Far More Downside Than Upside, Says Natixis' Lafferty

bay of Boston. Got a great view. It's a beautiful day here. Look at the markets. Obviously they've been whipsawed by trade. It's all about trade. It seems to move every single day. The market is now focused on December fifteenth, when new US tariffs on Chinese imports are scheduled to take effect. To get a sense of what this means near term, we welcome David Lafferty. He's the chief market

strategist for in the Texas Investment Managers. And get this, they have one trillion dollars under management, so I think they have a fuel for the market. So David, thanks so much for having us here at your office. Is we appreciate it. We've got a little audience here, people coming here to see what you have to say. So how do you guys, pressure? Yeah, no pressure, no pressure.

How do you guys deal with the volatility? That is, as we learn from an earlier guest, is hard to measure, It was impossible to measure, and that is about trade and tweets about trade and all that type of stuff. How do you guys position around the uncertainty of trade? Well, I think we have a few hallmarks we try to fall back on, broadly speaking across our money managers. Uh.

One is a bit longer horizon. Uh. You know, it doesn't matter what the news is, but if you take a little bit longer horizon, a lot of this stuff turns out to be daily news. Uh, particularly around trade. Trade you get a tweet at eight in the morning. In terms of how a portfolio is positioned, that could be staled by eight thirty in the morning. So we don't want our clients running around making a lot of tactical changes. And I also think we think a lot

about valuation. So we know markets move a lot, but we do think about where are the cheap assets, where the opportunities what's expensive, and that's a bit longer horizon kind of idea. So it's not that we don't kind of follow the ebbs and flows of the market, but we don't want to take every daily little tick in the markets too too seriously. And I think that's a trend that you'd see across a lot of our products

and our money managers. A lot of the valuation today, the elevated valuation in equities has been predicated on this ongoing easing and easier cycle of central banks around the world, and we've seen that globally central banks have eased the most this year since the financial crisis. Do you think that the extra boost that that has given equity valuations can persist into I don't. I've been skeptical and now, frankly I've been wrong about that. We wrote about this

earlier last year. I think the effect, at least in the real economy has begun to clearly fade. I don't think you get nearly as much credit impetus when you go from very low rates to even lower rates. Uh. You know, if you're a CEO, if you're in the c suite and you didn't borrow last year at absurdly low rates. Why are you going to borrow this year

at even more absurdly low rates. So I think the credit impetus begins to al uh And I also think in terms of portfolio effect, the idea that buying all these assets will gradually raise valuations create kind of a wealth effect. People have to remember that most of the QUEI was done, at least in the US, was done when the S and P was at twelve thirteen times earnings were at nineteen times. The European Central banks QUEI policy was was largely implemented when we were at ten

or eleven times earnings, So you get a bump. But I think that market effect is fading as time goes by. Although some people say that the recent strength that we've seen in equities has been driven largely by this three hundred billion dollar expansion of the Fed's balance sheet. Do you buy that? I don't think so. I really think it's been uh so. So, first of all, if you if you look at the full bull market, I really when I say bull market, I mean off the December

twenty four lows. You know, we're up twenty eight percent year to date in about thirty thirty one off, the off the Christmas Eve lows last year. I view the first percent of that is just getting back the losses that we had in the fourth quarter. Everybody looks at this year as if it's this massive bull market, and that's really an accident of the calendar. Which really happened is the market basically between January one and about April thirty rallied huge and since then we're up about five

or six percent. It's been a nice little run. But it's not like the market is skyrocketing. Excuse me. It's really just getting back a lot of what was lost earlier. So I think there is a monetary effect there, but it's probably still the spillover from the FEDS. One. It's not that people are looking at the term repo and thinking, hey, term repo makes stocks at right by I don't think people are doing that kind of math. Okay, well the math that people are doing now it's you know, early December,

people are looking at their outlooks. Everybody on the streets publishing the outlooks. How are you guys positioned for I'm just kind of thinking about risk. Are you a little bit more risk on or maybe a little bit more risk off. We'll say a couple of things. The first thing is, I'm glad I'm down here doing this interview because I'm not upstairs staring at a length page, which is what I've been doing and trying to write my

outlook for the last two weeks. So uh. And it's not that you know, we you know people have asked, is there's so much uncertainty? I think uncertainty is always with us. I don't see the obvious catalyst that we like to write about. We love to write about what central banks are doing, or that the pace of economic growth is radically changing. We don't see central banks doing a whole lot in the near term. We don't see the pace of global or US growth changing a lot

