Surveillance: Growth Snap Back with Golub

The acclaim of Jonathan Golloben credit sweet either courageous bull or right now with some real reticence is he dives into sector analysis over on page five. In page six of his reports, he darkens the door this morning. What does the sector analysis tell you right now? Well, we put out a note this morning on earnings that we're having a margin problem in the vast majority of the sectors, with the exception of surprisingly consumer discretionary is better, energies better,

and industrials but shorter. That you're seeing margin contraction um everywhere. But if there's a if there's a big sector story, it's a tech is really weak compared to everything else, so broadly defined tech and that's just not something we're used to. The tech is the this earning season. If you take tech out or tech broadly, fine, you have a five EPs growth this quarter. I mean, who would think that tech is a thing that's holding everything back?

And I think that this continues for longer than we think. And this is a hallmark of credit suite, this linkage between strategists and your securities analysis. Do you do your tech people as a whole feel newsmaking? Layoffs? Can adjust those margins? Can they heal that margin deterioration? Um? Well, you know, Tommy and we were talking before before we went on air, but what's going on in terms of

layoffs and young people coming into labor market. A lot of this was an over exuberance when when we went into the pan Emmic and things were so strong, um for tech demand. The company's hired as if this was a new normal of really of strength and what it really is. And this is why text having a hard time. It was a pull forward of activity and everyone believed that. You know, the investment community bought into it, the companies bought into it, and now it's unwinding. Companies are laying

those workers off. So do we work through this? Yes, but we saw this with y two K. It doesn't happen in two or three quarters. It takes a little bit of time to work through things. Now, White Tuk pull forward and you talked about this and go on longer than people think, So let's build on that. How much did we pull forward? One? And what gives you the sense that this can go on a whole lot longer than people think? And when you say that, what

kind of duration are you thinking about? Oh, um, maybe this ends up being a six to eight quarter um period. I mean, just think about this. You know, Um, you bought a laptop because you're now working from home? When you buying the replacement for that? Not this year? You you went and you my mother started using a streaming service for the first time. Is she's signing up for

the second streaming service now if she wasn't before? And it's not and or or you know, the move towards global advertising, which was has you know, kind of got pulled forward and so it's not as if things are the long term trend is necessarily a negative one. But there was definitely a bit of exuberance as we went to pandemic and it just takes a little while. We're also as an investment community, if you look at it,

you know, hedge funds in particular. Growth in tech has been such a huge win from the time that the iPhone came out in two thousand eight to now, everybody staffed up their tech teams, everybody built processes around it. Nobody wants to be a value manager. Every want to be a growth manager. And so it takes a little while for, you know, for for this to kind of set used to this and you've mentioned this, this is not what we used to And with that in mind,

this is the question of the moment. I think for a lot of people, how compromises the index story? Because what we are used to and what we condict' buy is just sitting at the index on the SMP passively and being very rewarded for it. How compromises that index story gonna beate for how long? I'm not sure it's

it's compromise. I'll say so. I yesterday, I last night, I had dinner with ten head traders at at some of the bigger shops, and I said, if you had a choice between buying the tech basket cap weighted or the tech basket equal weighted, how many would buy the cap weighted? What are they say, not one hand went up, how many would you buy? The equal weighted all ten hands went up? And so there's a lot of great names.

So if you're if you're trading, if you're looking for individual securities, there's a lot of a lot of interesting things going on. But these, you know, these really big listen to three years ago, all we were talking about was moats. These are these are impenetrable businesses, yes, exactly, and listen and some of these and they're great, but let's let's be honest. They're great businesses. But but there

doesn't mean that they're impenetrable. So at the dinner last night, which I'm sure you slatted through credits zero expenses, did you finish is in the old days of credit suites with the Hennessey parodies, brandy or did you go a different direction now like get out of six package? Oh yeah, you know we were drinking light beer and and and that was so you know it tell us about this dinner. That's what I wanted. Well, you know it's it's we do this, we do this a fair beat. I mean

next week it's your job. Yeah. But well, and if I look at where my ideas come from UM. So last night was ten head traders. Next week we're doing UM. Ten guys were either hedge fund founders or c I O at some of the want from you seriously? I mean we're making jokes about Kinna, forget about that. What do they want to know for you? What's the mystery for traders and hedge funds tycoons when they talk to John?

