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A Deep Dive Into Rates, Markets, The Economy · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. Well, the story this morning,
• 0:23
  Speaker 1: it's been the rate market. We have the tenure treatories.
• 0:25
  Speaker 1: Charlie is just reporting one point four eight percent. We
• 0:27
  Speaker 1: did test one point five one in the thirty year
• 0:29
  Speaker 1: we are at a two point zero four percent. We're
• 0:31
  Speaker 1: just about two percent right now. Um, what's that mean?
• 0:34
  Speaker 1: What's that telling us? Here? Let's bring in Tom Purcelly,
• 0:37
  Speaker 1: chief US economists for OURBC Capital Markets. Tom, thanks so
• 0:40
  Speaker 1: much for joining us here. We've seen rates move up
• 0:42
  Speaker 1: pretty significantly, just by relative standards over the last couple
• 0:46
  Speaker 1: of years, just in the last a couple of days here.
• 0:49
  Speaker 1: What do you take away from it? Yeah, I mean, look,
• 0:51
  Speaker 1: I think that, um, you know, the move higher makes sense.
• 0:55
  Speaker 1: Um that the tomming may not. You know, this all
• 0:58
  Speaker 1: happened to day's after the the FOMC meeting but UM no,
• 1:02
  Speaker 1: I think we're moving um sort of directionally. I think
• 1:05
  Speaker 1: that this is all pretty consistent with you know, the
• 1:07
  Speaker 1: idea that look, um, you know, we're moving away or
• 1:10
  Speaker 1: going to be moving away from, you know, emergency levels
• 1:13
  Speaker 1: of accommodation. And I mean I think that is um,
• 1:16
  Speaker 1: you know, where we are from an economic backdrop perspective,
• 1:19
  Speaker 1: UM growth is. You know. It's funny. So so let
• 1:22
  Speaker 1: me freeing the conversation this way, because I think this
• 1:23
  Speaker 1: is a really important UM idea for for people to
• 1:26
  Speaker 1: keep in mind. You know, when when you think about
• 1:29
  Speaker 1: the last hiking cycle, um, you know, the one that
• 1:32
  Speaker 1: the FED started back in Uh, you know, the FET
• 1:35
  Speaker 1: had the luxury of of going really slow, right, you know,
• 1:39
  Speaker 1: we had the jobless recovery. UM, you know output you
• 1:42
  Speaker 1: know I E G d P. You know, didn't get
• 1:44
  Speaker 1: back um to the sort of the pre GFC level
• 1:48
  Speaker 1: the Great Financial Crisis, the pre GFC level of growth.
• 1:51
  Speaker 1: For it, it took like a decade. I mean, you know,
• 1:54
  Speaker 1: the unemployment was elevated for years. Um, none of that's
• 1:57
  Speaker 1: happened now, you know. Now it's taken eighteen months for
• 2:01
  Speaker 1: us to basically get back to where we were pre
• 2:03
  Speaker 1: pandemic level of output for the unemployment rate to you know,
• 2:06
  Speaker 1: really show meaningful improvement. So I think that this is
• 2:08
  Speaker 1: all going to be much more accelerated relative particularly relative
• 2:11
  Speaker 1: to what we saw after the GFC. Well to that point, Tom,
• 2:13
  Speaker 1: with kind of the trajectory that the FED has outlined
• 2:16
  Speaker 1: here a taper announcement likely in November, and then rate
• 2:19
  Speaker 1: liftoff possibly in even with that timeline, do they risk
• 2:24
  Speaker 1: being too far behind the curve? I mean, look, you
• 2:26
  Speaker 1: know so uh you know this is the should verse
• 2:30
  Speaker 1: would part right, And I learned long ago, um that
• 2:33
  Speaker 1: I'm always supposed to forecast, but the FED will do
• 2:35
  Speaker 1: nobody I think they should do. Do I think the
• 2:37
  Speaker 1: FED should have started this process um months ago. Yeah,
• 2:40
  Speaker 1: I do. And I think the people that know our
• 2:43
  Speaker 1: research well know that you know, we've that that that's
• 2:46
  Speaker 1: the sort of the side of them, the the this
• 2:50
  Speaker 1: equation that we will come down on the FED was
• 2:52
  Speaker 1: supposed to start this much sooner, but again we were
• 2:54
  Speaker 1: also acutely aware, um that that's probably not what they
• 2:57
  Speaker 1: were going to do. So I think this is all
• 2:59
  Speaker 1: pretty much in keeping with what Powell has um laid
• 3:02
  Speaker 1: out in terms of the sort of the you know,
• 3:05
  Speaker 1: starting this process in a very slow, methodical fashion. UM.
