Latest / Bloomberg Intelligence / Far More Downside Than Upside, Says Natixis' Lafferty

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Far More Downside Than Upside, Says Natixis' Lafferty · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you,
• 0:05
  Speaker 1: along with my co host Lisa Brahma wits each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money, whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penil podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. Yeah, we're broadcasting live from the
• 0:21
  Speaker 1: offices of the Texas Investment Managers here in the back
• 0:24
  Speaker 1: bay of Boston. Got a great view. It's a beautiful
• 0:27
  Speaker 1: day here. Look at the markets. Obviously they've been whipsawed
• 0:30
  Speaker 1: by trade. It's all about trade. It seems to move
• 0:32
  Speaker 1: every single day. The market is now focused on December fifteenth,
• 0:35
  Speaker 1: when new US tariffs on Chinese imports are scheduled to
• 0:38
  Speaker 1: take effect. To get a sense of what this means
• 0:40
  Speaker 1: near term, we welcome David Lafferty. He's the chief market
• 0:43
  Speaker 1: strategist for in the Texas Investment Managers. And get this,
• 0:46
  Speaker 1: they have one trillion dollars under management, so I think
• 0:50
  Speaker 1: they have a fuel for the market. So David, thanks
• 0:53
  Speaker 1: so much for having us here at your office. Is
• 0:54
  Speaker 1: we appreciate it. We've got a little audience here, people
• 0:56
  Speaker 1: coming here to see what you have to say. So
• 0:59
  Speaker 1: how do you guys, pressure? Yeah, no pressure, no pressure.
• 1:02
  Speaker 1: How do you guys deal with the volatility? That is,
• 1:05
  Speaker 1: as we learn from an earlier guest, is hard to measure,
• 1:08
  Speaker 1: It was impossible to measure, and that is about trade
• 1:10
  Speaker 1: and tweets about trade and all that type of stuff.
• 1:12
  Speaker 1: How do you guys position around the uncertainty of trade? Well,
• 1:15
  Speaker 1: I think we have a few hallmarks we try to
• 1:17
  Speaker 1: fall back on, broadly speaking across our money managers. Uh.
• 1:21
  Speaker 1: One is a bit longer horizon. Uh. You know, it
• 1:24
  Speaker 1: doesn't matter what the news is, but if you take
• 1:26
  Speaker 1: a little bit longer horizon, a lot of this stuff
• 1:28
  Speaker 1: turns out to be daily news. Uh, particularly around trade.
• 1:32
  Speaker 1: Trade you get a tweet at eight in the morning.
• 1:34
  Speaker 1: In terms of how a portfolio is positioned, that could
• 1:37
  Speaker 1: be staled by eight thirty in the morning. So we
• 1:39
  Speaker 1: don't want our clients running around making a lot of
• 1:41
  Speaker 1: tactical changes. And I also think we think a lot
• 1:43
  Speaker 1: about valuation. So we know markets move a lot, but
• 1:47
  Speaker 1: we do think about where are the cheap assets, where
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  Speaker 1: the opportunities what's expensive, and that's a bit longer horizon
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  Speaker 1: kind of idea. So it's not that we don't kind
• 1:56
  Speaker 1: of follow the ebbs and flows of the market, but
• 1:59
  Speaker 1: we don't want to take every daily little tick in
• 2:02
  Speaker 1: the markets too too seriously. And I think that's a
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  Speaker 1: trend that you'd see across a lot of our products
• 2:08
  Speaker 1: and our money managers. A lot of the valuation today,
• 2:10
  Speaker 1: the elevated valuation in equities has been predicated on this
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  Speaker 1: ongoing easing and easier cycle of central banks around the world,
• 2:18
  Speaker 1: and we've seen that globally central banks have eased the
• 2:21
  Speaker 1: most this year since the financial crisis. Do you think
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  Speaker 1: that the extra boost that that has given equity valuations
• 2:28
  Speaker 1: can persist into I don't. I've been skeptical and now,
• 2:34
  Speaker 1: frankly I've been wrong about that. We wrote about this
• 2:36
  Speaker 1: earlier last year. I think the effect, at least in
• 2:39
  Speaker 1: the real economy has begun to clearly fade. I don't
• 2:42
  Speaker 1: think you get nearly as much credit impetus when you
• 2:45
  Speaker 1: go from very low rates to even lower rates. Uh.