If the expectations right now are for weaker If you look at strategist forecast this this maybe the weakest year I can I can remember in terms of forecasts. So the question is if you can't make this, if you can't make money to simply by jumping into the market and riding up a beta trade, how do you play the game? Where? Where's where's that edge that you get

in this environment? Because because everyone around the table really struggled last year, managers had a really hard time, especially a hedge funds, So momentum traders have a harder time in this environment. We think there's gonna be a big movement. Last year the whole story was value people weren't there. We think the growth snaps back this year. There's a John, why you only at if you think you get that growth snap back given the white singer this index. Um, Well,

there's a couple of things. One is is that this will be a rare year that earnings are down. I'm in the non recessionary camp, and we could talk about that, but I think this is gonna be the rare year that earnings are down in a non recessionary year, and it's because of margins. I would take this earning season. Revenues are up four and a half, margins down eight and a half. I don't remember an environment where we saw that much that much pressure st Okay Street, bat

Will Street challenged Main Street. Okay, well you know it's this, Yeah, I guess, But I mean, look at what last year was. Wages went up slower than cp I, so companies didn't have to pay higher wages, but they got to move on pricing. That's a beautiful corporate environment. This year, wages are gonna be sticky. CPI coming down. They're paying the employees more, they can't pass it on, and so the the consumer, the individual is better off this year relative

to companies. Last year, it was the opposite. Companies were better off. Want to take about that recession code. If you can stand at a bit longer. Tom and I just have one question. Can we come to the dinner next week? While we're getting an invite to the dinner, we can host well listen at least it has to like, you know, check our barrashness at the door. Though she can have the she can have the cone yak at the end. You just have to check this is this

is important. I mean, if you're a Credit Suite stiner with Golub, you're getting one Oaks d V in your Coneyak and it's a splendid a copy. Could you give me a price on that? I I don't have a price that I get there right now. Good morning Zurich. John, I'm gonna full sate stars for a few momentutes. We're

with Jonathan Gold. We're gonna continue right now, Global Wall Street giving a nice response with this a gentleman from Credit Sweez, John, I'm gonna go back, and of course we have to use the dal Jones Industrial average in honor of lou ru Kaiser seventy four. The bottom World's coming to an end sort of like now, sort of like sev the Doo six sixteen to eight fifty two and the next year we enjoyed going from eight fifty

two topping out above one thousand. We were up thirty eight percent off the gloom of the seventy three seventy four Pittsburgh's Gonna Die recession. Is that where we are right now? You know what I would love to you know, I think what every strategist wants to see is that the FED crashes this thing. We get a really hard recession, get a V shape bounce, and you get a normal cycle.

And I think, I mean, you know, we're talking about just a moment ago, how the strategy is, expectations for this year as week as you know, as we can see. And I think that the idea of a soft landing is way more likely than people think. But it's not something to get excited about because it also means that you're looking at anemic returns with a lot of volatility. But landing, does that express out to a thirty percent up? Like?

I don't? I don't think so. I think that what you're looking at here is the FED doesn't raise rates enough to crush the Listen. Here's here's what people are getting wrong in this inflation story. It's the headline CPI is falling, but wages are not falling, services are not falling, and rents are not falling. It's goods that are falling, which means that we're not really addressing the underlying cause of this thing. So the market gets is getting very

exuberant that the Fed is going to pause. They're not pausing because they're stopped. They're pausing because they need more data. They want to slow this down. It's any bit the streets looking at the wrong The market sees falling inflation, they're getting really excited about that. But it's good and that's that's a comps issue. It's a it's a one off thing. It's not that we've gotten rid of inflation,

it's we've gotten ridden that component temporarily. And so what I think you're gonna see, like last year, a lot of chop without a lot of upward movement. And that's a hard time. You're saying this before. It's a hard investment environment for for most people, especially those are shorter the epicenter. Though, if your coal at is that you think recession is avoidable, you think we will avoid that.

