Latest / Bloomberg Intelligence / Boeing Suspends 2024 Forecast, NY Community Shares Plunge, Fed Meeting

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Boeing Suspends 2024 Forecast, NY Community Shares Plunge, Fed Meeting · Bloomberg Intelligence

0:01
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0:17
Speaker 2: One of the other earnings news Emily was Boeing. They
0:21
Speaker 2: put out some good numbers for their quarter, but they
0:25
Speaker 2: pulled their guidance because there's a lot of questions as
0:28
Speaker 2: to what the regulators are going to ask them to
0:30
Speaker 2: do about some of their aircraft and some of their
0:32
Speaker 2: delivery capabilities and things like that. Pulling guidance is to
0:36
Speaker 2: me a big, big deal, right be stock three.
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Speaker 3: It seems like it's working for the investors. They say,
0:41
Speaker 3: we're going to pull the guidance, We're going to focus
0:43
Speaker 3: on safety, and that was enough to bring the stock
0:46
Speaker 3: up three percent.
0:46
Speaker 2: All right, So let's bring in somebody who actually does
0:48
Speaker 2: his stuff for a living. George Ferguson. He's a senior aerospace,
0:51
Speaker 2: defense and Airlines analyst for Bloomberg Intelligence. He's been following
0:55
Speaker 2: Boeing for decades. He knows what he's talking about here. George, First, uh,
1:00
Speaker 2: give us your takeaway from the quarter, and then second,
1:02
Speaker 2: I guess, more importantly, is what's behind their decision to
1:05
Speaker 2: pull their guidance.
1:06
Speaker 4: Do you think, yeah, so thanks for having me on
1:09
Speaker 4: as usual. So I thought that the quarter's numbers looked yeah,
1:13
Speaker 4: you know, pretty much in line with what we expected,
1:16
Speaker 4: maybe a little bit better. Commercial airplane. Some of the
1:19
Speaker 4: cash flow generation was a little bit better, a lot
1:22
Speaker 4: of it from deposits, you know that they're getting from
1:26
Speaker 4: airplanes as they move through production. So I wouldn't call
1:29
Speaker 4: that sort of I mean, it's good cashflow. What I
1:31
Speaker 4: wouldn't call it super high quality, right, like when you're
1:34
Speaker 4: generating a lot of cash from your core operations. Their
1:38
Speaker 4: their global services business had some very nice margins, even
1:43
Speaker 4: better than we expected, and that's been a star performer.
1:47
Speaker 4: It's good to see that holding up. But yeah, I
1:50
Speaker 4: think the real story here is about going forward. How
1:54
Speaker 4: they how they you know, nip these quality problems in
1:57
Speaker 4: the bud. And so I do think that as I
2:00
Speaker 4: think about it more, sort of pulling back guidance, I
2:04
Speaker 4: think that indicates that management is ready to do whatever
2:07
Speaker 4: it takes to get these quality problems in hand. And so,
2:11
Speaker 4: you know, my senses, maybe they think, look, we you know,
2:14
Speaker 4: we may not want to be holding to an exact
2:16
Speaker 4: number of airplanes in twenty twenty four as we dig
2:19
Speaker 4: through our manufacturing process and through the supply chain processes
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Speaker 4: and make sure that we're getting a quality airplane out
2:27
Speaker 4: the door every single time. So if pulling guidance is
2:30
Speaker 4: all about that and the efforts around that at what
2:34
Speaker 4: it's going to take, and focusing again on quality over
2:38
Speaker 4: just management management metrics, I think that could be a
2:42
Speaker 4: very very good sign. You know, again the management team
2:45
Speaker 4: is crystal focused on this is what we have to do.
2:49
Speaker 3: How different is that? Then? Oh? Sorry, go ahead, no,
2:52
Speaker 3: go ahead? Sorry, Well I was going to say, how
2:53
Speaker 3: different is that than what the company has already been
2:56
Speaker 3: doing for the last few years? Were they not is
3:00
Speaker 3: focused on quality and safety beforehand? Like? How much of
3:04
Speaker 3: this is truly a turnaround and a change for Boeing?
3:08
Speaker 4: So I think I think the business has just materially changed.
3:12
Speaker 4: I was at an aerospace defense conference last week, and
3:17
Speaker 4: you know, I didn't need the conference to tell me this,
3:19
Speaker 4: but I was surprised that it was persistent and that
3:22
Speaker 4: and what I heard from people at the conference over
3:24
Speaker 4: and over again is that finding employees an employee turnover
3:30
Speaker 4: is still a problem in this industry. It's still a
3:32
Speaker 4: problem now, you know. I think that the higher you
3:35
Speaker 4: up in the tiers, like a Boeing or an RTX
3:38
Speaker 4: or a GE, it's easier to retain employees because you
3:41
Speaker 4: provide great benefit packages. Everybody wants to be there. But
3:44
Speaker 4: even they have had a lot of turnover, and so
3:47
Speaker 4: I think pre pandemic you could you could potentially fall
3:50
Speaker 4: back on the thought and in the manufacturing process of
3:53
Speaker 4: Boeing that you had very, very seasoned folks on the
3:56
Speaker 4: line that have been well trained, seen years in and
3:59
Speaker 4: years out of the business, and we're always going to
4:02
Speaker 4: get it done right. But I think with the amount
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Speaker 4: of turnover they've had, they really need to go back
4:07
Speaker 4: and rethink, you know, how they supervise the line, how
4:11
Speaker 4: they train the employees, and they have to create more
4:15
Speaker 4: stability by investing in those people. And so I think
4:18
Speaker 4: this business has materially changed since the pandemic. I will
4:21
Speaker 4: also say that, you know, Boling has been sort of
4:24
Speaker 4: pushing this outsourcing of the business again. They were doing
4:27
Speaker 4: this pre pandemic, and this is all about, you know,
4:30
Speaker 4: they want to sort of turn it into the auto industry.
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Speaker 4: Where you outsource subcomponents, you bring it together and rent
4:35
Speaker 4: and you put together an airplane. And that's turned the
4:38
Speaker 4: supply chain into a much bigger, you know, portion of
4:42
Speaker 4: of what you're doing. And it's global as well, right
4:45
Speaker 4: You're making some of these doors in Malaysia. Things are
4:48
Speaker 4: coming from all over the world into renting to turn
4:51
Speaker 4: into an airplane. And I think that's making it more
4:54
Speaker 4: difficult to keep track of the supply chain and the
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Speaker 4: quality and the supply chain and what folks are doing
5:00
Speaker 4: went down at those factories, and so I think it's
5:02
Speaker 4: materially changed. That's the problem.
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Speaker 2: So, George, and that sounds like a problem to me
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Speaker 2: that was probably decades in the making, i e. You know,
5:11
Speaker 2: going more to subcontractors and and you know, as part
5:14
Speaker 2: of globalization. Perhaps is there a sense that this is
5:19
Speaker 2: a really a long term fix that investors should not
5:23
Speaker 2: expect anything months. Maybe it's going to take years here.
