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This is Bloomberg business Week inside from the reporters and editors who bring you America's most trusted business magazine.

This is Bloomberg business Week inside from the reporters and editors who bring you America's most trusted business magazine.

Plus global business, finance and tech news.

Plus global business, finance and tech news.

The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebek from Bloomberg Radio.

The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebek from Bloomberg Radio.

Hi, everyone, Welcome to the Bloomberg Business Week Weekend podcast. So we were recently in San Francisco broadcasting from Schwab Impact twenty twenty four. It was just over a week week and a half ago. We were surrounded by some forty five hundred attendees. This is Schwab's annual conference for independent registered investment advisors, you know rias, and also the independent record keepers of Charles Schwab. What it does is it brings together advisors from around the country and those in the industry that support them with services and tools. It was a lot of folks, a.

Hi, everyone, Welcome to the Bloomberg Business Week Weekend podcast. So we were recently in San Francisco broadcasting from Schwab Impact twenty twenty four. It was just over a week week and a half ago. We were surrounded by some forty five hundred attendees. This is Schwab's annual conference for independent registered investment advisors, you know rias, and also the independent record keepers of Charles Schwab. What it does is it brings together advisors from around the country and those in the industry that support them with services and tools. It was a lot of folks, a.

Lot of people there, and for the next two hours we're serving up highlights from the event in interviews withvarious members of the Schwab universe, including the company's top strategists on USN, international markets, also fixed income. We're also going to hear about growth in the wealth management and ETF businesses.

Lot of people there, and for the next two hours we're serving up highlights from the event in interviews withvarious members of the Schwab universe, including the company's top strategists on USN, international markets, also fixed income. We're also going to hear about growth in the wealth management and ETF businesses.

Now, we just want to point out at the time president like Donald Trump had yet to name his pick for US Treasury Secretary, his choice Wall Street veteran Scott Bessant. It came after Schwab impact was over. We're pointing this out because we know this is one of the top jobs in an administration that is closely watched by global investors in Wall Street alike. Who is the US Treasury Secretary?

Now, we just want to point out at the time president like Donald Trump had yet to name his pick for US Treasury Secretary, his choice Wall Street veteran Scott Bessant. It came after Schwab impact was over. We're pointing this out because we know this is one of the top jobs in an administration that is closely watched by global investors in Wall Street alike. Who is the US Treasury Secretary?

Folks, It matters, and so it wasn't a choice yet public when we sat down with the president of Charles Schwab, who also happens to be the incoming CEO of the company as well. We're talking about Rick Worster, who takes over the top spot on January first.

Folks, It matters, and so it wasn't a choice yet public when we sat down with the president of Charles Schwab, who also happens to be the incoming CEO of the company as well. We're talking about Rick Worster, who takes over the top spot on January first.

Even so, we had a lot to talk about as Charles Schwab recently reported earnings. The stock, by the way, did rally on that earnings release and even had a couple of analysts raising their price targets on the company. This as core net new assets brought to Schwab by new and existing clients came in at twenty four point six plosillion dollars. Total client assets are now approaching ten trillion dollars.

Even so, we had a lot to talk about as Charles Schwab recently reported earnings. The stock, by the way, did rally on that earnings release and even had a couple of analysts raising their price targets on the company. This as core net new assets brought to Schwab by new and existing clients came in at twenty four point six plosillion dollars. Total client assets are now approaching ten trillion dollars.

We kick things off with Rick Wurster looking at the big themes he's hearing about at the event.

We kick things off with Rick Wurster looking at the big themes he's hearing about at the event.

The big theme to me is always what can we collectively do to make a difference in the lives of every day investors. You mentioned the number ten trillion dollars. It's an overwhelming number, but behind every one of those dollars, it's a grandparent who's trying to help contribute to their grandkids' education. It's a it's a family that's trying to take a nice vacation that they've been saving for. That's what matters to us.

The big theme to me is always what can we collectively do to make a difference in the lives of every day investors. You mentioned the number ten trillion dollars. It's an overwhelming number, but behind every one of those dollars, it's a grandparent who's trying to help contribute to their grandkids' education. It's a it's a family that's trying to take a nice vacation that they've been saving for. That's what matters to us.

I love that you say that because as I walk around and talk to some of the advisors, you know, they're maybe a billion dollar shop, a two billion, maybe even smaller, and they're always kind of apologizing. I'm like, no, you're the guys who are managing everybody's money. I kind of love that perspective absolutely.

I love that you say that because as I walk around and talk to some of the advisors, you know, they're maybe a billion dollar shop, a two billion, maybe even smaller, and they're always kind of apologizing. I'm like, no, you're the guys who are managing everybody's money. I kind of love that perspective absolutely.

And the thing about this community. We serve fifteen thousand advisors. They're in most communities across our countries, sitting down the table to the table with people helping them understand how to live their best financial life and the power of that is so impressive.

And the thing about this community. We serve fifteen thousand advisors. They're in most communities across our countries, sitting down the table to the table with people helping them understand how to live their best financial life and the power of that is so impressive.

Rick, no doubt about it. The elections continue you to come up. How are you thinking about the elections the impact that a new administration, new people running different regulatory bodies, certainly that plant to the financial industry. How it might impact Schwap, Well.

Rick, no doubt about it. The elections continue you to come up. How are you thinking about the elections the impact that a new administration, new people running different regulatory bodies, certainly that plant to the financial industry. How it might impact Schwap, Well.

There's a lot of potential change at play. We've heard a lot of proposals. It will be really interesting and important to watch how those play out, and we stand ready to do whatever we can to help the everyday investor. That's our focus.

There's a lot of potential change at play. We've heard a lot of proposals. It will be really interesting and important to watch how those play out, and we stand ready to do whatever we can to help the everyday investor. That's our focus.

And all things change much because of a new White House and a new team. Do you anticipate from what we've heard on the campaign trail and some of the people that are being considered for positions.

And all things change much because of a new White House and a new team. Do you anticipate from what we've heard on the campaign trail and some of the people that are being considered for positions.

I certainly think that there will be change.

I certainly think that there will be change.

Absolutely.

Absolutely.

I think with any administration there's change, and we've been through all sorts of presidential cycles and election cycles, and at the end of the day, what it means for us is we adapt and we do whatever we can to help the the end client.

I think with any administration there's change, and we've been through all sorts of presidential cycles and election cycles, and at the end of the day, what it means for us is we adapt and we do whatever we can to help the the end client.

Why are you thinking about this from a regulatory perspective? We did hear that SEC chair Gary Gensler is going to step down by January twenty. It's certainly the crypto community cheering that. How do you look at a change in leadership at the SEC.

Why are you thinking about this from a regulatory perspective? We did hear that SEC chair Gary Gensler is going to step down by January twenty. It's certainly the crypto community cheering that. How do you look at a change in leadership at the SEC.

Well, for us, our company is built on trust and has been for fifty years. Our entire industry is built on trust. If people can't trust their financial institution, the whole premise of what we do goes away. And so I think regulators play a really important role in that, and we've always had a great relationship with regulators. I think from our perspective, we want regulation that is thoughtful and makes sense for the end investor. And when that's the case, we'll do anything to support it. And we're looking we're looking forward to, you know, to seeing who the next chairman is going to be.

