Key Takeaways From The Fed

She is chief investment officer at Northern Trust Wealth Management, joining us out of Rye, New York. And let's get first to UM your expectations for the number on Friday and how it plays into what we heard from the FED at Jackson Hole. Katie, Well, good morning and thanks for having me. I mean, I guess would be right around the consensus for the Friday number around seven fifty, a little bit of a decline from UM from last month.

But I think the point is this data for the next several weeks, I mean maybe months, is going to just be really really noisy. As we're seeing UM some of this UH this other data command a bit softer than expected relative to UH pre delta expectations. So I think we're going to be in this period of sort of give and take with the with the macro data,

which I mean again for for investors. It's very consistent with what we heard from the Fed on on Friday, from Powell on Friday, that you know, he's keeping his options open, all right. Well, I think investors need Katie to keep their options open as well. I'm looking at the tenure here, just stubbornly staying around this one point three zero level, seemingly in a trading bound. Tough to make a living down there at that kind of rate.

Where are you kind of as you talk to clients here and you and your advisors at Northern Trust, where are you telling them to go in terms of asset allocation right here? Well, you know, I think this is a very very important um discussion to have right now, because there is this sort of feeling that we should

be out of bonds because rates are so low. Um. But what we're telling our clients is, you know, fixed income plays high quality fixed income plays a really important role in your portfolio, even at these levels of yield, these low levels of yield, which, by the way, we expect you're going to stay low for probably even longer than the market expects. So get used to these uh these low yields are going to be with us for a while. But the role of fixed and the portfolio

is to provide you that diversification. And what would seem time and time again is during stressful times in the market, risk assets all sort of performed the same UM. So we want to make sure that our clients have the right amount of fixed in. You don't want too much because the yields are so low, but you want to have uh an amount of fixed income that's going to help you meet your your goals during times of market

stress and not force you to sell risk assets. But beyond that, within our risk asset portfolio, I'll tell you one area that we like right now. Obviously we like US equities that's worth you know, we've seen very strong growth. We continue to think we're gonna see from my to me into two and perhaps even beyond from an earnings perspective. UM the Feds on hold, so you know, the rate environment's going to stay very constructive also for the next

several years. But we also like high yield and we're seeing, you know, the credit worthiness of high yield credits improve over this cycle, and we expect are going to continue to improve and we can see spreads grinds even tighter than they are right now. So US equities high yield, that's sort of where we're leaning into from a tactical perspective and our risk asset portfolio. What kind of taper do you want to see? UM? What kind of taper

you know is helpful to your investors? Right? Well, we are expecting the taper to be very slow and very delivered. So six and nine months of tapering UM hopefully will be sort of back to the future and watching pink dry as I think Janet Allen said uh in the previous taper. UM, So we don't think it's going to

be a meaningful event to the market. UM. We only have one data point the last time we went through tapering, and you know, after the taper tantrum, which is really a communication issue, the market really absorbed the taper very very well and then starts to focus on the next move, which is when are we going to see rates increase in For US, we may see a liftop in twenty three, but if we do, it's going to be much slower

and much lower than the market thinks. So given that backdrop, Katie, in terms of the equity side of the business, are are you suggesting to your representatives and your clients that they focus more on maybe the good strong top line growth stories maybe in tech and healthcare or um maybe go into that lean into that rotation trade which has been working so well, which is more cyclical, uh sectors maybe like you know, banks or or energy. Where where

are you on that discussion? Yeah, I mean, I think it's important to take a diversified approach. I think investors have learned this year especially that having both is kind of the way you want to go, because we've seen this pivot between growth and you for example, I mean, you know, we've had we had a value of performance and now sort of hear a date, growth is edging out value. They've both had very good absolute performance, but we've seen sort of that pivot between growth and value

happen a lot of time. So we we advise our clients to lean into both and not to have to pick a side in this um in this race. One of the things that we are looking at though a lot right now, is helping the quality of our of our equity investment. So really looking at a quality as a factor and sort of adding that into the portfolios as we as we can. Katie, thanks so much for joining us. Great to get your insight on what is actually an exciting time, even though you know yields are