What gives you the indication that we will. The big surprise this year is that if the consumer gets what looks like, let's say a five percent raise, or or for that matter, retiree gets an eight point one percent cola, so they're they're getting a lot more money. And we end the year with you know, two and a half or two percent inflation, which is roughly what the break evens are saying, or the Bloomberg surveys saying, this will

be a great year for consus consumer purchasing power. Their wages are going up higher than inflation, and in that environment you've seen now we're six months in a row of consumer confidence rising, and we're going to see that all year long this year, and that well, we'll just think about it. Jobs are abundant, your raise is going to be running at three percent above your cost of you know, a cost of purchasing things, um, and that

is going to keep us out of this recession. Now, from a profit perspective, companies have to pay those higher wages and don't get pricing power. So you have this weird thing that consumers, Okay, the recession gets pushed off, but corporate profits are really in emic, and investors are shaking their head because they don't know what to do with it. So pick a sector discretion ary, Yes, West discretionary.

In that world, UM, if you are a company that like a retailer, that has a lot of labor, you're gonna have a harder time. If you have a business model, UM that is less labor intense, you you do pretty nicely. You know. I took the down Maath that we were just doing here in percent in ninete and that obscures that over a forty nine year period without diving ends, the DOW or the SMP was up five point four percent.

You overlay on dividend reinvestment. I get it when you go to work or when you have a fancy dinner with ten fancy people like John Farrow. Is it a single digit return world for you? Or can we get back to nine or ten or eleven a small double digit return? It's a lower return world you. So we talked about what what was the group saying. I surveyed

the group. I asked how many of you have taken some of your equity money personally and moved it towards something that looks like a bond, and I you know, the majority of the table said, how do you not? And it doesn't mean they weren't saying I'm panicked about equities. But if you can get you know, after tax equivalent a four and a half percent on IMMUNI bond, do you put something and is that attractive compared to a

world where where you're looking at negative art? Does anybody in the dinner look at the Dow Jones Industrial average and the only look at the standard force five? Yeah? Only you know, I don't want to say dinosaur, but oh, you know there's not a lot of people. Can I have that on the record? Can you actually just say that,

because I'd love that. It's a less MP t K you know that that's all lessence with But the SMP story, and I want to finish on this because it is important, has become the dominant story, particularly over the last decade, because it's rewarded investors so handsomely. You mentioned the equal weight. If you had to pick the tech sector right now, would you take it market can't waited or equal weight? That was a conversation you were having about these investors

at these hedge funds. Can you tell me about where you'd leave that story now? At the index level on the SMP five hundred, would you want a market cap waited exposure, waiting for the tech snap back that you're looking for. Would you want something more equal way? How would you get your exposure? I don't have a bias against a cap way to benchmark, but but the outlook has to be for the at least the next twenty four months has to be an equal way that benchmark

does does better. And and it's because I think that some of these larger companies it's harder for them to deliver an above average growth rate given their size, you know, in perpetuity um but um, and I think that you know, there are areas that are smaller in the benchmark. Energy for example, underrepresenting the benchmark really low p. If energy does well, the capwaight to benchmark will lack. And so yeah, you have to you have to go that way, John,

this was great, Lovett. What restaurant we picking? What cuisine? What did you choose? He's thinking he's picking take castend to drinks, So we choose about That's what he always does. Usually at the hotel, it's always a hotel bomb. What is it with you in the hotel? They're just really good service as a general rule, they're quiet and critically with a lot of the conversations I have, particularly with

the wonderful people of Bloomberg LP. You know, I don't want to be sitting next to somebody taking notes from you know somebody. I mean, they're just quieter. They're unlike the trashy disco scenes you're going. You said, I got to the discuss to like, you know, they got the ball going around and they're downs. Have you that the thin the thin high you can miss Andrew Holland Horse with a spectacular call last year on a regime of higher interest rates, and that's where we are, except it's

