Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe wasn't All and I'm Tracy Halloway. So, Tracy, you know, every once in a while, um, I feel like every few months we have to do like a like a sort of macro episode. I mean, we talk about topics in macro, but it's also good to just sort of take stock of like where we are right now with the economy, FED and markets. Yeah that's fair enough, but I feel like at this moment in time, I mean I should mention we're recording on March. There is a FED meeting coming up, so maybe things will change, But at this moment in time, the macro environment is really interesting because of course we've seen this big backup in yields which has impacted stocks, and now we're watching out to see what the central banks actually do about it. Yeah, it's just a very interesting environment for exactly that. In addition to the backup and rage, we've seen this fairly dramatic rotation the likes of which we haven't seen for a while, where we have a lot of like banks and Energy Company is leading the way, and a lot of the tech darlings for the last year, if not the last decade, arguably pretty pretty severely underperforming. We're seeing this commodity boom ongoing, something that we recently talked about with Jeff Curry. We're seeing expectations continue to get ratcheted up for what growth is going to look like in one and maybe so we're definitely like at a turning point, which makes a of some sorts, which makes a good time to like take stock of the macro right now. Yeah, And I guess whenever you have these big turning points in markets, or when it feels maybe like you're seeing a turning point in market, the question always comes up about how you should actually position for it, And it does seem in this particular environ ronament. I don't know how you feel about it, but like I feel that it's more difficult than normal, I guess because bonds are selling off because people are positioning for growth, and at the same time, all the stock market winners that we've seen for the past couple of years are also selling off. So I don't know, it feels a little bit tricky at the moment. If if you're in charge of allocating assets, yeah, I mean, you know, I think for the last for a long time. You could have had a real like sort of set it and forget it port portfolio, like a sixty forty type thing, or we have a bunch of stocks, you have a bunch of treasuries, and you just don't worry about it. But a there's a lot of talk that maybe the treasury component isn't gonna work that well, especially in an environment that's reflationary, higher rates that has impact on the stocks. So there is a a broad reckoning, or at least questioning of whether a lot of the strategies that have worked well for a very long time, longer than a decade, really are just going to continue to be so easy. M hm. Anyway, the good news for us is that we're just journalists and so we don't actually have to answer these questions ourselves because it's not our job to get it right. That's true. But our guest is very special episode today. So our guest Nat only used to be a journalist, but it actually used to work for me, and you're tracing this episode makes me very happy because we're going to have one of our old colleagues on and not only was he an excellent journalist, but he's gone on I think, to be an excellent strategist at a real bank. And it's really nice when you see someone who has who has expertise in markets, who sort of translates that expertise into UH I guess something other than writing about it, and actually takes an active role or position in it, putting theory into practice. Right, So we just write about it, we just talk about it. But our guest today used to do that and now he actually has to make these calls. So we're going to be speaking with Luke Kala, our longtime colleague. He is UH asset allocation strategist at UBS Asset Management. We references work a lot. We talked about his business. We cover ones which will probably come up today. Luke, thank you very much for joining us. Guys, it's a it's my pleasure in the warm, fuzzy feelings are very much mutual here. So is this a tough time, like as Tracy set out, like, does this seem like a particularly sort of tricky moment for thinking through problems in the question of asset allocation? I mean, this is the thing about uncertainty, right, It's always supposed to be above average, but at the at the risk, at the risk of you know, contradicting tracy, which I guess I'm allowed to do now. It's uh, it almost seems that one of the one of the more difficult parts right now dealing with this environment is is letting it fully play out. We know that we have, you know, some incredible fiscal stimulus in the pipeline. We're pretty sure we have you know, sustained monetary support over a reasonable enough forecast horizon. So now it's a lot about just making sure that you know, the fundamentals are still aligned with with your thesis coming into this year and you know so far, I think I think that's that's been the key. And if you look at kind of the current environment we're in, something that it reminds me of a lot, not in macro implications, but in terms of just letting it play out. Would be the kind of the oil shock whose ramifications in terms of, you know, how what it did to what it did for bond yields, what it did for commodities generally commodity currencies, that that essentially lasted for like an eighteen month period in which it was a chief catalyst for performance across the board. Right now. That's that's kind of how I'm envisioning the degree of fiscal that's in the system right now, and the kind of earnings rotation that's that it's supporting underlying underlying markets. So I have a ton of questions just based on that. But I think maybe to begin with, we have to start with your or at least talk about it a little bit, your transition to the real world, you know, moving