Well, for us, our company is built on trust and has been for fifty years. Our entire industry is built on trust. If people can't trust their financial institution, the whole premise of what we do goes away. And so I think regulators play a really important role in that, and we've always had a great relationship with regulators. I think from our perspective, we want regulation that is thoughtful and makes sense for the end investor. And when that's the case, we'll do anything to support it. And we're looking we're looking forward to, you know, to seeing who the next chairman is going to be.

Rick what does it mean for crypto? And I'm curious if you guys see yourself getting into the crypto business. Here we are approaching one hundred thousand dollars. We have a president who initially maybe or president elect who maybe wasn't so into crypto is now very interesting.

Rick what does it mean for crypto? And I'm curious if you guys see yourself getting into the crypto business. Here we are approaching one hundred thousand dollars. We have a president who initially maybe or president elect who maybe wasn't so into crypto is now very interesting.

He got his own crypto company.

He got his own crypto company.

What about for Schwab what's the play here? Do you see yourself getting into it?

What about for Schwab what's the play here? Do you see yourself getting into it?

Well, we're in the crypto business to press, we have lots of different ways for clients to participate. They can buy ets today, they can buy big coin futures, they can buy closed end funds. I think we will get into this, into spot crypto when the regulatory environment changes, and we do anticipate that it will change, and we're getting ready for that eventuality.

Well, we're in the crypto business to press, we have lots of different ways for clients to participate. They can buy ets today, they can buy big coin futures, they can buy closed end funds. I think we will get into this, into spot crypto when the regulatory environment changes, and we do anticipate that it will change, and we're getting ready for that eventuality.

Is there some I don't know? Has crypto? Is it growing up in your view?

Is there some I don't know? Has crypto? Is it growing up in your view?

I don't know. You know, it's an interesting asset class and people have really gravitated towards it, and you know, we never like to judge what people want to invest in. People on our platform, we think are very thoughtful investors, very sharp. They make decisions about what they want to invest in, and crypto has certainly caught many's attention and they've made a lot of money doing it. I have not bought crypto, and now I feel silly. So they've been the ones making all this money.

I don't know. You know, it's an interesting asset class and people have really gravitated towards it, and you know, we never like to judge what people want to invest in. People on our platform, we think are very thoughtful investors, very sharp. They make decisions about what they want to invest in, and crypto has certainly caught many's attention and they've made a lot of money doing it. I have not bought crypto, and now I feel silly. So they've been the ones making all this money.

On crypto thinking about buying it now.

On crypto thinking about buying it now.

Me personally know, but we certainly support our clients that want to do that.

Me personally know, but we certainly support our clients that want to do that.

You know what, you answered my next question, which is going to be do you own any crypto? But talk a little bit about that, because it's always interesting hearing from somebody in your space about their views on something. What's holding you back?

You know what, you answered my next question, which is going to be do you own any crypto? But talk a little bit about that, because it's always interesting hearing from somebody in your space about their views on something. What's holding you back?

Well, I think what's holding me back is just a question around the true value of crypto. You know, I like to invest in stocks, and with stocks, you there's cash flows you can rely upon. There there's dividends that accrue to you. With crypto, it's less certain what that will be, and it's it's less certain how to value it. So to me, on a personal level, that's what makes crypto not something that I invest in. At the same time, we encourage our investors to invest in what matters for them, and I've talked to a lot of our investors who tell me I'm completely missing the boat, and they tell me all the great things about crypto, And you know what, they've been right, not me, because so far keeps going up.

Well, I think what's holding me back is just a question around the true value of crypto. You know, I like to invest in stocks, and with stocks, you there's cash flows you can rely upon. There there's dividends that accrue to you. With crypto, it's less certain what that will be, and it's it's less certain how to value it. So to me, on a personal level, that's what makes crypto not something that I invest in. At the same time, we encourage our investors to invest in what matters for them, and I've talked to a lot of our investors who tell me I'm completely missing the boat, and they tell me all the great things about crypto, And you know what, they've been right, not me, because so far keeps going up.

So far they've been right. We'll see.

So far they've been right. We'll see.

It's one we're going to continue to follow. It moves around a lot. It is a competitive space. Just this week, I just want to look up my I know it's Robin Hood announcing they're moving to the RIA space. I'm curious about how you were thinking about Schwab for the next fifty years. As you get ready to take over as CEO and you know, not a new thing traditional investors. They're getting older, younger investors how they want to play and have more options. So what are your thoughts about Robinhood's move and maybe what you guys need to continue to do to attract younger investors who want those more options.

It's one we're going to continue to follow. It moves around a lot. It is a competitive space. Just this week, I just want to look up my I know it's Robin Hood announcing they're moving to the RIA space. I'm curious about how you were thinking about Schwab for the next fifty years. As you get ready to take over as CEO and you know, not a new thing traditional investors. They're getting older, younger investors how they want to play and have more options. So what are your thoughts about Robinhood's move and maybe what you guys need to continue to do to attract younger investors who want those more options.

Well, for fifty years, our central theme has been to see through client size and do right by them, and we attract a lot of young investors to Schwab. In fact, sixty percent of our new to firm clients every year are under the.

Well, for fifty years, our central theme has been to see through client size and do right by them, and we attract a lot of young investors to Schwab. In fact, sixty percent of our new to firm clients every year are under the.

Age of forty.

Age of forty.

Our client base actually gets younger every year, so it's sometimes we're not thought of as that way, but we attract a lot of young investors because we have what we think is the best trading platform in the industry, and it also comes along with what we think is the best educational and training platform in the industry, and that aspect has really appealed to some of our younger newer investors.

Our client base actually gets younger every year, so it's sometimes we're not thought of as that way, but we attract a lot of young investors because we have what we think is the best trading platform in the industry, and it also comes along with what we think is the best educational and training platform in the industry, and that aspect has really appealed to some of our younger newer investors.

Got to ask you about the training side and talking with advisors here. I was up on the stage doing a panel on artificial intelligence, and so many people came up to me afterwards and they're like, we got to talk to Schwab because I think we need a schwab chatbot. AI though, is impacting everything? How are you also, I don't know, acknowledging thinking about how that needs to be incorporated into what you offer up the advisory space.

Got to ask you about the training side and talking with advisors here. I was up on the stage doing a panel on artificial intelligence, and so many people came up to me afterwards and they're like, we got to talk to Schwab because I think we need a schwab chatbot. AI though, is impacting everything? How are you also, I don't know, acknowledging thinking about how that needs to be incorporated into what you offer up the advisory space.

Yes, so that comment about wanting an AI chatbot, what they don't recognize is that actually, behind the scenes, we have built one for our client facing professionals. And so it used to be that sixty thousand times a month we would have a phone rep spend more than three minutes searching for a piece of information to answer a client question, and now we have built an AI capability that finds that information in seconds, and so it makes a better use of the client's time and allows them to focus and go deeper on wealth issues that we could potentially help them with.