City group. They went from fifty beeps to a quarter of a percent beeps on the February first derby. So what this is about is Holland Horse that U c l A learning that one day at u c l A. They actually taught John Maynard Keynes. When the facts change, I change in Holland Horse said, what do you do? What did you do yesterday to go from fifty beeps to beeps? Well thanks a lot of time. Yeah, that's right. When the facts change, you do change. And I think we saw in the data a little bit of softness

in the price data. Certainly we've had software core CPI readings UM and then Producer Price Index usually doesn't get a lot of attention. It definitely got our attention. That was a little bit softer Also, UM, it means core pc inflation is going to be a little bit softer. So I think there's enough softer price and wage data for this FED two. I think the way they're feeling now is comfortable that they've may be done enough or

getting close to having done enough. I am quite uncomfortable that they've actually done enough here, and I think we're gonna see that in some of the upcoming data. Let's talk about the uncomfortable reality of the X axis and economics. So you've adjusted for February one, but the cumulative path out into two thousand twenty three, does that still give

you your high newsmaking terminal rate. So we're still at five to five fifty on the terminal rate, And I would just highlight relative to what I'm hearing FED officials talk about relative to what markets are pricing, it would seem to me that that is at the lower end of what would be a reasonable terminal poll see rate for this Federal reserve. So it's it's very possible. It's our base case that they're getting to this, you know, five point two five to five point five percent range um.

But just like your previous guest was talking about, if we see wage growth that picks back up again, and we think it will over the course of this year, if we see service inflation that stays sticky, then we may see this federal reserve reassessing is that really the

appropriate policy rate to get to. So, although we're hearing Fed officials saying we're gonna stay the course um, and it maybe makes sense to move at a slower pace now to figure out where that that rate is, will we really be seeing the policy response that you need to slow down the economy sufficiently to loosen the labor

market tearing down inflation. I don't know if Phil Bower, who founded Modern City Group economics, on to Catherine Man and on to you, but I'm going to suggest Professor Bowder, studied as a W. Phillips curve over at LC a long time ago, linked this to unemployment. And if I get holland Horst gloom of a higher rate, what is due to the unemployment rate and the societal change that will bring Yeah, So I think that that is something that I think FED officials need to be really honest

about when they talk to the public. The idea that the way monetary policy works is through things like the unemployment rate. It is by slowing down the economy, is by creating slack in the economy, and is damping demand through those channels. So if you think that this is an economy where demand is outstripping supply, you will need to lean against that with higher policy rates, and that

probably will increase the unemployment. Right now, they have that in their forecast, but they have the unemployment rate coming up to maybe four and a half percent. When you're running substantially above target inflation, we still are, even though we've had a few months of software core inflation, we still are substantially above target. You probably need that unemployment rate to move further than four and a half percent. So we're probably going to need to see a five

percent plus unemployment rate to bring inflation down. Um, sort of, can we be hopeful? Could we be hoping that going to get a better scenario where the unemployment rate doesn't need to move as high? Certainly, And you know, I think I would hope for that. Everybody would hope for that. But the honest answer to your question, the basic macroeconomics is that to bring wage growth down you need to

loosen the labor. But we gotta remember the gentleman from U c O. A. Alan Meltzer wrote a modest three thousand page history. You're the only one I know is read it is Mike McKee, And they come on, Andrew, if we societally coming out of this pandemic shift from three and a half percent up to the Holland Horse five percent, there's gonna be a societal scream about that. Politically,

how does a fellow reserve adapt to that? Yeah? I think this is This is one of the reasons that central banks globally and in the US have been made independent and the idea that they're supposed to operate outside of politics because politically this is a very difficult thing to do. Now. The education that needs to happen. Is it happening now with these speeches in the silly micro parlor game that we're doing. I don't think so. I

don't think so that that and so so. First, you know, be honest, there were large errors and policy making that led to much too high inflation we're now recovering from that period of time, and the recovery from that period of time means much tighter monetary policies. So we're in a bad position, right We should acknowledge that, now that you're in this bad position, how you're going to get

out of it. We could say, let's just accept higher inflation r and this was in some ways, this is what happened in the nineteen seventies, so we know from that experience that that actually leads to worse longer term outcomes. So if we try to pivot too strongly towards worrying about issues regarding growth and unemployment, of course we care about those things, but the bigger risk right now is inflation.