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Speaker 4: Well, So, I mean, I don't think they're going to
5:29
Speaker 4: stop production. I do think they're going to dig through
5:32
Speaker 4: the supply chain, you know, sort of hopefully methodically and
5:36
Speaker 4: figure out where there could be sources of problem. But
5:39
Speaker 4: I think what it means is that you're just not
5:42
Speaker 4: going to see potentially the margin and the cash flow
5:44
Speaker 4: out of this business that you saw a pre pandemic
5:48
Speaker 4: for years. While they spend more money and more time
5:52
Speaker 4: and invest in people and go down and make sure
5:54
Speaker 4: that everything works. Some stuff may need to be reconsolidated
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Speaker 4: back at sub tier suppliers or even Boeing if they
6:00
Speaker 4: can't get comfortable that they're going to get the quality
6:02
Speaker 4: out of it. I think it drags. Like I said
6:05
Speaker 4: in Earnings cash Generation two or years from now.
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Speaker 2: At the same time, what I hear from you and
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Speaker 2: from others in the airline businesses, there's a big demand
6:14
Speaker 2: for new aircraft out there, So how do they balance
6:16
Speaker 2: maybe slowing down the line a little bit with the
6:18
Speaker 2: fact that their customers need more and more of their product.
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Speaker 4: So I think it hurts. I think you'd like to
6:24
Speaker 4: be breaking to higher build rates. Now air Bus will
6:28
Speaker 4: and Airbus will get market share, but I think in
6:31
Speaker 4: the long term if you don't, if you don't fix
6:33
Speaker 4: the quality problem here, you'll lose long term share and competitiveness,
6:39
Speaker 4: and that would be really, really bad.
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Speaker 3: What does this mean for Boeing stock price, Because, like
6:45
Speaker 3: we said, it's up today, but you compare it to Airbus.
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Speaker 3: It's underperforming on a year basis by thirty three percentage
6:53
Speaker 3: points Boeing versus Airbus. So is this enough to bring
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Speaker 3: investors new money into Boeing or is Airbus still going
7:01
Speaker 3: to be the outperformer here?
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Speaker 4: So I mean, I think you know, Boeing investors are
7:05
Speaker 4: going to have to take the long view here, right,
7:07
Speaker 4: because again I don't see any quick fix, you know,
7:12
Speaker 4: quick leaping to much higher build rates, much better cash generation,
7:16
Speaker 4: because I think they need to invest back in their business.
7:19
Speaker 4: Airbus apparent doesn't apparently have this problem. I think more
7:22
Speaker 4: of the supply chain is still in house at Airbus
7:26
Speaker 4: or at least better controlled, And so I think you're
7:28
Speaker 4: going to see that air Bus is going to perform
7:31
Speaker 4: fundamentally better here.
7:32
Speaker 2: Is there regulatory risk here for Boeing? Is there any
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Speaker 2: sense that? I don't know, Washington, I'm not sure which
7:38
Speaker 2: agency would say, Hey, we're going to be kind of
7:41
Speaker 2: paying a lot more attention to you guys, forcing you
7:43
Speaker 2: slowly your line down, anything like that.
7:46
Speaker 4: I definitely right. THEFA has already said they're going to
7:48
Speaker 4: increase their oversight of Boeing and the suppliers. You know, look,
7:53
Speaker 4: in a perfect world, you wouldn't want to have these
7:55
Speaker 4: quality problems, and you'd like to be filling out less paperwork.
7:58
Speaker 4: You can make your business more fit. They're just not
8:01
Speaker 4: going to get that here. We could all understand. The
8:03
Speaker 4: FAA's reputation has been hurt as well, so they are
8:07
Speaker 4: going to have more regulatory oversight and that will be
8:09
Speaker 4: a drag.
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Speaker 2: All right, George, thanks so much for joining us. We
8:12
Speaker 2: appreciate that. As always, George Ferguson, he covers the airspace companies,
8:16
Speaker 2: the defense companies, and the airlines companies, that whole ecosystem.
8:20
Speaker 2: That's where George's investment research focus is and so he's
8:23
Speaker 2: our go to person on Boeing, the other airspace companies,
8:27
Speaker 2: and then the ultimate customers, the airlines. And then you
8:30
Speaker 2: know what we hear from the airlines is traffic's back.
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Speaker 2: We need new planes, we need more planes, we need
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Speaker 2: more fishing planes. And that's good news for the air
8:39
Speaker 2: you know, the Boeings of the world and the airbuses
8:41
Speaker 2: of the world. But as George was suggesting, probably top
8:44
Speaker 2: of order for Boeing is to kind of get their
8:47
Speaker 2: quality issues addressed, you know, as quickly as possible, because
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Speaker 2: that's in the long term health of the company.
8:53
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Speaker 1: Say Alexa playing Bloomberg eleven thirty The.
9:11
Speaker 2: New York Community Bank surprise loss here cut the dividend
9:15
Speaker 2: stocks down thirty five percent. Let's break it down with
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Speaker 2: Herman chen Herman Chenn follows the regional banks for Bloomberg
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Speaker 2: Intelligency joints US live here in our studio here in
9:23
Speaker 2: our New York City headquarters. Herman, what happened at New
9:27
Speaker 2: York Community Bank?
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Speaker 5: New York Community So if we go back to what
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Speaker 5: happened in March and April of last year, they were
9:34
Speaker 5: the bank that bought the assets and deposits from Signature Bank,
9:38
Speaker 5: so they became a much larger institution, cleared that one
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Speaker 5: hundred billion dollar threshold, which is like a step up
9:44
Speaker 5: in regulations. Now it seems like they're a bit cautious
9:49
Speaker 5: with that step up in regulations and the upcoming stress test,
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Speaker 5: so they're cutting the dividend, reducing loans, trying to shore
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Speaker 5: up their liquidian capital, and then on top of everything
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Speaker 5: else that I just talked about that they posted some
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Speaker 5: weaker asset quality. So there's questions of on if they're
10:07
Speaker 5: going to see more loan losses in apartment lending and
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Speaker 5: office lending in twenty twenty four.
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Speaker 3: What do we know so far about why they're so
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Speaker 3: uncertain about this credit quality outlook?
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Speaker 5: Yeah, so your community is largely an apartment lender in
10:26
Speaker 5: the New York City area rent controlled rent stabilized apartments,
10:29
Speaker 5: so those buildings are affected by recent New York rent
10:35
Speaker 5: rules that cap how much you can charge to your tenants.