• 3:08
  Speaker 1: I think it's all in keeping with with what Powell wanted. UM,
• 3:11
  Speaker 1: But I again I would hasten to add UM. Just
• 3:14
  Speaker 1: keep in mind, one day pal said they were not
• 3:17
  Speaker 1: going to taper, and you know, the next week they said,
• 3:19
  Speaker 1: we're going to tape it. Right, And it's the same
• 3:21
  Speaker 1: thing is going to happen from a rate hike perspective,
• 3:24
  Speaker 1: I mean, palatine the same thing right now, we're knock
• 3:25
  Speaker 1: going to hike rates, but it'll it'll evolve in the
• 3:28
  Speaker 1: same way. And so twenty two for us, UM. You know,
• 3:31
  Speaker 1: again I think that they should at least give us
• 3:33
  Speaker 1: one hike. I mean again, now the median has shifted
• 3:35
  Speaker 1: for a hike. But again, just keep in mind something.
• 3:38
  Speaker 1: If you look at their their twenty two unemployment rate forecast, UM,
• 3:42
  Speaker 1: it's about three point eight percent. That's not very different
• 3:45
  Speaker 1: than where we were pre pandemic. And in mind where
• 3:48
  Speaker 1: we were pre pandemic from a funds perspective, we're to fifty, right,
• 3:51
  Speaker 1: So two fifty then equated um to uh, you know,
• 3:55
  Speaker 1: or it was roughly equivalent to an unemployment rate that
• 3:58
  Speaker 1: was you know, where they expect it to be in
• 4:00
  Speaker 1: twenty two, but now in twenty two it only equates
• 4:02
  Speaker 1: to one hike. I mean that seems inconsistent to us
• 4:04
  Speaker 1: again the process, and we're not going to beat up
• 4:06
  Speaker 1: on them. I think that they do. I want to
• 4:09
  Speaker 1: go in a very slow fashion. But I think that
• 4:11
  Speaker 1: there's a very uh, it's very inconsistent. And Tom, we
• 4:14
  Speaker 1: saw in the Fed's release taking down their economic growth
• 4:17
  Speaker 1: forecast yet taking up uh their inflation outlook. Does that
• 4:22
  Speaker 1: suggest stag inflation for this US economy? No, I think
• 4:25
  Speaker 1: you know, I have to be honest. I hate that.
• 4:27
  Speaker 1: I hate this conversation in that um, you know, the
• 4:29
  Speaker 1: stagflation part of the conversation, because I can make I
• 4:33
  Speaker 1: can get on board with deflation part, I can't get
• 4:35
  Speaker 1: in part board with the stag part. I mean, you know,
• 4:38
  Speaker 1: we're looking at what four or five growth UM next year? Uh?
• 4:42
  Speaker 1: You know that. And by the way, that's our own forecast,
• 4:44
  Speaker 1: which interestingly enough, is an inconsistent with the FED. I mean,
• 4:46
  Speaker 1: I think the FED is around four percent for twenty two,
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  Speaker 1: six percent for twenty one UM numbers that are in
• 4:50
  Speaker 1: line with us. What what what stag about that? You're
• 4:55
  Speaker 1: still multiples above potential growth. I mean that I'm a
• 4:59
  Speaker 1: fader of that. In higher conversation to stag part of it,
• 5:02
  Speaker 1: the flation part of it, I can buy into more.
• 5:04
  Speaker 1: But yeah, and obviously the Fed is looking at the
• 5:07
  Speaker 1: flation part, and then they also have to look at
• 5:08
  Speaker 1: the other part of their dual. Mean that it was
• 5:10
  Speaker 1: just trying to maximize employment. As we look ahead to
• 5:14
  Speaker 1: the job's report we're getting on October eight than that
• 5:16
  Speaker 1: print for September, I'm wondering what you're expecting to see,
• 5:20
  Speaker 1: given even though additional benefits have started to roll off,
• 5:22
  Speaker 1: you haven't actually seen the corresponding return of people to
• 5:25
  Speaker 1: the labor market. Yeah, so we don't have a Um,
• 5:27
  Speaker 1: we'll have a forecast for next Friday's Piero report this Thursday. UM,
• 5:32
  Speaker 1: but what I can tell you is, you know, and
• 5:35
  Speaker 1: I have people already asking about it, as you would expect.