away from journalism actually putting what you write about in practice, Like what made you want to do that to start with? And obviously obviously you can avoid saying bad things about Bloomberg, but you know, why were you interested in making that switch? Yeah? And nothing, nothing but nothing but love on my end for former and current current employers on that front. But yeah, I think it just there there was time in my in my career where I wanted to definitely take a take a learning step and you know, figure out whether kind of my ideas and the way I thought about things could uh, you know, could translate into the real world. But also to uh, you know, to start fresh again and be the definitely be the dumbest guy in the room. And that's that's a position I I relish and I enjoy and I'm in in every meeting i'm in. So just the ability to really to learn to rewire my brain and to you know, to solve problems on a on a more prolonged basis, because I think, you know, one of the things with with journalism that's fun and exciting and what I what I loved about it when I was doing it, is that when you when you go in every day, you have really no clue what you're doing. The market is going to dictate kind of what you're doing, and you know whether whether you're covering commodities that day or options or bonds, etcetera, etcetera. I do like the idea of of a little more structure and working to solve problems where you know, the half life and the payoff period is going to be longer than that one day where we're going to have some stay in power, we're going to be building results for for our clients together over a prolonged period of time. So that's something that really appealed to me. And you know, I love the people I worked with when I was at Bloomberg and I love the team I'm on here. So talk through a little bit more the process. I mean, it's one thing to like have calls, right, It's like, okay, rates are going to rise or commodities are going to continue to rally or whatever. Butbviously to make a call like that, you have to have some sort of like deeper you know, something has to proceed that some sort of like process for incorporating new information into a call. Talk to us about how you and your colleagues begin to think through these problems translating inputs and the markets in the economy and policy and turning them into the question of um, you know, decisions on asset allocation. Basically yes. So I think there's a really actually good tie into journalism here because I think, Bloomberg, the interview question you're always asked, I think there is one of the most important things as a journalist, and it's accuracy and accuracy are the two most important because I think what you're supposed to answer, and then when it when it comes to investing, I think the the answer there would be accuracy and asymmetry. So essentially what we're trying to doing is is trying to identify convex opportunities that are based on underlying macro themes we expect to play out. Now, what is something that provides, you know, the convexity or the outsized return or the the best expression of a thesis, so to speak. It's probably going to be a combination of both valuation and catalyst. So it's it's really working, working through and doing doing the work to identify assets that do appear undervalued and that we do believe have like a reasonable macro case to expect these valuation gaps to remedy based on an improvement in the underlying fundamentals. And I think that's key. It's not just hoping that this valuation gap will close if you have that, but you don't have the here's how part, And that's what we spend a lot of our time doing. It's easy too, It's easy to kind of identify and just know where the valuation gaps are. How you avoid value traps is really finding that catalyst and making sure it will be there within a reasonable period of time, so you have your your mergence safety built on valuation, and you have your the list that provides for meaningful upside exposure. The catalyst point is interesting because I always thought that this is probably one of the things that I I would certainly struggle with if I made the switch. You know, it's one thing to write you think rates are too low or the dollar is miss priced or something, but it's a whole other thing to actually come up with an actionable trade based on that idea. And the other thing I've been thinking about is you could argue that, you know, markets get stuff wrong. Um, although I guess some people would take issue with that, but you could argue that markets, you know, stay irrational longer they then you can say, solvent things like that. That's probably why the catalysts becomes so important. But how do you sort of deal with that aspect of it. Especially in recent months or years, we have seen this frothiness in markets and you can say that valuations are way too high, but they can just keep going up and up and up without you know, a catalyst on the horizon. I think this is something that plays in very well to the kind of the the biggest debate that you alluded to and the in the preamble, which is essentially the growth versus value trade right now, because I think that you know that essentially is a good parallel for for you know, what underlies your question there, and for the longest time you could say, well, you know, these these valuations are getting to the most stretched since the dot com bubble, totera, etcetera. At certain point this is going to snap back the situation we have here, and people can people can point to the rates market as a you know, as a catalyst for this rotation or as accentuating this rotation. When you really look at this under the hood, it's it's just the fact that the earnings the bottom line for value stocks are expected to grow at a faster pace than growth stocks for the first time in quite quite a while. So if you look at finally getting