The Latest On Interest Rates, Fed Tapering, And Inflation

to say bitcoin pricing per It's really per coin. Greg just said per bit, which is funny, but a bitcoin is made up of about a million bits, so I was going with the old per token that could work. Per token works also as as does per coin. Just saying per coin it sounds there's an echo, you know, but um, there are many, many, many bits in the line of code that make up one. Speaking of a point, it's per I'm gonna go with token down seven fifty

dollars or one point five, So there you go. All right, let's check in with Megan Horneman, director of portfolio Strategy at Verden's Capital Advisors. Megan, thanks so much for joining us here. Just give us your thoughts of what we've heard and seen and read from various central banks over the past twenty four hours. How has that changed, if at all, your outlook for next year. Um, it hasn't changed our outlook. It wasn't a complete surprise what they did.

I mean, they kind of told us what they would do when the Fed pivoted, when they dropped transitory last week or the week before. I think what they're doing is necessary. I think it's it's going to the Sometimes that short term pain helps with the long term gain. We need to get a little bit more aggressive about pulling back some of these emergency measures. Quantitative easing, for sure, we haven't needed that for some time now, we've been

at that emergency situation. So I do agree with what they're doing there from the inflation standpoint as well, getting a little bit more aggressive now saying potentially three rate hikes next year. This is what the market wanted to hear, and you're seeing that being reflected in the equity market. If they had disappointed in coming out in any more debbish type of a tone, I think you actually would have seen a very big different story on the equity markets.

I think you would have seen them sell off because there's that overwhelming fear that the FED maybe behind the curve. And what they're doing right now is showing that they're they're very um, observant of what's going on with the inflation environment and ready to hit to do what they need to do to tackle that. And um, do you have faith that they'll be able to do that without derailing economic growth? That's the that's the biggest question, right what can we do? Also, I didn't mean to use

the word faith. I mean, you know, do you do you expect that? Yeah? No, no, do not worry about that. Um. So I think right now this is a very good step. I'm I'm glad they got a little bit more aggressive. The biggest thing that we will have to see in the first half of next year to see if they can successfully do this is, um, is there something that's going to give? Will the demand side of it from

the consumers start to slow a bit? Um? Will that help us catch up on the supply side of things that may help alleviate some of the inflationary pressures in the second half of next year. That time will tell. With the consumer. We saw retail sales yesterday they were a little bit disappointing. There is some evidence that the higher prices from either the gas pump or the food prices, this is starting to affect consumers. You're seeing it with

credit card debt pick up as well. So if we see some poolback in that demand side of things, then the FET is doing the right thing. It's doing its job. I still think it's a little bit too early to tell. Can we successfully land this economy in in Megan, So, given that backdrop, are you suggesting to your clients in that they focus on again some many cyclical names that will I guess perform well in a reopening economy, or kind of sticking with a tried and true big cap

growth names. Um No, we're still recommending to stick with those cyclical type of sectors that will benefit from the global recovery. These also are the areas of the market that have lagged over the past six months by a significant amount. They from evaluation perspective, they're more they're more attractive than those large cap growth, mega cap tech type

of names. And keep in mind that a lot of these very expensive investments, whether you're looking at mega tech or some of these momentum type of investments that you've seen materialized in two. They've been hurt over the past week, and that's been primarily because of the fact that the easy money policy that has fueled some speculative, speculative types of trades over the past year, that's going to be fading in the two. So you're seeing some profit taking there.

You're seeing that today as well in seeing a rotation back into those areas that actually have values that can benefit from UM not only higher interest rates when you're looking at financials, they can benefit from the resumption of economic growth with industrials. So those are some areas that we still focus on going into next year. Drum Pal didn't seem terribly concerned about oh, Macron, although drinking havoc in Europe, UM, how does that factor into your strategy?

So UM, we're going to deal with the different variants of this virus forever. This this isn't going away. What I would like to see INO is that we learned to live with it as opposed to locking down. Right now, we're still in that concern of lockdown phase. But if we can learn to live with this and get through these humps, because we will deal with more variants this, Oh Macron. Apparently there is a knee jerk reaction at first.