low and it may be UM difficult. Your job might be more difficult than normally would be UM. Certainly from a journalistic perspective, it is fascinating to follow, even if J. Powell's intonation could be a little bit more exciting. Yes, exactly when he's reading a speech, I just want to go with him and just go through it once or twice, a little coaching. But I mean I found, you know, especially his defense of UM the inflation picture and their inflation take, I thought was spot on, and I think

um Katie did too. She's got a great note that you can check out on the Northern Trust website and highly recommend going to wealth dot Northern Trust dot com to check that out. Katie Nixon um joining us the c i O of Northern Trust Wealth Management. This is Bloomberg. Now. We told you at the top of the show about thirty minutes ago that we saw the Consumer Board Consumer sorry, the Conference Board Consumer Confidence index coming out at one

thirteen point eight. We were looking for a reading of one three and the prior reading was one twenty nine. So it looks a little bit soft here. Let's and Lynn Franco, Director of Economic Indicators and Surveys from the Conference Board. And Lynn, this actually makes sense considering the other high frequency data we've seen. Is just is this just an end of summer vacation thing, um, a little bit of cloudy vision into the beginning of school year?

Why is this? I think what we're seeing here is rising concerns about the delta variant and to a somewhat lesser degree, consumers expressing some concern about rising gas and food prices. Uh, so we've seen that not only take a bite out of how they assess current economic conditions, but also pass somewhat of a cloud over their short

term prospects. So it's virus and inflation, yes, And I mean the good news within this is that the employment indicators did not really decline substantially, so you know, we do expect the economy and the job market to remain strong. Hopefully, um, you know, can get a handle around this recent surge and that will help sort of alleviate some of consumers concerns, but it could pose a little bit of a you know,

headwind to UH spending, especially in person spending. So Lynn talked to us on a FOP a little bit on that on that labor issue there, because we still have you know, a lot of folks that are out of work, but there's also a lot of openings out there and a lot of companies are raising pay How does the kind of the labor outlook factor in. I think the labor outlook, especially what we're seeing in our report that remained more favorable than the economic outlook, which I think

is good news, you know, to help support spending. We do know that at least in terms of claims and other labor data, you know, we're sort of getting back to more favorable readings. So we hope that will help boost confidence in the coming months. And in fact, if we take a look at their spending intentions, um, you know here too, we saw a little bit of going off endurables and autos and home purchase intentions UH, and a shift more towards in person. We saw a little

bit of a pickup and travel intentions UM. So that I think was a sort of good news, there is at least some willingness to continue to spend. You know, we all um watch LYNN and markets very closely. The non farm payrolls number. It's been referred to as the Granddaddy of economic indicators. Does the consumer care about this kind of data? Well, I think, you know, obviously they do.

It impacts them. It supports consumer confidence. And we've only had a slight uptick in the percent of consumers who were telling us jobs are hard to get right, So I think that's somewhat favorable news and their outlook. Even though we saw a little bit of a decline in their outlook regarding where the labor markets headed, it still remains very positive overall. So it could be that this is sort of more delta driven than jobs driven and

LYNN work. Some of the sub elemental unemployment benefits are set to expire in early September. How do you think that's going to be reflected in the data. I think what we're seeing here is we saw a little bit of a decline in the percent of consumers have said they expect their incomes to increase over the coming months. But we know right now from not only this survey, but other surveys UM that you know, most people are

sort of stashing away the extra money. We saw an uptick in the savings rate, so at least consumers are somewhat willing and able to spend. I think just what we're seeing here is a little concern about the delta variant and that could likely impact in person services over the coming months. Is the vaccine rate at all playing into this, the fact that you know, certainly from our perspective here in Europe, Americans just aren't getting vaccinated as fast as we thought they would or as fast as

we are. Well, I think if we see an uptick in vaccination rates which have that may help offset some of the concerns about UM, you know, the increase in the spread of the delta variant, So that would be one way to sort of counter the concern. Heylyn, thanks so much for joining us. We really appreciate it. Lin Franco, director of Economic Indicators and Surveys at the conference board.