the catalyst to realize some of that some of that out performance, and that's you know, that's unlocked byvaccinations, that's unlocked by fiscal stimulus. So right now, I, you know, I I view that as much more fundamental to the cause of value versus growth performance. Then then the rates market. If you're going to run like correlations for three month rolling performance of NASDAC versus SMP five D versus the movement and tenure rates or real rates, you're not going to get incredibly strong signals. That's it's a bit of a a quasi myth. So it's it's really looking into what's been driving the out performance. Is it the earnings growth? And do we expect that's reversed? And that's that's our view that based on just the the amount of physcal stimulus in this in the system, given vaccinations, laying the groundwork for return to economic normality, that that's going to happen. And so that's the that's the kind of scenario that I'm talking about. Just letting it play out because the earnings in this case are the catalyst, and you come late this year midpoint of this year, we'll be talking about, Okay, how can this be sustained? Do we have the policy action to sustain this? Or are we going to migrate back into the into the regime we have before? And that's when you you return to monitoring your policy milestones and how do you know attempt to attempt to you discern the tea leaves here. I mean you you basically anticipated my next question, so expected to be blistering fast growth. I mean we might get I think I've seen estimates for like potential GDP growth of like eight percent for the year. It's like going to be something nuts because the reopening, the vaccine, the stimulus. I think two will probably have some of that and also be pretty decent. But then there's a question about what's next. So how do you start thinking about, as you say, those policy milestones and the degree to which they'll sort of like continue to affect the like what's next? The weather value continues to outperform what do you like getting? What do you what are you gonna be thinking about? Thinking ahead? What are you gonna be thinking about for the end of In terms of that what's next? I think the important part is not to not to think ahead too much, not to not to think too fast, like the kind of the the biggest mistake that could be made in the in the coming months is essentially saying, okay, we've had peak policy support, what's next to the kind of the kind of show me story and using that as a reason to get you know, bearish when you know, we know it's a it's a popular to quote another of our former colleague, samro you know stocks usually go up, that's the that's the thing. So I think importantly kind of anchoring, anchoring on that and realizing that, you know, as long as we're still expected to get earnings growth. It's just you know, a matter of making sure you're on the right side of the rotation. But in terms of things to watch, I think an encouraging development lately has been the degree of Chinese policy support that hasn't really contracted as significantly as you know some may have feared coming into the year. That's that's removed a pretty pretty key downside risk. A second would be the the continuation of US fiscal support, not only through the anticipated infrastructure bill that we know then Congress will begin to work on soon and hash out over the course of the year, but also whether some of the provisions and the most recently past one point nine trillion stimulus are actually extended and made more permanent. Those kind of things they do add up, and they just do show that the policy boat is you know, continuing to move in the right direction, and that that allows kind of the more cyclical traits to continue to have the wind at their back. Um, you mentioned China there, and I do want to get into that, but before we do, maybe maybe if I just ask the bonds question, that would be a good segue into it. We're talking about how stocks in the long run tend to go up. But I'm curious how you feel about bonds at the moment because I imagine, you know, if you're in the business of asset allocation, I just don't think selling you know, a big position in US treasuries is that um, I don't know, it can't get people that excited at the moment, right like it, It doesn't really it doesn't really work to um to offset losses in stocks anymore, or at least it hasn't this year. The yields are incredibly low. It's just very very hard to see the attraction in US debt at the moment. So how are you feeling about the role of you know, US treasuries in a portfolio. Well, I think bonds full stop, do still playing an important role in portfolios in US treasuries due to like think think about the nature of the quote unquote shock and I'm using air quotes on that because we're still pretty much even at all time highs after this this rate shock. And it's the thing about bonds is that they aren't intended to touch the shock. They're intended to hedge the downside shock to growth. And that's something that you know, we were we were able to to overcome and deal with last year in bonds. You performed pretty well throughout that I think you can say, especially after the liquidity crisis stages of the of the COVID chuck has passed. But right now, from from our point of view at GUBS were under we're underweight global duration, and that's just based on the view that we're getting we're getting a recovery, and bond yields haven't fully priced in the magnitude of the recovery or the about or the amount of growth we're about to get that's in the pipeline. But you know, being underweight bonds doesn't mean kind of abandoning them completely. So that's that's the kind of the rule we see that the give and take. It's certainly not a time in our view to be to be overweighting bonds. We prefer equities to bonds, we prefer credit to bonds. So that's that kind of gives you a