Bloomberg Audio studios, podcasts, radio news.
So we have a lot of ETF related things to get into. Bank of course, just had a big birthday. But given the size of the moves that we're seeing in the market right now, let's start broad the s and P five hundred higher by nearly two percent, the NASZAQ one hundred higher by more than three percent on the heels of that peace agreement announcement. Then you take a look at the bond market, still a big move. You did see yields drop across the curve coming back
a little bit. Though, when you put it all together, you take a look at the different ASSA classes and you add oil in there. I mean, what's your initial read on this knee jerk?
So I'd say, obviously the peace agreement, and as you said, we'll say how durable it is. My senses are moving in a direction that ultimately will be quite positive. So the thing that's amazing to me, and by the way it played out around the SpaceX transaction, there is so much cash that's sitting on the sideline, So we get to be number depend on how you measure eight or nine trillion in money market funds nineteen trillion deposits and
you know what happened. You know, you go back a week ago when you think about this big SpaceX deal. People have to find room though in terms of portfolios, et cetera. So you create a little bit of that and then once once that has happened, all of a sudden, it unlocks this cash, particularly when you get a good piece of news and people say, gosh, I can get into the pool, and it's pretty explosive when you see
it happen. Obviously, the move you know, after we've had a good run the equity market has been pretty impressive today.
Thank you for explaining that, because sometimes it's you know, when you ask a macro guy what's going on in the equity market and the bond market, you don't often get a candid response, So I appreciate that. I'm curious when we link what's happened with the interim piece deal with the state of central bank meetings this week. I believe there's more than twenty central bank decisions this week.
Was this a gift to central bankers? Maybe not in the US, where we already know that the Fed's not going to do anything one way or another, but for other central banks. This is some kind of relief for them.
One hundred percent. I mean you think about obviously headline inflation, the stress is real around what those numbers end up being. I mean, we look at the core. You know, I would argue there is some transmission coming in. But it was interesting to see the CPI report last week. We look at core goods. Core goods three month moving average core goods inflation is zero point one percent and six months moving out of zero point four. You're not seeing goods.
Where you're seeing this latent inflation is quite frankly in services things like it, I mean, insurance a number in CPI. You look at that number, education, et cetera. So it's definitely helpful. It definitely takes places like the ECB that are looking at multiple hikes and you say, gosh, now maybe they don't have to move in multiple forms. So
it is a big deal. I mean, it is a big deal for all markets when you think about central banks may not at the hike as much, and then you think about, you know, what does it mean for overall when you think about your MPV of owning the equity market if rates aren't going to move sigamantly higher. It's yeah, it's a it's a big deal.
So the last time you're on the show, you had a clip that I put out on social media because I really it opened my eyes to this. I said, why would the FED cut? And you said, well, the reason is housing. That's why the FED should cut. And then they had a contest for who's going to be the FED share. Yeah, Kevin Warsh is the FED share. And they're now in between a rock and a hard place here because you do have some of these inflation numbers going up, but you do have this housing.
Pressure which you brought up.
And since you're back and all that's happened, since I want to get your take on what you would do.
I mean what I would do. Well, I'm a positioned for what they will do, and I've learned in my career whatever I would do is interesting for my friends. But what I have position is what they're going to do. Listen, I think if you take that and go back to this inflation report and you're look at your break it down, the less interest sensitive sectors are experiencing healthcare, education, insurance sticky inflation, you're not really going to bring down healthcare
costs by moving the funds rate. If you look at what happened that CPR port use cars, automobiles, small business, low income housing, those sectors are actually a not experiencing much inflation, if any at all, and B they're in a tough spot. So it's much more complex when you think about, particularly if you have a dual mandate, and you think about my mandate is actually employment and price stability. And today it's very hard to use the interest rate
tool to manage automobile insurance. And so I think, and quite frankly, I think the new chair will use some other tools, and I think you'll look at the money supply. I'm certain he will. I'm certainly he will look at the balance sheet. This idea that the overnight funds rate is going to help modulate healthcare insurance doesn't make a lot of sense. But so I think you'll see a much more like how do we use balance sheet, how
do we use money supply? And much more. And by the way, the front end of the yield curve, nobody really finances off the front end. It's all out the curve. How the chair manages long end interest rates? Particularly, you think about what does it mean for mortgages? What does it mean for other things? So listen, I wouldn't hike and but you know, we'll see you have a committee that's that's clearly hawkish.
