00:00Look, it's maybe two different stories you could pay between an unemployment rate that was less than expected and jobs
00:06figures, payrolls that missed.
00:07Which sort of story are you following this morning?
00:11So, listen, I'm more concerned about, you know, last month, you know, people were, you know, tremendously excited about a
00:18big jobs number.
00:19But if you actually broke it down last month, you had 50, I think it was 54,000 jobs in
00:24state and local, and we didn't really get anything this month.
00:26And then you had this huge bump in restaurants and bars, and then obviously that came off significantly, although I'm
00:33surprised it actually came off that much this month.
00:36I thought it would have taken another month or two for that to come off.
00:39But, listen, I think the hiring in the country is just okay.
00:42I mean, you know, I think it is, I think Mike McKee said it right, it's stable, it's okay, but
00:47you've got an economy that's growing at some pretty significant numbers, and the employment picture is just okay.
00:53I just don't think we are hiring that many people.
00:56And I was looking at some of the data earlier in the week, the Challenger job cuts data.
00:59You had layoffs, I think, in tech of 443,000 jobs.
01:03That's up 83% year-on-year of increased cuts.
01:07So, anyway, I think, you know, when you break it down and I look across industries, once again, health care
01:14is incredible.
01:15You may look at health care and education, 67,000 of the, what was it, 57,000 jobs.
01:19It's all health care and education.
01:22And so, anyway, I think the hiring is, you know, stable, but, you know, I would say broadly unimpressive.
01:29And, you know, I, you know, one man's opinion, you know, that's part of why I don't really understand, you
01:34know, significant raises in interest rates relative to this.
01:38I think it's, you know, I think we're in an employment dynamic today that is just okay.
01:42And, you know, I'll say one thing about, you know, we, you saw that, you know, the hiring, you know,
01:47maybe we don't have enough people because the labor force declined.
01:49But, you know, you've seen a persistent decline in average hourly earnings or wage or earnings data.
01:55And that doesn't suggest that companies are stressed about hiring people when you're seeing, you're not really seeing any significant
02:01wage growth.
02:02So, anyway, one man's opinion, good economy, employment, just okay.
02:06You are one man, but you are one man we respect and happens to be incredibly brilliant.
02:12So, your thoughts matter a lot, Rick.
02:14Okay, so you don't see any reason to hike based on this data, but it is at least data that
02:19should allow the Fed to hold.
02:21Or do you go so far as to say with this data in hand, there is room for the Fed
02:24to be contemplating cuts this year?
02:28I mean, you know, I don't think, you know, contemplating cuts, you know, at the beginning of the, or the
02:33next meeting or two, I think would be, would certainly be enthusiastic to say the least.
02:37Listen, I think you got to wait to the back end of the year or to the very back end,
02:41back part of the year.
02:42But I don't think they're off the table for the back part of the year.
02:45I mean, I think, I think Chair Walsh said yesterday, you know, you are seeing, by the way, you look
02:49at oil now under 70, you are seeing some improvement in energy costs.
02:52You know, when you break down inflation and you look at what is the component part of parts of inflation
02:58today, core goods is running at pretty close to zero.
03:01Three months, six months moving average, pretty close to zero.
03:03You still have service level inflation, which no doubt is too high.
03:07But if you strip out shelter, and I would argue, you know, if we got mortgage rates down in the
03:11country, you'd improve shelter inflation.
03:13You know, you're running it depending on three months, six months, two and a half to three-ish, a little
03:18over three.
03:19So, anyway, I just think you have time.
03:21And I think, Chair Walsh, and by the way, I have a huge applause for stepping back and thinking about,
03:27through task force and otherwise, you know, the way you actually improve inflation when you've got sticky things like health
03:34care, education, insurance, that don't really get impacted by the overnight funds rate.
03:37You know, there are other tools you have.
03:39These things are really complex.
03:41Let's get some experts to analyze.
03:43Are we restrictive on the overnight funds rate?
03:45Well, not in housing, but maybe some other places.
03:47Or, sorry, maybe you are restrictive in housing, I should say, but maybe not in other places.
03:51These things are really complex.
03:53And, you know, I applaud the fact you're going to really step back, think about what are some really complex
03:58issues, and what are the most appropriate tools to try and deal with those effectively.
04:03Rick, there are many people who have expressed discomfort, let's say, about a Fed chair who's not more giving in
04:09his reaction function.
04:11And his understanding of how he sees the labor market, for example, Claudia Salm was talking about that with Tom
04:16Kean on Surveillance Radio just about an hour or so ago.
04:19Does that make you uncomfortable at all?
04:21Not necessarily that we're not getting forward guidance, but we're at least not getting more insight into how Chair Warsh
04:27is thinking about labor market, about inflation, about these key issues that the market needs to trade on and that
04:33matter for our economy.
04:36I mean, I really don't.
04:37I mean, I actually think, you know, the way it was articulated, you know, in the first press conference about,
04:45you know, you want to see what the market's reaction function is.
04:48To move to the dots, and by the way, if you look at historically the forecast of the dots, particularly
04:53after you go out a quarter or so, not really very good.
04:56The fact that the markets have to pivot to those numbers or pivot to the Fed's reaction function, I actually
05:02don't think that's right.
05:03And I think there's a real elegance to, if you want to move, if you really want policy to be
05:09effective, you actually want to create change.
05:12You don't have to, particularly when you're easing, you don't have to be so prescriptive about that change.
05:18You actually want to create a little bit of energy and a little bit of surprise, because that's how you
05:23create economic and financial velocity.
05:26So, you know, do you have at inflection points a little bit more volatility?
05:30Maybe.
05:31But I think at the end, I thought he made a statement that said, when we have something to say,
05:35we're going to say it.
05:36I like it.
05:37Like, that to me is like, as long as you lay out the metrics, what are the benchmarks you're looking
05:43at?
05:43And then the markets can interpret those and make their decisions based on what those metrics and what your clear
05:49path of focus is versus the Fed having to tell you specifically, here's where we're going to go with it.
05:54Let's talk about the market reaction, right?
05:56Because post-FOMC, it had been one of higher yields, where the 10-year yields started to bump up against
06:015.5%.
06:02We back off of that this morning, two-year yields declining four basis points.
06:05Do you think we've seen a peak in yields now?
06:10You know, I will say one thing.
06:12I think I did a presentation that I said it's summertime, time to get serious, although I go on a
06:16long weekend.
06:16You know, I'm not sure everybody's as serious.
06:18But listen, I think these real rates are pretty interesting now.
06:22You know, we're not adding a lot of interest rate exposure yet.
06:26But, you know, you're getting to the point where these real rates are pretty interesting, particularly if you think, which
06:31we do, that you'll see some abating of inflation.
06:33You're seeing that with energy costs, et cetera.
06:36So, you know, our view today is, you know, I don't think we're going to make a lot of money
06:39on interest rate exposure.
06:41I actually think Europe's interesting because you see growth tangibly slowing and you're pricing in significant hikes.
06:46I think Europe, you know, days like today, you get a little bit of softness, maybe add some European duration,
06:50or maybe we did.
06:53You know, I think that's more interesting.
06:55In the U.S., gosh, I think income, income, income.
06:58Like, let's just carry.
07:00And if you can keep your income up, you're in this amazing environment with these real rates and with some
07:05spread.
07:06You can create 6.5% yields or even a bit above that.
07:10And to me, that's a much better disposition than, like, gosh, I think the Fed's going to cut because they're
07:14clearly not going there anytime soon.
07:16Well, when it comes to bank, I mean, year-to-date, your total return is certainly exceeding the ag, both
07:21in the U.S. and globally.
07:23That also stands if you take it out from a wider time horizon, too.
07:26I know you were also discussing on ETFIQ this idea that IG beta is less interesting to you.
07:32So where in this American market are you squeezing out the yield?
07:38You know, there's a little bit of, I call it, dynamic patience.
07:41You know, there's, you know, the new issue markets give you some opportunity.
07:44High yield is still, particularly Europe, like some of these spread markets, if you're a dollar investor, you swap back
07:49to dollars.
07:50European high yield, even European IG, is pretty attractive when you bring it back to dollars.
07:55And, you know, particularly if you believe Europe is going to have to reduce rates over time.
08:00You know, EM gets you some yield and there's some places to pick up some yield across emerging markets.
08:06Securitized markets, you know, there's so many things to do in securitized markets around commercial, residential, non-agency, et cetera.
08:13So it's those areas.
08:15And, you know, I think we're in one of those environments.
08:17You pick a little bit here, you pick a little bit there.
08:19There's yield everywhere.
08:21And I just find, like, where you get really tight trading levels, like USIG, when there's a lot of supply
08:27coming.
08:28Yeah, agency mortgages are just okay.
08:30You know, we trade them around a lot.
08:32But, you know, I like clipping coupon in some of the high yield markets and then going global to get
08:37some of that yield.
08:38Hey, Rick, I hate to do this to you.
08:39I only got 30 seconds.
08:40But I would just love to get your thoughts.
08:42The pace of issuance for IG, already $1.1 trillion.
08:46Is that sustainable?
08:50It's a lot.
08:51And, you know, the markets that are blessed by huge pension demand, huge life insurance demand, and you get a
08:58lot of cash, it's a lot that's coming.
09:01And part of why I don't think spreads are that interesting, you've got to absorb a lot of that supply.
09:05My sense is, you know, could you have a little bit of indigestion?
09:08Yeah, I think so.
09:09But there's still pretty immense demand to soak this up.
09:12So I don't think it'll be that interesting, but my sense is, like, it's not really that exciting to own
09:17it either.