• 2:48
  Speaker 1: You know, if you're a CEO, if you're in the
• 2:50
  Speaker 1: c suite and you didn't borrow last year at absurdly
• 2:53
  Speaker 1: low rates. Why are you going to borrow this year
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  Speaker 1: at even more absurdly low rates. So I think the
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  Speaker 1: credit impetus begins to al uh And I also think
• 3:01
  Speaker 1: in terms of portfolio effect, the idea that buying all
• 3:05
  Speaker 1: these assets will gradually raise valuations create kind of a
• 3:09
  Speaker 1: wealth effect. People have to remember that most of the
• 3:11
  Speaker 1: QUEI was done, at least in the US, was done
• 3:14
  Speaker 1: when the S and P was at twelve thirteen times
• 3:16
  Speaker 1: earnings were at nineteen times. The European Central banks QUEI
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  Speaker 1: policy was was largely implemented when we were at ten
• 3:23
  Speaker 1: or eleven times earnings, So you get a bump. But
• 3:25
  Speaker 1: I think that market effect is fading as time goes by.
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  Speaker 1: Although some people say that the recent strength that we've
• 3:31
  Speaker 1: seen in equities has been driven largely by this three
• 3:34
  Speaker 1: hundred billion dollar expansion of the Fed's balance sheet. Do
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  Speaker 1: you buy that? I don't think so. I really think
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  Speaker 1: it's been uh so. So, first of all, if you
• 3:43
  Speaker 1: if you look at the full bull market, I really
• 3:45
  Speaker 1: when I say bull market, I mean off the December
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  Speaker 1: twenty four lows. You know, we're up twenty eight percent
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  Speaker 1: year to date in about thirty thirty one off, the
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  Speaker 1: off the Christmas Eve lows last year. I view the
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  Speaker 1: first percent of that is just getting back the losses
• 4:00
  Speaker 1: that we had in the fourth quarter. Everybody looks at
• 4:02
  Speaker 1: this year as if it's this massive bull market, and
• 4:05
  Speaker 1: that's really an accident of the calendar. Which really happened
• 4:09
  Speaker 1: is the market basically between January one and about April
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  Speaker 1: thirty rallied huge and since then we're up about five
• 4:16
  Speaker 1: or six percent. It's been a nice little run. But
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  Speaker 1: it's not like the market is skyrocketing. Excuse me. It's
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  Speaker 1: really just getting back a lot of what was lost earlier.
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  Speaker 1: So I think there is a monetary effect there, but
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  Speaker 1: it's probably still the spillover from the FEDS. One. It's
• 4:30
  Speaker 1: not that people are looking at the term repo and thinking, hey,
• 4:34
  Speaker 1: term repo makes stocks at right by I don't think
• 4:36
  Speaker 1: people are doing that kind of math. Okay, well the
• 4:39
  Speaker 1: math that people are doing now it's you know, early December,
• 4:42
  Speaker 1: people are looking at their outlooks. Everybody on the streets
• 4:44
  Speaker 1: publishing the outlooks. How are you guys positioned for I'm
• 4:50
  Speaker 1: just kind of thinking about risk. Are you a little
• 4:51
  Speaker 1: bit more risk on or maybe a little bit more
• 4:53
  Speaker 1: risk off. We'll say a couple of things. The first
• 4:55
  Speaker 1: thing is, I'm glad I'm down here doing this interview
• 4:58
  Speaker 1: because I'm not upstairs staring at a length page, which
• 5:01
  Speaker 1: is what I've been doing and trying to write my
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  Speaker 1: outlook for the last two weeks. So uh. And it's
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  Speaker 1: not that you know, we you know people have asked,