Yes, so that comment about wanting an AI chatbot, what they don't recognize is that actually, behind the scenes, we have built one for our client facing professionals. And so it used to be that sixty thousand times a month we would have a phone rep spend more than three minutes searching for a piece of information to answer a client question, and now we have built an AI capability that finds that information in seconds, and so it makes a better use of the client's time and allows them to focus and go deeper on wealth issues that we could potentially help them with.

But is there another level that you continue to think about? Okay, where does this go in helping advisors in terms of portfolio management are building out their businesses.

But is there another level that you continue to think about? Okay, where does this go in helping advisors in terms of portfolio management are building out their businesses.

I think AI will have a really big impact on our industry. I think it will do a lot to help us better serve clients, to empower our professionals to give them the right information at the right time. I think it will also allow us collectively to help serve clients that we Otherwise we have fifteen million retail clients, we can only have a person to person relationship with about ten to twenty percent of that client base. There's eighty percent that we don't get to to have that in person dialogue with and I think AI could bridge that gap and allow us to reach more clients.

I think AI will have a really big impact on our industry. I think it will do a lot to help us better serve clients, to empower our professionals to give them the right information at the right time. I think it will also allow us collectively to help serve clients that we Otherwise we have fifteen million retail clients, we can only have a person to person relationship with about ten to twenty percent of that client base. There's eighty percent that we don't get to to have that in person dialogue with and I think AI could bridge that gap and allow us to reach more clients.

Hey, before we let you go, I want to talk a little bit about the balance sheet, because you basically said you're trying to shrink the bank's balance sheet and not hold as many loans on the balance sheet. Given what happened a couple of years ago, close to two years ago with the regional banking crisis in the way you guys were brought into that, just give us an update there on what you're going to do when you become CEO.

Hey, before we let you go, I want to talk a little bit about the balance sheet, because you basically said you're trying to shrink the bank's balance sheet and not hold as many loans on the balance sheet. Given what happened a couple of years ago, close to two years ago with the regional banking crisis in the way you guys were brought into that, just give us an update there on what you're going to do when you become CEO.

Well, I want to clarify, we never said we wanted to shrink our balance sheet. What we did allude to, and I think what you're referring to is on an earnings call, we said, as our balance sheet grows, we would consider using a third party bank to take on some of those deposits. That's something that could make sense for us because of the way the economics work, we have to hold capital against deposits. We can send some of those deposits to another bank and earn a better return relative to capital when we do so. So it's a tool to have in our toolbox. It's not something we're going out and doing immediately, something we're considering. We'd only do it as our balance sheet grows and when it makes sense to do.

Well, I want to clarify, we never said we wanted to shrink our balance sheet. What we did allude to, and I think what you're referring to is on an earnings call, we said, as our balance sheet grows, we would consider using a third party bank to take on some of those deposits. That's something that could make sense for us because of the way the economics work, we have to hold capital against deposits. We can send some of those deposits to another bank and earn a better return relative to capital when we do so. So it's a tool to have in our toolbox. It's not something we're going out and doing immediately, something we're considering. We'd only do it as our balance sheet grows and when it makes sense to do.

Challenging here, certainly for Schwab with the regional bank crisis and so on and so forth. We talked about a lot on Bloomberg. Are we past it? Do you feel confident or what's more to be done? In terms of the impact that we've seen in the past year.

Challenging here, certainly for Schwab with the regional bank crisis and so on and so forth. We talked about a lot on Bloomberg. Are we past it? Do you feel confident or what's more to be done? In terms of the impact that we've seen in the past year.

I've never been more optimistic about our business than we are today. We're number one or number two and the two fastest growing segments of the financial services landscape, and our client satisfaction scores have never been higher than they are today. So we're hitting on all cylinders as we roll into twenty twenty five, and I couldn't be more excited about it.

I've never been more optimistic about our business than we are today. We're number one or number two and the two fastest growing segments of the financial services landscape, and our client satisfaction scores have never been higher than they are today. So we're hitting on all cylinders as we roll into twenty twenty five, and I couldn't be more excited about it.

What's the most interesting thing in the investment space do you think right now?

What's the most interesting thing in the investment space do you think right now?

I think the engagement among clients. It's just wonderful to see how engaged they are in markets in their financial life. When people own their tomorrow, they tend to have great financial outcomes.

I think the engagement among clients. It's just wonderful to see how engaged they are in markets in their financial life. When people own their tomorrow, they tend to have great financial outcomes.

Rick, thank you so much. I know there's a lot going on.

Rick, thank you so much. I know there's a lot going on.

I know this is a.

I know this is a.

Big event, but I'm carving out some space for us. We really appreciate it.

Big event, but I'm carving out some space for us. We really appreciate it.

Well. Thanks for making a commitment to be here. We love having you here.

Well. Thanks for making a commitment to be here. We love having you here.

It's a great perspective that we get to come and take back to New York and kind of share with us some of our other guests. Rick Worster, current president of Charles Schwab taking over CEO on January first. This is Bloomberg from Impact.

It's a great perspective that we get to come and take back to New York and kind of share with us some of our other guests. Rick Worster, current president of Charles Schwab taking over CEO on January first. This is Bloomberg from Impact.

You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen.

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Time now for a strategy deep dive courtesy of the team at Charles Schwab. Everything from global equities and macroeconomics and presidential politics to fixed income and US domestic stocks. It all happened recently when we broadcast from the Schwab Impact Conference in San Francisco.

Time now for a strategy deep dive courtesy of the team at Charles Schwab. Everything from global equities and macroeconomics and presidential politics to fixed income and US domestic stocks. It all happened recently when we broadcast from the Schwab Impact Conference in San Francisco.

At the event, two very familiar voices to investors and the Bloomberg world from Charles Schwab, Lizanne Saunders, Managing director, Chief Investment Strategists also along with Kevin Gordon, Director and senior investment strategist.

At the event, two very familiar voices to investors and the Bloomberg world from Charles Schwab, Lizanne Saunders, Managing director, Chief Investment Strategists also along with Kevin Gordon, Director and senior investment strategist.

We want to note that this conversation happened before President elect Trump vowed additional tariffs on Mexico, Canada, and China that'll happen this past week.

We want to note that this conversation happened before President elect Trump vowed additional tariffs on Mexico, Canada, and China that'll happen this past week.

We began by asking about the conversations they're having between each other about what's going on in the market.

We began by asking about the conversations they're having between each other about what's going on in the market.

It's just such a unique period of uncertainty because of the different directions policy can go. And one way we've been talking about is we're all always mindful of of sort of tail risks. I think the tails are fatter because of not just the uncertainty associated with tariffs, immigration policy, but the fact that much of what appears to be the priority of the administration could be done by executive order and doesn't have to go through that congressional And we learned in twenty eighteen that you know, a lot of the tariff announcements were done by Twitter, so it's unconventional.