sense of of where we are positionally. So just on the idea of bonds as a diversification play, and the fact that you mentioned the Chinese economic performance recently and the fact that monetary policy hasn't been as tight as maybe some people were worried that it could be. How do you see Chinese bonds at the moment, because I got to say, like, one of the things that we've been watching out here um in Asia is the enormous inflows that we've seen into Chinese government debt in and one like, it's just such a step change in China's position in investment portfolios and also in the global financial system because it's getting very close to moving from an exporter of capital to an importer of capital, and that's just really interesting to see. So I'm curious from an investment strategy perspective, what's going on with Chinese debt, Like what is the attraction right now? So I think the attraction starts with just the most simple component, and that's that's the yield premium relative to the rest of the world. So essentially, coming into this coming into this year, you had you know, the Chinese tenure at a near record premium two G three yields, So that that in itself is going to drive attention, especially with central banks signaling at the time that you know, we nobody was anticipating the kind of the results we got in Georgia or for yields to move the way they had. So that's something that just off the hop is going to naturally lead people to gravitate towards a you know, a higher yielding solution. But I think a deeper part of this, and this is something that it's part of a collection that me and my colleagues have written called Upgrade Draft Allocation. And the second paper in this series deals with enhancing diversification in the context of a low yield world. So how are you going to make sure portfolios are are well buffered in an environment where bonds might be at an effective lower bound? Which still an interesting part of the COVID chuck is that no central bank took rates more negative to deal from it. So it seems like, you know, the appreciation of that policy tool might might be might be fading in its in its role going forward. And so when we looked across the spectrum of different different fixed and co instruments, we just believe that Chinese bonds, because the yield premium and because of the the economic maturity, the People's Bank of China has now a reasonable history of being able to move move countercyclically, so you know, enable to you know ease when conditions are bad and tighten when conditions are getting better. That kind of supports the stock bond correlation you would like to see and helps you have faith that it will be there in the future. But I think what's more important is what Tracy just mentioned. The fact that Chinese bonds are getting all of these inflows and receiving all of this uh, you know, all this more institutional adoption and appreciation is something that itself will perpetuate and kind of reinforce this, this negative correlation between between stocks and Chinese bonds in particular because if you look at also the you know, if you go through the growth shocks or the you know, any reasonable pullbacks we've had in the past few years, it's you know, China and sixteen China divil. Obviously, Chinese component yields go down during this, and global stocks go down earlyen the you know, the Valmageddon experience not clearly not a China matter, but yields down materially to fen not really a China story. You can argue it might be about trade, maybe not, but yields down a lot during that, and COVID is certainly a story that China was first into from an economic and risk market perspective, and yes, yields down. So if you're trying to tell any story about the global economy and you know macroeconomic cycles and ebbs and flows, it's very likely that China is going to be a mover and shaker in that story. So it's you know, it's very likely that beyond the yield premium of the offer, that the negative correlation will still be there. That's super interesting. So you mentioned something early on in that answer I want to go back to, which is we didn't see any major central banks go deep into negative rates during this crisis um And what we have seen, at least in the US context is that, you know, in lieu of perhaps more monetary using, we've had this something of a handoff to fiscal that people have been talking about for a long time. A our negative rates as a policy tool likely done like sort of discredited or not likely to be pursued again. And be more broadly, does it change the business of asset allocation to think about a world in which there is this policy asymmetry and we're more likely to get um a fiscal impulse as opposed to just a monetary one. When there's a downturn. So on the on the negative rates question, I guess I mean, the the only thing that keeps me from, you know, in my view saying that it's definitely going the way of the wooly mammoth is the Bank of England. That would be kind of the only thing that gives me gives me pause, because they do seem to be at least laying the groundwork in the financial system to do that if needed. And it's a it's a real consideration, but that could also be part of the you know, the Ben Bernanke constructive ambiguity when it comes to negative rates, even talking about them is a is a form beforeward guidance set can kind of help keep the front of the curve well anchored and and well behaved when it when it comes to the policy asymmetry point, I think it's I think it plays out in two important ways. One is, again, you reasonably might not be able to expect to bonds to deliver the same degree of performance during risk off that they have in the past just because of the lower starting point. So that's that's a mathematical kind of construct there. When you move to the handoff to fiscal I think that that's where it moves more into the realm