• 5:10
  Speaker 1: is there's so much uncertainty? I think uncertainty is always
• 5:12
  Speaker 1: with us. I don't see the obvious catalyst that we
• 5:15
  Speaker 1: like to write about. We love to write about what
• 5:17
  Speaker 1: central banks are doing, or that the pace of economic
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  Speaker 1: growth is radically changing. We don't see central banks doing
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  Speaker 1: a whole lot in the near term. We don't see
• 5:25
  Speaker 1: the pace of global or US growth changing a lot
• 5:27
  Speaker 1: in the near term. We don't think valuations are exorbitant,
• 5:31
  Speaker 1: but they're certainly not cheap. So all the hallmarks that
• 5:34
  Speaker 1: I go back to when I try to write my
• 5:35
  Speaker 1: outlook really aren't there. All right, So give him that,
• 5:38
  Speaker 1: in just about a minute, was your highest conviction going
• 5:45
  Speaker 1: that is high conviction on the blank page. I'll go
• 5:48
  Speaker 1: back to what what sort of Paul was asking, which is,
• 5:50
  Speaker 1: how do we think about risk? And where where does
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  Speaker 1: that sort of our conviction come from uh. My highest
• 5:56
  Speaker 1: conviction is that while our base cases for stocks and
• 5:59
  Speaker 1: bonds to sort to clip their coupons, I think you'll
• 6:01
  Speaker 1: get your earnings growth and in equities, maybe not a
• 6:04
  Speaker 1: lot of pe expansion. I'm concerned that the risk return
• 6:08
  Speaker 1: trade off isn't that favorable when I think about whether
• 6:11
  Speaker 1: we're wrong, maybe more maybe the economy reignites. How much
• 6:14
  Speaker 1: upside is there? There's some, but not a ton. But
• 6:17
  Speaker 1: what if we're wrong and we go into recession. Given
• 6:19
  Speaker 1: where valuations are, there's far more downside than there is
• 6:23
  Speaker 1: to upside. So I don't like the trade off, even
• 6:26
  Speaker 1: though we're not bearish in any sense of the word.
• 6:28
  Speaker 1: David Lafferty, we're gonna let you get back to your
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  Speaker 1: blank page and the blinking cursor. I have seen that
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  Speaker 1: many a time before. David Lafferty is and your vice president,
• 6:36
  Speaker 1: chief market strategist, and a Texas investment managers where we
• 6:39
  Speaker 1: are in their Boston headquarters, are hosting us right now
• 6:42
  Speaker 1: with an audience of people all nodding along and giving
• 6:45
  Speaker 1: you thumbs up. A couple of people, a great pantry here.
• 6:49
  Speaker 1: I mean, it's almost bloomberg like. It's it's almost almost
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  Speaker 1: no really interesting though, and honestly, David's not alone when
• 6:55
  Speaker 1: it comes to uh, the sort of blank page. It's
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  Speaker 1: a hard time to try to get conviction exactly. We
• 7:15
  Speaker 1: are broadcasting live from the Jixis Investment Managers headquarters here
• 7:19
  Speaker 1: in Boston for a Sustainable Finance Week back in New York.
• 7:23
  Speaker 1: Amy Bands joining us, and I'm so glad that she is,
• 7:26
  Speaker 1: because we really can't over emphasize how much money has
• 7:30
  Speaker 1: flooded into the venture capital space, in particular through the
• 7:33
  Speaker 1: likes of soft Bank, but another number of others, to
• 7:36
  Speaker 1: leaving people wondering where are the opportunities. Amy Bands is
• 7:40
  Speaker 1: managing director and head of Funds at Comcast Ventures. Amy,
• 7:44
  Speaker 1: you come at this from a really interesting vantage point,
• 7:46
  Speaker 1: and that is the venture capital arm inside of a
• 7:50
  Speaker 1: big corporation. How is that different from a standalone venture
• 7:53
  Speaker 1: capital fund. I think the changes that we're making are
• 7:58
  Speaker 1: very much driven by the changes in the market themselves. So,
• 8:01
  Speaker 1: as you mentioned, Lisa, there's so much money in the market.
