00:00 Speaker A
Well, another tariff headline from the White House, another sell off on Wall Street. The selling accelerating in the final hour of trading. We’re now at the lows of the day. Joining us now, Rick Reader, Blackrock Global Fixed Income Chief Investment Officer, Rick, fantastic to see you here today. As I noted earlier, we got stocks selling off. We got yields coming up, but not a huge move on the fixed income side there. What do you make of these latest tariff headlines? And what do you make of the general sort of sensitivity and reactivity of markets to these headlines that have been coming out so fast and furious over the past couple months?
00:55 Rick Rieder
So, I mean, you rightly have been talking about uncertainty. Markets hate uncertainty. And so, you know, by the way, I always find that markets can only do one thing at a time. It’s like we’re talking about tariffs and like there’s nothing else in that. We’ve got to react minute to minute. And you know, there is so much stuff happening economically there. So there are a couple of things that I think are away from tariffs. And you know, this is creating some uncertainty in the fact that the president of the administration is willing to take a little bit of a transition period to make some change.
02:18 Rick Rieder
You don’t know how far that will go in terms of the economic impact. And one thing that we’re following very closely, if you look at we’re looking at today’s CEO confidence data and it’s dropped like crazy. And you think about where we came into the beginning of the year, it was animal spirits and now it’s dropped. And by the way, it’ll come back, but for the time being, one of the things that is will impact the economy is will companies hold off on CAPEX, on M&A, on R&D spend. And the consumer’s slowing down a bit. Consumer will come back because the consumer spends based on wherewithal as opposed to sentiment. But you got to be careful, and you know, the data over the next couple of months, one of things that markets are reacting to, if you’re a corporate CEO, by the way, if you’re an investor, you say, you know what? I’m going to step back for a bit. I’ll reduce a little bit of my beta, a little bit of my my volatility in the portfolio. I just want to watch things play out. And we’re in this period of stasis where everybody’s just sitting on their hands for a bit of time, including when you go to trading the markets, the liquidity is terrible. By the way, not just in up, not just in down markets, when the market was was rallying in a precipitous way in Friday in the beginning of this week, it’s the same way. The liquidity just is it’s easier in an up market, but it’s still pretty pretty thin.
04:36 Speaker A
I just want to zero in on one thing you were talking about, which is CAPEX, because today we did get CAPEX numbers for February, and those core CAPEX numbers down a third of 1%, which was an unexpected decrease. Now, these are volatile numbers, right? You can see that from the chart even how volatile these numbers can be. Nonetheless, is that potentially the the beginning of that downturn in the sort of so-called hard data that a lot of people have been looking for?
05:18 Rick Rieder
If you actually track in the last two or three weeks, one of the part of the reasons why the rate market is backed up, the hard data, away from, you know, there’s some there’s some bits and bobs, like you talked about, the hard data has actually been pretty good. It’s the it’s the sentiment stuff, the ISM surveys, it’s consumer confidence, it’s you miss confidence, the surveys are pretty rough. The hard data has been pretty good, but like you said, if you start to see some bending down of the hard data, that gets people concerned. Listen, I don’t think we’re going into recession, but for the next few weeks, with companies sitting on their hands, with people waiting, you’re not going to have the next few weeks, maybe the next couple of months, you’re not going to have a lot of data that will refute the recession thesis. So, you know, that’s part of why you’ve got to manage your risk over the next couple of months. I think when you get to the other side, I think you’ll see the economy that’s in good shape. The economy is service-oriented, it’s much more stable, but I think for the next few weeks, you got to you got to be on edge a little bit.
06:56 Speaker A
So against that that backdrop, Rick, where, you know, I have this, you know, I have volatility, I have, you know, okay, as you’re pointing out, that the economic data looks solid, maybe you see some softening there against that backdrop, what does that mean for a portfolio construction, Rick? I’m an equity investor. I’m listening right now. What am I screening for?
07:36 Rick Rieder
So, I mean, the first thing is, you know, we we have, and I’m sure others have, you pull back on your beta, you raise some cash, you do some things like I did today around trying to get convexity in your portfolio. So markets will come back. What does tell people what convexity means, Rick. Sorry. Yeah, so I so I like, you know, markets go down, I like to buy upside, people people will freak out, they get nervous about things. It’s a good time to buy upside. One of the ways you take it, you build cash in the portfolio, but then you build some upside, because there’s a good chance that people’s all of a sudden tariffs are described, which everybody’s nervous about, and then once the data, you know, I’ve found that people don’t like to take to take risk into the event, but once you see the news, almost no matter what it is, you get this relief and money gets put to work. So I’m buy. I like to buy some some upside, particularly when markets go down, but I think in the interim, you know, by the way, you think about a portfolio, look at, like you were saying, what’s happening to rates today. Rates are moving higher, Treasuries got to issue an awful lot of debt, the Fed can’t move because inflation is still high. So what do you do? Gold is a pretty good hedge, cash is a pretty good hedge, but the best hedge is just own less less of what’s volatile.