10:41
Speaker 5: On top of that, you have higher interest rates, so
10:43
Speaker 5: it squeezes the landlords and there's a lot of refinancing
10:46
Speaker 5: risk ahead. So they posted a big loss there in
10:49
Speaker 5: the fourth quarter, and there's questions ahead. They have about
10:53
Speaker 5: four percent of their loans in office exposure, so that's
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Speaker 5: a bit a touch higher than the median in our coverage,
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Speaker 5: So there are some credit quality concerns ahead, and they've
11:04
Speaker 5: built their reserves pretty much in line with peers in
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Speaker 5: the fourth quarter to address that.
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Speaker 2: I'm looking at the Spider s and P Regional Banking
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Speaker 2: et f kr E. Is the tickets off three point
11:16
Speaker 2: four or five percent today on this news presumably? How
11:20
Speaker 2: much is this a New York community bank problem versus
11:22
Speaker 2: maybe a wider regional bank problem.
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Speaker 5: Yeah, so New your Community is really the last of
11:29
Speaker 5: the larger regional banks to report their fourth quarter earnings,
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Speaker 5: and pretty much across the board of their larger peers,
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Speaker 5: everybody was actually pretty sangling about twenty twenty four credit quality.
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Speaker 5: So this seems more of a New York community specific
11:46
Speaker 5: issue of needing to shore up their balance sheet and
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Speaker 5: facing a blip on their credit quality that they need to,
11:54
Speaker 5: you know, and still some more confidence in the market ahead.
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Speaker 3: Do you think someone's going to ask a question to
12:00
Speaker 3: Powell about this today or do the reporters already have
12:03
Speaker 3: their questions planned out now?
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Speaker 2: That would be a good one, because it's certainly topable.
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Speaker 3: Yeah, I mean, what would the Fed? How would you
12:11
Speaker 3: expect your own Powell to react to a question on
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Speaker 3: like does this signal more weakness?
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Speaker 5: Yeah? I'd assume he would say something to the fact
12:19
Speaker 5: that the banking industry is resilient and you've seen stability
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Speaker 5: and deposits and strong credit quality for the industry and
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Speaker 5: near community specifically had an issue with the fourth quarter,
12:29
Speaker 5: But I would say overall.
12:31
Speaker 6: The.
12:33
Speaker 5: Banking sector has been really strong and resilient ever since
12:36
Speaker 5: that March in April turmoil and stabilize the posits, increase
12:40
Speaker 5: their capital. The larger ones are shoring up capital and
12:44
Speaker 5: liquidy ahead of tougher rules. So it makes for a
12:47
Speaker 5: much sound and safer system.
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Speaker 2: So where are we, like, how would you characterize the
12:52
Speaker 2: industry in terms of getting to where it needs to
12:56
Speaker 2: be in terms of their balance sheets, their credit quality,
13:01
Speaker 2: you know, because it was such a shock I guess
13:02
Speaker 2: a year ago when we had some of those regional
13:04
Speaker 2: banks kind of hit.
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Speaker 5: Yeah. So ever since that March in April time frame,
13:12
Speaker 5: a lot of the banks have been defensive in nature.
13:15
Speaker 5: They've pulled back on lending, they've exited some loan portfolios,
13:21
Speaker 5: exited relationships that weren't profitable, just been very conservative with
13:28
Speaker 5: how they lend and how they operate. So they've had
13:31
Speaker 5: three quarters of conservatism that they've built up, built up
13:36
Speaker 5: their reserves. So they've done a very good job of
13:40
Speaker 5: addressing some of these issues and after aside from what's
13:45
Speaker 5: happening today with New York Community. I think the market's
13:48
Speaker 5: been pretty receptive to the actions that the bank management
13:51
Speaker 5: teams have done over the course of the past three quarters.
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Speaker 2: And where are we just in terms of, you know,
13:57
Speaker 2: kind of I don't know, kind of repairing the earning
14:00
Speaker 2: capability of these banks, because that's kind of what you
14:03
Speaker 2: told us all along, that this was going to be
14:05
Speaker 2: more of a challenge from the earnings power of these
14:08
Speaker 2: regional banks as they deal with higher rates and so
14:10
Speaker 2: on and so.
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Speaker 5: Right, So we're getting towards sort of the end of
14:14
Speaker 5: the weakness in the top line. The pause in rate
14:20
Speaker 5: hikes last year has helped shore up the pace of
14:24
Speaker 5: depositive repricing. So the margins, the negatives margins for the
14:28
Speaker 5: banks are starting to stabilize a bit. And we're hoping
14:32
Speaker 5: that once rate cuts start materializing the industry in the
14:37
Speaker 5: back half of the year, expecting a resurgence and lending
14:39
Speaker 5: and improving top line performance and improving earnings. But really
14:44
Speaker 5: all of this is predicated on if we get the
14:47
Speaker 5: rate cuts and if we get a soft landing.
14:49
Speaker 3: How our investors supposed to be thinking about the dividend
14:52
Speaker 3: cut for New York Community banks, slashing the payout to
14:55
Speaker 3: shareholders to five cents from an expected seventeen.
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Speaker 5: Yes, So that's that's an interesting thing because Near Community
15:04
Speaker 5: has historically prided themselves on having a strong dividend, had
15:09
Speaker 5: a lot of insider ownership of the bank, and so
15:13
Speaker 5: the dividend was very key to them and to their shareholders.
15:17
Speaker 5: They do skew a little bit historically to a retail
15:21
Speaker 5: investor base as well. So this was a decision that
15:24
Speaker 5: the CEO said they didn't take lightly and it was
15:28
Speaker 5: more of another step to build capital ahead of, you know,
15:34
Speaker 5: the tougher regulations. They're pointing to a CT one ratio
15:37
Speaker 5: of ten percent versus the current nine point two percent,
15:40
Speaker 5: So earnings generation and the slashing of the dividend could
15:45
Speaker 5: help them get there by the end of next year.
15:47
Speaker 2: So I'm looking again at that Spider s and p
15:50
Speaker 2: Regional Bank ETF up thirty two thirty three percent from
15:53
Speaker 2: I guess the recent lows I guess back in October
15:57
Speaker 2: is that but that they haven't retraced at all. I mean,
16:00
Speaker 2: when you talk to investors, do they still think, Hey,
16:02
Speaker 2: with a FED that's likely to cut rates in twenty
16:05
Speaker 2: twenty four, there's still room to go with some of
16:08
Speaker 2: these names.
16:09
Speaker 5: Yeah, it does. There's stocks have rebounded about thirty percent.
16:15
Speaker 5: As you mentioned before, there's some upside if we get
16:19
Speaker 5: that loan growth in the back half of the year.
16:21
Speaker 5: So that's what the manager teams seem to be pretty
16:24
Speaker 5: optimistic about. They talked about building you know, loan pipelines
16:29
Speaker 5: and so that all of these anecdotes seem to be
16:33
Speaker 5: positive that lending, which is pretty much flat over the
16:37
Speaker 5: past couple quarters, can really start picking up again once
16:40
Speaker 5: interest rates get lower. So that's the upside. The downside
16:43
Speaker 5: is do we get a downturn and credit quality and
16:48
Speaker 5: do rates sort of you know, stay higher for longer.