• 8:05
  Speaker 1: It really is giving entrepreneurs the luxury of choosing investors
• 8:09
  Speaker 1: who bring more than dollars to the table. Um and
• 8:12
  Speaker 1: at corporate venture capital funds like Comcast, we're really taking
• 8:18
  Speaker 1: advantage of that by leveraging our platform, the Comcast NBCU
• 8:22
  Speaker 1: Sky platform, to create programs that support and help our
• 8:27
  Speaker 1: young portfolio companies grow and really in that way, it's
• 8:31
  Speaker 1: turning the concept, the traditional concept of strategic capital on
• 8:36
  Speaker 1: its head. So it's interesting amy that the public markets
• 8:41
  Speaker 1: have really started paying i think, more attention to what's
• 8:43
  Speaker 1: going on in the venture in the private market, given
• 8:45
  Speaker 1: some of the I p O s that came and
• 8:47
  Speaker 1: did not come this year. I'm thinking Uber Lift, you know,
• 8:50
  Speaker 1: and the ones that didn't come we work and really
• 8:53
  Speaker 1: calling into question the valuations that the private market in
• 8:57
  Speaker 1: the VC market is putting on some of these companies
• 9:00
  Speaker 1: eat miss pricing them UM. Is that just do you
• 9:03
  Speaker 1: think that's the case, And if so, is it just
• 9:05
  Speaker 1: too much money chasing too few deals? You know, I
• 9:08
  Speaker 1: think there's a there's no question there's a lot of
• 9:10
  Speaker 1: money out there UM and valuations, I agree, we agree
• 9:15
  Speaker 1: are extraordinarily high at that point. I do think there's
• 9:18
  Speaker 1: opportunity in that forum funds like Comcast Ventures in some
• 9:23
  Speaker 1: ways it's forced us to go earlier UM, which in
• 9:27
  Speaker 1: turn has you know, proven to be to our benefit
• 9:30
  Speaker 1: because if we invest earlier at seed or at UM
• 9:34
  Speaker 1: you know, at series in Series A, it allows us
• 9:39
  Speaker 1: to get the equity position and potentially the board seats
• 9:42
  Speaker 1: and the influence that we like to have in order
• 9:46
  Speaker 1: to partner with and support our portfolio companies in the
• 9:50
  Speaker 1: way that I just described through through special programs that
• 9:54
  Speaker 1: leverage you know who we are UM and allow us
• 9:58
  Speaker 1: to help and support them that you know, in ways
• 10:00
  Speaker 1: that that that other funds can. So, given the fact
• 10:04
  Speaker 1: that the media landscape in particular is undergoing such a
• 10:07
  Speaker 1: dramatic transformation with the streaming side of the business, what
• 10:12
  Speaker 1: types of startups are you targeting that could potentially offer
• 10:16
  Speaker 1: new technologies that could even dovetail with comcasts fundamental business. Yeah,
• 10:21
  Speaker 1: you know, Lisa, UM we actually have historically invested costs
• 10:25
  Speaker 1: a fairly wide spectrum of categories. So yes, we do
• 10:30
  Speaker 1: invest in media UM although uh you know, and we've
• 10:34
  Speaker 1: we have some very successful companies there, including UM Vox
• 10:39
  Speaker 1: and the Athletic UM. But UM lately we've invested in
• 10:44
  Speaker 1: a in a much broader spectrum UM everything from B
• 10:47
  Speaker 1: to C consumer brands to enterprise sas cybersecurity UM and
• 10:54
  Speaker 1: even some frontier tech as well. UM. Again because of
• 10:58
  Speaker 1: who we are, you know, and and that our platform
• 11:01
  Speaker 1: encompasses not just the NBC piece, but also the Comcast
• 11:06
  Speaker 1: and Sky piece. It's really a rare company UM that
• 11:10
  Speaker 1: we can't as as an enterprise support in some ways.
• 11:14
  Speaker 1: A mean. One of the things we learned or maybe
• 11:17
  Speaker 1: just relearned with the we work situation is the importance
• 11:19
  Speaker 1: of corporate governance, good corporate governance. How do you at
• 11:23
  Speaker 1: Comcast Ventures view that as you consider investments. Yeah, that's
• 11:26
  Speaker 1: a really good question, Paul. You know, I think the
• 11:29
  Speaker 1: pendulum is swinging back to good growth, not just growth
• 11:34
  Speaker 1: at any cost, but good growth, sustainable growth, profitable growth. UM.
