Need To Think More About Fixed Income: Slok

So I look at this in the thing that end of the weekend. In our terms of personal finance, retirement, and wealth management is we have a top line boom economy GDP like we've never had. Discuss it. It's like after Napoleon's war. It's after 1947, World War two. This boom nominal GDP is extraordinary. Yeah. Because we have very, very strong tailwinds to growth coming from the AI spending boom. We also tailwinds coming from the one big bill of a bill, And we also have some tailwinds coming from the home showing up production. The manufacturing sector is actually doing really well. And what's most noteworthy is also that the weekly data for business formation is telling you that the number of new businesses that are created every week is at the highest level ever ever in US history. We've never had just a dynamic economy as we're having at the moment because people can use AI to start a new business. To bring this over to the retirement plans where everybody's in four index funds trying to get it done. If we have a roaring economy, as Edger Denny talks about, are we at risk with our retirement? Well, this is what's really important about this discussion. It's something you and I have talked about for years because now we have a huge capital need for financing AI. And in the meantime, we also have a huge capital need also for financing the government. So we went from a savings glut from 2010 to 2020 where there was a significant amount of savings from China, from savers, from people who have a four zero one k. But today, there are so many things to invest in. You can decide to invest in high government bond rates. You can also decide to invest in AI. The number of projects that need capital is very significant and that's the reason why interest rates keep going up because there's just a shortage of capital relative to the savings glut that we had for many years before the pandemic. Let me go back to the economy because as strong as the numbers indicate, it doesn't feel like it for a lot of people. The consumer facing part of the economy feels like it's a completely different story than what's going on in AI and all the CapEx and all the buildup of the AI infrastructure. Absolutely. And that's because the economy is bifurcated into the very strong AI spending boom. And on the other side, you have the interest rate sensitive parts of the economy, namely housing and autos. And housing mortgage rates during the pandemic were 2.7. Now mortgage rates are 7.2. In other words, it's become unaffordable to buy a house. And if you add that to affordability issues with health care, with education, oil prices. Okay. That's why consumer confidence continues to do so good. Within wealth management, within just basic wealth management, project out one year, three years, five years out of how we bring down this odd boom economy. Where will the damage be? That's what Bloomberg money people wanna know. Absolutely. And the key conclusion is that interest rates are going to stay higher for longer because inflation is higher for longer. And from a sixty forty portfolio perspective, that means that we now suddenly need to think more about fixed income because the yield you can get in fixed income is actually really, really juicy if you go back and look at history. And if that's juicy, that means that both in rates but also in high quality credit, you can get some very high levels of yields that you have not been able to get literally for decades. Scarlet Juicy is CFA level four. Yeah. It's a very technical term. I mean, you don't even have to go into fixed income. You could just keep money in cash and do pretty well given where deposit rates are. And this is something that you have written about, this idea that people who keep their money in cash with the use of AI, that becomes a whole different picture here because AI can really change behavior in a way that the industry, the financial industry is not quite prepared for. Yeah. Because we've had a lot of conversations in the last few weeks about Muse and what will Muse do to all the subscriptions you have, the Meta app, your personal assistant that suddenly can make your life easier in a number of different ways. And one worry, of course, you can have is that if that makes your life easier by swiping out cash that you have in your checking account where interest rates are 0.01, if you can swipe that into another account while I walk into Whole Foods, suddenly my money go into my account. When I walk out, the money goes out. Wise guy. We don't do that. So... Well, the question is this is why we have about to figure out how many people are giving their data to Muse and to the personal assistant. Be kidding. I think it's Carol Swisher said it. You gotta be kidding me. You're gonna give Zuckerberg and that crew your personal financial data? It's already possible today in many different ways to take your money in and out of your checking account. There are some issues. Sometimes it takes a day. Sometimes it takes a little bit less time. But the issue is, at the end the day, that if you can swipe your money out of the checking account, you can have a checking account elsewhere where, of course, you also get a higher yield. So I do think that this is the way we're moving. That may not be happening with news and the personal assistance from AI, but it's certainly that way