Treasurys offer asymmetric returns ahead of Fed decision, says UBS’s Evan Brown

THIS YEAR AND SOME MORE AFTER HOURS ACTION. SHARES OF MEMORY CHIP MAKER SEAGATE AND NXP SEMICONDUCTOR BOTH FALLING DESPITE TOPPING EPS AND REVENUE ESTIMATES. MEANTIME, RATES STABILIZING AHEAD OF TOMORROW'S FED DECISION. FOR MORE ON WHAT WE CAN EXPECT OUT OF THE CENTRAL BANK, LET'S BRING IN EVAN BROWN, LEAD GLOBAL MULTI-ASSET PORTFOLIO MANAGER AT UBS ASSET MANAGEMENT. EVAN, GOOD TO SEE YOU. >> GOOD TO SEE YOU, MIKE. >> MARKET SEEMS PRETTY CONVINCED OF WHAT WE'RE GOING TO SEE IN TERMS OF NO MOVE ON RATES. WHAT DO YOU THINK WE'RE GOING TO HEAR. >> YEAH. >> I MEAN. >> WE HAVE THIS AWKWARD DANCE NOW IN THE PRESS CONFERENCES BECAUSE CHAIRMAN WARSH DOESN'T LIKE TO GIVE FORWARD GUIDANCE. AND YET REPORTERS AND ALL OF US IN THE MARKETS ARE TRYING TO GET SOME IDEA OF WHAT HE'S TALKING ABOUT. SO WE'LL BE LISTENING TO HIS VIEWS ON THE LAST INFLATION PRINT, WHICH WAS PRETTY BAD. THE FACT THAT ENERGY PRICES HAVE CONTINUED TO RUN UP. BUT AT THE SAME TIME, BROAD FINANCIAL CONDITIONS HAVE BEEN TIGHTENING A LITTLE BIT AND CREDIT WEAKENING. AND SO HOW HE CHARACTERIZES THOSE TWO, I THINK, IS WHAT WE'LL BE LOOKING AT. >> YEAH. HE SAYS HE WANTS TO LISTEN TO THE MARKETS. I'M NOT SURE ALWAYS HOW HE INTERPRETS WHAT THE MARKETS HAVE BEEN HAVE BEEN DOING. HE ALSO SAID LAST TIME YOU KNOW, LOOK, THE MISSION IS TO GET INFLATION DOWN IN A TIMELY MANNER. WE'VE SEEN A COUPLE OF HOTTER INFLATION PRINTS. PRESUMABLY WE MAYBE GET SOME DISSENTS IF THEY DON'T MOVE ON RATES TOMORROW. I DON'T KNOW IF THAT MATTERS. >> IT LOOKS THAT WAY. WE'RE THINKING THERE WILL BE 2 TO 3 DISSENTS. AND YEAH, I MEAN, I THINK THERE'S A REASONABLE CASE FOR THEM TO BE HIKING RATES TOMORROW, GIVEN WHAT WE'VE SEEN WITH INFLATION. AND AS MUCH AS CHAIRMAN WARSH DOESN'T LIKE TO GIVE FORWARD GUIDANCE, THE MAIN REASON WE DON'T SEE THEM HIKING IS BECAUSE SOME OF HIS COLLEAGUES HAVE SAID THAT THAT THEY DON'T WANT TO HIKE IN OCTOBER. SO I THINK THE CHAIRMAN STILL CHAIRMAN, AND WE ARE STILL TRYING TO FIGURE OUT WHAT THIS NEW FED IS, IS LIKE AT THIS POINT. >> THAT BEING SAID, A FED THAT IS NOT MOVING EVERY MEETING THAT'S KIND OF GO SLOW OR PATIENT OR DATA DEPENDENT IS OFTEN OKAY FOR MARKETS, SPECIFICALLY IN THE BOND MARKET. I MEAN, ARE YOU GETTING PAID TO ACTUALLY OWN TREASURIES HERE? >> WE THINK SO AT THIS POINT. NOW WITH A 5% COUPON ON THE TEN YEAR YIELD, YOU YOU'RE THAT'S DOING A LOT OF WORK FOR YOU. IF YOU HOLD THAT FOR A YEAR, SAY BOND YIELDS RISE 100 BASIS