16:51
Speaker 5: So that's that's where we are today with the push
16:53
Speaker 5: pull of the blow and bear.
16:55
Speaker 2: And what are the banks, what are the management teams?
16:57
Speaker 2: What have you been saying about their expectation for credit
17:01
Speaker 2: quality of the next twelve to eighteen months. Are they
17:03
Speaker 2: taking higher reserves or have they already done that?
17:05
Speaker 5: They are taking reserves, but it's been pretty measured. So
17:08
Speaker 5: loan losses have pretty are they continue to normalize, so
17:13
Speaker 5: they've been pretty low ever since the pandemic period. With
17:17
Speaker 5: all the stimulus that was slashing around the economy, and
17:21
Speaker 5: now they're pretty much back to pre pandemic levels, which
17:25
Speaker 5: were still low by historical standards, So they've been taking
17:30
Speaker 5: this time to build up their reserves a little bit
17:32
Speaker 5: more due to some of the issues that have are
17:35
Speaker 5: facing the industry, like you know, concerns about office, commercial
17:38
Speaker 5: real estate, and leverage lending and apartment lending. So those
17:43
Speaker 5: are sort of like the hot button places we've.
17:45
Speaker 2: Been seen or I guess we ask you this way,
17:47
Speaker 2: have we seen a regional bank cut their I guess office,
17:52
Speaker 2: you know, right down their office portfolio. Have you seen
17:54
Speaker 2: that yet?
17:54
Speaker 5: We've seen reserves increase, So there's a pretty big there's
17:59
Speaker 5: a wide range in the reserve level. So the most
18:02
Speaker 5: conservative are banks like US Bank Corporate Citizens that have
18:06
Speaker 5: a ten percent reserve, and then on the other end
18:09
Speaker 5: of the spectrum, there's some that have only like a
18:11
Speaker 5: four percent reserve. So there's a lot of questions of
18:14
Speaker 5: how this all will shake out over.
18:16
Speaker 2: The few years. I don't know. I think this commercial
18:19
Speaker 2: real estate, particularly the office thing. When we start seeing
18:21
Speaker 2: trades happen like just a random office building in midtown
18:25
Speaker 2: Third Avenue trade, I don't know what the hairspur it's
18:29
Speaker 2: it's still vacant. I know, I mean, I don't know
18:31
Speaker 2: what these haircuts are going to be. And again Barry Stern,
18:32
Speaker 2: like who knows from real estate. Yesterday he's saying he
18:35
Speaker 2: thinks that haircuts are going to be huge, like fifty percent.
18:39
Speaker 2: You know, I don't know. I have to see, and
18:40
Speaker 2: I wonder how the bank's react to that. Herman Chan,
18:42
Speaker 2: thank you so much for that. We appreciate Hermit Chan.
18:44
Speaker 2: He covers the regional banks for Bloomberg Intelligence, so he's
18:48
Speaker 2: been extraordinary helpful to us on as we kind of
18:51
Speaker 2: deal with some of these regional banks and some of
18:53
Speaker 2: the challenges that they are facing.
18:56
Speaker 1: You're listening to the Bloomberg Intelligence podcast just live weekdays
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Speaker 2: The markets are certainly pricing in a dubbish twenty twenty
19:15
Speaker 2: four in terms of rates. Le's chick in with somebody
19:17
Speaker 2: who actually gets paid to do this stuff. Glenn Smith,
19:20
Speaker 2: Chief Investment Officer, g DS Wealth Management, Flower Mound, Texas.
19:26
Speaker 2: Glenn Smith, thanks for joining us here. Where's flower Mound, Texas.
19:31
Speaker 7: Absolutely, we're about ten ten miles north of Dallas.
19:34
Speaker 3: Nice.
19:34
Speaker 2: See just say greater Dallas. I mean, you know, flower.
19:38
Speaker 7: Are actually nice? Are there flowers on the mound? You know,
19:41
Speaker 7: there actually is a flower mound.
19:43
Speaker 8: It's very small, it's seven acres, but there's definitely a
19:46
Speaker 8: flower mound.
19:47
Speaker 2: Awesome, check it out next time. That All right, Glenn,
19:49
Speaker 2: what are we doing here with this Fed? We're gonna
19:51
Speaker 2: hear from them later this afternoon. The market certainly says, hey,
19:54
Speaker 2: twenty twenty four is going to be your rate cuts.
19:56
Speaker 2: How are you guys kind of pricing that?
19:58
Speaker 4: In?
20:00
Speaker 8: Absolutely, we think that the FED is going to talk
20:02
Speaker 8: about how resilient and strong the economy is.
20:05
Speaker 7: Consumers are doing really good.
20:07
Speaker 8: We have inflation dropping not quite at their target of
20:10
Speaker 8: two percent, but we're at two point nine. We have
20:12
Speaker 8: an employment numbers very very low, and I think they
20:16
Speaker 8: can be a little bit patient here. I don't think
20:19
Speaker 8: they want to lower rates before they actually need to.
20:24
Speaker 8: In the seventies, obviously we had Arthur Burns do that
20:27
Speaker 8: and then what happened is inflation was persistent, and I
20:31
Speaker 8: think they want to do this right the first time,
20:33
Speaker 8: and because of that, We think rate cuts won't start
20:35
Speaker 8: until June of this year, and we will have three
20:38
Speaker 8: rate cuts every other FED meeting in twenty twenty four.
20:42
Speaker 3: Glenn, how are you thinking about the market reaction to
20:45
Speaker 3: the FED today, Because, like John was saying a little
20:48
Speaker 3: bit earlier, we already have the two year down eleven
20:51
Speaker 3: basis points today, So what do we need to move
20:55
Speaker 3: yields even lower? And if Powell is an ultra dubbish,
20:59
Speaker 3: does that mean that we actually see yields reverse higher today?
21:05
Speaker 7: No? I don't think so.
21:07
Speaker 8: I think the economy is very strong and that's what's
21:11
Speaker 8: giving them a little bit of a mulligan here for
21:14
Speaker 8: rates not to go up. We think that that he's
21:18
Speaker 8: got they have a little bit of of of margin
21:20
Speaker 8: for air because the economy is economy is so strong
21:22
Speaker 8: right now.
21:24
Speaker 7: I don't I don't anticipate rates changing changing until until
21:29
Speaker 7: later in the year when inflation, when inflation comes down
21:32
Speaker 7: a bit.
21:34
Speaker 2: All right, So Glenn, what do we do here? I mean,
21:37
Speaker 2: Emily Grafair, she's long those magnificence in seven stocks. She's
21:40
Speaker 2: been laughing all the way to the bank. Other folks
21:43
Speaker 2: like Matt Winkler and me, we were not so smart,
21:45
Speaker 2: so we weren't long those stocks. What do we do
21:47
Speaker 2: here in twenty twenty four if we've missed some of
21:49
Speaker 2: those big tech names.