And that's why it's been interesting in the in the FED speak right, because we've heard FED officials saying, yes, inflation is still the bigger risk um But meanwhile we see markets that are pricing out future FED hikes, pricing out more hawkish policy, and FED officials being relatively upping

of that. And so I think, you know, we're not there yet, but but this is kind of the early stages of something that could end up looking like the nineteen seventies, where you essentially declare victory before that victory is really attained. Well, we got a lot to talk about it. We would expand this interview out to three hours a norse as we buy back to the seventies. I don't want to get you in trouble with a general council, city group or with MS Fraser, But I'm

gonna ask a delicate question. Your giant and one of my heroes, Katherine Man of m I T is overholding court at the Bank of England. I would perceive as a hawk. Is there a Catherine Man at the FED right now? Is anybody at the Federal legitimate Catherine Man? Hawk? I think what the FED is trying to do is be data dependent, and I think that is the right thing to do. You want to watch the data as

it comes in. Certainly, if we are going to get inflation and wage growth cooling off and we can keep the unemployment rate at a fifty three year low, that's something that we would love to have happen. And you have to put some probability on these kind of surprising but possible outcomes, right, and the data most recently has been favorable for that type of outcomes. So I think that that it's not incorrect to be paying the data

it's due attention on. On the other hand, I think what we've heard in the rhetoric, I think Terre Powell has actually been quite on message in terms of talking about resolve in the face of higher inflation. On the idea, if you looked at those last minutes from the December fl MC meeting, and they talked about our markets misperceiving our reaction function, our markets thinking that we're more dovish than we are, and they're concerned about that. So so

you see that level of concern there. You see that kind of hawkishness. I think the issue for FED officials is that as soon as you get a short period of time, which we've had a short period of time where the data comes in a little bit more favorably, it's very hard to maintain that messaging. And that's that's what they're struggling with with time. I got like eight ways to go here, folks, so we are just joining

us on television and radio. Andrew Holland Horst the City Group with one of the great calls of two thousand twenty two for this FED meeting, he shifts fifty beats down to hurdle a little bit of yeah, but they're maybe back to fifty. But he maintains this higher interest rate regime. Is Dr Hilarion and Dr Dudley speak about, is well, I've got to go, I guess because of time to the glide path and presumption of disinflation. Is it even if it's curve linear down to two percent?

Or dare I say, oh Olivier Blanchard three, are the kinks along the way or is there a good force here to keep disinflation smooth and stable as a trend. So they're they're always kinks along the way, And that's important to keep in mind. The softer core CPI prints that we've had, softer core inflation prints that we've had most recently. That has a lot to do with used car prices coming down, goods prices stuff that's yeah, chunky

good stuff, those used car prices. We monitor the wholesale prices for used cars and we've seen those stabilized and now start to go higher. Actually, um so when we're looking at January core inflation February core inflation, you won't have that same disinflationary factor from used car prices, what what what does help you glide down to shelter prices later this year? I think that will cool. With a lot of evidence that that's gonna cool non shelter services.

It's a mouthfull full to say that that is the area we should be concentrated on, because that's where that wage pressure matters. That's where tight labor market. Take the disinflation dynamic, and this non shelter which I can't pronounce, Okay, great, bring that over to an initial claim statistic where you would begin to see evidence of FED success. I'm going to suggest that numbers way more ginormous than a four

week moving amorhage of two D six thousands. Incredibly low initial jobless claims, incredibly high rates of people quitting their jobs. And that's important. I think when we look at some of these headlines about layoffs, if you have layoffs, that showing you that, yes, there's some areas, some sectors where

maybe you're getting some loosening in labor markets. But if you have very few people filing for jobless claims filing front of him in insurance, if you have people that are very willing historically willing to quit their job because they feel so good about the labor market. That's saying to me, this is a very very tight labor mark. You're becoming a pro like Catherine Man. You didn't answer my damn question. Answer. What's the initial jobless claims number? Andrew?