POINTS, YOUR TOTAL RETURN IS BASICALLY FLAT OR JUST A LITTLE BIT NEGATIVE. BUT IF BOND YIELDS WERE TO FALL 100 BASIS POINTS, WE'RE TALKING DOUBLE DIGIT RETURNS. SO YOU ARE GETTING PAID NOW TO OWN BONDS. >> YEAH I AGREE ON AN ASSET ALLOCATION. IT'S ASYMMETRIC RISK. I SEE IN YOUR NOTES ALSO YOU SAID THAT WE'VE SEEN TECH RERATE QUITE A BIT AND THAT IT'S A CLEANER TRADE. IS THAT DERATE. I MEAN DO YOU MEAN DERATE. AND NOT THAT I'M CALLING YOU OUT ON YOUR WORDAGE HERE BECAUSE IT'S THE QUESTION IS YOU'VE GOT THE THREE THREE GET 10 TRILLION REPORTING TOMORROW OR IN THE NEXT COUPLE OF DAYS. IS THIS A TIME TO BE PUTTING YOUR MONEY BACK INTO THESE MAG-7 STOCKS? >> YES. TECH HAS DE-RATED. AND IN FACT, I THINK IT'S GONE FROM A FORWARD MULTIPLE OF OVER 30 TO 19. SO WE HAVE SEEN QUITE A REPRICING WITH WITH EARNINGS IMPROVING. I THINK YOU KNOW TECH LOOKS PRETTY GOOD GIVEN GIVEN I THINK A LOT OF SENTIMENT HAS BEEN WASHED OUT GIVEN VALUATIONS IMPROVING. YOU KNOW WE'LL SEE HOW THESE HOW THESE NAMES DO. BUT A LOT OF THE CONCERNS ABOUT THE FINANCING I THINK ARE SETTLING DOWN A LITTLE BIT FOR THE LAST FEW DAYS. >> SO EVAN JUST TO PUSH BACK ON IT. SO WHEN YOU LOOK AT IT, I STILL LOOK AT IT AS A SUPPLY ISSUE. I DON'T LOOK AT IT AS A TOTAL INFLATION ISSUE. BREAKEVENS HAVEN'T DONE ANYTHING WE SEE IN CPI ENERGY IS THE BULK OF IT. SO JUST SAYING THAT THEY DO RAISE RATES. WHAT DOES THAT REALLY ACCOMPLISH WHEN THE MARKET HAS ALREADY GONE AWAY FROM THEM BY AN EXTREME BAND HIGHER. WHAT WHAT WOULD RAISING RATES ACTUALLY DO? >> IT'S IT'S A FAIR POINT, STEVE, BECAUSE, YOU KNOW, A LOT OF THE AREAS THAT HAVE BEEN HURT THE MOST, LIKE THE HOUSING MARKET, THEY'RE GOING TO BEAR THE BRUNT OF, OF FURTHER RATE HIKES. I THINK A LOT OF THIS COMES DOWN TO MAKING SURE THAT THEY'RE CONTINUING TO ANCHOR INFLATION EXPECTATIONS. THAT I THINK IS A BIG PART OF WHAT THEY'RE THEY'RE DOING HERE, EVEN AS SUPPLY IS A MAJOR REASON. ENERGY PRICES, THINGS THAT THEY CAN'T CONTROL HAVE LED TO, YOU KNOW, THE INFLATION THAT WE'VE SEEN. IT'S STILL IMPORTANT FOR THEM TO MAKE SURE THAT THEY ARE RESPONDING TO THAT INFLATION SO THAT THEY ANCHOR INFLATION EXPECTATIONS. >> LET ME ASK YOU SOMETHING ABOUT ANTHROPIC. HOW IMPORTANT IS THAT TO A SUCCESSFUL IPO THERE, AND WHAT WOULD A SUCCESSFUL IPO LOOK LIKE? >> YEAH, I THINK, YOU KNOW, PEOPLE ARE LOOKING AT 1.5 TRILLION TO 2 TRILLION IN TERMS OF NUMBERS. I THINK, YOU KNOW. >> JUST A MERE $500 BILLION. >> YEAH. YEAH, EXACTLY. SO LOOK, I THINK IT WILL HELP SETTLE THE MARKET IN TERMS OF THEIR CONC