21:51
Speaker 7: I think the Magnificent seven.
21:53
Speaker 8: If you if you own them and you're not overweighted them,
21:55
Speaker 8: you want to maintain them.
21:56
Speaker 7: But I don't think this is a great entry point.
21:58
Speaker 8: I think there's other sectors out there, whether it's financials,
22:02
Speaker 8: whether it's it's energy stocks.
22:05
Speaker 7: Specifically in financials, we really like JP Morgan right now.
22:10
Speaker 8: If rates do stay elevated, we have the interest margins
22:14
Speaker 8: that will be phenomenal for them and continue to give
22:16
Speaker 8: them mornings. And if rates are cut in June, like
22:20
Speaker 8: we anticipate, the mortgage activity should pick up. JP Morgan
22:24
Speaker 8: had a bit of a downer in terms of investment
22:28
Speaker 8: investment bank in the last couple of years, and we
22:30
Speaker 8: think that's going to turn around from in twenty twenty four.
22:33
Speaker 7: What about on the energy go ahead?
22:35
Speaker 3: Sorry, I was going to ask about multi asset portfolios
22:39
Speaker 3: because you're chief investment officer, So how are you balancing
22:43
Speaker 3: stocks and bonds and sixty forty this year? If it's
22:46
Speaker 3: not all big tech, how are you thinking about the
22:49
Speaker 3: whole portfolio construction for twenty twenty five.
22:52
Speaker 8: Sure, in terms of duration, what we've been doing for
22:56
Speaker 8: twenty to starting round twenty twenty two, we shortened toation
23:01
Speaker 8: in shorter term treasuries and bonds in corporate and excuse me,
23:07
Speaker 8: treasuries and corporates. Just lately in the last sixty days
23:10
Speaker 8: we've been increased in the duration anticipation of interest rates,
23:13
Speaker 8: dropping from different ETFs that are money mark like bonds
23:19
Speaker 8: into longer term durations. In terms of the overall portfolio,
23:24
Speaker 8: we think it's important to look at different sectors other.
23:28
Speaker 7: Than just the magnificent at seven.
23:31
Speaker 8: You want to be diversified in different parts of the economy, Well, you're.
23:36
Speaker 2: Down there in Dallas for worth. You have to have
23:39
Speaker 2: a call on energy. What's you call on energy here?
23:42
Speaker 8: Absolutely, we love Diamondback Energy. Diamondback Energy is a premium
23:48
Speaker 8: basin developer. They have over four hundred and seventy six
23:51
Speaker 8: thousand acres eight thousand drilling locations.
23:55
Speaker 7: What makes them unique.
23:57
Speaker 8: Is that their price of profitability per barrel is only
24:00
Speaker 8: fifty dollars a barrel, unlike many of its competitors. We
24:04
Speaker 8: think the valuations are much more attractive than a even
24:08
Speaker 8: a ne Exxon Mobile.
24:09
Speaker 7: The cash flow has been amazing. They have lower operating
24:13
Speaker 7: expenses than its piers.
24:14
Speaker 8: They've consistently paid a dividend and we think that will
24:17
Speaker 8: continue for foreseeable future.
24:20
Speaker 2: All Right, I'm just looking at the map here. You
24:21
Speaker 2: guys are right next to the Texas Motor Speedway, which
24:25
Speaker 2: I helped finance back in the day. That is a
24:27
Speaker 2: monster speedway. You laughed, But we may. We just raised
24:30
Speaker 2: a ton of equity of a ton of debt. We
24:32
Speaker 2: built Texas Motor Speedway, Las Vegas Motor Speedway.
24:35
Speaker 7: Deal.
24:35
Speaker 1: Were you not involved?
24:37
Speaker 2: We were active back in the day. Now can you
24:40
Speaker 2: can you water ski on Grapeview Lake.
24:44
Speaker 8: And grape Vine Lake? Absolutely, not only grape Vine Lake
24:47
Speaker 8: but Lewisville Lake. Those are two nice, massive lakes. I'm
24:51
Speaker 8: originally from northern California, so this was different.
24:54
Speaker 7: Differents in California.
24:56
Speaker 2: Grapevine Lake. Yeah cool, all right, very good, appreciate it.
25:00
Speaker 2: Getting a sense here what's happening on these markets. Glenn Smith,
25:03
Speaker 2: Chief investment Officer, GDS Wealth Management, Flower Mount, Texas. It's
25:07
Speaker 2: just north of Fort Worth. Fortworth is one of my
25:09
Speaker 2: favorite towns. Like I'll stay in Fort Worth as opposed
25:11
Speaker 2: to Dallas and drive to meetings in Dallas.
25:14
Speaker 3: I haven't heard anywhere about that.
25:15
Speaker 1: Dallas.
25:16
Speaker 2: It's a real cowboy town, like Dallas is chic. You
25:20
Speaker 2: know you're at Fort Worth, you feel like you're in Texas.
25:23
Speaker 2: Cowboys and stuff like that. I love Fort Worth.
25:25
Speaker 3: It's great town.
25:27
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
25:31
Speaker 1: weekdays at ten am Eastern on applecar Play and Android
25:35
Speaker 1: Auto with the Bloomberg Business App. You can also listen
25:37
Speaker 1: live on Amazon Alexa from our flagship New York station
25:41
Speaker 1: just say Alexa playing Bloomberg eleven thirty.
25:46
Speaker 2: When I went to LA, when I was on the
25:47
Speaker 2: side side Emily as a sell side equity analyst, my
25:50
Speaker 2: salesman would say, you have to come to LA at
25:53
Speaker 2: least twice, preferably three times a year. And when you
25:55
Speaker 2: go there, you see Capital Group and you see TCW.
25:58
Speaker 2: If you don't get those two meetings, don't and go
26:00
Speaker 2: because those are the lockdown meanings you get now. When
26:02
Speaker 2: I went to TCW and these fancy offices in downtown LA,
26:05
Speaker 2: which I can still see here on the Zoom call
26:07
Speaker 2: with mister Purdy, I avoided the fixed income floor desperately
26:11
Speaker 2: I just went right to the equity floor because they're
26:13
Speaker 2: much more fun there. Steve Perdy joins us. He's co
26:15
Speaker 2: head of Global Credit at TCW Fixed Income. You guys
26:19
Speaker 2: do math. I don't like math, Steve, so that's why
26:21
Speaker 2: I stayed with your colleagues on the equity floor. I
26:24
Speaker 2: got to get the house call here for TCW. What
26:27
Speaker 2: are you guys doing in the fixed income market this year?
26:29
Speaker 2: There are actually some positive returns in twenty twenty three
26:31
Speaker 2: for you guys.