It's just such a unique period of uncertainty because of the different directions policy can go. And one way we've been talking about is we're all always mindful of of sort of tail risks. I think the tails are fatter because of not just the uncertainty associated with tariffs, immigration policy, but the fact that much of what appears to be the priority of the administration could be done by executive order and doesn't have to go through that congressional And we learned in twenty eighteen that you know, a lot of the tariff announcements were done by Twitter, so it's unconventional.

So then how do you think about what can you kind of hang your hat on. Kevin, come on in on the conversation.

So then how do you think about what can you kind of hang your hat on. Kevin, come on in on the conversation.

Well, I think you know, one of the hard parts about going back to twenty eighteen two nineteen is what you know as humans. It's natural to go back to a period of time and say, yeah, you can bring out that playbookdusted off, especially from.

Well, I think you know, one of the hard parts about going back to twenty eighteen two nineteen is what you know as humans. It's natural to go back to a period of time and say, yeah, you can bring out that playbookdusted off, especially from.

A tariff perspective.

A tariff perspective.

What's harder this time is that we're in a totally different macroeconomic environment where you're still dealing with ripple effects from the pandemic. You're still dealing with a bond market that is a little bit more unruly this time than it was going into the first administration for Trump. So I think that, you know, to Lazand's point about what can be done unilaterally versus what can be done with congressional approval, really needs to be looked at here, especially from an immigration policy perspective, because most of the labor force growth we've had over the past four years has been from the foreign born you know, work force, so that if it gets restricted, I think could be more of a more of a problem.

What's harder this time is that we're in a totally different macroeconomic environment where you're still dealing with ripple effects from the pandemic. You're still dealing with a bond market that is a little bit more unruly this time than it was going into the first administration for Trump. So I think that, you know, to Lazand's point about what can be done unilaterally versus what can be done with congressional approval, really needs to be looked at here, especially from an immigration policy perspective, because most of the labor force growth we've had over the past four years has been from the foreign born you know, work force, so that if it gets restricted, I think could be more of a more of a problem.

Talk a little bit.

Talk a little bit.

The FED comes into the mix because the combination of immigration policies and tariff policies, it's hard to argue against them being inflationary. So then you have what's the FED reaction function if it's policy driven inflation.

The FED comes into the mix because the combination of immigration policies and tariff policies, it's hard to argue against them being inflationary. So then you have what's the FED reaction function if it's policy driven inflation.

I I based on the first Trump administration, I believe, and I'm not getting political here, I'm just stating sort of a theory. The president elect loves to look at the S and P five hundred and talk about the S and P five hundred. That's like his report card for how he's doing. If there is an adverse market reaction to one of his policies, I think that would be enough for him to change his too.

I I based on the first Trump administration, I believe, and I'm not getting political here, I'm just stating sort of a theory. The president elect loves to look at the S and P five hundred and talk about the S and P five hundred. That's like his report card for how he's doing. If there is an adverse market reaction to one of his policies, I think that would be enough for him to change his too.

I think not just the S and P five hundred. I think markets could be the decider, not just the equity side of things, but the bond markets, the bond vigilances.

I think not just the S and P five hundred. I think markets could be the decider, not just the equity side of things, but the bond markets, the bond vigilances.

Yeah.

Yeah.

I think the other thing to keep in mind is it's not as if, because you know, we know that President elect Trump is very focused on markets, that doesn't mean that you don't get downturns and you don't get volatility. I mean, if you just use twenty seventeen as a case study, if I came from the future and we were in twenty seventeen and told you we were going to get this massive fiscal stimulus in the form of tax cuts at the corporate and the individual level. You'd probably think that's Neirvada for risk assets. But the reality is we had the shortfall implosion in twenty eighteen. You had a near bear market almost by a tenth of a percentage point for the S and P in the fourth quarter of that year. And yeah, you bounced back in twenty nineteen, was choppy but ended up being okay. But it doesn't mean that you eliminate all of this downside risk, especially if it's driven more by teriff related news. And you know the hits to manufacturing in the US that.

I think the other thing to keep in mind is it's not as if, because you know, we know that President elect Trump is very focused on markets, that doesn't mean that you don't get downturns and you don't get volatility. I mean, if you just use twenty seventeen as a case study, if I came from the future and we were in twenty seventeen and told you we were going to get this massive fiscal stimulus in the form of tax cuts at the corporate and the individual level. You'd probably think that's Neirvada for risk assets. But the reality is we had the shortfall implosion in twenty eighteen. You had a near bear market almost by a tenth of a percentage point for the S and P in the fourth quarter of that year. And yeah, you bounced back in twenty nineteen, was choppy but ended up being okay. But it doesn't mean that you eliminate all of this downside risk, especially if it's driven more by teriff related news. And you know the hits to manufacturing in the US that.

Are so speaking of the hits to manufacturing, if you if you look at the ISM manufacturing index and put a vertical line at the start of the trade war in twenty eighteen, it went straight down. Now we're at lows in manufacturing. So I don't know that we have a potential implosion from these lows, but it could be something that prevents what was the hope for pickback.

Are so speaking of the hits to manufacturing, if you if you look at the ISM manufacturing index and put a vertical line at the start of the trade war in twenty eighteen, it went straight down. Now we're at lows in manufacturing. So I don't know that we have a potential implosion from these lows, but it could be something that prevents what was the hope for pickback.

Up and manufacturing.

Up and manufacturing.

I guess I keep thinking about. You know, there's the fundamental stories of companies and profits, right that really matters. But then you've got a layer on top of that the politics that's going to play out, and that's going to kind of kick investors around. I mean, how are you guys squaring when you're going to have a client call up and say, listen, fundamentally, earnings growth is happening, but.

I guess I keep thinking about. You know, there's the fundamental stories of companies and profits, right that really matters. But then you've got a layer on top of that the politics that's going to play out, and that's going to kind of kick investors around. I mean, how are you guys squaring when you're going to have a client call up and say, listen, fundamentally, earnings growth is happening, but.

You know, keep it if you're proxying or earning's growth at the S and P level, that it's obviously biased up the cap spectrum. You've got forty three percent of the Rustle two thousand or nonprofitable companies, you've got a similar share that zombie companies.

You know, keep it if you're proxying or earning's growth at the S and P level, that it's obviously biased up the cap spectrum. You've got forty three percent of the Rustle two thousand or nonprofitable companies, you've got a similar share that zombie companies.

So I think there's a there's a much.

So I think there's a there's a much.

Wider spread, especially when looking on the cap spectrum, but it often gets masked by virtue of there's so much focus on the large cap indexes.

Wider spread, especially when looking on the cap spectrum, but it often gets masked by virtue of there's so much focus on the large cap indexes.

Well, funny that you say that, because I feel like the last two weeks everybody keeps coming on and said, guess what, it's small caps turn again, So.

Well, funny that you say that, because I feel like the last two weeks everybody keeps coming on and said, guess what, it's small caps turn again, So.

What is it not monolithically Okay?

What is it not monolithically Okay?

Again, when you look at an index as large as the Russell two thousand to to sort of just blanketly say yeah, small caps look good.

Again, when you look at an index as large as the Russell two thousand to to sort of just blanketly say yeah, small caps look good.

I think that there is there are interesting zombie companies that you say.

