00:00When you listen to the tone of the statement and of J-PAL, are the expectations...
00:05Four rate cuts, at least based on economic conditions.
00:08Is that still intact?
00:10I think there's a chance for rate cuts, but I don't think it's until later this year.
00:15I'm pretty happy with where policy is.
00:16He mentioned it many times, that they're in a good spot, that the...
00:20Balanced risks of the labor market, inflation have kind of come down a bit.
00:25They're on hold until the data tells them otherwise, whether the labor market weakens or inflation...
00:30...comes down more.
00:31And I don't mean to be flippant about this, but are they effectively...
00:35On hold until June 17th, and they have a new Fed chair sitting?
00:38It sure seems so, and I think that's...
00:40That's what the market's pricing in.
00:41Basically, nothing until Powell's term is over, and then maybe...
00:45At best, two cuts through the end of the year.
00:47And I'm curious to know what you make of the race.
00:50For the next Fed chair, it seems like the short list involves, of course, the Kevins.
00:55Even worse, maybe a little bit more than Kevin Hassett, BlackRock executive Rick Reeder, and Christopher...
01:00...caller dissenting today.
01:01I imagine that means he is still in the running.
01:04How close...
01:05How closely are you watching this from the perspective of a portfolio manager?
01:09I mean, it's just...
01:10It's just so volatile.
01:11I don't know if you look at the poly markets.
01:13They're very popular with these...
01:15People like betting on everything, up, down, left, right.
01:18And Rick Reeder's probability...
01:20...recently skyrocketed.
01:21He was, like, sub-10%, I think, towards the end of last...
01:25...year or so.
01:26I feel like Warsh is a little close to the administration.
01:30And so I would put Waller probably as the frontrunner right now.
01:34Yeah, well...
01:35Well, I mean, you take a look at poly market to your point on Reeder's odds.
01:38I believe he's solidly still...
01:40...still in the 40s right now.
01:41So, I mean, game-planning this a little bit.
01:43If we are on hold...
01:45...until we get that June meeting with the new Fed chair in place, you have to imagine...
01:50...that they're going to lower interest rates.
01:52When with the expectation that, you know, we will get more...
01:55...cuts, it'll just be a few months delayed here.
01:57I mean, how does that translate into what you're doing?
02:00...in the bond markets right now?
02:01Well, if they're not going to cut till, you know, sometime...
02:05...in the second half of the year, floating rate securities...
02:08...that people worried the coupons were going to drop.
02:10We'll earn a little bit more carry.
02:12So, I think some floaters here...
02:15...are attractive.
02:16The bond market's been unusually stable.
02:18I mean, it's the two-year...
02:20...in less than a 20 basis point trading range.
02:23The 10-year, oddly, is...
02:25...higher in yields since we started cutting again last September.
02:28But still, it's been in this kind of full...
02:30...to 425, 430 trading range.
02:32So, here, credit markets spread...
02:35...the bonds are tight, but with earnings strong, I think credit can perform well.
02:39So, it's kind of an...
02:40...earn your carry market and fixed income this year.
02:42Any concerns, Ken, about some of the moves...
02:45...that we've seen in the dollar, and more importantly, the tone coming out of the White House...
02:48...with regards to what at least...
02:50...appears to be an avocation or at least some comfort with softness in the dollar.
02:54I thought...
02:55...we've seen a pal kind of brushing that off...
02:56...saying that's not really the Fed's purview.
02:58That's basically the Treasury's decision here.
03:00Any concern?
03:01Any overlap?
03:02You know, we've been...
03:03...we've been talking about adding non...
03:05...a dollar diversification to your both fixed income and equity portfolios...
03:08...for almost a year now.
03:10And it didn't really work for a while until maybe middle of last year.
03:15And...
03:15...and we still think that's a good idea.
03:17The dollar remains strong for a long time.
03:20But...
03:20...we've got some policies in place today, along with continued issuance of debt...
03:25...and fiscal...
03:25...and fiscal concerns.
03:26I think it makes sense for investors to diversify both...
03:30...the fixed income and equity portfolios.
03:31Absolutely.
03:32And you have to imagine that that dollar volatility...
03:35...and really FX volatility in general will continue, Ken.
03:38But I want to go back to the point that you made...
03:40...when it comes to credit markets at this point.
03:42You called it sort of an earn-your-carry...
03:45...type of market.
03:46Where can you best do that right now...
03:48...when you take a look across the landscape?
03:50Well, our favorite part of the credit market is probably shorter duration...
03:54...where you can be at the front of...
03:55...of the curve.
03:56You don't have to take that much interest rate risk.
03:57You don't have to take much spread duration...
03:59...which is...
04:00...the sensitivity of a bond to movements and spreads.
04:03So...
04:04...shorter duration...
04:05...type assets...
04:06...where you can still pick up...
04:07...you know, maybe 100, 200 basis points over treasuries.
04:09I think...
04:10...I think that's a nice place to kind of hide out...
04:12...until we get some vol.
04:13Hopefully we do get some vol.
04:14It's been kind of...
04:15...a boring market.
04:16Equities just seem to climb the war of worry higher...
04:19...and fix income.
04:20...just kind of move sideways.
04:21So...
04:22...as an investor...
04:23...although it can be stressful...
04:25...and we enjoy these times of volatility...
04:27...because that's when you can find opportunities in the marketplace.
04:29All right.
04:30Well, be careful.
04:30...for what you wish for, Ken.
04:31I am curious, though, too, when you look at...
04:33...particularly in the credit space...
04:34...are you willing...
04:35...to take on a little bit more risk right now...
04:38...or do you actually sort of just...
04:40...maintain a little bit more of a safer posture, if you will?
04:43Yeah.
04:44You know, the...
04:45...corporate credit markets have gotten very tight...
04:47...especially high yield.
04:48We're approaching 250...
04:50...spread...
04:51...on an option-adjusted basis...
04:52...but...
04:53...there's still pockets in that securitized space...
04:55...so...
04:55...things backed by...
04:56...you know...
04:57...nongovernment-guaranteed residential...
04:58...commercial mortgages...
05:00...parts of the asset-backed security market...
05:02...where you can still find...
05:04...you know, I think...
05:05...high-yield type spreads...
05:06...with investment-grade ratings...
05:07...and so that's...
05:08...that's kind of where we're...
05:09...hiding out right now.
05:10We can still pick up...
05:11...kind of the same spreads...
05:12...that you're doing...
05:13...double-B, single-B...
05:14...high-yield.
05:15...but we're...
05:16...we've got structural protections...
05:17...in the capital structure...
05:18...and we've got...
05:19...hard assets underneath...
05:20...those securities.
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