00:00What would markets be satisfied with today? What's the bare minimum that they really demand from the Fed chair at
00:05this point?
00:06I think clarity around reaction. We don't expect a lot of near-term clarity in terms of what the next
00:11move is going to be in terms of what's going to happen in September.
00:14But I think longer-term clarity around reaction function and credibility towards getting inflation under control would be two things
00:23I think the market would react positively to.
00:26If he says nothing, if he talks about something completely irrelevant except to the broader picture or the broader Fed
00:32redoing, does this market reprice in that scenario?
00:37Or does it just go home because it's late in August and we've had a long summer and there's one
00:42week left in August and yields can just take care of themselves?
00:45Look, I think that in general what we think is going to be dictating markets over the long term.
00:51I think we get fixated on what's going to happen from a day-to-day basis.
00:54But when we take a step back, and I think this week was a perfect example of it, what the
00:59market is focused on is getting clarity around inflation and whether inflation is going to get unanchored or whether we're
01:06going to be in a range-bound environment.
01:07What that subsequently means for rate volatility and really what that means for the long end, not just in terms
01:12of getting inflation under control, but what's happening with the deficit.
01:15We expect the long end to be range-bound and any clarity that we get on that, great.
01:20If not, I still think that at the end of the day, markets and rates are going to reprice on
01:24the long end depending on inflation expectations, fiscal deficit, and longer-term growth expectations, one.
01:30The second point of it is trying to get clarity on what the next phase of artificial intelligence is going
01:37to be and refocusing on the fundamentals.
01:40Because from a rate perspective and from a core fixed income perspective, carry still looks pretty good, right?
01:47And I think that you're still getting a pretty decent yield when it comes to the middle and the belly
01:52of the curve.
01:52So it still makes sense to invest in that area.
01:56But then for us, what we're really focused on is trying to understand from a longer-term perspective whether the
02:02earnings growth is there, which it has been, and what that means for equity markets.
02:06Yeah, I mean, it does feel like a market that's trying to grasp what the next narrative is, right?
02:10So for a moment in the bond market, it looked like the deficit was going to be the next narrative,
02:14and that has retreated.
02:15When does that actually become a real issue for this bond market?
02:18Look, I think that there—I don't actually know that it's retreated, because I think that there's part of what's happening
02:24in terms of what we're seeing in the long-end volatility.
02:28I don't know that the long-end would be as volatile as it is if we hadn't had the kind
02:32of geopolitical tension that we've seen so far this year.
02:35And what I mean by that in terms of what that means for the deficit, part of the reason why
02:39the long-end has been a little bit more volatile is also due to the amount of expected defense spending
02:44and the amount of boost to spending as it relates to artificial intelligence, the amount of issuance that's coming to
02:49the market, the market is trying to digest that.
02:51But for us, what that means from a portfolio perspective is that while the 60-40 makes sense with an
02:58expectation that rate volatility is likely going to be higher
03:01because inflation volatility is going to be higher or we have to, at some point in time, reckon with what's
03:05going to happen with the fiscal deficit,
03:07adding diversifiers within your portfolio that are either less correlated, like hedge funds, really within the relative value at macrospace,
03:13which have had a really strong year so far this year and have actually outperformed Bloomberg Ag, whether it's U
03:19.S. or global,
03:21or even adding kind of inflation-resilient income when it comes to core infrastructure and core real estate, that's where
03:27we're leaning into.
03:28What is happening in the market, investing that, and what that means for portfolios.
03:33How concerned are you that with the midterms coming and this pushback on data center build-out,
03:39that it will be difficult for the market to keep digesting these bonds that are constantly coming to the market?
03:45Even PIMCO's warning is, gosh, it's a lot. It's a lot to digest.
03:48Well, there's a constant tension as to what the bond market is going to do and whether or not that
03:55supply is going to be absorbed.