I want to bring in Joni right now. He's the CEO of e Toro joining us on the phone out of Israel, and I am very familiar with the TORO. I worked with a number of your analysts had them on various programs. You so, I get it. But you say you're the world's leading social investment network. That's the tagline. What does that mean? Hi, and thank you for having me. I'm actually here in New York. Um uh so very

quickly is the largest social investment network. We have twenty two million registered users, mostly outside of the US, who registered to our social network where our users can trade from and free stock trading as well as cryptocurrencies within a social network, So everybody can actually see the most successful investors performance over time UH, their monthly UH performance as well as their actual portfolio location and communicate and

collaborate with one another, and then use our patent technology to automatically copy the most successful investors. So if you see an investor which generated thirty percent returns every year for the past five years on average, you just click copy with let's say five thousand dollars in it copies his entire portfolio into your portfolio for that five thousand dollars, and every time he trades, it trades in your account at the same time, the same price and the same proportion.

So he basically brought in the sharing economy into the world of trading and investing. So as you think about your customer base, JUNI, I mean obviously a big, big increase uh since the pandemic. How permanent is that, how sticky is that? How do you think about the growth of the folks that you know would be interested in

your platform? First, First of all, we definitely have seen explosive growth over the past eighteen months since that I would generally say an inflection point that started the rise of millennial investors all over the world. In March, we

just recently announced our Q two earnings this year. Uh, and we grew from Q two last year to Q two this year between a hundred and twenty and a hundred forty percent on various KPIs from registered users, where we added more than two and a half million registered

users just this quarter in Q two. I think we are seeing again a very significant secular trend where there's a whole generation people who didn't participate in capital markets before, both in the US but also all around the world in your up in a Asia, who are simply asking what to do with our money, where to invest our money? Uh?

And maybe it starts with a bigger question, which is a very big discussion right now all over the world what is the value of my money, which again comes from a confluence of circumstances of zero interest rates, a very big discussion about inflation, UH, and the fact that governments all around the world are printing money and at unprecedented rates are leading a whole generation to ask, what is the value of my dollars or euros or pounds and where can I invest my money so it will

grow over time. I'm not sure if you saw the John Paulson interview UM with David Rubinstein we had on the area yesterday, but essentially the investor so famous for his big short during the crash of the housing market, said he doesn't recommend buying crypto at all. He thinks it's just worthless UM asset that is speculated on because of you know, I think what was the line, paul limited availability, limited supply of nothing. UM. Do you think

it matters to UM young investors today? What the hedge fund titans of yesteryear think about crypto? I think not everybody has to love every asset in order for that asset to be successful over time. Not everybody loves Facebook. But Facebook is a successful company and a lot of investors in a Facebook stock have a scene appreciation over time.

I can definitely say the same about Tesla stock and Amazon stock, who have had a lot of uh negative sort of people talk about it in sort of in past years, right when when Amazon in the only two thousands in Tesla just three, four or five years ago. I think, you know, every investor has his own right to analyze and to evaluate different markets. There's no doubt that the crypto markets one are super interesting and second

are a sort of a generational asset class. The majority of investors any toro are under forty uh and uh. The majority of investors a toro hold both equities, so both stock markets as well as crypto assets. So I would generally say it's great when we have super smart people like Elon Musk, Casey wood and and and Jack Dorsey talk about crypto and and believe in in bitcoin and support it. But you don't need necessarily every investor in the world to believe in bitcoin in order for

it to be successful over time. So generally you should always expect some people naysayers, otherwise the price would already moon. So you only I guess probably one of the next steps that a lot of people are are looking at in terms of the development of the crypto market. Writ large is some type of regulation. UH. What is your view of regulating the crypto market? How do you think it should play out? UM? What are your thoughts there? So we've we've founded ed Toro before crypto was out there,

and we are a regulated financial institution. Were regulated in Europe, in the UK and Australia here in the US as well as expanding our our regulatory licenses both in Asia and the Middle East. So there's no doubt that when you think about consumers, when you think about retail investors, U, regulators are there to protect customers interest. That is the role and that is why a significant part of retail investors will eventually work with regulated financial institutions. I think

regulators are definitely catching up. They see a lot of the benefits of blockchain technology UH and its value actually to eventually provide both innovation and protection to customers interests UH. And I think what we're seeing now, as we see in any innovation in any market that's regulated, regulators are learning and are putting in the rules in place to be able from one hand, to promote innovation and to to enable efficient markets and the growth of those markets,

and in the same time protect customer interests. And we see that with with regulators all around the world. I think as in any market that's growing fast and striving on limitless innovation, it's it's very important to balance between fantastic joy Thank you so much for joining us. We really appreciated getting an update their Yuning I see CEO of El Toro. Home price gains set another record, fueled by bidding wars. Now for some of us, that's good news,

for others not so much. Let's get the latest. We can do that with Sam Dunlop. He's a Chief Investment Officer of Public Strategies at angel O Capital Advisors about thirteen billion dollars in assets under management. Joining us on the phone from Atlanta, Sam, We're seeing these amazing surges in residential real estate. UM My question is is this a COVID fueled short term anomaly or is this something different?

