, you know, if only rates where where they were years ago, you know, I would love to have you know, like this, this in comportion of the portfolio, you know, and for in the zero rate environment which we were in just recently, you know, that

wasn't even a possibility. You know. So when you think about the higher rates that we can enjoy in the fixed income site, higher quality that we can enjoy, you know, and and that risk management that comes with us coupled with this amazing stock picking environment, So we do believe that the volatility is ahead, but it's not necessarily negative

because in this time of volatility. This is the time to pick great individual positions, defensive place, improve the quality of the portfolio, stay within the sectors you know that will be the in our view, the leading sectors going forward, like healthcare, like consumer stables and you know, utilities energy.

You know, it might not be the same exact things that we've experienced in the possible market, you know, So that rotation to quality to dividend ping stuff you know, we think will serve the investors for many years to come. What do you in your practice and Morgan Stanley in the private wealth business, what do you guys do to attract younger investors? Um to Morgan Stanley, Well, I think that the question with younger investors is, you know, where is why are we investing? You know, where is this

leading to? You know? And the the the young investors have been dealing with so much risk and so much volatility, you know, and they've been growing up in this market being so volatile. You know. So the question here is to really than the time frame, you know, and developed this habit of putting together the portfolio of high quality place the individual positions that they can own for many

many years to come. You know that come with a story that diversify, that that really gives them access to every sector of the market, you know, but also that that represents their personal values. I think that what differentiates the young investor versus you know, some of the more seasons investors is e s G in a place a significantly higher role for our younger investors than for their parents in many cases. All right, Katerina, great stuff, as always,

Katerina Seminetti. She's a senior vice president of the private wealth advisor over at Morgan Stanley. Appreciate getting her perspective here. I'm talking a little commodities, maybe talk a little bit coin. Met you there, I do, all right, I want to just talk Let's start with gold here. I mean, you know, it's up almost six percent year today. Let's talk about that. So let's talk about commodities, cryptos, all that kind of stuff. We can do that with Everett Milman, chief markets analysts

like Gainesville Coin. Give you one guest to where he's from. All right, Everett, Let's start with gold here. He's in Gainesville, right somewhere in Florida. I think Truman says he's calling in from Pennsylvania. All right, Everett, where are you Oh sorry, no, he said, Ricket Knights, sorry, Everett, where are you right now? Just outside of Tampa, Florida? Actually so not Ga proper, but that part of the that part of the state alright. Talked to us about commodities. What's going on here? What's

your call here? Per this year? Yeah, I think the recent rally and gold has been spurred by the fact that the dollar has softened up a little bit um and we have some positive seasonality with the Chinese lunar

New Year. I would expect some volatility surrounding the f MC decision this week, as interest rates are definitely one of the big drivers for gold, but the fundamentals, the macro fundamentals for gold have not been this strong really since the nineteen seventies UM, and far as I can tell, it really doesn't matter what scenario we get from the Fed UM if there is a pivot towards either pausing rate hikes or lowering rates, as seems to be the

market consensus sometime out in the next six twelve months. It's so weird every because you know, Paul was just saying, hey, I can get you know, four and a quarter percent on the two year yesterday we're talking Ted Oakley, right, and he said, I have no problem being heavily in cash because I get so much from three three month bills.

Like you know, UM, when rates are this high, why on earth would anybody want a pet rock that yields nothing rather than you know, making generating income with with fixed income. It is a fair question, obviously, UM, that is a gold main competitor in terms of what what class in misters does it appeal to? What goals are you trying to reach in terms of wealth preservation rather

than UM looking to hit a home run. But I will say that even if the Fed remains hawkish and perhaps keeps monetary policy too restrictive, and we do see rates remain higher for longer, that's probably going to cause some pain and other you know, parts of the riskier parts of markets. And that's where gold safe haven characteristics kick in UM. And we have seen that treasuries have experienced quite a bit of volatility UM really since the pandemic.

So I think that that lends gold some added credibility as as a non correlated alternative asset UM, even though obviously, as you say, a fixed income is going to essentially be doing the same things that investors look for from goal is that why bitcoin is has rallied as well. I mean, we're back up at twenty three dollars and as rates rise. UM. Well, first of all, after the collapse of f t X and it's pretty embarrassing bankruptcies across the crypto universe, and then with rising rates. Why

why I don't get it? Uh, you know, it's kind of tough to explain really a reasonable explanation for anything that goes on in the cryptocurrency market at this point, given how speculative they remain. UM. But I think kind of strangely we've seen that as a flight to safety of sorts that Bitcoin and ethereum have really rebounded and led the way as retail investors have largely shunned much of the alts coin market. UM. So you could look

at that of a flight to safety. UM. Overall, UH transaction on chain transaction volumes have been relatively stable in crypto. So as you say, with all of these bankruptcy and scandals, that hasn't completely tanked UH confidence in the broader market. But clearly, UH, some type of regulation and oversight isn't necessary evil here, particularly if crypto exchanges and crypto based lenders are going to continue to engage in what amounts

to banking behaviors. UM. They really can't do that unless they are registered and regular aided, and obviously that is something that they have greatly resisted up to this point. Hey, every what's the relationship between gold and so as? Again, golds up about five or six percent this year and all silvers down about one So historically, how do investors look at those two things together? So the divergence there is mainly because silver has more industrial properties that kind

of decouple it from the performance of gold. As you pointed out, we've seen silver lagging behind UM. Right now, the gold is silver ratio is about eighty to one, which has remained elevated for several years. That maybe perhaps the new normal, but I wouldn't be surprised by some mean regression where that ratio of gold gold price and silver price comes back closer to its longer run average

of about six one. We do, yes, and we do see that not only UM is silver demand rising in the East, particularly UM in Asia with China and India, but there are still a major tale wins for just general silver demand from an industrial standpoint, um, like continued, from my standpoint, it looks like one of the most undervalued assets on the market. I there's nothing I love more than a post apocalyptic movie with like Kevin Costner,

you know, or Will Smith. There's one right now I can't remember the name of on Apple TV, only the first two episodes in. But all of these uh scenarios involved using gold or gas or maybe bitcoin. Does any of that actually drive investment or is that just a

fun way to look at things? Ever? Because I can't imagine that, um you know, if uh, if this hugely leveraged giant debt construct collapses, that will be like um, you know, melting down gold bars and spending it at the next cave over right, right, And certainly in a in a scenario where the financial system is in dire streets, the infrastructure to can duct to normal commerce would would be impaired in that situation, it seems unreasonable or unlikely

that we would actually hit that scenario. But to the first point in your question, Um, in my experience, it's undeniable that that sentiment or narrative surrounding UM, the perceived riskiness of the leveraging markets that does drive quite a bit of interest in gold, precious metals and then alternatives

like cryptocurrency. But I have to admit that UM in terms of utility or use cases, uh, in a in a sort of financial collapse scenario, I think you would be just as well off with canned foods, ammunition, those types of essentials UM, just like commodity of like gold. All right, good stuff. Everett Millman. He's a chief market analyst at Gainesville Coins. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with

Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm Twitter at Matt Miller seventy three. I'm fall Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio