We finished stronger. Jeffrey Rosenberg with his portfolio manager, Blackrock Systematic Multi Strategy Fund, he will be systematically reviewing everything after this historic meeting. Jeff, you know we're at gunpoint at Carnegie. Mellen. You were required to read both volumes of Alan Meltzer and get out the sixties and seventies and FED meeting. And what doctor Meltzer would say is it is at the end of the day about the
real economy. What did Jerome Powell today say about the American economy with the stunning statement the dots in the Q and A.
Yeah, it was overall a validation of the transitory view. And you know what was a little bit feared going into the press conference was whether he would push back.
He got the softball from Nick Timmeros on financial conditions now being nice and clearly you know, chose not to hit it out of the park in terms of pushing back on financial conditions, and that was a green lie to continue the initial reaction from what we got in the statement of economic projections and the dots and the seventy five basis points and the dots is clearly the surprise. So you know, this is a green light for investors.
I think nixt question and this question of financial conditions, and Bill Dudley mentioned in a minute ago this is the problem is that this can go on for a while and it can get overdone in terms of how much easing the market does before the FED. But the message today is the Fed is very happy with what
they've seen. What changed, you know, clearly it's the validation on the inflation story, and they're very pleased that after getting it wrong for so long, they're really getting the validation in getting it right.
So, Jeff, what do you do? Stay on the bill, hold on to it tightly, don't let go. What you do?
I mean the short term is you can't really fight this until there's some kind of fundamental data from the economy side that pushes back, and there hasn't been. It's all been coming up soft landing, inflation declines. Yesterday. You can squint at Core Corp. Nobody seems to look at Corecorp anymore. He mentioned it very briefly. It actually popped up. So there are some you know, vulnerabilities, but the message
and the concern no one's looking at the vulnerabilities. They're looking at the validation and So with that validation, this bullish sentiment can go on for a while until we get a new round of economic data. And until then I think I think the message is pretty clear that the FED is more than willing to see an easy and financial conditions won't step in the way of that.
Kathy Jones of Schwab Jash Schwab put this out on x or Twitter with that, I have to revise my twenty twenty four outlook. Happy to do it. Are you revising your twenty twenty four outlook after this meeting?
You know, I've done this for so long that I don't do the whole you know, Christmas in July outlooks in October kind of thing because you end up with this problem. So no, I don't have to revise it because I just I just haven't put it out yet. So that's that's a good plant bulst.
Look, Jeff, at where we are, and I just looked up one of the black Rock money market funds five point two four nine percent. Where's all that money going? I mean, this is right up your wheelhouse. Where's all that money going when that yield comes down?
Yeah? You know you asked this question in the pre segment to one of the guests, and I was listening in, and you know, this is the change. This is the turning point, because last year it was all about you're rewarded for staying in cash when the cash rates are going up. When the cash rates start going down, now
your rate of return starts going down in cash. So it is the signal to start moving out of cash into into more term rates in fixed income, to lock in rates at their highest yields if you're going into a cutting cycle, to move back into risk. As we talked about earlier, the lack of the hard landing, the over forecasting of recession fears, the legacy of the damage of twenty twenty two that's kept people happily in cash, all of that dissipates. And I think that's what I
was referring to before. You got to be careful as to how big that easing and financial conditions can become and how that can undo some of what the FED thinks is the right stance. But that being said, this is a turning point, and I think you do start to see that money move out of money markets into risk of your assets, into more term rates to lock in higher rates as the cash rates start to come down.
You're penalized now in twenty twenty four for holding cash because the rates and the prospect of the rates is to go lower.
Jeff, what would you advocate for You're sitting in cash, You've missed the rally of the last month. You see yield drop and you get nervous. Reinvestment risk is not just something to worry about, it's real. You see the moves in a single day of more than twenty basis points you at the Kant full well.
I think there's lots of different ways to step out of cash into It depends on the risk perspective. But in fixed income, you know that movement into the front end of the curve, you can step out a little bit more into the belly. It's going to lock in not only some yield levels, but you'll pick up a bit more price appreciation and a total return context. In a falling rate environment, I think you can go further.
The soft landing the lack of economic recession. It bolsters yield and you'll pick up in terms of income and credit risk. That credit risk it's priced in, but it's not going to collapse. And so if you avoid the recession, investors can can step out on the risk spectrum and fixed income increase yield levels relative to cash, lock those in and as long as that recession outlook is avoided.
And that's not a guarantee, but that seems again with what the data is showing to be the more likely scenario. You know, you'll lock in in those yields and achieve a higher return than what you're going to get out of sitting in cash.
I want to just point out that we're down now about a percentage point in less than a month on ten year benchmark yields. This is full faith and credit, the most liquid market in the world, and we're seeing fluctuations that we have never seen before. Does that raise any concerns for you that we are seeing such incredible volatility in just the market's psychology on not that much different in terms of news, as you pointed out earlier.
Yeah, it's a really good point when thinking about what the fixed income market looks like from a portfolio context. We just have to get more used to this higher level of volatility. You know, the AG index, the benchmark for fixed income, used to be a three to four percent volatility instrument. Today it's about double that. So when you're balancing out portfolios, there's just a higher level of risk. You can mitigate that by being shorter in terms of duration.
Some of the more attractiveness in the front end of the curve is you've got still the highest yields and with the lower duration, less volatility, but a bit less price appreciation too, So there's a little bit of a trade off there. But it is to Lisa's point, you gotta expect this isn't the old fixed income market. It's a newer fixed income market. It means higher volatility, better yields, still in the front end until we normally.
Jet One final question. Torston, Slack, and Apollo head out a stunning chart today of a spike in bankruptcies within all this, and I mean from a political economic standpoint, the history of this meeting, the shock of this meeting. Is this a meeting that just benefits the halves of America? Half does countries flat on their back and the others are living large. The dows up four hundred and sixty points. Is this just about almost the financialization and advantage of the elite in America?
So I love Torston, love his work. You know what he's highlighting now and he's done this for a while, is there's a distributional aspect of our economy that gets lost in these agria get statistics, and so there is an impact of rising interest rates. There is an impact of the significant tightening and interest rate policy, but you
don't see it as much in the aggregate. You see it when you disaggregate and that distributional side, So the bottom end of consumers, the bottom end of credit is more vulnerable and you're starting to see that, but it's still a distributional story. It's what you would expect to see in the tails, and it is showing the effect of that. But that doesn't necessarily mean that story is exacerbated strapolated into the aggregate view. It's part of the story.
It's an important part. Credit cycles begin from the bottom, and so you got to watch that. But the counterpoint is that the rest of the distribution has created a lot of immunity, if you will, not permanent immunity, but a lot of reservoirs to buffer the increases in interest rates on the consumer side, that's from savings. On the corporate side, that's some things seeing maturities and turning out
interest rates. And the reason is we had such a prolonged period of zero interest rates so that the shock of interest rates isn't as much of a shock as it appears it can be. And we have to watch it, and you're certainly seeing it. It's Torsen's highlighting, you know, in some of the tales, but it's not really the aggregate story yet.
Jeff, I've got a few seconds. Pick a month for the first rate cut. I know you're not going to give us an outlook, but just pick a month, Jeff.
I'm gonna give. I'm gonna give you. I'm gonna give you June. You know, sometime in the summer, I think the March, and I know Neil maybe a little bit early. What's the rush. They still want to make sure they've nailed the inflation.
We've got to leave it that, Jeff got to catch out. Buddy, always says Jeff Rosenberg there of Black Rock