The BOE's Plan, Alzheimer's Research, ETFs

pledging unlimited purchases along dated bonds. But isn't that kind of a cross currents with Prime Minister list trust tax cuts bill that was just recently announced kind of whip sawing markets. Um, you know, over the last several days, we want to get a little bit of perspective about what's happening on the trading floors around the world. Vince Cignarella joins his global macro strategist with Bloomberg News. Vince, what do you make of what's coming out of our

good friends over in London quantitative easing? No, No, this was all taken up basically because of the pension issued. UH pensions have taken a beating on this moving bonds Uh, there were some questions about liquidation and liquidity issues. So the b if you really just stepped in to protect the pension funds, um and as one treasury uh trade or friend of mine st today is the b V essentially engaging in yield curve control by another name, similar to the Bank of Japan moves of later and you

could argue that that's realisted. What's going on. I'm looking at the long end of the curve here down a hundred basis points in yield. Yesterday we went over five on the UK thirty year. Today we're under four. That kind of move um looks like panic. Well, you know it's the it's the same situation. It is because the pension funds are out in the long end, so that's where the banking is playing. Um. It's almost an operation twist if you will, um as to what they're doing

the stabilize the race situation. You know, what does it mean? What does it mean? Vince? If you're a trader, If you're a trader who bought the thirty year guilty yesterday, I guess you're in pig heaven. But if you are short, if you went short them yesterday, Um, you're closing up shop. Yeah, absolutely, no, that's this is uh, this is a very uh, this is a rip your face off kind of moves. Say on the street, if you were if you decided you

were going to short that market yesterday. Um. But you know, it's it's a little bit of you know, fiscal irresponsibility as to what was happening prior to today and what the markets were spanking the pound and that market yesterday aggressively because they don't like what the what the the fiscal policy is about cutting taxes and increasing spending, while the Bank of England is talking about raising two bases

points to try to fight installation. It's you've got the Treasury Department and the and the Bank of England working at odds, which is an almost emerging market kind of crisis. You you've taken a cheap tank jeep ten country and you've thrown it into em almost. I mean, how often in developed markets do um bond yields move one full percentage point in the space of like twenty minutes. Vince, are we highly highly a luxe Vince, are we gonna get parity with the pounds, sterling and dollar because the

pound hasn't exactly strengthened. We're at one oh six ninety seven right now. I think the currency is very much in danger of a collapse. I think, you know, what depends on on what the what the Bank of England does next. I mean, you know, the Bank of Thing and raising rights now to try to defend the pound

is going to make situation worse. It's gonna look like the Sorrows era where markets are going to see the banket thing in a panic mode trying to protect Sterling, trying to protect the currency by raising rates, and the market is going to take that, you know, a bit between their teeth and see this as an opportunity to push them to see how far they can go, because there's only so far they can raise rates to try

to protect the pound. When you have more motgage rate um mortgages uh going back to being marked up, and you know what does that do to the consumer? You're giving them money in a tax cut, but then you're taking it away by higher mortgage rates. So it it's it's literally like throwing money into the fireplace. It just doesn't help you. I'll remind our listeners that you know here in the US, you get a thirty year fixed mortgage in the UK. Often um the mortgage you get

us for less than ten years. So you I think there are one point eight million people in the UK who need to refy their mortgages this year. Still, Yeah, tough situation going from zero to you know, well maybe they had a three percent rate and now they're looking at like nine. So Vince, coming back to this side of the ocean, Federal Reserve, they look at all this global uncertainty, they look at kind of the instability coming out of Great Britain, one of our biggest partners. Does

that influence them at all? Well, I think they have to keep this in mind because you have the same similar situation here in the US. You've seen the stock markets drop some what orse um, does that put pressure on US pension funds. It's very likely you're probably going to see another round of earnings that are are not

going to look too rosy because of the moving a dollar. Um. You know, I wouldn't be surprised if we took a run at one double ow and sterling that that would be you know, the curtain call, if you will, for the global central banks or the G ten central banks. Uh to step in and do some coordinated intervention because part of the problem too it will stronger dollar, is that that that weekends. You know that that lessons prices on imports, um and and put potentially makes the inflation

situation worse for than set suset as well. All Right, It's very interesting, and I also wonder if people on the wrong side of the trade have to sell treasuries, if energy importers have to sell treasuries, if the Bank of Japan has to sell treasuries, or the Finance ministry to show up their currency. All right, Vin Signarella, good stuff.

