00:00What should the Fed do in a moment like this?
00:02For the moment, they should do nothing, which is what they are doing.
00:06They should let this situation continue to evolve, keep monitoring it.
00:12I think maybe we'll have more clarity in the next three or four weeks, but we don't have it right
00:17now.
00:18The markets, the debt, the credit market, the treasury market, the stock market is pricing in that this won't last
00:26very long.
00:27You start to see today, it's starting to realize maybe it'll last longer, and we don't know.
00:31And so I think the Fed is wise to be a risk manager here and not a prognosticator.
00:36You've seen the response from the Fed, the ECB, the Bank of England.
00:40Is there a better response right now for you?
00:43Well, so what you saw is the Fed, I thought, appropriately was noncommittal and balanced.
00:49The market's repricing rate cuts into either no action or even something on the other side, but they've been noncommittal.
00:58The ECB and the Bank of England are much more sensitive.
01:03Europe is much more sensitive to the price of oil and fertilizer in these commodities.
01:08And so they're a little quicker to jump.
01:10We're a little more insulated in the United States.
01:13Even with that, I would have said to the Bank of England and ECB, they would be wise to be
01:19more noncommittal now, too, because there's so much uncertainty.
01:23We'll have a better sense in a month, and I would be careful not to overdo it.
01:28And I've noticed even they have backed off a little bit from the stridency of their comments.
01:33They may turn out to be right, their initial hawkish reaction, but I think it's too soon to jump to
01:38that.
01:39Rick Reeder was talking about the potential for rate cuts in part because of the weaker economy heading into this.
01:44And a number of investors are pointing to nodes of fragility that are increasingly popping up in markets.
01:50How much do you see that being a concern that there's perhaps a little too much complacency around the weakening
01:57that you could see in the economy going forward?
01:59So let's go 30 days ago, before all this started, our economic forecast was for actually a strengthening U.S.
02:10economy, strengthening global economy.
02:12We were 30 days ago calling for 2.5 percent plus GDP growth.
02:18Not a cyclical slowing, but a cyclical strengthening.
02:22The weakness in the labor market in that context was more about mismatches.
02:26College graduates are struggling to find jobs, and yet there's a historic amount of open jobs that are very attractive.
02:33You know, plumbers, electricians, technicians, people work on assembly lines.
02:38And so the war is going to dampen that strength strengthening.
02:44We just don't know how much.
02:46And but it's clear it's going to be lower GDP, but stickier prices, too.
02:51And so but no, we did not see a cyclical weakening going into this.
02:57This may create a cyclical weakening, but it's too soon to say that, in my opinion.
03:02And right now there still has been a robust capital markets wide open for a whole host of deals.
03:08How long can that last?
03:09Should this continue to be roiling even just the front end of Treasury yields?
03:13Yeah. Yeah. To your point, equity markets are not down very much.
03:17Credit spreads are a little wider, but they're hanging in there again because the market is pricing in that there's
03:23going to be a resolution.
03:25I don't know, in the next X number of weeks, not in many months.
03:32And I think the market keeps wrestling with this time frame and oil markets are wrestling with it.
03:39I think for the moment, equity markets and markets generally are resilient.
03:44Merger activity is very active.
03:47That could change, though, if it's clear that this is going to go on longer.
03:51And yet we may say, in hindsight, the markets were underpricing the risks that this would create.
03:56But we don't know yet.
03:57Can we stand client activity?
03:59Lisa and I have been talking about this this morning, about the Gulf as a source of capital, not just
04:03a source of energy.
04:04What are your clients doing and how do you assess the flows coming out of the Gulf?
04:08So the part that's challenging here, the Gulf was not only a source of capital, it was a destination for
04:17investment.
04:17There was a lot of activity looking at putting capital in the Gulf, development in the Gulf.
04:27And, yes, they were investing around the world, too.
04:30Listen, when we look back six months from now, depending on how this all gets resolved, that narrative may resume,
04:40may even get stronger.
04:41But it depends on how this gets resolved and what the time frame is.
04:45But for the moment, you know, we're hearing clients in every industry tell us, I had an order.
04:49We were shipping a product to the Gulf.
04:52It got canceled.
04:53We're struggling with shipping.
04:54We're struggling with not just oil but fertilizer, helium.
04:58It's affecting semiconductors.
05:00The ripple effects are substantial.
05:03So a lot of it will depend on how all this gets resolved and when it gets resolved.
05:07What's the haven asset that you're recommending to clients or that they're gravitating towards, given all of this uncertainty?
05:14So for investing clients, and I'll carve out hedge funds, people who make decisions every day, for big pools of
05:22money and individuals, you want to take a long-term horizon.
05:29Sometimes the best thing to do, and history has shown the best thing to do in this kind of period,
05:33is do nothing.
05:37And for havens, yeah, you could have more cash.
05:41Up until about a month ago, we would have said gold was one option.
05:44Obviously, gold has behaved in a way that's been surprising.
05:47In years past, we would have said the 10-year treasury was a haven.
05:52It's not acting that way.
05:53And so I think our best advice is look over the horizon.
05:57Don't have a three-month horizon.
05:59Have a multi-year horizon.
06:00Have an asset allocation you can live with.
06:03And if you can manage your emotions, try to stick with that and don't overreact to what's going on right
06:10now.
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