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Chapter 1: What is the main topic discussed in this episode?
Bloomberg Audio Studios. Podcasts. Radio. News. Joining us now to talk about all that's going on in the markets right now is BlackRock Global Chief Investment Officer of Global Fixed Income, Rick Reeder. And Rick, we book you on every jobs day, but this is yet another Friday when we don't get the jobs report because of a short government shutdown.
It looks like we could have another one, partial shutdown, at the end of next week.
Chapter 2: What are the current challenges in the job market due to the government shutdown?
What do you make of this sort of muddy data picture when we don't get the things we need in time?
Well, first of all, it hasn't been jobs day in a number of months anyway because we're not getting any of those. I think the last three months we've had negative ā we had a government shutdown, but we still had negative jobs. Listen, I mean, it's a little trickier when you don't get the actual published reports. The markets pivot off it.
By the way, the volatility markets, you strike a lot of options in and around volatility. those dates. So it does create a little bit of trickiness.
That being said, I mean, particularly for jobs, and we've talked about it a number of months on your show, you look at what we got yesterday, you look at the JOLTS report, you look at the Challenger job cuts, you look at the claims data, you look at the ISM services in terms of jobs, like There's no ambiguity around where we are in the job market.
Chapter 3: How is the lack of data affecting market analysis?
We're having a really tough time. We're watching productivity explode higher in terms of growth being really good. But a job market, that's really tricky.
That dichotomy, Rick.
is the most fascinating, well, there's a lot of interesting stuff going on, but it's one of the most fascinating things about this economy, because it's difficult for anyone to say, even with jobs looking very challenging, that we're heading anywhere near a recession, as long as the Mag 7 is spending, what, like 2.1% of GDP on CapEx, as long as a government's running a 6% plus deficit, is this economy gonna be okay, even if the jobs market starts to have some cracks in it?
Yeah, the answer is yes. I think people don't look at jobs and look at this economy like it was 20, 30 years ago. You have an extraordinarily different economy, service-oriented versus goods-oriented. But you've got an economy that's operating incredibly well, but only on a couple or three cylinders. Today, you've got, like you pointed out, you've got CapEx that is robust and will continue.
You've got consumption that is robust, but it's driven by wealthier, older savers, and it's part of why the interest rate tool is not nearly as effective as it used to be, because that cohort is doing extremely well, where the burden today is is in terms of low income, small business, younger people.
But when you aggregate the data, and I hear a lot of people talking about, oh my God, the jobs market is softening, the economy's gonna come under pressure.
It's actually, this is an economy that's more asset-oriented than labor-oriented, and that cohort, I don't want to understate this, we have a problem in terms, we need to employ more people, but that cohort isn't that much in terms of aggregate spend. so the economy can continue to motor along. And productivity, I mean, you watch it play out every day.
I mean, now the equity market has taken it on about where is productivity manifesting itself effectively. Some spaces, not other. Who are the winners? Who's building a moat? Who's not going to be a winner in this? But at the core, you're watching something play out that's pretty historic.
Anthropic putting out another AI tool this time for financial analysis. They did earlier this week for legal services, both of them kind of rocking the market. That will affect sales at big companies, I imagine, big and small, as well as the jobs picture, right? We're talking to a lot of people. Yesterday, we were talking to Mike Arrighetti from S&P.
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Chapter 4: What factors are influencing the current state of the economy?
By the way, I will take it in a couple different directions. One, it's interesting. You hear the discussion about CapEx and the CapEx was too high. And I would argue there's some other things at play there. CapEx is your moat. CapEx and R&D spend are the way companies can build their moat. And it's actually data utilization.
And the companies that are exploiting data effectively that are building bigger moats, that is at the core of what is happening. There's something also that's different today. Some companies, the free cash flow generation that's been so robust over the last couple of years, you see some of these big companies buying back a huge amount of stock. Now they're spending more on CapEx.
That has real ramifications for the technicals in the equity market that we've got to think through. It's a lot of hard work. Yep, go ahead.
Well, I just want to jump in about the other hard work you do at Bink and how you're thinking about positioning the fund and where on the curve. Yield curve just shy of its 2022 highs, somewhat reversed a little bit yesterday, but some of that steepening continues. We have an incoming Fed chief who's been talking about trying to shrink the balance sheet over at the Fed.
When you think about the rest of this year, are you thinking about changes to Bink at all? Where do you want to be positioned for the road ahead in fixed income?
So a bunch of changes. Your point about credit. We've reduced some credit. We've reduced some IG because, quite frankly, it's not that fulfilling. We're going to get a lot of supply. The spread's not that interesting. We've cut a little bit of the low-quality, high-yield. By the way, we're running a bit less high-yield than we're running overall.
We've added to mortgages, although recently, the last couple of months, or not the last couple of months, the last few days, maybe we've cut a little bit of mortgages because the balance sheet discussion becomes a little less enthusiastic than it was before. But we still like mortgages. We like EM a lot.
the dollar will stay contained and so em the yield differential between em and high yield is as good as it's ever been and then the key one for us is and is securitization markets that i'll allow you to structure the collateral the covenants the uh you know what your attachment point is so we love the securitization market but you're right it's a different expression a little less credit a little more em a little more seeking the securitization zone by the way europe
killed it last year. And now the benefit you're getting from Europe is not nearly as robust as it was. So we've dulled down a little bit of that and actually more Asia in the portfolio. So yeah, we've been moving around a fair amount to keep it dynamic and where we think the best opportunity is.
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