Appreciate a macro strategist for Bloomberg. Give us a sense of just kind of what he's hearing on the street from bond traders, currency traders, and you know a lot of uncertainty, particularly coming out of the UK with what's been happening over there over the past early three or four or five days, just putting a lot of uncertainty into the markets. Let's check in with Katarina sem and Eddie.

She's a senior VP at Morgan Stanley Private Wealth Management. Katarino, what are the phone calls that the incoming calls you're getting from your clients, any any themes emerging to you uh this year, Well, this has certainly been a challenging year and a challenging market, and investors are concerned and the phone calls were getting uh, you know, just really you know, the vocalize this year that that investors are you know, experiencing looking at their portfolios being down so much.

And what has been unusual about earlier in the year is that it wasn't just the stocks that were down,

at the stocks and bonds that were down. So investors are looking for the guideline from us, you know, as far as what they should do, and what we're recommending is above all to not fear cell because as easy as it is to you know, to to be concerned about, you know, all of the markets, you know, in our view, there is an end inside where nearing the end of it, the well they're they're they're absolutely could be, and sometimes

things are worse before they get better. And in our view, the biggest risk to the market are the earnings declining earnings and the earnings revisions that you know, we see ahead because the reality is that we're most likely going to have poor inflation remain high for some time market is already pricing in the interest rate increases, you know, but with earnings revisions that are not done yet. You know, this is that next leg down that we are expecting

towards the end of the year. But this is again not to say that we are bearish in the long run, but I mean, we're looking for this. I think the median is for two dollars a share SMP meeting SMPUM five hundred year end EPs. What are you what are you looking for? Well, the question is you know what kind of recession we're going to get. I think the consensus is that we most likely are going to get

the economic recession. And if it's going to be a mild recession, we probably are going to end the year at a sumwhere around thirty four hundred and the SMP. But if if it's more of a severe recession outcome, you know, we might be looking at three thousand, you know, And it's hard to predict these things because you know, of course, there is a certain amount of lag between the FED action and the desired outcome. And you know, the what we're all questioning right now is that truly

going to be data dependent? You know, as we rely on them to be or will they react to the pressures of the market, you know, and continue tightening, you know, and as a result push us to the economic recession. All right, to have a programmed question here that I've written to myself that a couple of days um. And this comes from a long time listener. I thought it was very smart. He said, last year's inflation is transitory. Is this year's short and set and shallow recession? Um?

What changes short and shallow? Too long and severe? What's what's that hinge on? Well? I think that that's where the risk or federal reserve overshooting or raising rates too much, you know, because we're not seeing the desired reaction from the inflation. That's where that comes in, because we have to allow some time between the rate hikes and an inflation coming down, you know. But the the current economic environment, you know, has so many pressures. The cost of doing businesses,

high profit margins are getting narrower. Consumers are reluctant to spend money on most things outside of poor necessities, you know, unless you know, you're looking at travel and entertainment, which

is like natural in the post COVID environment now. But this is really the you know, the time where negative earnings and re visions that we're expecting over the next couple of quarters take the central stage, because ultimately, once the earnings are revised, it will be possible for the u S company to meet earnings and exceed earnings, which is going to be the pivot that we're looking for into the next bowl market. But we're not quite there yet. So are you. If an investor comes to you with

new money, what do you do with it? Well, with new money currently understanding the risks and understanding you know, what is ahead of us. You know, we would dollar cost average into the equity market. We definitely would recommend staying invested, but we will pivot and lean towards the defensive sectors. Sectors like healthcare, utilities, consumer staples, and reads all given in paying stocks because income is extremely important in this inflationary environment. You know. The other thing to