I think that there is there are interesting zombie companies that you say.

Yeah, those are not those with not sufficient cash flows to pay e an interest on their debts. So I think, you know, our our thesis around factors has been, Yeah, there's opportunities down the cap spectrum, but you don't want to sacrifice quality.

Yeah, those are not those with not sufficient cash flows to pay e an interest on their debts. So I think, you know, our our thesis around factors has been, Yeah, there's opportunities down the cap spectrum, but you don't want to sacrifice quality.

Yeah, And to that point about quality, I mean, if you just used positive earnings on a trailer twelve month basis, so earnings of EPs above zero as your your you know, only criterion for the Rustle two thousand, and you took all of those companies, you know, it's about eight hundred nine hundred change as a group. On average, they're up by almost forty five percent over the past year. So there are pockets of small caps that have worked. It's just not equally distributed because of the interest rate environment we've been in also the growth environment. And by the way, all of these pops that you've had in the Wrestle two thousand from time to time over the past couple of years, every time they get a little bit of momentum and everyone thinks it's changing for them, it hasn't been consistent with the turn in forward earnings growth and expectations. So until I think you see that actual move where conviction starts to build. From an earning standpoint, it's tough to get bullish on the on the index as a whole.

Yeah, And to that point about quality, I mean, if you just used positive earnings on a trailer twelve month basis, so earnings of EPs above zero as your your you know, only criterion for the Rustle two thousand, and you took all of those companies, you know, it's about eight hundred nine hundred change as a group. On average, they're up by almost forty five percent over the past year. So there are pockets of small caps that have worked. It's just not equally distributed because of the interest rate environment we've been in also the growth environment. And by the way, all of these pops that you've had in the Wrestle two thousand from time to time over the past couple of years, every time they get a little bit of momentum and everyone thinks it's changing for them, it hasn't been consistent with the turn in forward earnings growth and expectations. So until I think you see that actual move where conviction starts to build. From an earning standpoint, it's tough to get bullish on the on the index as a whole.

But to Lezan's point about.

But to Lezan's point about.

You know a large chunk of it being not profitable and zombie like, it's just tough.

You know a large chunk of it being not profitable and zombie like, it's just tough.

More within the Nasdaq.

More within the Nasdaq.

If you look at the top ten best performers this year in the Nasdaq, none of them are large cap stocks. They're all small yeah, to be a none of them are in the MAGS seven. So I think we get in this sort of tunnel of the megacap tech and tech related names, and there's less analysis happening on everything else.

If you look at the top ten best performers this year in the Nasdaq, none of them are large cap stocks. They're all small yeah, to be a none of them are in the MAGS seven. So I think we get in this sort of tunnel of the megacap tech and tech related names, and there's less analysis happening on everything else.

On an index level. Is Anne, are you concerned about the power of those megacap tech companies. It's a question I could have asked five years ago. It just wouldn't have included in Vidia.

On an index level. Is Anne, are you concerned about the power of those megacap tech companies. It's a question I could have asked five years ago. It just wouldn't have included in Vidia.

I think the problem of concentration and the perceived need to be in those names in order to do well, that's an institutional problem, that's not an individual investor problem. If you're benchmarked against a cap weighted index, you are at the mercy of what those largest names their contribution to the index. But for individual investors, they're not benchmarked against the S and P five under they don't have to take that same kind of concentration risk. And it's another point behind that what I just mentioned of top ten best performers in the Nasdaq, they're.

I think the problem of concentration and the perceived need to be in those names in order to do well, that's an institutional problem, that's not an individual investor problem. If you're benchmarked against a cap weighted index, you are at the mercy of what those largest names their contribution to the index. But for individual investors, they're not benchmarked against the S and P five under they don't have to take that same kind of concentration risk. And it's another point behind that what I just mentioned of top ten best performers in the Nasdaq, they're.

All small to mid cap stocks.

All small to mid cap stocks.

Only one of the MAGS seven is in the top ten best performers of the S and P five hundred, So I think you don't need to have that concentration risk if you're not professionally benchmarked against the.

Only one of the MAGS seven is in the top ten best performers of the S and P five hundred, So I think you don't need to have that concentration risk if you're not professionally benchmarked against the.

S and P.

S and P.

What do you think of the biggest risks right now? Do we have clarity on it for twenty twenty five.

What do you think of the biggest risks right now? Do we have clarity on it for twenty twenty five.

I mean from a policy standpoint, that's probably the easy one to throw out there, but I think just the lack of.

I mean from a policy standpoint, that's probably the easy one to throw out there, but I think just the lack of.

Policy, meaning government. We also said policy.

Policy, meaning government. We also said policy.

More Washington policy, but I think they're tied together now. Yeah, because I could see a scenario where if you do get more restrictive labor force growth coming from the outside, but also if there is a chunk of the labor force physically removed from the country, that's probably an inflationary problem.

More Washington policy, but I think they're tied together now. Yeah, because I could see a scenario where if you do get more restrictive labor force growth coming from the outside, but also if there is a chunk of the labor force physically removed from the country, that's probably an inflationary problem.

And I've also yet to I love.

And I've also yet to I love.

That you guys are going there, because I don't think people realize we certainly hear it from CEOs that they are so worried that they're not going to have access to a labor force and what that means for their ability to do things.

That you guys are going there, because I don't think people realize we certainly hear it from CEOs that they are so worried that they're not going to have access to a labor force and what that means for their ability to do things.

It's an increase in.

It's an increase in.

The cost of l labor costs, right, and it's a decrease in labor supply.

The cost of l labor costs, right, and it's a decrease in labor supply.

There's the demand side.

There's the demand side.

Of that as well.

Of that as well.

I can't shock in a demandsion.

I can't shock in a demandsion.

I can't get a CEO to seriously explain that that will affect them at this point in the last two weeks, even if they don't employ people who didn't come to this country illegally. Right.

I can't get a CEO to seriously explain that that will affect them at this point in the last two weeks, even if they don't employ people who didn't come to this country illegally. Right.

How often do you talk to smaller company CEOs?

How often do you talk to smaller company CEOs?

I recently, did you actually talk to me?

I recently, did you actually talk to me?

I talked to me in the spaces where migrant work is a large construction.

I talked to me in the spaces where migrant work is a large construction.

Hospitality construction rests.

Hospitality construction rests.

Almost twenty percent of the construction sector is undocumented.

Almost twenty percent of the construction sector is undocumented.

I have two brothers who are contractors. They're like, they can't find work.

I have two brothers who are contractors. They're like, they can't find work.

But I think the important point is that it's not just you could run a company that doesn't employ any undocumented workers. You're still going to see labor costs rise. If eleven million people are taken out of this country who are doing work.

But I think the important point is that it's not just you could run a company that doesn't employ any undocumented workers. You're still going to see labor costs rise. If eleven million people are taken out of this country who are doing work.

That's right, Yeah, it's a demand shock, it's a supply shock, and I think we we sort of lose sight of the fact on the demand side, especially because the supply side is looked at maybe sometimes more of an issue in terms of the makeup of a particular industry or the makeup of the labor force. But if you're taking demand out of the country, but you're also not being able to fill the supply hole that you're leaving, that's sort of a stagflationary shock.