• 5:37
  Speaker 1: You know, you know now that the um the kicker
• 5:40
  Speaker 1: has expired. You know, well the generous kicker has expired. Well, Olson,
• 5:44
  Speaker 1: we'll see this, you know, um burst of hiring. No,
• 5:47
  Speaker 1: we we we don't think that that's how it's going
• 5:49
  Speaker 1: to happen. Um, you know, I don't think there's another
• 5:51
  Speaker 1: you know, sort of million plus job print waiting out
• 5:54
  Speaker 1: there for us. I think it'll be a bit slower
• 5:56
  Speaker 1: than that. Again, you know, is it another two thousand
• 5:59
  Speaker 1: like we saw last month. No, I think I probably
• 6:01
  Speaker 1: will wind up looking a little bit better than that. Again,
• 6:03
  Speaker 1: I got to go through the numbers still, But I
• 6:05
  Speaker 1: think more importantly, who doesn't matter? Palt basically pulled us
• 6:10
  Speaker 1: already that it's um uh, you know, as long as
• 6:13
  Speaker 1: we see you know, a sort of another decent pay
• 6:16
  Speaker 1: will report, and he already had the two thirty five
• 6:18
  Speaker 1: in hand, so I'm guessing that that sort of would
• 6:20
  Speaker 1: meet some of the criteria quote unquote decent. Then I
• 6:23
  Speaker 1: think that you know, tapers on and again if their
• 6:26
  Speaker 1: forecast for the end of next year comes into play,
• 6:29
  Speaker 1: that we're back to where we were pre pandemic um
• 6:31
  Speaker 1: and that should be enough for the to to start
• 6:33
  Speaker 1: the process of lifting rights. Is there as we're talking
• 6:36
  Speaker 1: about labor, is there a point where we really need
• 6:38
  Speaker 1: to think about realistically wage inflation? I mean, it's happening,
• 6:43
  Speaker 1: right you know, wage inflation. Wage inflation is upon us
• 6:46
  Speaker 1: right right now. I think you know, again, most people
• 6:49
  Speaker 1: are aware that you know, eleven million job openings, people
• 6:52
  Speaker 1: having a hard time finding workers. As results, wage pressures
• 6:55
  Speaker 1: are building. But again I would hasten to add, I
• 6:59
  Speaker 1: don't think that that means that that these games that
• 7:02
  Speaker 1: we've seen are going to be sustained. I don't think
• 7:05
  Speaker 1: that they are. Um. I think leisure in hospitality is
• 7:08
  Speaker 1: sort of a great example of that. Leisure in hospitality
• 7:10
  Speaker 1: is the biggest shortfall in jobs right now, excuse me,
• 7:14
  Speaker 1: And once um, you start to get some of those
• 7:16
  Speaker 1: jobs back, you know, when there's you know, three and
• 7:18
  Speaker 1: four and five people, um applying for a job for
• 7:21
  Speaker 1: a single job, I think that those wage pressures can abate.
• 7:24
  Speaker 1: But again, the benefit has already has already materialized, right.
• 7:28
  Speaker 1: I mean we're now well above where we were a
• 7:30
  Speaker 1: pre pandemic from a wage pressure perspective. So I think
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  Speaker 1: the level of wages is going to matter very much
• 7:37
  Speaker 1: so in the months to come, more so than than
• 7:39
  Speaker 1: the rate, because again I just don't think that that
• 7:41
  Speaker 1: these rates can be maintained. All right, Tom, Hey, we
• 7:44
  Speaker 1: really appreciate getting your thoughts here, Tom. Lots of data,
• 7:47
  Speaker 1: lots of moving parts out there, so it's good to
• 7:48
  Speaker 1: get your perspective. Tom, Percelly, chief US economists for OURBC
• 7:52
  Speaker 1: Capital Markets, joining us here, and and uh Kaylee, you
• 7:56
  Speaker 1: just reminded as Amazon target cut it Morgan Stanley on
• 7:59
  Speaker 1: impact from rising wages. So yeah, exactly, the cost of
• 8:03
  Speaker 1: labor is going up for a lot of companies. And
• 8:05
  Speaker 1: that's not just a conversation for the FED and wage inflation.
• 8:08
  Speaker 1: That's earnings and what that's going to mean for margins. Yeah,
• 8:11
  Speaker 1: that's a great point. And so the question is how
• 8:13
  Speaker 1: transitory are some of these factors versus you know, how
• 8:16
  Speaker 1: longer term we'll have more certainly coming up on all
• 8:18
  Speaker 1: of those issues. This is Bloomberg, Good morning. All right,
• 8:24
  Speaker 1: let's bring in Frank Holmes. Frank is the CEO and
• 8:26
  Speaker 1: chief investment officer of US Global Investors. He's also executive
• 8:30
  Speaker 1: chairman of Hive Blockchain Technologies. Joining us on the phone
• 8:34
  Speaker 1: from San Antonio, Texas. Franks, thanks so much for joining
• 8:37
  Speaker 1: us again here. I want to start with crypto. I
• 8:40
  Speaker 1: just want to get your thoughts because since the last
• 8:42
  Speaker 1: time we chatted, China has taken a decidedly different approach
• 8:45
  Speaker 1: to kind of all things crypto. What's your take, Well,
• 8:50
  Speaker 1: it's it's the leadership actually believes that they allowed under
• 8:55
  Speaker 1: Danks helping capitalism was a transitory phase to the road
• 8:59
  Speaker 1: to social and socialism is all about centralized and control.