You know, it's definitely got some COVID um effects, clearly, but I think the real key, uh, you know, really going into the pandemic was that we were dealing with a pretty significant supply and demand mismatch of single family housing. UM. You know, prior to COVID, we were very optimistic on the housing market going into COVID. UH. Clearly COVID was a huge disruption, but coming out of COVID, UH, it really exacerbated the extraordinary supply to mean mismatch that we

currently have. Just the the rise of the millennial as well as just the lack of investment in housing after the global financial crisis, you know, coupled with the pandemic and all time low mortgage rates just has home prices surging. I said, So, those are the two key issues then, Sam, right, the UM first one the idea that millennials weren't going to buy homes. As a result, I guess, uh, we

weren't building as many as we should have. And the second is people weren't investing in homes as UM financial as a financial asset as well as a residential you know solution. And that changed during during the pandemic. Yeah. Absolutely, just just not seeing enough units come online, you know, to keep pace with uh, the already extraordinary supply shortage.

I mean, just to give you some context, the National Social Association of Realtors, you know, they recently put out the single family supply demand gap was approximately six million units currently and when you couple the millennials as they as they come online in the housing market, there's you know, expected to be an additional three million units that will

need over the next five years potentially to meet that demand. So, uh, you know, when you had the housing market really at the center of the of the last global financial crisis, you just had a lack of construction and lack of investment to meet those uh, pretty extraordinary macro conditions. So this has been a long time coming, but COVID has

certainly exaggerated the effects. Especially uh, you know that Powell has taken us not only to the zero bound, but you know, continues to buy agency mortgages and treasuries and earnest. So talk to us about the mortgage market here is I know, there's you know, back in two thousand eight with the financial crisis, you know, a lot of it was just very poor credit standards, which led to you know, people who were barring that probably should not have been barring,

and so on and so forth. Give us a sense of how you view the mortgage market here. Yeah, it's a great question, you know, we really look at and and and other market participants do as well. Uh, you know, shameless plug form Bloomberg. There there's a mortgage credit availability index that the Mortgage Bankers Association puts out that that you view on your terminal there. But uh, you know, it's the higher that score, the more available credit is.

And if you look back to the preglobal financial crisis period, that index got as high as, uh the mid eight hundreds. Uh. And just to give you some context today, you know we're in the low one hundreds area. Uh. And you've just seen very little credit expansion uh in the post global financial crisis period, but you also saw a pretty significant amount of tightening uh and residential mortgage credit abilbility

after the COVID crisis. So uh, that index got as high as one eighty pre COVID and now it's collapsed down to the one twenties today. So uh. You know, as far as looking at mortgages as an investment for for healthy credit quality, UH, it's certainly an area we've been focused on, just because you haven't seen credit credit standards really expand, especially from from some of the peak that we saw in the pre global financial crisis period, Is there any concern that we're looking at a bubble

that could pop? You know? The good news is, I would say from a from a bubble perspective, and what we've been focused on is not only the credit standards that we talked about, but just the reduced amount of leverage UH and just the reduced amount of fraud in our view that that drove that bubble. And the pre

global financial crisis period. You know, not only have mortgage credit standards tightened dramatically, but you've just seen a whole host of regulation and focus from the CFPB and the and the qualified mortgage rules and guidelines that has really improved the integrity of the of the origination process in

the US. So it's not driven by a leverage per se, which is very important from a health perspective, and just looking at those fundamentals you're seeing it really driven by this supply and demand mismatch that we're seeing and again a very accommodative fed that we don't see going away anytime soon. Sam, thanks so much for joining us. Sam dunlap Is, Chief investment Officer of Public Strategies, angel Oak Capital Advisers. Thanks for listening to the Bloomberg Markets podcast.

You can subscribe and listen to interviews of Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three and on Fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio