00:00Let the free markets decide. And I'm all for laissez-faire type economics. I'm all for free
00:06markets. But with the Federal Reserve, we also like some certainty, some anchor of the Federal
00:13Reserve. And I think it's going to be difficult if you let the bond market do too much on its
00:18own.
00:18So the two year yield starts rising, the 30 year yield starts rising. It's going to find a place
00:23where it pushes against the economy. It pushes against markets. And that, to me, is not the
00:30best way to implement monetary costs. Is it back up in the yield price down, yield up into 30 years?
00:34Is that an opportunity for you to extend duration? So we love real yield and we are getting it. And
00:42look, in my career, the last 10 years, 15 years, I've been in the industry 20 years, but doing this
00:48specifically for about 15 now. I mean, I remember pre-COVID, it was like, oh, we've got two to four
00:53percent yield and basically no real yield. And that's what we had today. We're looking at,
00:59I looked at it this morning, we're getting a five percent to six percent yield on high quality
01:04corporate bonds. Now, look, I don't know what the Fed's going to do at the next meeting. I don't
01:08know what inflation is going to do. I don't know what the growth is going to do. But what I
01:11do know is
01:11I can walk in five to six percent yield for the next 10 years and set it and forget it.
01:18We have a
01:19retirement income problem in the United States. And now they have income. Now, you've got to take
01:25it when there's a lot of uncertainty around the Fed. You've got to take it when there's inflation
01:28uncertainty. But at the end of the day, the yield is the most yield is destiny in the bond market.
01:35And we've got some great yields to take advantage of. So what did you make of just that steeping we
01:40saw on the yield curve yesterday? Did that is that just reflecting that the market's saying,
01:44I don't know what this guy's going to do. And I need to price it in. It was almost like
01:49we went
01:49into the Fed meeting with a hike. You know, you heard just before, like, oh, the street's saying
01:54they're going to get a surprise hike. And so I think that was built in a little bit. And then
01:58that came off. So it was almost like a cut. But then, OK, so here's the other thing. Signal from
02:04the
02:04markets. Right. That was a big thing yesterday. It's like, we're going to listen to the market.
02:08If you listen to the market yesterday, it made no sense. All right. The dollar tank, that's usually
02:13bullish. We had yields, the front end down, which is almost like a hike. Steepening is bullish.
02:19Yet equities got crushed. None of that makes sense. So a lot of this day to day. And if you
02:24watch the S&P yesterday, it just gets a sense of if you're listening to the market, it could change
02:29its mind within 10 minutes. The S&P was down, rose all the way into green and then fell to
02:36the end of
02:36the day. A lot of this is algorithmic trading, AI and computers that are driving markets. So if you're
02:42letting the market tell you what is going on, it's a lot of AI and algos. Is that really what
02:50we should
02:50be listening to as the Federal Reserve? I'd rather it be, hey, we're looking at fundamentals. This is
02:55what the economy is doing. That's what we're focused on. I got more, but I'll let you go to the
03:01next topic. As a strategist, did you change your outlook? Did you change your allocation? Did you
03:06change your view yesterday? So, you know, the one thing that our team, you know, late last night,
03:12we're just all chatting again, you know, and insurance companies, regional banks, what are
03:19your part of the equity part of the portfolio that like higher rates? Because there are things in a
03:24portfolio that do well with higher rates, a steepening yield curve. Banks love it. Regional
03:29banks in particular have been holding up well. They're doing really well year to date.
03:32Insurance companies, they actually like higher long-term rates because they can lock in
03:37liabilities there and they can issue insurance. Well, let me ask the elephant question in the
03:42room and with the heritage of John Hancock and Manulife going back years. Do you see a yield
03:48regime shift where the matching liabilities out there somewhere don't match because we're in a new
03:57regime? I think right now. Thinking annuities, thinking long-term obligations, actuarial assumption.
04:04Let me cut to the chase. Does the actuarial assumption shift with what we're living?
04:10Well, here's what we're seeing is basically people are living longer. So that is, you know,
04:14I try to use a golf analogy, but it's like there's more par fives. You need to be okay with
04:18your driver
04:18on this and equities are better for long-term liability matching. That being said, when the 30-year
04:25yield goes up like this, we can now match people that are living longer. And that had been the
04:31problem. It was that, hey, you know, if you want an insurance or annuity or what have you,
04:36it was hard to say we can do that for you for a certain long period of time. If yields
04:41come up
04:41like this, it actually gives us an opportunity to liability match, to get it done. That being said,
04:47look, I don't know how much longer the yields will rise like this. I think if yields keep rising,
04:52if the 30-year-old rise, rises to like 6%, I think something breaks. And I don't think this
04:57is sustainable at this rate. So you got to take advantage of why it, while it is happening.
05:02And that's why I think these kinds of companies are doing better with it.
05:05So what do you do on the bond market here? Do you take credit risk here or you can just
05:10clip
05:10these government coupons? I don't care where you're on the curve you're getting.
05:14Yeah.
05:15You'll all compensate it.
05:15Yeah. We've got a mild credit bias. So it's not, you know, taking, you know,
05:20triple C credit or really even lower into the high yield space. But, you know, high yield right now
05:26is yielding 8%. And we've got a little bit of that in the kind of double B part. High quality
05:32corporate bonds are now about five and a half. So again, we're kind of that five to 6% yield.
05:37With your study and the incredible linkage of history into finance at Babson, does this
05:44get solved? If we had a train wreck yesterday, which I think uniform around the world, if
05:52we had a train wreck yesterday, does he amend it? Does the president amend it? Do the other
05:59Fed governors, presidents rebel so we don't get to your 6% 30-year bond?
06:05Well, that's their, the way that wars communicated yesterday works until it doesn't. So it's fine
06:12while yields are still relatively contained. He's like, I just don't know at the, at the
06:17September meeting, it could be like, Hey, the bond market yields rose a lot. It worked.
06:21Like if you, if you can't repeat what we saw yesterday, that's what I'm saying. I think this
06:26is a one time thing into the next, I mean, Jackson always, he's going to try to set it up
06:30a little
06:31bit more, but I think into September, and there was a really good question.
06:33He said, he said yesterday, I'm paraphrasing folks, I don't have it in front of me, that
06:37he has a blank sheet for Jackson Hole. And in the old days, Paul, they'd have a team of
06:4315 young Turks, newly minted PhDs, assisting with paragraph four by this time.
06:50That's, and it just, you know, he said there was a lot of uncertainty, but not a lack of
06:54clarity. To me, I left with a lack of clarity and uncertainty.
06:58You're not alone. David Rosenberg got with some research just this moment.
07:01The Fed chairman served up platitudes, but as, as is the case with the
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