That equates into a constructive FED policies it to fifty? Is it three hundred? Yeah? I think you. I think you'd expect to see that coming up to something more like three hundred, and you'd see that coming up over time consistently, and we just we really haven't seen anything like that in the data. Extraordinary. What are you gonna write about this weekend? We're gonna think about this weekend. I'm reading Olivia Blanchard's new book cover to cover, every

footnote what are you doing? We are thinking about what this process will be between the tight labor market and wage relationship, and then between that wage and price relationship. And I think those are kind of the big unknowns right now. So it's it's not hard to believe in very tight labor markets pushing up wages. Is that wage pressure then going to push up prices further? We we think so, But margins are also wide, right, So maybe you talked to Suvean Horowitz and the other criminals, City

Group and Securities Analysis. Are you they telling you these corporations have pricing, especially in the services sector. That's where we still see the pricing power. So goods maybe not so much services. Yes, this has been great. Andrew Holland or's with a clinic there on how you get to a basis point idea for February one. I think on the SCANNO manager Cassie's wonderful to catch up. You've had all this communication from central banks worldwide, from the c B,

from the Federal Service as well. Have we seen peak rights? And how fucking this fete Takee thinks. Yeah, so I do believe we've seen peak rates, particularly as it relates to the long end tens and thirties. But there's this motto higher for longer, right, I think this higher for longer motto could be the new transitory. So let me explain it exactly why. So the FED was saying transitory transitory, transitory inflation is transitory. The market didn't believe it. They

looked through it, They priced ahead of the Fed. They pushed the Fed to hike more. Now we're seeing actually the reverse. The market is saying, let's rates higher for longer, higher for longer, higher for longer. And what is the market saying, I don't believe you. It's cutting in, it's pricing in rate cuts. It's already seeing the data roll over, and so the Fed's going to keep trying to communicate higher for longer, but the market is already looking through

it the Fed. The market is leading the FED on the way up and leading the FED on the way down as well. Yeah, I do think the market is right. I think the market is seeing things in the data you highlighted. Is a manufacturing it's been below fifty for two months. We don't just look at the headline index. We dig into the numbers. For instance, you look at the ratio of new orders to inventories. New orders is falling, inventories is rising. Not a good situation for companies. That

level has never been this depressed outside of recession. I think it's just a matter of time before we see in the initial jobless PLAIE numbers what we're seeing in the rust of the economy. What do you see in vanilla corporate debt? You don't remember when there was a blue SMP book and you thumb through it to see what boys Cascade was doing with their massive three percent coupon. But corporate debt matters, and now there's a lot of issuance as well. What's that dynamic? How do we take

advantage of that? Yeah, so we do see a lot of opportunity in investment grade credit. Um, we think that the yields there are attractive to get invested, and we're staying very high Quality's a typical yield. They're very high quality corporate. So you can get between five and six percent, you know, depending on the maturity, depending on exactly. That's almost a triple average all cash does. I mean it's not there yet. That's that portfolio I do, and it's

doing good. I mean it's really out there with a nice pop, but not to the two twos twenties. Take it. It was amazing. But if you take out the two and twenty fee on the triple average dot cash, it doesn't get down to Kelsey's need to talk about never mind, I G. You've talked about where you're at on this economy. Some people might be different. They might look at jobless claims and say, we're still resilient. What recession. You're on

the other side of that, gets it. It's try to re yields of paint you and cultimately the FED can't come as far as it goes. Got all of that, what business does high yield have rallying in that world? So we were talking to our portfolio managers within our high yield desk this week and yeah, I mean we were getting that same sense. We're not seeing huge demand into high yield so far this year. What we're seeing,