Let's keep the conversation going with Rick reader though he's still with us, he's still on set. Rick, appreciate your patience. Before we took a little bit of sound from the present. There we were talking about this upcoming Federal Reserve meeting, and you know how the news, how what we're seeing unfold in the Middle East when it comes to this MLU sort of factors into the trajectory for the FED
going forward. But beyond the rate conversation, I do want to talk a little bit about the communication coming from the FED and how it might change going forward, because Kevin worsh I mean, he's made it clear he has not a lot of love for forward guidance, the dot plot. You know, all the press conferences that the FED has
sort of tuned the market into. And I wonder you know whether or not you think the bond market, whether traders in general are prepared for a Federal Reserve that maybe communicates a little bit.
Less you know, I mean, I'll say one thing. I'm a believer, and you don't need as much forward guidance. In fact, part of when you say as a bond mark prepared for it. If you're easing policy, you actually don't want people to be prepared for it. You want actually, I mean, one of the beauties of what the Fed has is its voice. When you're easing, it's very different than you're tightening. When you're tightening, you want to be foreshadowing. You want to be predictable in terms of how you're
going to and wean people off of easier policy. When you're easing, you don't want that. You want to create animal spirits. You want to create economic velocity. And so I actually think not having forward guidance, or having less forward guidance actually a real tool that you can utilize going forward. Listen, I don't find the dot plot terrible utility. I mean for markets like to hone in on where it is to price the forwards. But listen, it's nineteen votes.
You don't know who's who, you don't know. You know there are some more important ones than others. There's a there's a disparate process of how people fill out their dots among the nineteen. So I actually think it'll be a good idea. And you know, quite frankly, one of the for markets. Getting some volatility into the markets is
a is a good thing. And I you know, I think I think people as long as you lay out here are the metrics that we're looking at, here are the parameters that the Fed's going to operate within, and as long as your caleer and articulate is this is what we are focused on, and then let the markets interpret it as the data presents itself. So anyway, I think it'll be I think it'll be refreshing, and I think it'll be I think it'll be helpful.
And I think that's what a lot of people are counting on this meeting or this press conference this Wednesday to do for Kevin Wosh to kind of lay out his vision. One thing that we have heard from him in the past is that he is not a fan of the fed's balance sheet the size that it is right now. He wants to reduce that talk through what the implications of that is. There some concern that it could push up long term rates by forcing the market to absorb more bonds.
So I mean that, I mean it's going to be a big deal. I mean, I think one of the things listen, I think he'll be very deliberate in reducing the balance sheet. I think one of the things the way financing works today it's very different in the past. You think about that, can the banks use to borrow short, lend long? And today it's very much. Financing is tranched the way we finance commercial real estate or residents or real estate or buy or credit, So it is very much.
What is important is liquidity in the system, meaning if you reduce a balancet too quickly, it can be very disruptive. I am certain he's not going to go down that path. And the other thing that is really important is the shape of the yield curve. And I think how you utilize the balance sheet, and by the way, you can reduce the size of it. Because so much of our eighty nine percent of the dot in the United States is in zero to two years, it's actually not that much.
None of what's on the Fed's balanchie today there's actually not much exposure duration, interest rate exposure out the yield curve. If you were thoughtful about how you use the balance sheet. In my senses they will be. You can actually keep long rates tethered and less volatile. Where you don't want to see the volatility is if you can keep longer in interest rates stable, we can get the mortgage rate down in this country, you can get housing velocity moving.
That is going to be something really important, and I think the balance sheet is a big part of how you do that.
I want to ask you about consumer sentiment. So stock market doing great, up thirteen percent since April.
When you start to see these.
Sentiment numbers from the University of Michigan come in as the worst since COVID and the Great Financial Crisis, it's tough for me to believe this.
What do you make of that disparity?