of equity rotation and equity risk premium. So if we're if we're moving into into an environment where policymakers have say, hey, we've discovered the real solution to counter cyclical policy. It's it's giving people money, it's giving businesses money. It's making sure that liquidity crisis don't moll morph into solvency crisis. And actually we do that role better than central banks do it. We're going to continue this playbook going forward. What does that do to the cyclicality of earnings for cyclical companies? And in my view, this is something that would make them less cyclical if we're going to constantly underrate the business cycle using fiscal policy. So the valuation gap that we talked about earlier between value and growth, if you also, you know, kind of just reframe that as cyclical versus defensive. If you're less worried about the cyclicality of earnings for cyclical companies because of fiscal policy taking a more muscular role, that's something that can act as a conduit to over time that valuation discrepancy narrowing. Sorry, So just on that point. I mean, you mentioned the nineteen seventies oil crisis, So I'm just curious, as the shift from monetary policy to fiscal stimulus gets underway, how are you thinking about This is such an obvious question, but how are you thinking about inflation? There's inflation is a show me story still, right, Like the FED has essentially told us that inflation is not is not something they're going to react to. It's uh, you know the FED, Jerome Powell is Fed Ben Berniki looking through inflation, not the Fed of kind of you know, preemptive setting off a taper tantrum. So that's so the reactivity of financial markets too near term inflation outcomes. I think we've been we've been well prepared for that, and you see that already in the the backup in yields we've had looking forward over a long period of time. And I know Joe loves to post charts of essentially a bunch of core inflation measures that are just hanging out close to but not above two. So that's the history we're fighting. But that was a history that we had in the context of monetary policy doing all the lifting. So it's you know, Sysiphus posting the boulder up the hill. Monetary policy can't do it on its own, boulder back down. We try it again. This time it's different because you know Hercules is pushing the boulder too. You have fiscal policy much more on board. So it's it's a wait and see and monitor because you know, at this point we can't judge the degree of fiscal stimulus and how long it will be there. What we can do is look at, okay, what kinds of realized inflation outcomes would really cause us to re examine the stock bond correlation and the you know, the potential negative effect on portfolios. And so a couple of my colleagues, Mkelly Gambera and Lewis Finney have done some great work on this, and what they found is that the point where the correlation flips where you should be very, very worried or at least concerned or taking steps to monitor you know that the bond part of your portfolio isn't providing the protection you might think it is. Is when core CPI is has averaged two point five for a thirty six month period. So when you think about that in the context of average inflation targeting, that's that's almost what we're looking for. So we're almost targeting basically getting back to us to the point where bonds might not be providing good protection, but you still might also be. So we're going to be flirting with that line under a policy success regime. This super interesting and super important. I also want to note again we are recording this Monday, March fifteen. Um, by the time you'll have listened to this, we will have had a FED meeting, the context of which is partly this backup and rates growing economic optimism, but this general sense that this doesn't change much yet for the FED. How confident are you generally that this really is, as you put it, the eleven FED right now or certainly not FED, and it's willing this to tolerate a level of inflation and tolerate a drop in the unemployment rate that doesn't make them nervous in a way that we didn't see um with the FED pre crisis. I can I can tell you things that will make me more confident in that going forward. I think just on a on a basic level, for the inflation point, it's it's almost as if all this the policy review was for not unless it produces some kind of concrete change and the fed's reaction functions so that that in itself, there's there's some sunk costs into this new framework that does suggest that he yes, it will continue to be an operable one that produces different results than the than the previous economic cycle. So I think, uh, you know, from a from a starting point, that's a that's a good place to anchor to what going forward? I think what would increase my confidence that this is really a different FED? And you hear you hear FED members talk about this fairly often. They're talking about more economic metrics outside of the unemployment rate that's in the that's in the Summary of Economic Projections. They're talking about the employment to population ratio. They're talking about how labor market outcomes are are unequal based on race, and that you know, that is something that over the fullness of time, a hot labor market can start to correct. If the FED gave us in their in their dashboard and their Summary of Economic Projections the outlook for how some of those variables are expected to unfold and suggested that those are what's moving into being targeted as measures a full employment, I think that would very much increase my confidence that there won't be kind of the there won't be as much of a preemptive tightening, and we won't be you know, we won't be tightening even as soon as we see the whites of inflations eyes. But we can we can see a little more than that. We can see the iris and the pupil. So you've