00:00Joining us now to talk about all that's going on in the markets right now is BlackRock Global
00:06Chief Investment Officer of Global Fixed Income, Rick Reeder. And Rick, we book you on every jobs
00:12day, but this is yet another Friday when we don't get the jobs report because of a short
00:17government shutdown. It looks like we could have another one, partial shutdown, at the end of next
00:22week. What do you make of this sort of muddy data picture when we don't get the things we need
00:29in time? Well, first of all, it hasn't been jobs day in a number of months anyway because we're not
00:36getting any of those. I think the last three months we've had negative, you know, we had a government
00:41shutdown, but you still had negative jobs. Listen, I mean, it's a little trickier when you don't get
00:47the actual published reports. The markets pivot off it. By the way, the volatility markets, you strike
00:51a lot of options in and around those dates. So it does create a little bit of trickiness. That being
00:57sad, I mean, particularly for jobs, and we've talked about it a number of months on your show,
01:02you look at what we got yesterday, you look at the JOLTS report, you look at the Challenger job
01:06cuts, you look at the claims data, you look at the ISM services in terms of jobs. Like,
01:11there's no ambiguity around where we are in the jobs market. We're having a really tough time.
01:17We're watching productivity explode higher in terms of growth being really good, but a job market,
01:24that's really tricky. That dichotomy, Rick, is the most fascinating, well, there's a lot of
01:29interesting stuff going on, but it's one of the most fascinating things about this economy,
01:32because it's difficult for anyone to say, even with jobs looking very challenging, that we're
01:37heading anywhere near a recession. As long as the MAG7 is spending, what, like 2.1% of GDP on CapEx,
01:44as long as a government's running a 6% plus deficit, is this economy going to be okay,
01:50even if the jobs market starts to have some cracks in it? Yeah, the answer is yes. I think
01:57people don't look at jobs and look at this economy like it was 20, 30 years ago. You have an
02:04extraordinarily different economy, service-oriented versus goods-oriented, but you've got an economy
02:09that's operating incredibly well, but only on a couple or three cylinders. Today, you've got,
02:14like you pointed out, you've got CapEx that is robust and will continue. You've got consumption
02:19that is robust, but it's driven by wealthier, older savers, and it's part of why the interest rate
02:27tool is not nearly as effective as it used to be, because that cohort is doing extremely well,
02:32where the burden today is in terms of low-income, small business, younger people.
02:39But when you aggregate the data, and I hear a lot of people talking about,
02:43oh my God, the jobs market is softening, the economy is going to come under pressure,
02:46it's actually, there's an economy that's more asset-oriented than labor-oriented,
02:50and that cohort, I don't want to understate this, we have a problem in terms of we need to
02:56employ more people, but that cohort isn't that much in terms of aggregate spend.
03:01So the economy can continue to motor along, and productivity, I mean, you watch it play out
03:07every day. I mean, now the equity market has taken it on about where is productivity manifesting itself
03:13effectively, some spaces, not other, who are the winners, who's building a moat, who's not going
03:18to be a winner in this. But at the core, you're watching something play out that's pretty historic.
03:23Anthropic putting out another AI tool, this time for financial analysis, they did earlier this week for
03:31legal services, both of them kind of rocking the market. That will affect sales at big companies,
03:39I imagine, big and small, as well as the jobs picture, right? We're talking to a lot of people,
03:45yesterday we were talking to Mike Arregetti from Aries, who pointed out that, you know,
03:49the younger talent, the new hires aren't going to be doing the same work and may not be as plentiful
03:54as they once were in that industry. What do you make of AI changing the way we work or the fact
04:02that we work at all? Well, Mike's a very smart guy. I would say a couple of things. You know,
04:10I chair the board of, we have 14 charter schools in Newark, New Jersey, and we just had a discussion
04:14this week at our board meeting about what is our curriculum going forward? How does
04:19AI evolve how we teach kids? How do we, what are the disciplines we're teaching our kids for going
04:26forward? How do we use AI to augment a traditional teaching process? This is all new territory and this
04:32is all new land in terms of where we're, where we're going. Listen, I think there's a bunch of
04:37things that are, you know, that have been standard operating procedure that, you know, that we used to
04:43teach people for, and quite frankly, AI is going to fulfill that function going forward. I still think
04:48learning and interacting with people and the core of education will be, will be sincere to what it
04:53was. But gosh, there are so many things we got to think about, about what can AI do that can make
04:58the economy more efficient, make people more efficient, and then move people into the zones
05:02that, that are going to be fulfilling going forward. But that is, I'll tell you, Matt, there,
05:07there is no roadmap for this. Well, what do you make of, I mean, I look at Bink, the ETF that you
05:13manage very well, and we'll show in a second how you've beaten returns of the benchmarks by a lot,
05:19but there's some corporate assets there, right? 45%. And I, and I, I wonder how you judge whether
05:27or not a company has a moat, what that moat would look like so that it can defend itself against AI
05:34disruption.
05:34So Matt, there is, how do I describe this? By the way, I, you know, I will take it in a couple
05:41of different directions. One, that's interesting. You know, you hear the discussion about CapEx and
05:45the CapEx was too high. And, you know, I would argue there's some other things at play there.
05:50CapEx is your moat. CapEx and R&D spend are the way companies can build their moat. And it's
05:56actually data utilization. And the companies that are exploiting data effectively, that are building
06:01bigger moats. That is at the core of what is happening. You know, there's something also
06:05that's different today. Some companies, the free cashflow generation that's been so robust the last
06:10couple of years, you see some of these big companies buying back a huge amount of stock.
06:14Now they're spending more on CapEx. It has real ramifications for the technicals in the equity
06:18market that we got to think through. Listen, it's a lot of hard work. Yep, go ahead.
06:22Well, I just want to jump in about the other hard work you do at Bink and how you're thinking
06:26about positioning the fund and where on the curve. The old curve, just shy of its 2022 highs,
06:31somewhat reversed a little bit yesterday, but some of that steepening continues. We have an
06:36incoming Fed chief who's been talking about trying to shrink the balance sheet over at the Fed.
06:42When you think about the rest of this year, are you thinking about changes to Bink at all? Where
06:46do you want to be positioned for the road ahead in fixed income? So a bunch of changes. Your point
06:54about credit, we've reduced some credit. We've reduced some IG because quite frankly, it's not that
06:59fulfilling. We're going to get a lot of supply. The spread's not that interesting. You know,
07:03we've cut a little bit of the low quality, high yield. By the way, we're running a bit less high
07:08yield than we're running overall. We've added to mortgages, although recently, the last couple of
07:12months, or not last couple of months, last few days, maybe we've cut a little bit of mortgages
07:16because the balance sheet discussion becomes a little less enthusiastic than it was before.
07:23But we still like mortgages. We like EM a lot. The dollar will stay contained. And so EM,
07:30the yield differential between EM and high yield is as good as it's ever been. And then the key one
07:35for us is securitization markets that allow you to structure the collateral, the covenants,
07:42what your attachment point is. So we love the securitization market. But you're right. It's a
07:47different expression, a little less credit, a little more EM, a little more in the securitization
07:53zone. By the way, Europe killed it last year. And now the benefit you're getting from Europe is not
07:59nearly as robust as it was. So we've dulled down a little bit of that and more, actually more Asia
08:03in the portfolio. So yeah, we've been moving around a fair amount to keep it dynamic and where the best,
08:08we think the best opportunity is.
Comments