That's right, Yeah, it's a demand shock, it's a supply shock, and I think we we sort of lose sight of the fact on the demand side, especially because the supply side is looked at maybe sometimes more of an issue in terms of the makeup of a particular industry or the makeup of the labor force. But if you're taking demand out of the country, but you're also not being able to fill the supply hole that you're leaving, that's sort of a stagflationary shock.

So what does it do to the market if that policy ends up coming to fruition.

So what does it do to the market if that policy ends up coming to fruition.

Well, I mean, I think it depends if it's phased over time.

Well, I mean, I think it depends if it's phased over time.

Yeah, and you know, we don't know the logistics around whether we even possibly could get to the high end of what the campaign pledges.

Yeah, and you know, we don't know the logistics around whether we even possibly could get to the high end of what the campaign pledges.

The reality on that right front.

The reality on that right front.

But Peterson Institute, I don't know if you guys saw it, just did a study on Okay, let's take it to the extreme, both on the immigration side of things, on the tariff side of things, and they actually added an interesting.

But Peterson Institute, I don't know if you guys saw it, just did a study on Okay, let's take it to the extreme, both on the immigration side of things, on the tariff side of things, and they actually added an interesting.

Little wrinkle into the mix.

Little wrinkle into the mix.

If there continues to be a threatening of FED independence, all three of those collectively are unquestionably higher inflation, lower growth kind of backdrop. Now we you know, the real answer may be somewhere in the middle of nothing gets done and the extremes, both on immigration and teriffs.

If there continues to be a threatening of FED independence, all three of those collectively are unquestionably higher inflation, lower growth kind of backdrop. Now we you know, the real answer may be somewhere in the middle of nothing gets done and the extremes, both on immigration and teriffs.

But it's a wait and see.

But it's a wait and see.

Mode right even on the tariffront, I've yet to see a model, and all the research that we read, i've yet to see them out of that doesn't suggest it's a stagflationary shock where overtime you get this boost to inflation, but you also get a hit to growth.

Mode right even on the tariffront, I've yet to see a model, and all the research that we read, i've yet to see them out of that doesn't suggest it's a stagflationary shock where overtime you get this boost to inflation, but you also get a hit to growth.

I want to go back to the market kind of a clearing house for all of the information, because I do feel like the market smacks down policies or initiatives very quickly. I feel like, much more than it did. I don't know ten years ago. Maybe it's because of social media and stuff just piling through. Do you assume that will continue and that will send messages to Washington and maybe so that things aren't so severe.

I want to go back to the market kind of a clearing house for all of the information, because I do feel like the market smacks down policies or initiatives very quickly. I feel like, much more than it did. I don't know ten years ago. Maybe it's because of social media and stuff just piling through. Do you assume that will continue and that will send messages to Washington and maybe so that things aren't so severe.

It will send messages how much they're heated, that we don't know.

It will send messages how much they're heated, that we don't know.

But especially when I think about the FED and the independence of the FED, like that to me would be something that would bring.

But especially when I think about the FED and the independence of the FED, like that to me would be something that would bring.

Well to me.

Well to me.

The most fascinating part of Palace press conference at the most recent FOMAC meeting was the definitive no that as soon as that happened, I thought, that's the headline, and that should be the headline.

The most fascinating part of Palace press conference at the most recent FOMAC meeting was the definitive no that as soon as that happened, I thought, that's the headline, and that should be the headline.

So I don't worry about that piece of it all that much.

So I don't worry about that piece of it all that much.

But one of our thesis is that this sector dispersion, these rapid fire rotations that are happening at the sector level, are going to persist. The drivers going forward may be more specific to things like teriff announcement. So we saw that in twenty eighteen, there was you know that that voting mechanism that happened so quickly with markets maybe doesn't appear acutely at the broad index level, but I think you're going to see it at the industry level, at the sector level, tied specifically to both tariffs and immigration.

But one of our thesis is that this sector dispersion, these rapid fire rotations that are happening at the sector level, are going to persist. The drivers going forward may be more specific to things like teriff announcement. So we saw that in twenty eighteen, there was you know that that voting mechanism that happened so quickly with markets maybe doesn't appear acutely at the broad index level, but I think you're going to see it at the industry level, at the sector level, tied specifically to both tariffs and immigration.

Sense Kevin, I believe a year ago we were sitting here. It was October of last year in Philadelphia, s and P five hundred is up forty percent since our conversation with a Thunk.

Sense Kevin, I believe a year ago we were sitting here. It was October of last year in Philadelphia, s and P five hundred is up forty percent since our conversation with a Thunk.

What a thunk And what was interesting too.

What a thunk And what was interesting too.

I remember talking to you guys about the unique nature of this bull market, and at that point it had been so unique where even for something like small caps in the rustle of two thousand, it was breaking new bear market lows and that has just never happened before. You also had sectors in the SMP that had not been up, and that it was just so unique about what the structure was of the bowl in its early phases, where typically even after you go through a non recessionary bear, you do tend to see a lot of participation at any sector level, at any cap level, but we just haven't seen that. But I will say in what's been nicer to see this year is that participation has really improved, especially since that Midsummer mark where broad Max seven really started to take a little bit of a step back, not outright decline, but take a step back. Tech took a step back, even semiconductors. Recently, I find that the weakening and that breath profile actually just fascinating, while the rest of the market has actually been able to power forward. And that's I think what has actually been lost in all of the election related narrative recently, especially around some of the strength around areas like financials. Financials were strong heading into the election, Industrials were strong heading into the election, So it's not as if you got this massive shift in the leadership profile of the market. I think that's been a relatively healthful all year.

I remember talking to you guys about the unique nature of this bull market, and at that point it had been so unique where even for something like small caps in the rustle of two thousand, it was breaking new bear market lows and that has just never happened before. You also had sectors in the SMP that had not been up, and that it was just so unique about what the structure was of the bowl in its early phases, where typically even after you go through a non recessionary bear, you do tend to see a lot of participation at any sector level, at any cap level, but we just haven't seen that. But I will say in what's been nicer to see this year is that participation has really improved, especially since that Midsummer mark where broad Max seven really started to take a little bit of a step back, not outright decline, but take a step back. Tech took a step back, even semiconductors. Recently, I find that the weakening and that breath profile actually just fascinating, while the rest of the market has actually been able to power forward. And that's I think what has actually been lost in all of the election related narrative recently, especially around some of the strength around areas like financials. Financials were strong heading into the election, Industrials were strong heading into the election, So it's not as if you got this massive shift in the leadership profile of the market. I think that's been a relatively healthful all year.

There's been massive churn under the surface of these cap weighted indexes. So the Nasdaq had a thirteen percent draw down in that Midsummer period of time, but the average member draw down for the Nasdaq is forty seven percent year to date. So sometimes when people talk about the market, it sort of begs, well, what piece of the marketing you're talking about? These cap weighted into its right dangerous?