10:14 Speaker A
I got to ask you another big picture question too, Rick, because I think we haven’t talked this year. And the last time you and I sat down and had a really in-depth conversation was a few days after the election and our big invest conference. And not only you, but pretty much universally, the folks we talked to there were very optimistic, right? We’re talking about this pro-growth administration that was coming in. CEOs were optimistic, the business world was optimistic. And you know, then and President Trump talked about this sort of golden age coming for the United States. Is that golden age sort of now just deferred? Is the idea of it dead? I mean, the vibe right now couldn’t be more different than it was at that point when we spoke.
11:42 Rick Rieder
Was that a few years ago? It feels like it. So it’s pretty incredible. I don’t think I’ve ever seen in my career animal spirits moving to animals in hibernation as quickly as as that is, as that has happened. And it’s so what do I think is, listen, the president, I think the administration is willing to, has described a willingness to go through a transition period to get to the other side. And by the way, I think there’s some good things that are going to happen, but I think we got to get to the other side and this willingness to transition at the same time, the Fed’s not going to put a lot of a lot of foam on the runway, as it were, in terms of lowering rates because inflation is high. So we’re in this period, I think that same cash that’s on the sideline, on the investment side, cash that companies are sitting on, that money will get spent. It’s just being postponed for a bit. And I, you know, like I say, I think people will realize US economy will be just fine. We just got to get through a period of uncertainty until we get there. You know, if you’re running a big company, you’ve got cross-border flows, you’ve got distribution channels, you’ve got M&A you could do, all that stuff is, you know, you got to just wait for a bit. And so I I don’t think it’s gone away. I just think it’s in hibernation as it as it were.
14:17 Speaker A
Rick, what’s your advice to fixed income investors who are listening right now?
14:25 Rick Rieder
So I would go back to the golden. I mean, I’ve talked about it. Like this is, I don’t think rates are going very far because of where the Fed is, you can build income in a portfolio. You know, we have this ETF called BINC, and the flows continue to be very, very good. It’s we can build a six and a half percent portfolio, or you can build about that, not extend that far out on the yield curve, clip a lot of coupon, credit quality is as good as it’s ever been because companies have, post-COVID, have termed their debt out. I would take income, stable income. Think about if you can hit this year six, six and a half percent type of yield and return in an era where the where the equity markets moving around like it is, stability, income are pretty pretty attractive. And I would just, you know, I think it’s the golden age of, like, for years, we had to buy high yield at three and a half percent. Now you can buy assets, because the Fed can’t move the rate down, and the ECB is going to be slow moving the rate down. Income and stability are pretty pretty exciting things, and because they’re not that exciting.
16:20 Speaker A
And do they become even more attractive given the prospects for the fiscal picture in the US, which is something you and I also have talked about in the past, Rick? Because while this tariff stuff is going on, next up is all the tax stuff that’s going to be going on, which inevitably is going to boost the US deficit, right? We just learned today from the from the Congressional Budget Office that we have until August or September, at best, until the Treasury basically runs out of money. We have to have the debt ceiling lifted, you know? So all of these other cross currents are going on as well.
17:26 Rick Rieder
So I don’t know how long we have, but I mean, you hit you hit on the big, you hit on the biggest issue. Listen, there’s too much debt, and the amount of debt we’re rolling over is too big. What the administration is trying to do is like, we got to get spending down, we got to get the debt under control. Sometimes you got to bite the bullet a bit to get there. Sometimes, you know, you got to stub your toe a little bit in terms of, you know, I don’t really love this, but it but in the long run, you know, it’s going to it’s going to be helpful. So listen, I, that’s part of why I think, like, for now, I just want the income, I just want to stay generally in the front end of the curve, and I just want to I just want to be stable for a period of time. And then, ultimately, that creates a much better dynamic on the other side, but like you say, the biggest risk is there’s just so much debt. And not just debt, the debt service, if Fed can’t bring the rate down. So the debt service bills, we just got to deal with that. And by the way, I applaud the willingness, and for the first time, I would say, when you speak with public officials across the board, administration, Congressional, people realize like, this is a big deal. We need to address this, and it’ll be very healthy if we do it effectively.
19:22 Speaker A
Well, Rick, we’ll see if they’re still singing that tune as they’re trying to cut taxes and not just extend the tax cuts. And we’ll check back in with you then to see how the markets are reacting to all of it as well. It’s great to see you. Thanks for being with us.
19:43 Rick Rieder
You too. Thanks for having me.