That's because it's more transmissible, it's more dangerous. We're not seeing that right now. Um, it is definitely I've it's been more transmissible, but we're not seeing it necessarily increase the Hospitalization's. The one thing that we think will be a big focus in is therapeutics for for coronavirus. This will help us to get further to that living with it as opposed to locking down because of it. So I think that's going to be a focus in two.

I'm not concerned at this point of Amcron's railing on the economic recovery. All right, Megan, thank you so much for joining us. Megan Hornham and director of Portfolio Strategy of Verden's Capital Advisers, talking about locking down just coming across the Bloomberg Terminal City tells New York, New Jersey staffers to work from home again. So we'll see how this plays out as a COVID nineteen continues and the

Amicron variant is the driver here. I want to bring in Mark Douglas now, he is the president and CEO at Mountain. He works with Ryan Reynolds to put out ads like the one we saw over the weekend with Chris Noth still alive and well and writing his Peloton. Um bark talked to me about that fast turnaround. Did you have any heads up that um, the sex in the city, Uh, you know, death was going to happen

in the days proceeding. Um none, So we had no head up, and Peloton had no head up, And we learned about it just like everyone else by just watching television and um, you know, in the basically on the show, HBO essentially implies that exercise is not healthy. And because one of the main characters missed the big dies and so UM, Peloton had just become a customer with a service.

We new service we have we called Creative as a subscription where we can just mobilize quickly to include Creative and the media by and we actually on Saturday flew to New York and Ryan is a chief creative officer essentially UM with it with the team here, his team and Mountains just wrote this ad and UM filmed it and edited it and released it on Sunday. And I woke up Monday to all this news. So it was pretty amazing. Yeah, yeah, no advance about this whatsoever. Yeah,

that was extraordinary. And what kind of said to me a little bit, Ryan, is we often talked to you, I'm sorry, often talked to you about you know, digital ad tech, digital advertising. It's still the importance of a good old TV ad can really generate a lot of buzz. Yeah, absolutely, I mean it's something I say all the time. And a Mountain Wars software platform and essentially um distribute television

media commercials on streaming media. But I always say, you know, it's advertising first, mad you know, the age of Madmen, all of that, it matters, and the message matters and so um and this literally essentially proved it. I mean, nothing beat just putting something and of consumers that is and attaining and watchable and and you know that that they can really consume and enjoy. And that's exactly what happened here. So it was. I can't stress how how

unbelievable it was between Saturday and essentially Monday morning. It is pretty amazing. By the way, do people Mark, do they often confuse you with Brian not yet, has not yet, I've heard, but I was on CNBC with him. Well maybe I shouldn't mention that on Blue Work the other day,

and I thought I was holding up pretty well. We are platform agnostic, but you know, speaking of TV, and Paul makes an interesting point, there's a lot of people who still watch the boob tube, UM, but most of us are going to see your ads on Instagram and YouTube rather than television. Right, where do you get the most exposure? Right? So, so from Mountains, we're basically just

how television is new it's on demand, it's streamed. UM. That's where Mountains delivers the ad experience, the word performance platform for streaming television UM, and any brand can come to our website and sign up, you know, essentially use our platform and reach consumers. So we we are not on We obviously use social media ourselves, but our platform is on streaming. It's on when you're watching ABC, or you're watching the Bloomberg chatl on television or you know

any essentially involved the teaving networks in America. But not well, UM, I think you know, we do have a ded we do serve an NBC. It sounds like we shouldn't be, so I'll keep that in mind. Mark, give us a sense of kind of how your conversations with your clients have kind of evolved over the past couple of years of this pandemic, is it How have they changed? If at all, It's it's the main thing. It's all about results. I mean, I think that we're in kind of a

golden age of television. It's just so much great content. I don't know anyone who you know, actively watches TV who can literally keep up with all the shows that are available on all the great content. Um. But for the advertisers, what really matters, especially during the pandemic, is

they have to have provable results. And so that's kind of been the big ship to see this big shift going from brand advertising, UM, where companies just kind of take a leap of faith in terms of results to that spend so now kind of performance advertising and so you know, Mountain we've jumped really into performance advertising space. We may create a front and center by merging with Maxim MEFA Bryant's company, and um, it's just been a great,

you know, kind of great journey in doing that. It's fantastic content, and UM, it doesn't seem to me that there are a lot of people as smart and good looking as Ryan Reynolds. It seems unfair almost that did you do you shign him with your deal? Do you get a piece of him? I know Ryan is chief creative officer of Mountains UM and obviously founded Maximum Effort, and you know, I'm touching on just a small part

of his old career. UM. It's been amazing UM to work with him and continues to be amazing, and he recently, you know, kind of took a sabbatical from films to just focus on building mountains and and the other things he has going on. So it's UM, I feel privileged to be able to UM have that kind of talent. And you know, one of the things on going back to Peloton and the ad that we put out this weekend, I mean, it's almost an unfair advantage to have Ryan.