There's been massive churn under the surface of these cap weighted indexes. So the Nasdaq had a thirteen percent draw down in that Midsummer period of time, but the average member draw down for the Nasdaq is forty seven percent year to date. So sometimes when people talk about the market, it sort of begs, well, what piece of the marketing you're talking about? These cap weighted into its right dangerous?

Actually, and we've been calling for a good chunk of you ear.

Actually, and we've been calling for a good chunk of you ear.

We're calling it the Michael Caine Duck market, you know, just calm on the surface, like the dickens underneath.

We're calling it the Michael Caine Duck market, you know, just calm on the surface, like the dickens underneath.

That's that's been how we've been describing it.

That's that's been how we've been describing it.

So does though, all right, so what's the environment for twenty twenty five? Can you make a call?

So does though, all right, so what's the environment for twenty twenty five? Can you make a call?

Well, we never make a call.

Well, we never make a call.

Okay, So what are we missing? We haven't had a recession. We have had pockets of recessions, we've had the roll through, so so are we done with it?

Okay, So what are we missing? We haven't had a recession. We have had pockets of recessions, we've had the roll through, so so are we done with it?

Then?

Then?

You know, my hope was that we were going to get to a point where if we started to see weakness show up more acutely in the services sector in large pro probably driven by any further weakness in the labor market. That, especially if the FED was an easing mode, you might be in a position to see stabilization, if not recovery in those areas that already taken their hits, like manufacturing, like housing. I don't want to say that's off the table now, but it's a little bit more difficult post election to come up with a case or stabilization and improvement in those areas, especially if the FED doesn't stay in easing mode. We saw this and tempted some recovery in housing, and then it faltered again courtesy of the move up in long yiels.

You know, my hope was that we were going to get to a point where if we started to see weakness show up more acutely in the services sector in large pro probably driven by any further weakness in the labor market. That, especially if the FED was an easing mode, you might be in a position to see stabilization, if not recovery in those areas that already taken their hits, like manufacturing, like housing. I don't want to say that's off the table now, but it's a little bit more difficult post election to come up with a case or stabilization and improvement in those areas, especially if the FED doesn't stay in easing mode. We saw this and tempted some recovery in housing, and then it faltered again courtesy of the move up in long yiels.

So I think the other thing too, from evaluation in a sentiment perspective, is that you're getting pretty stretched across most of the metrics that we track, and it's not just in the traditional attitudinal how do you feel about the market? You know, aaii bulbear indicator. It's now filtering over into what are investors actually doing with their money. We've seen equity ETF inflows completely spike akin to levels that you saw a market funds too. Absolutely yeah, So I think that becomes a little bit more of a risk in the event there's a negative catalyst. We always say sentiment for off. The sentiment and of itself is not a reason that the market just goes lower. It has to be tipped in that direction. It's just the sentiment backdrop that makes things more.

So I think the other thing too, from evaluation in a sentiment perspective, is that you're getting pretty stretched across most of the metrics that we track, and it's not just in the traditional attitudinal how do you feel about the market? You know, aaii bulbear indicator. It's now filtering over into what are investors actually doing with their money. We've seen equity ETF inflows completely spike akin to levels that you saw a market funds too. Absolutely yeah, So I think that becomes a little bit more of a risk in the event there's a negative catalyst. We always say sentiment for off. The sentiment and of itself is not a reason that the market just goes lower. It has to be tipped in that direction. It's just the sentiment backdrop that makes things more.

I also don't think we should look at the money and money markets as some giant pool of imminent funds dying to go into the equity market. I think that's a lot of that is pretty sticky money.

I also don't think we should look at the money and money markets as some giant pool of imminent funds dying to go into the equity market. I think that's a lot of that is pretty sticky money.

That's exactly one trillion tion we'll go into the ivy.

That's exactly one trillion tion we'll go into the ivy.

Market, not necessarily the way Mark you get a run.

Market, not necessarily the way Mark you get a run.

Liz.

Liz.

Thank you.

Thank you.

You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Easter on Bloomberg Radio, the Bloomberg Business app and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.

You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Easter on Bloomberg Radio, the Bloomberg Business app and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.

From Stocks and the Macro to Fixed Income and the Macro. This past week, you as Treasury is added to the gainspurred by the announcement of Scott Bessant, a Wall Street veteran who investors expect will take the sting out of the administration's more aggressive trade and economic policy proposals as president, like Donald Trump's Treasury secretary choice.

From Stocks and the Macro to Fixed Income and the Macro. This past week, you as Treasury is added to the gainspurred by the announcement of Scott Bessant, a Wall Street veteran who investors expect will take the sting out of the administration's more aggressive trade and economic policy proposals as president, like Donald Trump's Treasury secretary choice.

We also got the latest FMC minutes, which you can of course check out on the Bloomberg terminal. And as we continue our coverage from Schwab Impact, which happened about a week and a half ago, we talked with two members of the Schwab team to focus on fixed income strategy. We're talking about Kathy Jones. She's a managing director fixed income strategist and also Colin Martin, Director Fixed Income Strategist.

We also got the latest FMC minutes, which you can of course check out on the Bloomberg terminal. And as we continue our coverage from Schwab Impact, which happened about a week and a half ago, we talked with two members of the Schwab team to focus on fixed income strategy. We're talking about Kathy Jones. She's a managing director fixed income strategist and also Colin Martin, Director Fixed Income Strategist.

We started by asking Kathy if her view of the FED changed at all since the election.

We started by asking Kathy if her view of the FED changed at all since the election.

I think the case for a pause is growing a bit stronger at this stage of the game.

I think the case for a pause is growing a bit stronger at this stage of the game.

So, you know, we've had stronger than.

So, you know, we've had stronger than.

Expected economic data now for a while, particularly like the retail sales telling us the consumers doing well. And so then the question is does a FED.

Expected economic data now for a while, particularly like the retail sales telling us the consumers doing well. And so then the question is does a FED.

Really need to cut rate to help out?

Really need to cut rate to help out?

We have very easy financial conditions as the stock market keeps going higher and credit spreads get tighter and so you know, and then we have all the uncertainty about what physcal policy will be going forward.

We have very easy financial conditions as the stock market keeps going higher and credit spreads get tighter and so you know, and then we have all the uncertainty about what physcal policy will be going forward.

We don't know what tax policy will be.

We don't know what tax policy will be.

And then immigration reform, which I particularly think is one of the most important components for inflation and growth going forward, because again we don't know what the actual policy will be, but if you kind of take things at face value, that could reduce the workforce by seven or eight percent. That's a huge, huge issue.

And then immigration reform, which I particularly think is one of the most important components for inflation and growth going forward, because again we don't know what the actual policy will be, but if you kind of take things at face value, that could reduce the workforce by seven or eight percent. That's a huge, huge issue.

So Colin, you guys, you guys, you and Kathy have to figure out though fixed income strategy and what you're thinking about.

So Colin, you guys, you guys, you and Kathy have to figure out though fixed income strategy and what you're thinking about.

Right.

Right.

People look to you to kind of get an idea of what's to come maybe in twenty twenty five. So what do you feel comfortable kind of saying about that.

