00:00But Scott, when you look at some of the moves in markets on past geopolitical conflicts,
00:05is there a sense here that if this, not necessarily resolved, but if at least the worst of these
00:11tensions do ramp down within a few days, even within a couple of weeks, that whatever the
00:16narrative, the bull narrative was for this market, that that then comes back to the forefront?
00:21Yeah, I think, Romain, that tends to be the way this unfolds. And so we talk about, yeah,
00:26duration of this particular conflict as matters. But also, I like to use this phrase duration of
00:33the duration. So, you know, if it's a seven day event, OK, you know, we look at the shorter term
00:38ramifications of it and we can look through those. But if it becomes a 30, 60 or longer,
00:44then the question becomes, how much confidence do you have in extending even beyond that?
00:49My point here being is that the market's going to react as they are to the immediate consequences
00:54of this, which is the oil price spike and the potential implications of that through the
01:01macroeconomic variables that come into play. The moment you get a confidence that there is
01:05a line of sight towards the end, then you can begin to discount out the other side.
01:10We're not there yet. That's what we're watching for every day.
01:13Is there an issue, though, given, well, since we're talking duration, about the duration
01:17of this bull market coming into this, all of the issues that have started to crop up,
01:22people concerned about the K-shaped economy, people concerned about private credit, people
01:26concerned about AI valuations, people concerned about the return of tariffs, if you will, does
01:31that then factor into market sentiment when you overlay whatever's going to happen in the
01:37Middle East?
01:37I think absolutely. I mean, and that's one of the storylines here is that, you know, we
01:42have been dealing with any number of influences. More recently, it's been the AI disruption.
01:48It's been the can you earn a return on your AI infrastructure investment. And the list goes
01:53on, right? And so we've had that wall of worry, if you will. Our argument has been those are
02:00much longer term implications that the market is pricing in very short term. But I'd say
02:07on the other side of this, while we've been contending with a lot of these issues, which
02:11I believe are real issues, at the same time, underlying fundamental trajectories for the
02:17S&P 500 and for broader U.S. equities are actually in very good shape. And so they provide
02:22a bit more of a comfort on this. And so the way we've been playing it is, yes, expect the
02:28short term volatility, expect the price action under pressure and sort of a risk off narrative.
02:33But in terms of putting a limiting or gating factor on how deep of a sell off you get, we
02:38take a lot of comfort that the valuation backdrop has been improving up until this past week with
02:44the with the onslaught of the of the oil price surge off of Iran and potential implications
02:51for the Fed, for rate trajectories and for the underlying economic condition.
02:55It's interesting, Scott. I mean, if we were having this conversation a week ago, we'd be
02:59having, you know, a different topic of the moment, which was what's going on when it comes
03:04to the software sell off when it's what's going on when it comes to some of the existential concerns
03:10percolating through different industries about what A.I. is going to mean. And you think about
03:15what we're talking about now when it comes to the situation unfolding in the Middle East,
03:20medium term, long term, what do you think is going to more dictate where sentiment goes?
03:26I'm always going to focus on on the intermediate to long term. We'll leave the trading calls to a
03:33different, you know, genre of investor or trader, if you will, gets really difficult because you're
03:38trading off of of a lot of metrics that you can't really identify right now. Again, coming back to
03:44this duration concept. What we've been arguing, Katie, in the case of, let's say, the software
03:49sector is that we think it's discounted a pretty decent hit to terminal multiples and therefore
03:56terminal values. We wrote about this, I think it's three weeks ago now. And since that point,
04:01the software industry group has sort of found a bottom here. Now you're seeing it actually as
04:07a place to go because a lot of negativity has already been priced in, given that near term
04:13fundamentals still look and feel OK. So from my perch, we're always going to fall back on
04:20the longer term ramifications of this and then use that structural view, pull it back to shorter term
04:27as deemed appropriate. And Scott, I want to talk about the second part of your title,
04:31and that is global head of ETF research over at Citi, because I'm interested about how this
04:36bout of volatility that we're seeing across asset classes right now might translate into the ETF
04:42industry, specifically when it comes to the types of products that are launching, when it comes to
04:47just the sheer number of ETFs that are out there. Do you think that this will put a damper on,
04:52some of the more speculative products that we saw really launch in a big way in 2025 when you think
04:58about leverage, when you think about single stock funds, for example? Yeah, I think premature to
05:04judge that. I doubt that there'll be a big implication. Again, it's going to come down to duration of this.
05:09But obviously, when you have a tape, as we have a lot of volatility, the overriding strategies and some
05:15of those alternate vehicles come into play. I thought where you were going to want to go with this,
05:19Katie, was what we've been seeing from a flow perspective on ETFs, because it's really interesting
05:26and plays into some of the positioning and price action we're seeing right now. And that is, if
05:32you look at the month of February, nearly a record year for ETF inflows, $170 billion. But what was so
05:38unusual about it, Katie, is that we had more money going international ETFs than we did to domestic
05:43equity ETFs. That doesn't happen, right? At the same time, we've had a very strong influx into
05:49fixed income ETFs. My point here being is that over the course of this year, because of the volatility
05:55around the AI disruption narrative, you've actually seen incrementally more money pushing to these
06:02outside the U.S. and alternate asset class positions. Interestingly, though, as you go down
06:09the Iran implication path and you look at, say, a prolonged period of higher oil prices,
06:15heck, against that backdrop, the U.S. actually looks fairly defensive versus rest of the world. So
06:21we've got a lot of shorter term positioning.
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