talked um or you've mentioned a couple of times now this idea of waiting and see sing how durable the fiscal policy response actually is. And this is something that I've thought about at various times throughout the years. But how difficult is it as an investment strategist or you know, as an analyst or something like that to be gauging policy and to be looking at economic policies through a political lens. And I remember the first time this came up was in the context of the European Union and the Eurozone debt crisis. There, you know, everything hinged on what the EU would actually do and what sort of political will there was for burden sharing or fiscal austerity and that sort of thing, and it just seemed really, really difficult if you were a strategist who is basing their decisions on you know, actual fundamentals to suddenly switch to trying to figure out what a certain politician was thinking and how they were playing to their base and what political calcul relations that were making. So I'm curious, like how difficult were easy is it to incorporate political motivations and mechanations into your investment thesis. I think it's incredibly different difficult because as you kind alluded to, your biases will will tend to creep in and infect the process. And I think that's where you know, being a being a global bank and I'm on a global team, this is where that that really comes in handy because you do have more kind of boots on the ground closer to home, domestic knowledge and pretty much every market. So I think as a starting point, that's very helpful. And beyond that, it's recognizing your your limitations, recognizing that I'm not I'm not a congressional analyst. I'm not a political analyst, but I talked to people who are. It's it's still doing that research, doing that work, and that's where there's so much symbiosis. I think between between news and UH and asset management. We we rely on the we rely on good reporting. We're around the desk, we're sharing Tracy Alloway or or Stephen Spratt or occasionally Joe Wisenthal articles and discussing the information in this and whether it's whether it's changing our priors, whether it's changing our views, whether it's changing our thesis. So I think it's it's a lot of humility. It's knowing what you don't know. It's knowing that there's someone around you who has a better idea than you do, deferring to them, and then continuing to sneak out proberating evidence from actual experts on the subject. So this might be a good time to pivot a little bit to journalism. We mentioned in the beginning we sometimes cite your work here at Bloomberg, and I think, uh, just over a year ago. I think it was last February, right before the crisis hit. You kind of had this legend Dairy Business Week cover when the bull market gets weird about what was then the sort of nascent thing which has grown way bigger, about the role of sort of Robin Hood and Wall Street bets and this thing that's really taken on a life of its own. Talk to us about um when you think about impact on portfolio thinking about portfolios, an impact on the market. How the introduction of this new phenomenon of this really intent retail participation, call buying meme stocks, all kinds of stuff like that that has become very mainstream in the last year. How would uh, how it intersects with your broader thinking about portfolios and how markets behave. Yeah, I've got to say it was this. This was the moment in a time where I think, my you know, my brain had been successfully rewired. When you when you see some of this activity and then you you immediately don't go okay, I need to check this or that forum. It's okay, Like, how is this going to affect the broader market? Ecose, it's them so kind of from the highest, highest possible level of view, if we're going to have a new material source of funds generally entering the market, that's this. This is going to put downward pressure on the equity risk premium. This is going to be kind of positive for asset valuations. So from that high level perspective, that's the that's the first order from which I would view it is that this increased these increased flows from this cohort is positive for equities full stop. The the increased kind of footprint of this of this cohort, the higher turnover, and I think what we saw at the end of January, it's it's a reminder to me about how a lot of the the pullbacks we've gotten in recent years are they really do have a liquidity accelerant kicker here. And so from an asset management perspective, if we're able to identify a situation where sharply swinging flows are what's essentially driving the move in headline markets and the fundamentals haven't changed a bit, well, then there's there's a pretty good opportunity for us. That's the that's the evaluation and the catalyst that's opened up thanks to these flows. We can expect that to remedy, and you know therefore that that's an opportunity. I think another element that's really unique to retail participation is the timing. The fact that this came about during a period in which buy backs obviously fell tremendously because of profitability and because of you know, regulatory rules, and it was a time when the macro economy was not doing well. So I think this leads to a bit of a you know, an over focused on retail, which certainly you can you can see the visible footprint, but it's important like not to be doing partial equilibrium analysis here. We also do have to consider how, you know, how flows are going to improve from buy backs, how flows might improve for more autopilot flows as uh, you know, as employment does grow, and so you know, that's that's something in a wholesome manner, that's kind of how we we think about it. Sorry, I gotta ask this as a slightly flippant question, but one thing that I've said about the game stop phenomenon and Wall Street bets is this idea of flows before