the things are moving also, of course, with blockchain technology, making these things also a lot easier. We love to mention blockchain and Bloomberg money. I think we can. Okay. Yeah. Yeah. For sure. Well, AI has made it so that price shopping, rate shopping, and switching is now frictionless. And that means that... I I feel like that's gonna introduce a lot more volatility. What... The number that you see today may not last for very long. Well, that's true. And that's also why, of course, the risk ultimately becomes... If money moves around much quicker and if suddenly subscriptions are canceled and and subscribed to much quicker, of course, you could have a more volatile economy. So that's why AI once again can be disruptive, and it could be disruptive, of course, in the normal consumer economy, but it could also be disruptive, of course, in personal finances. I I gotta ask this, and this comes right over to wealth management, to retirement, to psychology of what we're doing on Bloomberg money. You are expert on the continent of Europe. Is the continent of Europe, The United... Well, less The United Kingdom, but are they gonna become more Anglo American in their capitalism? We're all praying for them to take more risk, to be more equity based. Do you buy it? I... Over time, this will come because the Europeans understand this. They know that they need more capital to take risk. If they need growth, they will absolutely have to grow their economies and have more developed financial markets. Think about it. If you're a nice city in Germany or Denmark or France and we have a good idea, you will need to then go into your bank and say, can I borrow some money? And if that says no Okay. You really have no other places to go. So when financial markets in The US, you can go to venture capital, private credit, private equity. You can go in... In another bank. There are different places you can go and have this discussion. Can I borrow for this? I'm gonna do One more in because Scarlet's got smarter questions. You know I bought the Austrian one hundred year paper. Oh, I'm sorry to hear that. Ago. You're all... I was a yield hog, folks. Just so you know, I really screwed up on this, and said, don't do it. I bought the hundred year paper, and it's down, like, 80%. I know. Or or you're laughing at me. Oh, at least I didn't buy it leveraged. That was cash we did that with. Tell me about yield hog right now given these bond gyrations within our retirement plan. What's most important about your hundred year bond is that you bought duration, and that tells you that bonds can actually also be very risky. We're figuring that out that anyone who has public US treasuries and public credit are also very duration sensitive. So that's, of course, why being short of duration is a good idea at the moment. And what's particularly also a good idea is to be up in quality, first lien, see a secured, some of the capital structure, but make sure that you are in short of duration debt so that you're not exposed to those duration moves that you unfortunately were exposed to when you bought a hundred year bond. If you're early on in your retirement planning, you've got decades left to work and you wanna put money away, yes, you put it in equities, but we keep hearing about alternatives, private equity, private credit. The idea that this is still a good place to go when interest rates are rising confuses me because private equity and private credit got their heyday because rates were so low. Now that rates are higher, how is this still a good time? As long as you make sure that you're up in high quality private credit... High quality private equity... I mean, you get private credit as investment grade. That is as good as investment grade from the US government. Meaning, the rating may not be exactly the same, but investment grade is very high quality. And that exactly is the whole point that when something is investment grade, it's able to pay the higher debt servicing costs that come along when interest rates are higher. So make sure that you invest in companies... I know it sounds trivial. Invest in companies that have earnings, invest in companies that actually make money and therefore able to pay Right. The higher interest rates that we're facing at the moment. Get one more in here for things were rated investment grade in the last go around in 2007, and then it turned out they weren't. Of course, that's true. But, I mean, today, I mean, a lot of things are investment grade rated by several rating agencies. Of course, need to think about what type of... And think about the broad spectrum of risk that investors... You could take venture capital where you literally have no earnings the next five years. That's a different type of risk relative to investing in private credit that has the property of having earnings and therefore the ability to pay the high day debt service. I got one final idea here. Are you read in on the New York Yankees? Your Apollo took a minority interest in the New York Yankees. Absolutely. Are you steeled for Tampa Bay and New York? We're so ready. Absolutely. I have the hat. I'm going to wear it, and I'm going... It will be fun. That was that was compliance. Did you did you see the Yankee sweep the red sox? Were you part of that? I I was personally not part of that, but I do read it, and we're very excited about it. We're so proud of this.