It's a chief grative officer and and the team UM Maximum Efforts. It's now part of noun to see that, So it's it's UM. Uh. You know, we're just a big belief in creative as part of media and you know, UM bad media, so we're it's just it's kind of amazing to watch Mark. It's great having you on. I always love talking to you. Thanks so much for dropping by. Mark Douglas there, president and CEO at Mountain. Interest rates are on the rise. We saw the action by the

Beau the Bank of England today. We heard FED Chairman Pal yesterday as he talks about accelerating tapering and then raising rates next year and into three. What is a fixed income manager to do? Where the opportunities in that kind of environment. Let's check in them with a pro Kevin Nicholson, Global Fixed Income Co c i OH. He's also co head of Investment committee at Riverfront Investment Group. Kevin,

thanks so much for joining us here. All right, given what we now know from an interest rate perspective, what's your outlook for My outlook for two is that we should see the ten year move higher by year. In our base case scenario is for the ten year to yield two percent by the end of the year UM. And as far as where we're looking for opportunities, UM, we're going to focus on trying to get some higher

yields into the portfolio. We're going to look at high yield, even though UM we would stay up at the higher quality high yield at this juncture because as the FED begins its tightening cycle, I think it will put some pressure on some of the lower yielding companies out there, but you think it's safe. But you think it's safe to go back in the water now. I mean the second half of November was rough, um, not just for

high yield, but for I G two and UM. Now now you think uh investors will cotton too, that they're gonna need some of that yield. Well, I think that. I mean when you look at where treasures are heal thing right now, I mean we have the tenure at a one forty two, you're not really you're not keeping up with inflation, and so you have to look at a place that you're at least going to get closer to it. Um. There's very few places in the in the fixing income market that can keep up with inflation

at at current levels. A matter of fact, there's only one place you can really go, and that's to the tips market. UM. So from my perspective going into next year, we have to continue to be underweight fix income. If you're looking at it in a balanced portfolio, you're going to continue to have your duration shorter because interest rates are going up, so you don't want to, you know, put more pressure on your portfolio. By having a long

duration in there at this point. So, Kevin, if I'm searching for yield and I venture into the high old market, what are some of the sectors, uh, that you guys think will be interesting next year? I mean, if we're going to continue to uh look at you know, your consumer UM services more from like your financial m consumer financial services, as well as we will look you know in the high yell space at energy see where how

that goes. UM. Those are the probably the main UM areas that we will look at going into the year. And as if we get past this COVID uh you know lockdown that we're seeing um transpire over in Europe, UM, we will start also looking at some of your leisure UM stocks more for the excuse me, bonds that are more for the reopening is I guess el macron must

be one of the biggest worries other than the FED. Yes, UM, I think that you know, I'm not concerned about on the cron so much here in the US because they don't think that we're going to shut down our economy again. But when I look across the pond and you know, work for fixed income ideas that are outside of the US, I do indeed worry about Um. You know, I'm a cron because they're tending to shut down. Their economies are a lot faster than you know we're thinking about in

the US. I think we've learned our lesson and we're just gonna live with it going forward. All right, you're not the first person to tell us that today, Kevin, it seems to be a consensus for you. Kevin Nicholson is a global fixed income co c i O and co head of the Investment Committee at Riverfront Investment Group, giving us his outlook for two as well as his take on what we heard from Jerome Powell and the FED yesterday and uh, the current situation with the coronavirus.