• 11:40
  Speaker 1: And you know, particularly coming into this year, which could
• 11:45
  Speaker 1: prove to be a bumpy year. UM, we are very
• 11:49
  Speaker 1: focused on looking at companies who are mindful of that
• 11:54
  Speaker 1: good growth mantra UM. And we're talking to our existing
• 11:57
  Speaker 1: portfolio companies about making sure that you know, they have
• 12:02
  Speaker 1: you know, they have enough runway, they have enough capital
• 12:06
  Speaker 1: to you know, weather a storm if and when that
• 12:09
  Speaker 1: storm comes just real quick here about thirty seconds. Are
• 12:13
  Speaker 1: you finding it harder to deployer capital given how high
• 12:15
  Speaker 1: valuations are No, UM, Lisa as I mentioned earlier, actually
• 12:21
  Speaker 1: because we've become more comfortable. You know, strategics historically have
• 12:26
  Speaker 1: invested at later stages UM. In the last couple of years,
• 12:30
  Speaker 1: we really have focused on developing an early stage muscle UM,
• 12:35
  Speaker 1: and you know, because we're having success there, we're actually
• 12:38
  Speaker 1: finding that with our sort of strategic platform behind us,
• 12:43
  Speaker 1: and because investors are looking for more than just money,
• 12:47
  Speaker 1: we're seeing opportunities that UM we've never seen before. So
• 12:51
  Speaker 1: we're excited about UM the place and stage in the
• 12:55
  Speaker 1: market that we're currently playing. Hey, Amy, thanks so much
• 12:58
  Speaker 1: for joining us. Next time, Lisa and I will join
• 13:00
  Speaker 1: you in the studio or up in Boston today. But
• 13:02
  Speaker 1: Amy Bands, thanks for joining us. Managing director and head
• 13:04
  Speaker 1: of Funds at Comcast Ventures. Time to go to Bloomberg
• 13:23
  Speaker 1: Opinion and interesting story out this morning. Black Rocks Mark Weissman,
• 13:27
  Speaker 1: senior executive was terminated today fulfilling to disclose a personal
• 13:31
  Speaker 1: relationship with another employee at black Rock. To help us
• 13:35
  Speaker 1: get through this story, we welcome Sarah Green Carmichael. She
• 13:38
  Speaker 1: covers the financial services industry for Bloomberg Opinion. Joins us
• 13:42
  Speaker 1: in o Bloomberg and Arctor Broker Studio. So Sarah, thanks
• 13:45
  Speaker 1: so much for joining us. Give us a sense of
• 13:47
  Speaker 1: what we know so far about this story at Black Rock. Well,
• 13:50
  Speaker 1: we don't know very much. We know that Weisman is
• 13:54
  Speaker 1: said to have violated company policy and that he has
• 13:56
  Speaker 1: apologized for failing to disclose his relationship to hr Um
• 14:02
  Speaker 1: at the same time, Um, you know, he is married.
• 14:05
  Speaker 1: So this is not like some other cases that we
• 14:07
  Speaker 1: have heard where there was a personal relationship that would
• 14:11
  Speaker 1: otherwise have been fine. Um, this was something that he
• 14:14
  Speaker 1: was hiding, probably from a lot of people. So it's
• 14:17
  Speaker 1: interest things. We've seen a number of reports recently about
• 14:20
  Speaker 1: consensual relationships between two people leading to the firing or
• 14:25
  Speaker 1: stepping down of an executive, And I'm wondering, are we
• 14:28
  Speaker 1: just hearing more about this or is this a shift
• 14:30
  Speaker 1: in policy that is pervasive across Wall Street right now?
• 14:34
  Speaker 1: Companies are definitely taking a harder line on this, and
• 14:37
  Speaker 1: it's something that hr departments on Wall Street and elsewhere
• 14:41
  Speaker 1: are going to really have to figure out. And my
• 14:43
  Speaker 1: concern at this point is that we seem to be
• 14:46
  Speaker 1: lumping a lot of these different cases together. Um, someone
• 14:49
  Speaker 1: who's having a relationship at work with a colleague is
• 14:52
  Speaker 1: different from someone who's having an extramartal fair with a colleague.
• 14:55
  Speaker 1: And both of those situations are very different than sexual harassment,
• 14:59
  Speaker 1: which is I think what a lot of the conversation
• 15:01
  Speaker 1: around me too really started a lot of these conversations. So,
• 15:05
  Speaker 1: what is the argument for terminating someone for having a
• 15:09
  Speaker 1: relationship that's consensual at work? Well? I think there's a
• 15:12
  Speaker 1: couple of things here. One is that if an h
• 15:15
  Speaker 1: our department has put in place of policies saying we
• 15:17
  Speaker 1: don't want you having relationships with colleagues at work, then
• 15:21
  Speaker 1: you are violating company policy if you have one of
• 15:23
  Speaker 1: those relationships. Um. And so I think it's the violation
• 15:26
  Speaker 1: of that policy that then becomes the fireable offense UM.