26:33
Speaker 6: Yeah, there are. And thanks, first of all, thanks so
26:35
Speaker 6: much for having me, really appreciate it, and glad that
26:36
Speaker 6: you've been to our offices. And we'll welcome you guys
26:38
Speaker 6: in January anytime. Yes, you know, let's start. The big
26:43
Speaker 6: picture for us is we think that inflation has peaked,
26:47
Speaker 6: which means that the rate cycle has peaked. And you
26:50
Speaker 6: got to give the Fed a lot of credit for
26:51
Speaker 6: what they've done. Now, the question is from here, how
26:55
Speaker 6: quickly will they be reducing rates and buy how much quantum?
27:00
Speaker 6: And we think today is a bit of a non event,
27:02
Speaker 6: But we do think overall the economy is slowing and
27:05
Speaker 6: that's the real story. We think the Fed's got to
27:08
Speaker 6: get ahead of it, but we're seeing a lot of
27:10
Speaker 6: breadcrumbs and what we're hearing from companies that the slowing
27:13
Speaker 6: economy might be getting a little bit away from the
27:15
Speaker 6: Fed and need to be very aware of that.
27:18
Speaker 3: So we've been asking everyone today, what do you think
27:21
Speaker 3: Powell is going to actually talk about in his pressor
27:24
Speaker 3: is there anything that he could say that could move
27:26
Speaker 3: the markets today?
27:29
Speaker 6: Yeah, I think everyone agrees and we're with consensus that
27:32
Speaker 6: nothing is actually going to happen from a rate move perspective,
27:35
Speaker 6: but it's really going to be about his outlook and
27:37
Speaker 6: how caukish that feels. And we think they'll probably remove
27:40
Speaker 6: some of the language, some of the language to give
27:42
Speaker 6: themselves runway to begin the rate decline. But we don't
27:47
Speaker 6: think today is a big day. What's interesting is to
27:50
Speaker 6: watch is how quickly the economy is slowing. And the
27:54
Speaker 6: results from this quarter thus far have been overall pretty positive,
27:59
Speaker 6: but we do think we're seeing some signs of deceleration
28:02
Speaker 6: and we hope that he speaks to that in his
28:04
Speaker 6: Q and A today.
28:06
Speaker 2: Hey, Steve, you guys are talking about a slowing economy
28:09
Speaker 2: out there. I'd love to get that kind of surprises,
28:13
Speaker 2: I guess given that background, I was kind of surprised
28:15
Speaker 2: in twenty twenty three to see high yield was the
28:17
Speaker 2: best performing fixed income sector out there. How do you
28:21
Speaker 2: guys think about high yield versus investment grade in twenty
28:24
Speaker 2: twenty four.
28:26
Speaker 6: Yeah, it was. It was a bar and burder every
28:28
Speaker 6: year in high yield last year, and I think one,
28:31
Speaker 6: people are probably expecting the economy to slow in a
28:34
Speaker 6: more dramatic fashion that it actually did. That's one. The
28:38
Speaker 6: second thing is the triple C cohort, and there's a
28:40
Speaker 6: couple of sectors in there, really cruise lines being the
28:43
Speaker 6: most dramatic, which came into the year at very low prices,
28:48
Speaker 6: and as we have this kind of remediation and the
28:50
Speaker 6: peaking of rates, people stepping back into the asset class
28:54
Speaker 6: really drove out performance there. You know, we're now sitting
28:57
Speaker 6: at about you know, three hundred and twenty basis points
29:00
Speaker 6: over the treasury. That's within the top court dial of
29:03
Speaker 6: tightness over the last ten years. So our perspective is
29:07
Speaker 6: that credit spreads on the high yield side, even more
29:10
Speaker 6: dramatically on the IG side, are going to have to
29:12
Speaker 6: widen throughout the course of the year. So we think
29:14
Speaker 6: you're supposed to a little bit underweight high yield and
29:16
Speaker 6: wait for a better time to enter that asset class.
29:19
Speaker 3: What about the fact that we might see a lot
29:23
Speaker 3: of debt maturing in twenty twenty four, In twenty twenty
29:27
Speaker 3: five and twenty six, I talked to a number of
29:29
Speaker 3: fund managers who say, this is really a cause for concern.
29:33
Speaker 3: These companies that locked in low rates now all of
29:36
Speaker 3: a sudden have to adjust to a much higher level
29:40
Speaker 3: of interest, and that's going to cause some kind of
29:43
Speaker 3: economic trouble that's going to then trickle down to the
29:46
Speaker 3: rest of the economy. How are you thinking about debt
29:48
Speaker 3: refinancing specifically for these ig corporates.
29:53
Speaker 6: Well, I'll pivot back to what you guys were talking
29:56
Speaker 6: about home ownership. I'm sorry that you don't have a home,
29:58
Speaker 6: because those who do have your mortgages have locked in
30:01
Speaker 6: a very low rate for a very long period of time,
30:05
Speaker 6: and that is the luxurious position that investment grade companies
30:08
Speaker 6: find themselves in. The average tenor is kind of ten
30:11
Speaker 6: years plus, and so they've got a lot of time
30:13
Speaker 6: to wait and adjust this new rate environment. High yield
30:17
Speaker 6: companies on average have about three years until they have
30:21
Speaker 6: to kind of climb that maturity wall that you are mentioning,
30:24
Speaker 6: and it is a challenge for certain of them. On
30:27
Speaker 6: the leverage loan market, they have to reprice their balance
30:30
Speaker 6: sheet every month or three months, and we're seeing a
30:33
Speaker 6: lot more distress there as managers simply weren't prepared to
30:37
Speaker 6: pay an additional two hundred or three hundred basis points
30:41
Speaker 6: just to operate their business. And let's remember that when
30:43
Speaker 6: your cost of capital goes up, that doesn't impact your
30:46
Speaker 6: business at all. That's not marketing, that's not a new
30:49
Speaker 6: property that you're spending for, that's not new employees. It's
30:52
Speaker 6: just the same business that cost you more to run
30:55
Speaker 6: every day, and that's going to be a challenge. We
30:58
Speaker 6: think people are taking advantage this new issue boom in
31:01
Speaker 6: January while the markets are open to rush in and
31:04
Speaker 6: try to kick out those maturities. But it's really a
31:07
Speaker 6: show me story by each individual credit over the next
31:10
Speaker 6: few years as they try to digest how to pay
31:13
Speaker 6: more money and how they're going to manage their businesses
31:16
Speaker 6: given that additional burden.
31:17
Speaker 2: Hey, Steve, how do you feel about credit quality out there?
31:20
Speaker 2: If your house call is for a recession. I'm guessing
31:22
Speaker 2: you're asking your analyst to kind of, you know, kind
31:25
Speaker 2: of sharpen their pencils and take a look at the
31:26
Speaker 2: ratios and so on and so forth. How do you
31:28
Speaker 2: feel about credit quality out there?