• 9:03
  Speaker 1: And when we're witnessing an attack on all technology, limits
• 9:08
  Speaker 1: on capital returns and capital for risk taking um and
• 9:12
  Speaker 1: so you're seeing that this is now going into crypto
• 9:16
  Speaker 1: because they're coming up with their own digital money and
• 9:18
  Speaker 1: they and they just do not want to have anything
• 9:20
  Speaker 1: to compete with it um and next will be They've
• 9:23
  Speaker 1: been trying to push to compete against the US dollar,
• 9:27
  Speaker 1: but oil nations like Saudi Arabia, so they won't take
• 9:30
  Speaker 1: their currency want dollars. So now they're trying to buy
• 9:33
  Speaker 1: a lot of gold. You're seeing huge gold movements going
• 9:35
  Speaker 1: to China to try to create legitimacy behind their currency.
• 9:39
  Speaker 1: But they're further along in the path of having their
• 9:41
  Speaker 1: own digital money. But they become a non event. You know,
• 9:45
  Speaker 1: the markets bounced right back. It's been a big boom
• 9:48
  Speaker 1: for America UH in taxes in particular. I know that
• 9:52
  Speaker 1: building one point to gigabytes of UH energy that's stranded
• 9:56
  Speaker 1: from natural gas, which they can turn around to do
• 10:00
  Speaker 1: bitcoin mining. And you're seeing that more and more people
• 10:04
  Speaker 1: nodes are growing in America, so it's very very positive
• 10:08
  Speaker 1: this shift is happening here. Is that why we've seen
• 10:11
  Speaker 1: the crypto market basically take around trips since that China
• 10:15
  Speaker 1: news came out on Friday. I mean Bitcoin is back
• 10:17
  Speaker 1: around forty dollars like it never even happened, and Ethereum
• 10:22
  Speaker 1: jump twelve from those lows. Yes, you know that's a good,
• 10:27
  Speaker 1: you know, good observation. The same thing out of Europe.
• 10:29
  Speaker 1: What we noticed is that the number of miners in fact,
• 10:33
  Speaker 1: Etherorium is more decentralized than Bitcoin, because when China came
• 10:38
  Speaker 1: down with the hammer, uh, the mining, the number of
• 10:42
  Speaker 1: miners in the world dropped dramatically. So the difficulty there's
• 10:46
  Speaker 1: no competition felt greatly. So even though bitcoin felt the
• 10:49
  Speaker 1: thirty thousand, the profit margins we had were growing because
• 10:53
  Speaker 1: there's no competition because it basically it's limited to nine
• 10:56
  Speaker 1: hundred coins a day that you've run and it's a
• 10:58
  Speaker 1: jump ball to see if you can touch that ball,
• 11:01
  Speaker 1: and you got to touch that ball, then you can
• 11:03
  Speaker 1: mind coin. So we're minding close to eight coins a
• 11:05
  Speaker 1: day a bitcoin uh and and that difficulty only helped it.
• 11:09
  Speaker 1: Now it's been growing slightly because they would shift the Kazakhstan.
• 11:14
  Speaker 1: But the big move has come to the US, and
• 11:16
  Speaker 1: I think that's very positive. Ethereum hardly came off that difficulty.
• 11:20
  Speaker 1: All the gamers in the world when etherium rises, they
• 11:23
  Speaker 1: basically try to turn the machines on. They run up
• 11:26
  Speaker 1: their parents electrical bill and they take that GPU chip
• 11:31
  Speaker 1: they need and they minded an ethereum coin and then
• 11:33
  Speaker 1: they go off in a holiday. So Frank's I'm wondering,
• 11:37
  Speaker 1: you know that strategy for China here, because you know,
• 11:41
  Speaker 1: if you listen to the bowls of crypto and bitcoin,
• 11:43
  Speaker 1: it's the future, It's the future of decentralized finance. If
• 11:47
  Speaker 1: that is in fact the case, does China not run
• 11:50
  Speaker 1: the risk of just falling behind the global you know,
• 11:53
  Speaker 1: competitive landscape in terms of crypto, absolutely and in other technologies.