• 15:30
  Speaker 1: And that's a case where you don't really want to
• 15:32
  Speaker 1: have senior executives, you know, by violating rules they're asking
• 15:35
  Speaker 1: other people to follow. So, Sara, on that front, do
• 15:38
  Speaker 1: we have a sense of you know, across corporate America,
• 15:41
  Speaker 1: you know what percentage of companies are just saying, you know,
• 15:43
  Speaker 1: we have to have a zero policy here, just don't
• 15:46
  Speaker 1: do it. Is that? Do we know that? And is
• 15:48
  Speaker 1: it growing? I don't know specifically what the number is,
• 15:52
  Speaker 1: but it does seem to be growing from what I
• 15:54
  Speaker 1: do know, I think more and more in HUR departments think, oh, well,
• 15:58
  Speaker 1: the way to crack down on Haraz Sman, which is
• 16:01
  Speaker 1: the problem, is just to ban sex from the workplace entirely,
• 16:04
  Speaker 1: which I don't think frankly is realistic. Yeah, and it
• 16:07
  Speaker 1: also comes at a time when there is a question
• 16:10
  Speaker 1: about how to get more women into the workforce. Is
• 16:13
  Speaker 1: one concern here a senior executive having a relationship with
• 16:17
  Speaker 1: an underlaying and sort of some of the implications there,
• 16:19
  Speaker 1: I mean, is that sort of the underpinning of of
• 16:22
  Speaker 1: of of potential exits here. Yes, I think that was
• 16:25
  Speaker 1: certainly at play in the case of Steve easterbrook who
• 16:28
  Speaker 1: was ousted from McDonald's UM because you know, McDonald's had
• 16:32
  Speaker 1: a policy that no supervisor could have a relationship with
• 16:34
  Speaker 1: a direct report or someone lower than them on the
• 16:37
  Speaker 1: corporate ladder as the CEO. Obviously everyone was lower than
• 16:41
  Speaker 1: than Easterbrooks. So, um, this is a case where I
• 16:44
  Speaker 1: think well intentioned HR departments are going to have to
• 16:46
  Speaker 1: figure out how to handle this. UM and CEOs are
• 16:49
  Speaker 1: going to have to figure out how to handle this. Clearly,
• 16:51
  Speaker 1: a power differential can create all kinds of issues in
• 16:53
  Speaker 1: a relationship at the same time. You know, many people
• 16:57
  Speaker 1: do meet their spouse at work, and in many cases,
• 17:00
  Speaker 1: companies are working to recruit power couples where they want
• 17:02
  Speaker 1: both people to relocate for top jobs. So this is
• 17:05
  Speaker 1: something that's not going to go away. Yes, sir, it's interesting.
• 17:08
  Speaker 1: This is obviously black Rock of financial services company Wall
• 17:11
  Speaker 1: Street has typically been perceived as an area that is
• 17:14
  Speaker 1: not conducive to women. Is there any sense that certain
• 17:18
  Speaker 1: industries maybe are doing a better job than others. That's
• 17:22
  Speaker 1: an interesting question. There are certainly some industries where women
• 17:25
  Speaker 1: have managed to make better strides, and financial services remains
• 17:29
  Speaker 1: one of the most male dominated industries. Um. So I
• 17:33
  Speaker 1: could certainly see that in this case black Rock might
• 17:35
  Speaker 1: especially want to crack down on any violations of company
• 17:39
  Speaker 1: policy that would seem to make um, you know, the
• 17:42
  Speaker 1: workplace more hostile to women. It does not certainly help
• 17:46
  Speaker 1: Mark Wiseman in this case that his wife is also
• 17:48
  Speaker 1: a top black Rock executive and is the head of
• 17:52
  Speaker 1: black Rock Canada. Um marsham Offett. Yeah, I was. I
• 17:56
  Speaker 1: was thinking this has got to be an awkward moment
• 17:59
  Speaker 1: for a lot of people at black Rock and To
• 18:02
  Speaker 1: be clear, Mark Wiseman was potentially a successor to CEO
• 18:06
  Speaker 1: Larry Fink, So it leaves a lot of questions looming
• 18:09
  Speaker 1: large certainly for black Rock in terms of leadership if
• 18:13
  Speaker 1: Larry Fink does step down. Sarah Green Carmichael, thank you
• 18:17
  Speaker 1: so much for joining us. Sarah Green Carmichael of Bloomberg Opinion.