consider is relative to bonds, stocks are pretty expensive. But finally, unlike earlier in this year, there is a little bit of a safe haven in fixed income is actually in short term high quality UM corporate bonds and treasuries. We

can get significant amount of yield in these sectors. And you know, if there is an argument to be made for a safer acid allocation while we get through this challenging bolatile UH cycle in the market, you know that that makes sense for a lot of investors here, all right, Katerine and good stuff. Always appreciate getting your perspective, Katerina semineity Uh, Senior VP at more Extantly Private Wealth Management. Well, I've always said trading biotech stocks is a tough way

to make a living. You really have to be right. I mean, if you're right, you make a lot of money, but boy, if you're wrong, you'll lose a lot of money. Here on these new drugs, today is a good day for Biogen and it's Japanese partner ISI. Stocks are both surging. At Biogen up about thirty six percent today. They had some good news on one of their trials about one of the Alzheimer's drugs. And to give us the latest is Robert Langworth. He covers all things biotech healthcare for

Bloomberg News. Robert talked to us about what bio jen and Isai are are are doing today, what they're drug is and kind of what we learned today. Yeah, so this is a trial I mean actually run by a SI as I did this trial, in charge this trial and did this trial. Uh it's in partnership with Biogen, but as I was really running in biogeneral, I think would get half of the profits as far as long standing collaboration. But basically, this is a drug to remove amyloids,

this toxic protein for the brains Alzheimer's patients. And drug company has been trying to do this uh uh for many years and have tested all sorts of other drugs to do this, and all the previous trials of other drugs for amyloid of generating their mixed mixed results are failed entirely in trials, so they've been working on years and years with little success. You may remember that Biogen itself had another drug that was actually approved called aji Helm.

It was actually approved in one of the most controversial u S approvals and history uh and it was another emoid drug with the and but then Medicare refused to cover it because the results of that. Their trials are kind of contradictory and no one could figure out whether it worked or didn't work. So now this trial is another amyloid lowering drug under the Biogen a side partnership.

But this one, as I said, aside was kind of was was leading the charge on and this trial was the first trial then emily lowering drug to show it kind of a clearly uh clearly statistically positive effect and slowing cognitive decline. Like I've heard it described as like a plaque plaque on your brain. Yeah, there's kind of a kind of four mittle plaques in the brain. No one is exactly sure how they are toxic. It's thought to be toxic. It's one of the leading kind of

theories of Alzheimer's. Uh everything about alzremers of controversial, but this is kind of one of the leading theories. So basically it appeared in this very big trial, this new director show you know, a a small positive effect that it appears to be kind of quite modest. It's like zero point five, zero point four or five points from the eight point scale. So they think the big debate next is going to be like how clinically meaningful you know,

is this? But you know, everyone thinks this is enough to get approval. Side question kind of why do they give these drugs such bad names? Ad you helm was the last one? What's this one? Called it's similarly unpronouncing. Well, this is a generic name, is Lacannon, mab map stands or monocola antibody. But but it's gonna get it. If it's approved, it's going to get a brand name. And we don't know what that's gonna be, so it could be another incomprehensible brand name, you know, who knows. Is

that a strategy though? Is that part of the marketing strategy? Like if you can't pronounce it and you can't remember what it is, then you must think it's gonna work. Yeah, I don't know where they come up with these names. You know, drug companies lots, you know, like come up with names, lots of xs and zs in them, you know. And I think they've spent spent a lot of money consultants to come up with the name. So how they do it, that's just the mystery. So Robert, I see

this stock, this Biogen stock. It's a forty billion dollar market cap stock. It's a thirty six day That tells me that this is a breakthrough drug. But you're telling me it's not really, or that there are a lot of punters in in bio tech. I think, yeah, I guess, I mean this move and the stock tells me that this is radical, and it's not radical, is it. It's a step along the way, so like so yeah, the

step along the way. But you know, they haven't had really any clear cut steps all in the way, and it stord of like, you know, all the steps aren't aborted. So you know, this is like the first successful trial disease felling trial. So in that sense, it's, you know, a breakthrough in critical trials, you know, but whether there

was a patient, it's the medical breakthrough not not so clear. Well, they said the they said the use of the drug reduces the pace of cognitive decline in people with early disease by t over eighteen months when compared to placebo. That doesn't sound great, but it sounds better than nothing. Yeah, it's kind of like, you know, better than nothing. It's it's not so clear whether you know, you and the patient of family would even detect the change in the difference.