• 11:59
  Speaker 1: To mean it's return to socialism, is a return to
• 12:03
  Speaker 1: trying to drive your car looking out the review mirror
• 12:06
  Speaker 1: um and and there's nothing but guilt and shame and attack,
• 12:10
  Speaker 1: and everyone's looking out the review meer. You can't drive forward. Uh,
• 12:14
  Speaker 1: And so I think it's it's quite dangerous. Well, but
• 12:17
  Speaker 1: for in China also is in the process of rolling
• 12:19
  Speaker 1: out a digital you want, right, So in some way
• 12:21
  Speaker 1: you could argue maybe they're making space for that. How
• 12:25
  Speaker 1: do you think about kind of government controlled centralized digital
• 12:29
  Speaker 1: currencies versus the crypto world and the likes of bitcoin.
• 12:34
  Speaker 1: It's a complete opposite. And if you notice that the
• 12:36
  Speaker 1: more socialist the country is, the more they are anti
• 12:40
  Speaker 1: gold and they're anti bitcoin. Um, they wish to control
• 12:44
  Speaker 1: everything that has to do with money. Money is basically
• 12:46
  Speaker 1: evil unless the government is in control of it in
• 12:49
  Speaker 1: every part of it. When you just look around the
• 12:52
  Speaker 1: world for that idealist and that takes place, and that's
• 12:54
  Speaker 1: what happens, and and bitcoin is the opposite. About something
• 12:58
  Speaker 1: else is really important for all your listeners, is bitcoin
• 13:01
  Speaker 1: validated the blockchain. The blockchain was created by telecom companies
• 13:05
  Speaker 1: to move money in and it wasn't really validated to
• 13:09
  Speaker 1: the Bitcoin came along and showed this triple entry accounting
• 13:13
  Speaker 1: is a major breakthrough, an accounting that hasn't taken place
• 13:17
  Speaker 1: since the Medici's uh they created banking and the Venetians
• 13:21
  Speaker 1: in the four hundreds. So the bottom line is a
• 13:25
  Speaker 1: blockchain is going to grow and the adoption of bitcoin
• 13:30
  Speaker 1: is so decentralized as thirteen thousand nodes around the world.
• 13:34
  Speaker 1: So we're and and Hive is the first public company
• 13:38
  Speaker 1: to mind mot bitcoin etherory. And we only use green energy,
• 13:42
  Speaker 1: so we're not consumed with these other difficulties some of
• 13:45
  Speaker 1: the other miners have had. All right, Frank, thank you
• 13:47
  Speaker 1: so much for joining us. As always, we appreciate a
• 13:49
  Speaker 1: Franklin CEO and Chief Investment Officer of US Global Investors
• 13:54
  Speaker 1: Mo Hagmen, chief operating officer for Investo Investment Solutions. He
• 13:59
  Speaker 1: joins us to day. They've got their sixth annual Global
• 14:02
  Speaker 1: Global Factor Investing Study that's released today. We're gonna talk
• 14:05
  Speaker 1: to them all about that. Factor investing has become a big,
• 14:08
  Speaker 1: big way for folks to look at investing in these markets. Well,
• 14:11
  Speaker 1: thanks so much for joining us here. I love to
• 14:13
  Speaker 1: get your thoughts the highlights the takeaways from your Global
• 14:17
  Speaker 1: Factor Investing Study. Thank you for having me. Good morning. Yes,
• 14:21
  Speaker 1: as you mentioned, we released our sixth annual Factor Investing
• 14:26
  Speaker 1: Study today and the study basically interviews two forty or
• 14:30
  Speaker 1: so institutional and retail investors around the world. Roughly about
• 14:34
  Speaker 1: one trillion in assets by those ascid owners held by
• 14:37
  Speaker 1: those asset owners, and what's interesting is we continue to
• 14:40
  Speaker 1: see no surprise that factor investing continues to gain adoption,
• 14:45
  Speaker 1: both institutionally and more recently in the retail market. And specifically.
• 14:50
  Speaker 1: What was interesting this year as we saw a lot
• 14:53
  Speaker 1: of rotation within kind of the factor strategy landscape, given
• 14:57
  Speaker 1: kind of the markets and what we saw post the
• 15:00
  Speaker 1: presidential election last year, we've seen a very large shift
• 15:04
  Speaker 1: towards value and more procyclical factors at the expense of
• 15:09
  Speaker 1: defensive and low volatility factors which had been gaining a
• 15:12
  Speaker 1: lot of traction over the years. Well, and then when
• 15:15
  Speaker 1: we talk about the momentum factor as well, there was
• 15:17
  Speaker 1: a lot of conversation, particularly in kind of the first
• 15:19
  Speaker 1: quarter of the year when we saw that huge rush
• 15:21
  Speaker 1: into value, that value was then the new momentum when
• 15:25
  Speaker 1: it had been growth before. How do you think about
• 15:27
  Speaker 1: the momentum factor now given some of those dynamics. Yeah,
• 15:30
  Speaker 1: it's a very interesting observation. So momentum is a technical factor,
• 15:34
  Speaker 1: so it kind of shape shifts, it actually takes the
• 15:37
  Speaker 1: characteristics of other factors. And what we have seen over
• 15:41
  Speaker 1: the last twelve months is momentum looks very much like
• 15:44
  Speaker 1: value in size, whereas historically it had been very much
• 15:48
  Speaker 1: growth and kind of low volatility oriented, as the mega
• 15:51
  Speaker 1: cap tech companies were the best price performers. You're absolutely right.