Because if this data were accurate and people were just going to stop spending, you'd think the market would pick up on it and not go bananas. So where's the disconnect there? What's going on?
So?
You know, I think, I said Matt Millane Show the other day, I don't really believe in the K shaped economy. I actually think it's I think I called it the three month old birthday cake. Like the icing is doing is still okay, it's underneath it's not, and what's underneath is much money, bigger. Seventy five percent of the economy
I think is having a hard time. And so if you take part of what we talked about low income young people, you know, the housing market, I think most people are having a hard time when particularly when you get higher fuel prices, higher food prices, it does pressure consumer sentiment. And by the way, you see this in
the earnings reports. I mean it's incredibly dichotomous in terms of where high end is doing, whether it's hotels, retailers, restaurants, and then where And by the way, I wouldn't just say it's low end. I say it's low to middle even a bit higher than that. So I think you have that dynamic and economy. The one the one thing I will say that's a travesty is actually most of what driving consumption in aggregate today is actually the top
ten percent. So even though the consumer sentiment amongst the broad populace is not in great shape to share aggregates, spend there is not that large. So you can actually have an economy when you look at it tips of the waves and say, gosh, economy is doing pretty well in aggregate, but where most are actually having a hard time. It's part of why I have a different view on where I don't think rates have to go higher.
So don't eat the cake, is what I'm saying. Say here and here it would no case that no exactly, So that's amazing. Maybe what's underneath doesn't look so good. I do want to get your thoughts on credit though, because there was a really interesting headline this morning coming from in Video with plans for a bond sale targeting twenty billion dollars. That would be in Video's first bond
sale since twenty twenty one. And you sort of combined that idea with the fact that you're seeing the hyperscoes come out hit the bond market in a big way. You also have big equity issuance going on as well, especially not just in IPOs, you also have the likes of Alphabet raising equity as well. How are you thinking about that dynamic that when you look across bonds, you
look across equities, you're seeing these big raises. How are you thinking about it in the context of portfolios such as bank It's.
A great question. So first of all, you know I'm doing this. I'm not saying many decades now I've been doing this, but it's the most exciting time I've ever been around investing because you're seeing dead issuance, equity issuance, conferg loans with warrants, all sorts of funny because the truth is, they have to come in every market, by the way, they're coming us, coming in euro upcoming anywhere that they'll take it. There's a lot of financing coming.
How do we think about it? Listen. I think some of it is, you know, some of the high quality paper that comes investment grade market is just okay. And by the way, there's more to come, as you said, including today. I think some more of the interesting converts of some of the structured financing that's coming, where you can really add some yield, maybe for a bit further down the capsack. Maybe some of these new companies that are coming. That's where I find it more interesting. Listen.
I mean, they're you know, because the size is so big, there's some tactical opportunities to go in and then maybe reduce your exposure. But I think, like I said, doing some things that are a bit off the beaten path where you get some more yield, has been great for the portfolios.
Okay, I have two quick lightning ground questions okay, and we have one minute okay, TLT it lures so many sailors to shipwreck. It's been going like this for about a year.
Buy it or sell it? I don't think. I don't think long rates are going very far. So that's a terrible boring answer, but I think it's right by the way. I think the best expression is sell volatility against it, and that's been Volatility has been high, and that's been the best trade to selve all against it.
One of your mutual funds, I believe, still loans a little bit of bitcoin, and you were one of the early people inside black Rock to get into it. It's now sold off fifty percent. Is it a buy now or are you going to wait more?
Wow? These are specific questions, so listen. I think it's ultimately going considerably higher. I think the technicals there are some technical condition around it that goes as it to chop around. I think it's ultimately going higher. We're keeping it a pretty moderate exposure, quite frankly, because I think there's some other things that we are already we talked
about in technology and some of the growth engines. By the way, there are places to get yield and things like some parts of the credit markets em that I felt like it's just so hey today and so we've reduced exposure. Ultimately, I think it's going higher, all.
Right, Rick Reader, thank you so much for joining us today.
Thanks.
I appreciate the global fixed income at Blackrock and also head of the Blackrock Global Allocation Team.