Podcast Title: The Compound and Friends
Host/Author: The Compound
Episode: Is Rick Rieder a Bond King?
Release Date: December 13, 2024
Guest: Rick Reeder, BlackRock's Chief Investment Officer of Global Fixed Income

Introduction and Opening Anecdotes

Josh Brown kicks off the episode with a personal story about narrowly missing his flight by 14 seconds, highlighting frustrations with airline policies:

[00:00] "So Rick, I just missed my flight by 14 seconds... She said, 'Go downstairs. You missed your flight.'"

Michael Batnick empathizes, sharing his own experience of flight delays and overnight stays due to similar issues:

[00:32] "And so nasty about same thing I had the... It's brutal. And I just stay overnight in Chicago, same time."

Rick Reeder contributes by recounting a similar incident where his airline was inflexible with boarding zones:

[01:38] "I've been here for six hours. Can I please just board with the fourth zone?"

The hosts use these anecdotes to segue into a light-hearted discussion about customer service frustrations.

Introducing Rick Reeder

After some light banter and technical setup for the podcast, Josh Brown formally introduces Rick Reeder:

[05:27] "Ladies and gentlemen, with us today is a very special guest... Rick Reeder is BlackRock's Chief Investment Officer of Global Fixed Income and Head of the Global Allocation Investment Team. He oversees roughly $2.4 trillion in assets... He received Morningstar's 2023 Investing X Excellence Outstanding Portfolio Manager Award."

Rick Reeder humbly acknowledges his first appearance on the show:

[07:11] "Thanks for having me. Not this year. Not this year."

Rick Reeder’s Career Journey

Michael Batnick delves into Rick Reeder's professional background:

[07:34] "Before joining BlackRock in 2009, Rick Reeder was President and CEO of R3 Partners and was at Lehman Brothers from 1987 to 2008."

Reeder shares insights about his early career at E.F. Hutton and the impact of the 1987 market crash on his trajectory:

[21:04] "I didn't have a relative in finance... I took a risk and I never looked back."

He discusses his rise through the ranks at Lehman Brothers, highlighting the firm's strong research culture and entrepreneurial spirit:

[23:06] "We were ranked number one in research for many years... Our business was built on research."

Fixed Income Expertise and Market Insights

Rick Reeder elaborates on his fixed income strategies and the complexities of global bond markets:

[46:22] "I run our Global Allocation Fund, which is an equity fund and it's a big fund. So I spend a ton of time in the equity market."

Michael Batnick discusses the challenges and opportunities in fixed income, emphasizing the difficulty of beating benchmarks in equities versus bonds:

[25:54] "I think the bond benchmarks are much easier to beat because there are so many inefficiencies... The S&P 500 is a pretty hard index to beat."

Reeder addresses the risks associated with long-term bonds and the importance of focusing on the front and belly of the yield curve:

[47:18] "There's a bond vigilante risk... Just hold the front end of the yield curve."

Monetary Policy and Inflation Discussion

The conversation shifts to the role of the Federal Reserve and its impact on markets:

[31:02] Batnick: "I don't think the US economy goes into recessions like... a pandemic or financial crisis."

Reeder critiques the Fed's delayed response to rising interest rates and the over-reliance on monetary policy:

[43:29] "Powell has to factor in the massive fiscal actions... They have to adapt based on what's happening."

Batnick shares his perspective on current inflation trends and the limitations of monetary policy:

[38:54] "I don't think you can count on much... We have inflation generally around here."

Private Credit and ETF Innovations

Rick Reeder and Michael Batnick explore the burgeoning field of private credit and the introduction of BlackRock's new ETF:

[50:19] Batnick: "In my unconstrained fixed income, I could do up to 15% less liquid bespoke financing."

Reeder highlights the success and innovation behind BlackRock's ETF, emphasizing its accessibility and attractive yields:

[53:58] "We've created six to six and a half percent yield and diversifying it around the world."

Batnick explains the strategic advantage of combining public and private credit to enhance portfolio returns:

[56:42] "The core of what we're doing is trying to provide yield above an index... We’re providing a product that’s stable with a lot of yield."

Future Market Outlook and Strategy

Michael Batnick shares his forward-looking views on compounding returns and the sustainable growth of private credit:

[58:09] "2025 is all going to be about compounding... can you finish the year with a blended return of eight or nine?"

Reeder and Batnick discuss the potential challenges and sustainability of current returns in private markets, emphasizing the importance of diversification and risk management:

[52:38] "The runway for private credit is probably two to three times bigger."

Personal Insights and Wrap-Up

The conversation concludes with Rick Reeder and Michael Batnick sharing personal interests and future plans:

[61:46] Batnick: "I enjoy what I do. I spend a lot of time with friends and family... I'm a crazy music person."

Josh Brown thanks Reeder for his insights and participation, encouraging listeners to follow BlackRock's commentary:

[63:53] "Please follow Rick Reeder and BlackRock's excellent commentary everywhere."

Reeder reflects on the fun and collaborative nature of the show, expressing interest in future appearances:

[62:05] "I had fun on the show today... I'll be here if you're."

Key Takeaways

1. Fixed Income Strategies: Rick Reeder emphasizes the importance of focusing on the front and belly of the yield curve to manage risk and optimize returns, cautioning against the volatility of long-term bonds.

2. Monetary Policy Critique: Both hosts critique the Federal Reserve's delayed response to interest rate hikes and its reliance on monetary policy without sufficient fiscal support, arguing that this has led to persistent inflation and market distortions.

3. Private Credit Growth: The discussion highlights the significant growth potential in private credit markets, driven by attractive yields and the ability to restructure loans efficiently.

4. ETF Innovation: BlackRock's introduction of the iShares Flexible Income Active ETF represents a major innovation in making fixed income strategies accessible to a broader range of investors, offering stable yields and diversification.

5. Market Outlook: The guests express cautious optimism about the future, focusing on compounding returns in both equities and fixed income, while acknowledging potential risks and the need for strategic diversification.

Notable Quotes

• Josh Brown [00:00]: "You can't, you're Vegas, but you gotta go check it."

• Michael Batnick [12:00]: "I read tons of earnings reports. I learn a ton from what's happening to margin."

• Rick Reeder [25:54]: "I think the bond benchmarks are much easier to beat because there are so many inefficiencies."

• Michael Batnick [38:54]: "I don't think you can count on much."

• Rick Reeder [53:58]: "We've created six to six and a half percent yield and diversifying it around the world."

• Michael Batnick [58:09]: "2025 is all going to be about compounding."

Conclusion

This episode of The Compound and Friends offers a deep dive into the complexities of fixed income markets, monetary policy, and the evolving landscape of private credit and ETFs. With insights from Rick Reeder, BlackRock's expert in global fixed income, listeners gain valuable perspectives on managing risks, optimizing returns, and navigating the challenges of today's economic environment. The candid discussions, enriched with personal anecdotes and professional expertise, make this episode a must-listen for business and investing enthusiasts seeking expert analysis and actionable insights.