31:31
Speaker 6: You know, the management teams thus far have done a
31:34
Speaker 6: really excellent job. During the pandemic, we saw balance sheets
31:39
Speaker 6: actually get into a much better place personal balance sheets
31:42
Speaker 6: as an aside, people paid down credit cards, they weren't
31:45
Speaker 6: going out as much. Corporates didn't go on big M
31:48
Speaker 6: and A booms. Instead, they try to say, it's a
31:51
Speaker 6: cautious environment, I want to bring down my leverage because
31:54
Speaker 6: we don't what the world's going to look like. So
31:56
Speaker 6: it all feels pretty good. So when you think of
31:58
Speaker 6: near term defaults or a spike into fault rates, we
32:01
Speaker 6: don't see that happening in the near term. But what
32:04
Speaker 6: we do see is credit spreads right now are kind
32:07
Speaker 6: of pricing perfection, and we don't think that's a reasonable
32:10
Speaker 6: case given what we're seeing. And so the other thing
32:14
Speaker 6: we're hearing from management teams as our analyst, as you said,
32:17
Speaker 6: are kind of put plugging into their models every day,
32:20
Speaker 6: is the numbers are fine, but the outlook feels a
32:23
Speaker 6: little bit more concerning, and now we're starting to see
32:25
Speaker 6: job losses roll through. I mean every day we come
32:28
Speaker 6: into our Bloomberg screens and see a blinking red number
32:30
Speaker 6: across the top. Yesterday was ups with twelve thousand employees.
32:35
Speaker 6: That is a good signal that companies are not as
32:38
Speaker 6: bullish about the future as what they are now, and
32:41
Speaker 6: we think that's problematic.
32:43
Speaker 2: So, you know, you guys just about a year ago,
32:46
Speaker 2: you guys being the folks in California, we're kind of
32:48
Speaker 2: ground zero on some of these regional bank challenges here
32:51
Speaker 2: and we just got another reminder today with New York
32:53
Speaker 2: Community Bank. How do you guys think about the banking
32:56
Speaker 2: sector of the financials here today.
32:59
Speaker 6: Yeah, it's kind of an old story that's come back
33:02
Speaker 6: to light this morning. First of all, so are there
33:06
Speaker 6: lingering effects of the regional bank crisis? First, I'll talk
33:09
Speaker 6: with the good news. The FED reacted quickly and what
33:12
Speaker 6: they did with Signature Bank and SVB really they deserve
33:16
Speaker 6: to be commended for that because it put a floor
33:18
Speaker 6: quickly under deposit flight, which was critical. Now. It also
33:23
Speaker 6: showed us by the way that the large banks, that
33:25
Speaker 6: globally systemic banks are the safest place you could possibly be,
33:29
Speaker 6: and we continue to believe that as an investment thesis.
33:32
Speaker 6: Shifting back to the regional banks, the real crux of
33:35
Speaker 6: the matter here is commercial real estate, and it's very
33:39
Speaker 6: difficult as an outside investor to get really granular views
33:43
Speaker 6: asset by asset on what type of commercial real estate
33:46
Speaker 6: they portfolios they have. And I think when Community Bank
33:50
Speaker 6: bought the Signature Bank portfolio, they had to get their
33:53
Speaker 6: arms around that exposure. We've learned today there might be
33:55
Speaker 6: more problems in that commercial real estate and particularly the
33:58
Speaker 6: office sector, and they had envisioned when they purchased those assets.
34:02
Speaker 6: So we think this is not a brand news story.
34:06
Speaker 6: It's simply this delayed, rolling impact of the commercial real
34:10
Speaker 6: estate issue flowing through the retail banks.
34:12
Speaker 7: Yeah.
34:12
Speaker 2: We had Barry Sternlick, chairman and CEE of Starward Capital
34:16
Speaker 2: on Bloomer Television yesterday. He was talking about, you know,
34:19
Speaker 2: he thinks the nut might be, you know, a trillion
34:22
Speaker 2: dollars of a risk, their value at risk and the
34:25
Speaker 2: commercial rules they particularly the office space, and so that
34:29
Speaker 2: is a big issue. And if that's the case, then
34:31
Speaker 2: that's going to have some pain for a lot of folks. Steve,
34:33
Speaker 2: Thanks so much for joining us here. Really appreciate getting
34:35
Speaker 2: your time. Steve Perty's co head of Global Credit at TCW.
34:39
Speaker 2: Some real smart folks out there at TCW, both on
34:42
Speaker 2: the equity and fixed income side, and again kind of
34:46
Speaker 2: the base case for TCW. On the fixed income folks,
34:48
Speaker 2: the credit guys, they think of recessions coming, so they're
34:51
Speaker 2: kind of positioning their portfolio accordingly, kind of underweight high yield,
34:55
Speaker 2: a little bit more on the investment grade, and focusing
34:57
Speaker 2: on the balance sheet. So that is certainly a take there.
35:01
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
35:05
Speaker 1: weekdays at ten am Eastern on applecar Play and Android
35:09
Speaker 1: Auto with the Bloomberg Business App. You can also listen
35:12
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35:15
Speaker 1: Just say Alexa play Bloomberg eleven thirty.
35:20
Speaker 2: D day Today the safoon will a full coverage of that.
35:23
Speaker 2: People on expecting a whole lot here, but maybe a
35:25
Speaker 2: little body language about maybe when they'll think about cutting rates.
35:30
Speaker 2: Let's check in with a pro here, Christina Hooper. She's
35:33
Speaker 2: a chief global markets strategist a little firm called Invesco. Christina,
35:39
Speaker 2: I guess the consensus is don't look for really anything today,
35:43
Speaker 2: But is it too much to ask for maybe a
35:45
Speaker 2: little body language on what the Fed's thinking about future
35:48
Speaker 2: rake tuts, what are you looking for?
35:51
Speaker 9: Well, we might get a little more than body language.
35:53
Speaker 9: I think chir Powell tends to be fairly candid in
35:57
Speaker 9: the Q and A session, and if he doesn't necessarily
36:01
Speaker 9: want to be, it tends to come out. However, I
36:04
Speaker 9: do believe there is a very distinct goal of the
36:08
Speaker 9: FED right now, which is to keep a lid on
36:11
Speaker 9: easing financial conditions, and so I think he will try
36:15
Speaker 9: to err on the side of hawkishness. But I do
36:17
Speaker 9: think we'll get some glimmers of hope during the Q
36:20
Speaker 9: and A.
36:21
Speaker 3: What do you make of some of the more recent
36:24
Speaker 3: data that we've seen. You look at Employment cost Index
36:28
Speaker 3: increasing at a slower pace than expected ADP. These were
36:32
Speaker 3: both today coming in a little bit lower than expected.
36:35
Speaker 3: How is Powell going to be thinking about these signs
36:38
Speaker 3: that the labor market is softening.
36:43
Speaker 9: I think they will matter to the FED because it
36:46
Speaker 9: tells the FED this mosaic of data we've seen is
36:49
Speaker 9: that we are still very much on the D train,
36:51
Speaker 9: And by the D train, I mean the disinflation train.