As promise, we're gonna bring you Marcus show mur chief economist at pine Bridge Investment, to talk about the hawk is pivot first off and then um and then Marcus, we saw the b o E actually go the whole nine yards or almost I guess, fifteen basis point points of an increase. What do you think about these central banks getting more and more hawkish on inflation? They guys, it's nice to be back on the show. Um, Yes, what a what a few days or two days here

for central bank watchers. I mean, we knew that this would be busy when we saw the schedule that everything was punching up here. The week for most people, I guess shutdown for Christmas, but that would get so much action probably was a little bit of a surprise. Um

yet the Fed clearly in a hawk ish pivot. The Bank of England probably even more surprising and more confusing, after disappointing expectations last month where they was supposed to raise rate it didn't for kind of no really apparent reason, and then this time with storing COVID cases again clouding the economic out brogan p mind numbers this morning not particularly exciting. They decided to do race rates. So I think what we're having here's just an environment where central

bank communication has become very, very inconsistent. And I think that's something that I would have thought as an economist. I'm not a portformio manager, but as an economist, I would have thought that would really impact financial markets and that we would start to pric in greater risk premiums. Again for central bank surprises, but so far they look

at the markets, none of that really is happening. Marcus, what is your view of inflation as we head into the transitory term has been retired by the US FED chair, But what is your view? Well, I mean, there is the idea that inflation can be transitory was always just out there to placate markets. I think the central banks were just too afraid to suddenly talk about inflation as a problem, but that could mean the financial markets. That's

why they sort of came up with transiti aations. Never transitory inflation is one of the worst economic trends that makes income inequality worse than anything else. Yes, we know it's kind of good for debt because you know, if you have a lot of phenomenal debt, higher inflation eats a way that that amount of debt faster vality to GDP over income. But with our pivot away from that towards more income in equality related problems, inflation is really

really bad. It makes which people richer and poor people poor. That's a huge problem. So that the fact finally pivots. So this is not a big surprise. And we know from previous inflation periods that even if it lasts only twelve months or eighteen months, it has an impact. So

the call it. To have called it transitory at the beginning, I think basically was an attempt by central banks to play defense in an environment where they are so far leaning towards excessive emergency stimulus that couldn't really dial back that may that fast, so they rolled up this word transitory.

And the fact that they actually that Powell even used the word let's retire that expression or made me really cringe last time, because it meant it has served its purpose and it took this purpose to confuse you all or placate you all. But now we don't need to do this anymore because we're ready to raise rate, so we could retire in inverted commas that were transitory. Um, I think it was never actually an honest description of the inflation backdrop. You hate inflation almost as much as

Ronald Reagan did. He said he said inflation is as violent as a mugger, as frightening as an arm drobber, and as deadly as a hit man. What I've been thinking about a lot lately, Marcus, is what it forces investors to do, Especially with so much liquidity, so much cash out there, you don't want to just leave it in dollars and you know, have it being reduced by a tent every year. Right, Um, you need to put it to work, and when you need to put it

to work, that's when dangerous things can happen. Well, that is true, but that isn't it exactly what we're doing, or what investors are doing with the market is doing.

I mean, why would you buy at ten year bond at one point four percent when the current inflation wright is six And yeah, eventually we will get back to one point four percent, but but who really believes that over the next ten years inflation will ever be below one point four percent so that you can average to something that makes sense in terms of the novel returns and interest in getting on that investment in a ten

year bond visa. The the inflation that will eat up the investments you just made in that bond um and a lot of money is still going into those markets, a lot of money is sustaining those markets. It really tells you have to be in equities, right. That's the inflation story being housing all the assets that have some inflation protection because that it reacts to nominal economic activity,

which is what equity markets are doing. That's what the money is that's what the market the money is still going, but it is not that that's what everybody is doing. I'm surprised that we have not seen a greater reaction in the bond market as a result of all this inflation and the fact that the Fed is removing the policy support four bonds. Hey, Marcus, thank you so much

for joining us. Really appreciate getting your thoughts and perspective here as we try to digest, uh, some of what we've heard from the Federal Reserve yesterday in the ecb UH and the Bank of England today. Marcus Schomer is a chief economist for pine Bridge Investments, and Marcus was just referencing kind of interest rates and again at the ten year treasury here we are one point four three percent. We have seen a flattening of the curve, but can you look at that ten years still at one point

four three percent. A lot of folks I thought we'd see a pick up, a rise in yields, just not seeing yet. 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