in the near term. We don't think valuations are exorbitant, but they're certainly not cheap. So all the hallmarks that I go back to when I try to write my outlook really aren't there. All right, So give him that, in just about a minute, was your highest conviction going that is high conviction on the blank page. I'll go back to what what sort of Paul was asking, which is, how do we think about risk? And where where does

that sort of our conviction come from uh. My highest conviction is that while our base cases for stocks and bonds to sort to clip their coupons, I think you'll get your earnings growth and in equities, maybe not a lot of pe expansion. I'm concerned that the risk return trade off isn't that favorable when I think about whether we're wrong, maybe more maybe the economy reignites. How much upside is there? There's some, but not a ton. But

what if we're wrong and we go into recession. Given where valuations are, there's far more downside than there is to upside. So I don't like the trade off, even though we're not bearish in any sense of the word. David Lafferty, we're gonna let you get back to your blank page and the blinking cursor. I have seen that

many a time before. David Lafferty is and your vice president, chief market strategist, and a Texas investment managers where we are in their Boston headquarters, are hosting us right now with an audience of people all nodding along and giving you thumbs up. A couple of people, a great pantry here. I mean, it's almost bloomberg like. It's it's almost almost no really interesting though, and honestly, David's not alone when it comes to uh, the sort of blank page. It's

a hard time to try to get conviction exactly. We are broadcasting live from the Jixis Investment Managers headquarters here in Boston for a Sustainable Finance Week back in New York. Amy Bands joining us, and I'm so glad that she is, because we really can't over emphasize how much money has flooded into the venture capital space, in particular through the likes of soft Bank, but another number of others, to leaving people wondering where are the opportunities. Amy Bands is

managing director and head of Funds at Comcast Ventures. Amy, you come at this from a really interesting vantage point, and that is the venture capital arm inside of a big corporation. How is that different from a standalone venture capital fund. I think the changes that we're making are very much driven by the changes in the market themselves. So, as you mentioned, Lisa, there's so much money in the market. It really is giving entrepreneurs the luxury of choosing investors

who bring more than dollars to the table. Um and at corporate venture capital funds like Comcast, we're really taking advantage of that by leveraging our platform, the Comcast NBCU Sky platform, to create programs that support and help our young portfolio companies grow and really in that way, it's turning the concept, the traditional concept of strategic capital on

its head. So it's interesting amy that the public markets have really started paying i think, more attention to what's going on in the venture in the private market, given some of the I p O s that came and did not come this year. I'm thinking Uber Lift, you know, and the ones that didn't come we work and really calling into question the valuations that the private market in the VC market is putting on some of these companies

eat miss pricing them UM. Is that just do you think that's the case, And if so, is it just too much money chasing too few deals? You know, I think there's a there's no question there's a lot of money out there UM and valuations, I agree, we agree

are extraordinarily high at that point. I do think there's opportunity in that forum funds like Comcast Ventures in some ways it's forced us to go earlier UM, which in turn has you know, proven to be to our benefit because if we invest earlier at seed or at UM you know, at series in Series A, it allows us to get the equity position and potentially the board seats and the influence that we like to have in order to partner with and support our portfolio companies in the

way that I just described through through special programs that leverage you know who we are UM and allow us to help and support them that you know, in ways that that that other funds can. So, given the fact that the media landscape in particular is undergoing such a dramatic transformation with the streaming side of the business, what types of startups are you targeting that could potentially offer

new technologies that could even dovetail with comcasts fundamental business. Yeah, you know, Lisa, UM we actually have historically invested costs a fairly wide spectrum of categories. So yes, we do invest in media UM although uh you know, and we've we have some very successful companies there, including UM Vox and the Athletic UM. But UM lately we've invested in a in a much broader spectrum UM everything from B to C consumer brands to enterprise sas cybersecurity UM and

even some frontier tech as well. UM. Again because of who we are, you know, and and that our platform encompasses not just the NBC piece, but also the Comcast and Sky piece. It's really a rare company UM that we can't as as an enterprise support in some ways. A mean. One of the things we learned or maybe just relearned with the we work situation is the importance of corporate governance, good corporate governance. How do you at Comcast Ventures view that as you consider investments. Yeah, that's

a really good question, Paul. You know, I think the pendulum is swinging back to good growth, not just growth at any cost, but good growth, sustainable growth, profitable growth. UM. And you know, particularly coming into this year, which could prove to be a bumpy year. UM, we are very focused on looking at companies who are mindful of that

good growth mantra UM. And we're talking to our existing portfolio companies about making sure that you know, they have you know, they have enough runway, they have enough capital to you know, weather a storm if and when that storm comes just real quick here about thirty seconds. Are you finding it harder to deployer capital given how high valuations are No, UM, Lisa as I mentioned earlier, actually because we've become more comfortable. You know, strategics historically have