I mean, you know, if you think about it, like, you know, if you were going to decline, you know, yeah, a hundred points in the scale, you're still going to decline seventy three points in the scale. That's difference, so, you know, but I guess they they're touting the possibility that it over a longer period of time, it may do even an even better job. Right. Um Um, They say that the top line data as strong as it can be with high statistical significance across all end points.

Data doesn't get much cleaner than this in biotech. That's according to BEMO Capital Markets analyst Evan Seagerman. You know that because you probably wrote the story. But um, yeah, so, I mean, this is the first thing I read when I woke up this morning. I looked over the headlines and I picked this out because it's important to me on a you know, personal level, and I think for millions of people it's a huge issue. It's a horrible disease that affects everybody in the family if one person

gets it. Yeah, no, it's a very difficult disease. You know, the caregiver cost cost of this disease, you know, are very very high. And this you know, this drug, you know, it doesn't stop the decline. It only you know, slows it close it somewhat. And and we don't know a lot of these details. All we have right now is really just a press release from the company. Is there anything else, Robert, Is there a moon shot out there, maybe something that attacks the disease differently than just removing

the plaque from your brain? Um? Is anyone working on something that could be better? Yeah, So, coming are working on lots of things. Now. One of the hopeful things is that there's a much kind of broader array of attempts doing different strategies to try to treat the disease. Now, it's not all just focused on this one idea amyloid.

And you know, it seems, you know, clear a lot of people are saying that, you know, we'll need to make this ultimately more like cancer and attack it from like three or four like different drugs at once, using that attack three or four different mechanisms, because clearly, you know, removing amyloidcase, this drug does a tremendous job at removing amyloid, but what you get is this tony seven percent difference.

So it's clearly, you know, it seems to say that that Emily's not the only thing where you're gonna have to suggest go after multiple causes and over time, Robert, just thirty seconds left in a post COVID world, is it easier to get drugs approved or is it has that changed at all? Um So you know there's no fundamental change. I don't. I don't think in the in the in the f days kind of approval strategy as

a result of COVID that I know of. But you know, certainly the the neurology division that has been looking at throughout s light the ones for all shimers. They you know, they are you know, uh, it seems to me, you know, taking an aggressive strategy and you know, and trying to you know, get drugs approved. That show begins shows some kind of a difference. You know, they approved the biogen drug you know, based on bio mark is based on emiloid loring alone. This one is the first one. This

one goes beyond that. It actually shows like a measurable critical difference. But it's small, It's really small, all right, Robert, good, good stuff. Thanks to that porting. We appreciate it, Robert Langreth. I want to bring in our next guest, Alo Tero. He's a portfolio manager at Armada E T F Advisors. Uh and they've got a US read E T F H A U S. Talking about the housing market. We had some pending home sales today month on month was

down two percent. The consensus was for a decline at one point five percent, but on a year on year basis, that's how I like to look at it. UH came in and minus twenty two and a half percent. So looks like this housing market rolling over al. Thanks so much for joining us here, talk to us about your h A U S read E t F and kind of kind of what you're trying to do with this et F and then love to get also your over you just kind of this where we are in this

housing market. Sure ture's a good good morning. Thanks so much for having me. Yes, and our MADA et F is a relatively newly formed U advisory firm. Houses are first product. UH. We basically have background in UH, in the read industry, in the into et F industry, and

then also in the direct real estate industry. And the goal with with house was really UM and our founder was looking at about two years ago and it was looking for a residential red e t F UM UH and he said, g one doesn't exist, maybe we need to create one, and that's exactly what what he did, and we launched a fund back in March, and again

it's residential read ets. So it's it is certainly housing related to the extent that what goes on in the residential read market that's multifamily, uh, single family rental manufactured housing certainly a correlation there with the single family housing market. UM. But again the goal here is to number one current income.

