00:00One person who definitely has been doing that for a couple of decades now is Kate Moore, city wealth chief
00:04investment officer. And Kate, we just had a red headline across the Bloomberg terminal that traders are now pricing in
00:12a 50 percent chance of a Fed rate increase by October. Even I know that would be a horrible idea
00:20in this environment. Right. I mean and seems highly unlikely. In fact, just yesterday we were kind of exploring the
00:26moves in the short end of the curve and the change in pricing.
00:29And we basically have been saying for a while, I know there are lots of voices at Citi, but our
00:34view has been the market was too sanguine, frankly, and was thinking that there were going to be too many
00:38cuts in 2026.
00:40So that's been a consistent message from us for the last six months. But now we feel like the pendulum
00:44has swung too far in terms of the expectation that the next Fed move could be a hike instead of
00:50a cut.
00:50There are so many other dynamics, people, politics, the labor market. But as a result of this, we took this
00:56opportunity actually to add to some of our short duration positions yesterday.
01:00And that was a call that we made and basically reallocating a little bit out of the EM debt, which
01:05had very, very little moves, frankly, since the start of this crisis, still like in the fifth or sixth percentile
01:10in terms of spreads in over the last 10 years.
01:12And instead reallocating some of that money into the short end where we think yields rose much more aggressively than
01:18the economic fundamentals and the policy outcomes would suggest.
01:22It is stunning to look at the sensitivity of the rates markets. For example, it looks like they've taken this
01:26next leg higher over the headline Matt was talking about, about the Wall Street Journal saying that more warships are
01:32being sent to the region.
01:32So you get two-year yields up 13 basis points, 10 years or up 10 basis points. Oil prices, by
01:37the way, haven't changed on those headlines.
01:40What are the greater ramifications, even if we're not going to get a hike from the Fed, of just that
01:44type of funding market volatility?
01:46Do you expect that to spill out into wider macro markets?
01:49Yeah, well, I want to go talk about sentiment here for a moment because it comes in with an earlier
01:54conversation around what's happening on the option side, which is, as I say, I think a lot of people were
01:58paralyzed even before this Iran crisis.
02:00I think even people were paralyzed, not just because of questions around AI and private credit, but just because of,
02:06like, the duration of this cycle, you know, and there were so many cross currents in terms of the macro.
02:11I like to say it was a little bit of choose-your-own-adventure.
02:13You could pick whatever economic data you wanted to tell the story that supported your position.
02:18So we come into this. People are sort of neutral in terms of their overall positioning.
02:22They've been looking for big drawdowns, and even despite all this geopolitical shock, we haven't really gotten that.
02:27So, you know, now we're in a position where we expect more volatility, where the likelihood that inflation is peakier
02:33and spicier for longer is very, very high, and everyone's like, I don't know what to do.
02:39So I think we're going to see more people try and look to broaden out their hedges, but we know
02:43that they're really expensive on both tails.
02:46How do you keep a cool head, Kate?
02:48And, I mean, there have been so many instances in the last 12 months where you could have been freaking
02:54out about a new thing each week.
02:57Yeah.
02:57But I guess part of your job is when everybody is fearful, you can't be that fearful.
03:03I mean, it sounds—it's too easy to be super bearish all the time, for example.
03:07How can you avoid that?
03:09Yeah.
03:09Look, and sometimes some of us have been trained on the macro side, like, would have a bearish tilt.
03:14But I think, as you guys know, I'm kind of macro equity, so I like to take a little bit
03:18of risk as well.
03:19And the thing that's, you know, gotten me sort of grounded and kept me in the equity market has been
03:24that the fundamentals are really strong.
03:26Unlike some people that were really worried that there would be no significant earnings outside of AI or that AI
03:31earnings would take down the overall market, that's not what we're seeing at all.
03:35Their vision story is still really positive.
03:36So I stay grounded in the fundamentals and also spend a lot of time trying to talk to companies or
03:41listening to what companies are saying.
03:43And the message they've been giving has been constructive.
03:45But I will tell you, Matt, you know, another thing I do, I spend a lot of time with my
03:48dog.
03:49She doesn't really care about the volatility in the markets.
03:51And that helps to calm me down.
03:53What kind of dog?
03:54She's a golden retriever.
03:55Oh, that's like the best you could have to make you happy and calm in these current times.
03:59Yeah.
03:59She's like, what oil vol, you know?
04:01So as you look at the market and things start to sell off, you mentioned that you started to add
04:06it in the front end for U.S. rates.
04:08What else are you looking to adjust as market volatility peaks up?
04:12Yeah.
04:12So one of the things we've been watching, I think, like a lot of people, is, frankly, the drawdown in
04:16European and emerging market equities relative to the U.S.
04:19These are obviously two places where the economies and the markets are much more sensitive to higher oil prices, to,
04:24like, you know, more challenging inflation environment.
04:27And, frankly, you know, the growth outlook may need to be downgraded.