• 18:35
  Speaker 1: We are broadcasting live from the Natixis Investment Managers headquarters
• 18:39
  Speaker 1: here in Boston for Sustainable Finance a week and we
• 18:43
  Speaker 1: are so lucky to have with us. Katherine Kaminski. Dr
• 18:47
  Speaker 1: Katherine Kaminski, chief research strategist and portfolio manager at Alpha
• 18:51
  Speaker 1: Simplex Group, which is the firm founded by Dr Andrew
• 18:56
  Speaker 1: Low and focuses on understanding risk, mitigating it go forward. Uh.
• 19:01
  Speaker 1: So nice to be here, Dr Kaminsky. I'm wondering from
• 19:04
  Speaker 1: your perspective, what the biggest risk is heading into the
• 19:08
  Speaker 1: risk of a sell off and rates or the sell
• 19:10
  Speaker 1: off in UH credit or the concept of credit. It
• 19:14
  Speaker 1: uration great to be here, Lisa. UM. To be honest,
• 19:17
  Speaker 1: you know, as we know, uh, we've been in an
• 19:20
  Speaker 1: environment where we've seen rates go very very low. Um,
• 19:24
  Speaker 1: I'd say that you know, credit is obviously an issue.
• 19:27
  Speaker 1: But we're paying a lot of tension to rates and
• 19:30
  Speaker 1: what can happen if they go up? Um, and or
• 19:34
  Speaker 1: if we have a situation where um, we've already seen
• 19:37
  Speaker 1: some instances that we might have hit the bottom and rates,
• 19:39
  Speaker 1: and I think people are a little concerned about how
• 19:42
  Speaker 1: that might go. Um. Haven't people been worried about rising
• 19:45
  Speaker 1: rates for a project ever happened? I know, I mean
• 19:49
  Speaker 1: I've been worried about it for Actually, we don't worry
• 19:51
  Speaker 1: about it because we're very dynamic and how we trade
• 19:53
  Speaker 1: the markets and we can go short um in fixed income,
• 19:57
  Speaker 1: and we are worried about a lot of individual who
• 20:00
  Speaker 1: really can't and who have bought a lot of bonds
• 20:02
  Speaker 1: and this year, UM, people have definitely uh you know,
• 20:05
  Speaker 1: jumped into even more fixed income. And it's unclear, um,
• 20:09
  Speaker 1: how much more there is to go to protect you,
• 20:11
  Speaker 1: if we have any challenges. So it's interesting I'm looking
• 20:14
  Speaker 1: at your firm. Uh, you employ a proprietary risk control technology.
• 20:18
  Speaker 1: I think it's called adaptive volatility management. What is that
• 20:21
  Speaker 1: in layment terms? And I stress laymans do. So the
• 20:26
  Speaker 1: thing is is, if you think about risk, there's several
• 20:29
  Speaker 1: key ways to think about risk there's things you can
• 20:31
  Speaker 1: measure and things that you can actually know, and then
• 20:33
  Speaker 1: there's the things that you can't know. What we try
• 20:36
  Speaker 1: to do is do the best that we can to
• 20:38
  Speaker 1: understand what types of risk we can measure, quantify and understand,
• 20:43
  Speaker 1: and then use those um what we insights that we
• 20:46
  Speaker 1: gain from measuring these risks to try and balance our
• 20:49
  Speaker 1: portfolios over time. So as things change, we try to
• 20:52
  Speaker 1: use information from markets to measure that volatility, to measure
• 20:57
  Speaker 1: where things are moving so that we can adapt to things.
• 21:00
  Speaker 1: What's the most visible forward pocket that you can measure risk?
• 21:06
  Speaker 1: So I mean for us, it's not necessarily purely just
• 21:09
  Speaker 1: a forecast of risk. It's also about understanding relative risks
• 21:12
  Speaker 1: between different assets and quantifying it, but also understanding how
• 21:16
  Speaker 1: much of that is actually reliable because backward looking, it's
• 21:20
  Speaker 1: very easy to have a very precise measure, but you
• 21:23
  Speaker 1: need to actually more think about in relative terms, which
• 21:27
  Speaker 1: risks seem more viable than than others going forward? What
• 21:30
  Speaker 1: are the risks that keep you up at night that
• 21:34
  Speaker 1: you can't quantify? Is it a twitter? Is it macro
• 21:39
  Speaker 1: global trade? What are the things that so the things
• 21:43
  Speaker 1: that really keep me up at night are risks that
• 21:46
  Speaker 1: have decorrelation effects. Now what does that mean. Decorrelation effects
• 21:51
  Speaker 1: means that a lot of the relationships that we have
• 21:53
  Speaker 1: seen and things that are in the data, things that
• 21:56
  Speaker 1: people understand, things that people believe, revert. So unfortunately Twitter
• 22:02
  Speaker 1: seems to be doing that. Um. But so we worry
• 22:06
  Speaker 1: a lot about how how those type of events have
• 22:09
  Speaker 1: the ability to change relationships that we think work. UM. So,
• 22:14
  Speaker 1: as an example, maybe because that sounds very conceptual, UM,
• 22:17
  Speaker 1: a simple example would be Monday. Uh sorry, still very fresh. Um.
