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- [00:00]
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- [01:03]
Rick Reeder
Bloomberg Audio.
- [01:04]
Host 1
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. What are you you make of this sort of muddy data picture where we don't get the things we need in time?
- [01:40]
Rick Reeder
Well, so first of all, the 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, you know, we had a government shutdown, but you saw negative, negative jobs. Listen, I mean it's a little trickier when you, 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 those dates. So it does create a little bit of trickiness. That being said, I mean for particularly for jobs and we've talked about a number of months on your show. You look at what we got yesterday, look at the jolts report, look at the challenger job cuts, you look at the claims data, you look at the ESM services in terms of jobs. Like there's no ambiguity around where we are in the jobs market. We're having a really tough time. We're watching productivity explode higher in, in terms of growth being really good. But a job market, that's really tricky.
- [02:35]
Host 2
That dichotomy R is the most fascinating. Well, there's a lot of interesting stuff.
- [02:39]
Host 1
Going on, but it's one of the.
- [02:40]
Host 2
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 deficit, is this economy going to be okay even if the jobs market starts to have some cracks in it?
- [03:03]
Rick Reeder
Yeah, the answer is yes. And the, you know, I think, 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, that will continue. You've got consumption that is robust, but it's driven by wealthier, older savers. And it's part of why, you know, the interest rate tool is, 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. And so, but if, 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 going to come under pressure. It's actually there's an economy that's more asset oriented than labor oriented. And that cohort, I don't understand, understate this. We have a problem too is 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, I mean, at the core, you watching something play out, that's pretty historic anthropic.
- [04:34]
Host 1
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're talking Mike Araghetti from Aries, who pointed out that, you know, the younger talent, the new hires aren't going to be doing the same work and may not be as plentiful as they once were in that industry. What do you make of AI changing the way we work or the fact that we work at all?
- [05:14]
Rick Reeder
Well, Mike's a very smart guy. I would say. I would say a couple of things. You know, I chair the board of. We have 14 charter schools in Newark, New Jersey, and we just had a discussion this week at our board meeting about what is our curriculum going forward? How does AI evolve, how we teach kids, how do we. What are the disciplines we're teaching our kids for going forward? How do we use AI to augment a traditional teaching process? This is all new territory, and this is all new land in terms of where we're, where we're going. Listen, I think there's a bunch of things that are, you know, that have been standard operating procedure that, you know, that we used to teach people for. And quite frankly, AI is going to fulfill that function going forward. I still think learning and interacting with people and the core of education will be, will be sincere to what it was. But, gosh, there are so many things we got to think about, about what can I do that can make the economy more efficient, make people more efficient, and then move people into the zones that, that are going to be fulfilling going forward. But that is, I'll tell you, Matt, there, there is no roadmap for this.
- [06:17]
Host 1
Well, what do you make of. I mean, I look at bank the ETF that you manage very well, and we'll show in a second how you've beaten returns of the benchmarks by a lot. But there's some corporate assets there, right? 45%. And I, and I, I wonder how you judge whether or not a company has a moat, what that moat would look like so that it can defend itself against AI disruption.
- [06:45]
Rick Reeder
So there is. How do I describe this, by the way? You know, I will take it in a couple different directions. One, that's interesting. You know, you hear the discussion about CapEx, and the CapEx was too high. And, you know, I would argue there are 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. You know, there's something also that's different today. Some companies, the free cash flow generation that's been so robust the last couple of years, you see some of these big companies buying back a huge amount of stuff stock. Now they're spending more on capex. It has real ramifications for the technicals in the equity market that we got to think through. It's a lot of hard work. Yep, go ahead.
- [07:31]
Host 2
Well, I just want to jump in about the other hard work you do at bank and how you're thinking about positioning the fund and where on the curve yield curve just shy of its 20, 22 highs, somewhat reversed a little bit yesterday, but some of that steepening continues. We have an incoming Fed chief who has 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 bank at all? Where do you want to be positioned for the road ahead in fixed income?
- [08:01]
Rick Reeder
So a bunch of, a bunch of changes. Your point about credit? We've reduced some credit, we've reduced some IAG because quite frankly it's not that fulfilling. We're going to get a lot of supply. The spread's not that interesting. You know, we've cut a little bit of the low quality high yield. We've by the way, we're running a bit less high yield than we're running overall. We've added to mortgages, although recent last couple of months or less of us, last few days, maybe we've cut a little bit of mortgages because the balance sheet discussion becomes a little less enthusiastic than that 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 allow you to structure the collateral, the covenants, the 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 a little more in 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 more actually more Asia in the portfolio. So yeah, we've been moving around a fair amount to keep it dynamic and where the best we think the best.
- [09:18]
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