invested at later stages UM. In the last couple of years, we really have focused on developing an early stage muscle UM, and you know, because we're having success there, we're actually finding that with our sort of strategic platform behind us, and because investors are looking for more than just money, we're seeing opportunities that UM we've never seen before. So we're excited about UM the place and stage in the market that we're currently playing. Hey, Amy, thanks so much

for joining us. Next time, Lisa and I will join you in the studio or up in Boston today. But Amy Bands, thanks for joining us. Managing director and head of Funds at Comcast Ventures. Time to go to Bloomberg Opinion and interesting story out this morning. Black Rocks Mark Weissman, senior executive was terminated today fulfilling to disclose a personal relationship with another employee at black Rock. To help us get through this story, we welcome Sarah Green Carmichael. She

covers the financial services industry for Bloomberg Opinion. Joins us in o Bloomberg and Arctor Broker Studio. So Sarah, thanks so much for joining us. Give us a sense of what we know so far about this story at Black Rock. Well, we don't know very much. We know that Weisman is said to have violated company policy and that he has apologized for failing to disclose his relationship to hr Um at the same time, Um, you know, he is married.

So this is not like some other cases that we have heard where there was a personal relationship that would otherwise have been fine. Um, this was something that he was hiding, probably from a lot of people. So it's

interest things. We've seen a number of reports recently about consensual relationships between two people leading to the firing or stepping down of an executive, And I'm wondering, are we just hearing more about this or is this a shift in policy that is pervasive across Wall Street right now? Companies are definitely taking a harder line on this, and it's something that hr departments on Wall Street and elsewhere

are going to really have to figure out. And my concern at this point is that we seem to be lumping a lot of these different cases together. Um, someone who's having a relationship at work with a colleague is different from someone who's having an extramartal fair with a colleague. And both of those situations are very different than sexual harassment, which is I think what a lot of the conversation

around me too really started a lot of these conversations. So, what is the argument for terminating someone for having a relationship that's consensual at work? Well? I think there's a couple of things here. One is that if an h our department has put in place of policies saying we don't want you having relationships with colleagues at work, then you are violating company policy if you have one of

those relationships. Um. And so I think it's the violation of that policy that then becomes the fireable offense UM. And that's a case where you don't really want to have senior executives, you know, by violating rules they're asking other people to follow. So, Sara, on that front, do we have a sense of you know, across corporate America, you know what percentage of companies are just saying, you know, we have to have a zero policy here, just don't do it. Is that? Do we know that? And is

it growing? I don't know specifically what the number is, but it does seem to be growing from what I do know, I think more and more in HUR departments think, oh, well, the way to crack down on Haraz Sman, which is the problem, is just to ban sex from the workplace entirely, which I don't think frankly is realistic. Yeah, and it also comes at a time when there is a question

about how to get more women into the workforce. Is one concern here a senior executive having a relationship with an underlaying and sort of some of the implications there, I mean, is that sort of the underpinning of of of of potential exits here. Yes, I think that was certainly at play in the case of Steve easterbrook who was ousted from McDonald's UM because you know, McDonald's had a policy that no supervisor could have a relationship with a direct report or someone lower than them on the

corporate ladder as the CEO. Obviously everyone was lower than than Easterbrooks. So, um, this is a case where I think well intentioned HR departments are going to have to figure out how to handle this. UM and CEOs are going to have to figure out how to handle this. Clearly, a power differential can create all kinds of issues in a relationship at the same time. You know, many people do meet their spouse at work, and in many cases, companies are working to recruit power couples where they want

both people to relocate for top jobs. So this is something that's not going to go away. Yes, sir, it's interesting. This is obviously black Rock of financial services company Wall Street has typically been perceived as an area that is not conducive to women. Is there any sense that certain industries maybe are doing a better job than others. That's an interesting question. There are certainly some industries where women have managed to make better strides, and financial services remains

one of the most male dominated industries. Um. So I could certainly see that in this case black Rock might especially want to crack down on any violations of company policy that would seem to make um, you know, the workplace more hostile to women. It does not certainly help Mark Wiseman in this case that his wife is also a top black Rock executive and is the head of

black Rock Canada. Um marsham Offett. Yeah, I was. I was thinking this has got to be an awkward moment for a lot of people at black Rock and To be clear, Mark Wiseman was potentially a successor to CEO Larry Fink, So it leaves a lot of questions looming large certainly for black Rock in terms of leadership if Larry Fink does step down. Sarah Green Carmichael, thank you so much for joining us. Sarah Green Carmichael of Bloomberg Opinion.