• 15:55
  Speaker 1: We've seen actually some more concentration within the value and
• 15:59
  Speaker 1: momentum factor, and those two historically have been negatively correlated,
• 16:03
  Speaker 1: but more recently there's a positive correlation between those two factors.
• 16:08
  Speaker 1: So MO would just I'd love to take a step
• 16:09
  Speaker 1: back here. When I was an equity analyst and I'd
• 16:12
  Speaker 1: be walking into a meeting with a fun manager in Boston,
• 16:14
  Speaker 1: my salesperson returned to me and say, Oh, this person
• 16:16
  Speaker 1: is a growth investor. Or, This fund managers a value investor,
• 16:20
  Speaker 1: isn't So how is that different from this factor investing
• 16:24
  Speaker 1: we talk about. It's really not that different. I think
• 16:27
  Speaker 1: it's very much a different lens of looking at the
• 16:30
  Speaker 1: same thing. I think for a very long period of time,
• 16:32
  Speaker 1: we thought about the world in like the Morning Star
• 16:34
  Speaker 1: style box, where managers really had a discipline whether you're
• 16:38
  Speaker 1: a value fundamental manager or a growth manager. Factors are
• 16:42
  Speaker 1: actually a very precise way of capturing some of those
• 16:45
  Speaker 1: same outperformance characteristics. We know factors over the very long
• 16:49
  Speaker 1: term have a premier attached to them, very much like
• 16:52
  Speaker 1: asset classes have premiers attached to them, and you're actually
• 16:55
  Speaker 1: able to capture that by focusing in systematic ways on
• 16:59
  Speaker 1: parts of the equity market. So when you want value,
• 17:02
  Speaker 1: for example, in your portfolio, you look at fundamental metrics
• 17:04
  Speaker 1: such as earnings and revenues and cash flows, and you're
• 17:08
  Speaker 1: looking for cheapness in the market. When you look at momentum,
• 17:11
  Speaker 1: it's a technical factor which really looks at price appreciation
• 17:14
  Speaker 1: over the recent, recent past. So you know, it's not
• 17:18
  Speaker 1: really that much different. I think it's a new lens
• 17:20
  Speaker 1: of thinking about it. And what we've seen is that
• 17:22
  Speaker 1: adoption is actually moved, as you mentioned, from the equity
• 17:25
  Speaker 1: markets into fixed income. So this this year's factor study
• 17:29
  Speaker 1: was really interesting and that we saw investors looking at
• 17:32
  Speaker 1: fixed income factor strategies as a way to reduce cost
• 17:35
  Speaker 1: and a low yield environment. Well we're talking about fixed income.
• 17:38
  Speaker 1: I would love to just get your take on the
• 17:40
  Speaker 1: bond market and the action we've seen over the last
• 17:43
  Speaker 1: couple of days post FED decision, this dramatic move upward
• 17:45
  Speaker 1: and yields to test one fifty again. Just do you
• 17:49
  Speaker 1: think the bond market in the equity market are now
• 17:51
  Speaker 1: in sync? What's interesting is you know, we talk a
• 17:55
  Speaker 1: lot about rates, but rates are still historically very low,
• 17:58
  Speaker 1: and I think at this point in the economic cycle,
• 18:01
  Speaker 1: you should actually expect some steeping of the yield curve.
• 18:04
  Speaker 1: We actually think that's actually quite healthy for the bond market.
• 18:08
  Speaker 1: Although when we look at certain sectors within the equity market,
• 18:12
  Speaker 1: obviously there's going to be more sensitivity to rising rate environment.