• 22:23
  Speaker 1: But if you look at a day like Monday, we
• 22:25
  Speaker 1: saw equity markets sell off, we saw bond markets sell
• 22:28
  Speaker 1: off at the same time, and also the US dollar.
• 22:31
  Speaker 1: That type of relationship is something that has been very
• 22:34
  Speaker 1: strong and stable over the last two years. So all
• 22:37
  Speaker 1: of us who are measuring risk and trying to understand
• 22:39
  Speaker 1: relationships were exposed to that measurement risk that you know,
• 22:43
  Speaker 1: the world changes and and that's a decorrelation effect. And
• 22:47
  Speaker 1: so any of these type of short bursts of you
• 22:53
  Speaker 1: know change and sentiment and and threats or or or
• 22:56
  Speaker 1: you know, tariff arguments, they scare people well and sometimes
• 23:01
  Speaker 1: they have very adverse, um and unintuitive reactions in the markets.
• 23:07
  Speaker 1: So is the goal for you to not lose money
• 23:10
  Speaker 1: or is it to make bigger returns than others? So
• 23:14
  Speaker 1: the goal for us is that you know. It turns
• 23:16
  Speaker 1: out mathematically that estimating returns and forecasting returns as a
• 23:20
  Speaker 1: lot harder than measuring risk. So one of the things
• 23:23
  Speaker 1: we try to do is understand risk reward tradeoff. So
• 23:26
  Speaker 1: we're trying to understand how much opportunity there is relative
• 23:30
  Speaker 1: to what types of risk you can measure, as well
• 23:33
  Speaker 1: as how do these different risk return profiles compare across
• 23:36
  Speaker 1: different assets. What is the time frame for each trade?
• 23:39
  Speaker 1: In other words, are these trades for a month, two
• 23:42
  Speaker 1: months fewer? So are our trading is actually a continuous process.
• 23:47
  Speaker 1: Every day we're looking mathematically at and measuring the markets
• 23:52
  Speaker 1: to try and determine what that risk reward trade off
• 23:55
  Speaker 1: of each of these different markets that we trade, so
• 23:57
  Speaker 1: from bonds to UM equities to come oddities, UM, we're
• 24:01
  Speaker 1: trying to look at what is the forward looking risk
• 24:04
  Speaker 1: award trade off and how do we balance those things.
• 24:06
  Speaker 1: So the trading is actually when you're trading in the
• 24:08
  Speaker 1: futures markets in particular, we're following all of these moves
• 24:12
  Speaker 1: pretty UM pretty um pretty quickly in some sense, not
• 24:15
  Speaker 1: high frequency, but definitely faster than UM. Someone who's a
• 24:19
  Speaker 1: long term investor, Dr Katherine Kaminski, thanks so much for
• 24:22
  Speaker 1: joining us. We appreciate you joining us here. Katherine's a
• 24:24
  Speaker 1: chief research strategist and portfolio manager for Alpha Simplex Group.
• 24:29
  Speaker 1: Joining us here at the offices of the Texas in
• 24:31
  Speaker 1: the beautiful back bay of Boston. Thanks for listening to
• 24:34
  Speaker 1: the Bloomberg P and L podcast. You can subscribe and
• 24:36
  Speaker 1: listen to interviews at Apple Podcasts or whatever podcast platform
• 24:40
  Speaker 1: you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney.
• 24:43
  Speaker 1: I'm Lisa A. Bram woids I'm on Twitter at Lisa
• 24:45
  Speaker 1: Bramwoyds one. Before the podcast, you can always catch us
• 24:48
  Speaker 1: worldwide on Bloomberg Radio.