pros, So that idea that money can sort of, um, I guess, trump the economic fundamentals and at some point, you know, asset prices that used to be self limiting because at some point valuations would just be excessive now can kind of keep going forever. Because it's the momentum that really matters to investors. People are just trying to catch the next wave. I'm very curious, or sorry, let me rephrase that. I'm wondering now that you're a pro at U B s um, how do you feel about the flows, Like, what's it like internally at ubs when you see something like you know, game Stop rising to four hundred dollars. This is where kind of the we're we're very top down oriented and don't do anything related to single stocks. And that's where this this is where it helps here is that you can see that clearly in late January you're having dislocations and you're having headline indexes decline because of flows related to retail trading and associated de leveraging. Nothing about the fundamentals change for the for the better or worse, and very soon thereafter all time highs. Again, So thinking about it from the index level perspective, it doesn't seem that these you know, that these flows are kind of overpowering the fundamentals at any point in time. Might that be true at the at the single stock level. That's mercifully something I don't I don't have to have an opinion on it anymore. Okay, So we're talking a lot about flows and how you actually pitch investment strategies. Uh, once you become a professional strategist. So another thing that's been really hot this year is or in recent years really is E S G and you know, environmentally and socially friendly investments. And I have to admit that I've become very cynical about it, probably because I receive at least eight emails a day and you know, ten other press releases about someone starting an e s G fund or how a particular bank is doing something new in e s G. Whatever. It seems like the thing, the bandwagon that everyone really wants to hop on. How how is that playing out at ubs? Or you know, how how are you approaching it? Like is it something that you're pitching because clients are demanding it? Or is it something that you're pitching because it feels like the right thing to do, or that I don't know how to phrase this. I guess I'm just curious how how you all are thinking about e s G at the moment and how much of it is a trend for better or worse When I when I think about E s G. And this is what I'm primarily going to kind of focus on, is that there's a paper again. I'll give MICHAELA. Gambera another showed out because he's he's it's in the process of review. But another paper that I'll try not to cannibalize or pre empt too much. It's about how do we how do we think about incorporate E s G into the asset allocation process because I think the a big underlying question to this is is there a trade off if you think this is a if you think this is a bad, if you think this you know, doesn't produce optimal return results, what are the what are the associated costs? Are there any And there's there's precious few academic studies or work on this, and michaelis is among the first in this field. And so how we're viewing it is that the traditional kind of investment process you're balancing risk and return. With E s G, you're adding a time dimension and you're also adding preferences that are going to the preferences are going to guide the investment universe, and that could be by kind of regulatory fiat, or that could be because of you know, the values of you know of certain boards, firms, endowments, etcetera. And the time dimension is I think something is something interesting. It's the idea that more and more E s G is much less a you know, here's here's something we would like to encourage by kind of by rules by flows, etcetera. And it's going to become much more something that drives bottom line activity if it's not. It's not just kind of regulations saying you know, you must you must do this, you must do that. It's governments making steps beyond that, using fiscal policy to support E s G goals and particularly related to E. So that's that's what provides a lot of opportunity on the on the time dimension side of things. Is that you know, I'll give you the coals note punchline of of the forthcoming paper, and it's essentially that we believe through our search is that there's there will not be a trade off between risk and return, any negative trade off by adopting E s G, and that you can make essentially a lot of portfolios that are have the same factor components as the parent index, the non U s G index, you know, pretty easily, even using some more some brute exclusion techniques. So it's something that you know, regulators seem to be demanding. It's something that clearly if you look across the industry, there's there's interest in and it's something that's going to be affecting bottom line results for corporates more and more. I have a sorry, I have one more question. But this is also something I've always wondered. So in journalism, as you know, we get a lot of feedback on our work, Like I think it's one of the few jobs where you published to a relatively large audience and you can get feedback almost instantaneously, either through comments on your stories or through social media or people emailing you or whatever. What sort of feedback you get as an investment strategist and what sort of um, what oh consequences? Yes? Okay, so what sort of consequences happen? Like if you get something wrong or right? Like do clients come come back to you and say, like, this call is incorrect? Why why did you think that? Or you know, does anything happen if you actually get something wrong? I know Joe and I were joking earlier about how when you're a journalist you don't always have to be right, but presumably when you're doing this professionally, uh, you want to be reasonably um, well you said