• 18:15
  Speaker 1: You know, tech has always been very sensitive to rates,
• 18:18
  Speaker 1: and if you think about what really drives tech valuations,
• 18:21
  Speaker 1: it's the discount rate and future cash flows. We know,
• 18:24
  Speaker 1: future cash flows are kind of priced for perfection, so
• 18:27
  Speaker 1: any move in rates has a very very big impact
• 18:31
  Speaker 1: on kind of the pricing of those of those particular
• 18:34
  Speaker 1: securities within the market. Alright, So Moe, it looks like
• 18:37
  Speaker 1: a lot of folks are kind of thinking about a
• 18:39
  Speaker 1: re reopening trade here. Uh um, You know, the vaccination
• 18:44
  Speaker 1: numbers continue to trend in the right direction. You know,
• 18:48
  Speaker 1: how are you thinking about that here as you take
• 18:50
  Speaker 1: a look at the some of the factors that you're
• 18:52
  Speaker 1: hearing from your clients. Sure, so the economic backdrop is
• 18:57
  Speaker 1: still very supportive of risk as sets. Although what I
• 19:00
  Speaker 1: will tell you is that our economic indicators are leading
• 19:04
  Speaker 1: indicators are showing into showing a little bit of softening
• 19:07
  Speaker 1: and growth, and that deceleration is actually noticeable across every
• 19:11
  Speaker 1: region around the world. That said, investor sentiment and risk
• 19:15
  Speaker 1: appetite in the market has been improving, which we kind
• 19:19
  Speaker 1: of look at as possibly pointing to a rebound in
• 19:22
  Speaker 1: growth as we go into year end. And there's really
• 19:25
  Speaker 1: a couple of reasons that I think that is a
• 19:27
  Speaker 1: very plausible outcome. One, we still have a very accommodative
• 19:31
  Speaker 1: policy backdrop. I know that FED tapering has been a topic,
• 19:34
  Speaker 1: but it has been very well socialized, and I don't
• 19:38
  Speaker 1: actually think the market was surprised by a lot of
• 19:40
  Speaker 1: that commentary. What we do think is more important, though,
• 19:44
  Speaker 1: is lift off right and if there's any change in
• 19:46
  Speaker 1: that accommodation around rates rising, you know, if it's end
• 19:50
  Speaker 1: of two, that could be very impactful. All Right, we'll
• 19:53
  Speaker 1: keep an eye on that. Mo hag been chief operating
• 19:55
  Speaker 1: officer for invest Go Investment Solutions giving us his thoughts
• 19:58
  Speaker 1: on these markets. End factor investing more coming up this
• 20:02
  Speaker 1: is Bloomberg. We'll talk about our performance. We're starting to
• 20:08
  Speaker 1: get some of the big universities endowments they're reporting their
• 20:11
  Speaker 1: fiscal their returns for their fiscal year ended June. Boys
• 20:15
  Speaker 1: some big, big numbers and again kind of the pandemic
• 20:18
  Speaker 1: impacting the returns given the timing there, but still some
• 20:21
  Speaker 1: pretty solid fort returns. And I see my boys down
• 20:26
  Speaker 1: at Duke University, Neil Triplet from the Duke University Management
• 20:28
  Speaker 1: Company six percent return. So I will buy Neil a
• 20:34
  Speaker 1: beverage of his choice when I see him soon. Down
• 20:37
  Speaker 1: in Derham. Janet Lawn, higher education finance reporter for Bloomberg News,
• 20:40
  Speaker 1: joins us on the phone. Janet universities endowments are putting
• 20:44
  Speaker 1: up just some stellar numbers in this most recent fiscal year. Yes,
• 20:48
  Speaker 1: it's really once in a generation that you're seeing some
• 20:51
  Speaker 1: of these members. We reported wash you last week and
• 20:54
  Speaker 1: they added, are you sitting down six billion dollars value
• 20:59
  Speaker 1: what the go into unless they made that money in
• 21:02
  Speaker 1: twelve months? And only about two dozen universities even have
• 21:08
  Speaker 1: at least six billion dollars. So it's it's really been,
• 21:11
  Speaker 1: as I said, once in a generation, are you going
• 21:13
  Speaker 1: to see these kinds of returns? And it's really coming
• 21:16
  Speaker 1: from two ends. One is, you know, you look at
• 21:19
  Speaker 1: how global equities performed during the year. You know, the
• 21:21
  Speaker 1: U S stock market alone was up forty one percent
• 21:25
  Speaker 1: during that time period. So if you had a nice
• 21:27
  Speaker 1: allocation to certain global equities, UM, that certainly helped you.
• 21:31
  Speaker 1: And even if you're going to see the smallest endowments
• 21:34
  Speaker 1: that invested in US equities UM will have some nice
• 21:37
  Speaker 1: returns where typically they're not able to capture what the
• 21:40
  Speaker 1: big ease have done. But you're also going to see
• 21:43
  Speaker 1: it from the venture capital side. So you know, two
• 21:46
  Speaker 1: ways to get these crazy returns this year. Plus you know,
• 21:49
  Speaker 1: if you are lucky to have a really robust and
• 21:52
  Speaker 1: the right venture in your portfolio, you know you're seeing
• 21:55
  Speaker 1: these super duper outside return Yeah. I saw a data
• 21:58
  Speaker 1: point that broadly high our education institutions are on track
• 22:01
  Speaker 1: for their best return since nineteen eight six. I mean
• 22:04
  Speaker 1: we're talking decades here, And to Paul's point, how do
• 22:07
  Speaker 1: they put it to work? What do they do with
• 22:09
  Speaker 1: all this money? Well that's a really good question and
• 22:12
  Speaker 1: that UM colleges are going to be having to answer that.