People look to you to kind of get an idea of what's to come maybe in twenty twenty five. So what do you feel comfortable kind of saying about that.

Yeah, well, we've kind of revised our guidance a little bit lately because of so many the uncertainties that Kathy just highlighted, where there's this wide range of outcomes because of the proposed policies, what gets implemented, when they get implemented, and what that impact is. So given that, and given the I think the risk is to higher yields than lower yields if we do get some sort of inflationary impact. So our guidance now, our main guidance for investors is to really focus on a benchmark or below benchmark average touration. We don't think it makes a lot of sense to dive in with long term bonds right now because of the risk of those prices if they fall. I want to make it clear though, that that's a tactical idea. From a strategic standpoint, we still think the yields are pretty attractive. So if you're an investor, you're looking for for five six percent yields, you can get that right now, if you have that time horizon, and if if that's going to help you reach your goals, then I think that's really attractive right now. But just be prepared that if we see yields in show when we talk about our upside, maybe maybe we go to five percent on the tenure treasure yield.

Yeah, well, we've kind of revised our guidance a little bit lately because of so many the uncertainties that Kathy just highlighted, where there's this wide range of outcomes because of the proposed policies, what gets implemented, when they get implemented, and what that impact is. So given that, and given the I think the risk is to higher yields than lower yields if we do get some sort of inflationary impact. So our guidance now, our main guidance for investors is to really focus on a benchmark or below benchmark average touration. We don't think it makes a lot of sense to dive in with long term bonds right now because of the risk of those prices if they fall. I want to make it clear though, that that's a tactical idea. From a strategic standpoint, we still think the yields are pretty attractive. So if you're an investor, you're looking for for five six percent yields, you can get that right now, if you have that time horizon, and if if that's going to help you reach your goals, then I think that's really attractive right now. But just be prepared that if we see yields in show when we talk about our upside, maybe maybe we go to five percent on the tenure treasure yield.

But maybe likely possibly possibly yes, okay, to all three.

But maybe likely possibly possibly yes, okay, to all three.

Yeah.

Yeah.

So you know what we do is you try to model out we deconstruct the tenure. Yeah, then we try to model out, well, if we change this component, what happens in that component?

So you know what we do is you try to model out we deconstruct the tenure. Yeah, then we try to model out, well, if we change this component, what happens in that component?

Or if you just look at the spread.

Or if you just look at the spread.

There's a lot of components to play around with, right, yeah, exactly, And or you just look at the spread between the Fed funds rate and tenure yields. Historically it can be a you know, one hundred to one hundred and fifty bases point. So if the FED can't go below four percent, you could easily get to five percent plus just based on history. But we do think the FED will get below four percent by some amount, but again, a lot of ifs there, and so we're just trying to be as cautious as we can right now without giving up too much income.

There's a lot of components to play around with, right, yeah, exactly, And or you just look at the spread between the Fed funds rate and tenure yields. Historically it can be a you know, one hundred to one hundred and fifty bases point. So if the FED can't go below four percent, you could easily get to five percent plus just based on history. But we do think the FED will get below four percent by some amount, but again, a lot of ifs there, and so we're just trying to be as cautious as we can right now without giving up too much income.

Hey, Colin, play that scenario for us, if we do hit five percent on the ten year, what that looks like, What the implications of that are for the economy? And I mean I think a lot about different areas of the market that have expected lower interest rates. If we don't get those, what happens.

Hey, Colin, play that scenario for us, if we do hit five percent on the ten year, what that looks like, What the implications of that are for the economy? And I mean I think a lot about different areas of the market that have expected lower interest rates. If we don't get those, what happens.

So I think what it looks like. I think it looks attractive, and I think if we get there, I think that can draw in a lot of demand. I think whether it's domestically or internationally, I think there'd be a lot of demand, especially that we're seeing these interest rate differentials. We're seeing other central banks expected to cut more than the US. I think that's number one to what happens to the economy and to barrow wers I think it's more of a mixed bag right there, because if you look at both the consumer side of the equation and what I focus on in the corporate bond market, corporations just haven't really had that negative impact of rising interest rates. Something I've looked at recently as why so because they because they did the same thing that that homeowners did.

So I think what it looks like. I think it looks attractive, and I think if we get there, I think that can draw in a lot of demand. I think whether it's domestically or internationally, I think there'd be a lot of demand, especially that we're seeing these interest rate differentials. We're seeing other central banks expected to cut more than the US. I think that's number one to what happens to the economy and to barrow wers I think it's more of a mixed bag right there, because if you look at both the consumer side of the equation and what I focus on in the corporate bond market, corporations just haven't really had that negative impact of rising interest rates. Something I've looked at recently as why so because they because they did the same thing that that homeowners did.

They fly, they refined.

They fly, they refined.

So if you look at i'll use high yield bonds for example.

So if you look at i'll use high yield bonds for example.

The average which is having a moment.

The average which is having a moment.

They're having a moment. Spreads are at you know, the fifteen year lows. The average coupon rate. Now that's there can be high or lower the average coupon rate of that index. It's right where it was in twenty nineteen. It's risen a little bit over the past year or so. But because companies just refinance. So if rates keep rising from here, although the trend is the opposite right now, but if they were to move up a little bit, that would impact the leveraged borrower. But for the most part, their fundamentals are pretty strong.

They're having a moment. Spreads are at you know, the fifteen year lows. The average coupon rate. Now that's there can be high or lower the average coupon rate of that index. It's right where it was in twenty nineteen. It's risen a little bit over the past year or so. But because companies just refinance. So if rates keep rising from here, although the trend is the opposite right now, but if they were to move up a little bit, that would impact the leveraged borrower. But for the most part, their fundamentals are pretty strong.

So the opportunities. So when you know someone comes to you and say, so, where are the best opportunities right now? If I have to I want to put some money in the fixed income area, Kathy, what do you say.

So the opportunities. So when you know someone comes to you and say, so, where are the best opportunities right now? If I have to I want to put some money in the fixed income area, Kathy, what do you say.

Well, again, if your time horizon is five years plus and you're willing to kind of ride out the ups and downs, you're looking at five to five and a half percent yields without taking much credit risks. So I'll see their investment great corporate bond, if treasuries and mbs. If just look at the egg, your total return is going to be pretty attractive and your income stream is going to be important. So keep in mind, you know, we have the rocky period in twenty twenty two because there was no coupon income. We're coming off zero now we're starting with coupon's, you know, close to five percent.

Well, again, if your time horizon is five years plus and you're willing to kind of ride out the ups and downs, you're looking at five to five and a half percent yields without taking much credit risks. So I'll see their investment great corporate bond, if treasuries and mbs. If just look at the egg, your total return is going to be pretty attractive and your income stream is going to be important. So keep in mind, you know, we have the rocky period in twenty twenty two because there was no coupon income. We're coming off zero now we're starting with coupon's, you know, close to five percent.

That keeps your return much more solid going forward.

That keeps your return much more solid going forward.

So we like higher credit quality in general, but definitely lots of places to lock in that yield.