Number two hard assets, predictable cash flows, uh, you know, attractive dividends that are are growing an attractive rate, strong balance sheets, so lots of lots of good characteristics that roll up into the residential read market. So what do um the flows look like thus far? What are you looking at in terms of assets under management? So where we're tiny, guys. We we launched back in early March. We have a couple of you know, uh several several

million dollars in the fund right now. We've launched into a bit of a volatile environment. I think a lot of folks that we're talking to like the like the idea residential reaths uh you know at residential real estate again broadly defined as I mentioned earlier and not just housing, you know, has has been a favorite part of the investment landscape at landscape for a very long time. UM. Again,

rent growth more recently has just been off the charts. Uh. Certainly that's starting to moderate, and I think it's a good thing. But as we look back over the last you know, quarter, two quarters, and we talked to our constituent companies, Uh, you know you hear the worst historic getting tossed down a lot. We've we've had historic rent growth.

We've had occupancy levels and and tendant retention, resident retention levels that have really just been off the charts, and lots of lots of that house to have to do with some of the structural change that have gone on in the in the market of the last couple of years.

But we were continuously good demand for this product. I can imagine if you'd launched at the beginning of UM, you'd just be shoveling out cash, right, But uh, you come in at a time, well basically at the peak, right when I bought my house, you launched your house, UM, and I feel like I got the very top price I possibly could have paid, but I did at least get a little rate. And now we're looking at mortgage

rates up over seven percent in some cases. UM, is this do you think is this part of the problem for house And do you have other products that you're gonna that you're looking to launch around this second to your answer second question, Yeah, we are looking at other products touch launch around this, um, but think the heart of the matter, you know, and as it relates to housing, and and it's it's a long term investment. You long

term investment. You recently bought your house. You're gonna hopefully be in there on average right right sitting you know, you know, fifteen years or so they're about so it's a long term investment. Obviously, historically, um HP a house price appreciation has been inflationary plus so, so there there's

a hedge against inflation there. Um. You know, market timing is always so so difficult, but we see an opportunity, especially when you look at what's going on in the housing market and as uh and and and as that home prices have gone up so much that really tends to also keep residents in apartments longer. And that's I think one of the interesting things about what we're seeing

today in the rental market. Um, there's an affordability problem with with home ownership today, and that affordability gap between owning and renting makes it still a very attractive proposition to rent, and we think that's a proposition that's going to certainly last through the end of twenty two and most likely into three as well. All Right, Al, good stuff. I appreciate you coming on and talk to us about the housing market here. Al oh Taro, portfolio manager of

Armada E. T F Advisors. Uh, looking at you know, mortgage rates north of six percent and it's really really headwinds for the real estate market after that surge during the pandemic. Trust Company of the West the kids now call it TCW. It's a monstrous money management firm out on the West coast in Los Angeles. A lot of really smart people in the equities and fixed income business.

The fixed income folks that we've talked to TCW from, you know, over the last I don't know how long, but you know many many quarters been really really conservative in their outlooking. Boy have they been right? Uh here, double digit declines and most fixed income businesses. Steve Kane co c I O in General's portfolio manager with t c W, joins us here today. Steve, the fix income business is brutal. Nobody wants to talk to you guys at cocktail parties. What do you do? What do you

do now? Good? What do you do now with your feather reserve? Is just doubling down on raising these interest rates? Well well, guys, actually, even in the good times when bonds are doing well, no one wants to talk to it, so that this environment is no different from that perspective. Is it a buy now? Jeff Goodlock? I believe um a tc w alum. He's been buying bonds over the last couple of days, at least according to his Twitter, but he says it's been partially painful. I guess until