36:55
Speaker 9: In particular, the employment cost Index is a very I
36:58
Speaker 9: think has historically been a rather accurate gauge, and it's
37:02
Speaker 9: one the FED relies on to get a sense of
37:04
Speaker 9: total compensation. So that's important. We know that the FED
37:08
Speaker 9: does react to the data. I go back to June
37:11
Speaker 9: of twenty twenty two, when they had messaged before the
37:15
Speaker 9: meeting that they would only hike fifty basis points, but
37:17
Speaker 9: then they hiked seventy five basis points, and Chair Powell
37:20
Speaker 9: pointed to two data points CPI and Michigan Consumer Inflation
37:25
Speaker 9: Expectations as pushing them to do seventy five instead. So
37:29
Speaker 9: clearly data matters, and these data points continue to tell
37:34
Speaker 9: that same story.
37:36
Speaker 2: You know, one of the many reasons we like speaking
37:38
Speaker 2: to Christine Hooper is that she liked me, is a
37:41
Speaker 2: fan of cracker barrel.
37:43
Speaker 7: How about that?
37:44
Speaker 2: You know, you got to be right up there front.
37:46
Speaker 2: I saw that in one of your notes here, Christina. So, Christina,
37:49
Speaker 2: given that backdrop, given that backdrop of the Fed's going
37:53
Speaker 2: to be cutting rates, We're not sure when, but we
37:55
Speaker 2: got a pretty good conviction that they're gonna be cutting
37:57
Speaker 2: rates this year. What's your kind of how are you
38:00
Speaker 2: allocating capital these days? What are you telling your portfolio managers,
38:03
Speaker 2: What are you hearing from your pms? How are you
38:05
Speaker 2: guys trying to position yourselves well?
38:08
Speaker 9: First, Paul, I should say that I don't think it
38:11
Speaker 9: matters whether the FED starts cutting in March or at
38:14
Speaker 9: the April thirtieth May first meeting. I do think we're
38:17
Speaker 9: going to see more cuts than the FED has suggested
38:21
Speaker 9: there will be in its December dot plot, So that's
38:24
Speaker 9: sort of the background. What I would anticipate is that
38:28
Speaker 9: we do see an economic slowdown, what I'll call a
38:31
Speaker 9: bumpier landing in the first half of the year. You
38:36
Speaker 9: can't have the kind of aggressive tightening we've had without
38:38
Speaker 9: some economic damage, but not a recession, And I think
38:41
Speaker 9: it's going to be really brief, and that we'll have
38:43
Speaker 9: a reacceleration sometime in the back half of the year.
38:47
Speaker 9: Markets tend to discount what they anticipate to happen with
38:52
Speaker 9: the economy, so I think what we're likely going to
38:54
Speaker 9: see in coming months is a stock market that is
38:58
Speaker 9: discounting that back half for covering. So I do think
39:01
Speaker 9: we're going to see some broadening. I think we're going
39:03
Speaker 9: to see small caps performing better, We're going to see
39:05
Speaker 9: cyclicals performing better, and I do believe the US dollar
39:09
Speaker 9: will resume its weakening, which should be a positive or
39:13
Speaker 9: asset classes outside of the US.
39:16
Speaker 3: Okay, So broadening out in the equity market, what about
39:19
Speaker 3: on the fixed income side, where are you seeing the
39:21
Speaker 3: most risk reward If we do get this slow down,
39:26
Speaker 3: but a brief US economic slow down.
39:30
Speaker 9: I think investment grade credit is that sweet spot because
39:35
Speaker 9: we are going to see something of a slowdown, will
39:37
Speaker 9: want quality, and I think it will benefit from an
39:41
Speaker 9: environment in which we're likely to see rates come down
39:44
Speaker 9: over the course of the year. So there's a lot
39:46
Speaker 9: of opportunities in fixed income.
39:48
Speaker 2: I have to say, yeah, I said that kind of
39:50
Speaker 2: the same thing, same time last year, and then investment
39:53
Speaker 2: grade just ripped last year. I'm sorry, high yield ripped
39:57
Speaker 2: last year. You think about high yield versus investment grade, Well.
40:03
Speaker 9: High yield certainly is attractive, but I don't see it
40:09
Speaker 9: as attractive as ig right now. However, that could change
40:13
Speaker 9: if we get a softer landing than I anticipate and
40:16
Speaker 9: we see a stronger reacceleration in the back half of
40:19
Speaker 9: the year. That should be a real positive. For high yield.
40:23
Speaker 3: What do you make of the New York Community Bank
40:25
Speaker 3: news this morning? Maybe we could just get your initial
40:29
Speaker 3: reaction to what this means for credit quality and the
40:34
Speaker 3: regional banking sector from here, Well.
40:37
Speaker 9: I think we have to ask ourselves whenever we see
40:40
Speaker 9: a situation like this, is this contained or is this contagious?
40:44
Speaker 9: And as far as I know, based on what we've
40:47
Speaker 9: heard this far, it seems like it is very much
40:50
Speaker 9: a contained situation, not that I think far less significant
40:56
Speaker 9: than what we saw last spring. But of course we're
41:00
Speaker 9: going to have to stay on top of this as
41:02
Speaker 9: the news on folds and information on folds, and of
41:06
Speaker 9: course more earnings come out for other regional banks.
41:10
Speaker 2: So Christina, on the equity side this year, you know,
41:12
Speaker 2: we're just about to finish out a pretty solid January
41:15
Speaker 2: to the market after a really good twenty three. What
41:18
Speaker 2: are the sectors that you guys are spending the most
41:20
Speaker 2: time on these days in terms of opportunities.
41:24
Speaker 9: Well, we continue to see opportunity in technology. I think
41:29
Speaker 9: technology as a long duration asset class is sensitive to
41:34
Speaker 9: long rates and so it should benefit from an environment
41:37
Speaker 9: in which rates are falling. I also think tech is
41:42
Speaker 9: more defensive it has become a more defensive asset class
41:45
Speaker 9: in recent years, so it's going to hold up, in
41:48
Speaker 9: my opinion, relatively well despite some of the recent disappointments
41:54
Speaker 9: around earnings announcements. But where we're focused as well is
42:00
Speaker 9: the cyclicals. Those are areas of real opportunity, especially if
42:04
Speaker 9: we see a nice bounce back in the back half
42:07
Speaker 9: of this year. We're also seeing a significant amount of
42:10
Speaker 9: investment legislation like the Chips Act is having an impact
42:15
Speaker 9: in cyclical areas of the economy, so that is a
42:20
Speaker 9: real focus for us.
42:21
Speaker 2: All right, very good, as always, Christina Hooper. We always
42:23
Speaker 2: appreciate getting a few minutes of your time. Christina Hooper
42:26
Speaker 2: is the chief Global market Strategist at Investco.
42:29
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