I think is more technically driven. There's no supply, so essentially the people who are looking to get invested are just driving spreads tighter. Um. It is incongruent with the data that we're seeing. I think it is more technically oriented. Um. And we're still staying defensive um, looking forward to to what the data is telling us and and what company earnings are going to say, which you know we're not particularly constructive on. So this is just the salesforce of

all these big asset managers going around. Same. By fixed income, it's all the inflows in the new year coming into fixed income funds. Ultimately, you think that's going to fight for some of these credit stories. So when we say by fixed income. We're focused on high qualities. So when you think about somebody investing into the aggregate that's in that's generally treasuries, mortgages, and investment grade UM and so yeah, the whole spectrum of the fixed income universe is going

to benefit from those flows undeniably UM. But you know, when we're thinking about adding duration to portfolios, you have to think about not just the mathematical calculation of duration, but the empirical duration. So how does it actually trade? When treasuries rally and there's a flight to quality, safe haven bid, investment grade is going to get capital appreciation, prices are going to go up on those bonds when it's risk off high yield. If spreads are blowing out,

you're not going to get that. And you expect how you spreads to blow out this year. So we are still anticipating a widening of high yield spreads when that recession comes, and timing that recession is difficult. But when we do see that recession, UH spreads tend to wide into at least eight hundred basis points. Guys like square feet Kelsey, I love to go to the individual. I'm looking at a high quality piece which I bought John it's like this close as I get to god. No, no, no,

it was better than that. And I've enjoyed the Google piece of fifty this century. Okay, fifty, So I'm out thirty years ish two point two percent coupon two point zero five and I've seen a price reduction of a hundred down to sixty four? Is that an opportunity something like that? Is that high quality corporate when a ginormous

company like Google is on sale for under where it was. Yeah, so you know, within the bond market, to kind of translate that, one of the attractive opportunities that we've been finding is when yields are rising, you're having a lot of bonds that you can buy below par at very discounted uh discounted dollar prices. And so yeah, those those are opportunities. Um. And we want to be investing in companies where we have vision on the cash flow, we

we know what they're doing in terms of leverage. I mean. And then I want to be fair here and that Bob and Kelsey are not in the individual name. That's not their mandated. JP Morgat is not to give us individual names. I'm just picking this out John, I don't think our audience understands yields up one to sixty three on a thirty year piece at Google, which is not do want to take the thirty year pace at a tech company? Can? We might get bored in that? Is

that the kind of risk you'd want to take. So I think that we were generally all of last year very focused on keeping both our duration risk and our spread risk concentrating in the front end of the curve, so minimizing the interest rate sensitivity of our portfolios. We thought yields would be rising, and of course those longer

in bonds are going to get hit the most. UM. Now that we're kind of in the reverse of that story, I think that you can feel more comfortable extending out the curve and extending duration of your portfolios to those tenure and those third year high quality UM instruments. Tough times ahead. Fifty at the next meeting, that's it, everyone say five five, done, deal And again Holland Horst with us here in the next hour from fifty said this was great. Have you ever watched Wednesday on Netflix? That's

all we want to know. I've never heard of it. Have I never heard of Family? It's just the who's in it? Do you know who's in it? I don't know. It's what is it called Wednesday? Because that's the character of the American culture, Adams family and very good. I've got it nailed that, right, that was great Wednesday. And you know my afterthoughts calling me, you know, she's a dinner calling me and I'm like, what's that about? But

it's just another example. Is is Getha said of their narrow casting to what does Kelsey Barrow want to watch? I mean they're in Hollywood Wednesday? Apparently, Well, I don't know, there's others. So what does a portfolio manager watch on Netflix? Netflix? What does the PM do? Does Bob keep you too busy? You don't watch Netflix? You know? I like the more mindless stuff when I'm watching, right, what is the mind of stuff? You know, a baking show like a bacon show,

cocktail company? What's the British baking show for instance, British bake off? That thing? Yeah, that thing. They moved networks, they change the cast kind of fell off the clip. Can we bring up to date on my portfolio? Maybe Kelsey had here around TV? Hold my hand, it's not an HR violation Austria nineties seven year. I bought it that stuff when you reflect, causey just to finish there on the last decade and what's taking place in this

fixed income mark? Tom will look back at the sentry bomb, what will look what will you look back on to say this was crazy? Okay, um eighteen trillion of negative yielding debt at one point um in the last decade now completely wiped out. That's pretty crazy. And and thinking about this idea of structurally higher yields, are we moving into an error of that? And you know you spoke

to Bob about that earlier in the week. You know what, what we noticed this rate hiking cycle, the first time that we've peaked at a higher level than the prior cycle, first time in thirty years the market here, somebody else had this. This goes back to the establishment of Nevermore