it earlier, you want to be reasonably accurate, And you're thinking, what what gives you feedback? Is the market kind of instantaneously and always is giving you feedback on whether you're you're right or wrong, and that'll you know, that'll play out over time. But for us, it's very important. You know, this is this is a result oriented business, but it's very important to keep process in mind that at all times. And that's that's why it's important to to build a lot of consensus for new positions and new trades and have them you know, thoroughly vetted battered around. So that's the the consequence is everyone having buy in, everyone having understanding of the of the factors, of the milestones that could affect a trade when you go into it, and and being able to monitor it so you know when the conditions are shifting, you know, when there's been a thesis violation, or you know when things have gone according to plan but the price just hasn't. So the the way to avoid or to kind of mitigate quote unquote consequences is uh, the dissemination of information in a in a manner that allows a lot of these these priors or these questions to be challenged before you actually do it, and then it's just you know, then it's just a matter of monitoring and figuring out our things going according to plan are they not and and why and if you've done the work beforehand, you you know you have a pretty good based to go off with their. Well, Luke, thank you so much for joining us. Is great to be um for to be reunited and hopefully we'll see you again one day in person. But congratulations and we miss you. And this was a fantastic and fascinating discussion. Real pleasure, guys. Thanks for having me on, Luke. We're all so proud of you. Yeah, seriously, Oh, thank you guys very much. It's you know, it's so great to be speaking to you guys again. And hopefully you know, a a karaoke at sometime when Tracy's back in the year. Yeah, we'll definitely do it. Take care of Look, Tracy. I thought that was great catching up with Luke, but way too long, obviously. I really liked everything that last answer to your question. I thought it was like super interesting, like how they think about like feedback and uh anticipating just everything related to like process. It was super interesting to me. Yeah, I've always wondered, I guess how your evaluated it UM in a position as an investment strategist, Like is it how good your research and you're thinking was around a certain investment decision or is it based on absolute returns? Like even if you had the smartest thesis in the world, could you get a really bad year because the market just goes against you and you're considered unlucky, like you know, all those perma bears. I'm not saying Luke is a permit bear at all, but you know the permit bears who for the past ten years have been you know, talking about how stocks are going to crash and things like that, and they're very, very popular. They have a huge following among buy side and journalists. But if you looked at you know, if you actually did what they were telling you for the past ten years, you probably would have missed out on a lot. Well, you would have made money for about five minutes last March, So you know, yes, that's the thing. I guess. No, I totally agree. I also thought like Luke did a really good job like clarifying a couple of really interesting thoughts in my mind. One is that discussion um Chinese bonds, which I think we should probably do an episode on soon, just like the Chinese government bond market and how it's become this big International asset class, his explanation of why the money's rushing in how it sort of is serving as this sort of countercyclical um anchor, super interesting topic and very well explained. And also this idea of like the value verse growth valuation gap, and this idea that like in a world of more physical activism, um maybe you could put it in a world where policy makers react more aggressively to cap downside that that then sort of like cuts off the left tail of value companies earnings, and you potentially get this sort of valuation rerating. Super interesting topic, and I think that will be something to like keep watching going forward to see if like what we call value stocks meaningfully reprice on changes in expected UH policy in and exchanges changes in the expected fiscal policy stands. Yeah, but just on that point Luke's, you know, the way Luke framed it, this idea of not trying to call the tipping point or the big change in markets, but actually waiting and seeing how durable the shift towards fiscal actually is. I thought that was a really important point. And I know markets are always racing ahead to identify significant turning points, but maybe this is in fact a moment where you sort of step back and say, Okay, we've had the big, big stimulus bill. Now we actually see whether it translates into growth and whether or not it might translate into inflation. Do you think a journalist could get away with that? It's like, what do you have coming today? And it's like, just relax. I'm just waiting to see how this all plays out. I'm not I'm not rushing the next narrative. Just just let me let's just see how this plays out. I don't think that would work. I don't think that would uh fly. I think we're in danger of getting into a conversation about the pros of short term horizons versus long term horizons. So we better step away quickly. Maybe we should leave it there. Let's leave it there. Okay. This has been another episode of the All Thoughts Podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe wi Isn't All. You can follow me on Twitter at The Stalwart. Follow Luke Kawa on Twitter He's at l J Kwa. Follow our producer Laura Carlson, She's at Laura M. Carlson. Followed the Bloomberg head of podcast Francisco Levi at Francisco Today, and check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening, Ey,