04:31We've continued to like U.S. large caps as the anchor in portfolios.
04:34That's no big surprise.
04:35I think a lot of people are in that space.
04:37But many people were adding aggressively to European equities last year, leading to that massive multiple expansion.
04:43Not fundamental, but multiple expansion.
04:46And we've seen, like, twice the drawdown in European equities relative to U.S. large caps since the start of
04:51this year.
04:51And I think we have to watch that a little bit more closely.
04:53I have to say, even before this Iran crisis, we thought the fundamentals were unlikely to catch up with that
04:59multiple expansion we experienced in 25.
05:01So I think that's on my watch list.
05:03That's my number one.
05:04I saw a headline.
05:06So gold is headed for its biggest weekly loss in six years.
05:10Gold's dropped every week since the U.S. and Israel attacked Iran.
05:15And I thought it was, like, that's hard assets, low obsolescence, like, complete, right?
05:21So what is happening here?
05:22We have a chunky position in gold, and it did very well for us over the course of 2025.
05:27We added to it opportunistically.
05:28And, of course, it hasn't performed as well as we would want it to during these moments of risk.
05:33I think a lot of it, Matt, has to do with the fact that there was, you know, pretty full
05:37positioning going into this crisis.
05:39That's fair.
05:40At well over $5,000.
05:42Yeah.
05:42I mean, people were, like, adding to it all their portfolios, whether or not they were multi-asset.
05:47It was being used for a million different reasons.
05:49And so, you know, this is just kind of a moment of reckoning and a little bit of a moment
05:53of, I think, people readjusting their expectations for gold.
05:57That said, it still plays the portfolio position we need it to play.
06:01You know, we're not adding to duration.
06:03We're not adding to some other parts of risk.
06:05We want the gold to balance things out.
06:07And we still are up on the air.
06:08But we're going to be watching the positioning and sentiment very closely because that's going to really dictate the near
06:13-term price movement.
06:14By the way, as we're making a round trip in assets that seem to have become controversial as of late,
06:18we have to end on private credit.
06:19Of course.
06:20I think it's only fair.
06:21David Solomon had his CEO lettered out saying, it's clear what we're seeing is just that there is a credit
06:26cycle and that it's on its way.
06:27How are you viewing what's happening in the sector, the constant headlines?
06:30Is this just a credit cycle finally coming for the sector?
06:34Are there some real concerns that should make investors think twice before investing in the asset class?
06:38Yeah.
06:38The thing I'm most focused on is the size of the doors, right, and the size of the exits for
06:43all of these funds.
06:44You know, in an environment where people are afraid but then can pull their money out, you know, things settle
06:49pretty quickly.
06:50But the more the sort of doors narrow and the exits get smaller and smaller, I think the more it
06:56feeds into a negative sentiment when we have all of this other stuff going on in the background.
06:59And, of course, we've had lots of private credit managers come out and assure us, hey, we have a great
07:04diligence process.
07:05Hey, we've checked the asset quality of all the companies we invest in and we feel good about it.
07:09But I don't think that alone is going to be enough to calm sentiment.
07:13And so this is what I'm going to be watching.
07:15It's like how much do we kind of close the exits and what does that mean in terms of people
07:19are trying to de-risk their portfolios?
07:21Where do they go to sell if they can't reduce their risk in this space?
07:24And then there's the last thing I'd say around the software side in the private credit.
07:28That's what everyone focuses on.
07:29Okay, these software companies, you know, their business models are getting disrupted by AI.
07:33By the way, spoiler alert, every company, every industry is getting, you know, their business models disrupted by AI.
07:39It's fair to ask whether some of these small and mid-sized companies that, you know, these private credit company
07:45funds have been lending to are all going to be in the strength position that large cap companies, a lot
07:51of capital and a lot of investment spend are in.
07:54So that's the big question.
07:55I don't think it's the software headline, I think, is a red herring.
07:59On the doors, does this just demonstrate that this was always going to be a fundamental mismatch, that these types
08:04of products are illiquid and they were sold as semi-liquid?
08:08And that's perhaps not the entirety of the truth.
08:10To people who didn't really get what's that like.
08:11Yeah, true.
08:12Like CalPERS or the Canadian, you know, Teachers Pension Fund, they get it.
08:17Right.
08:17It's the others, the retail, I guess, high net worth individuals.
08:20Yeah, and I'm very happy to say that that was not the message we were giving to our clients.
08:25We were basically saying this is a illiquid and longer duration asset.
08:29So we feel comfortable with the way that we positioned, but we also understand the angst.
08:34I think it's going to be really clear that all of these types of funds need to specify the risks
08:39and the liquidity constraints to all of their potential investors going forward.
08:44But I think the sentiment is going to be a little sour for the time being.
08:48Kate, so wonderful to have you on.
08:49Thank you for spending your Friday morning with us.
08:51That is Citi Wealth Chief Investment Officer Kate Moore.
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