We are broadcasting live from the Natixis Investment Managers headquarters here in Boston for Sustainable Finance a week and we are so lucky to have with us. Katherine Kaminski. Dr Katherine Kaminski, chief research strategist and portfolio manager at Alpha Simplex Group, which is the firm founded by Dr Andrew Low and focuses on understanding risk, mitigating it go forward. Uh.

So nice to be here, Dr Kaminsky. I'm wondering from your perspective, what the biggest risk is heading into the risk of a sell off and rates or the sell off in UH credit or the concept of credit. It uration great to be here, Lisa. UM. To be honest, you know, as we know, uh, we've been in an environment where we've seen rates go very very low. Um, I'd say that you know, credit is obviously an issue. But we're paying a lot of tension to rates and

what can happen if they go up? Um, and or if we have a situation where um, we've already seen some instances that we might have hit the bottom and rates, and I think people are a little concerned about how that might go. Um. Haven't people been worried about rising

rates for a project ever happened? I know, I mean I've been worried about it for Actually, we don't worry about it because we're very dynamic and how we trade the markets and we can go short um in fixed income, and we are worried about a lot of individual who really can't and who have bought a lot of bonds and this year, UM, people have definitely uh you know, jumped into even more fixed income. And it's unclear, um, how much more there is to go to protect you,

if we have any challenges. So it's interesting I'm looking at your firm. Uh, you employ a proprietary risk control technology. I think it's called adaptive volatility management. What is that in layment terms? And I stress laymans do. So the thing is is, if you think about risk, there's several key ways to think about risk there's things you can measure and things that you can actually know, and then

there's the things that you can't know. What we try to do is do the best that we can to understand what types of risk we can measure, quantify and understand, and then use those um what we insights that we gain from measuring these risks to try and balance our portfolios over time. So as things change, we try to use information from markets to measure that volatility, to measure where things are moving so that we can adapt to things.

What's the most visible forward pocket that you can measure risk? So I mean for us, it's not necessarily purely just a forecast of risk. It's also about understanding relative risks between different assets and quantifying it, but also understanding how much of that is actually reliable because backward looking, it's very easy to have a very precise measure, but you need to actually more think about in relative terms, which

risks seem more viable than than others going forward? What are the risks that keep you up at night that you can't quantify? Is it a twitter? Is it macro global trade? What are the things that so the things that really keep me up at night are risks that have decorrelation effects. Now what does that mean. Decorrelation effects means that a lot of the relationships that we have seen and things that are in the data, things that

people understand, things that people believe, revert. So unfortunately Twitter seems to be doing that. Um. But so we worry a lot about how how those type of events have the ability to change relationships that we think work. UM. So, as an example, maybe because that sounds very conceptual, UM,

a simple example would be Monday. Uh sorry, still very fresh. Um. But if you look at a day like Monday, we saw equity markets sell off, we saw bond markets sell off at the same time, and also the US dollar. That type of relationship is something that has been very strong and stable over the last two years. So all of us who are measuring risk and trying to understand relationships were exposed to that measurement risk that you know,

the world changes and and that's a decorrelation effect. And so any of these type of short bursts of you know change and sentiment and and threats or or or you know, tariff arguments, they scare people well and sometimes they have very adverse, um and unintuitive reactions in the markets. So is the goal for you to not lose money or is it to make bigger returns than others? So the goal for us is that you know. It turns out mathematically that estimating returns and forecasting returns as a

lot harder than measuring risk. So one of the things we try to do is understand risk reward tradeoff. So we're trying to understand how much opportunity there is relative to what types of risk you can measure, as well as how do these different risk return profiles compare across different assets. What is the time frame for each trade? In other words, are these trades for a month, two months fewer? So are our trading is actually a continuous process.

Every day we're looking mathematically at and measuring the markets to try and determine what that risk reward trade off of each of these different markets that we trade, so from bonds to UM equities to come oddities, UM, we're trying to look at what is the forward looking risk award trade off and how do we balance those things.

So the trading is actually when you're trading in the futures markets in particular, we're following all of these moves pretty UM pretty um pretty quickly in some sense, not high frequency, but definitely faster than UM. Someone who's a long term investor, Dr Katherine Kaminski, thanks so much for joining us. We appreciate you joining us here. Katherine's a chief research strategist and portfolio manager for Alpha Simplex Group. Joining us here at the offices of the Texas in

the beautiful back bay of Boston. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa A. Bram woids I'm on Twitter at Lisa Bramwoyds one. Before the podcast, you can always catch us worldwide on Bloomberg Radio.