• 22:16
  Speaker 1: You know, as they're posting the returns. This is all
• 22:18
  Speaker 1: very new. In the last week. We've just been getting
• 22:20
  Speaker 1: these numbers UM. But you know we've already heard um.
• 22:25
  Speaker 1: You know, the endowment test which many of these schools
• 22:27
  Speaker 1: are are paying UM likely is going to be UM uh,
• 22:32
  Speaker 1: not necessarily rescinded, but that that what's on the table
• 22:35
  Speaker 1: is if schools are going to give money towards financial aid.
• 22:38
  Speaker 1: So I think you're going to see that pressure, you know,
• 22:41
  Speaker 1: having to increase scholarships. You know, do they what else
• 22:44
  Speaker 1: do they do with this money? You know? Of course
• 22:46
  Speaker 1: their position is we can't spend it all because we
• 22:48
  Speaker 1: have to be fair to the current students as well
• 22:50
  Speaker 1: as the future students. So it's it's a really good
• 22:53
  Speaker 1: question what are they going to do with it? So Jen,
• 22:56
  Speaker 1: give us a sense of the strategies here, because we
• 22:58
  Speaker 1: know a lot of these endowments, and I'm thinking about
• 23:00
  Speaker 1: Yale in particular, a couple of decades ago really embraced
• 23:03
  Speaker 1: alternative investments UM and successfully so so it's kind of
• 23:07
  Speaker 1: become the Yale method, if you will, of managing endowments.
• 23:11
  Speaker 1: How big has alternative investment has been to to some
• 23:13
  Speaker 1: of these returns well quite quite a bit UM. And
• 23:17
  Speaker 1: if you look at Yale, which we haven't seen when
• 23:20
  Speaker 1: they announced their new UM chief investment officers since David
• 23:23
  Speaker 1: Swinton passed away earlier this year. Um he there was
• 23:27
  Speaker 1: a note in there that he manages the venture capital portfolio,
• 23:31
  Speaker 1: and the venture capital portfolio at Yale alone is over.
• 23:36
  Speaker 1: So you know, you get a sense of how big
• 23:38
  Speaker 1: alternatives are. Um in a place like Yale. You know,
• 23:42
  Speaker 1: they haven't directly invested in U S equities in decades,
• 23:47
  Speaker 1: um So among the biggest colleges, they're you know, they're
• 23:50
  Speaker 1: not holding US equities, but you know they maybe had
• 23:53
  Speaker 1: that exposure through a hedge phone or through global that's
• 23:56
  Speaker 1: putty fun um so. But but largely um you know,
• 24:00
  Speaker 1: in alternatives have been where they've seen a lot of
• 24:03
  Speaker 1: their outside returns. Yeah. Very interesting and uh that's a
• 24:07
  Speaker 1: certain level of risk into these endowments that they historically
• 24:10
  Speaker 1: did not have. And so that's one of the challenges
• 24:12
  Speaker 1: for these endowments is to manage that risk. But it's
• 24:14
  Speaker 1: certainly paid off this year. Janet Lauren, thank you so
• 24:17
  Speaker 1: much for joining us. Really fascinating story unfolding as we
• 24:20
  Speaker 1: get more and more of these universities reporting their endowment
• 24:23
  Speaker 1: returns for the fiscal year ended in in June. Janet Lauren,
• 24:26
  Speaker 1: higher education reporter for Bloomberg News, joining us on the
• 24:29
  Speaker 1: phone here and again, I will just point out, for
• 24:31
  Speaker 1: those that weren't listening earlier, duke fifty six percent return,
• 24:35
  Speaker 1: and I know it easily beats our friends down in
• 24:37
  Speaker 1: Philadelphia at University of Pennsylvania who also had some pretty
• 24:40
  Speaker 1: good numbers up forty one percent. Thanks for listening to
• 24:42
  Speaker 1: the Bloomberg Markets podcast. You can subscribe and listen to
• 24:46
  Speaker 1: interviews with Apple Podcasts or whatever podcast platform you prefer.
• 24:51
  Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller nine
• 24:54
  Speaker 1: seventy three. Pet On Ball Sweeney, I'm on Twitter at
• 24:57
  Speaker 1: pt Sweeney. Before the podcast, you can always catch us
• 25:00
  Speaker 1: worldwide at Bloomberg Radient m