03:56But taking a step back, at the end of the day, we are still in an environment in which we've
04:02kind of moved from we don't have enough chips
04:05to we don't have enough compute and we don't have enough power.
04:09And at this point in time, what we know to be true is that the infrastructure that needs to be
04:14built when it comes to artificial intelligence
04:16and the power bottlenecks that we might already end up in a supply-demand imbalance on the power side in
04:21the U.S. by the end of 2030,
04:23the need to invest in this space is paramount.
04:27But what we've seen is a shift on the financing side from it getting funded from cash flow
04:31to it getting funded from a mix of the capital stack, whether it's equity, whether it's investment-grade debt,
04:37or whether it's even debt that is getting financed within the private markets.
04:40We think the market is going to be able to absorb it over the long run,
04:43but there will be pits of volatility along the way.
04:45So how complicated are the contracts getting right now?
04:48And where are companies finding loopholes that they can take advantage of?
04:52And where are the funders looking to see how they can get most out of these products?
04:58I think at the end of the day, if I was someone who was going to be trying to build
05:02a data center or build a power plant,
05:04you would want to, whether it's coming from financing from the public market
05:08or whether it's coming from financing from the private market,
05:10you want to get the terms that make the most sense.
05:12And from an investor perspective, you want to get compensated for the risks that you're taking.
05:16It's why you're starting to see some of the complexity that's coming in the financing market.
05:20But I think what an equally interesting point is that we have like two different cycles
05:25that are playing out within artificial intelligence right now.
05:28We're kind of middle innings as it relates to the financing build out and also the infrastructure build out.
05:33But we're early innings on the monetization front and what that next phase of integration and ROI of the application
05:40layer of AI.
05:42So I know we're very fixated on the infrastructure and the amount of supply that's coming into market.
05:46I'm less concerned on that supply being put to use and creating a lot of long-term volatility.
05:52My focus at this point in time is you want to make sure that infrastructure is being used for something.
05:57So we're really focusing on the ROI and the monetization layer because at the end of the day,
06:02that's probably what is going to break the dam.
06:05Is there going to be an earnings season at some point soon then when we hear a bunch of companies
06:09and all sorts of different industries come out and talk about this and talk about how much more efficient
06:14their business has gotten and how much more they're seeing productivity increase in their business because of AI?
06:19I think so.
06:20Like I think this past earnings season, we actually started to see real breadth outside of just the mega cap
06:27players
06:27and mega cap tech players.
06:29For the most part, mega cap tech has still been lifting the earnings growth and carrying the burden.
06:34However, for the first time in quite a bit of time, the median S&P 500 company grew 14%.
06:41And part of that is due to the margin expansion that we've seen in terms of some of these companies
06:47actually integrating artificial intelligence into their day-to-day businesses.
06:51And that's positive.
06:52We were just talking a moment ago about how we book under the summer, right?
06:56We have Jackson Hole coming at the end of the summer, but at the beginning of the summer, it was
06:59the SpaceX IPO, right?
07:01Did capital markets get healthier during this time process?
07:04You know, where we saw SpaceX and not just SpaceX, but a lot of chatter about Anthropic coming to market
07:08and OpenAI and so on.
07:10Are capital markets healthier, you think, after that?
07:12I think that what we could see this year is the strongest period of capital market issuance,
07:20whether it's IPOs, and a lot of that is concentrated in the mega IPOs,
07:24or even M&A-oriented activity that we've seen in the past 10 years.
07:29And I think that's really meaningful in terms of what that means for not even just equity market sentiment
07:34and even some of the bigger banks and capital market-oriented banks within financials,
07:39but that's really positive in terms of what the distribution outlook could look like
07:44for venture capital and growth and for private equity as well.
07:47One of the biggest pushbacks that we get on investing within private equity and VC and growth today
07:53is that the distributions haven't come over the past five-plus years.
07:58And the beauty of the strength that we're seeing in capital markets today
08:02is that could flip within the next few years.
08:04Amazing.
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