you know, the last few hours. Yeah, yeah, and uh yeah, I think we're seeing a lot more value in the market. I'm you know, starting with the idea that fed tightening cycles. You know where you were starting this conversation. They're never fun there, you know, as I sort of joke with some of our folks around here, you you don't know they're over, But when you start to taste the bile and the back of your throat, you know you're probably

getting close. And we're we're starting to get to that point. Um. But yeah, it's been a brutal market. But you know, when you talk about real rates in the mid one percent level, and investment great bonds five and a half plus percent, agency mortgages pushing six percent high yield almost to ten. Uh, those start to look very attractive to us. So we've you know, we've been scaling in. You know, we're a little bit long duration. You know, we like

the rate environment. We're not firing all our bullets at today's level. We think there could be more volatility, probably will be in more pressure upward on rates before this is all done. But yeah, we're seeing value. So what do you do when you see like, uh thirty year guilts yielding five do you start to kind of average into that or are the markets too volatile to make

a call? Do you wait till things calm down? Well, we actually got that one right, believe it or not, that we we actually yesterday weighted in uh thirty year agolts right around five percent and then we sold them today. Nice thought. Are these long term buy and hold people? What are you talking about? All the trades that went the other way? But I'm happy to is the idea that basically, when you when you make that much money,

you don't want to get greedy and you just cash in. Yeah, yeah, there's a lot of volatility in the UK is certainly not a an area where we have a lot of confidence in the in the near term direction of where things are heading. But when things get to extreme levels like we saw, we know we weren't positive rates, we're going to peek out there or there would be intervention. That wasn't really the thesis, but the markets do push back against policymakers at some point, and that will be

the case with the currency as well. Vigilantes they're back, according to Eduard Denny. So see how about credit quality here? You know, a lot of folks are saying we're either intercession or certainly heading towards one and maybe be a severe one. Your team's your analysts, you know, are they really sharpening their pencils and kind of checking out all the ratios to make sure that they're not overly exposed to credit risk? Yeah, yeah, we are. I mean, I

think the area is to be very concerned about. I think are anything that touches Europe given the degree of stress that uh, you know that economy is can be under with the energy crisis there here in the US. Um, yes,

we're definitely sharpening our pencils. There's areas of the market regulated areas like banks that we think, you know, notwithstanding the fact that banks typically do suffer a bit during recessions, we think the banks are well positioned today, and so there are areas in the investigrade market where we sharpen

the pencils. We've stressed. Uh, you know what what credits will look like in a recession, even a severe one, and feel very comfortable at for example, money Center Bank, you know, senior debt of money Center banks north of two basis points spread to treasuries. We think that's a very attractive risk return. Notwithstanding a fairy fairly bearish outlook for the economy, we would do we do think we're we're heading for resush. Is it too bearish? Yeah? Druck

and Miller said he would be. I think he said he would be shocked if there wasn't a recession by the end of the year, is there, Uh, is high yield then too risky right now? Yeah? Well, here's what I would say about high yield. You know, as I mentioned, you know, almost ten percent yield. If you could buy your high yield today, put it in a drawer, you know, go do a rumpel steel skin, fall asleep and wake up in five years. You'd be happy you did that. But HW yield doesn't you know, We're we're in a

mark to market world, total return world. In our sense is that we haven't hit the wide and spreads on high yield in this cycle at you know, fifty off treasuries or a little north of that. We we think there's material widening. We're adding a little bit, we're seeing a little bit of opportunity, but we're saving our powder. We do think, you know somewhere, you know, hundreds of basis points wide to hear is where you start to

back up the truck. All right, good stuff, as always, Steve Kane, co c Io and Generali's portfolio manager t c W Investment Management. That meeting plus the Capitol Group are your two anchor meetings when you go to Los Angeles it Those are the ones that you build your whole schedule around that. So you're going out there to pitch your wears. TCW and Capitol Group. 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 on Twitter at Matt Miller. Three pt on False Sweeney, I'm on Twitter at pt Sweeney. Before the podcast. You can always catch us worldwide at Bloomberg Radio