Academy in Jericho. Vermont was the last current. To Cassie's point, what Bob said earlier in the week, the first time that we've had a higher high and how many psychless thirty years And Bobby is basically suggesting that he thinks we can have a series of higher lows and higher highs at each additional cycle where we get a right hiking cycling a rate cutting cycle. I think that's fascinating just to think about unwinding the last a few decades. Cassie,

this was great. We're gonna salve into the show and get you to your weekend thinking and weekend reading about what to do in a multi asset strategy. And we need Bangana deals with this each and every day at Columbia thread Needle and all my radars up on Winny because so many people are telling me bonds is the only comfort zone. Is that a consensus call? And does that concern you? Tom? Thanks for having me, Um. It is appearing to be a consensus call, um Um. You

know for two reasons. I think it makes a lot of sense. One, the economic data so far, including the one that came out this week on producer price index, is indicating that inflation has peaked. So all of last year was to watch inflation bad for bonds. This year, very simply put, inflations peaked, fields are likely to peak, and that's what we have witnessed in the last six weeks or so, yields coming off pretty sharply. The second point from a multi asset perspective is that there once

again acting like a hedge. So this week we saw Wednesday massive sell off and equity space and bonds rallied, So the old ballast question is back on the table again. They are attractive because data is indicating this and they're acting as a hedge. Let me go right to multi asset then, so many of our viewers and listeners are going to say, okay, but I'm pitched by advisors and such this tranch a fixed income or that. How do you look at the choices to make in fixed income?

Is it a duration choice? Is it a credit quality choice? What's the most important factor there? Both are two um leavers that bond managers use in trying to beat the index UM. The fixed income duration is the hedge part right now, because as you'll come down, duration rallies that

provides positive returns. And credit is something that we are quite nervous about right now because all indications are that we're having whatever the might be a soft landing or some sort of UM recession this year, and you want to stay in good quality credits. So we are underweight, how yell, we are underweight sort of the riskier trenches

of credit and staying in investment great credit. What are your equity people say, I mean Clumbia thread Needle does it all, And I'm interested in the equity prism that you have more focused on multi asset and fixed income. Sure, that's a great question. In equities things are a little more um hard to pin down really because if we look at the valuation lens on equities, they don't seem to have fully priced in this recession fear that's out there for this year. So in the U S space,

our managers are staying fairly defensive. They like um good quality components of the U S stock markets. But from a multi asset space, we are seeing attractive opportunities to actually hold emerging market equities where we have a massive valuation cushion that's built up in the last decade or so. And at the same time there are improvement in sort of the dollar view and the growth prospects from China. So we be from a multi asset desk, are liking

emerging market, particularly emerging market Asia UM. But in in the develop market we're staying high quality. So we're trying to stagger to Q two. I think there's a huge unknown on Q two. You've been doing this for a few cycles. Are you able to frame out the fourth quarter of this year in terms of earnings? You know, the markets doing the standard kabuki it does every earning season's expectations are brought down pretty sharply and then they're beaten.

And so far that's all we are seeing in data, and I would say it's early days. UM expectations for four Q is that earnings will be down about two percent or show. And so far, with about ten percent or so of earnings UM that have been released, they're beating those expectations. So we might end up if this current run rate continues with you know, flat earnings to Miley positive, but expectations for the remainder of the year for two thousand twenty three are quite bleak. Earnings are

supposed to go down. Thank you so much, and we Boghano with us here this morning with Colombia thread Needle. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten am Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best in economics. Finance, investment,

and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course, on the terminal. I'm Tom keane In. This is Bloomer h