00:00We see two-year yields at 420-ish this morning, and the upper bound of the Fed funds rate is
00:05at 375.
00:06And now we have expectations after the employment data on Friday of a September rate hike moving from like 60
00:13% to 40%.
00:14And so it would argue to me that, you know, unless we start seeing inflation data pick up or we
00:22see, you know,
00:29it looks like the market is leaning towards the Fed not doing anything, and that would suggest that the front
00:34end of the curve is actually relatively attractive here going forward.
00:39So how much credit risk are you suggesting your clients take these days?
00:43Because, again, some of these coupons in the Treasury market seem pretty darn attractive in and of themselves.
00:49Yeah, I mean, I think the investment-grade market, obviously, historically, spreads are very tight, high yields tight.
00:57But at the end of the day, you know, high yields outperform investment-grade and high yields outperform Treasuries and
01:03the broader Bloomberg Aggregate Bond Index.
01:05And why is that?
01:06Well, the average duration of the high-yield index is shorter.
01:09We've generally taken the view that we want to keep duration a little shorter, average maturity a little shorter here,
01:15given the rise in the front-end part of the curve year-to-date.
01:19Tell me about the equity market in that nearing August 15th, we start to reframe for a September 30 quarter
01:28ending.
01:29Do you have any visibility on an earnings stream ending September 30?
01:34Well, Tom, you know, we've gone through now almost at the end of the second quarter of earnings, which have
01:42just destroyed expectations.
01:43I mean, the beats are almost 90 percent, and we have about 10 percent of the companies remaining.
01:49I think it's all about rate of change going forward.
01:52You know, can we beat expectations that are already quite buoyant for the coming quarter?
01:57And that's a big mark.
01:58But isn't it on a level analysis as well?
02:01Forget about this idiot 20 percent statistic.
02:03Even if the rate of change comes in, if we get double-digit earnings growth, there's a lot of confidence
02:11there for the market.
02:11There is.
02:12And if you look at the return year-to-date of, you know, call it 14 percent for the S
02:17&P, 16 percent equal weight, what, 18, 19 percent for the NASDAQ,
02:22it's been driven all by earnings growth, not multiple expansions.
02:25So the valuation has not expanded on a year-to-date basis.
02:29But what has really occurred, which I think is worth noting, is volatility under the hood has really been pronounced.
02:36The VIX is historically, you know, at average-type levels.
02:39But the average stock, for example, in the S&P 500 this year has had a drawdown of about 24
02:45percent, even though the S&P itself has only had a drawdown of 9 percent.
02:50And even more so on the NASDAQ, we've had a drawdown on average by about 42 percent, even though the
02:56drawdown has only been for the index itself, 13 percent.
03:00So that, I think, is a story that hasn't been told sufficiently enough.
03:05There's a lot of rotation under the hood.
03:07What is the AI story from your perspective these days?
03:10I'm sure you have these conversations with your clients all the time.
03:12How are you guys kind of positioned for that now?
03:14Well, if we looked a month or two ago, Paul, we were in the middle of the SaaS-pocalypse.
03:20And the idea that every software company was going out of business was, you know, very much weighing.
03:26And the momentum trade was very much in the semiconductor segment, particularly memory.
03:31You know, we think that there's now been probably some differentiation that is going to start to take hold in
03:37the marketplace,
03:37where the idea that you can apply models that are cheaper, that are almost going to become utilities, not all
03:44models, but many of them,
03:45and that those can be input into software companies providing significant opportunity to capture margin, once again, within...
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